================================================================================

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

                                   FORM 10-KSB
                       PURSUANT TO SECTION 13 OR 15(D) OF
                         SECURITIES EXCHANGE ACT OF 1934
(Mark One)

[ X ]   Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934 [Fee Required]
        or
[   ]   Transition Report pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934[No Fee Required]

For the Calendar Year ended December 31, 1997

Commission File Number 0-12500

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

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


              1770 St. James Place, Suite 607, Houston, Texas 77056
              -----------------------------------------------------
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (713) 621-3882

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock - $.01 par value
                           Class A Redeemable Warrants
                           Class B Redeemable Warrants

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No
                                              ---     ---

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

     Revenue for year ended  December  31, 1997 was  $3,797,000.  The  aggregate
market value of the voting stock held by  nonaffiliates  of the  Registrant  was
approximately  $7,644,622 as of March 11, 1998, based upon the closing bid price
on the NASDAQ National  Market System  reported for such date.  Shares of Common
Stock held by each  officer and  director and by each person who owns 5% or more
of the  outstanding  Common Stock have been excluded in that such persons may be
deemed  to  be  affiliates.  This  determination  of  affiliate  status  is  not
necessarily a conclusive determination for other purposes.


     26,398,523  shares of Common Stock were issued and  outstanding as of March
10, 1998.

================================================================================


<PAGE>


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

History
-------

     The Company since its formation in 1982 has been active in the  exploration
of oil and gas in Israel.  From 1982 to 1985 the Company with certain affiliated
entities and other participants expended  approximately $8.5 million for oil and
gas exploration in Israel and drilled four wells onshore  Israel.  The Company's
share of these  expenditures was  approximately  $2.8 million.  Although oil was
discovered  at the Gurim 4 and 5 wells,  only  approximately  9,000 barrels have
been produced and none of the wells sustained commercial production.

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

     The  participants  in the  Negev 1  Venture  expended  approximately  $19.2
million for oil and gas exploration activities including seismic exploration and
drilled two wells,  both of which were dry holes.  The Company's  share of these
expenditures  was  approximately  $576,000.  The  Negev 1  Venture  received  no
revenues from its activities.

     Following  the  expiration  of the  Negev 1  Venture  in 1988,  the Negev 2
Venture was formed by the same  participants and held two licenses - Negev Nirim
and Negev  Ashquelon.  Within the  framework of the Negev 2 Joint  Venture,  two
offshore  wells ("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.  The
Company,  as the  Operator is in the process of winding  down the affairs of the
Negev 2 Joint Venture.

     In 1991  the  Negev 2  Venture  participants  (excluding  HEI)  received  a
Preliminary Permit with Priority Rights to receive petroleum licenses (the Negev
Med Venture).  When the Preliminary Permit expired the Venture participants were
granted five (5) licenses:  Med Tel Aviv License,  Med Yavne License, Med Ashdod
License,  Med Hadera  License,  Med Hasharon  License (the Med Licenses)  with a
duration  which has been  extended  until June 15, 2000. On January 24, 1994 the
participants  in the Med Tel Aviv License spudded the Yam Yafo 1 well in the Yam
Yafo  Structure  approximately  20  kilometers  northwest of the Tel Aviv coast.
There was no economic  justification  for  producing oil and gas from this well.
The total cost of drilling the Yam Yafo well including tests, was  approximately
$38 million of which the Company's share was $382,000.


                                      - 1 -


<PAGE>



     On November 15, 1994 the  participants in the Med Yavne License spudded the
Yam West 1 well (the well is located  approximately  32 kilometers  northwest of
Ashdod in a water depth of 2,130 feet) which was declared a dry hole.  The total
cost of the well was  approximately $23 million of which the Company's share was
approximately $231,000.

     In 1996 the  Ministry of Energy  awarded to the  Company and other  venture
participants an onshore drilling license called Shederot/265.

     In 1997 the  Company  has  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 Company is the Operator of the Shederot  Venture which  consists of one
onshore license,  the Negev Med Venture which consists of five offshore licenses
and the Yam Ashdod Carveout Venture which consists of one offshore  license.  As
the Operator,  the Company is responsible  for directing the oil exploration and
drilling  activities  of each  Venture  through  its Branch  Office in Tel Aviv,
Israel. With full-time (six) employees,  outside consultants and subcontractors,
the Company  carries out the  operations of each Venture within the framework of
approved  work  programs  and  budgets  and  pursuant  to the  terms  of a Joint
Operating Agreement.

     The Operator  charges each Venture  participant  for all costs  incurred in
connection  with the  exploration  and  drilling  activities  conducted  by each
Venture and is entitled to receive a fee for its  administrative  overhead equal
to 6% of all direct charges or minimum  monthly  compensation of $6,000 per each
License.  During the year ended  December 31, 1997, the Company was paid fees of
$288,000  in  connection  with  the  Negev  Med  Venture,  fees of  $100,891  in
connection  with  the  Yam  Ashdod  Carveout  Venture  and  fees of  $72,000  in
connection with the Shederot  Venture.  See "Material  Agreements".  The minimum
monthly Operator's fee is currently $36,000 per month.

General Partner for the Negev 2 Limited Partnership
---------------------------------------------------

     In 1989 the Company formed in Israel the Negev 2 Limited  Partnership  (the
"Limited  Partnership") to acquire from the Company a substantial portion of its
working interest in the Negev 2 Venture. In exchange for working interests,  the
Limited  Partnership  paid to the  Company  $700,000  and granted to the Company
certain overriding  royalties.  In 1992, the Company  transferred to the Limited
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

                                      - 2 -

<PAGE>



to appoint the sole director for Isramco Management (1988) Ltd. and to supervise
its activities on behalf of and for the benefit of the Limited  Partnership unit
holders.  The control and management of the Limited  Partnership  vests with the
General  Partner,   however,   matters  involving  the  rights  of  the  Limited
Partnership unit holders are subject to the supervision of the Supervisor and in
certain instances the approval of the Limited Partnership unit holders. The firm
of Igal Brightman & Co., Accountants and Mr. David Valiano, Accountant have been
appointed as Supervisors.

     The  Company  during  1992  and  1993,  in  order  to  assist  the  Limited
Partnership in the financing of its oil and gas exploration activities, acted as
offeror of Limited  Partnership  units to the public in Israel and  assisted the
Limited Partnership in raising approximately $123 million from public in Israel.
The Company and its  subsidiary,  Isramco  Underwriters  Ltd.,  along with other
affiliated and  non-affiliated  companies  also acted as an underwriter  for the
Limited  Partnership  unit offerings and during the period March 1, 1992 through
December 31, 1994 received  underwriting fees and expense  reimbursements in the
approximate  amount  of  $602,000  and fees in the  amount of  $160,000  for the
preparation of three prospectuses for the Limited Partnership unit offerings.

     On March 1, 1998 the Limited  Partnership had available  approximately  $64
million to finance its share of work obligations  under the Licenses with regard
to the  Petroleum  Assets.  The Limited  Partnership  is the  largest  holder of
Working Interests in the Negev 2 Venture,  the Shederot  Venture,  the Negev Med
Venture and the Yam Ashdod  Carveout  Venture.  See "Table of  Petroleum  Assets
(Working Interests) Oil and Gas Ventures".

     The Company holds overriding  royalties in certain Petroleum Assets through
the Limited  Partnership and currently  receives a management fee of $40,000 (as
of  January  1997) per month from the  Limited  Partnership  for  office  space,
management and other services.  It has been  significant to the Company that the
Limited Partnership (in part through the efforts of the Company and others), has
been  able to raise  monies  from  the  public  in  Israel  to fund the  Limited
Partnership's  share of the work programs for the Petroleum Assets in connection
with the  continuation  of oil and gas  exploration  activities in Israel and to
preserve the existence of the Company's overriding royalties. As of December 31,
1997 the  Company  held  0.01% of the  issued  Limited  Partnership  units and a
subsidiary of the Company, acting as General Partner for the Limited Partnership
held a 0.01% interest in the Limited Partnership.

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

Jay Petroleum, LLC
------------------

     In February  1997,  the Company  acquired an interest in Jay  Petroleum LLC
("Jay"),  a  Texas  limited  liability  company.  The  Company  (i)  paid to NIR
Resources  Inc.  ("NIR") the sum of  $677,500  for its 50%  Membership  Interest
(before recovery of  contributions)  in Jay which interest for profit allocation
purposes reduces to 37.5% after recovery of capital contribution;  and (ii) paid
to Stonewall  Resources LLC the sum of $363,750 for its 25% Membership  Interest
before  recovery of  contributions  in Jay which interest for profit  allocation
purposes  reduces to 18.75% after  recovery of capital  contributions.  NIR is a
wholly owned  subsidiary of Naphtha  Israel  Petroleum  Corp.  Ltd. See Security


                                      - 3 -


<PAGE>


Ownership of Certain  Beneficial  Owners. Mr. Yossi Levy, the Branch Manager for
the Israel Branch Office of the Company is the General Manager of Naphtha Israel
Petroleum Corp. Ltd- ("Naphtha") and NIR. In addition, officers and directors of
the Company are associates of officers and directors of Naphtha.

     On February  13, 1997 Jay  acquired  from  Snyder Oil  Corporation  of Fort
Worth, Texas,  various operated and non-operated  interests in oil and gas wells
in Louisiana, Texas and Wyoming for a cost of $3.1 million excluding acquisition
costs and purchase price  adjustments.  The acquisition  was financed  primarily
with bank  financing  obtained  by Jay through a $ 10 million  Revolving  Credit
Facility with Comerica Bank - Texas,  Houston,  Texas.  The Company is neither a
borrower nor guarantor under this Revolving Credit Facility.

     As part  of the  same  transaction  the  Company  made a  $132,650  capital
contribution  to Jay and acquired  from Jay  Resources  Corp. a 7.9%  Membership
Interest in Jay  Petroleum  LLC which  interest  increases to an  allocation  of
profits percentage of 13.81% after recovery of capital contributions.

     In  connection  with  this  acquisition  of  interests  in Jay the  Company
received a Fair Market  Value  Letter from the firm of Albrecht  and  Associates
Inc., independent petroleum engineers, with regard to the oil and gas properties
held by Jay,  The Fair  Market  Value  Letter  was  based in part  upon  reserve
evaluation  and net  income  projections  prepared  by  Riseden  Services  Inc.,
independent  petroleum  engineers.  A copy of the Fair Market Value Letter dated
January 27, 1997 and the Riseden  Report dated  January 16, 1997 have been filed
as Exhibits with Form 8-K filed by the Company for the month of February 1997.

     As of  December  31,  1997  the  Company  in the  aggregate  held an  82.9%
Membership  Interest  in Jay.  Jay  Natural  Resources  LLC which  held a 10.65%
Membership  Interest and Jay Resources Corp. held a 6.45%  Membership  Interest,
all of which  interests  are  subject to  adjustment  after  recovery of capital
contributions.  The  Company's  share of  profits  (before  recovery  of capital
contribution)  in Jay is 82.9% and after  recovery of capital  contribution  the
allocation of profit participation will be reduced to 70.06%.

     Jay owns both operated and non-operated  varying working  interests in over
fifty (50) oil and gas wells in the United States.  Independent estimates of the
reserves  held by Jay  Petroleum  LLC,  which are  located  in Texas,  Oklahoma,
Wyoming,  Louisiana  and New Mexico as of December  31,  1997 are  approximately
115,000 net barrels of proven developed producing oil reserves; 3,883 net MMCF's
of proven  developed  producing  natural gas reserves;  905 net MMCF's of proven
developed behind pipe natural gas; 926 net MMCF's of proven undeveloped  natural
gas reserves; and, 12,000 net barrels of proven undeveloped oil 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. The Company has
a 35% membership interest in Management.  Pursuant to the Management  Agreement,
Jay was  obligated to pay to  Management  a management  fee of $12,500 per month
through  February 1998. Due to the sharp decline in oil prices and the resulting
effect on the cash flow of the Company,  the  obligation for the payment of this
fee was  waived  with the  mutual  consent  of the  parties  as of  March  1998.
Management  also  receives  payments as operator  pursuant to various  operating
agreements for approximately 40 contract wells, which it operates.

                                      - 4 -


<PAGE>


     Effective  October 27, 1997, Dr. Reuven Hollo was terminated as the Manager
of Jay and  Management.  See Legal  Matters.  J.  Monroe  Cutler was  designated
Manager of Jay and NIR was designated manager of Management.  Mr. Cutler is paid
by Jay a management  fee of $5,000 per month.  NIR was paid a management  fee of
$5,000 per month, which fee was discontinued as of March 1998.

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

     Jay Petroleum LLC's audited financial  statements have been consolidated as
part of the Company's  financial  statements.  The  Company's  investment in Jay
Management LLC has been accounted for under the equity method of accounting.

     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 Petroleum
LLC, see the  Supplementary  Oil and Gas Information  immediately  following the
notes to the Financial Statements.

     In March 1998, the Company increased its membership interest in Jay to 100%
and its  membership  interest  in  Management  to 65%.  See Legal  Matters.  The
remainder of the membership interests in Management are owned by NIR.

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:  (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  to be done by the Company in the Tilapia
permit  (excluding the Purchase Price paid by the Company to Equital Ltd.).  The
Company received a fair market valuation of the two permits from Forrest A. Garb
& Associates,  Inc., 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. Work programs for the two permits were prepared by
the operator,  Naphtha Congo Ltd., a wholly owned  subsidiary of Naphtha  Israel
Petroleum Corp. Ltd.

                                      - 5 -


<PAGE>



     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.

OIL AND GAS VENTURES AND PETROLEUM ASSETS
-----------------------------------------
LOCATED IN UNITED STATES AND CONGO
----------------------------------

See Acquisition and Supplementary Oil and Gas Information  immediately following
Notes to Financial Information.

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".



                                      - 6 -


<PAGE>
<TABLE>
<CAPTION>



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

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

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

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

The Company (4)
---------------
The Company                                    1.0043          1.0043           1.0043           1.0043

Affiliates
Isramco-Negev 2
 Limited Partnership (5)                      77.9957         70.9957          53.0268          70.9957
I.O.C. Limited Partnership (6)                14.0000         14.0000          14.0000             ----
Naphtha                                        4.0000          5.0000          5.10145           5.0000
Naphtha Explorations
 Limited Partnership                           ----            5.0000          5.10145           5.0000
JOEL (6)                                       ----              ----             ----           8.0000
Equital (6)                                    ----              ----             ----           6.0000

Non-affiliated entities
Delek Drilling
 Limited Partnership (5)                       3.0000          4.0000          21.7660           4.0000


Total                                        100.0000         100.000         100.0000         100.0000

Area                                           90,000         400,000           84,220          100,000
(acres)

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

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

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

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

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

(4)  The Company and its  subsidiaries  also hold the  Overriding  Royalties and
     0.02% of the Limited Partnership Units.

(5)  On November 11, 1997, Delek Drilling Limited Partnership has transferred 5%
     of  its  rights  in  the  Shederot   License  to  Isramco-Negev  2  Limited
     Partnership.

(6)  During  November 1997 JOEL and Equital sold to I.O.C.  Limited  Partnership
     its  Working  Interests  in the  Shederot  Venture,  the Negev Med  Venture
     (excluding Med Yavne) and the Yam Ashdod Carveout Venture.


                                      - 7 -

<PAGE>



Overriding Royalties held by the Company
----------------------------------------

     The Company holds the following Overriding Royalties:
<TABLE>
<CAPTION>


                                                       TABLE
                                                        OF
                                               OVERRIDING ROYALTIES

                                                               On the First 10% of the
                                                            Limited Partnership Share of the
From The Limited Partnership *                                following Petroleum Licenses
------------------------------                                ----------------------------
                                                           Before Payout              After Payout
                                                           -------------              ------------

<S>                                                           <C>                          <C>
Med Tel Aviv License                                          1.06%                       %3.83
Med Yavne License                                             1.06%                       %3.83
Med Ashdod License                                            1.06%                       %3.83
Med Hadera License                                            1.06%                       %3.83
Med Hasharon License                                          1.06%                       %3.83
Yam Ashdod Carveout                                           1.06%                       %3.83
Shederot License                                              5.00%                       %3.00

From JOEL                                                        On 8% of JOEL's Interest
---------                                                        ------------------------
                                                           Before Payout               After Payout
                                                           -------------               ------------

Yam Ashdod Carveout                                            2.5%                        12.5%

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

Yam Ashdod Carveout                                           2.5%                         12.5%

From Delek (1)(2)                                                 On 2% of DOEX's Interest
-----------------                                                 ------------------------
                                                           Before Payout               After Payout
                                                           -------------               ------------

Yam Ashdod Carveout                                           2.5%                         12.5%
</TABLE>



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


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

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

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

                                      - 8 -


<PAGE>



                                       MAP

                          OFFSHORE AND ONSHORE LICENSES




                             [Map Graphic Omitted]








                                      - 9 -


<PAGE>



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

Negev Med Venture and Yam Ashdod Carveout Venture
-------------------------------------------------

     When the Negev Med  Venture  was formed in  October  of 1991 the  Petroleum
Commissioner  granted to the participants the Negev Med Preliminary  Permit with
priority rights.  The Negev Med Preliminary Permit expired on April 28, 1993 and
the  participants  requested  and received  five new drilling  licenses (the Med
Licenses)  valid until June 14, 1996.  The duration of the Med Licenses has been
extended until June 15, 2000.

In November 1997, the Petroleum  Commissioner gave his consent to the Operator's
request to amend the  conditions  of the license  held by the  offshore  venture
participants.  In his letter the Petroleum  Commissioner specified the new terms
as follows:

     1. A seismic  survey of at least 186 miles to be  conducted  no later  than
February 1, 1998, which will assist in the upgrading of the prospects in the Med
Ashdod license.

     2. Three wells at least 3,000 meters  (approximately 9,800 feet) deep shall
be drilled on the licenses held by the Company and the  participants.  The first
well shall be drilling no later than January 1, 1999. The drilling of the second
well shall  begin  before  June 1, 1999 and the third  shall begin no later than
December 1, 1999. Deepening of any of the old wells shall be considered as a new
well.  If the  conditions  of the  license  are not  satisfied  the  license may
terminate.

     The Med Licenses are the Med Tel Aviv License,  the Med Yavne License,  the
Med Hadera License, the Med Ashdod License and the Med Hasharon License. In June
of 1996, upon the relinquishment of the Negev Ashquelon License,  the boundaries
of the Med Ashdod  License were modified to include the area of the structure on
which the Yam 1 and Yam 2 wells were  drilled,  as well as,  another  additional
structure  which  was  part of the  area  of the  relinquished  Negev  Ashquelon
License.  The  participants  in the Negev Med License  have  delineated  the Yam
Ashdod  Carveout  Area  within the Med Ashdod  License  and this  Carveout  Area
includes  all of the areas  which  were  transferred  from the  Negev  Ashquelon
License.  Each participants' share in this new Carveout is the same as it was in
the Yam Carveout  Venture (which was part of the Negev Ashquelon  License).  The
activities  of the Yam  Ashdod  Carveout  Venture  including  the  accounts  and
expenses of the Carveout are reported separately.  As of July 1996, the expenses
of the Negev Med  Venture set forth  herein  relate to four (4)  licenses  only.
There has been no exploration  activity  within the Med Ashdod Area which is not
within the Yam Ashdod Carveout,  and no operating fee is charged under the Joint
Operating  Agreement  with respect to the Med Ashdod License Area outside of the
Yam Ashdod Carveout.


                                     - 10 -

<PAGE>


     During the period  from  inception  to December  31, 1997 the  participants
authorized  expenditure  (AFE) in the  various  licenses  and paid  advances  as
detailed below:

                               Authorization             Advances
                               for                       paid
                               Expenditure
                               ---------------           --------------
                               U.S. Thousands            U.S. Thousands
License

Med Tel Aviv                    $39,282.50                 $39,122.50
Med Yavne                        25,097.50                  24,884.50
Med Hasharon                      1,579.00                   1,412.00
Med Hadera                        1,042.50                     889.50
Med Ashdod                          762.00                     762.00
                                 ---------                  ---------

Total                           $67,763.50                 $67,070.50
                                 =========                  =========

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

     On January 1, 1996 the Petroleum Commissioner awarded the Company and other
participants an onshore drilling license called Shederot/265 covering an area of
88,750  acres.

     On March 18, 1996 the Petroleum Commissioner agreed to enlarge the Shederot
License Area to 98,800 acres and added an  additional  condition to the terms of
the license  according to which the  participants  must  commence  drilling of a
second well to the same depth as the first not later than December 31, 1998.

     In  January  1997  the  Operator  recommended  to the  participants  in the
Shederot Venture drilling the Gevim-1 well on the onshore "Shederot" license.

     In July 1997 an AFE of $6.3  million was approved by the  participants  for
the Gevim 1 well. In January 1998, the drilling in Gevim 1 Well commenced within
the license area. The well is located approximately 1.24 miles south of the town
Shederot  and is planned for a total depth of 14,765  feet.  Estimated  drilling
time is  ninety-five  (95) days at an estimated  cost of U.S. $6.3 million.  The
Company's  share is  $63,221.  As of March 22, 1998 the  drilling  has reached a
depth of approximately 7,000 feet.

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.

                                     - 11 -
<PAGE>



                               MATERIAL AGREEMENTS

     The Negev 2 Joint Venture Agreement (the "Joint Venture Agreement") and the
Negev 2 Joint  Operating  Agreement  (the  "JOA"),  as amended were entered into
between the participants of the Negev 2 Venture to explore,  develop and produce
petroleum and/or gas in certain areas onshore and offshore in Israel.  The Joint
Venture  Agreement is governed by and construed in  accordance  with the laws of
the State of California, USA, and the place of jurisdiction is the courts of the
State of California.  Subject to the  provisions of the Joint Venture  Agreement
and the JOA, each party participates in all the costs,  expenses and obligations
incurred in relation to a contract area in the same proportion as its rights and
interests in such contract area. Under the JOA, the Operator carries out all the
operations  contemplated  in the JOA, in the framework of approved Work Programs
and within the limitations of approved  budgets  (AFEs).  Subject to the general
supervision of the Operating  Committee,  the Operator  controls and manages all
operations conducted pursuant to the JOA. The Operator may be removed for cause,
by notice in writing given by two or more of the other parties  representing  at
least 65% of the total  interests  in a  contract  area.  The  Company  with its
affiliates  hold more  than 65% of the total  interest  in each  contract  area,
however,  the Company only holds a 1.0043% interest in each Venture and does not
control  the  affiliated  parties  which are  public  companies.  See  "Table of
Petroleum Assets and Oil and Gas Ventures".

     Under the JOA, the Operator bills the  participants in each Venture for all
costs incurred in the Operator's head office, field office, on site or elsewhere
in connection  with a contract area,  including,  without  limitation,  rentals,
labor, consultants, materials,  transportation,  contract services, taxes, legal
and audit expenses,  premiums for insurance,  losses of joint property,  repairs
for  damages  not  covered  by  insurance  and  reasonable  personal  and travel
expenses.

     The services and related costs incurred by the Operator in connection  with
a contract area (provided they are not charged as a direct charge),  are covered
by a  monthly  overhead  charge  equal to 6% of all  gross  direct  charges.  An
Operating  Committee  on an annual  basis may verify that the  monthly  overhead
charge of the  Operator  equitably  compensates  the  Operator  for actual costs
incurred.  Based on the  results of this annual cost  analysis,  the  percentage
chargeable  for the benefit of the Operator can be adjusted,  upward or downward
as determined by the participants in a contract area.

     The  holders of the Negev Med  Licenses  have also  entered  into a Deed of
Arbitration  dated  November  10, 1993 to the effect that the parties  agreed to
submit to a single arbitrator the following question:

          Is it justified,  by custom,  industry practice,  history of
          previous agreements between the parties, or otherwise,  that
          in the majority  required  under the JOA  applicable  to the
          Licenses  constituting a "determining  vote" there should be
          included  a party  which  is not a  member  of the  "Isramco
          Group"  (namely a party other than  Isramco-Negev  2 Limited
          Partnership,  J.O.E.L.  - Jerusalem  Oil  Exploration  Ltd.,
          Pass-port Ltd. or Isramco, Inc.).



                                - 12 -

<PAGE>



     The person to be  appointed  as  arbitrator  was to be  selected  by mutual
agreement  of the  parties  within  thirty  (30) days from  November  10,  1993,
however, if they failed to do so, an arbitrator will be appointed at the request
of either party by Mr. Avigdor Bartel.  The parties have not selected a mutually
agreed upon arbitrator.

Consulting Agreement with Haim Tsuff
------------------------------------

     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 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 (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.

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

     In August of 1996 the Company  entered  into a  Consulting  Agreement  with
Yuval Ran, the then President of the  Corporation.  Pursuant to this  Consulting
Agreement which had a term of three (3) years, the Company agreed to pay Mr. Ran
the sum of $144,000 per annum in  installments of $12,000 per month, in addition
to reimbursing  all reasonable  business  expenses  incurred  during the term in
connection with the  performance of services on behalf of the Company.  In April
1997 the consulting  compensation  was increased to $240,000 per annum.  On July
15, 1997 Mr. Ran resigned as President of the Company,  the Consulting Agreement
terminated.

Consulting Agreement with Daniel Avner
--------------------------------------

     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 owned and controlled by Daniel Avner, the President of
the Company.  Pursuant to this Consulting  Agreement which has a term of one (1)
year through July 31, 1998,  the Company has agreed to pay the sum of $7,500 per
month plus  expenses.  The  Company has also agreed to provide a company car and
company furnished apartment to Consultant, if available.

                                    EMPLOYEES

     During  calendar  year ending  December 31,  1997,  the Company had six (6)
employees at its Branch Office in Israel.



                                     - 13 -


<PAGE>



                                     OFFICES

Israel
------

     In 1997 the Company paid JOEL $30,267 for rental  space,  office  services,
secretarial  services  and  computer  services  for the  period  01/01/97  until
04/15/97.  On 04/15/97 the Company  relocated to a building  owned by Naphtha on
Granit St, 8, Petach Tikva and paid $49,770 to Naphtha for the same services for
the period  04/15/97 until 12/31/97.  The Company  believes that the payment for
the above services are reasonable compared to other similar locations.

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

     As of December 1, 1997 the Company  officially  moved its offices  from New
York  City to  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 for a term of three (3) years,  with an annual  rental of  $30,473,
payable in monthly  installments  of $2,539.  The Company charges Jay $2,000 per
month to use its offices in Houston, Texas.

     The Company has also  leased a corporate  apartment  in the City of Houston
for term of six (6) months expiring March 31, 1998 and continuing  thereafter on
a month to month basis,  at a monthly  rental  charge of $1,110 per month.  This
apartment  is for use by the  Company's  officers,  directors  and  employees in
connection with their activities relating to the business of the Company.

Recent Developments
-------------------

     On March 13, 1998 the Company announced that it had extended the Expiration
Date of the Class A and Class B Warrants to April 16, 1999.

     The Nasdaq Stock Market (Nasdaq) has modified its requirements  with regard
to standards  for a company's  shares being  listed by Nasdaq  SmallCap  Market.
Among other  requirements,  the minimum bid price for a security  trading on the
Nasdaq  SmallCap  Market is now $1.00.  On February 27, 1998 the staff of Nasdaq
advised  the Company  that its common  stock is not in  compliance  with the new
Nasdaq  SmallCap  Market  minimum bid price  requirement  and has  provided  the
Company with a ninety (90)  calendar day period,  which  expires May 28, 1998 in
order to regain compliance with this standard.

     The Company believes that it is in the best interest of the Company and its
shareholders for its shares to remain listed by Nasdaq.

     In order to satisfy  the Nasdaq  requirements  the Board of  Directors  has
approved a resolution, subject to stockholders' approval, to amend the Company's
Certificate  of  Incorporation  to effect a 10 to 1 reverse  stock  split of the
Company's  common stock.  The proposal will be submitted to the  stockholders at
the Company's  annual meeting which is presently  planned in May of 1998.  There
can be no assurance  that the proposed  reverse stock split will cause the price
per share of the Company's  shares to be sustained  for any prolonged  period of
time.

     Consummation  of the  reverse  stock  split  will not  change the number of
shares of common stock authorized by the Company's  Certificate of Incorporation
which will remain at  75,000,000 or the par value of the common stock per share.
The reverse stock split, if approved by  stockholders,  will become effective as
of 5:00  P.M.,  New York  time  (the  "Effective  Date"),  on the date  that the
Certificate of Amendment to the Company's  Certificate of Incorporation is filed
with the Secretary of State of the State of Delaware.



                                     - 14 -


<PAGE>



Item 3.  Legal Proceedings
         -----------------

     Effective  October 27, 1997 Mr.  Reuven Hollo was removed by the Company as
Manager  of Jay  Petroleum  LLC and Jay  Management  Company  LLC.  The  Company
commenced a law suit against  Reuven Hollo which  proceeding  was stayed pending
resolution  of  an  arbitration   proceeding  by  Reuven  Hollo,  Jay  Resources
Corporation,  Jay Natural  Resources  Inc., Jay Petroleum LLC and Jay Management
Company LLC, as Claimants against the Company, NIR Resources Inc., Jay Petroleum
LLC and Jay Management Company LLC, as Respondents.  The arbitration  proceeding
and the law suit have been  resolved  pursuant  to a  Settlement  Agreement  and
Release,  a copy of which was filed as an  Exhibit  to Form 8-K for the month of
March, 1998. The Claimants are hereinafter  referred to as the "Hollo Group" and
the Respondents are hereinafter referred to as the "Isramco Group".

     Pursuant to the terms of the  Settlement  Agreement and Release,  the Hollo
Group  assigned all of their right,  title and interest in Jay Petroleum LLC and
Jay Management  Company LLC including their complete  ownership interest and any
and all rights to  undistributed  profits in these  entities  to the  Company in
consideration  for the Company (i) paying to Jay Resources  Corporation  and Jay
Natural  Resources  Inc.  the sum of $255,000,  (ii)  agreeing to assume any tax
liabilities or tax burdens arising solely from such undistributed  profits,  and
(iii) agreeing to assume a debt of $69,754  reflected as an accounts  receivable
of Jay Resources Corporation owed to Jay Petroleum LLC. In addition, the Isramco
Group agreed to use its best  efforts,  without cost, to effect a removal of the
Hollo Group as a guarantor  and/or  co-maker  of any loan of Jay  Petroleum  LLC
and/or  Jay  Management  Company  LLC.  The  effective  date  of the  Settlement
Agreement is as of December 31, 1997.

     As a result of the Settlement  Agreement and Release, the Company increased
its membership interest in Jay Petroleum LLC to 100% and its membership interest
in Jay Management Company LLC to 65%.

     The  Company's   Certificate  of  Incorporation  limits  the  liability  of
directors to the maximum extent permitted by Delaware Law and the By-laws of the
Corporation provide for indemnification of officers and directors of the Company
as permitted by Section 145 of the Delaware General Corporation Law. The Company
has also entered into agreements to indemnify its officers and directors and the
officers and directors of its subsidiaries.

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

     The Company held its Annual Meeting of Shareholders on October 24, 1997 and
the shareholders voted as to the following:  (a) election of Haim Tsuff,  Daniel
Avner,  Tina Maimon  Arckens and Avihu Ginzburg as directors to serve for a term
of one (1) year or until his/her successor is duly elected; and (b) the approval
of the firm of Richard A. Eisner & Company,  LLP as auditors for the year ending
December 31, 1997.

No other  matters were  submitted to a vote of  shareholders  during the quarter
ended December 31, 1997.

                                     - 15 -

<PAGE>



                                     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 11,
1998 was approximately  982 not including an undetermined  number of persons who
hold their stock in street name.  The high and low bid prices as reported on the
National  Association of Securities Dealers Automated Quotations System National
Market  System are shown in the table below.  These  over-the-market  quotations
reflect  prices  between  dealers,   without  retail  mark-ups,   mark-downs  or
commissions and may not represent actual transactions.

<TABLE>
<CAPTION>



                                                                      Class A                    Class B
                                   Common Stock                       Warrants                   Warrants
                                   ------------                       --------                   --------

Quarter Ended                  High            Low              High             Low       High             Low
-------------                  ----            ---              ----             ---       ----             ---

1997
----

<S>                            <C>             <C>              <C>              <C>       <C>              <C>
March 31                       3/4             17/32            3/32             1/16      1/16             1/32
June 30                        5/8             17/32            3/32             1/16      1/32             1/32
September 30                   1 1/8           19/32            5/16             5/32      7/32             1/16
December 31                    3/32            5/8              17/64            5/32      1/8              1/16

1996

March 31                       9/16            7/32             1/16             1/16      1/8              3/32
June 30                        13/16           21/32            5/32             9/64      3/32             3/32
September 30                   5/8             19/32            1/16             1/16      1/16             1/16
December 31                    9/16            1/2              1/16             1/16      1/32             1/32

</TABLE>


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

                                     - 16 -


<PAGE>



Item 6.  Management's Discussion and Analysis and Selected Financial Data
         -----------------------------------------------------------------

Statement of Operations Data
<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                                                   ------------------------

                                        1997              1996              1995             1994             1993
                                        ----              ----              ----             ----             ----

<S>                                  <C>               <C>            <C>              <C>                <C>
Operator's fees                   $  460,891        $  468,252        $1,114,980       $3,148,826         $784,845

Oil and Gas revenue                2,001,635               335               644                             2,930

Interest income                    1,085,189         1,175,391         1,125,616          769,067          378,752

Office services and other            483,023           463,142           427,915          444,043          507,827

Equity in earnings
 of Jay Management LLC                38,930

Gain (Loss) on                      (272,658)          705,859         (366,167)      (2,269,347)        2,580,529
 marketable securities

Exploration costs                     10,637            34,466           173,288          532,272           55,457
 written off

Lease operating expenses             971,782

Depletion and amortization           502,000
 of oil and gas properties

Operator expense                     507,421           656,742           618,666          704,017          579,725

General and administrative         1,288,847         1,253,900           720,356          719,659          597,749
 expenses

Interest expense                     340,711

Net income (loss)                 $ (13,949)        $  828,331        $  634,619       $   59,208      $ 3,293,850
Net income (loss)                        $0              $0.03             $0.02            $0.00            $0.15
 per share

Weighted average
 number of shares                 26,398,523        26,494,745        26,691,198       26,602,912       21,778,678


                                                                    December 31,
                                                                    ------------

Balance Sheet Data                      1997              1996              1995             1994             1993
------------------                      --------------------------------------------------------------------------

Total assets                     $26,782,877       $23,262,966       $22,620,629      $22,077,244      $21,662,620

Total liabilities                  3,868,278           334,668           358,279          449,513          405,310

Shareholders' equity             $22,914,599       $22,928,298       $22,262,350      $21,627,731      $21,257,310



                                                     - 17 -


</TABLE>


<PAGE>


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

In the calendar year 1997 the Company spent $10,637 in  exploration  for oil and
gas  compared  to  $34,466  in 1996,  principally  in the  activity  of  seismic
interpretation and subsurface mapping,  and the evaluation of prospects over the
areas of the offshore licenses and the onshore license,

In the  calendar  year 1997 the Company has  invested  $1,036,000  in  acquiring
interests in Jay, and $2,700,000 in the two Congo  licenses.  See Acquisition of
Assets.

In the calendar year 1997 the Company had net cash outflow from the purchase and
sales of marketable  securities of $2,603,000 as compared to net cash outflow of
$3,000 and $1,773,091 in the calendar years 1996 and 1995, respectively. In 1995
the  Company  acquired  shares of  J.O.E.L.  - Jerusalem  Oil  Exploration  Ltd.
("JOEL") at a cost of approximately $974,000 (which shares are traded on the Tel
Aviv Stock  Market).  During 1996 and 1997, the Company did not purchase or sell
shares of JOEL.  As of December 31, 1997,  the Company  owned 5.5% of the issued
shares of JOEL.

During 1997 Jay paid $2,507,000,  including acquisition costs and purchase price
adjustments,  in acquiring the Snyder properties. Jay generated $307,813 in cash
flows from  operations  from the purchase date to December 31, 1997. At December
31, 1997,  Jay had  outstanding  indebtedness  of  $3,227,434  under a bank loan
facility of $10 million from Comerica Bank - Texas (the  "Comerica  Loan").  The
Comerica  Loan bears  interest  at prime plus 1.25%  with  monthly  payments  of
$65,100  plus  interest  and  matures in February  2000.  The  Comerica  Loan is
collateralized  by oil and gas  properties  held by Jay and  cannot  exceed  the
"Borrowing  Base" (as  defined  under the loan  documents),  which is subject to
annual  redetermination by Comerica.  The Company is not a borrower or guarantor
under the Comerica Loan and Master Note Facility.

As a result of the sharp  decline in oil  prices  toward the end of 1997 and the
first ten (10) weeks of 1998,  the Company has deemed it  necessary  to take the
following  measures  in order to enable  Jay to meet its  financial  obligations
under the Comerica  Loan:  (1) the Company is in  discussions  with  Comerica to
adjust the monthly loan payment to approximately  $45,000;  and (2) Jay with the
consent  of  Management  and NIR has  temporarily  terminated  their  respective
monthly  management  fees.  All these  measures  combined  should  enable Jay to
continue to operate without requiring cash injections from the Company, provided
that oil and gas  prices do not  decline  further.  If these  negotiations  with
Comerica are not successful, Jay may require a cash infusion from the Company or
may be  required  to  dispose  of  some  or all of  its  properties  to pay  its
obligations to Comerica.

The Company believes that it has sufficient funds to fulfill its present capital
requirements.



                                     - 18 -


<PAGE>



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

The Company  reported net loss of $13,949 ($0.00 per share) in the calendar year
1997  compared to net income of $828,331  ($0.03 per share) and $634,619  ($0.02
per share) in the calendar  years 1996 and 1995,  respectively.  The loss during
1997 compared to 1996 is mostly a result of the loss on marketable securities of
$272,000  compared  to a gain in  1996  of  $705,859.  See  Loss  on  Marketable
Securities.

Negev Med Venture and Yam Ashdod Carveout
-----------------------------------------

In January 1997, the Operator  recommended to the participants in the Yam Ashdod
Carveout Venture the following work program for 1997:

     1. Re-entry of the Yam 2 well, deepening the well 900 feet to a total depth
of  approximately  18,500 feet and carrying out production tests at an estimated
cost of $12  million  of  which  the  Company's  share  would  be  approximately
$120,000.  These activities will depend upon engineering evaluation of the well,
the availability of a suitable rig and permission from the Defense Authorities.

     2. Shooting a two  dimensional  seismic  survey of  approximately  170 line
nautical miles in the area of the Yam Ashdod Carveout, following by seismic data
processing  and  interpretation  in order to evaluate  the  prospect of the "Yam
Nitzanim" lead.

On December, 1997, a seismic survey in the Med Ashdod in the "Yam Nitzanim" area
was performed.  The cost of the data acquisition is approximately U.S. $600,000.
The data  derived from the said survey was  transferred  for  processing  to the
Geophysics Institute. Estimated time for the processing stage is four months. As
of the date of the  financial  statements,  the  processing  stage  was still in
progress.  The estimated cost for the standard stage totals U.S. $30,000. An AFE
of  $980,000  in  connection   with  this  area  was  approved  by  the  venture
participants.

In connection with the Yam 2 well an engineering examination was performed,  the
top of the well was  spotted and  photographed,  and a report  attaining  to the
risks  involved  in the  deepening  of the well was  received.  In  conjunction,
contacts have been made with a drilling  company and other companies who work in
the Middle East, for mobilization of a drilling  platform which would enable the
deepening of the well in 1998. Due to  restrictions  placed upon the Operator by
the Ministry of Defense in  connection  with this well,  the above  efforts have
been temporarily discontinued.  The Operator is negotiating with the Ministry of
Defense in order to remove the  restricting  conditions so that the deepening of
the "Yam 2" well or the  drilling of a new well,  the "Yam 3", will be possible.
There is no certainty that these  negotiations  will be  successfully  completed
prior to the expiration date in June 2000.



                                     - 19 -


<PAGE>



The  accumulated  data on the AFEs in the five  licenses  of the  Venture  is as
follows:

<TABLE>
<CAPTION>


                                                                       Total Accumulated
                                                                       Expenses from
                                                                       Inception Date
                                                                       of Licenses
License                    AFE              Expended in 1997           from May 1, 1993          Company's Share
-------                    ---              ----------------           ----------------          ---------------

<S>                    <C>                         <C>                      <C>                     <C>
Med Tel Aviv           $39,282,500                $ 94,299                  $38,588,539             $387,545
Med Yavne               25,097,500                 127,675                   23,720,334              238,223
Med Hasharon             1,579,000                  87,832                    1,396,616               14,026
Med Hadera               1,042,500                  87,723                      882,812                8,866
Med Ashdod                 762,000                      24                      759,958                7,632
                        ----------                 -------                  -----------             ---------
                       $67,763,500                $397,553                  $65,348,259             $656,293
</TABLE>

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

In July 1997 an AFE  amounting to $6.3 million was approved by the  participants
of the  venture  for the  drilling  of the  Gevim 1 well.  In  January  1998 the
drilling has  commenced.  As of March 1998,  the drilling has reached a depth of
approximately 7,000 feet.

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

Israel
------

Onshore:

In January 1998, the Gevim 1 well was spudded in the Shederot license.  The well
is located approximately 1.2 miles south of the town Shederot and is planned for
a total depth of 14,760 feet. The depth is estimated to be reached in May 1998.

Offshore:

To process and  interpret  the seismic data that was  acquired in December  1997
over the "Yam-Nitzanim" lead in the Yam-Ashdod Carveout, as well as pre-existing
seismic  data in the same area,  is currently in progress and is estimated to be
completed in  September  1998.  A prospect  for  drilling  will be  subsequently
prepared if justified by the seismic result.

In 1998 the Operator  intends to continue its efforts to coordinate the offshore
drilling operations with the Ministry of Defense.  Efforts will also continue in
the search for a suitable offshore rig.

Congo
-----

To obtain  approval of the Management  Committee  under the  Production  Sharing
Agreement (which Committee includes representatives of the Ministry of Petroleum
for the Congo and Operator)  for the  operator's  work program.  Subject to this
approval,  in 1998 preparations will be made for the drilling of an onshore well
within the Tilapia  concession  area and for further  processing of seismic data
for the future development of the Marine III concession.

                                     - 20 -


<PAGE>



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

The Company completed in March 1998 negotiations to buy the membership interests
in Jay Petroleum and Jay Management  LLC which were held by Jay Resources  Corp.
and Jay Natural  Resources  LLC, and now holds 100% of Jay Petroleum LLC and 65%
of Jay Management Company LLC. See Legal Matters.

Jay  Petroleum,  LLC will seek  during  1998 to  acquire  producing  oil and gas
properties  that it deems  acceptable  in order to provide a reasonable  rate of
return on its investment.

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

In 1997 the Company earned  $460,891 in operator  fees,  compared to $468,252 in
1996 and  $1,114,980 in 1995.  Operator fees in 1995 were  significantly  higher
than 1996 and 1997  primarily  because of fees  derived from the drilling of the
Yam West 1 well.

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

Interest  income  decreased  in the  year of 1997  compared  to 1996  and  1995,
respectively,   due  to  lower  average  interest  rates  and/or  lower  average
investment balances.

Interest Expenses
-----------------

In 1997 the Company  incurred  interest  expenses of $341,000,  versus virtually
none in 1996 and 1995,  as a result of long term debt  arising  in 1997 from the
acquisition of oil and gas properties by Jay.

Loss on Marketable Securities
-----------------------------

In the calendar year 1997 the Company had losses from  marketable  securities of
$273,000  comprised of $465,000 from unrealized holding losses and $193,000 from
realized  gains.  Sales of  marketable  securities  resulted in a realized  gain
(loss) of  ($160,000)  for 1996 and $210,000 for 1995.  At December 31, 1997 and
1996  the  Company  had  net   unrealized   losses  of  $866,000  and  $400,000,
respectively on securities held for trading.

In 1997  the  Company  had an  unrealized  holding  loss of  $271,000  from  its
investment in JOEL.

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

Exploration Cost
----------------

During 1997 the Operator  continued with the prospect  evaluation of the onshore
Shederot license and the necessary preparation for drilling the Gevim 1 well.

The major activity on offshore  licenses  consisted of preparation and execution
of 2D seismic survey in the Med Ashdod license.

                                     - 21 -

<PAGE>



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

Operator's expenses decreased in the calendar year 1997 by $149,000, as compared
to  $656,000  for  calendar  year 1996,  primarily  as a result of fewer  office
expenses and professional services.

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

General and administrative expenses were virtually unchanged in 1997 as compared
to the calendar year 1996.

General  and  administrative  expenses  increased  in  1996 as  compared  to the
calendar  year  1995.  General  and  administrative  expenses  in 1996  included
expenses as a result of  officers'  salaries  and  payments  made  according  to
agreements  which the Company entered into with Dr. Joseph Elmaleh and Mr. Danny
Toledano.  In April 1996, Dr. Joseph Elmaleh  resigned as Chairman of the Board,
Chief  Executive  Officer  and as a  director  of  the  Company.  Pursuant  to a
Termination   Agreement,   the  Company  agreed  to  pay  Dr.  Elmaleh  $123,750
representing the balance of unpaid consulting fees, $270,000 in consideration of
a covenant  not to compete  for a period of three  years,  and,  purchased  from
Southern Shipping and Energy Inc., a company which Dr. Elmaleh controls, 292,675
shares of the  Company's  common stock for  $208,238.  In  connection  with this
agreement,  the Company recorded a charge to earnings of approximately  $235,000
in 1996 and will  take a charge of  $22,500  in each of the  following  nine (9)
quarters.  In June 1996, Mr. Danny Toledano  resigned as the President and Chief
Operating  Officer of the  Company.  Pursuant to a  Termination  Agreement,  the
Company  terminated its October 1995 Employment  Agreement with Mr. Toledano and
paid to Mr.  Toledano the sum of $72,000.  The Company also paid to Mr. Toledano
$200,000  in  consideration  of a covenant  not to compete  for a period of five
years,  and entered  into a  Consulting  Agreement  with a company  owned by Mr.
Toledano  for a term of one  year  and paid  the sum of  $72,000  as an  advance
consulting payment. In connection with these agreements,  the Company recorded a
charge to  earnings  of  approximately  $210,000  in 1996 and  expects to take a
charge of $28,000 in each of the  following two (2) quarters and $10,000 in each
of the sixteen (16) quarters thereafter.

Impact of the Year 2000 Issue
-----------------------------

The Year 2000 Issue is the 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  date-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.

Based on a preliminary recent assessment,  the Company determined that it may be
required to replace its accounting  system software so that its computer systems
will properly  utilize  dates beyond  December 31, 1999.  The Company  presently
believes that with  modifications  to existing  software and  conversions to new
software,  the Year 2000 Issue can be mitigated.  However, if such modifications
and conversions are not made, or are not completed  timely,  the Year 2000 Issue
could have an impact on the operations of the Company.


                                     - 22 -

<PAGE>



The Company has not initiated formal  communications with all of its significant
suppliers  and large  customers to determine  the extent to which the Company is
vulnerable  to those third  parties'  failure to  remediate  their own Year 2000
Issue.

The Company  will utilize  both  internal and external  resources to replace its
accounting  software.  The Company plans to replace its accounting  software and
complete its Year 2000 project not later than December 31, 1999.  The total cost
of the Year 2000  project  is not  material  to the  Company  and will be funded
through operating cash flows.

The costs of the project and the date on which the Company plans to complete the
Year 2000  modifications  are based on management's  best estimates,  which were
derived utilizing numerous  assumptions of future events including the continued
availability  of certain  resources,  third party  modification  plans and other
factors.  However,  there  can be no  guarantee  that  these  estimates  will be
achieved and actual results could differ  materially from those plans.  Specific
factors that might cause such material  differences include, but are not limited
to, the availability and cost of personnel  trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.



                                     - 23 -

<PAGE>

Item 7.  Financial Statements and Supplementary Data
         -------------------------------------------












                                     - 24 -




<PAGE>
                          ISRAMCO INC. AND SUBSIDIARIES

                        Consolidated Financial Statements

                                       and

                          Independent Auditor's Report

                                December 31, 1997











<PAGE>
                         REPORT OF INDEPENDENT AUDITORS




Board of Directors
Isramco Inc.

We have audited the consolidated  balance sheet of Isramco Inc. and Subsidiaries
as of December 31, 1997, and the related consolidated  statements of operations,
changes in  shareholders'  equity and cash flows for the year 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 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 financial position of Isramco, Inc. and
Subsidiaries  as of December 31,  1997,  and the  consolidated  results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
generally accepted accounting principles.





HEIN + ASSOCIATES LLP

Houston, Texas

March 24, 1998












                                       F-1

<PAGE>


                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
Isramco Inc.

We have audited the consolidated balance sheets of Isramco Inc. and subsidiaries
as at December 31, 1996 and the related  consolidated  statements of operations,
changes  in  shareholders'  equity  and cash  flows for each of the years in the
two-year  period ended  December 31, 1996.  These  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements enumerated above present fairly, in all
material  respects,  the consolidated  financial  position of Isramco,  Inc. and
subsidiaries  as at  December  31,  1996 and the  consolidated  results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  December  31,  1996 in  conformity  with  generally  accepted  accounting
principles.



Richard A. Eisner & Company, LLP


New York, New York
March 14, 1997





                                       F-2

<PAGE>
<TABLE>
<CAPTION>

                                           ISRAMCO INC. AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS

                                                                                          DECEMBER 31,
                                                                                     ---------------------
                                                                                       1997         1996
                                                                                     ---------    --------
                                     ASSETS                                           (in thousands except
                                     ------                                          for share information)

Current assets:
<S>                                                                                  <C>          <C>
  Cash and cash equivalents                                                          $  9,741     $ 15,999
  Marketable securities, at market                                                      7,113        6,478
  Certificate of deposit                                                                1,900          --

  Accounts receivable:
    Trade                                                                                  93          --
    Amount due from investor                                                               68          --
    Amount due from related party                                                         285          --
  Prepaid expenses and other current assets                                               353          338
                                                                                     --------     --------

     Total current assets                                                              19,553       22,815

Property and equipment, (successful efforts method for oil and gas properties),         6,890           65
  net of accumulated depreciation, depletion, amortization and provision for
  impairment of $632 and $98 at December 31, 1997 and 1996, respectively

Other assets:
  Covenants not to compete, less accumulated amortization of $218 and                     252          383
   $87 at December 31, 1997 and 1996, respectively
  Other                                                                                    88         --
                                                                                     --------     --------

     Total assets                                                                    $ 26,783     $ 23,263
                                                                                     ========     ========

                                  LIABILITIES AND SHAREHOLDERS' EQUITY
                                  ------------------------------------
Current liabilities:
  Current portion of long-term debt                                                  $    781     $   --
  Accounts payable and accrued expenses                                                   485          334
                                                                                     --------     --------
     Total current liabilities                                                          1,266          334

Long-term debt                                                                          2,446         --
                                                                                     --------     --------
     Total liabilities                                                                  3,712          334

Minority interest                                                                         156         --

Commitments, contingencies and other matters (Note I)

Shareholders' equity:
  Common stock, $.01 par value; authorized 75,000,000 shares;
   26,691,198 shares issued and outstanding at
   December 31, 1997 and 1996                                                             267          267

  Additional paid-in capital                                                           25,928       25,928
  Accumulated deficit                                                                  (3,116)      (3,102)
  Treasury stock, 292,675 shares at December 31, 1997 and 1996                           (164)        (164)
                                                                                     --------     --------
      Total shareholders' equity                                                       22,915       22,929
                                                                                     --------     --------

      Total liabilities and shareholders' equity                                     $ 26,783     $ 23,263
                                                                                     ========     ========


              The accompanying  notes are an integral part of these consolidated financial statements.

                                                      F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                           ISRAMCO INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                             YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------------------
                                                                 1997                 1996               1995
                                                            ------------         -------------       ------------
                                                                 (in thousands except for share information)
<S>                                                         <C>                  <C>                <C>
Revenues:
  Operator fees from related party                          $        461         $        468        $      1,115
  Oil and gas sales                                                2,001                 --                     1
  Interest income                                                  1,085                1,175               1,126
  Gain (loss) on marketable securities                              (272)                 706                (366)
  Office services to related party                                   483                  464                 428
  Equity in earnings of Jay Management, L.L.C                         39                 --                  --
                                                            ------------         ------------        ------------

     Total revenues                                                3,797                2,813               2,304
                                                            ------------         ------------        ------------


Expenses:
  Interest expense                                                   341                    2                   5
  Depreciation, depletion, amortization and                          696                   37                  40
   provision for impairment
  Lease operating expense and severance taxes                        972                 --                  --
  Exploration costs                                                   11                   34                 173
  Operator expense                                                   507                  656                 619
  General and administrative - in part to related parties          1,289                1,254                 721
  Research and development                                          --                   --                    28
                                                            ------------         ------------        ------------

     Total expenses                                                3,816                1,983               1,586
                                                            ------------         ------------        ------------


Income (loss) before taxes and minority interest                     (19)                 830                 718

Minority interest                                                      5                 --                  --

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

NET INCOME (LOSS)                                           $        (14)        $        830        $        635
                                                            ============         ============        ============

Earnings per share (basic and diluted)                      $       --           $        .03        $        .02
                                                            ============         ============        ============



Weighted average number of shares outstanding                26,398,523           26,494,745          26,691,198
                                                            ============         ============        ============




              The accompanying  notes are an integral part of these consolidated financial statements.

                                                      F-4
</TABLE>

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

                CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


                                              Common Stock        Additional
                                        -----------------------    Paid-In    Accumulated
                                          Shares        Amount     Capital      Deficit
                                        ----------   ----------   ----------   ----------
                                            (in thousands execpt for share information)

<S>                                    <C>          <C>          <C>          <C>
Balances --
  January 1, 1995                       26,691,198   $      267   $   25,928   $   (4,567)

Net income                                    --           --           --            635
                                        ----------   ----------   ----------   ----------
Balances --
  December 31, 1995                     26,691,198          267       25,928       (3,932)

Net income                                    --           --           --            830

Purchase of treasury stock from               --           --           --           --
  related party                         ----------   ----------   ----------   ----------

Balances --
  December 31, 1996                     26,691,198          267       25,928       (3,102)
                                        ----------   ----------   ----------   ----------

Net loss                                      --           --           --            (14)
                                        ----------   ----------   ----------   ----------
Balances --
  December 31, 1997                     26,691,198   $      267   $   25,928   $   (3,116)
                                        ==========   ==========   ==========   ==========


                          ISRAMCO INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                   CONTINUED

                                            Treasury Stock             Total
                                        ------------------------   Shareholders'
                                           Shares       Amount        Equity
                                        ----------    ----------    ----------
                                     (in thousands except for share information)

Balances --
  January 1, 1995                             --      $     --      $   21,628

Net income                                    --            --             635
                                        ----------    ----------    ----------
Balances --
  December 31, 1995                           --            --          22,263

Net income                                    --            --             830

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


Balances --
  December 31, 1996                       (292,675)         (164)       22,929
                                        ----------    ----------    ----------

Net loss                                      --            --             (14)
                                        ----------    ----------    ----------
Balances --
  December 31, 1997                       (292,675)   $     (164)   $   22,915
                                        ==========    ==========    ==========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                         ISRAMCO INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                         Year Ended December 31,
                                                               --------------------------------------------
                                                                 1997              1996              1995
                                                               --------          --------          --------
                                                                              (in thousands)
<S>                                                             <C>              <C>                <C>
Cash flows from operating activities:
 Net income (loss)                                             $    (14)         $    830          $    635
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
   Depreciation, depletion, amortization and provision              539                37                40
    for impairment
   Amortization of intangibles                                      157                87              --
   Minority interest                                                 (5)             --                --
   Exploration costs                                                 11                34               173
   (Gain) loss on marketable securities                              68              (706)              366
   (Gain) loss on sale of equipment                                  (3)                8                 1
   Changes in assets and liabilities:
      Increase in accounts receivable                              (215)             --                --
      (Increase) decrease in prepaid expenses and other             (15)             (122)                9
        current assets
      Decrease in other assets                                      (78)             --                --
      Increase (decrease) in accounts payable and                    61               (24)              (91)
        accrued expenses
      Purchase of marketable securities                          (5,667)           (2,851)           (3,080)
      Proceeds from sale of marketable securities                 3,064             2,848             1,307
      Payment for covenants not to compete                         --                (470)             --
                                                               --------          --------          --------
         Net cash used in operating activities                   (2,097)             (329)             (640)
                                                               --------          --------          --------
Cash flows from investing activities:
   Exploration costs                                                (11)              (34)             (173)
   Purchase of equipment                                            (96)               (3)              (21)
   Purchase of oil and gas properties                            (5,196)             --                --
   Purchase of Jay Petroleum, L.L.C., net of cash acquired       (1,036)             --                --
   Proceeds from sale of equipment                                    6                23                 1
   Other                                                             27              --                --
                                                               --------          --------          --------
         Net cash used in investing activities                   (6,306)              (14)             (193)
                                                               --------          --------          --------
Cash flows from financing activities:
   Purchase of treasury stock                                      --                (164)             --
   Proceeds from long-term debt                                   3,000              --                --
   Principal payments on long-term debt                            (855)             --                --
                                                               --------          --------          --------

         Net cash provided by (used in) financing                 2,145              (164)             --
          activities                                           --------          --------          --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                        (6,258)             (507)             (833)

Cash and cash equivalents - beginning of year                    15,999            16,506            17,339
                                                               --------          --------          --------

Cash and cash equivalents - end of year                        $  9,741          $ 15,999          $ 16,506
                                                               ========          ========          ========
Supplemental disclosure of cash flow information:
   Cash paid during the period for interest                    $    341          $      2          $      5
                                                               ========          ========          ========



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-6
</TABLE>
<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO 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,
1997, the Company owns properties in Texas,  Michigan,  Louisiana,  Wyoming, New
Mexico, the Republic of Congo, Africa, and a 1.0043% 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  Underwriters,  Ltd.  ("Underwriters"),   both  Israeli
companies,  Isramco  Resources  Inc.,  a British  Virgin  Islands  company,  its
majority  owned  subsidiary,  Jay Petroleum,  L.L.C.,  ("Jay") and an immaterial
wholly-owned  foreign  subsidiary.  Intercompany  balances and transactions have
been  eliminated  in  consolidation.  Another  wholly-owned  subsidiary  of  the
Company,  Isramco Management (1988) Ltd., an Israeli Company, is not included in
the consolidation  because the Company has no voting rights.  This entity serves
as the  nominee  for a  Limited  Partnership  and has no  significant  assets or
operations.  The Company holds a 35% interest in Jay  Management,  L.L.C.  ("Jay
Management").  This  investment  is  accounted  for under the  equity  method of
accounting.

     [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
$502,000 for the year ended December 31, 1997, and none for 1996 and 1995.

                                       F-7

<PAGE>


                         ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

     [4] Marketable Securities:

     Statement  of  Financial  Accounting  Standard  No. 115  ("SFAS  No.  115")
requires that marketable securities held for trading be recorded at their market
value. Company management  considers the Company's  marketable  securities to be
held for trading purposes as defined by SFAS No. 115, and as such the securities
are reported at fair value. This includes such investment  securities of related
parties.  Realized  gains and losses from the sale of marketable  securities are
determined on the specific  identification  method.  Unrealized gains and losses
arising from marketable securities are reflected in current operations.

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

     [7] Income Per Common Share:

     At December 31, 1997, 1996 and 1995 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.  The
implementation of Statement of Financial  Accounting  Standards No. 128 entitled
"Earnings  per Share"  during 1997 had no impact on reported  earnings per share
for any of the years presented in the accompanying financial statements.

     [8] Cash Equivalents:

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

     [9] Noncompete Agreements:

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

                                       F-8

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

     [10] New Pronouncements:

     The  Financial  Accounting  Standards  Board  (FASB)  issued  Statement  of
Financial  Accounting  Standards (SFAS) No. 130, Reporting  Comprehensive Income
and SFAS No.  131,  Disclosures  About  Segments  of an  Enterprise  and Related
Information.  SFAS No. 130  establishes  standards  for reporting and display of
comprehensive  income,  its components and accumulated  balances.  Comprehensive
income is defined to include all changes in equity except those  resulting  from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement that displays these items with the same prominence as other
financial  statements.  SFAS No. 131 supersedes SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise. SFAS No. 131 establishes standards on the
way that public companies report financial  information about operating segments
in annual financial  statements and requires  reporting of selected  information
about operating  segments in interim financial  statements issued to the public.
It also establishes  standards for disclosures  regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company in which  separate  financial  information  is available
that is evaluated  regularly by the chief  operating  decision maker in deciding
how to allocate resources and in assessing performance.

     SFAS Nos. 130 and 131 are effective for  financial  statements  for periods
beginning  after  December  15, 1997 and  require  comparative  information  for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully  evaluate the impact,  if any, the standards
may have on the future financial  statement  disclosures.  Results of operations
and financial position,  however,  will be unaffected by implementation of these
standards.

     [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,  1997,  approximately  14%  of the  Company's  oil  and  gas  reserves  were
attributable to non-producing properties.  Accordingly,  the Company's estimates
are expected to change as future information becomes available.

                                       F-9

<PAGE>


                         ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

     As mandated  under SFAS No. 121,  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:

     In March 1995, the FASB issued SFAS No. 121,  Accounting For the Impairment
of Long-Lived  Assets and For Long-Lived  Assets To be Disposed Of. SFAS No. 121
changes  the  Company's  method of  determining  impairment  for all  long-lived
assets,  including  proved oil and gas  properties.  SFAS No. 121  requires  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 proved 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  impairment is recognized to reduce the carrying  value to
the estimated fair value.

     [13] Income Taxes:

     The  Company  accounts  for  income  taxes  using the  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 as  production  occurs.  As a
result, the Company accrues revenue relating to production for which the Company
has not received payment.


(NOTE B) -- Transactions with Affiliates and Related Parties:
-------------------------------------------------------------

     The Company acts as Operator for joint ventures  engaged in the exploration
for oil and gas for which it receives  operating  fees equal to the larger of 6%
of the actual direct costs or minimum monthly fees of $6,000 per license.

                                      F-10

<PAGE>


                         ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

     Operator fees earned and related operator expenses are as follows:

                                                    YEAR ENDED DECEMBER 31,
                                              ----------------------------------
                                               1997          1996          1995
                                              ------        ------        ------
                                                        (in thousands)

Operator fees:
   Negev Med Venture                          $  288        $  324        $1,025
   Shederot Venture                               72            72          --
   Yam Ashdod Carveout                           101            36          --
   Yam Carveout                                 --              36            72
   Bessor Carveout                              --            --              18
                                              ------        ------        ------

                                              $  461        $  468        $1,115
                                              ======        ======        ======

Operator expenses                             $  507        $  656        $  619
                                              ======        ======        ======

     In November 1996,  Jerusalem Oil Exploration  Limited ("JOEL"),  then a 36%
holder of the Company's  issued and  outstanding  common stock and 33% holder of
the  Company's  outstanding  Class A and Class B Warrants,  sold such shares and
warrants  to Naphtha  Israel  Petroleum  Corporation  Limited  ("Naphtha"),  its
majority owned subsidiary. naphtha subsequently transferred the investments to a
wholly  owned  subsidiary,  Naphtha  Holding  Ltd.  JOEL and Naphtha are Israeli
corporations whose shares are traded on the Tel-Aviv Stock Exchange.

     During 1997, 1996, and 1995, the Company paid JOEL $30,000,  $162,500,  and
$180,000  respectively,  for rent,  office,  secretarial and computer  services.
Effective  in October  1996 the Company  began  paying JOEL $8,000 per month for
such services.  From April 1997 through  September 1997, the Company paid Naptha
$6,000  per month and then  effective  October  1997,  $5,000 per month for such
services.

     The Company  paid JOEL a consulting  fee of $6,000 per month for  financial
and supervisory services from January 1, 1992 through March 1996.

     A  subsidiary  of the Company is the  general  partner of  Isramco-Negev  2
Limited   Partnership  from  which  it  received  management  fees  and  expense
reimbursements  of $480,000 for the year ended December 31, 1997 and $420,000 in
each of the years in the two-year period ended December 31, 1996.

     The Company occupied  facilities of Petronav,  Inc., a company owned by the
Company's  former Chief  Executive  Officer,  in New York,  on a  month-to-month
basis,  at a rental of $2,000 per month  through  March 1995 and $3,000  through
August 1996.

     Equital, Ltd. ("Equital"),  formerly known as Pass-Port Ltd. ("Pass-Port"),
a significant investor in JOEL, is an Israeli company whose shares are traded on
the Tel-Aviv Stock Exchange.  The Company's  former Chief Executive  Officer and
Chairman  of the Board had  served as  Chairman  of the Board of  Directors  and
General  Manager of Equital.  The Company  paid  Equital  $6,000 for  consulting
services  during 1995. In 1996,  the Company  received  $15,000 from Equital for
consulting services.

                                      F-11

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

     During the years  ended  December  31,  1997,  1996 and 1995,  the  Company
incurred $-0-, $-0-, and $98,000, respectively, for legal services and $253,900,
$5,000,  and  $5,000,   respectively,   for  consulting   services  rendered  by
officers/directors of the Company.

     In October 1995, the Company entered into a one-year  employment  agreement
with its former  President at an annual  salary of $144,000.  In June 1996,  the
President  resigned from his office and pursuant to a termination  agreement the
Company  paid him $72,000.  The Company also paid him $200,000 in  consideration
for a five year covenant not to compete and entered into a consulting  agreement
with a company  owned by the former  President  for a term of one year. In 1996,
$72,000  was paid in advance in  connection  with this  agreement.  The  Company
recorded  a charge to  earnings  of  approximately  $128,000  relating  to these
agreements in 1996 which is included in general and administrative expenses.

     The Company agreed to pay its former Chief  Executive  Officer,  $8,250 per
month through July 1997 for  consulting  services.  During the period of January
through April 1996 and the year ended December 31, 1995 payments of $33,000, and
$99,000, respectively, were made to other entities as directed by the executive,
and are  included in general and  administrative  expenses.  In April 1996,  the
executive resigned from his position.  Pursuant to a termination agreement,  the
Company agreed to pay him $123,750 representing the balance of unpaid consulting
fees,  $270,000 in consideration for a three year covenant not to compete,  and,
purchased from Southern Shipping and Energy,  Inc., a company  controlled by the
former Chief Executive Officer, 292,675 shares of the Company's common stock for
$208,238. In connection with the termination  agreement,  the Company recorded a
charge to earnings of approximately  $235,000,  which is included in general and
administrative  expenses. The charge includes $44,000 representing the excess of
the purchase  price of the Company's  common stock over its fair market value at
the time of the transaction.

     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 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 Mr.
Tsuff is terminated  by the Company,  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.

     For additional related party transactions, see acquisitions Footnote J.

                                      F-12

<PAGE>


                         ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


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

     At December  31, 1997 and  December  31, 1996 the Company  owned  4,576,561
shares (approximately 5%) of JOEL, a related party (see Note B), with a cost and
market value of $2,316,000 and $1,573,000,  respectively, in 1997 and $2,316,000
and $1,844,000, respectively, in 1996.

     At December 31, 1997 and December 31, 1996, the Company owned 319,529 units
of the Isramco-Negev 2 Limited Partnership, a related party (see Note B), with a
cost and market value of $22,000 and $3,000 in 1997 and 1996, respectively.

     Sales of  marketable  securities  resulted  in realized  gains  (losses) of
$193,000,  $(160,000),  and $210,000 for the years ended December 31, 1997, 1996
and 1995, respectively.

     At December  31, 1997 and 1996,  the Company had net  unrealized  losses on
marketable securities of $866,000 and $400,000,  respectively. The change in the
net unrealized  holdings gain or loss included in earnings is a loss of $466,000
in 1997, a gain of $867,000 in 1996, and a loss of $577,000 in 1995.


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

                                                  DECEMBER 31,
                               -------------------------------------------------
                                        1997                       1996
                               -----------------------   -----------------------
                                              Market                     Market
                                  Cost        Value         Cost         Value
                               ----------   ----------   ----------   ----------

Debentures                     $5,152,000   $5,068,000   $3,660,000   $3,714,000
Convertible debentures               --           --         97,000       90,000
Investment trust fund                --           --        671,000      705,000
Equity securities               2,827,000    2,045,000    2,450,000    1,969,000
                               ----------   ----------   ----------   ----------

Total                          $7,979,000   $7,113,000   $6,878,000   $6,478,000
                               ==========   ==========   ==========   ==========

                                      F-13

<PAGE>
<TABLE>
<CAPTION>


                              ISRAMCO INC. AND SUBSIDIARIES

                              NOTES TO FINANCIAL STATEMENTS


(NOTE D) - Oil and Gas Properties:
----------------------------------
                                                                               Total
                                                                            Capitalized
                                                 Unproved       Proved         Costs
                                               -----------    -----------   -----------

<S>                                            <C>            <C>           <C>
Balance--January 1, 1995                       $      --      $      --     $      --

Changes in the year ended December 31, 1995:
   Exploration costs in progress                   173,000           --         173,000
   Exploration costs written off                  (173,000)          --        (173,000)
                                               -----------   -----------    ------------
Balance--December 31, 1995                            --             --            --

Changes in the year ended December 31, 1996:
   Exploration costs in progress                    34,000           --          34,000
   Exploration costs written off                   (34,000)          --         (34,000)
                                               -----------   -----------    ------------
Balance--December 31, 1996                            --             --            --

Changes in the year ended December 31, 1997:
   Acquisition costs                             2,700,000      4,571,000     7,271,000
   Exploration costs in progress                    11,000           --          11,000
   Exploration costs written off                   (11,000)          --         (11,000)
                                               -----------   -----------    ------------
Balance--December 31, 1997                     $ 2,700,000    $ 4,571,000   $ 7,271,000
                                               ===========    ===========   ===========



                                          F-14
</TABLE>

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



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

                                                       December 31,
                                          -------------------------------------
                                             1997          1996          1995
                                          ---------     ---------     ---------
Cost:
   Balance--beginning of year             $ 163,000     $ 233,000     $ 217,000
   Purchases                                 97,000         3,000        21,000
   Sales and dispositions                    (9,000)      (73,000)       (5,000)
                                          ---------     ---------     ---------

   Balance--end of year                     251,000       163,000       233,000
                                          ---------     ---------     ---------
Accumulated depreciation:
   Balance--beginning of year                98,000       102,000        65,000
   Depreciation expense                      37,000        37,000        40,000
   Depreciation of equipment that
    was sold or retired                      (5,000)      (41,000)       (3,000)
                                          ---------     ---------     ---------

   Balance--end of year                     130,000        98,000       102,000
                                          ---------     ---------     ---------
Balance--cost less accumulated
 depreciation                             $ 121,000     $  65,000     $ 131,000
                                          =========     =========     =========

Annual rates of depreciation are
 as follows:

   Office equipment and furniture                        7%--20%

   Motor vehicles                                       15%--20%



A summary of property and equipment is as follows:

                                                            DECEMBER 31,
                                                    ---------------------------
                                                        1997            1996
                                                    -----------     -----------

Unproved properties                                 $ 2,700,000     $      --
Oil and gas properties                                4,571,000            --
Transportation equipment                                142,000         107,000
Office equipment                                        109,000          56,000
                                                    -----------     -----------
                                                      7,522,000         163,000
Less accumulated depletion, depreciation,
 amortization and provision for impairment             (632,000)        (98,000)
                                                    -----------     -----------

                                                    $ 6,890,000     $    65,000
                                                    ===========     ===========

                                      F-15


<PAGE>
<TABLE>
<CAPTION>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


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

     The  Company's  stock option plan (the "Plan") which expired on January 31,
1993, provided for both incentive stock options and nonqualified stock options.

     The 1993 stock  option  plan (the "1993  Plan") was  approved at the Annual
General  Meeting of  Shareholders  held on August 13,  1993.  500,000  shares of
common stock are reserved  under the 1993 Plan.  Options  granted under the 1993
Plan may be either  incentive  stock options under the Internal  Revenue Code or
options which do not qualify as incentive stock options. Options are granted for
a period  of up to ten years  from the grant  date.  The  exercise  price for an
incentive stock option may not be less than 100% of the fair market value of the
Company's common stock on the date of grant. The options granted under this plan
were fully vested at grant date.  The exercise  price for a  nonqualified  stock
option may be set by the administrator.

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

                                                                    Year Ended December 31,
                                    ------------------------------------------------------------------------------------
                                               1997                        1996                         1995
                                    ------------------------------------------------------------------------------------

                                                     Weighted-                    Weighted-                  Weighted-
                                                      Average                      Average                    Average
                                                      Exercise                     Exercise                   Exercise
                                       Shares          Price        Shares          Price        Shares        Price
                                       ------          -----        ------          -----        ------        -----

"1993 Plan" and the "Plan":
<S>                                   <C>            <C>           <C>             <C>           <C>          <C>
   Outstanding at beginning           297,500        $   2.08      337,500         $   1.99      572,500      $   2.45
     of year
   Granted                               --               --          --                --        30,000          0.56
   Expired                               --               --       (40,000)            1.37     (265,000)         2.76
   Outstanding at end of year         297,500            2.08      297,500             2.08      337,500          1.99
   Options exercisable at end         297,500            2.08      297,500             2.08      337,500          1.99
     of year

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

     As of December 31, 1997,  297,500 options were  outstanding and exercisable
with a  price  range  of  $0.56  --  $2.31,  with a  weighted-average  remaining
contractual  life and  weighted-average  exercise  price of 6.3 years and $2.08,
respectively.


                                      F-16
<PAGE>
<TABLE>
<CAPTION>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS




                                                                  Year Ended December 31,
                                    ------------------------------------------------------------------------------------
                                             1997                         1996                        1995
                                    ------------------------------------------------------------------------------------
                                                    Weighted-                     Weighted-                    Weighted-
                                                    Average                       Average                      Average
                                                    Exercise                      Exercise                     Exercise
                                     Shares          Price       Shares            Price       Shares           Price
                                     ------          -----       ------            -----       ------           -----
"Consultants and others":
<S>                                  <C>           <C>           <C>             <C>           <C>             <C>
   Outstanding at beginning
     of year                         20,000        $   2.31      550,000         $   1.98      517,500         $   1.84
   Granted                              --               --          --               --       550,000             1.98
   Expired                              --               --     (530,000)            1.96     (517,500)            1.84

   Outstanding at end of year        20,000            2.31       20,000             2.31      550,000             1.98

   Options exercisable at year-      20,000            2.31       20,000             2.31      550,000             1.98
      end

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

     As of December 31, 1997, 20,000 options were outstanding and exercisable at
a price of $2.31 with a remaining contractual life of 5.7 years.

     During 1995,  the Company  granted  30,000  options to a director under the
1993 Plan exercisable through July 2005 at an exercise price of $0.56 per share.

     During 1995,  options to acquire  517,500 of the  Company's  common  stock,
granted pursuant to consulting arrangements, expired.

     On March 16,  1995,  the  Company  granted  500,000  options  pursuant to a
one-year  consulting  arrangement at an exercise price of $2.00 which expired on
March 16, 1996. The value of these options was not significant.

     In March 1995, the Company  issued 50,000  options to a former  director of
the  Company to  replace,  on the same  terms,  incentive  stock  options  which
terminated at the time he ceased to be a director; 20,000 options at an exercise
price of $2.31 exercisable through August 2003 and 30,000 options at an exercise
price of $1.37 which  expired in December  1996.  The value of these options was
not significant.


                                      F-17


<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


     The  Company  has  outstanding  Class A  Redeemable  Warrants  and  Class B
Redeemable  Warrants  which it issued  pursuant to a public  offering in 1993. A
Class A Redeemable  Warrant  entitles the holder to purchase one share of common
stock at a price of $2.00 at any time after the date of issuance until April 16,
1999 (extended from April 16, 1998). A Class B Redeemable  Warrant  entitles the
holder to  purchase  one  share of common  stock at a price of $4.00 at any time
after issuance until April 16, 1999 (extended from April 15, 1998).  At December
31, 1997, 7,498,894 Class A Redeemable Warrants and 7,675,000 Class B Redeemable
Warrants  are  outstanding.  The Class A and Class B  warrants  are  subject  to
redemption by the Company at a price of $.001 per warrant on thirty days' notice
after  the  price of the  Company's  common  shares  exceeds  $2.10  and  $4.20,
respectively.

     In  connection  with the offering the Company  issued to the  Underwriter a
warrant to purchase 225,000 units (the  "Underwriter  Warrant")  exercisable one
year after  issuance but not later than five years at a price of $6.60 per unit.
Each unit is  identical  to those sold to the public  except  that the  exercise
prices of the Class A Redeemable  Warrants  and Class B Redeemable  Warrants are
$3.20 and  $6.40,  respectively.  Each unit  consists  of four  shares of common
stock, two Class A Redeemable Warrants and two Class B Redeemable Warrants.

     Shares of common stock reserved for future issuance are:

     Options granted under the 1993 Plan                        297,500
     Options  available  for grant under the 1993 Plan          202,500
     Class A Redeemable   Warrants                            7,498,894
     Class  B  Redeemable   Warrants                          7,675,000
     Shares underlying the Underwriter Warrant                1,800,000
     Other                                                       20,000
                                                             ----------

        Total                                                17,493,894
                                                             ==========

     The  Company  applies  Accounting  Principles  Bulletin  Opinion No. 25 and
related  interpretations  in  accounting  for  its  options.   Accordingly,   no
compensation  cost  has  been  recognized  for  its  stock  option  grants.  Had
compensation cost for the Company's stock option grants been determined based on
the fair value at the grant dates for awards  consistent with the method of SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below (in thousands except per share data).
<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,
                                           -------------------------------------------------------
                                               1997                 1996                   1995
                                           -------------        -------------          -----------

<S>                                        <C>                  <C>                    <C>
Net income (loss)  -- as report            $     (14,000)       $     830,000          $   635,000
                                           =============        =============          ===========
                   -- pro forma            $     (14,000)       $     830,000          $   610,000
                                           =============        =============          ===========
Earnings per share -- as reported          $        --          $         .03          $       .02
                                           =============        =============          ===========
                   -- pro forma            $        --          $         .03          $       .02
                                           =============        =============          ===========


     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions  used for  grants  in 1995;  dividend  yield of zero  (0%)  percent,
expected  volatility  of 61%,  risk free  interest  rates  ranging from 5.51% to
7.13%, and weighted average expected life of 1.7 years.

                                      F-18
</TABLE>

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

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

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

                                   1997               1996               1995
                                ---------          ---------          ---------

       U.S.                    $ (25,000)         $(151,000)         $ (84,000)
       Foreign                    10,000            981,000            802,000
                                ---------          ---------          ---------

         Total                  $ (15,000)         $ 830,000          $ 718,000
                                =========          =========          =========



     The provision for income taxes is as follows:


                                    1997              1996               1995
                                 ---------         ---------          ---------
       Current:
          U.S.                   $       0         $  34,000          $ 455,000

       Deferred:
          U.S.                           0           (34,000)          (372,000)
                                 ---------         ---------          ---------

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



     Deferred   taxes  are  provided   principally   in  relation  to  temporary
differences in unrealized  appreciation  (depreciation) in marketable securities
and  net  operating  losses.  Income  taxes  in  1995  arose  from  the  federal
alternative minimum tax.

     The deferred tax assets as of December 31, 1997 and 1996 are as follows:

                                                                 ASSETS
                                                        -----------------------
                                                           1997          1996
                                                        ---------     ---------

     Unrealized depreciation of
       marketable securities                            $ 300,000     $ 137,000
     U.S. Federal net operating losses                    499,000       659,000
     U.S. Federal alternative minimum tax credits          89,000        89,000
                                                        ---------     ---------
                                                          888,000       885,000

     Valuation allowance                                 (888,000)     (885,000)
                                                        ---------     ---------

                                                        $     --      $     --
                                                        =========     =========

     The change in the  valuation  allowance  from December 31, 1996 to December
31,  1997  amounted  to $3,000  and was  caused  primarily  by the change by the
reduction of the net operating loss carryforward.

                                      F-19

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

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

                                                  YEAR ENDED DECEMBER 31,
                                           -----------------------------------
                                             1997          1996         1995
                                           ---------    ---------    ---------

     Computed at U.S. statutory rates      $ 140,000    $ 282,000    $ 252,000

     Reduction resulting from
       net operating
       loss carryforward                    (140,000)    (282,000)    (169,000)
                                           ---------    ---------    ---------

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


     At December 31, 1997, net operating loss carryforwards  available to reduce
future federal taxable income amounted to approximately $1,426,000,  expiring at
various dates through 2007. Due to certain  changes in ownership by shareholders
owning  greater  than 5% of the  Company's  outstanding  common  stock,  the net
operating loss carryforward may be subject to annual limitations.

     The Company also has net  operating  loss  carryforwards  of  approximately
$4,000,000  available to reduce future  Israeli  taxable  income from its Israel
Branch and its Israeli subsidiaries.  These net operating loss carryforwards are
not limited by an expiration date. The ultimate  realization of the tax benefits
is dependent upon these entities  earning future taxable income and accordingly,
the Company has established an offsetting  valuation allowance because it is not
presently able to predict that such taxable income will be earned.


(NOTE H) -- Concentration of Credit Risk:
-----------------------------------------

     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, 1997.

     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 three money-market funds.

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

                                      F-20

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO 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
$2,540.  The  Company  shares  office  space  with  Jay  Management  L.L.C.,  an
affiliate,  and received $4,000 in rents under an informal sublease  arrangement
for use of such facilities during November and December 1997.

     At December 31, 1997,  future minimum lease  payments under  noncancellable
operating leases are approximately:

             YEARS ENDING DECEMBER 31,               AMOUNT
             -------------------------               ------

                      1998                         $  30,000
                      1999                            30,000
                      2000                            20,000
                                                   ---------

                                                   $  80,000
                                                   =========

     Rent  expense  for the years ended  December  31,  1997,  1996 and 1995 was
immaterial.

     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 or operating results 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.  No goodwill  arose from the  acquisition.  The
Company's share of profits after recovery of its investment is 70.06%.  NIR is a
wholly owned  subsidiary of Naphtha.  The Branch Manager of the Company's Israel
Branch is the General  Manager of Naphtha and the Company's  President is also a
director of Naphtha.  In  addition,  officers  and  directors of the Company are
associates of officers and directors of Naphtha.

     Jay  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


                                      F-21

<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


or to be  acquired  by Jay.  For a capital  contribution  of $350.00 the Company
acquired a 35% interest in Jay Management. Pursuant to the Management Agreement,
Jay will pay to Jay  Management  a  management  fee of $12,500  per  month.  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.

     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 million.  The acquisition
was financed primarily with bank financing obtained by Jay through a $10 million
Master Note Facility with Comerica Bank--Texas,  Houston,  Texas. The Company is
not a borrower or guarantor under this Master Note Facility.

     On September 4, 1997 the Company  acquired from Equital Ltd.Can  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 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 annually 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.


(NOTE K) - Long-term Debt:
--------------------------

     The  Company  has a $10  million  bank line of credit  facility in place to
finance  acquisitions  of oil and gas prospects for Jay. The loan bears interest
at the base rate of the bank plus 1.5% (9.75% at December  31, 1997) and matures
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 $65,100 per month,  plus  interest,  are required until the April 1,
1998 redetermination date.

     Under the terms of the financing  agreement with the bank, the Company 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.



                                      F-22
<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


     Future principal payments on the bank loan facility as of December 31, 1997
are as follows:

     YEAR ENDED DECEMBER 31,
     -----------------------

            1998                          $    781,000
            1999                               781,000
            2000                             1,665,000
                                          ------------

     Less: current portion                    (781,000)
                                          ------------
     Long-term debt                       $  2,446,000
                                          ============


(NOTE L) - Geographical Segment Information:
--------------------------------------------

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

     The Company's oil and gas business is subject to operating risks associated
with  the  exploration,  production  and  refining  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:



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


                                    ISRAMCO INC. AND SUBSIDIARIES

                                    NOTES TO FINANCIAL STATEMENTS


                                                         Geographic Segment
                                            ---------------------------------------------
                                             United                                             Consolidated
               1997                          States             Israel             Other            Total
------------------------------------        --------           --------           -------          --------
                                                            (in thousands)

<S>                                         <C>                <C>                <C>              <C>
Sales and other operating revenue           $  2,001           $    944           $  --            $  2,945

Total revenue
Costs and operating expense                   (1,668)              (518)             --              (2,186)
                                            --------           --------           -------          --------

Operating profit (loss)                     $    333           $    426           $  --            $    759
                                            ========           ========           =======          ========

Interest income and other                                                                               852
  corporate revenues                                                                                 --------

General corporate expenses                      --                 --                --              (1,289)
Interest expense                                                                                       (341)
Minority interest                                                                                         5
                                                                                                   --------

Net loss                                                                                                (14)
                                                                                                   ========

Identifiable assets at December 31, 1997    $  4,107           $     83           $ 2,700          $  6,890
                                            ========           ========           =======
Corporate assets                                                                                     19,893
                                                                                                   --------

Total assets at December 31, 1997                                                                  $ 26,783
                                                                                                   ========
Depreciation, depletion and
 amortization rate per equivalent
 barrel of oil                              $   3.57           $   --             $  --            $   3.57
                                            ========           ========           =======          ========

Capital Expenditures                        $  3,532           $     96           $ 2,700          $  6,328
                                            ========           ========           =======          ========
</TABLE>


(NOTE M) - Subsequent Events:
-----------------------------

     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 with the
former  manager of Jay  Management.  The transfer of ownership  was effective on
December  31,  1997.  This  transaction  will give the  Company a 65%  ownership
interest in Jay Management.



                                      F-24


<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                      SUPPLEMENTARY OIL AND GAS INFORMATION
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

The   accompanying   unaudited  oil  and  gas   disclosures   are  presented  as
supplementary  information in accordance  with Statement No. 69 of the Financial
Accounting Standards Board.

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 costs:
                                                               1997
                                                      ----------------------
                                                       UNITED
                                                       STATES         CONGO
                                                      -------        -------
                                                          (in thousands)

   Unproved property                                 $  --          $ 2,700
   Proved and unproved properties                       4,571           --
   Accumulated depreciation, depletion,
    amortization and provision for
    impairment                                           (502)          --
                                                      -------        -------

   Net capitalized costs                              $ 4,069        $ 2,700
                                                      =======        =======


Costs Incurred in Oil and Gas Property Acquisition,  Exploration and Development
Activities:

   Property acquisition costs--proved                 $ 4,571        $ 2,700
    and unproved properties
   Exploration Costs                                     --             --
   Development costs                                     --             --


Results of Operations for Oil and Gas Producing Activities:

   Oil and gas sales                                  $ 2,001        $  --

   Lease operating expense and
    severance taxes                                       972           --
   Depreciation, depletion, amortization
    and provision for impairment                          502           --
   Explorations costs                                    --             --
                                                      -------        -------
                                                        1,474           --
                                                      -------        -------
   Income before tax provision                            527           --
   Provision (benefit) for income taxes                  --             --
                                                      -------        -------

   Results of operations                              $   527       $  --
                                                      =======        =======



                                      F-25
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES

                SUPPLEMENTARY OIL AND GAS INFORMATION (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995



Oil and Gas Reserves:

Oil and gas proved reserves cannot be measured  exactly.  Reserve  estimates are
based on many factors related to reservoir  performance which require evaluation
by the engineers  interpreting  the  available  data, as well as price and other
economic  factors.  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,  proved  reserves are initially  determined
based on limited data from the first well or wells.  Subsequent  data may better
define the extent of the reservoir and additional production  performance,  well
tests and engineering studies will likely improve the reliability of the reserve
estimate.  The evolution of  technology  may also result in the  application  of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both,  which have the potential to increase  reserves beyond those envisioned
during the early years of a reservoir's producing life.

The  following  table   represents  the  Company's  net  interest  in  estimated
quantities  of  proved   developed  and  undeveloped   reserves  of  crude  oil,
condensate,  natural gas liquids and natural gas and changes in such  quantities
at December 31, 1997, and for the year 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  reserve 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.

                                                     OIL BBLS          GAS MCF
                                                    ----------       ----------

   January 1, 1997                                        --               --

      Acquisition of minerals in place                 155,879        5,392,558
      Production                                       (39,943)        (604,010)
                                                    ----------       ----------

   December 31, 1997                                   115,396        4,788,548
                                                    ==========       ==========

The Company's proved developed reserves are as follows:

                                                     OIL BBLS          GAS MCF
                                                    ----------       ----------

   December 31, 1997                                   115,396        4,788,548
                                                    ==========       ==========



                                      F-26
<PAGE>


                          ISRAMCO INC. AND SUBSIDIARIES

                SUPPLEMENTARY OIL AND GAS INFORMATION (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


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

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

                                                                       1997
                                                                   ------------

   Future cash inflows                                             $ 15,410,237
   Future development costs                                            (541,678)
   Future production costs                                           (5,905,863)
                                                                   ------------

   Future net cash flows                                              8,962,696
   Annual discount 10% rate                                          (3,625,706)
                                                                   ------------

   Standardized measure discounted
    future net cash flows                                          $  5,336,990
                                                                   ============

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 December 31, 1997.


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 year ended December 31, 1997 were as follows:

   Beginning of year                                                $      --
   Sales and transfer of oil and gas
     produced, net of production costs                               (1,029,853)
   Net changes in prices and production
     costs                                                             (329,000)
   Acquisition of minerals in place                                   6,125,843
   Accretion of discount                                                570,000
                                                                    -----------

   End of year                                                      $ 5,336,990
                                                                    ===========





                                      F-27







<PAGE>


Item 8.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure
         ---------------------------------------------

     Effective as of February 9, 1998 the Company terminated the firm of Richard
A. Eisner & Company, LLP and appointed the firm of Hein + Associates, LLP as its
principal  auditors.  Richard  A.  Eisner & Company  LLP's  report on  financial
statements  of the  Company  for either of the past two years did not contain an
adverse   opinion  or  disclaimer  of  opinion  and  was  not  qualified  as  to
uncertainty,  audit scope,  or audit  principles.  See Form 8-K for the month of
February,  1998 filed by the Company on February 9, 1998 and incorporated herein
by reference.

                                    PART III

Item 9.   Directors and Executive Officers of the Registrant
          --------------------------------------------------

Daniel  Avner has been a director and  Secretary of the Company  since May 1996.
Since July 1997 Mr. Avner has been  President  of the  Company.  Mr. Avner since
1992 has been the General Manager of E.D.R. GMBH Co., a company which engages in
investment,  development and management of residential property in Germany. From
1991 to 1992 Mr. Avner was a Financial  Analyst with Proctor & Gamble Company in
Germany.  Mr.  Avner  holds a BA Degree in  Accounting  and  Economics  from the
University  of Tel Aviv and a  Masters  of  Business  Administration  from  Duke
University. Age 35.

Tina Maimon Arckens has been a director of the Company and a director of Isramco
Oil and Gas Ltd.  since  March 1997.  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  Holdings Ltd. and Naphtha Israel  Petroleum Corp.
Ltd. Mrs. Maimon Arckens is a housewife. Age 43.

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.  Dr.  Canina also holds 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. Age 42.

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 University.
Age 71.



                                     - 25 -


<PAGE>



Yossi Levy has been Branch  Manager of the  Company's  Branch  Office in Israel.
Since 1988 Mr. Levy has held the position of General Manager of Naphtha - Israel
Petroleum  Corp.  (Naphtha),  a public  company in the oil and gas  business  in
Israel.  Since  1995 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 Age 46.

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 and Chairman
of the Board 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. Age 39.

                                     - 26 -


<PAGE>



Item 10.  Executive Compensation
          ----------------------

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

     The following table sets forth the compensation  paid for years 1995 - 1997
to the Chief  Executive  Officer  and the five (5) other  highly  paid  officers
and/or key employees of the Company.

<TABLE>
<CAPTION>


                                                     Summary Compensation Table

                                    Annual Compensation                                            Long-Term Compensation
                                    -------------------                                            ----------------------

Name and                            Year      Salary/           Bonus            Other Annual      Securities      All Other
Principal                                     Consulting                         Compensation      Underlying      Compensation
Position                                      Fee                                         (6)      Options
-------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>         <C>             <C>              <C>                <C>             <C>
Haim Tsuff                          1997        216,000
  Chairman of the Board             1996         84,000             ----              ----            ----             ----
  and Chief Executive Officer (1)

Daniel Avner
  President and Secretary (2)       1997         37,900

Pincus Pincus                       1997            -0-
  Controller Branch Office

Yossi Levy                          1997         92,230
 Branch Manager (3)                 1996         36,055                                                                ----

Joshua Folkman                      1997        101,128
  Exploration Manager               1996        106,441             ----
  Branch Office                     1995         92,777                                             25,000             ----

Yuval Ran                           1997        151,000
  Former President (4)              1996         60,000             ----              ----

Raanan Wiessel (5)                  1997         91,358                                               ----
  Former Treasurer                  1996         70,565             ----              ----          20,000             ----
  Controller
  Branch Office

</TABLE>


                                                             - 27 -

<PAGE>



Notes

(1)  In May of 1996 the  Company  entered  into a  Consulting  Agreement  with a
     company owned and  controlled by Haim Tsuff,  the Chairman of the Board and
     Chief  Executive  Officer of the  Corporation.  Pursuant to this Consulting
     Agreement 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)  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.  The Company has also agreed to provide a company car and company
     furnished apartment to Consultant, if available.

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

(4)  In August of 1996 the Company  entered  into a  Consulting  Agreement  with
     Yuval  Ran,  the  former  President  of the  Corporation.  Pursuant  to the
     Consulting  Agreement as amended April 1997,  the Company has agreed to pay
     to Mr. Ran the sum of $240,000 per annum payable in installments of $20,000
     per month in addition  to  reimbursing  all  reasonable  business  expenses
     incurred in connection with performing the consulting services on behalf of
     the Company. Mr. Ran resigned as President of the Company on July 15, 1997.

(5)  The services of Raanan Wiessel were terminated in December 1997.

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



                                     - 28 -

<PAGE>



     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.

<TABLE>
<CAPTION>



                              Aggregated Option Exercises
                                        in 1997
                              and Year End Option Values


Name                          Shares           Value              Number of        Value of
                              Acquired         Realized ($)       Securities       Unexercised
                              on Exercise                         Underlying       In the Money
                                                                  Unexercised      Options at
                                                                  Options (#)      Year End ($)(2)

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

<S>                            <C>               <C>               <C>              <C>
Joshua Folkman                 0                 0                 20,000               0

Raanan Wiessel (1)             0                 0                 25,000               0
</TABLE>




Notes

(1)  Ceased his relationship with the Company in 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.



                                     - 29 -


<PAGE>



     The following table sets forth information  concerning individual grants of
stock options made during the 1997 fiscal year to each named  executive  officer
and key employee.  The Corporation did not grant any stock  appreciation  rights
during 1997 and has no outstanding SAR's.

                             Option Grants in 1997

                               Individual Grants

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

                                     NONE


     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  1997 did not amend or adjust  the  exercise  price of
outstanding  stock  options  previously  awarded  to any of the named  executive
officers or directors or employees.  The only  incentive  plan which the Company
has is its 1993 Stock Option Plan (the "Stock Option Plan").

Stock Option Plan
-----------------

     The  Company's  Stock  Option  Plan  was  adopted  with  the  intention  of
encouraging stock ownership by directors, officers, employees and consultants of
the Company and its  subsidiaries.  The plan provides for stock options of up to
500,000  shares of common  stock of the  Company.  Options may either be options
intended  to  qualify as  "incentive  stock  options"  or  "non-statutory  stock
options", as those terms are defined in the Internal Revenue Code.

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

                                     - 30 -

<PAGE>



Item 11.  Security Ownership of Directors, Officers and Key Employees
          -----------------------------------------------------------

     On March  11,  1998 the  Directors,  executive  Officers  and  certain  key
employees  of the  Company  beneficially  owned  or  controlled,  the  aggregate
15,786,225  shares of the Company's common stock (comprising 49.9% of the shares
of common stock if the Company's  Class A and Class B Warrants  were  exercised)
including  20,000 shares under options which are currently  exercisable.  Unless
otherwise indicated, the individuals named hold sole voting and investment power
over the shares listed below.

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

Haim Tsuff             Chairman of the Board,                    15,766,225 (1)
                       Chief Executive Officer,
                       Chief Financial Officer,
                       and Director

Daniel Avner           President, Principal Accounting Officer
                       Secretary and Director                             0

Joshua Folkman         Exploration Manager (Israel)                  20,000 (2)

Yossi Levy             Manager of Branch Office (Israel)                  0

Pincus Pincus          Controller of Branch Office Israel)                0

Avihu Ginzburg, Ph.D.  Director                                           0

Linda Canina, Ph.D.    Director                                           0

Tina Maimon Arckens    Director                                           0

All Directors, Officers and Key Employees as a Group              _________
 (nine persons)                                                  15,766,225


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.  For more information see Security Ownership of Certain Beneficial
     Owners.

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




                                     - 31 -

<PAGE>



                 Security Ownership of Certain Beneficial Owners

     Set forth below is certain  information  with  respect to  ownership of the
Company's  securities  as of March 11, 1998 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. *                       15,766,225           49.9% +

Haim Tsuff *

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 42.3% of Equital Ltd. (formerly
     known as Pass-port Ltd.),  Equital Ltd. owns 43.4% 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 9.6% of the  shares of  Naphtha.
     Naphtha  Holdings Ltd. owns of record  approximately  47.3% (if the Class A
     and Class B Warrants are  exercised) of the issued and  outstanding  common
     stock  of the  Company,  Naphtha  holds  2.6% (if the  Class A and  Class B
     Warrants are exercised) of the issued and  outstanding  common stock of the
     Company.  Naphtha  Holdings  Ltd.  holds  2,500,000  Class A  Warrants  and
     2,500,000 Class B Warrants of the Company.

     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  Naphta  Holdings  Ltd.  may be deemed to  control  the
     Company.

+    This percentage is based on 26,398,523  shares of common stock  outstanding
     March 11,  1998 plus the  issuance  of an  additional  5,000,000  shares of
     common  stock  in the  event of the  exercise  of the  Class A and  Class B
     Warrants by Naphtha Holdings Ltd.


                                     - 32 -

<PAGE>



      The following chart sets forth the chain of ownership of the Company.
<TABLE>
<CAPTION>

               <S>                                                                      <C>


                                                                                        AVRAHAM LIVNAT LTD.

                                                                                                      100%

                 UNITED KINGSWAY LTD.                                 CARMEN MANAGEMENT AND
                 (Owned by Haim Tsuff)                                ASSETS (1997) LTD.

                                   74%                                        26%

                          Y.H.K.
                          LIMITED PARTNERSHIP (Israel)                                                2.5%

                                   42.3%


                          EQUITAL LTD.


                 9.6%                       43.4%

                          J.O.E.L. LTD.

                                            86.6%

                          NAPHTHA ISRAEL PETROLEUM
                          CORPORATION LTD.                                              5.5%

99.99%                             100%                       2.6%

I.O.C.                    NAPHTHA HOLDING LTD.
ISRAEL
OIL COMPANY
                                            47.3% (1)

                          ISRAMCO INC.


                          ISRAMCO OIL AND GAS LTD.
                          GENERAL PARTNER


                          ISRAMCO NEGEV 2 LIMITED PARTNERSHIP

</TABLE>

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

     1 Assuming exercise of all warrants

                                                          - 33 -


<PAGE>



Item 12.  Certain Relationships and Related Transactions
          ----------------------------------------------

Agreements with Danny Toledano

     In October 1995 the Company  entered into an Employment  Agreement with Mr.
Toledano  which  provided  for a payment of annual  salary of $144,000 per annum
payable in installments of $12,000 per month.  The term of the agreement was for
one (1) year. In June of 1996 the Company  terminated its  Employment  Agreement
with Mr. Toledano and paid to Mr. Toledano a lump sum of $72,000 for the balance
of the employment term. Pursuant to the terms of a Termination Agreement entered
into between the Company and Mr.  Toledano,  Mr. Toledano  resigned as President
and Chief  Operating  Officer of the  Company,  and  executed a Covenant  Not to
Compete Agreement with the Company. Pursuant to the terms of the Covenant Not to
Compete,  Mr.  Toledano  agreed that for a period of five (5) years he would not
directly  or  indirectly  compete  with  the  Company  in  connection  with  the
exploration for oil and gas in the State of Israel,  the territorial  waters off
Israel or the  territories  currently  under control of the State of Israel.  In
consideration for the Covenant Not To Compete,  the Company paid to Mr. Toledano
the sum of $200,000.  The Company also entered into a Consulting  Agreement with
Natural  Resources   Exploration   Services  B.V.,  a  Netherlands   corporation
controlled by Mr.  Toledano.  Pursuant to the Consulting  Agreement  between the
Company and Natural Resources Exploration Services B.V., the Company paid a lump
sum payment of $72,000 to Natural Resources Exploration Services B.V. to provide
the services of Mr. Toledano to the Company through June 23, 1997.

Consulting Agreement with Dr. Joseph Elmaleh and Subsequent
   Termination Agreement

     In July  of 1995  the  Company  formalized  its  existing  oral  consulting
agreement  with  Dr.  Joseph  Elmaleh  and  entered  into a  written  Consulting
Agreement for the payment to Dr. Elmaleh of an annual fee of $99,000  payable in
equal  monthly  installments  of  $8,250.  The  expiration  of the  term  of the
Consulting  Agreement  commenced August 1, 1995 and was to expire July 31, 1997.
Under the terms of a Termination  Agreement  made on April 17, 1996, Dr. Elmaleh
resigned as the Chairman of the Board, Chief Executive Officer and a director of
Isramco  and its  subsidiaries,  the  Company  terminated  the  1995  Consulting
Agreement with Dr. Elmaleh and (i) paid to him the sum of $123,750  representing
the balance of unpaid  consulting fees; (ii) paid to him the sum of $270,000 for
a non-compete  agreement  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.

Consulting Agreement with Haim Tsuff

     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


                                     - 34 -

<PAGE>


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.

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

     In August of 1996 the Company  entered  into a  Consulting  Agreement  with
Yuval Ran, the then President of the  Corporation.  Pursuant to this  Consulting
Agreement which had a term of three (3) years, the Company agreed to pay Mr. Ran
the sum of $144,000 per annum in  installments of $12,000 per month, in addition
to reimbursing  all reasonable  business  expenses  incurred  during the term in
connection with the  performance of services on behalf of the Company.  In April
1997 the consulting  compensation  was increased to $240,000 per annum.  Mr. Ran
resigned as President of the Company on July 15, 1997, his Consulting  Agreement
terminated.

Consulting Agreement with Daniel Avner
--------------------------------------

     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 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.  The  Company  has also  agreed to make
provide  a  company  car and  company  furnished  apartment  to  Consultant,  if
available.

Agreement with Equital Ltd.
---------------------------

     In December of 1997 the Company entered into a Inventory Service 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.



                                     - 35 -

<PAGE>



                                    GLOSSARY
                                    --------

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

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

     "Grant Agreement" shall mean the agreement between the Company and the
Government  of Israel  pursuant to which the  Government  of Israel has provided
assistance  to the  Company in  connection  with its  investment  in the Negev 2
Venture  by  providing  a grant of  44.34(cent)  for each  U.S.  dollar  ($1.00)
invested and expended by the Company in oil and gas  activities in Israel within
the  framework of the Negev 2 Venture.  The  Government  financing  provided for
under  the  Grant  is  repayable  only  from  funds  emanating  from  commercial
production  in any  payout  area  and  then,  only to the  extent  of 30% of the
recipient's  share  of the net  revenue  from  said  payout  area,  as and  when
received.  The Grant Agreement  entitles the Government of Israel,  to receive a
12.5%  royalty on oil  sales,  as well as an  overriding  royalty of 6.5% of the
Company's share in the petroleum produced and saved after payout. If there is no
commercial discovery of oil, the Company will not be required to repay the grant
monies. A grant agreement was also entered into between the Government of Israel
and HEI, Donesco, L.P.S.
and Mazal Oil.

     "Joint Operating Agreement" shall mean the Joint Operating Agreement of the
Negev 2 Venture which was signed as of the 30th day of June,  1988,  between the
participants in the Negev 2 Venture, as amended or as shall be amended from time
to time.

     "Joint  Venture  Agreement"  shall mean the Joint Venture  Agreement of the
Negev 2  Venture  which  was  signed as of the 30th of June,  1988  between  the
participants in the Negev 2 Venture, as amended from time to time.

     "Limited  Partnership"  shall mean Isramco-Negev 2 Limited  Partnership,  a
Limited Partnership founded pursuant to a Limited Partnership  Agreement made on
the 2nd and 3rd days of March,  1989 (as amended on September 7, 1989,  July 28,
1991,  March 5, 1992 and June 11,  1992)  between the Trustee on part as Limited
Partner and Isramco Oil and Gas Ltd., as General Partner on the other part.

     "Limited   Partnership   Agreement"  shall  mean  the  Limited  Partnership
Agreement  made the 2nd and 3rd days of March,  1989 (as  amended  September  7,
1989, July 28, 1991,  March 5, 1992 and June 11, 1992),  between Isramco Oil and
Gas Ltd., as General Partner,  and Isramco Management (1988) Ltd. as the Limited
Partner.



                                     - 36 -

<PAGE>



     "Negev 2  Venture"  shall  mean the  venture  between  HEI Oil and Gas Ltd.
Partnership  (hereinafter "HEI"), SSE (U.K.), JOEL, Pass-port,  Delek Israel Oil
Fuel Ltd., Delek Petroleum  Explorations  Ltd.,  Isramco,  Inc.,  Naphtha Israel
Petroleum Company Ltd., L.P.S. Oil Inc., Donesco Venture Fund and Mazal Oil Inc.
with regard to joint operations for oil and gas explorations in various areas of
Israel, both offshore and onshore.

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

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

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

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

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

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

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

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

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

     "Test  Drilling"  shall mean the  drilling of test wells for the purpose of
finding of  petroleum  or  ascertaining  the size or  boundaries  of a petroleum
field.

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

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

                                     - 37 -


<PAGE>



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

Israel Petroleum Law
--------------------

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

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

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

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

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

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

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

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


                                     - 38 -


<PAGE>





Item 13.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
          ----------------------------------------------------------------

     (a) Financial Statements

     The following documents are filed as part of this report:

                                                                       Page No.
                                                                       --------

     Independent Auditors' Report                                       F-1

     Independent Auditors' Report                                       F-2

     Isramco, Inc. and Subsidiaries Consolidated
       Financial Statements

        Balance Sheets as of December 31, 1997 and 1996                 F-3

        Statements of Operations  for the Years Ended
         December 31, 1997, 1996 and 1995                               F-4

        Statements of Changes in Shareholders' Equity for the
         Years Ended December 31, 1997, 1996 and 1995                   F-5

        Statements  of Cash Flows for the Years Ended
         December 31, 1997,  1996 and 1995                              F-6

        Notes to Consolidated Financial Statements                   F-7 - F-24

        Supplementary Oil and Gas Information for the Years
         Ended December 31, 1997, 1996 and 1995                     F-25 - F-27

     (b) Reports on Form 8-K

         1.  Form 8-K for the month of February 1997 dated February 14, 1997;
         2.  Form 8-K for the month of March 1997 dated March 31, 1997;
         3.  Form 8-K for the month of May 1997 dated May 21, 1997;
         4.  Form 8-K for the month of July 1997 dated July 23, 1997;
         5.  Form 8-K for the month of September 1997 dated September 9, 1997;
         6.  Form 8-K for the month of October 1997 dated October 29, 1997;
         7.  Form 8-K for the month of December 1997 dated December 18, 1997.




                                     - 39 -


<PAGE>



     (c) Exhibits

          1.1       Underwriting  Agreement,  filed as an  Exhibit  with the S-1
                    Registration Statement, File No. 33-57482.

          1.2       Selected Dealers Agreement, filed as an Exhibit with the S-1
                    Registration Statement, File No. 33-57482.

          1.3       Underwriter's  Warrant  Agreement,  filed as an Exhibit with
                    the S-1 Registration Statement, File No. 33-57482.

          3.1       Articles of  Incorporation of Registrant with all amendments
                    filed as an Exhibit to the S-1 Registration Statement,  File
                    No. 2-83574.

          3.2       Amendment to  Certificate of  Incorporation  filed March 17,
                    1993,   filed  as  an  Exhibit  with  the  S-1  Registration
                    Statement, File No. 33-57482.

          3.3       By-laws  of  Registrant  with  all  amendments,  filed as an
                    Exhibit to the S-1 Registration Statement, File No. 2-83570.

          4.1       Form of Warrant  Agreement with respect to Class A and Class
                    B  Redeemable  Warrants,  filed as an  Exhibit  with the S-1
                    Registration Statement, File No. 33-57482.

          4.2       Form of Deposit Agreement,  filed as an Exhibit with the S-1
                    Registration Statement, File No. 33-57482.

          10.1      Oil  Marketing  Agreement,  filed  as  Exhibit  with the S-1
                    Registration Statement, File No. 2-83574.

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

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

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

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

                                     - 40 -

<PAGE>



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

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

          10.14     Joint Venture Agreement and Joint Operating  Agreement dated
                    June  30,  1988  by  and  among  HEI  Oil  and  Gas  Limited
                    Partnership,  JOEL - Jerusalem Oil Exploration  Ltd.,  Delek
                    Oil Exploration  Ltd.,  Delek,  The Israel Fuel  Corporation
                    Ltd.,  the Company,  Southern  Shipping  and Energy  (U.K.),
                    Naphtha,  Israel Petroleum  Company Ltd., Oil Exploration of
                    Paz Ltd., LPS Israel Oil Inc.,  Donesco  Venture Fund One, a
                    Limited Partnership and Mazaloil Inc. filed as an Exhibit to
                    Form 8-K for the month of September 1988.

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

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

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

          10.20     Grant  Agreement  with the  Government  of Israel,  undated,
                    between the Company and the  Government  of Israel on behalf
                    of the State of Israel, filed as an Exhibit to Form 10-Q for
                    the Company  for the period  ending  September  30, 1988 and
                    incorporated herein by reference.

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

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

                                     - 41 -

<PAGE>



          10.25     Translated  from Hebrew,  Trust  Agreement  between  Isramco
                    Management  (1988) Ltd. and Kesselman  and  Kesselman  dated
                    March 3, 1989, filed as an Exhibit to Form 8-K for the month
                    of March 1989 and incorporated herein by reference.

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

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

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

          10.33     Negev  Ashquelon/224   License,  filed  with  Post-effective
                    Amendment  No.  7 to Form  S-1  Registration  Statement  and
                    incorporated herein by reference. File No. 2-83574.

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

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

          10.37     Amendment  Agreement to Grant Agreement  between the Company
                    and the  Government  of Israel,  filed as an Exhibit to this
                    Post-effective  Amendment  No.  8 to Form  S-1  Registration
                    Statement. File No. 2- 83574.

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

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



                                     - 42 -

<PAGE>



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

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

          10.43     Underwriting   Agreement   dated  March  11,  1992   between
                    Isramco-Negev  2 Limited  Partnership,  Isramco  Oil and Gas
                    Ltd.,  Paz Oil  Exploration  Limited,  JOEL - Jerusalem  Oil
                    Exploration Ltd.,  Isramco  Management (1988) Limited,  East
                    Mediterranean  Oil and Gas Limited and the Company (executed
                    in Hebrew with an English translation attached), filed as an
                    Exhibit to Form 10-K for  Calendar  Year ended  December 31,
                    1991  dated  March  26,  1992,  and  incorporated  herein by
                    reference.

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

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

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

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



                                     - 43 -

<PAGE>



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

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

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

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

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

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

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

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

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



                                     - 44 -


<PAGE>



          10.57     Investment Banking  Agreement,  filed as an Exhibit with the
                    S-1 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 1st day of August, 1996, filed as an Exhibit to Form 8-K
                    for the month of  August,  1996 and  incorporated  herein by
                    reference.

          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.



                                     - 45 -

<PAGE>



          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 Hollo, 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 __,
                    1997 between the Company and Equital Ltd.  filed herewith as
                    Exhibit 10.70.

          10.71     Consulting  Agreement  dated  August 20,  1997  between  the
                    Company and JFC  Enterprises,  LLC filed herewith as Exhibit
                    10.71.




                                     - 46 -

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                    ISRAMCO, INC.


March 30, 1998                      By: /s/  Haim Tsuff
                                        ----------------------------------------
                                            Haim Tsuff
                                            Chairman of the Board, and
                                            Chief Executive Officer


                                    By: /s/  Daniel Avner
                                        ----------------------------------------
                                            Daniel Avner
                                            President and
                                            Principal Accounting Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report signed below by the following  persons on behalf of the Registrant and in
the capacities and on the dates indicated:



/s/  Haim Tsuff             Chairman of the Board,           March 30, 1998
------------------------    Chief Executive Officer
Haim Tsuff                  and Director


/s/  Daniel Avner           President, Principal             March 30, 1998
------------------------    Accounting Officer
Daniel Avner                and Director



/s/  Tina Maimon Arckens    Director                         March 30, 1998
------------------------
Tina Maimon Arckens


/s/  Linda Canina           Director                         March 30, 1998
------------------------
Linda Canina


/s/  Avihu Ginzburg         Director                         March 30, 1998
------------------------
Avihu Ginzburg