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

                                    FORM 10-K
            Annual Report for the Fiscal year ended December 31, 1999

                                  ISRAMCO, INC.
             (Exact name of registrant as specified in its charter)

Delaware                              0-12500                13-3145265
(State or Other Jurisdiction          Commission File        IRS Employer
of Incorporation)                     Number)                Identification No.)

              1770 St. James Place, Suite 607, Houston, Texas 77056
                    (Address of Principal Executive Offices)

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

[Mark One]

|X| Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1999 [Fee Required]

|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934

                               [No Fee Required]

Securities registered under Section 12(b) of the Exchange Act:

      Title of each Class:          Name of each exchange on which registered
            None                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, par value $0.01
                                (Title of Class)

Check whether the issuer (1) has field 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|

As of March 30, 2000, the Registrant had outstanding 2,639,809 shares of $0.01
par value Common Stock. The aggregate market value of such Common Stock held by
non-affiliates of the Registrant at March 30, 2000 was approximately
$5,094,000.


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<PAGE>

Item 1. Business and Properties

History

      Since its formation in 1982, Isramco, Inc. ("Isramco" or the "Company")
has been active in the exploration of oil and gas in Israel. The Company, with
related and unrelated parties, formed the Negev 1 Venture in 1985 to continue
oil and gas exploration activities in Israel. These parties included
J.O.E.L.-Jerusalem Oil Exploration Ltd. ("JOEL"), Southern Shipping and Energy
(U.K.) ("SSE (U.K.)"), Pass-port Ltd. ("Pass-port"), East Mediterranean Oil and
Gas Ltd. ("EMOG"), Delek - The Israel Fuel Corporation Ltd. ("Delek"), Delek Oil
Exploration Ltd. ("DOEX"), Naphtha Israel Petroleum Corporation Ltd.
("Naphtha"), HEI Oil and Gas Ltd., a California limited partnership, Donesco
Venture Fund One, Mazal Oil Inc., and L.P.S. Israel Oil Inc. ("HEI").

      Following the expiration of the Negev 1 Venture in 1988, the Negev 2
Venture was formed by the same participants and held two licenses - Negev Nirim
and Negev Ashquelon. Within the framework of the Negev 2 Joint Venture, two
offshore wells ("Yam 1" and "Yam 2") were drilled and seismic and geological
studies, both onshore and offshore, were conducted at a cost of $44.55 million.
As of 1991, the activities with the Negev Nirim License were carried out within
the Bessor Carveout Area and as of 1993, the activities within the Negev
Ashquelon License were carried out within the Yam Carveout Area under Sole Risk
Agreements. In February 1995, the Negev Nirim License (including the Bessor
Carveout) was relinquished and in June 1996, the Negev Ashquelon License
(including the Yam Carveout) was relinquished by the Venture participants.

      In 1991 the Negev 2 Venture participants (excluding HEI) received a
Preliminary Permit with Priority Rights to receive Petroleum licenses (the
"Negev Med Venture"). Upon the expiration of the Preliminary Permit in 1993, the
Negev 2 Venture participants were granted five (5) licenses: Med Tel Aviv
License, Med Yavne License, Med Ashdod License, Med Hadera License, Med Hasharon
License (the "Med Licenses"). The participants in the Negev Med Venture have
delineated the Yam Ashdod Carveout Area (the "Yam Ashdod Carveout Area) within
the Med Ashdod License, and this area includes all of the areas which were
transferred from the Negev Asquelon License. See "Summary Description of the
Ventures, the Petroleum Assets, Related Work Obligations and Exploration Efforts
in Israel".

      Since the Med Licenses, seismic surveys covering approximately 2,000
kilometers were performed as well as drilling on five sites was undertaken (Yam
Yafo 1, Yam West 1, Yam West 2, Or 1 and Or South 1). With the exception of Or
1, the wells were declared dry holes and were abandoned. In October 1999 the Or
1 well (within the Med Yavne License area) was spudded. The production tests,
which were completed in November 1999, reflected an initial gas production flow
rate of 21 million cubic feet a day. Additional subsequent tests revealed that
the well is capable of producing gas at a higher rate. In January 2000, a
preliminary estimate for the gas "in place" at Or 1 placed the figure at 107
billion cubic feet. Following completion of a 3D seismic survey, it will be
possible to more accurately asses the amount of gas "in place' at Or 1.

      In June 1999, the Company was awarded a preliminary permit referred to as
"Marine North/164" covering an area 575 square kilometers offshore Israel,
northeast of Med Hadera, Med Tel Aviv and Med Hasharon licenses ("Marine
North"). On September 21, 1999, the Company was awarded an additional
preliminary permit, "Marine Center/168" covering an area of 194 square
kilometers offshore Israel and located adjacent to the Herzliya coastline
("Marine Center"; together with Marine North, the "Offshore Preliminary
Permits"). The Offshore


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<PAGE>

Preliminary Permits include Preferential Rights to Obtain a License. The Company
is the operator of the Offshore Preliminary Permits.

      On October 20, 1999, an Agreement was reached with BG International
Limited a member of the British Gas Group ("BG") providing for the acquisition
by BG of a 50% participation interest from the license participants "(Isramco
Group") in the Med Licenses in Israel and BG's replacement of the Company as
operator of the Med Yavne license and any new license issued in respect of the
other Med Licenses scheduled to expire in June 2000. (the "BG Transaction.").
See "Summary Description of the Ventures, the Petroleum Assets, Related Work
Obligations and Exploration Efforts in Israel".

      In 1997 the Company expanded its activities outside of Israel by acquiring
membership interests in Jay Petroleum LLC which owns certain working interests
in oil and gas wells in the United States and by acquiring rights in
exploitation and exploration concessions in the Congo, Africa.

The Operator

      The Negev 2 Joint Venture Agreement (the "Joint Venture Agreement") and
the Negev 2 Joint Operating Agreement (the "JOA"), as amended were entered into
between the participants of the Negev 2 Venture to explore, develop and produce
petroleum and/or gas in certain areas onshore and offshore in Israel. Subject to
the provisions of the Joint Venture Agreement and the JOA, each party
participates in all the costs, expenses and obligations incurred in relation to
a contract area in the same proportion as its rights and interests in such
contract area. Under the JOA, the Operator carries out all the operations
contemplated in the JOA, in the framework of approved Work Programs and within
the limitations of approved budgets (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. See "Table
of Petroleum Assets and Oil and Gas Ventures.

      The Company is currently the Operator of the Med Licenses, except for Med
Yavne, whereby operation of the license has been transferred as of January, 2000
to BG, and the Offshore Preliminary Permits. 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 five (5)
full-time employees, outside consultants and subcontractors, the Company carries
out the operations of each Venture within the framework of approved work
programs and budgets and pursuant to the terms of a Joint Operating Agreement.
With respect to the Med Yavne license, the Company furnishes to BG consulting
services of an administrative and technical nature for which it receives a
monthly fee equal to $10,000. See "Summary Description of the Ventures, the
Petroleum Assets, Related Work Obligations and Exploration Efforts in Israel".

      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 and each Offshore Preliminary Permit. During the year ended December 31,
1999, the Company was paid a total of $1,744,000 in operator fees.

      The licenses comprising the Med License are scheduled to expire on June
14, 2000. In conjunction with the license participants and BG, the Company and
BG intend to file, upon the expiration date of such licenses, an application
with the Israel Petroleum Commissioner for new licenses to replace the expiring
Med Licenses. With respect to the Med Yavne license (where the


                                      -3-
<PAGE>

OR 1 find was discovered), the operator intends to file, an application to renew
the license for a 2 year period or, alternatively, obtain a 30 year lease
covering the intended area of production.

General Partner for the Negev 2 Limited Partnership

      In 1989 the Company formed in Israel the Negev 2 Limited Partnership (the
"Limited Partnership") to acquire from the Company a substantial portion of its
working interest in the Negev 2 Venture. In exchange for working interests, the
Limited Partnership paid to the Company $700,000 and granted to the Company
certain overriding royalties. In 1992, the Company transferred to the Limited
Partnership additional rights in the Negev Ashquelon License, the Bessor
Carveout, and the Negev Med Permit with Priority Rights (now the Med Licenses)
in exchange for additional overriding royalties and reimbursement of expenses.
The Company created Isramco Oil and Gas Ltd. ("IOG"), a wholly-owned subsidiary
to act as the General Partner for the Limited Partnership and formed Isramco
Management (1988) Ltd., a wholly-owned subsidiary to act as the nominee holder
of Limited Partnership units held by public investors in Israel. Pursuant to the
Limited Partnership Agreement and the Trust Agreement, a Supervisor was
appointed on behalf of the Limited Partnership unit holders, with sole authority
to appoint the sole director for Isramco Management (1988) Ltd. and to supervise
its activities on behalf of and for the benefit of the Limited Partnership unit
holders. The control and management of the Limited Partnership vests with the
General Partner, however, matters involving the rights of the Limited
Partnership unit holders are subject to the supervision of the Supervisor and in
certain instances the approval of the Limited Partnership unit holders. The firm
of Igal Brightman & Co., Accountants and Mr. David Valiano, Accountant has been
appointed as Supervisors.

      The Company holds overriding royalties in certain Petroleum Assets and
currently receives 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 4.32% of the issued
Partnership units and a wholly-owned subsidiary of the Company, IOG, which
serves as the general partner for the Partnership (the "General Partner"), holds
an additional 0.008% of the Partnership units. On March 30, 2000, the Limited
Partnership had cash, cash equivalents and marketable securities with a value of
approximately $90 million.

      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 and/or 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 the existing offshore licenses.

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


                                      -4-
<PAGE>

Acquisition of Assets

Jay Petroleum, LLC. & Jay Management, LLC.

      In February 1997, the Company acquired from NIR Resources Inc. ("NIR"), a
wholly owned subsidiary of Naphtha Israel Petroleum Corp. Ltd. ("Naphtha") and
Stonewall Resources LLC ("Stonewall"), a non-affiliated entity, ownership
interests in Jay Petroleum LLC ("Jay"), a Texas limited liability company. Jay
owns both operated and non-operated varying working interests in oil and gas
wells in Louisiana, Texas and Wyoming. The Company's initial interests in Jay
were increased in 1998 so that the Company currently holds all of the
outstanding membership interests Jay. Certain Officers and directors of the
Company are associates of officers and directors of Naphtha.

      Independent estimates of the reserves held by Jay Petroleum LLC as of
December 31, 1999 are approximately 132,927 net barrels of proved developed
producing oil reserves; 2,251 net MMCF's of proved developed producing natural
gas reserves; 789 net MMCF's of proved developed behind pipe natural gas;;
49,000 net barrels of proved developed behind pipe oil reserves and 882 net
MMCF' s of proved undeveloped natural gas reserves

      Jay has a Management Agreement with Jay Management Company LLC
("Management"), a Texas limited liability company, to manage certain of the
producing oil and gas interests owned or to be acquired by Jay. With the
purchase of Jay in February 1997, the Company acquired an initial 35% membership
interest in Management. In March 1998, the Company acquired from Jay Natural
Resources, Inc. its 30% membership interests in Management. The transaction was
effective on December 31, 1997. In January 1999, the Company acquired NIR's 35%
membership interests in Management . Following these acquisitions, the Company
holds 100% of the outstanding membership interests in Management.

      For information related to future cash inflows, future development and
production costs, future income tax expenses, future net cash flows, discount,
and standardized measure of discounted net cash flows relating to Jay, see the
Supplementary Oil and Gas information immediately following the notes to the
Financial Statements.

CONGO

      On September 4, 1997 the Company acquired from Equital Ltd. (an Affiliated
company formerly known as Pass-port Ltd.) a 50 % participation in a joint
venture that holds the following two permits offshore of the Congo (the "Joint
Venture"): (1) the Marine III Exploration permit which has a term of four years
with an extension right of three years; and, (2) the Tilapia Exploitation permit
to develop the Tilapia Field, which has a term of ten years with an extension
right of five years. The purchase price was $2.55 Million for the Tilapia permit
and $150,000 for the Marine III permit for an aggregate purchase price of $2.7
Million.

      The Company's participation in the Joint Venture is subject to an 8%
carried interest payable to Equital Ltd. after payout of its rights regarding
the production sharing contract on the Tilapia Permit. "Payout" in this Joint
Venture means all of the investments made by the Company in the Tilapia permit
(excluding the Purchase Price paid by the Company to Equital Ltd.). The Company
received in July 1997 a fair market valuation of the two permits from Forrest A.
Garb & Associates, Inc.,


                                      -5-
<PAGE>

petroleum consultants, Dallas, Texas. The valuation in the Tilapia permit made
by Forrest A. Garb & Associates, Inc. reflects a significant discount in value
based upon technology, economics and political uncertainties for the proposed
work program.

      The Joint Venture holds 100% of the rights under the production sharing
contract for the Tilapia permit and 50% of the rights with regard to the
production sharing contract in the Marine III permit. The other participant in
the Joint Venture is Naphtha Israel Petroleum Corp. Ltd. See Security Ownership
of Certain Beneficial Owners. Naphtha Congo Ltd., a wholly owned subsidiary of
Naphtha Israel Petroleum Corp. Ltd., is the operator of the two permits.

      Oil was discovered within the area of the Tilapia Exploitation Permit in
the Tilapia Marine I exploration well drilled by the previous operator of the
permit, to a total depth of 5,018 Feet. The well tested 2,040 Barrels of oil per
day from a 31-foot thick sandstone reservoir, at a depth of 3,874 Feet. The
discovery well is located 9.5 nautical miles north of the Point Indienne
productive oil field and less than one mile from the share line.

      The Marine III Exploration Permit covers an area of approximately 236,000
acres and is located in shallow water, 0-80 Feet deep, along the coast. No wells
have yet been drilled on this permit. The area of the two permits is covered by
a dense grid of two dimensional seismic lines.

      The Joint Venture's rights in the production sharing contract on the
Tilapia Exploration Permit is subject to a 12.5% carried interest and payment of
$350,000 after payout of the Joint Venture's investment costs.

      As a result of the civil instability that existed in 1997 in the Congo a
new government has taken control of this country. Due to these events the
operator (Naphtha Congo) has temporarily ceased its activities in the Congo. In
February 1998 the operator presented to the new Petroleum Minister its work plan
for Tilapia and Marine III. The economic and political and civil instability in
the Congo and the change of government could cause significant difficulties for
the operator in connection with the execution of a work program and the possible
development of both the Marine III permit and the Tilapia permit.

      On June 15, 1999, an order approving the sharing contracts was signed by
the President of the Republic of Congo, the Petroleum Minister and the Minister
of Finance. On July 5, 1999, the Petroleum Minister confirmed in writing to the
Company that the Production Sharing contracts are valid and comply with the
requirements of local Congolese law and advised the Company that it was possible
to organize management committee meetings. Additionally, in July 1999 the orders
were published in a French language daily in the Congo.

      On October 6, 1999, the management committee held a meeting in Port Noir
in the Congo. The management committee approved the Marine III budget in the
amount of $445,000 and the Tilapia budget in the amount of $3,600,000, in each
case for the period commencing September 1999 through December 2000. The
Company's share is $222,500 in respect of the Marine III concession and
$1,800,000 in respect of the Talipia concession.

      Drilling contractors have been contacted with respect to the drilling
within the Talipia permit. The Company's recovery of its investment in the Congo
is dependent upon successful drilling and production under the sharing
contracts. No assessment of success can currently be made.


                                      -6-
<PAGE>

OIL AND GAS VENTURES AND PETROLEUM ASSETS

LOCATED IN UNITED STATES AND CONGO

      See "Supplementary Oil and Gas Information" immediately following Notes to
the audited Financial Statements.

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. 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%)

                                Negev Med Venture

                                 Med Tel Aviv License
                                 Med Ashdod License     Yam Ashdod
                                 Med Hadera License     Carveout       MedYavne
Name of Participant              Med Hasharon License   Venture (2)    License
-------------------              --------------------   -----------    -------

The Company                                0.4813        0.36244        0.4584

Affiliates
Isramco Negev 2,

Isramco Negev 2, Limited
  Partnership                             34.0188       19.13693       32.4111

I.O.C. Limited Partnership                 6.7083        5.05248            --
Naphtha                                    2.3958        1.84107        1.8033

Naphtha Explorations Limited
  Partnership                              2.3958        1.84107        2.2826

JOEL                                           --             --        2.8807

Equital                                        --             --        2.1639

Non-affiliated entities
Delek Drilling Limited
  Partnership                              8.0000        21.7660        4.0000

BG International Ltd.                      50.000         50.000        50.000

Total                                    100.0000       100.0000      100.0000

Area (acres)                              400,000         84,220       100,000


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<PAGE>

Expiration Date                         6/14/2000      6/14/2000     6/14/2000

      (1)   Subject to the fulfillment of applicable provisions of the Israel
            Petroleum Law and Regulations, and the conditions and work
            obligations of each of the above licenses.

      (2)   Under the Grant Agreement with the Government of Israel, the
            Government may claim that the Company is contingently obligated to
            repay to the Government the Grant monies in the amount of $110,000
            and to pay a 6. 5 % Overriding Royalty on all production from the
            area.

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

                          Offshore Preliminary Permits

Name of Participant                          Marine North        Marine Center
-------------------                          ------------        -------------

The Company                                    1                    11(1)

Isramco Negev 2 Limited Partnership            79                   59

Modein Energy Limited Partnership              20                   ---

Naphtha Explorations Limited Partnership       ---                  15

IOC limited Partnership                        ---                  15

Total                                          100                  100

Acres                                          143,750              48,500

Expiration Date                                12/1/2000            3/21/2001

(1)   Modein Energy Limited Partnership has been granted an option through April
      30, 2000 to purchase up to 10%. If exercised in full, the Company's share
      would be 1%.

                    Overriding Royalties held by the Company

      The Company holds the following Overriding Royalties:

                          TABLE OF OVERRDDING 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 Tel Aviv License                         1.06%              13.83%
Med Yavne License                            1.06%              13.83%
Med Ashdod License                           1.06%              13.83%
Med Hadera License                           1.06%              13.83%
Med Hasharon License                         1.06%              13.83%
Yam Ashdod Carveout                          1.06%              13.83%
Shederot License                             5.00%              13.00%


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<PAGE>

From JOEL
                                              On 8% of JOEL's Interest

                                         Before Payout       After Payout
                                         -------------       ------------

Yam Ashdod Carveout                          2.5%                12.5%

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

                                         Before Payout       After Payout
                                         -------------       ------------

Yam Ashdod Carveout                          2.5%                12.5%

From Naphtha, Naphtha Exploration LLP, Joel, Equital, IOC Limited Partnership

And Equital     On oil and/or gas produced on existing offshore licenses and new
-----------           licenses issued in respect of expiring Med License
                      --------------------------------------------------

                                                2%

To  IOG          On Certain petroleum rights held by Limited Partnership
-------          -------------------------------------------------------

                                       5%

      The Company has no financial obligation with regard to the Overriding
Royalties, however, in the event the Limited Partnership, JOEL, DOEX or Delek,
fails to fund its obligation with regard to a Petroleum Asset to which an
Overriding Royalty exists, the Company could lose its interest in such
Overriding Royalty. See Glossary for definition of "Payout ".

      (1)   The Working Interests of Delek and DOEX have been assigned to Delek
            Drilling Limited Partnership.

      (2)   In a prospectus of the Delek Limited Partnership dated January 26,
            1994 it is stated that the Interest which the Delek L.P, received
            from Delek and DOEX is free from any encumbrances except that
            Isramco, Inc. may argue that the Interests are subject to an
            overriding royalty. The Company has no information available to it
            as to why this statement is in the Delek L.P. prospectus.

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

      When the Negev Med Venture was formed in October of 1991, the Petroleum
Commissioner granted to the participants the Negev Med Preliminary Permit with
priority rights. The Negev Med Preliminary Permit expired on April 28, 1993 and
the participants requested and received five new drilling licenses (the Med
Licenses). The Med Licenses comprise the Med Tel Aviv License, the Med Yavne
License, the Med Hadera License, the Med Ashdod License and the Med Hasharon
License. The duration of the licenses relating to the Med Licenses has been
extended until June 14, 2000.

      In June of 1996, upon the relinquishment of the Negev Ashquelon License,
the boundaries of the Med Ashdod License were modified to include the area of
the structure on which the Yam 1 and Yam 2 wells were drilled, as well as,
another additional structure which was part of the area of


                                      -9-
<PAGE>

the relinquished Negev Ashquelon License. The participants in the Negev Med
License have delineated the Yam Ashdod Carveout Area within the Med Ashdod
License and this Carveout Area includes all of the areas, which were transferred
from the Negev Ashquelon License. Each participant's share in this new Carveout
is the same as it was in the Yam Carveout Venture (which was part of the Negev
Ashquelon License). The activities of the Yam Ashdod Carveout Venture, including
the accounts and expenses of the Carveout, are reported separately. No operating
fee is charged under the Joint Operating Agreement with respect to the Med
Ashdod License Area outside of the Yam Ashdod Carveout. The Licenses for the Yam
Ashdod Carveout Venture continue through June 14, 2000.

      Certain of the areas within the offshore licenses granted to the Company
in connection with the Med Venture and the Yam Ashdod Carveout Venture are
subject to various drilling restrictions imposed by the Israeli Ministry of
Defense, which restrictions significantly impede the Company's drilling efforts.
During the course of 1998 and 1999, various meeting were held with the Israeli
Ministry of Defense and the Petroleum Commissioner in an attempt to find an
acceptable solution to the restrictive conditions of the licenses so as to
enable the Company to carry out prospective drilling within the license areas.
To date, no resolution has been reached.

Sale of Interests to British Gas

      On October 20, 1999, the Company and the other participants (collectively,
the "Isramco Group"), entered into an agreement with BG International Limited, a
member of the British Gas Group ("BG"), for the acquisition by BG from the
Isramco Group of a 50% participation interest in the Med Licenses in Israel and
BG's replacement of the Company as operator of the Med Yavne License and any new
license issued in respect of the other Med Licenses scheduled to expire in June
2000 (the " BG Transaction"). Following the consummation of the of the
Transaction, the Company's participation in the Med Licenses was reduced to
approximately .5% (reduced from 1.0043%).

      Under the terms of the BG Transaction, BG replaced the Company as operator
of the Med Yavne license as of January 1, 2000. The Company will continue to
serve as operator of each of the remaining Med Licenses on the same terms and
conditions currently existing among the Company and the other license
participants until each such license's expiration. Other than for the Med Yavne
License, BG is not required to pay to the Company its share of any
administrative overhead in respect of the remaining four Med Licenses until
their scheduled expiration.

      Pursuant to the BG Transaction, the Company and BG will coordinate their
respective efforts in consolidating and completing work programs in respect of
the areas included within the Med Licenses (other than for Med Yavne) for the
purpose of jointly applying for new oil licenses in replacement of the expiring
Med Licenses. In conjunction with its license participants and BG, the Company
and BG intend to file, upon the expiration of the Med Licenses, an application
for new licenses in replacement of the expiring licenses, except that with
respect to the Med Yavne licenses (where the Or 1 find was discovered), the
operator intends to file an application for an extension of the existing license
or, alternatively, an application for a 30 year lease covering the intended area
of production.

      In consideration of the Company's performance of its obligations under the
BG Transaction, BG paid to the Company approximately $3.8 million Additionally,
upon the issuance of each of the three first new licenses, if any, which may be
obtained in lieu of the


                                      -10-
<PAGE>

expiring Med Licenses, the Company is entitled to a payment of approximately
$1.7 million (or a total of approximately $5 million if all licenses are
obtained).

      With respect to the Med Yavne license, the Joint Operating Agreement has
been revised to provide, among other things, that BG will be appointed operator
and that the Company will furnish to BG consulting services of an administrative
and technical nature. In consideration therefor, the Company is entitled to a
monthly fee equal to $10,000. 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 and/or gas which is produced within the existing
offshore licenses or within any new licenses or within other oil and gas rights
which may be obtained in lieu of these offshore licenses.

Exploration Efforts in Israel

      On April 26, 1999, the Company, as operator of the offshore licenses in
Israel, presented to its participants in the licenses the following proposals
for its oil exploration work plans in the license areas:

      (i) Offshore drilling of the Yam West 2 well in the Med Yavne license area
to a depth of 3,500 meters (approximately 11,483 feet) and a water depth of 750
meters (approximately 2,461 feet). The amount budgeted for the drilling was
approximately $21 million, of which the Company's share was 1.0043% or
approximately $211,000.

      (ii) Deepening of the Yam 2 well by approximately an additional 300 meters
(approximately 984 feet), to a depth of 5,700 meters (approximately 18,702
feet). The amount budgeted for the drilling was approximately $12 million, of
which the Company's share was 1.0043% or approximately $120,000.

      Deepening of the Yam 2 well is subject to the conclusion of an agreement
with the Israeli Ministry of Defense, the availability of drilling equipment
appropriate for elevated water pressure and temperatures, as well as additional
examination of the well head and its condition. In management's best judgement,
the likelihood that the Company will be able to enter into an agreement with the
Ministry of Defense prior to the scheduled expiration of the licenses on June
14, 2000 in respect of the deepening of the Yam 2 well on mutually acceptable
terms is low.

      On May 6, 1999, the Company signed a drilling contract with an
international drilling contractor to drill the Yam West 2 and an additional
optional well. The drilling commenced on August 5, 1999. The primary objective
of the drilling was to test for the existence of oil and/or gas at depths
ranging from 8,690 feet (2,650 meters) and deeper. A secondary objective was to
test for a gas reservoir at a depth of 5,412 feet (1,650 meters).

      In July 1999, the operator requested of the Petroleum Commissioner to
approve a revision in the drilling terms previously approved in the off shore
work program such that the drilling of the second well could be to a depth of
2,000 meters (approximately 6,562 feet), instead of 3,000 meters (approximately
9,843 feet) or the deepening of an existing drilling site. In August, 1999, the
Petroleum Commissioner approved the Company's request.

      Following the SOLE RISK notice furnished to the Med Yavne participants who
did not approve the budget (AFE) for the Yam West 2 drilling, a carveout was
created in the Med Yavne license area--the "Yam West 2 Carveout". The
participants in the Yam West 2 (which was


                                      -11-
<PAGE>

drilled within the carveout) well are: Isramco Inc. (1.0043%), Delek Drilling
Limited Partnership (8.0%) Naphtha Exploration Limited Partnership (5.0%) and
Isramco Negev 2 Limited Partnership (85.9957%). In August, 1999, drilling on the
Yam West 2 well commenced. In October 1999, the drilling of the Yam West 2 well
reached a depth of 3,210 meters (approximately 10,500 feet). Upon the completion
of the analysis of the logs conducted of the well, the participants decided to
plug and abandon the Yam West 2 well. The total expenditures for the Yam West 2
well were approximately $10 million, of which the Company's share was 1.0043% or
$102,000.

      In July 1999, approximately 500 kilometers (311 miles) of 2D
high-resolution seismic lines were shot over three prospective areas within the
Med Yavne license area. The purposes of this survey were to recognize and
delineate Pliocene gas sand prospects. These seismic data were subsequently
processed and, in addition, 300 line kilometers (186 miles) of pre-existing
seismic data were also reprocessed. The entire seismic set was interpreted in
August and several Pliocene gas sand prospects were delineated. Following
comparative analysis of the gas prospects, the decision was taken to select the
Or prospect for drilling (in lieu of the Yam 2 prospect).

      Upon the plugging of the Yam West 2 well, on October 6, 1999, the "Or 1"
well (within the Med Yavne license area) was spudded to a depth of 2,000 meters
(approximately 6,540 feet). The production tests, which were completed by
November 2, 1999, reflected an initial gas production flow rate of 21 million
cubic feet a day. Additional subsequent tests revealed that the well is capable
of producing gas at a higher rate. In January 2000, a preliminary estimate for
the gas "in place" at Or 1 placed the figure at 107 billion cubic feet.
Following completion of a 3D seismic survey, it will be possible to more
accurately asses the amount of gas "in place' at Or 1. The total expenditures,
including the production tests, for the Or 1 well was approximately $5 million,
of which the Company's share was approximately $23,000

      Following the drilling of Or 1, the decision was taken to move the
drilling rig to the "Or South 1"drilling site, approximately 4.5 kilometers
(approximately 2.8 miles) south of Or 1. Drilling on Or South 1 commenced in
November 1999 to a depth of 2,000 meters (approximately 6,540 feet). Based on
results of log analysis at the site, a decision was taken to abandon the well.
The total expenditures for the Or South well was approximately $9 million, of
which the Company's share was approximately $41,000.

Award of Offshore Preliminary Permits

Marine North

      In June 1999, the Company was awarded a preliminary permit referred to as
the "Marine North/ 164" covering an area of 575 square kilometers off shore
Israel northeast of the Med Hadera, Med Tel Aviv and Med HaSharon licenses. The
duration of the permit is eighteen months. Isramco Negev 2 Limited Partnership
holds a 79% interest in the permit, Modien Energy Limited Partnership, an
Israeli entity ("Modien"), holds a 20% participation interest and the Company
holds the remaining 1% interest. The permit includes a preferential right to
obtain a license. The Company serves as operator of the permit. A budget (AFE)
of $224,000 was approved.

      As of March 27, 2000, the collection of all of the data and an analysis of
the seismic lines of the area was undertaken, with an emphasis being placed on
the shallower parts of the area.


                                      -12-
<PAGE>

Additionally, a 2D seismic survey was completed. The seismic data was analyzed
and a geophysical analysis of the data is being undertaken with a view to
identify possible drilling prospects. If the foregoing do not identify a
drilling prospect, then the Company plans to undertake a 3D survey of the area.

Marine Center

      On September 21, 1999, the Company was awarded an additional preliminary
permit, "Marine Center" covering an area of 194 square kilometers and located
between the Med Hedera and Med Tel Aviv license areas. The duration of The
permit is for eighteen months. Isramco Negev 2 Limited Partnership holds a 59%
interest in the permit, Naphtha Exploration Limited Partnership holds a 15%
interest, IOC Limited Partnership 15% and the Company holds the remaining 11%
participation interest. The Company has granted to Modien an option, exercisbale
through April 30, 2000, to purchase up to 10%, which option, if exercised in
full by Modien, would reduce the Company share to 1%. The permit includes a
preferential right to obtain a license. The Company serves as operator of the
permit. A budget (AFE) of $205,000 was approved.

      As of March 27, 2000, the collection and analysis of the geophysical data
has been completed. A 2D seismic survey was undertaken. The seismic data was
analyzed and a geophysical analysis of the data is being undertaken with a view
to identify possible drilling prospects. If the foregoing do not identify a
drilling prospect, then the Company plans to undertake a 3D survey of the area.

Summary of Exploration Efforts in the Congo

      The Operator, Naphtha Congo, has submitted to the Congolese Ministry of
Petroleum a work program for the development of the Tilapia and Marine 3
concessions. A Management Committee meeting between Naphtha Congo and the
Congolese Ministry of Petroleum scheduled for July 1998 was postponed. On August
26, 1998 the Minister of Petroleum of Congo informed the Company that according
to the Decree submitted to the Company and signed by the President, Prime
Minister, Minister of Petroleum and Minister of Finance, the permits will become
effective from the date of publishing the production sharing contracts as a law,
and that the Management Committee meeting can only be held after the completion
the formality of these process.

      On June 15, 1999, an order approving the sharing contracts was signed by
the President of the Republic of Congo, the Petroleum Minister and the Minister
of Finance. On July 5, 1999, the Petroleum Minister confirmed in writing to the
Company that the Production Sharing contracts are valid and comply with the
requirements of local Congolese law and advised the Company that it was possible
to organize management committee meetings. Additionally, in July 1999 the orders
were published in a French language daily in the Congo.

      The two permits are included in oil and gas properties in the balance
sheet at $2,700,000. Management believes that the permits are not impaired at
December 31, 1999

      The oil and gas properties in the Congo consist of the Marine III and the
Talipia concessions. On October 6, 1999, the management committee held a meeting
in Port Noir in the Congo. The management committee approved the Marine III
budget in the amount of $445,000 and the Tilapia budget in the amount of
$3,600,000, in each case for the period commencing


                                      -13-
<PAGE>

September 1999 through December 2000. The Company's share is $222,500 in respect
of the Marine III concession and $1,800,000 in respect of the Talipia
concession.

      Contacts with potential drilling contractors have been established. The
Company's recovery of its investment in the Congo is dependent upon successful
drilling and production under the sharing contracts. No assessment of success
can be made.

Accounting Treatment of Oil and Gas Properties on the Company's Financial
Statements

      The Company uses the "successful efforts" method of accounting whereby all
costs of acquiring acreage, costs of drilling successful exploration wells and
development costs are capitalized. Producing and non-producing properties are
evaluated periodically, and if conditions warrant (i.e., should a well prove to
be dry and abandoned, or not of commercial value or no development activity is
contemplated in the near future), the related costs are written off. Annual
lease rentals and exploration costs, including geologic and geophysical costs
and exploratory dry hole costs, are charged to expense as incurred.

                                    EMPLOYEES

      During calendar year ending December 31, 1999, the Company had five (5)
employees at its Branch Office in Israel and three (3) employees in its offices
in Houston, Texas.

Item 2. OFFICES

Israel

      The Company leases office space from Naphtha at 8 Granit St., Petach
Tikva. In 1999 the Company paid Naphtha $77,000 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.

United States

      The Company maintains its executive offices in Houston, Texas. The Company
has a lease for office premises (approximately 2,146 square feet) at 1770 St.
James Place, Suite 607, Houston, Texas 77056 expiring September 2000 with a
monthly rental of $2,718.

Item 3. Legal Proceedings

      The Company is not subject to any pending litigation the outcome of which
can have a material adverse effect on the Company business or affairs.

Item 4. Submission of Matters to a Vote of Security Holders

      The Company held its Annual Meeting of Shareholders on June 25, 1999 and
the shareholders voted as to the following: (a) election of Haim Tsuff, Noa
Lendner, Adv., Tina Maimon Arckens, Professor Avihu Ginzburg and Professor Linda
Canina as directors to serve for a term of one (i) year or until his/her
successor is duly elected; (b) approval of an amendment to the Company's
Certificate of Incorporation to reduce the number of shares that the Company is
authorized to issue from time to time from 75,000,000 to 7,500,000 (c) the
approval of the firm of KPMG LLP as


                                      -14-
<PAGE>

Company auditors for the year ended December 31, 1999. All matters were approved
at the meeting.

      In September of 1999, Noa Lendner resigned her position as director of the
Company. In October of 1999, Jackob Maimon was designated to serve on the
Company's Board of Directors and was elected President of the Company. Mr.
Maimon is the Chairman of the Board of Directors of Naphtha Israel Petroleum
Corporation Ltd. ("Naphtha"), an Israeli entity, which held, on December 31,
1999, indirectly through Naphtha Holdings Ltd., another Israeli entity, over 50%
of the issued and outstanding stock of the Company.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      The number of record holders of the Company's Common Stock on March 30,
2000 was approximately 885 not including an undetermined number of persons who
hold their stock in street name.

      The high and low bid prices as reported on the National Association of
Securities Dealers Automated Quotations System National Market System are shown
in the table below. These over-the-market quotations reflect prices between
dealers, without retail mark-ups, mark-downs or commissions and may not
represent actual transactions.

                    Common Stock        Class A Warrants**    Class B Warrants**
Quarter Ended       High       Low        High       Low        High        Low
--------------------------------------------------------------------------------
1999
March 31           2 1/8     1 21/32
June 30            2 11/16   2 1/8
September 30       3 1/2     2 5/8
December 31        7 3/8     3 5/32

1998
March 31           9 1/16    4 3/8        4/16       3/16       1/32        1/32
June 30*           5 15/16   3 3/32       3/16       3/32       1/32        1/32
September 30       3 3/8     1 21/32      3/32       1/64       1/32        1/32
December 31        3         2 7/32       **         **         **          **

*     In May 1998, the Company effected a one-for-ten reverse stock split.

**    In November, 1998, the Class A Warrants and the Class B Warrants were
      delisted.

      The Company has never paid a dividend on its Common Stock. The payment by
the Company of dividends, if any, in the future rests within the discretion of
its Board of Directors and will depend, among other things, upon the Company's
earnings, capital requirements and financial condition.


                                      -15-
<PAGE>

Item 6. Selected Consolidated Financial Data

      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."

<TABLE>
<CAPTION>
                                                                  (in thousands)
                                                1999       1998       1997       1996      1995
<S>                                            <C>        <C>        <C>        <C>       <C>
Operator's fees                                $ 1,744    $   720    $   461    $   468   $ 1,115
Oil and Gas Revenue                            $ 1,107    $ 1,410    $ 2,001    $   335   $   644
Interest income                                $ 1,011    $   557    $ 1,085    $ 1,175   $ 1,126
Office services and other                      $   881    $   613    $   483    $   463   $   428
Equity in net income (loss) of investess       $  (107)   $    16    $    39         --        --
Reinbursement of exploration cost                   --        255         --         --        --
Gain from sale of oil and gas properties
and equipment                                       17        931         --         --        --
Gain (Loss) on marketable securities           $ 1,264    $  (973)   $  (272)   $   706   $  (367)
Other                                          $    13         --         --         --        --
Gain on sale of investment in affiliate        $   100         --         --         --        --
Impairment of oil & gas properties                  --    $   571    $    12         --        --
Exploration costs                              $   154    $    81    $    11    $    34   $   173
Lease operating expenses and severance taxes   $   469    $   883    $   972         --        --
Depreciation, depletion and amortization       $   609    $   815    $   684         --        --
Operator expense                               $   514    $   487    $   507    $   657   $   619
General and administrative expenses            $ 1,061    $ 1,196    $ 1,289    $ 1,254   $   720
Income Taxes                                       221         38         --         --        --
Interest Expense                               $   157    $   326    $   341         --        --
Net Income (loss)                              $ 2,845    $  (851)   $   (14)   $   828   $   635
Net Income (loss) per share                    $  1.08    $ (0.32)   $ (0.01)   $  0.31   $  0.24
Weighted average number of shares                2,640      2,640      2,640      2,649     2,669
</TABLE>

                                                  December 31,
                                 -----------------------------------------------
                                  1999      1998      1997      1996      1995
Balance Sheet Data

Total assets                     $30,764   $24,486   $26,783   $23,263   $22,620
Total liabilities                $ 4,467   $ 2,422   $ 3,868   $   335       358
Shareholders' equity             $26,297   $22,064   $22,915   $22,928   $22,262

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

      Statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the Company's expectations,
hopes, intentions or strategies regarding the future. Such forward-looking
statements involve known and unknown factors that could cause actual results of
the Company to be materially different from the historical results or from any
future results expressed or implied by such forward looking statements.

Liquidity and Capital Resources


                                      -16-
<PAGE>

      Working capital (current assets minus current liabilities) was $15,142,000
and $17,543,000 at December 31, 1999 and 1998, respectively.

      Net cash flow provided by operating activities was $3,490,000 and
$1,082,000 in 1999 and 1998, respectively.

      Net cash flow used in investing activities in 1999 was $2,042,000 compared
to $4,864,000 in 1998 provided by investing activities. The cash used in 1999
was primarily attributable to purchases of marketable securities and investments
in affiliates, offset by sales of such investments. The cash provided by
investing activities in 1998 was attributable to sales of gas and oil interests
and gains on marketable securities. The Company sold approximately 2% of the
issued shares of J.O.E.L. - Jerusalem Oil Exploration Ltd. ("JOEL") to I.O.C. -
Israel Oil Company, a wholly-owned subsidiary of Naphtha, for $842,000. As of
December 31, 1999, the Company owned approximately 3.5% of the issued shares of
JOEL, the controlling shareholder of Naphtha Israel Exploration Ltd.
("Naphtha"). Naphtha, through a wholly owned subsidiary, held, on December 31,
1999, approximately 50.2% of the Company's outstanding common stock. Shares of
JOEL and Naphtha are traded on the Tel Aviv Stock Market.

      Capital expenditures were $177,000 and $212,000 in 1999 and 1998,
respectively.

      As of December 31, 1999, Jay had outstanding indebtedness of $1,404,000
under a bank loan facility of $10 million from Comerica Bank-Texas (the
"Comerica Loan"). The Comerica Loan bears interest at prime plus 1% with monthly
payments of $31,208 plus interest and matures in April 5, 2000. The Company is
currently negotiating with the lender terms for re-scheduling the maturity date;
though, no assurance can be given of any success in extending the due date. The
Comerica Loan is secured by oil and gas properties and cannot exceed the
"Borrowing Base" (as defined in the loan documents), which is subject to annual
re-determination by Comerica. The Company is not a borrower or guarantor under
the Comerica Loan Facility. The Comerica Loan documentation contains
restrictions on Jay's ability to freely declare or pay a dividend or make any
distribution in cash or otherwise. Future principal payments on the bank loan
facility as of December 31, 1999 are $1,404,395, payable in 2000.

      In connection with the transfer to BG of the Company's participation
interests in the Med Licenses, the Company received $12,500. In consideration of
the Company's performance of its obligations under the agreement with BG, the
Company received in October 1999 $1,925,000 and in January 2000 an additional
$1,925,000.

      The Company believes that existing cash balances and cash flows from
activities will be sufficient to meet its financing needs. The Company intends
to finance its ongoing oil and gas exploration activities from working capital
and the Comerica Loan facility.

Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998.

      The Company reported net income of $2,845,000 ($1.08 per share) in 1999
compared to a net loss of $851,000 ($0.32 per share) in 1998. The net income in
1999 compared to the loss in 1998 is primarily attributable to increased
operator fees resulting from the offshore drilling


                                      -17-
<PAGE>

with the Med Yavne license, gains attributable to marketable securities and
decreases in operating expenses.

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

United States

Oil and Gas Revenues   (in thousands)

                                         1999        1998
                                         ----        ----

Oil Volume Sold (Barrels)                  23          31

Gas Volume Sold (MMCF)                    410         523

Oil Sales ($)                             310         395

Gas Sales ($)                             797       1,015

Average Unit Price

Oil ($/Bbl) *                           13.48       12.74
Gas ($/MMCF) **                          1.90        1.94

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

**    MMCF - 1,000 Cubic Feet

Israel

The Med Licenses

      During 1999, approximately $173,000 were expended by the Company in
respect of the Med Licenses compared to $3,500 in 1998. The increased amount is
primarily for the purposes of the offshore drilling on the Yam West 2, Or 1 and
Or 1 South wells.

Operator's Fees

      In 1999 the Company earned $1,744,000 in operator fees, compared to
$720,000 in 1998. The increase in the operator fees is due primarily to the
offshore drilling activities in Yam West 2, Or 1 and Or South 1.

Oil and Gas Revenues

      In 1999 and 1998 the Company had oil and gas revenues of $1,107,000 and
$1,410,000, respectively. The decrease is due mainly to the sale in of producing
wells during 1998.

Lease Operating Expenses and Severance Taxes


                                      -18-
<PAGE>

      Lease operating expenses and severance taxes were primarily in connection
with oil and gas fields in the United States. Oil and gas lease operating
expenses and severance taxes were $469,000 and $883,000 for 1999 and 1998,
respectively. The decrease in lease operating expenses and severance taxes is
due to the sale of gas and oil wells with relatively high operating costs.

Interest Income

      Interest income during the year ended December 31, 1999 was $1,011,000
compared to $557,000 for the year ended December 31, 1998. The increase is
attributable mainly to Interest earned on marketable securities.

Gain on Marketable Securities

      In 1999, the Company recognized net realized and unrealized gains on
marketable securities of $1,264,000 compared to net realized and unrealized
losses of $973,000 in 1998.

      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.

Impairment of Oil and Gas Properties

      The Company recorded provisions for impairment of oil and gas properties
in 1999 and 1998 of $0 and $571,000 respectively, as the result of capitalized
costs being in excess of future net revenues.

Operator Costs

      There was no material change in operator costs in 1999 compared to 1998.

General and Administrative Expenses

      There was no material change in general and administrative expenses for
the year ended December 31, 1999 compared to the year ended December 31, 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.

      The Company reported net loss of $851,000 ($0.32 per share) in 1998
compared to a net loss of $14,000 ($0.01 per share) in 1997. The loss during
1998 compared to 1997 is primarily a result of the decrease in operating income
from oil and gas activities and from the increase in a loss attributable to
marketable securities of $701,000.

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

United States

Oil and Gas Revenues (in thousands)

                                                 1998            1997
                                                 ----            ----


                                      -19-
<PAGE>

Oil Volume Sold (Barrels)                           31              40

Gas Volume Sold (MMCF)                             523             604

Oil Sales ($)                                      395             676

Gas Sales ($)                                    1,015           1,325

Average Unit Price

Oil ($/Bbl) *                                    12.74           16.90
Gas ($/MMCF) **                                   1.94            2.19

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

**    MMCF - 1,000 Cubic Feet

      On August 27, 1998, Jay Petroleum sold 100% working interest in 25 wells
      located in Jack & Clay Counties Texas, for $220,000. The effective date of
      this sale was August 1, 1998.

      During October 1998, Jay Petroleum sold:

      a.    100% working Interest in 5 wells located in Beckham County, Oklahoma
            for $195,200. The effective date of this sale was October 1, 1998.

      b.    81.3% working interest in one gas well located in Devil field,
            Jefferson County, Texas. The amount received was $1,000,000, and an
            overriding royalty interest of 2.02% on a 320 acre gas unit which
            includes the production of the gas well. The effective date of this
            sale was July 1, 1998.

      The impact of the August and October sales is a monthly reduction of about
      22,000 MMCF of gas and 90 Barrels of oil, and a reduction in cash flow of
      approximately $16,000 per month.

      As a result of the above sales, the Company paid down Jay's debt with
      Comerica Bank in 1998, by the amount of $1,137,900, and reduced the
      monthly loan payment from $45,000 to $31,208.

Israel

The Med Licenses Venture

      During 1998 the Med Licenses expended $345,000, primarily for the purposes
of acquiring, processing and interpreting the results of seismic surveys. The
Company's share or the expense was $3,500.


                                      -20-
<PAGE>

Yam Ashdod Carveout Venture (within the Med Ashdod License)

      During the year of 1998 the Yam Ashdod Carveout Venture expended $174,000.
The Company's share was $1,700.

Shederot License

      In 1998 the participants of the venture drilled the Gevim well to a depth
of 15,157 feet. The well was declared a dry hole during 1998. The total cost of
the well was $6.6 million, of which the Company' share was approximately
$66,000.

Operator's Fees

      In 1998 the Company earned $720,000 in operator fees, compared to $461,000
in 1997. The increase in the operator fees is due primarily to the drilling
activities at Gavin under the Shederot license.

Oil and Gas Revenues

      In 1998 and 1997 the Company had oil and gas revenues of $1,410,000 and
$2,001,000, respectively. The decrease is due mainly to 34%-43% decline in oil
and gas prices and the sale of oil and gas properties in 1998, which resulted in
a gain of $931,000.

Lease Operating Expenses and Severance Taxes

      Lease operating expenses and severance taxes were primarily in connection
with oil and gas fields in the United States. Oil and gas lease operating
expenses and severance taxes were $883,000 and $972,000 for 1998 and 1997,
respectively. The decrease in lease operating expenses and severance taxes is
due to the decline in oil and gas prices and lower production in 1998.

Interest Income

      Interest income during the year ended December 31, 1998 was $557,000
compared to $1,085,000 for the year ended December 31, 1997. The decrease is
attributable mainly to lower average earning investment balances and to the
devaluation of the Israeli currency against the US Dollar.

Loss on Marketable Securities

      In 1998, the Company recognized net realized and unrealized losses of
$973,000 compared to $272,000 in 1997.

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

Impairment of Oil and Gas Properties

      The increase in the impairment of oil and gas properties in 1998 is mainly
due to the 34% - 43% decline in oil and gas prices.


                                      -21-
<PAGE>

Operator Costs

      Operator's costs decreased in 1998 as compared to 1997, primarily as a
result of lower manpower costs and reduced rent payments for the Company's
offices in Israel.

General and Administrative Expense

      The decrease in general and administrative expenses for the year ended
December 31, 1998 compared to the year ended December 31, 1997 was mainly due to
a decrease in consulting fees and salaries. General and administrative expenses
as of December 31, 1998 include approximately $190,000 of legal expenses related
to the settlement with Mr. Reuven Hollo, Jay Resources Inc. and Jay Natural
Resources.

Year 2000 Issue

      The Year 2000 Issue ("Y2K") is a general term used to describe the various
problems that may arise as a result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have data-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Y2K software compliance issues
affect the Company and most companies in the world.

      To address this issue, the Company conducted a review of its operations to
identify those systems that could have been affected by the Y2K issues. The
review covered information systems, mainframe and personal computers, and the
Company's delivery systems. The Company's information systems include
administrative and financial applications, such as order processing and
collection. In addition, the Company also considered various alternatives and
developed contingency plans, including alternative source of supply, customer
communication, plant, and business response plans, and performance of certain
functions manually that had been performed manually before the applicable
computer system was in use.

      The Company did not encounter any critical financial and administrative
system failures during the date rollover to the Year 2000, and has not
experienced any disruptions of business activities as a result of Year 2000
failures encountered by third parties (customers, suppliers, and service
providers). To date, the Company has not incurred, and does not expect to incur
any material expenditures in connection with identifying, assessing, or
remediating Y2K compliance issues.

Item 7A.

      The Company is exposed to market risk, including adverse changes in
commodity prices and interest rates as discussed below

      Commodity Price Risk- 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.


                                      -22-
<PAGE>

      Interest Rate Risk- The Company's exposure to changes in rates primarily
results from its short-term and long-term debt with floating interest rates. See
Note L to Consolidated Financial Statements of Isramco, Inc. and Subsidiaries
and incorporated herein by reference for information relating to the existing
credit facility. Based upon the current credit facility, a 10% change in the
interest rate would result in a minimal increase in interest expense.

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.

      On March 10, 1999, the Company retained the certified public accounting
firm of KPMG LLP as independent accountants of the Company to audit the
Company's financial statements. The Company's previous principal auditors, Hein
& Associates LLP ("Hein"), resigned in November, 1998.

      During the fiscal year ended December 31, 1997 and the period between
January 1, 1998, up to and including the day of its resignation, there were no
disagreements between the Company and Hein on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which if not resolved to Hein's satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement. However, Hein advised the Company that it would be able to accept
the appointment to audit the Company's financial statements for the fiscal year
ended December 31, 1998 only if the Company hired a corporate controller to
reside and work in Houston, Texas and if Hein and the Company would come to an
agreement concerning fees for the audit. The Company declined to hire a
corporate controller to reside and work in Houston.

      Hein's report on the financial statements of the Company for the year
ended December 31, 1997, contained no adverse opinion or disclaimer of opinion
and was not qualified as to uncertainty, audit scope or accounting principles.
Hein's furnished the Company with a letter addressed to the SEC confirming its
agreement with the above statements, a copy of which was filed as an exhibit to
the report filed on Form 8-K on November 23, 1998.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      As of March 30, 2000, the executive officers and directors of the Company
are as follows:

Name                    Age                           Position

Haim Tsuff              42     Chairman of the Board and Chief Executive Officer
                               of the Company

Jackob Maimon           44     President of the Company, Director


                                      -23-
<PAGE>

Daniel Avner            37     Vice- President of the Company

Yossi Levy              48     Branch Manger of the Company's Branch Office in
                               Israel

Pinchas Pinchas         45     Chief Controller of the Company Branch Office in
                               Israel

Tina Maimon Arckens     45     Director and Secretary

Prof. Linda Canina      45     Director

Prof. Avihu Ginzburg    73     Director

      All officers serve until the next annual meeting of directors and until
their successors are elected and qualified.

      Haim Tsuff has been a director of the Company since January 1996 and the
Chairman of the Board of Directors and Chief Executive Officer since May 1996.
Mr. Tsuff is the sole director and owner of United Kingsway Ltd. and Chairman of
YHK General Manager Ltd. (which entity effectively controls Equital Ltd., JOEL
Ltd., Naphtha, Naphtha Holdings Ltd., public companies in Israel) and may be
deemed to control the Company. During the past five years, Mr. Tsuff has served
as General Manager of Painton Chemical Industries Ltd., a private company, which
produces printed material. Mr. Tsuff is also the Managing Director of Y. Habaron
Ltd. (real estate), Painton Chemical Factors Ltd. (printed material), Madad Ltd.
(printed material), Benfica Holdings Ltd. (construction) and Benfica Ltd.
(construction), all of which are private companies. See Security Ownership of
Certain Beneficial Owners.

      Jackob Maimon has been President of the Company since November of 1999.
Mr. Maimon is the Chairman of the Board of Directors of Naphtha Israel Petroleum
Corporation Ltd. ("Naphtha") an Israeli entity, which holds indirectly through
Naphtha Holdings, Ltd. Another Israeli entity, over 50% of the issued and
outstanding stock of the Company. Mr. Maimon has held the position at Naphtha
since August 1996. Mr. Maimon is the brother of Tina Maimon Arckens, a director
of the Company.

      Daniel Avner has been President of the Company from July 1997 through
October 1999, whereupon he resigned. Upon his resignation from the position of
president, Mr. Avner was elected in October 1999 as Vice President. On July 9,
1998, Mr. Avner resigned as director and as Secretary of the Company, positions
which he has held since May 1996. Since 1992, Mr. Avner has been the General
Manager of E.D.R. GMBH Co., a company that engages in investment, development
and management of residential property in Germany. From 1991 to 1992 Mr. Avner
was a Financial Analyst with Proctor & Gamble Company in Germany. Mr. Avner
holds a BA Degree in Accounting and Economics from the University of Tel Aviv
and a Masters of Business Administration from Duke University.

      Yossi Levy has been Branch Manager of the Company's Branch Office in
Israel since August 1996. Since 1988 Mr. Levy has held the position of General
Manager of Naphtha - Israel Petroleum Corp. Ltd. (Naphtha), a public company in
the oil and gas business in Israel. Since 1995


                                      -24-
<PAGE>

Mr. Levy has been General Manager of N.I.R. (Naphtha International Resources)
Ltd. Naphtha through its subsidiary (Naphtha Holdings Ltd.) may be deemed to be
a controlling shareholder of the Company.

      Pinchas Pinchas has been the Chief Controller of the Company's Israel
Branch since December 31, 1997. Mr. Pinchas serves as the Controller of Naphtha
(which holds 100% of Naphtha Holdings Ltd., which company holds 50.2% of the
outstanding common stock of the Company and also as controller of J.O.E.L.
(which holds approximately 87% of Naphtha). The Company participates in Mr.
Pinchas salary' which is payable by J.O.E.L. in an aggregate monthly amount of
$4,000.

      Tina Maimon Arckens has been a director of the Company since March 1997
and Secretary of the Company since July 14, 1998. Mrs. Arckens is a director of
YHK General Manager Ltd. Mrs. Arckens is the sister of Jackob Maimon, the
Chairman of the Board of Directors of Naphtha Israel Petroleum Corp. Ltd. Mrs.
Maimon Arckens is a housewife.

      Linda Canina has been a director of the Company since December 1997. From
1993 to the present Dr. Canina has held the position of Professor of Finance at
Cornell University, Ithaca, New York. From August 1996 through July 1998 Dr.
Canina also held the position of Visiting Assistant Professor of Finance at the
Recanati School of Business in Tel Aviv, Israel. From July 1992 - January 1993
Dr. Canina was a Research Fellow, Johnson Graduate School of Management, Cornell
University.

      Avihu Ginzburg has been a director of the Company since July 1997. Dr.
Ginzburg is currently Emeritus Professor in Geophysics at Tel Aviv University.
In 1996 he was Visiting Professor in Exploration Geophysics at Curtin
University, Perth, Western Australia; and, Research Fellow at the Department of
Geological Sciences, University College, London. From 1992 - 1995 Dr. Ginzburg
held the position of Chairman of Geophysics and Planetary Science at Tel Aviv.

      Except as noted above, there are no family relationships between any of
the above executive officers, and there is no arrangement or understanding
between any of the above executive officers and any other person pursuant to
which he was selected as an officer. Each of the above executive officers was
elected by the Board of Directors to hold office until the next annual election
of officers and until his successor is elected and qualified or until his
earlier resignation or removal.

SECTION 16 FILINGS

      No person who, during the fiscal year ended December 31, 1999, was a
director, officer or beneficial owner of more than ten percent of the Company's
Common Stock, or a 'Reporting Person', failed to file on a timely basis, reports
required by Section 16 of the Act during the most recent fiscal year. The
foregoing is based solely upon a review by the Company of Forms 3 and 4 during
the most recent fiscal year as furnished to the Company under Rule 16a-3(d)
under the Act, and Forms 5 and amendments thereto furnished to the Company with
respect to its most recent fiscal year, and any representation received by the
Company from any reporting person that no Form 5 is required.

Item 11. Executive Compensation

      The following table sets forth the compensation paid for 1999 and for the
previous two years to the Chief Executive Officer and the five (5) other highly
paid officers and/or key


                                      -25-
<PAGE>

employees of the Company.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                          Annual Compensation                               Long-Term Compensation
                                                             Other         Securities       All
    Name and                       Salary/                   Annual        Underlying       Other
Principal Position        Year  Consulting Fee  Bonus   Compensation(6)      Option     Compensation
------------------        ----  --------------  -----   ---------------      ------     ------------
<S>                       <C>      <C>          <C>             <C>            <C>           <C>
Haim Tsuff                1999     240,000      60,000          --             --            --
Chairman of the Board     1998     240,000          --          --             --            --
and Chief Executive       1997     216,000          --          --             --            --
Officer (1)

Jackob Maimon             1999      40,000          --          --             --            --
President(2)              1998          --          --          --             --            --
                          1997          --          --          --             --            --

Daniel Avner              1999     172,500      45,000          --             --            --
Vice President (3) 1998             90,000          --          --             --            --
                          1997      37,900          --          --             --            --

Yossi Levy                1999     109,000      23,700          --             --            --
Branch Manager (4) 1998             88,000          --          --             --            --
                          1997      92,230          --          --             --            --

Pinchas Pinchas           1999      48,000          --          --             --            --
Controller Branch         1998      48,000
Office(5)                 1997          --          --          --             --            --

Joshua Folkman            1999     101,000       9,400          --             --            --
Exploration Manager       1998      95,600          --          --             --            --
Branch Office             1997     101,128
</TABLE>

Notes

(1)   In May of 1996 the Company entered into a Consulting Agreement with a
      company owned and controlled by Haim Tsuff, the Chairman of the Board and
      Chief Executive Officer of the Corporation. Pursuant to this Consulting
      Agreement as amended April 1997, the Company pays to consultant the sum of
      $240,000 per annum in installments of $20,000 per month in addition to
      reimbursing all reasonable business expenses incurred in connection with
      the services rendered on behalf of the Company.

(2)   Mr. Maimon was elected to the position of President in November of 1999.
      In November of 1999, the Company entered into a Consulting Agreement with
      a company of which Jackob Maimon is a director. Pursuant to this
      Consulting Agreement, the Company pays to consultant the sum of $240,000
      per annum in installments of $20,000 per month in addition to reimbursing
      all reasonable business expenses incurred in connection with the services
      rendered on behalf of the Company.


                                      -26-
<PAGE>

(3)   In August of 1997 the Company entered into a Consulting Agreement with
      Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
      Holdings Ltd.), a company which is wholly owned and controlled by Daniel
      Avner, the President of the Company. Pursuant to this Agreement, the
      Company has agreed to pay the Consultant the sum of $7,500 per month plus
      expenses. In February 1999, the agreement was amended to increase the
      amount payable per month to $15,000. Pursuant to the amendment in February
      1999, expenses are no longer reimbursable. The Company has also agreed to
      provide a company car and company furnished apartment to Consultant, if
      available. The agreement is in force through July 2,000. Mr. Avner
      resigned from his position as President of the Company in October 1999,
      whereupon he was elected as a Vice-President.

(4)   In November of 1996 the Company entered into an Employment Agreement with
      Yossi Levy, the Managing Director of Naphtha Israel Petroleum Company Ltd.
      to employ Mr. Levy as the General Manager of the Israel Branch of the
      Company.

(5)   Mr. Pinchas is employed as Controller of Naphtha and J.O.E.L., affiliates
      of the Company. As of January 1, 1998, the Company participates in the
      payment by J.O.E.L. of Mr. Pinchas' salary in an aggregate monthly amount
      of $4,000.

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

      The following table sets forth information concerning the exercise of
stock options during 1997 by each of the named executive officer and key
employee and the year end value of unexercised options.

         Aggregated Option Exercises in 1999 and Year End Option Values

<TABLE>
<CAPTION>
                                             Number of Securities      Value of Unexercised
                    Shares                        Underlying               In the Money
                   Acquired       Value          Unexercised             Options at Year
      Name        on Exercise   Realized ($)      Options (#)               End ($) (2)
<S>                    <C>           <C>             <C>                         <C>
Joshua Folkman         0             0               2,000                       0

Raanan Wiessel(1)      0             0               2,500                       0
</TABLE>

Notes

(1)   The services of Raanan Wiessel, the Company's former treasurer and
      controller of the Company's Israel Branch, were terminated as of December
      1997.

(2)   The value reported is based on the closing price of the common stock of
      the Company as reported on NASDAQ on the date of the exercise less the
      exercise price.

There were no grants of any options in 1999.

      All stock options were granted with an exercise price equal to the market
price of the common stock on the date of grant.

      The Company during 1999 did not amend or adjust the exercise price of
outstanding stock


                                      -27-
<PAGE>

options previously awarded to any of the named executive officers or directors
or employees. The only incentive plan, which the Company has, is its 1993 Stock
Option Plan (the "Stock Option Plan").

Stock Option Plan

      Directors, officers, employees and consultants of the Company and its
subsidiaries adopted the Company's Stock Option Plan with the intention of
encouraging stock ownership. The plan provides for stock options of up to 50,000
shares of common stock of the Company (after giving effect to the reverse stock
split). Options may either be options intended to qualify as "incentive stock
options" or "non-statutory stock options", as those terms are defined in the
Internal Revenue Code.

      Employees (including officers) of the Company are eligible to receive
incentive stock options, however, non-statutory stock options may be granted to
officers, directors, employees and consultants of the Company and its
subsidiaries. Options are granted for a period of up to ten (10) years from the
grant date for an exercise price of not less than 100% of the fair market value
of the securities of the Company's common stock on the date of grant. As of this
date no persons have been appointed to fill the current vacancies on the
committee which administers this plan.

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

      The following table sets forth certain information, as of March 30, 1999,
concerning the ownership of the Common Stock (comprising of the shares of common
stock if the Company's Class A and Class B Warrants were exercised) by (a) each
person who, to the best of the Company's knowledge, beneficially owned on that
date more than 5% of the outstanding Common Stock (b) each of the Company's
directors (c) all current directors, officers and significant employees of the
Company as a group. Except as otherwise indicated, the stockholders listed in
the table have the sole voting and investment power with respect to the shares
indicated.

                                                       Number of       Percent
                                                       Shares Owned    of
Name                    Position                       Beneficially    Class
----                    --------                       ------------    -----

Haim Tsuff              Chairman of the
                        Board, Chief Executive
                        Officer and Director           1,395,217(1)    50.19%

Jackob Maimon           President and Director            69,995(2)     2.52%

Daniel Avner            Vice-President                         0

Yossi Levy              Manager of the Company's
                        Israel Branch                          0


Pinchas Pinchas         Controller of the Company's
                        Israel Branch                          0

Tina Maimon Arckens     Director and Secretary                 0


                                      -28-
<PAGE>

Prof. Avihu Ginzburg    Director                               0

Prof. Linda Canina      Director                               0

All directors and
Officers as a group                                    1,465,212       52.71%

Notes

(1)   Haim Tsuff owns 100% of United Kingsway Ltd., which through YHK General
      Manager Ltd. controls various entities, which may be deemed to control the
      Company. In March 2,000, Mr. Tsuff was granted five year options to
      purchase up to 69,995 shares of the Company's stock at an exercise price
      per share of $4.28. For more information see Security Ownership of Certain
      Beneficial Owners.

(2)   In March 2,000, Mr. Maimon was granted five year options to purchase up to
      69,995 shares of the Company's stock at an exercise price per share of
      $4.28.

                 Security Ownership of Certain Beneficial Owners

      Set forth below is certain information with respect to ownership of the
Company's securities as of March 30, 2000 by persons or entities who are known
by the Company to own beneficially more than 5% of the outstanding shares of the
common stock, as determined in accordance with Rule 13d-3 under the Act.

          Name of                     No. of
     Beneficial Owner              Common Shares        Percentage
     ----------------              -------------        ----------

Naphtha Holdings Ltd. *              1,325,222             47.67%

Haim Tsuff *                            69,995              2.52%

United Kingsway Ltd. *

YHK Investment Limited Partnership *

Notes

*     Haim Tsuff owns and controls 100% of United Kingsway Ltd. (Kingsway) which
      holds a 74% interest in YHK Investment Limited Partnership (YHK). Avraham
      Livnat Ltd. through its subsidiary Carmen Management and Assets (1997)
      Ltd. owns 26% of YHK. The General Partner of YHK is YHK General Manager
      Ltd. and Haim Tsuff, Joseph Tsuff (the father of Haim Tsuff) and Tina
      Maimon-Arckens (the sister of the Chairman of the Board of Naphtha are the
      directors of YHK General Manager Ltd. YHK owns of record 42.4% of Equital
      Ltd. (formerly known as Pass-port Ltd.), Equital Ltd. owns 42.4% of
      J.O.E.L. - Jerusalem Oil Exploration Ltd. (JOEL), JOEL owns 86.6% of
      Naphtha, which holds 100% of Naphtha Holdings Ltd. JOEL also owns 8.2% of
      the shares of Equital Ltd.. Naphtha Holdings Ltd. owns of record
      approximately 47.67% of the issued and outstanding common stock of the
      Company.


                                      -29-
<PAGE>

      Information regarding these relationships is set forth on the Chart of
      Ownership and in Schedule 13d filings and amendments made thereto made on
      behalf of the above entities, which are on file with the Securities and
      Exchange Commission.

      As a result of the foregoing, Haim Tsuff, Kingsway, YHK, Equital Ltd.,
      JOEL, Naphtha and Naphtha Holdings Ltd. may be deemed to control the
      Company.

Item 13. Certain Relationships and Related Transactions

      In May of 1996 the Company entered into a Consulting Agreement with
Goodrich Global L.T.D. B.V.I., a company owned and controlled by Haim Tsuff, the
Chairman of the Board of Directors and Chief Executive Officer of the
Corporation. Pursuant to this Consulting Agreement which had a term of two (2)
years, the Company agreed to pay the sum of $144,000 per annum in installments
of $12,000 per month, in addition to reimbursing all reasonable business
expenses incurred during the term in connection with the performance of services
on behalf of the Company. In April 1997 the consulting compensation was
increased to $240,000 per annum and in December 1997 the term of the Agreement
was extended to May 31, 2001. The Consulting Agreement provides that the term
shall be automatically extended for an additional term of three (3) years,
commencing June 1, 2001, unless the Company has given notice at least ninety
(90) days prior to June 1, 2001, that it does not intend that the term be
renewed.

      In August of 1997 the Company entered into a Consulting Agreement with
Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
Holdings Ltd.), a company which is wholly owned and controlled by Daniel Avner,
the Vice-President of the Company. Pursuant to this Agreement which has a term
of one (1) year through July 31, 1998, the Company has agreed to pay the
Consultant the sum of $7,500 per month plus expenses. 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 Company has also agreed to make provide a company
car and company furnished apartment to Consultant, if available. The Consulting
Agreement is in effect through July 2000.

      On January 21, 1998, the Company entered into a Inventory Management
Agreement with Equital Ltd. pursuant to which the Company is obligated to pay to
Equital Ltd. $1,650 plus VAT payable December, March, June and September of each
year during the term of the Agreement. In the case of the drilling of a well if
the total monthly hours of services provided to the Company by Equital Ltd.
exceed 30 hours per month, then the Company shall pay an additional $40.00 per
hour plus VAT for services rendered. The Agreement may be terminated on three
(3) month's written notice. The Company believes that the prices charged by
Equital Ltd. to the Company for these services are comparable to the cost for
such services negotiated in arm's length transactions. Equital Ltd. may be
deemed to be a control person to the Company.

      Pursuant to the agreement terminating the employment of Mr. Toledano as
the Company's President and Chief Operating Officer in October 1995, Mr.
Toledano executed a Covenant Not to Compete Agreement with the Company. Pursuant
to the terms of the Covenant Not to Compete, Mr. Toledano agreed that for a
period of five (5) years he would not directly or indirectly compete with the
Company in connection with the exploration for oil and gas in the State of
Israel, the territorial waters off Israel or the territories currently under
control of the State of Israel. In consideration for the Covenant Not To
Compete, the Company paid to Mr. Toledano the sum of $200,000. The Company also
entered into a Consulting Agreement with Natural Resources


                                      -30-
<PAGE>

Exploration Services B.V., a Netherlands corporation controlled by Mr. Toledano.
Pursuant to the Consulting Agreement between the Company and Natural Resources
Exploration Services B.V., the Company paid a lump sum payment of $72,000 to
Natural Resources Exploration Services B.V. to provide the services of Mr.
Toledano to the Company through June 23, 1997.

      In July of 1995 the Company formalized its existing oral consulting
agreement with Dr. Joseph Elmaleh and entered into a written Consulting
Agreement for the payment to Dr. Elmaleh of an annual fee of $99,000 payable in
equal monthly installments of $8,250. The expiration of the term of the
Consulting Agreement commenced August 1, 1995 and was to expire July 31, 1997.
Under the terms of a Termination Agreement made on April 17, 1996, Dr. Elmaleh
resigned as the Chairman of the Board, Chief Executive Officer and a director of
Isramco and its subsidiaries, the Company terminated the 1995 Consulting
Agreement with Dr. Elmaleh and (i) paid to him the sum of $123,750 representing
the balance of unpaid consulting fees; (ii) paid to him the sum of $270,000 for
a non-compete agreement for a term of three (3) years in connection with the
exploration for oil and gas in the State of Israel, the territorial waters off
Israel or the territories currently under control of the State of Israel. The
Company also purchased from Southern Shipping and Energy Inc. (a company
controlled by Dr. Elmaleh) 292,675 shares of the common stock of the Company
held by Southern Shipping and Energy Inc. for a purchase price of $208,238.

      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, 2001, 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. The Consulting Agreement as amended, provides
that the term shall be automatically extended for an additional term of three
(3) years, unless the Company has given notice at least ninety (90) days prior
to the scheduled expiration, that it does not intend that the term be renewed.

      In March 2000, each of Messrs. Tsuff and Maimon were granted five year
options to purchase up to 69,995 shares of the Company's common stock at an
exercise price per share of $4.28.

                                    GLOSSARY

      "Authorization for Expenditure (AFE)" shall mean a proposal for financial
expenditure within the framework of petroleum explorations, which the Operator
proposes from time to time to the partners in the Petroleum Assets which it
manages, for the purpose of the approval of the participants. When approved by
them, it constitutes the budget for the execution of the petroleum exploration
and the remainder of the operations of the Petroleum Assets.

      "Carveout" shall mean an area in a Petroleum License or Lease in which the
ownership is different from the ownership in the License or Lease.

      "Grant Agreement" shall mean the agreement between the Company and the
Government of Israel pursuant to which the Government of Israel has provided
assistance to the Company in connection with its investment in the Negev 2
Venture by providing a grant of 44.34(cent) for each U.S. dollar ($1.00)
invested and expended by the Company in oil and gas activities in Israel within
the framework of the Negev 2 Venture. The Government financing provided for
under the Grant is repayable only from funds emanating from commercial
production in any payout area and then, only to the extent of 30% of the
recipient's share of the net revenue from said payout area, as and


                                      -31-
<PAGE>

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.

      "Negev 2 Venture Agreements" shall mean the Joint Venture Agreement, the
Joint Operating Agreement, the Voting Agreement and every agreement into which
the parties to said agreements have entered, in connection with the Negev 2
Venture.

      "Overriding Royalty Interest" shall mean a percentage interest over and
above the base royalty and is free of all costs of exploration and production,
which costs are borne by the Grantor of the Overriding Royalty Interest and
which is related to a particular Petroleum License.

      "Payout" shall mean the defined point at which one party has recovered its
prior costs.

      "Petroleum" shall mean any petroleum fluid, whether liquid or gaseous, and
includes oil, natural gas, natural gasoline, condensates and related fluid
hydrocarbons, and also asphalt and other solid petroleum hydrocarbons when
dissolved in and producible with fluid petroleum.

      "Petroleum Exploration" shall mean test drilling; any other operation or
search for petroleum, including geological, geophysical, geochemical and similar
investigations and tests; and, drilling solely for obtaining geological
information.

      "Petroleum Law" shall mean the Israel Petroleum Law, 5712-1952.

      "Petroleum Production" shall mean the production of petroleum from a
petroleum field and all operations incidental thereto, including handling and
treatment thereof and conveyance thereof to tankers, a pipe line or a refinery
in or in the vicinity of the field.


                                      -32-
<PAGE>

      "Preliminary Permit", "Preferential Right to Obtain a License", "License"
shall have the meaning(s) set forth in the Petroleum Law of Israel.

      "Sole Risk operation" is an operation in which fewer than all of the
participants in a venture participate, and the non-consenting participant has no
financial obligation but also loses his right to participate in the results of
the operation.

      "Trust Agreement" shall mean the Trust Agreement made on the 3rd day of
March, 1989 (as amended September 7, 1989, July 28, 1991, March 5, 1992 and June
11, 1992) for the Trust Company of Kesselman and Kesselman.

      "Voting Agreement" shall mean the Voting Agreement made the 30th day of
June, 1988 between the Negev 2 Venture participants, excluding HEI.

      "Working Interest" shall mean an interest in a Petroleum Asset granting
the holder thereof the right to participate pro rata in exploiting the Petroleum
Asset for petroleum exploration, development and petroleum production, subject
to its pro rata participation in the expenses involved therein after acquiring
the Working Interest.

      Israel Petroleum Law

      The Company's business in Israel is subject to regulation by the State of
Israel pursuant to the Petroleum Law, 1952. The administration and
implementation of the Petroleum Law is vested in the Minister of National
Infrastructure (the "Minister") and an Advisory Council.

The following includes brief statements of certain provisions of the Petroleum
Law in effect at the date of this Prospectus. Reference is made to the copy of
the Petroleum Law filed as an exhibit to the Registration Statement referred to
under "Additional Information" and the description which follows is qualified in
its entirety by such reference.

      The holder of a preliminary permit is entitled to carry out petroleum
exploration, but not test drilling or petroleum production, within the permit
areas. The Commissioner determines the term of a preliminary permit and it may
not exceed eighteen (18) months. The Minister may grant the holder a priority
right to receive licenses in the permit areas, and for the duration of such
priority right no other party will be granted a license or lease in such areas.

      Drilling for petroleum is permitted pursuant to a license issued by the
Commissioner. The term of a license is for three (3) years, subject to extension
under certain circumstances for an additional period up to four (4) years. A
license holder is required to commence test drilling within two (2) years from
the grant of a license (or earlier if required by the terms of the license) and
not to interrupt operations between test drillings for more than four (4)
months.

      If any well drilled by the Company is determined to be a commercial
discovery prior to expiration of the license, the Company will be entitled to
receive a Petroleum Lease granting it the exclusive right to explore for and
produce petroleum in the lease area. The term of a lease is for thirty (30)
years, subject to renewal for an additional term of twenty (20) years.

      The Company, as a lessee, will be required to pay the State of Israel the
royalty prescribed by the Petroleum Law which is presently, and at all times
since 1952 has been, 12.5% of the petroleum produced from the leased area and
saved, excluding the quantity of petroleum used in


                                      -33-
<PAGE>

operating the leased area.

      The Minister may require a lessee to supply at the market price such
quantity of petroleum as, in the Minister's opinion, is required for domestic
consumption, subject to certain limitations.

      As a lessee, the Company will also be required to commence drilling of a
development well within six (6) months from the date on which the lease is
granted and, thereafter, with due diligence to define the petroleum field,
develop the leased area, produce petroleum therefrom and seek markets for and
market such petroleum.

Item 13. Exhibits and Reports on Form 8-K and Financial Statements

      (a) Exhibits

1.1   Underwriting Agreement, filed as an Exhibit with the S-l Registration
      Statement, File No. 33-57482.

1.2   Selected Dealers Agreement, filed as an Exhibit with the S-l Registration
      Statement, File No. 33-57482.

1.3   Underwriter's Warrant Agreement, filed as an Exhibit with the S-l
      Registration Statement, File No.33-57482.

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.

4.1   Form of Warrant Agreement with respect to Class A and Class B Redeemable
      Warrants, filed as an Exhibit with the S-l Registration Statement, File
      No. 33-57482.

4.2   Form of Deposit Agreement, filed as an Exhibit with the S-l Registration
      Statement, File No. 33-57482.

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

10.3  License Agreement dated February 29, 1984 between the Company and
      Petronav, Inc., filed as an Exhibit to Form 10-K Fiscal 1984, and
      incorporated herein by reference.

10.5  Consulting Agreement dated April 1, 1985 between the Company and Elmco
      Holdings Limited (subsequently assigned by Elmco Holdings Ltd. to H.G.
      Finance Ltd.), filed as an Exhibit to Form 10-K Fiscal 1985, and
      incorporated herein by reference.

10.6  Employment Agreement and Stock Option Agreement dated March 1, 1985
      between the Company and William W. Houck, filed as an Exhibit to Form 10-K
      Fiscal 1985, and incorporated herein by reference (now expired).


                                      -34-
<PAGE>

10.9  Farmout Agreement dated March 30, 1986 between the Company and Naphtha
      Israel Petroleum Corp. Ltd., filed as an Exhibit to Form 10-K Fiscal 1986,
      and incorporated herein by reference.

10.12 Exchange Agreement dated May 22, 1986 between the Company and SSE (UK),
      filed as an Exhibit to Form 8-K for the month of May 1986 and incorporated
      herein by reference.

10.13 Assignment Agreement dated as of May 5, 1988 between the Company and SSE
      (UK), filed as an Exhibit to Form 8-K for the month of June 1988 and
      incorporated herein by reference.

10.14 Joint Venture Agreement and Joint Operating Agreement dated June 30, 1988
      by and among HEI Oil and Gas Limited Partnership, JOEL - Jerusalem Oil
      Exploration Ltd., Delek Oil Exploration Ltd., Delek, The Israel Fuel
      Corporation Ltd., the Company, Southern Shipping and Energy (U.K.),
      Naphtha, Israel Petroleum Company Ltd., Oil Exploration of 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.

10.15 Agreement(re: Negev Joint Venture No. 2 - Assignment of Interest) dated
      December 9, 1988 between the Company and Southern Shipping and Energy
      (U.K.), filed as an Exhibit to Form 8-K for the month of November 1988 and
      incorporated herein by reference.

10.17 Amendment No. 1 to Agreement (re: Negev Joint Venture No. 2 - Assignment
      of Interest) with Southern Shipping and Energy (U.K.) dated January 12,
      1989 between the Company and Southern Shipping and Energy (U.K.), filed as
      an Exhibit to Form 8-K for the month of January 1989 and incorporated
      herein by reference.

10.19 Management Services Agreement dated November, 1988 and effective as of
      July 1, 1988 between the Company and H.G. Finance Ltd., filed as an
      Exhibit to Form 10-Q for the Company for the quarter ending September 30,
      1988 and incorporated herein by reference.

10.20 Grant Agreement with the Government of Israel, 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.

10.23 Translated from Hebrew, Transfer of Rights Agreement between the Company
      and Isramco-Negev 2 dated March 5, 1989, filed as an Exhibit to Form 8-K
      for the month of March 1989 and incorporated herein by reference.

10.24 Translated from Hebrew, Limited Partnership Agreement between Isramco Oil
      and Gas Ltd. and Isramco Management (1988) Ltd. dated March 2, 1989, filed
      as an Exhibit to Form 8-K for the month of March 1989 and incorporated
      herein by reference.

10.25 Translated from Hebrew, Trust Agreement between Isramco Management (1988)
      Ltd.


                                      -35-
<PAGE>

      and Kesselman and Kesselman dated March 3, 1989, filed as an Exhibit to
      Form 8-K for the month of March 1989 and incorporated herein by reference.

10.26 Translated from Hebrew, Indemnity Agreement between the Company and
      Isramco Management (1988) Ltd. dated March _, 1989, filed as an Exhibit to
      Form 8-K for the month of March 1989 and incorporated herein by reference.

10.27 Consulting and Option Agreement dated March 17 1989 between the Company
      and M.H. Meyerson & Co., Inc., filed as an Exhibit to Form 8-K dated March
      20, 1989 and incorporated herein by reference.

10.29 Agreement dated as of March 30, 1989 between the Company and SSE (U.K.)
      and filed as an Exhibit to Form 8-K for the month of June 1989 and
      incorporated herein by reference.

10.33 Negev Ashquelon/224 License, filed with Post-effective Amendment No. 7 to
      Form S-l Registration Statement and incorporated herein by reference. File
      No. 2-83574.

10.34 Consulting and Option Agreement dated December 4, 1989 between the Company
      and Ladenburg, Thalmann & Co., Inc., filed as an Exhibit to Form 8-K for
      the month of December 1989.

10.36 Amendment No. 1 to the Negev 2 Venture Agreement made as of August 1, 1989
      and Amendment No. 2 to the Negev 2 Venture Agreement made as of September
      22, 1989 by and between the Negev 2 Venture Participants, filed as an
      Exhibit to the Post-effective Amendment No. 8 to Form S-l Registration
      Statement. File No. 2-83574.

10.37 Amendment Agreement to Grant Agreement between the Company and the
      Government of Israel, filed as an Exhibit to this Post-effective Amendment
      No. 8 to Form S-l Registration Statement. File No. 2- 83574.

10.38 Amendment to Agreement between the Company and M.H. Meyerson & Co., Inc.
      made as of February 28, 1991, as filed as an Exhibit to Form 8-K for the
      month of February 1991 and incorporated herein by reference.

10.40 Stock Option Agreement dated as of May 25, 1990 between the Company and J.
      Jerome Williams, filed as an Exhibit to Form 8-K for the month of May,
      1990 and incorporated herein by reference.

10.41 Supplement to Transfer of Rights Agreement dated July 22, 1991 between the
      Company and Isramco-Negev 2, Limited Partnership filed as an Exhibit to
      Form 8-K of the Company, dated August 27, 1991, and incorporated herein by
      reference.

10.42 Clarification Agreement dated March 3, 1992 between the Company and JOEL -
      Jerusalem Oil Exploration Ltd., filed as an Exhibit to Form 10-K for
      Calendar Year ended December 31, 1991 dated March 26, 1992, and
      incorporated herein by reference.

10.43 Underwriting Agreement dated March 11, 1992 between Isramco-Negev 2
      Limited Partnership, Isramco Oil and Gas Ltd., Pat Oil Exploration
      Limited, JOEL - Jerusalem Oil Exploration Ltd., Isramco Management (1988)
      Limited, East Mediterranean Oil and Gas


                                      -36-
<PAGE>

      Limited and the Company (executed in Hebrew with an English translation
      attached), filed as an Exhibit to Form 10-K for Calendar Year ended
      December 31, 1991 dated March 26, 1992, and incorporated herein by
      reference.

10.44 Assignment of Rights Agreement dated March 8, 1992 between JOEL Jerusalem
      Oil Exploration Ltd., Pat Oil Exploration Limited, the Company and
      Isramco-Negev 2 Limited Partnership (executed in Hebrew with an English
      translation attached), filed as an Exhibit to Form 10-K for Calendar Year
      ended December 31, 1991 dated March 26, 1992, and incorporated herein by
      reference.

10.45 Supplement to Assignment of Rights Agreement dated March 8, 1992 between
      JOEL -Jerusalem Oil Exploration Ltd., Pat Oil Exploration Limited, the
      Company and Isramco-Negev 2 Limited Partnership (executed in Hebrew with
      an English translation attached), filed as an Exhibit to Form 10-K for
      Calendar Year ended December 31, 1991 dated March 26, 1992, and
      incorporated herein by reference.

10.46 Sole Risk Agreement #1 (NIRIM) dated as of October 1 , 1991 between
      Isramco-Negev 2 Limited Partnership, JOEL - Jerusalem Oil Exploration
      Ltd., the Company, Delek Oil Exploration Ltd., Delek - The Israeli Fuel
      Corporation Ltd., Oil Exploration of Pat Ltd. and Naphtha Israel Petroleum
      Company Ltd., filed as an Exhibit to Form 10-K for Calendar Year ended
      December 31, 1991 dated March 26, 1992, and incorporated herein by
      reference.

10.47 Sole Risk Notice (Nirim) dated August 30, 1991, filed as an Exhibit to
      Form 10-K for Calendar Year ended December 31, 1991 dated March 26, 1992,
      and incorporated herein by reference.

10.48 Deed of Assignment for Petroleum License No. 224/Negev Ashhquelon and
      Petroleum License No. 227/Nirim for the benefit of Isramco Resources Inc.
      filed as an Exhibit to Form 8-K for the month of ended August 1992 and
      dated September 9, 1992.

10.49 Service Letter Agreement dated June 28, 1992 between J.O.E.L. - Jerusalem
      Oil Exploration Ltd. and the Company regarding office space and services
      filed as an Exhibit to Form 10-Q for the six (6) months ending June 30,
      1992, dated August 10, 1992 and incorporated herein by reference.

10.50 Cancellation of Forfeiture and Ratification Agreement and Amendment No. 1
      to Cancellation of Forfeiture and Ratification Agreement filed as an
      Exhibit to Form 8-K for the month of January 1993 dated January 21, 1993
      and incorporated herein by reference.

10.51 Option Agreement between Isramco Resources Inc. and Naphtha Petroleum
      Corporation Ltd. filed as an Exhibit to Form 8-K for the month of January
      1993 dated January 21, 1993 and incorporated herein by reference.

10.52 Option Agreement between Isramco Resources Inc. and J.O.E.L. - Jerusalem
      Oil Exploration Ltd., Oil Exploration of Pat Ltd., Isramco - Negev 2
      Limited Partnership and the Company filed as an Exhibit to Form 8-K for
      the month of January 1993 dated January 21, 1993 and incorporated herein
      by reference.


                                      -37-
<PAGE>

10.53 Equalization of Rights Agreement between Isramco-Negev 2 Limited
      Partnership and Delek Oil Exploration Ltd. and Delek - The Israel Fuel
      Corporation Ltd, filed as an Exhibit to Form 8-K for the month of January
      1993 dated January 21, 1993 and incorporated herein by reference.

10.54 Option Agreement between Isramco Resources Inc. and Delek Oil Exploration
      Ltd. and Delek - The Israel Fuel Corporation Ltd. filed as an Exhibit to
      Form 8-K for the month of January 1993 dated January 21, 1993 and
      incorporated herein by reference.

10.55 Letter to Isramco-Negev 2 Limited Partnership dated as of January 6, 1993
      re: Negev Ashquelon License and Negev Nirim License filed as an Exhibit to
      Form 8-K for the month of January 1993 dated January 21, 1993 and
      incorporated herein by reference.

10.56 Agreement between the Company and Technion Research and Development
      Foundation dated November 2, 1992 filed as an Exhibit to Form 10-K for
      1993 and incorporated herein by reference.

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

10.58 Consulting Agreement with Dr. Joseph Elmaleh dated June 20, 1995, filed as
      an Exhibit to Form 8-K for the month of July, 1995 and incorporated herein
      by reference.

10.59 Employment Agreement with Danny Toledano made as of the 16th day of
      October, 1995, filed as an Exhibit to Form 8-K for the month of November,
      1995 and incorporated herein by reference.

10.60 Consulting Agreement with Zenith Holdings Ltd., a company which employs
      Haim Tsuff made May _, 1996, filed as an Exhibit to Form 8-K for the month
      of June, 1996 and incorporated herein by reference.

10.61 Termination Agreement between the Company and Danny Toledano made as of
      the 23rd day of June 1996, filed as an Exhibit to Form 8-K for the month
      of June, 1996 and incorporated herein by reference.

10.62 Non-Compete Agreement between the Company and Danny Toledano made as of
      the 23rd day of June 1996, filed as an Exhibit to Form 8-K for the month
      of June, 1996 and incorporated herein by reference.

10.63 Consulting Agreement between the Company and Danny Toledano made as of the
      23rd day of June 1996, filed as an Exhibit to Form 8-K for the month of
      June, 1996 and incorporated herein by reference.

10.64 Termination Agreement between the Company and Dr. Joseph Elmaleh dated
      April 16, 1996, filed as an Exhibit to Form 10-Q for the three month
      period ending March 31, 1996 and incorporated herein by reference.

10.65 Consulting Agreement between the Company and Yuval Ran dated the Ist day
      of August, 1996, filed as an Exhibit to Form 8-K for the month of August,
      1996 and incorporated herein by reference.


                                      -38-
<PAGE>

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

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

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

10.69 Settlement Agreement and Release dated March _, 1998 between Reuven Hello,
      Jay Resources Corporation, Jay Natural Resources Inc., Jay Petroleum LLC
      and Jay Management Company LLC, as Claimants and the Company, NIR
      Resources Inc., Jay Petroleum LLC and Jay Management Company LLC, as
      Respondents, filed as an Exhibit to Form 8-K for the month of March, 1998
      and incorporated herein by reference.

10.70 Inventory Services Management Agreement dated December 1, 1997 between the
      Company and Equital Ltd. filed as an Exhibit to Form 10KSB for the year
      ended December 31, 1997.

10.71 Consulting Agreement dated August 20, 1997 between the Company and JFC
      Enterprises, LLC filed as an Exhibit to Form 10KSB for the year ended
      December 31, 1997.

10.72 Farmout Agreement dated October 29, 1999 between the Company and Isramco
      Negev 2 - Limited Partnership, J.O.E.L. - Jerusalem Oil Exploration Ltd.,
      Equital Ltd., Naphtha Exploration Limited Partnership, Naphtha Israel
      Petroleum Corp. Ltd., INOC - Dead Sea - Limited Partnership and BG
      International Limited, filed herewith.

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

      (b) Reports on Form 8-K

            (i)   Report on Form 8-K filed on November 2, 1999.

            (ii)  Report on Form 8-K filed on November 1, 1999.

            (iii) Report on Form 8-K filed on October 20, 1999.

            (iv)  Report on Form 8-K filed on October 8, 1999.

      (c) Financial Statements

            Report of Independent Accountants

            Consolidated Balance Sheets at December 31, 1999 and 1998

            Consolidated Statement of Operations for the years ended December
      31, 1999, 1998 and 1997

            Consolidated Statement of changes in Shareholders' Equity for the
      years ended December 31, 1999, 1998 and 1997

            Consolidated Statement of Cash Flows for the years ended December
      31, 1999, 1998 and 1997

            Notes to Consolidated Financial Statements


                                      -39-
<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.

                                       ISRAMCO, INC.
                                       Registrant

                                       By: /s/ HAIM TSUFF

                                       Haim Tsuff,
                                       Chairman of the Board and
                                       Chief Executive Officer

Date: April 14, 2000

      In accordance with 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, in the capacities and on the dates indicated.

Signature                         Capacity                        Date


/s/ Jackob Maimon                 Director, President             April 14, 2000


/s/ Tina Maimon Arckens           Director and Secretary          April 14, 2000


/s/ Prof. Avihu Ginzburg          Director                        April 14, 2000


/s/ Prof. Linda Canina            Director                        April 14, 2000


                                      -40-
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Isramco Inc.:

We have audited the consolidated balance sheets of Isramco Inc. and subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and comprehensive income, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Isramco Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.


                                                        KPMG LLP

Houston, Texas
March 30, 2000


                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Isramco Inc.

We have audited the consolidated statement of operations, changes in
shareholders' equity and cash flows of Isramco, Inc. and subsidiaries for the
year ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of their operations and their
cash flows of Isramco Inc. and subsidiaries for the year ended December 31,
1997, in conformity with generally accepted accounting principles.


HEIN + ASSOCIATES LLP

Houston, Texas
March 24, 1998


                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                        December 31
                                                                   --------------------
                                                                     1999        1998
                                                                   --------    --------
<S>                                                                <C>         <C>
                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents ....................................   $ 15,314    $ 14,240
  Marketable securities, at market .............................      2,692       3,846
  Accounts receivable ..........................................        381         268
  Prepaid expenses and other current assets ....................      1,222         207
                                                                   --------    --------
        Total current assets ...................................     19,609      18,561

PROPERTY AND EQUIPMENT, (successful efforts method for oil and
  gas properties), net of accumulated depreciation, depletion,
  amortization and provision for impairment of $2,031 and $1,863
  at December 31, 1999 and 1998, respectively ..................      4,965       5,450
OTHER ASSETS:
  Marketable securities, at market .............................      3,113          --
  Investment in affiliates .....................................      2,925         285
  Covenants not to compete, less accumulated amortization of
      $410 and $348 at December 31, 1999 and 1998, respectively          60         122
  Deferred tax asset ...........................................         85          --
  Other ........................................................          7          68
                                                                   --------    --------
        Total assets ...........................................   $ 30,764    $ 24,486
                                                                   ========    ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILIITIES:
  Current maturities of long-term debt .........................   $  1,404    $    374
  Accounts payable and accrued expenses ........................      1,362         644
  Advance payments received ....................................      1,701          --
                                                                   --------    --------
        Total current liabilities ..............................      4,467       1,018

LONG-TERM DEBT, NET OF CURRENT MATURITIES ......................         --       1,404
                                                                   --------    --------
        Total liabilities ......................................      4,467       2,422
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
SHAREHOLDERS' EQUITY:
  Common stock, $.01 par value; 75,000,000 shares authorized,
      2,669,120 shares issued and outstanding at December 31,
      1999 and 1998 ............................................         27          27
  Additional paid-in capital ...................................     26,168      26,168
  Accumulated deficit ..........................................     (1,122)     (3,967)
  Accumulated other comprehensive income - unrealized gain on
      marketable securities, net of taxes ......................      1,388          --
  Treasury stock, 29,267 shares at December 31, 1999 and 1998 ..       (164)       (164)
                                                                   --------    --------
        Total shareholders' equity .............................     26,297      22,064
                                                                   --------    --------
        Total liabilities and shareholders' equity .............   $ 30,764    $ 24,486
                                                                   ========    ========
</TABLE>

See accompanying notes to the consolidated financial statements.


                                      F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                           ----------------------------------------
                                                               1999          1998           1997
                                                           -----------   -----------    -----------
<S>                                                        <C>           <C>            <C>
REVENUES:
  Operator fees from related party .....................   $     1,744   $       720    $       461
  Oil and gas sales ....................................         1,107         1,410          2,001
  Interest income ......................................         1,011           557          1,085
  Office services to related party .....................           881           613            483
  Equity in net income of investees ....................            --            16             39
  Reimbursement of exploration costs ...................            --           255             --
  Gain from sale of oil and gas properties and equipment            17           931             --
  Gain on marketable securities ........................         1,264            --             --
  Gain on sale of investments in affiliates ............           100            --             --
  Other ................................................            13            --             --
                                                           -----------   -----------    -----------
        Total revenues .................................         6,137         4,502          4,069

COSTS AND EXPENSES:
  Impairment of oil and gas properties .................            --           571             12
  Interest expense .....................................           157           326            341
  Depreciation, depletion and amortization .............           609           815            684
  Lease operating expense and severance taxes ..........           469           883            972
  Exploration costs ....................................           154            81             11
  Operator expense .....................................           514           487            507
  General and administrative ...........................         1,061         1,196          1,289
  Equity in net loss of investees ......................           107
  Loss on marketable securities ........................            --           973            272
                                                           -----------   -----------    -----------
        Total costs and expenses .......................         3,071         5,332          4,088
                                                           -----------   -----------    -----------

Income (loss) before income taxes and minority interest          3,066          (830)           (19)
Income taxes ...........................................           221            38             --
Minority interest ......................................            --            17              5
                                                           -----------   -----------    -----------
Net income (loss) ......................................   $     2,845   $      (851)   $       (14)
                                                           ===========   ===========    ===========

Income (loss) per share -- basic and diluted ...........   $      1.08   $     (0.32)   $     (0.01)
                                                           ===========   ===========    ===========

Weighted average number of shares outstanding ..........     2,639,853     2,639,853      2,639,853
                                                           ===========   ===========    ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                      F-4
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CHANGES IN
                 SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                   (in thousands except for share information)

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                      Common Stock        Additional                  Other                     Total
                                  ---------------------    Paid-In   Accumulated  Comprehensive   Treasury   Shareholders'
                                   Shares       Amount     Capital     Deficit        Income        Stock       Equity
                                  ---------   ---------   ---------   ---------    ------------   ---------  ------------
<S>                               <C>         <C>         <C>         <C>            <C>          <C>          <C>
Balances at December 31, 1996 .   2,669,120   $      27   $  26,168   $  (3,102)     $   --       $    (164)   $  22,929

Comprehensive loss:
  Net loss ....................          --          --          --         (14)         --              --          (14)
                                                                                                               ---------
Total comprehensive loss ......                                                                                      (14)
                                  ---------   ---------   ---------   ---------      ------       ---------    ---------

Balances at December 31, 1997 .   2,669,120          27      26,168      (3,116)         --            (164)      22,915

Comprehensive loss:
  Net loss ....................          --          --          --        (851)         --              --         (851)
                                                                                                               ---------
Total comprehensive loss ......                                                                                     (851)
                                  ---------   ---------   ---------   ---------      ------       ---------    ---------

Balances at December 31, 1998 .   2,669,120          27      26,168      (3,967)         --            (164)      22,064

Comprehensive income:
  Net income ..................          --          --          --       2,845          --              --        2,845
  Unrealized gain on marketable
     securities, net of taxes .          --          --          --          --       1,388              --        1,388
                                                                                                               ---------
Total comprehensive income ....                                                                                    4,233
                                  ---------   ---------   ---------   ---------      ------       ---------    ---------

Balances at December 31, 1999 .   2,669,120   $      27   $  26,168   $  (1,122)     $1,388       $    (164)   $  26,297
                                  =========   =========   =========   =========      ======       =========    =========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                       --------------------------------
                                                                         1999        1998        1997
                                                                       --------    --------    --------
<S>                                                                    <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss) ..............................................   $  2,845    $   (851)   $    (14)
    Adjustments to reconcile net income (loss) to net cash provided
      by operating activities:
        Depreciation, depletion, amortization and provision
          for impairment ...........................................        609       1,386         696
        Minority interest ..........................................         --         (17)         (5)
        (Gain) loss on marketable securities .......................     (1,264)      1,259         107
        Gain on sale of investments in affiliates ..................       (100)         --          --
        Gain on sale of oil and gas properties and equipment .......        (17)       (931)         (3)
        Equity in net (income) loss of investees ...................        107         (16)        (39)
        Deferred taxes .............................................        (85)         --          --
        Changes in assets and liabilities:
           Accounts receivable .....................................       (113)        505        (215)
           Prepaid expenses and other current assets ...............     (1,015)         96         (15)
           Other assets ............................................         11          15         (78)
           Accounts payable and accrued liabilities ................      2,512        (364)         72
                                                                       --------    --------    --------

                 Net cash provided by operating activities .........      3,490       1,082         506

CASH FLOWS FROM INVESTING ACTIVITIES:
    Exploration costs ..............................................         --          --         (11)
    Purchase of equipment and oil and gas properties ...............       (117)       (149)     (5,292)
    Purchase of Jay Petroleum, L.L.C. and of Jay Management
      L.L.C., net of cash acquired .................................        (60)        (63)     (1,036)
    Proceeds from sale of oil and gas properties and equipment .....         89       1,437           6
    Purchase of marketable securities ..............................     (3,642)     (1,966)     (3,767)
    Proceeds from sale of marketable securities ....................      4,335       3,990       3,064
    Proceeds from sale of investments in affiliates ................      1,018          --          --
    Proceeds from (payments for) certificate of deposit ............         --       1,900      (1,900)
    Purchase of investments in affiliates ..........................     (3,665)       (285)         --
    Other ..........................................................         --          --          27
                                                                       --------    --------    --------

                 Net cash provided by (used in) investing activities     (2,042)      4,864      (8,909)

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from long-term debt ...................................         --         137       3,000
    Principal payments on long-term debt ...........................       (374)     (1,584)       (855)
                                                                       --------    --------    --------

                 Net cash provided by (used in) financing activities       (374)     (1,447)      2,145
                                                                       --------    --------    --------

Net increase (decrease) in cash and cash equivalents ...............      1,074       4,499      (6,258)
Cash and cash equivalents - beginning of year ......................     14,240       9,741      15,999
                                                                       --------    --------    --------

Cash and cash equivalents - end of year ............................   $ 15,314    $ 14,240    $  9,741
                                                                       ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest ...........................   $    157    $    326    $    341
                                                                       ========    ========    ========
Cash paid during the period for taxes ..............................   $     --    $     --    $     --
                                                                       ========    ========    ========
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                      F-6
<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 engaged in the acquisition,
exploration, operation and development of oil and gas properties and the
temporary investment of surplus funds in securities. As of December 31, 1999,
the Company owns properties in Texas, Louisiana, Oklahoma, Wyoming, New Mexico,
the Republic of Congo, Africa, and approximately a .5% working interest in
various properties located in Israel.

      [2] Consolidation

      The consolidated financial statements include the accounts of the Company,
its direct and indirect wholly-owned subsidiaries Isramco Oil and Gas Ltd. (Oil
and Gas) and Isramco Resources Inc., a British Virgin Islands company, its
wholly-owned subsidiary, Jay Petroleum, L.L.C., (Jay) and an immaterial
wholly-owned foreign subsidiary. Intercompany balances and transactions have
been eliminated in consolidation. The Company held a 35% interest in Jay
Management, L.L.C. (Jay Management) during January, February and March 1998.
This investment was accounted for under the equity method of accounting prior to
acquisition of an additional 30% interest in Jay Management interest in March
1998. At December 31, 1998 the Company acquired the remaining 35% interest in
Jay Management.

      [3] Method of Accounting for Oil and Gas Operations

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

      Depletion and depreciation of capitalized costs for producing oil and gas
properties is provided using the units-of-production method based upon proved
reserves. Depreciation, depletion, amortization and provision for impairment
expense for the Company's oil and gas properties amounted to approximately
$450,000, $1,255,000 and $502,000 for 1999, 1998 and 1997, respectively.


                                      F-7
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      [4] Marketable Securities

      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.

      At December 31, 1998, the Company considered all of its marketable
securities to be held for trading purposes. During the first quarter of 1999,
the Company transferred certain investments in marketable securities, with a
historical cost of $2,750,000, to available-for-sale at fair market value. The
Company holds no held-to-maturity securities. Trading and available-for-sale
securities are recorded at fair market value. 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 as accumulated other comprehensive
income, a separate component of shareholders' equity, until realized.

      [5] Equipment

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

      [6] Translation of Foreign Currencies

      Foreign currency is translated in accordance with Statement of Financial
Accounting Standards No. 52, which provides the criteria for determining the
functional currency for entities operating in foreign countries. The Company has
determined its functional currency is the United States (U.S.) dollar since all
of its contracts are in U.S. dollars. The financial statements of Oil and Gas
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 which are translated at the rate in effect at the time of their
acquisition. Depreciation is remeasured based on the historical dollar cost of
the underlying assets. The net effects of currency translations were not
material in any period.

      [7] Earnings Per Common Share

      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. At December 31, 1999, 1998 and 1997 earnings per share amounts are
based on the weighted average number of shares outstanding. The assumed
conversion of warrants and exercise of options do not result in material
dilution.

      [8] Cash Equivalents

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

      [9] Noncompete Agreements

      Noncompete agreements are amortized over the period to be benefited,
generally from three to five years.


                                      F-8
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      [10] New Pronouncements

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, as amended by SFAS No. 137,
establishes standards for of accounting for and disclosures of derivative
instruments and hedging activities. This statement requires all derivative
instruments to be carried on the balance sheet at fair value and is effective
for the Company beginning January 1, 2001, however, early adoption is permitted.
The Company has not yet determined the impact of this statement on its financial
condition or results of operations.

      [11] Use of Estimates

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

      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, 1999, approximately 43% 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. 121, 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 historical and
projected prices for oil and natural gas, which have typically been volatile. It
is reasonably possible that the Company's oil and gas reserve estimates will
materially change in the forthcoming year.

      [12] Impairment of Long-Lived Assets

      The provisions of SFAS No. 121 require the Company to assess impairment
whenever events or changes in circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable. When an assessment for impairment of
oil and gas properties is performed, the Company is required to compare the net
carrying value of oil and gas properties on a field-by-field basis (the lowest
level at which cash flows can be determined on a consistent basis) to the
related estimates of undiscounted future net cash flows for such properties. If
the net carrying value exceeds the net cash flows, then an impairment is
recognized to reduce the carrying value to the estimated fair value. The Company
recorded impairment provisions of $0, $571,000 and $12,000 during 1999, 1998 and
1997, respectively, on the excess of the carrying value of the Company's oil and
gas properties over the estimated future discounted cash flows from such
properties.


                                      F-9
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      [13] 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.

      [14] Oil and Gas Revenues

      The Company recognizes oil and gas revenues under the entitlements method.

      [15] 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 noncapital nature are recorded when environmental assessment
and/or remeditaion is probable, and the costs can be reasonably estimated. No
significant amounts for environmental liabilities are recorded at December 31,
1999.

(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 for oil and gas for which it receives
operating fees equal to the larger of 6% of the actual direct costs or minimum
monthly fees of $6,000 per license.

Operator fees earned and related operator expenses are as follows:

                                                   Year Ended December 31,
                                            ------------------------------------
                                             1999           1998           1997
                                            ------         ------         ------
                                                       (in thousands)

Operator fees:
  Negev Med Venture ...............         $  252         $  288         $  288
  Shederot Venture ................             18            360             72
  Yam Ashdod Carveout .............             65             72            101
  Yam West 2 ......................            575             --             --
  Or-1 ............................            283             --             --
  Or South-1 ......................            509             --             --
  Marine North ....................             42             --             --
                                            ------         ------         ------
                                            $1,744         $  720         $  461
                                            ======         ======         ======

Operator expenses .................         $  514         $  487         $  507
                                            ======         ======         ======


                                      F-10
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      In August of 1997 the Company entered into a Consulting Agreement with
Romulas Investment Ltd. (which Agreement has been assigned to Remarkable
Holdings Ltd.), a company which is wholly owned and controlled by Daniel Avner,
the Vice-President of the Company. Pursuant to this Agreement which had a term
of one (1) year through July 31, 1998, the Company has agreed to pay the
consultant the sum of $7,500 per month plus expenses. 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 Company has also agreed to provide a company car
and company furnished apartment to the Consultant, if available. The Consulting
Agreement is in effect through July 2000.

      On January 21, 1998, the Company entered into an Inventory Management
Agreement with Equital Ltd. pursuant to which the Company is obligated to pay to
Equital Ltd. $1,650 plus VAT payable December, March, June and September of each
year during the term of the Agreement. In the case of the drilling of a well if
the total monthly hours of services provided to the Company by Equital Ltd.
exceed 30 hours per month, then the Company shall pay an additional $40.00 per
hour plus VAT for services rendered. The Agreement may be terminated on three
(3) month's written notice.

      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, 2001, 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. The Consulting Agreement provides that the
term shall be automatically extended for an additional term of three (3) years,
unless the Company has given notice at least ninety (90) days prior to the
scheduled expiration, that it does not intend that the term be renewed. In the
event that the Company terminates 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.

      The Company paid J.O.E.L. Jerusalem Oil Exploration Limited ("JOEL"), a
related party, $30,000 during 1997 for rent, office, secretarial and computer
services. From January 1997 to March 1997 the Company paid JOEL $8,000 per month
for such services. From April 1997 through September 1997, the Company paid
Naphtha, the Company's Parent, $6,000 per month, then effective October 1997
through June 30, 1998, $4,600 per month and then effective July 1998 through
December 31, 1999, $6,500 per month for such services.

      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 $580,000, $480,000 and $480,000 for the year ended December
31, 1999, 1998 and 1997, respectively.

      During the years ended December 31, 1999, 1998 and 1997, the Company
incurred $273,000, $214,000 and $253,900, respectively, for consulting services
rendered by officers/directors of the Company.

      In June 1996, the Company paid its former President $200,000 in
consideration for a five-year covenant not to compete and entered into a
consulting agreement with a company owned by the former President.

      The Company agreed to pay its former Chief Executive Officer $8,250 per
month through July 1997 for consulting services. In April 1996, the executive
resigned from his position. Pursuant to a termination agreement, the Company
agreed to pay him $123,750 representing the balance of unpaid consulting fees,
$270,000 in consideration for a three year covenant not to compete, and,
purchased from Southern Shipping and Energy, Inc., a company controlled by the
former Chief Executive Officer, 29,268 shares of the Company's common stock for
$208,240.


                                      F-11
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      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,
as amended, provides that the term shall be automatically extended for an
additional term of three years, commencing June 1, 2001, unless the Company has
given notice at least 90 days prior to June 1, 2001 that it does not intend that
the term be renewed. In the event that the Company terminates 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.

      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 vest with the General Partner, however, matters involving the rights
of 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 Partnership interest in the Limited Partnership is 0.01% and
is accounted for using the equity method of accounting.

      At December 31, 1999 the Company also owned 122,742,565 units of the
Isramco Negev 2 Limited Partnership, with a cost and market value of $3,031,000
and $3,665,000, respectively. At December 31, 1998 the Company owned 3,891,590
units, adjusted for a one-to-ten reverse unit split during 1999, of the Isramco
Negev 2 Limited Partnership with a cost and market value of $296,000 and
$285,000, respectively. These investments are also accounted for using the
equity method of accounting. During 1999, the Company sold approximately
43,100,000 units, realizing a gain of $100,000 in earnings.

      For additional related party transactions, see acquisitions Footnote J.

(NOTE C) - Marketable Securities

      At December 31, 1999 and 1998, the Company had net unrealized gains
(losses) on marketable securities of $8,000 and $(1,756,000), respectively.

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

                                  December 31, 1999        December 31, 1998
                             ------------------------  ------------------------
                                Cost     Market Value     Cost     Market Value
                             ----------  ------------  ----------  ------------
Debentures ................  $2,012,000   $1,968,000   $2,959,000   $2,728,000
Equity securities .........     517,000      569,000    2,643,000    1,118,000
Investment trust fund .....     155,000      155,000           --           --
                             ----------   ----------   ----------   ----------
Total .....................  $2,684,000   $2,692,000   $5,602,000   $3,846,000
                             ==========   ==========   ==========   ==========

      Available for sale securities, which are primarily traded on the Tel-Aviv
Stock Exchange, consist of equity securities with amortized cost of $1,725,000,
gross holding gains of $1,388,000 and a fair market value of $3,113,000. The
Company held no available-for-sale securities at December 31, 1998.

      Sales of marketable securities (trading and available for sale) resulted
in realized gains (losses) of $1,256,000, $(83,000) and $193,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.


                                      F-12
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

(NOTE D) - Oil and Gas Properties

                                                                        Total
                                                                     Capitalized
                                         Unproved       Proved          Costs
                                       -----------   -----------    -----------
Balance--December 31, 1997 .........   $ 2,700,000   $ 4,731,000    $ 7,431,000
Acquisition costs ..................            --       260,000        260,000
Sale of oil and gas properties .....            --      (644,000)      (644,000)
                                       -----------   -----------    -----------
Balance--December 31, 1998 .........     2,700,000     4,347,000      7,047,000
Acquisition costs ..................            --        57,000         57,000
Sale of oil and gas properties .....            --      (402,000)      (402,000)
                                       -----------   -----------    -----------
Balance--December 31, 1999 .........   $ 2,700,000   $ 4,002,000    $ 6,702,000
                                       ===========   ===========    ===========

(NOTE E) -- Equipment

Cost:
Balance--December 31, 1997 .....................................      $ 251,000
Purchases ......................................................         60,000
Sales and dispositions .........................................        (45,000)
                                                                      ---------
Balance--December 31, 1998 .....................................        266,000
Purchases ......................................................         28,000
Sales ..........................................................             --
                                                                      ---------
Balance--December 31, 1999 .....................................        294,000

Accumulated Depreciation:
Balance--December 31, 1997 .....................................        130,000
Depreciation expense ...........................................         48,000
Depreciation of equipment that was sold or retired .............        (34,000)
                                                                      ---------
Balance at December 31, 1998 ...................................        144,000
Depreciation expense ...........................................         48,000
Depreciation of equipment that was sold or retired .............             --
                                                                      ---------
Balance--December 31, 1999 .....................................        192,000

Cost less accumulated depreciation--December 31, 1998 ..........      $ 122,000
                                                                      =========
Cost less accumulated depreciation--December 31, 1999 ..........      $ 102,000
                                                                      =========

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:

                                                              December 31,
                                                       -------------------------
                                                          1999            1998
                                                          ----            ----
Unproved properties ..............................     $2,700,000     $2,700,000
Oil and gas properties ...........................      4,002,000      4,347,000
Transportation equipment .........................        149,000        135,000
Office equipment .................................        145,000        131,000
                                                       ----------     ----------
                                                        6,996,000      7,313,000
                                                       ----------     ----------
Less accumulated depletion, depreciation,
   amortization and provision for impairment .....      2,031,000      1,863,000
                                                       ----------     ----------
                                                       $4,965,000     $5,450,000
                                                       ==========     ==========


                                      F-13
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

(NOTE F) - Shareholders' Equity

      The Company declared a one-for-ten reverse stock split during 1998. The
effect of the reverse stock split has been reflected in all share and per share
amounts in the accompanying consolidated financial statements.

      The Company's 1993 stock option plan (the 1993 Plan) was approved at the
Annual General Meeting of Shareholders held on August 13, 1993. At December 31,
1999 and 1998, 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.

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

                                                                 Weighted-
                                                                 Average
            1993 Plan:                             Options    Exercise Price
                                                   -------    --------------

            Outstanding at January 1, 1997 .....    29,750        $21.00
            Granted ............................        --            --
            Expired ............................        --            --
                                                   -------
            Outstanding at December 31, 1997 ...    29,750        $21.00
            Granted ............................        --            --
            Expired ............................        --            --
                                                   -------
            Outstanding at December 31, 1998 ...    29,750        $21.00
            Granted ............................        --            --
            Expired ............................        --            --
                                                   -------
            Outstanding at December 31, 1999 ...    29,750        $21.00

As of December 31, 1999, 29,750 options were outstanding and exercisable with a
price of $21.00 and a weighted-average remaining contractual life of 4.3 years.


                                      F-14
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                Weighted-
                                                                Average
            Consultants and others:                Options   Exercise Price
                                                   -------   --------------

            Outstanding at January 1, 1997 ......    2,000       $23.00
            Granted .............................       --           --
            Expired .............................       --           --
                                                   -------
            Outstanding at December 31, 1997 ....    2,000       $23.00
            Granted .............................       --           --
            Expired .............................       --           --
                                                   -------
            Outstanding at December 31, 1998 ....    2,000       $23.00
            Granted .............................       --           --
            Expired .............................       --           --
                                                   -------
            Outstanding at December 31, 1999 ....    2,000       $23.00
                                                   =======

      As of December 31, 1999, 2,000 options were outstanding and exercisable
with a price of $23.00 and a weighted-average remaining contractual life of 3.7
years.

      At December 31, 1998, the Company had outstanding Class A Redeemable
Warrants and Class B Redeemable Warrants which it issued pursuant to a public
offering in 1993. A Class A Redeemable Warrant entitled the holder to purchase
one share of common stock at a price of $20.00 at any time after the date of
issuance until April 16, 1999 (extended from April 16, 1998). A Class B
Redeemable Warrant entitled the holder to purchase one share of common stock at
a price of $40.00 at any time after issuance until April 16, 1999 (extended from
April 15, 1998). At December 31, 1998, 749,889 Class A Redeemable Warrants and
767,500 Class B Redeemable Warrants were outstanding. The Class A and Class B
warrants were subject to redemption by the Company at a price of $0.01 per
warrant on thirty days' notice after the price of the Company's common shares
exceeds $21.00 and $42.00, respectively. All Class A and Class B warrants
expired on April 16, 1999.

      In connection with the offering the Company issued to the Underwriter a
warrant to purchase 22,500 units (the "Underwriter Warrant") exercisable one
year after issuance but not later than five years at a price of $66.00 per unit.
Each unit is identical to those sold to the public except that the exercise
prices of the Class A Redeemable Warrants and Class B Redeemable Warrants are
$32.00 and $64.00, respectively. Each unit consists of .4 shares of common
stock, .2 Class A Redeemable Warrants and .2 Class B Redeemable Warrants.

      Shares of common stock reserved for future issuance are:

      Options granted under the 1993 Plan ....................      29,750
      Options available for grant under the 1993 Plan ........      20,250
      Shares underlying the Underwriter Warrant ..............      18,000
      Other ..................................................       2,000
                                                                    ------
      Total ..................................................      70,000
                                                                    ======

      Subsequently, in March 2000, two directors were each granted five year
options to purchase up to 69,995 shares of the Company's common stock at an
exercise price of $4.28.


                                      F-15
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      The Company applies Accounting Principles Bulletin Opinion No. 25 and
related interpretations in accounting for its options. Accordingly, no
compensation cost has been recognized for its stock option grants to its
employees. Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS No. 123, Accounting for Stock-based Compensation, the
Company's net loss and loss per share would not have been materially different
from that reported.

(NOTE G) -- Income Taxes

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

                                       Year Ended December 31,
                          -----------------------------------------------
                             1999              1998              1997
                          -----------       -----------       -----------
      U.S ..........      $  (640,000)      $  (938,400)      $   (29,000)
      Foreign ......      $ 3,706,000           108,400            10,000
                          -----------       -----------       -----------
      Total ........      $ 3,066,000       $  (830,000)      $   (19,000)
                          ===========       ===========       ===========

      The provision for income taxes is as follows:

                                            Year Ended December 31,
                                     -------------------------------------
                                       1999             1998        1997
                                     ---------        ---------   --------
      Current:
           State .............       $      --        $  38,000   $     --
           Federal ...........         234,000
           Foreign ...........          72,000               --         --
      Deferred ...............         (85,000)              --         --
                                     ---------        ---------   --------
           Total .............       $ 221,000        $  38,000   $     --
                                     =========        =========   ========

      Deferred taxes are provided principally in relation to temporary
differences in unrealized appreciation (depreciation) in marketable securities
and net operating losses.

      The deferred tax assets as of December 31, 1999 and 1998 are as follows:

                                                         As of December 31,
                                                     --------------------------
                                                        1999           1998
                                                     -----------    -----------
      Marketable securities ......................   $   403,000        614,600
      U.S. federal net operating losses ..........            --        294,000
      U.S. federal alternative minimum tax credits            --         94,700
      Basis differences in property and equipment        177,000        310,800
      Other timing differences ...................       (46,000)            --
      U.S. state taxes ...........................       (46,000)        45,000
                                                     -----------    -----------
                                                         488,000      1,359,100
      Valuation allowance ........................      (403,000)    (1,359,100)
                                                     -----------    -----------
                                                     $    85,000    $        --
                                                     ===========    ===========


                                      F-16
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      The decrease in the valuation allowance from December 31, 1998 to December
31, 1999 amounted to $956,000 and was caused primarily by the utilization of the
net operating loss carryforward and by the change in the unrealized
appreciation/depreciation of marketable securities and basis differences in
property and equipment.

      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 and minority interest is as follows:

                                                   Year Ended December 31,
                                               -------------------------------
                                                1999        1998        1997
                                               -------     -------     -------
Computed at U.S. statutory rates                  35.0%       35.0%       35.0%
  State income taxes, net of federal benefit       2.9         2.9          --
  Adjustment to valuation allowance              (31.2)      (42.5)      (35.0)
  Other                                             .5          --          --
                                               -------     -------     -------
                                                   7.2%       (4.6)%      0.00%
                                               =======     =======     =======

(NOTE H) -- Concentration of Credit Risk

      Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company's customer base includes several of the major United States oil and
gas operating and production companies. Although the Company is directly
affected by the well-being of the oil and gas production industry, management
does not believe a significant credit risk exists at December 31, 1999.

      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 money-market funds.

      Substantially all marketable securities owned by the Company are held by
banks in Israel.


                                      F-17
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

(NOTE I) -- Commitments and Contingencies

      Commitments: The Company leases corporate office facilities under a
three-year operating lease expiring September 2000 at a monthly rental of
$2,718. The Company shares office space with Jay Petroleum, L.L.C. and Jay
Management L.L.C., affiliates, under an informal sublease agreement.

      At December 31, 1999, future minimum lease payments under noncancellable
operating leases are approximately $24,462 through the year ending December 31,
2000.

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

(NOTE J) -- Acquisitions

      On February 5, 1997 the Company acquired an 82.9% membership interest in
Jay at an aggregate cost of $1.2 million; $677,500 for a 50% interest from
N.I.R. Resources, Inc. (NIR), $363,750 for a 25% interest from Stonewall
Resources, LLC, and $132,650 as a capital contribution to Jay for a 7.9%
interest. The Company assumed long-term bank debt of approximately $1,065,000,
resulting in a total purchase price of $2,141,000 substantially, all of which
was allocated to oil and gas properties. The acquisition was accounted for on
the purchase method of accounting. NIR is a wholly owned subsidiary of Naphtha.
The Branch Manager of the Company's Israel Branch is the General Manager of
Naphtha and the Company's President is also a director of Naphtha. In addition,
officers and directors of the Company are associates of officers and directors
of Naphtha.

      Jay entered into a Management Agreement with Jay Management, a Texas
limited liability company formed in February 1997 for the purpose of operating
certain oil and gas interests and managing certain oil and gas interests owned
or to be acquired by Jay. For a capital contribution of $350 the Company
acquired a 35% interest in Jay Management. Pursuant to the Management Agreement,
Jay paid to Jay Management a management fee of $12,500 per month. Effective
March 1, 1998 the management fees to be paid under the Management Agreement were
terminated. Jay Management also receives all operating fees pursuant to the
Operating Agreement for the contract wells. The term of the Management Agreement
is for ten years, unless terminated by either party on not less than one hundred
eighty days notice. The designated manager of Jay Management receives a
management fee of $5,000 per month.

      In March 1998, the Company purchased the remaining 17.1% ownership
interest in Jay Petroleum held by Jay Resources Corporation and Jay Natural
Resources, Inc. as a result of arbitration. In March 1998 the Company acquired
an additional 30% interest in Jay Management from Jay Natural Resources, Inc. as
a result of arbitration. The transfer of ownership of both transactions was
effective on December 31, 1997. At December 31, 1998 the Company purchased the
remaining 35% in Jay Management held by N.I.R. Resources, Inc.

      On February 13, 1997 Jay acquired from Snyder Oil Corporation of Fort
Worth, Texas, various operated and nonoperated interests in oil and gas wells in
Louisiana, Texas and Wyoming for a cost of $2,669,000. The acquisition was
financed primarily with bank financing obtained by Jay through a $10 million
Master Note Facility with Comerica Bank--Texas, Houston, Texas. The Company is
not a borrower or guarantor under this Master Note Facility.


                                      F-18
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      On September 4, 1997 the Company acquired from Equital Ltd. an affiliated
company formerly known as Pass-port Ltd., which controls JOEL (see Note B)--a
50% participation in a joint venture that holds two permits offshore of the
Republic of Congo, the Marine III Exploration permit and the Tilapia
Exploitation permit to develop the Tilapia Field. The purchase price was $2.7
million, all of which was paid in cash. In addition, the Company granted Equital
an 8% carried interest after payout in its rights regarding the
production-sharing contract on the Tilapia permit. "Payout" as defined in the
agreement means recovery of all of the investments to be done by the Company in
the Tilapia permit, excluding the purchase price paid by the Company to Equital
Ltd. for Tilapia of $2.55 million. The other 50% participant in the joint
venture is Naphtha Israel Petroleum Corp. Ltd., which controls the Company. The
operator for this project is Naphtha Congo Ltd., a wholly owned subsidiary of
Naphtha Israel Petroleum Corp. Ltd. Naphtha Congo is paid $14,000 annually which
costs are shared equally between the Company and Naphtha in consideration for
office services, accounting and overhead. It will also receive from these
parties fees as to be detailed in a joint operating agreement. The Company
received a fair market valuation of the two permits from an independent
petroleum-engineering consultant.

      During 1997, a new government was established in the Congo. Although the
political situation in the Congo has not to date had a material adverse effect
on the Company's 50% investment in the joint venture that holds two permits
offshore of the Republic of Congo, no assurances can be made that continued
political unrest in West Africa will not have a material adverse effect on the
Company and the joint venture's operation in the Congo in the future.

(Note K)--Sale of Interests

      On October 20, 1999, the Company and the other participants (collectively,
the "Isramco Group"), entered into an agreement with BG International Limited, a
member of the British Gas Group ("BG"), for the acquisition by BG from the
Isramco Group of a 50% participation interest in the Med Licenses in Israel and
BG's replacement of the Company as operator of the Med Yavne License and any new
license issued in respect of the other Med Licenses scheduled to expire in June
2000 (the " BG Transaction"). Following the consummation of the BG Transaction,
the Company's participation in the Med Licenses was reduced to approximately
0.5% (reduced from 1.0043%).

      In consideration of the Company's performance of its obligations under the
BG Transaction, BG paid to the Company approximately $3.8 million, of which $1.9
million was paid in October 1999 and the remainder in January 2000. Included in
advance payments received on the balance sheet at December 31, 1999 is $1.7
million relating to the cash received in 1999 from BG of $1.9 million, less
costs incurred of approximately $200,000. This amount is being deferred until
the completion of the agreement and the Company's performance of its obligations
under the BG Transaction in January 2000, and at which time is expected to be
recognized as a gain along with the January 2000 payment. Additionally, upon the
issuance of each of the three first new licenses, if any, which may be obtained
in lieu of the expiring Med Licenses, the Company is entitled to a payment of
approximately $1.7 million (or a total of approximately $5 million if all
licenses are obtained).

      Under the terms of the BG Transaction, BG replaced the Company as operator
of the Med Yavne license as of January 1, 2000. The Company will continue to
serve as operator of each of the remaining Med Licenses on the same terms and
conditions currently existing among the Company and the other license
participants until each such license's expiration. Other than for the Med Yavne
License, BG is not required to pay to the Company its share of any
administrative overhead in respect of the remaining four Med Licenses until
their scheduled expiration.


                                      F-19
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      Pursuant to the BG Transaction, the Company and BG will coordinate their
respective efforts in consolidating and completing work programs in respect of
the areas included within the Med Licenses (other than for Med Yavne) for the
purpose of jointly applying for new oil licenses in replacement of the expiring
Med Licenses. In conjunction with its license participants and BG, the Company
and BG intend to file, upon the expiration of the Med Licenses, an application
for new licenses in replacement of the expiring licenses, except that with
respect to the Med Yavne licenses (where the Or 1 find was discovered), the
operator intends to file an application for an extension of the existing license
or, alternatively, an application for a 30 year lease covering the intended area
of production.

      With respect to the Med Yavne license, the Joint Operating Agreement has
been revised to provide, among other things, that BG will be appointed operator
and the Company will furnish to BG consulting services of an administrative and
technical nature. In consideration therefor, the Company is entitled to a
monthly fee equal to $10,000. 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 and/or gas which is produced within the existing
offshore licenses or within any new licenses or within other oil and gas rights
which may be obtained in lieu of these offshore licenses.

(NOTE L) - Long-term Debt

      Jay has a $10 million bank line of credit facility in place to finance
acquisitions of oil and gas prospects. The loan bears interest at the base rate
of the bank plus 1.5% (9.25% at December 31,1999 and 8.75% at December 31, 1998)
and matures in April 2000, as amended in February 2000. Advances outstanding
under the bank loan facility are collateralized by the oil and gas properties
acquired and are limited to the "Borrowing Base", as defined, which is subject
to an annual redetermination. Payments of $31,208 per month, plus interest, were
required until the April 1, 1999 redetermination date. The borrowing base at
December 31, 1999 and 1998 was $3,235,000.

      Under the terms of the financing agreement with the bank, Jay must meet
certain covenant requirements. The most restrictive covenants include
maintenance of a positive working capital ratio, exclusive of current maturities
of amounts outstanding under the bank loan facility. Future principal payments
on the bank loan facility as of December 31, 1999 are $1,404,395 in 2000.

(NOTE M) - Geographical Segment Information

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


                                      F-20
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      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):

<TABLE>
<CAPTION>
                                                          Geographic Segment
                                            ---------------------------------------------
                                             United                          Consolidated
                                             States      Israel      Africa      Total
                                            --------    --------    --------   --------
       1999
       ----
<S>                                         <C>         <C>         <C>        <C>
Sales and other operating revenue .......   $  1,174    $  2,558    $     --   $  3,732
Costs and operating expenses ............     (1,058)       (688)         --     (1,746)
                                            --------    --------    --------   --------
Operating profit (loss) .................   $    116    $  1,870    $     --   $  1,986
                                            ========    ========    ========   ========

Interest income, gain on marketable
  Securities and other corporate revenues                                         2,298
General corporate expenses ..............                                        (1,061)
Interest expense ........................                                          (157)
Income taxes ............................                                          (221)
                                                                               --------
Net income ..............................                                      $  2,845
                                                                               ========

Identifiable assets at
  December 31, 1999 .....................   $  2,175    $     90    $  2,700   $  4,965
Cash and corporate assets ...............                                        25,799
                                                                               --------
Total assets at December 31, 1999 .......                                      $ 30,764
                                                                               ========
</TABLE>

<TABLE>
<CAPTION>
                                                          Geographic Segment
                                            ---------------------------------------------
                                             United                          Consolidated
                                             States      Israel      Africa      Total
                                            --------    --------    --------   --------
       1998
       ----
<S>                                         <C>         <C>         <C>        <C>
Sales and other operating revenue .......   $  1,543    $  1,455    $     --   $  2,998
Costs and operating expenses ............     (2,244)       (512)         --     (2,756)
                                            --------    --------    --------   --------
Operating profit (loss) .................   $   (701)   $    943    $     --   $    242
                                            ========    ========    ========   ========

Interest income
  and other corporate revenues ..........                                         1,504
General corporate expenses ..............                                        (1,277)
Interest expense, loss on marketable
  Securities and other corporate revenues                                        (1,299)
Minority interest .......................                                            17
Income taxes ............................                                           (38)
                                                                               --------
Net income ..............................                                      $   (851)
                                                                               ========
Identifiable assets at
  December 31, 1998 .....................   $  2,686    $     64    $  2,700   $  5,450
Cash and corporate assets ...............                                        19,036
                                                                               --------
Total assets at December 31, 1998 .......                                      $ 24,486
                                                                               ========
</TABLE>

                                      F-21
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
                                                          Geographic Segment
                                            ---------------------------------------------
                                             United                          Consolidated
                                             States      Israel      Africa      Total
                                            --------    --------    --------   --------
       1997
       ----
<S>                                         <C>         <C>         <C>        <C>
Sales and other operating revenue .......   $  2,001    $    944    $     --   $  2,945
Costs and operating expenses ............     (1,668)       (518)         --     (2,186)
                                            --------    --------    --------   --------
Operating profit (loss) .................   $    333    $    426    $     --   $    759
                                            ========    ========    ========   ========

Interest income, loss on marketable
  securities and other corporate revenues                                           852
General corporate expenses ..............                                        (1,289)
Interest expense ........................                                          (341)
Minority interest .......................                                             5
                                                                               --------
Net income ..............................                                      $    (14)
                                                                               ========

Identifiable assets at
  December 31, 1997 .....................   $  4,107    $     83    $  2,700   $  6,890
Cash and corporate assets ...............                                        19,893
                                                                               --------
Total assets at December 31, 1998 .......                                      $ 26,783
                                                                               ========
</TABLE>

      The following supplemental information regarding the oil and gas
activities of the Company is presented pursuant to the disclosure requirements
promolgated 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. The Company had no oil and gas assets or operations prior to 1997.

Capitalized Cost of Oil and Gas Producing Activities (in thousands)

<TABLE>
<CAPTION>
                                                 1999                 1998                 1997
                                          ------------------   ------------------   ------------------
                                          United               United               United
                                          States      Congo    States      Congo    States      Congo
                                          -------    -------   -------    -------   -------    -------
<S>                                       <C>        <C>       <C>        <C>       <C>        <C>
Unproved properties not being amortized   $    --    $ 2,700   $    --    $ 2,700   $    --    $ 2,700
Proved property being amortized .......     4,002         --     4,347         --     4,571         --
Accumulated depreciation, depletion
   Amortization and impairment ........    (1,840)        --    (1,719)        --      (502)        --
                                          -------    -------   -------    -------   -------    -------

Net capitalized costs .................   $ 2,162    $ 2,700   $ 2,628    $ 2,700   $ 4,069    $ 2,700
                                          =======    =======   =======    =======   =======    =======
</TABLE>


                                      F-22
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>
                                                                          1999                 1998                 1997
Costs Incurred in Oil and Gas Property                             ------------------   ------------------   -----------------
  Acquisition, Exploration, and                                    United               United               United
  Development Activities (in thousands)                            States      Congo    States      Congo    States    Congo
                                                                   -------    -------   -------    -------   -------   -------
<S>                                                                <C>        <C>       <C>        <C>       <C>       <C>
Property acquisition costs--proved and
  unproved properties ..........................................   $    57    $    --   $   260    $    --   $ 4,347   $ 2,700
Exploration costs ..............................................        --         --        --         --        --        --
Development costs ..............................................        --         --        --         --        --        --
(Israel exploration costs in 1999 - $154; 1998 - $81; 1997 - $0)

Results of Operations for Oil and Gas
  Producing Activities (in thousands)
Oil and gas sales ..............................................   $ 1,107    $    --   $ 1,410    $    --   $ 2,001   $    --
Lease operating expense and severance taxes ....................       469         --       883         --       972        --
Depreciation, depletion, amortization and
  provision for impairment .....................................       609         --     1,386         --       502        --
Exploration costs ..............................................        --         --        --         --        --        --
                                                                   -------    -------   -------    -------   -------   -------
Income (Loss) before tax provision .............................        29         --      (859)        --       527        --
Provision for income taxes .....................................      (221)        --       (38)        --        --        --
                                                                   -------    -------   -------    -------   -------   -------
Results of operations ..........................................   $  (192)   $    --   $  (897)   $    --   $   527   $    --
                                                                   =======    =======   =======    =======   =======   =======
</TABLE>

Oil and Gas Reserves

      Oil and gas proved reserves could 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.


                                      F-23
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

      The following table represents the Company's net interest in estimated
quantities of proved developed and undeveloped reserves of crude oil,
condensate, natural gas liquids and natural gas and changes in such quantities
at December 31, 1999, 1998 and 1997, 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 recompletion. All
of the Company's proved reserves are in the United States. The Company had no
proved reserves prior to 1997. The Company's oil and gas reserves are priced at
$23.74 per barrel and $2.85 per Mcf, respectively, at December 31, 1999.

                                                    Oil BBls           Gas Mcf
                                                    --------           -------

January 1, 1997 ............................               --                --
Acquisition of minerals in place ...........          155,879         5,392,558
Production .................................          (40,483)         (604,010)
                                                   ----------        ----------

December 31, 1997 ..........................          115,396         4,788,548
Revisions of previous estimates ............           67,584           945,551
Acquisition of minerals in place ...........               --            56,961
Sales of minerals in place .................               --          (984,600)
Production .................................          (31,000)         (523,000)
                                                   ----------        ----------

December 31, 1998 ..........................          151,980         4,283,460
Revisions of previous estimates ............           57,843           245,207
Acquisition of minerals in place ...........               --                --
Sales of minerals in place .................           (4,200)         (195,500)
Production .................................          (23,200)         (409,668)
                                                   ----------        ----------

December 31, 1999 ..........................          182,423         3,923,499
                                                   ==========        ==========

The Company's proved developed reserves are as follows:

                                                     Oil BBls          Gas Mcf
                                                     --------          -------

December 31, 1999 ..........................          182,423         3,040,710
December 31, 1998 ..........................          151,435         3,384,986
December 31, 1997 ..........................          115,396         4,788,548

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.


                                      F-24
<PAGE>

                         ISRAMCO INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

The standardized measure is intended only to assist financial statement users in
making comparisons among companies.

<TABLE>
<CAPTION>
                                                            1999            1998            1997
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
Future cash inflows .................................   $ 15,512,720    $  8,247,017    $ 15,410,237
Future development costs ............................       (286,187)       (289,517)       (541,678)
Future production costs .............................     (4,931,404)     (3,081,781)     (5,905,863)
                                                        ------------    ------------    ------------
Future net cash flows ...............................     10,295,129       4,875,719       8,962,696
Annual 10% discount rate ............................     (5,012,695)     (2,125,207)     (3,625,706)
                                                        ------------    ------------    ------------
Standardized measure discounted future net cash flows   $  5,282,434    $  2,750,512    $  5,336,990
                                                        ============    ============    ============
</TABLE>

Estimated future income taxes were eliminated because estimated future tax
deductions related to oil and gas properties exceeded estimated future net
revenues based on oil and gas prices and related costs at each year end.

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, 1999, 1998 and 1997 were as
follows:

<TABLE>
<CAPTION>
                                                         1999           1998           1997
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Beginning of the year .............................   $ 2,750,512    $ 5,336,990    $        --
Sales and transfers of oil and gas produced, net of
    production costs ..............................      (637,849)      (527,500)    (1,029,853)
Sales of reserves in place ........................       (81,100)    (1,609,800)            --
Net changes in prices and production costs ........     2,258,520     (1,510,631)      (329,000)
Acquisition of minerals in place ..................            --         67,500      6,125,843
Revisions of previous estimates ...................       717,351        459,953             --
Accretion of discount .............................       275,000        534,000        570,000
                                                      -----------    -----------    -----------
End of year .......................................   $ 5,282,434    $ 2,750,512    $ 5,336,990
                                                      ===========    ===========    ===========
</TABLE>


                                      F-25

<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                       Quarter Ended
                                                ------------------------------------------------
                                                March 31,  June 30,  September 30,  December 31,
                                                  1999       1999        1999           1999           Total
                                                ------------------------------------------------
<S>                                             <C>        <C>         <C>            <C>          <C>
Total Revenues                                  $   988    $   941     $ 1,344        $ 2,864     (1) $   6,137
Net Income before taxes and minority interest   $   349    $   301     $   520        $ 1,896         $   3,066
Net Income                                      $   304    $   251     $   390        $ 1,900         $   2,845
Earnings(loss) per Common Share-Basic           $  0.12    $  0.10     $  0.15        $  0.71         $    1.08
Earnings(loss) per Common Share-Diluted         $  0.12    $  0.10     $  0.15        $  0.71         $    1.08

<CAPTION>
                                                                       Quarter Ended
                                                ------------------------------------------------
                                                March 31,  June 30,  September 30,  December 31,
                                                  1998       1998        1998           1998           Total
                                                ------------------------------------------------
<S>                                             <C>        <C>         <C>            <C>          <C>
Total Revenues                                  $   931    $ 1,044     $   740        $ 1,787     (2) $   4,502
Net Income before taxes and minority interest   $  (543)   $   138     $    (2)       $  (423)        $    (830)
Net Income                                      $  (526)   $   136     $   (20)       $  (441)        $    (851)
Earnings(loss) per Common Share-Basic           $ (0.20)   $  0.05     $ (0.01)       $ (0.16)        $   (0.32)
Earnings(loss) per Common Share-Diluted         $ (0.20)   $  0.05     $ (0.01)       $ (0.16)        $   (0.32)
</TABLE>

(1)   Includes a increase in fourth quarter due to a gain on marketable
      securities of $1.2 million
(2)   Includes a increase in fourth quarter due to gains on sales of oil and gas
      properties of $0.8 million


                                      F-26