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

                                    FORM 10-K
            Annual Report for the Fiscal year ended December 31, 2001

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

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

                      11767 Katy Freeway, Houston, TX 77079
                    (Address of Principal Executive Offices)

                                  713-621-5946
              (Registrant's Telephone Number, including Area Code)

[Mark One]

|X|   Annual report under Section 13 or 15(d) of the Securities Exchange Act of
      1934 For the fiscal year ended December 31, 2001

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

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

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

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

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
|X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this Form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

As of March 28, 2002, the Registrant had outstanding 2,639,853 shares of $0.01
par value Common Stock. The aggregate market value of such Common Stock held by
non-affiliates of the Registrant at March 28, 2002 was approximately $4.5
million. Such market value was calculated by using the closing price of such
common stock as of such date reported on the NASDAQ market.

<PAGE>

                                     Part I

Item 1. Business and Properties

General

      Since its formation in 1982, Isramco, Inc. ("Isramco" or the "Company")
has been active in the exploration of oil and gas in Israel, as well as in the
United States. To date, three gas fields were discovered offshore Israel. As a
result of the gas discoveries, two (2) 30 year leases were granted respecting
areas formerly included in, respectively, in the Med Ashdod license area and the
Med Yavne license area (hereinafter collectively, the "Med Leases"). See
"Summary Description of the Ventures, the Petroleum Assets, Related Work
Obligations and Exploration Efforts -- Israel". The Company is the operator of
Med Ashdod lease and holds 0.3625% participation interest.

      In addition to the Med Leases, in June 1999, the Company was awarded a
preliminary permit referred to as "Marine North/164" covering an area 575 square
kilometers offshore Israel ("Marine North"). On September 21, 1999, the Company
was awarded an additional preliminary permit, "Marine Center/168" covering an
area of 194 square kilometers offshore Israel and located adjacent to the
Herzliya coastline ("Marine Center"). In December 2000, the Israeli Petroleum
Commissioner issued 3 year licenses respecting Marine Center and Marine North.
The Company is the operator of these licenses and holds a 1% participation
interest in each venture and the remaining interests are held by affiliated
entities. See "Summary Description of the Ventures, the Petroleum Assets,
Related Work Obligations and Exploration Efforts -- Israel".

      In January 2000, the Company was awarded an offshore preliminary permit
known as "Marine South", covering an area of approximately 142 square kilometers
offshore Israel and an additional permit known as "Marine South B", covering an
area of approximately 40 square kilometers offshore Israel. A 2D seismic survey
relating to Marine South was performed and the survey results were processed and
interpreted. Preliminary results indicated the possible presence of gas. In
January 2002, the Israeli Petroleum Commissioner issued a three (3) Years
license in respect of the area covered by the Marine South permit ("Marine
South"). The Company serves as operator of the Marine South license and holds a
1% participation interest therein; the remaining participation interests are
held by affiliated entities. See "Summary Description of the Ventures, the
Petroleum Assets, Related Work Obligations and Exploration Efforts -- Israel".

      In 1997 the Company expanded its activities to the United States. The
Company, through its wholly-owned subsidiaries, Jay Petroleum LLC ("Jay
Petroleum") and Jay Management LLC "Jay Management"), is involved in oil and gas
exploration production in the United States. Jay Petroleum owns varying working
interests in oil and gas wells in Louisiana, Texas, Oklahoma and Wyoming.
Independent estimates of the reserves held by Jay Petroleum as of December 31,
2001 are approximately 140,000 net barrels of proved developed producing oil and
4,424 MMCFs of proved developed producing natural gas. See "Summary Description
of the Ventures, the Petroleum Assets, Related Work Obligations and Exploration
Efforts -- United States".

      In 1997 the Company acquired from an affiliated entity a 50% participation
in a joint venture which holds two permits offshore in the Congo; the Marine III
Exploration Permit and the Tilapia Exploitation Permit. Drilling began in
September 2000 on an onshore well, the Tilapia-Land 1, located within the
Tilapia permit. Based on the results of the production tests that were performed
on the well, the permit participants decided to plug and abandon the well.
Following the abandonment of the well, the Company elected to abandon the
Tilapia Permit in the Congo. In an effort to maintain its presence in the Congo,
the Company entered into an agreement with affiliated entities to purchase their
participation interests in a limited partnership that holds a 5% working
interest in the "Marine 9" license located off-shore Congo. See "Summary
Description of the Ventures, the Petroleum Assets, Related Work Obligations and
Exploration Efforts -- Congo".


2
<PAGE>

The Operator of the Israeli Leases/Licenses

      The Med License Joint Venture Agreement (the "Joint Venture Agreement")
and the Med License Joint Operating Agreement (the "JOA"), as amended, were
entered into between the participants of the former Med Licenses, which licenses
have expired, to explore, develop and produce petroleum and/or gas in certain
areas onshore and offshore in Israel. Subject to the provisions of the Joint
Venture Agreement and the JOA, each party participates in all the costs,
expenses and obligations incurred in relation to a contract area in the same
proportion as its rights and interests in such contract area. Under the JOA, the
Operator carries out all the operations contemplated in the JOA, in the
framework of approved Work Programs and within the limitations of approved
budgets (AFE's). The Operator may be removed for cause, by notice in writing
given by two or more of the other parties representing at least 65% of the total
interests in a contract area. See "Table of Petroleum Assets and Oil and Gas
Ventures.

      The Company is currently the Operator of the Med Ashdod Lease, the new
3-year Marine North and Marine Center licenses granted in December 2000 and the
3-year Marine South license granted in January 2002. As the Operator, the
Company is responsible for directing the oil exploration and drilling activities
of each Venture through its Branch Office in Petach Tikva, Israel. With eight
full-time employees, outside consultants and subcontractors, the Company carries
out the operations of each Venture within the framework of approved work
programs and budgets and pursuant to the terms of a Joint Operating Agreement.
With respect to the Med Yavne Lease, the Company furnishes to BG International
Limited, a member of the British Gas Group ("BG"), the operator of the lease,
consulting services of an administrative and technical nature for which it
receives a monthly fee equal to $10,000. See "Summary Description of the
Ventures, the Petroleum Assets, related Work Obligations and Exploration Efforts
-- Israel". In October 1999, BG acquired a 50% participation interest from the
license participants in certain licenses then existing, including the
[forerunner] to the Med Yavne Lease, pursuant to which BG operates the Med Yavne
Lease.

      As operator, the Company charges each venture participant for all costs
incurred in connection with the exploration and drilling activities conducted by
each venture and is entitled to receive a fee for its administrative overhead
equal to 6% of all direct charges or minimum monthly compensation of $6,000 per
each License/Leas. During the year ended December 31, 2001, the Company was paid
a total of $234,000 as operator fees.

General Partner for the Isramco Negev 2 Limited Partnership

      In 1989 the Company formed in Israel the Isramco Negev 2 Limited
Partnership (the "Limited Partnership") to acquire from the Company a
substantial portion of its working interest in the Negev 2 Venture, the venture
which the Company and related parties established to hold the rights to the
properties which eventually became the subject of the Med Licenses. 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 Leases) 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.


3
<PAGE>

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

      The Company currently receives through IOG a management fee of $40,000 per
month from the Limited Partnership for office space, management and other
services. It has been significant to the Company that the Limited Partnership
(in part through the efforts of the Company and others), has been able to raise
monies from the public in Israel to fund the Limited Partnership's share of the
work programs for the Petroleum Assets in connection with the continuation of
oil and gas exploration activities in Israel and to preserve the existence of
the Company's overriding royalties. The Company currently holds 4.32% of the
issued Partnership units and a wholly-owned subsidiary of the Company, IOG,
which serves as the general partner for the Partnership (the "General Partner"),
holds an additional 0.008% of the Partnership units. On December 31, 2001, the
Limited Partnership had cash, cash equivalents, certificates of deposit and
marketable securities with a value of approximately $106 million.

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

Abandonment of Property / Acquisition of Assets

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

      Drilling on an onshore well, the Tilapia-Land 1 within the Tilapia permit
in the Congo, commenced in September 2000. Based on the results of the
production tests that were performed on the well, the license participants
decided to plug and abandon the well. Following the plugging of the well, the
Company elected in January 2001 to abandon the Tilapia Permit. The aggregate
amount expended by the Company to date in connection with the Tilapia Permit
(including the foregoing acquisition costs) is approximately at $4.4 million

      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. The area
of the two permits is covered by a dense grid of two dimensional seismic lines.

      In December 2000, the Company entered into an agreement with Naphtha
Israel Petroleum Corp. Ltd. ("Naphtha Israel") and I.O.C. Israel Oil Company
Ltd. ("IOC"), each an affiliated entity and a limited partner in Naphtha Congo
(1995) Limited Partnership, another affiliated entity (hereinafter, the "Congo
Limited Partnership"), to purchase each of Naphtha Israel's and IOC's respective
interests in the Naphtha Congo Limited Partnership. The Congo Limited
Partnership holds a 5% working interest in the "Marine 9" license located
off-shore Congo (hereinafter, the "Marine 9 License"). Following the purchase,
the Company became the sole limited partner in the Congo Limited Partnership and
holds 99.9% of the Congo Limited Partnership's rights and interests in the
Marine 9 License. The remaining participants in the Marine 9 License are
recognized well-known oil companies. The general partner of the Congo Limited
Partnership will remain Naphtha Congo Ltd., an affiliated entity.


4
<PAGE>

      The interests were purchased for a total consideration of $800,000 and an
undertaking to pay royalties to the sellers (and/or their designees) from net
revenues generated therefrom at the rate of 17.5% of such revenues. In
connection with this acquisition, the Company received a Fair Market Value
Letter from an independent petroleum engineer with regard to the interests being
purchased in the Congo Limited Partnership.

                    OIL AND GAS VENTURES AND PETROLEUM ASSETS
           OIL AND GAS VENTURES AND PETROLEUM ASSETS LOCATED IN ISRAEL

      The table below sets forth the Working Interests and Petroleum Assets of
the Company and all affiliated and non-affiliated participants in (i) the
Ventures, (ii) the Petroleum Assets, (iii) the total acreage of each Petroleum
Asset, and (iv) the expiration dates of each of the licenses as of December 31,
2001. This information pertains only to Petroleum Assets located in Israel. The
Company also holds Overriding Royalties in the Petroleum Assets. See "Table of
Overriding Royalties".

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

<TABLE>
<CAPTION>
Name of Participant                                Med Yavne Lease*   Med Ashdod Lease**(2)
<S>                                                  <C>                  <C>
The Company                                             0.4584               0.3625

Affiliates

Isramco Negev 2, Limited                                32.411              19.1369
Partnership

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

Naphtha                                                 1.8033               1.8411

Naphtha Explorations                                    2.2826               1.8411
Limited Partnership

JOEL                                                    2.8807                   --

Equital                                                 2.1639                   --

Non-affiliated entities

Delek Drilling Limited                                   8.000              21.7658
Partnership

BG International Ltd.                                   35.000               35.000

Middle East Energy (MEE) LP                             15.000               15.000

Total                                                  100.000              100.000

Area (acres)                                            35,900               61,800

Expiration Date                                      6/10/2030            1/15/2032
</TABLE>


5
<PAGE>

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

** The lease was granted in January 2002 and is scheduled to expire in January
2032.

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

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

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

                                 Marine Licenses

<TABLE>
<CAPTION>
Name of Participant     Marine North A   Marine North B   Marine Center   Marine South
<S>                        <C>              <C>             <C>            <C>
Company                          1                1               1              1

Isramco Negev 2                 79               79              59             59
Limited Partnership

Modein Energy Limited           20               20              10             10
Partnership

Naphtha Explorations            --               --              15             15
Limited Partnership

I.N.O.C. Dead Sea               --               --              10             10
Limited Partnership

Total                          100              100             100            100

Acres                       91,000           51,150          48,000         35,000

Expiration Date            12/3/03          12/3/03         12/3/03        1/15/05
</TABLE>

                    Overriding Royalties held by the Company

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


6
<PAGE>

                         TABLE OF OVERRIDING ROYALTIES

      From The Limited Partnership On the first 10% of the Limited Partnership's
Share of the following Petroleum Licenses

                                      Before Payout    After Payout

Med Yavne Lease*                             1%             13%
Med Ashdod Lease**                           1%             13%

From JOEL                          On 8% of JOEL's Interest

                                      Before Payout    After Payout
Med Ashdod Lease                           2.5%           12.5%

From Delek Oil Exploration Ltd.

(DOEX) (1)(2)                      On 6% of DOEX's Interest

                                      Before Payout    After Payout

Med Ashdod Lease                           2.5%           12.5%

From Naphtha, Naphtha Exploration LLP, Joel, Equital, IOC Limited Partnership
and Equital On oil and/or gas produced on the Med Leases

                  2%

To IOG      On Certain petroleum rights held by Limited Partnership

                  5%

* A 30 year lease covering an area of approximately 250 square kilometers
(including the area of the gas discovery) was granted in June 2000.

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

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

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

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


7
<PAGE>

                    Summary of Exploration Efforts in Israel

      To date, three gas fields were discovered offshore Israel known
respectively as Or, Or South and Nir. Based on the gas finds, a 30 year lease
covering an area of approximately 250 square kilometers (including the area of
the Or gas discovery) was granted in June 2000 (hereinafter, the "Med Yavne
Lease") and an additional 30 year lease covering an area of approximately 250
square kilometers (including the area of the Nir gas discovery) was granted in
January 2002 (hereinafter, the "Med Ashdod Lease").

Med Yavne Lease

      Based on the gas discovery in the Or 1 well, in June 2000 the Israel
Petroleum Commissioner advised the license participants that they had been
granted the Med Yavne Lease, subject to certain conditions, which conditions
include (i) the commencement of a drilling by July 1, 2002, of at least one well
and the (ii) presentation of a work plan regarding the exploration activities on
the Med Yavne Lease covering 250 square kilometers (approximately 62,000 acres).

      The processing and interpretation of a 3D seismic survey covering the Med
Yavne Lease were performed and, based on these results, a detailed mapping of
the gas discoveries, as well as a number of additional gas prospects in the Med
Yavne Lease, were drawn up. A reserve study was undertaken and the estimated
total recoverable gas reserves were placed at 93 billion cubic feet. In May
2001, approximately 105 square kilometers of the northern part of the Med Yavne
Lease were relinquished as no gas prospects were uncovered therein.

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

      BG International Limited, a member of the British Gas Group ("BG") is the
operator of the Med Yavne Lease. In October 1999, BG and the Company and the
other participants in the then existing Med licenses (collectively, the "Isramco
Group"), entered into an agreement with BG for the acquisition by BG from the
Isramco Group of a 50% participation interest in such licenses and BG's
replacement of the Company as operator of the forerunner to the Med Yavne Lease
and any new license issued in respect of the other Med licenses scheduled to
expire in June 2000 (the " BG Transaction").

      With respect to the Med Yavne Lease, the Joint Operating Agreement has
been revised to provide, among other things, that the Company will furnish to BG
consulting services of an administrative and technical nature. In consideration
therefor, the Company is entitled to a monthly fee equal to $10,000. The Company
is entitled to receive from each member of the Isramco Group overriding
royalties equal to 2% of each such member's rights to any oil and/or gas which
is produced within the existing offshore licenses or within any new licenses or
within other oil and gas rights which may be obtained in lieu of these offshore
licenses.

Med Ashdod Lease

      Based on the Nir I discovery, in January 2002 the Israel Petroleum
Commissioner advised the license participants that they had been granted the Med
Ashdod Lease covering 250 square kilometers (approximately 62,000 acres). The
Company serves as the operator of the Med Ashdod Lease and holds a 0.3625%
interest therein.

      In April 2000, a 3D seismic survey was conducted in the southern part of
the former Med Ashdod license area and, based on the results of the survey, the
participants decided to commence drilling for gas in the Yam Ashdod Carveout
area. Drilling of the Nir 1 well (within the area covered by the "Yam Ashdod"
carveout delineated by the participants in former Med Ashdod license area)
commenced in June 2000. The Nir 1 well is situated approximately 17 kilometers
(approximately 10.6 miles) off the coast of Israel. Production tests were
undertaken and results indicated a daily gas flow rate of up to 15 million cubic
feet.


8
<PAGE>

Test results were further analyzed by an independent engineering consulting
firm. A reserves study was completed in October 2000 and the estimated total gas
reserves (in place) in the Nir 1 well were placed at 274 billion cubic feet of
natural gas. However, until such time as a confirmation drilling is completed,
the Company (as operator) is unable to assess with reasonable accuracy the total
amount of proved gas reserves in the Nir reservoir.

      3D seismic survey covering an area comprised of 190 square kilometers
within the northern section of the license (the Yam block) was completed in
October 2000. The interpretation of the survey results, which included a
detailed mapping of the Yam block, was completed in October 2001 and indicated
the existence of deep oil prospects. Preliminary interpretation of the results
of the deep parts of an earlier 3D seismic survey with respect of the southern
section of the license (the Nitzanim structures) indicated the existence of
additional deep oil prospects. The shallow gas prospects in the southern section
of the license were seismically studied and mapped. No decision has yet been
taken as to the drilling, if any, on the sites of these prospects.

Marine North Licenses

      In June 1999, the Company was awarded a preliminary permit referred to as
the Marine North/164 covering an area of 575 square kilometers off shore Israel.
The permit included a preferential right to obtain a license. In December 2000
two licenses were issued in respect of the area covered by the permit
(hereinafter, respectively, "Marine North A" and "Marine North B" and
collectively, the "Marine North Licenses"), which licenses continue in effect
through December 3, 2003. The Company holds a 1% interest in each of the Marine
North Licenses and the remaining interests are held by affiliated entities.

      The Company serves as operator of each of the Marine North Licenses.

Marine Center License

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

      The Company serves as operator of the Marine Center License.

      In December 2000, Romi 1 was drilled. After the analysis of the logs, it
was determined to plug and abandon Romi 1.

Marine South License

      In January 2000, the Company was awarded an offshore preliminary permit
known as Marine South, covering an area of approximately 142 square kilometers
offshore Israel known as "Marine South" and an additional permit known as
"Marine South B", covering an area of approximately 40 square kilometers
offshore Israel. The permits include a preferential right to obtain a license.
In January 2002, Israeli Petroleum Commissioner issued a license in respect of
the area covered by the Marine South permit (hereinafter, the "Marine South
License"), which license continues in effect through January 15, 2005 and is
subject to (i) the performance of a seismic 3D survey and the processing of the
results thereof no later than January 15, 2003, (ii) the preparation of an oil
drilling prospect by July 15, 2003 and (iii) the drilling of a well no later
than January 15, 2004. The Company serves as operator of the License and holds a
1% participation interest in the License; the remaining participation interests
are held by affiliated entities.


9
<PAGE>

      A 2D seismic survey covering the Marine South License area was performed
and the survey results were processed and interpreted. Preliminary results
indicated the possible presence of gas. It is anticipated that a 3D seismic
survey will be undertaken with respect to Marine South to enable a more accurate
mapping of gas prospects.

Potential New Licenses

      Pursuant to the BG Transaction, the Company and BG are to coordinate their
respective efforts in consolidating and completing work programs in respect of
the areas included within the expired Med licenses for the purpose of jointly
applying for new oil licenses in replacement of the expiring Med Licenses.
However, as of June 2000, the Israeli Petroleum Commissioner announced a freeze
on the processing of all new oil and gas applications pending further notice.
The Company is unable to estimate when, if ever, such freeze will be terminated.

      In consideration of the Company's performance of its obligations under the
BG Transaction, BG paid to the Company approximately $3.8 million Additionally,
upon the issuance of each of the three first new licenses, if any, which may be
obtained in lieu of the expiring Med licenses, the Company is entitled to a
payment of approximately $1.7 million (or a total of approximately $5 million if
all licenses are obtained). However, given the freeze by the Petroleum
Commissioner of processing of all new applications, management is unable at the
present time to assess the likelihood of a grant of new licenses in respect of
the Med Licenses that have already expired.

               Summary of Exploration Efforts in the United States

      The Company, through its wholly-owned subsidiaries, Jay Petroleum LLC
("Jay Petroleum") and Jay Management LLC ("Jay Management"), is involved in oil
and gas production in the United States. Jay Petroleum owns varying working
interests in oil and gas wells in Louisiana, Texas, Oklahoma and Wyoming.
Independent estimates of the reserves held by Jay Petroleum as of December 31,
2001 are approximately 140,000 net barrels of proved developed producing oil and
4,424 MMCFs of proved developed producing natural gas. Jay Management acts as
the operator of certain of the producing oil and gas interests owned or acquired
by Jay Petroleum.

      In June 2001, Jay Petroleum purchased a 80% working interest in the
Castillo gas filed in Texas for an aggregate consideration of approximately $1
million. The gas field includes 4 producing gas wells, one producing oil well,
as well as a number of inactive oil and gas wells.

      In July 2001, Jay Management commenced drilling on the Hoover 3 well
located in Oklahoma. In August 2001, gas production and sales from Hoover 3 were
commenced. Jay Management holds a 75% participation interest in the well and the
remaining interests are held by non-affiliated entities.

      In August 2001, Jay Petroleum completed the purchase of approximately
1,000 acres on West Texas, and drilling on the Read 1 Well commenced in December
2001. The related drilling costs for the Read 1 well are estimated at $800,000.

                   Summary of Exploration Efforts in the Congo

      The oil and gas properties in the Congo consist of the Marine III
Exploration Permit and the Marine 9 Exploration Permit. The Company holds 25%
participation interest in the Marine III Exploration Permit (through Naphtha
Congo Ltd). The Company's participation interest in the Marine 9 Exploration
Permit is 5% (through Naphtha Congo Limited Partnership); the remaining
participants in the Marine 9 License are recognized well-known oil companies.


10
<PAGE>

      In December 2000, the Company entered into an agreement with Naphtha
Israel Petroleum Corp. Ltd. ("Naphtha Israel") and I.O.C. Israel Oil Company
Ltd. ("IOC"), each an affiliated entity and a limited partner in Naphtha Congo
(1995) Limited Partnership, another affiliated entity (hereinafter, the "Congo
Limited Partnership"), to purchase each of Naphtha Israel's and IOC's respective
interests in the Congo Limited Partnership. The Congo Limited Partnership holds
a 5% working interest in the "Marine 9" license located off-shore Congo
(hereinafter, the "Marine 9 License"). Following the purchase, the Company
became the sole limited partner in the Congo Limited Partnership and holds 99.9%
of the Congo Limited Partnership's rights and interests in the Marine 9 License.
The remaining participants in the Marine 9 License are recognized well-known oil
companies. The general partner of the Congo Limited Partnership will remain
Naphtha Congo Ltd., an affiliated entity.

      The interests were purchased for a total consideration payable by the
Company of $800,000 and an undertaking to pay royalties to the sellers (and/or
their designees) from net revenues generated therefrom at the rate of 17.5% of
such revenues. In connection with this acquisition, the Company received a Fair
Market Value Letter from an independent petroleum engineer with regard to the
interests being purchased in the Congo Limited Partnership.

      Following the plugging and abandonment of the Tilapia-1 well (within the
Talipia Exploitation Permit, in January 2001 the Company elected to abandon the
Tilapia permit in the Congo, in which the Company held a 50% participation
interest; the remaining participation interest is held by an affiliated entity.
The acquisition cost to the Company of the Tilapia Permit was reflected on the
Company's at December 31, 1999 at approximately $2.55 million. The aggregate
amount expended by the Company in connection with the Tilapia permit (including
the foregoing acquisition costs) was approximately $4.4 million (which amount
included the $2.55 million expended in the initial acquisition of the permits).
The Company charged approximately $1.9 million to oil and gas exploration costs
and $2.55 to impairment expenses for the year 2000 as a result of the plugging
and abandoning of the Tilapia Permit.

      In the course of 2001, the operator completed geological and geophysical
studies for the purpose of identifying and confirming the existence of oil
prospects. In October 2001, the operator recommended that drilling commence at
an estimated expenses of $12.8 million (Dry Hole). The license participants
approved the recommendation and it is anticipated that the drilling will be
commenced in the first half of 2002. For purposes of the drilling, the license
participants approved the purchase from the Congolese authorities of an
additional 204 square kilometers for a total payment of $1 million.

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 geological and geophysical costs
and exploratory dry hole costs, are charged to expense as incurred.

                                    EMPLOYEES

      As of March 28, 2002, the Company had seven employees at its Branch Office
in Israel and three employees in its offices in Houston, Texas.


11
<PAGE>

Item 2. OFFICES

Israel

      The Company leases office space from Naphtha at 8 Granit St., Petach
Tikva. In 2001, the Company paid Naphtha an aggregate of $109,500 for rental
space, office services, secretarial services and computer services. The Company
believes that the payment for the above services are reasonable compared to
other similar locations.

United States

      The Company maintains offices in Houston, Texas. The Company has a lease
for office premises (approximately 2,015 square feet) at 11767 Katy Freeway,
Houston, TX 77079 expiring October 2003 with a monthly rental of $2,854.

Item 3. Legal Proceedings

      The Company, together with Naphtha Congo Ltd., an Israeli and related
entity ("Naphtha Congo") and Naphtah Israel Petroleum Corp., an Israeli and
related entity ("Naphtha Israel"), received notice from counsel for a contractor
who provided drilling services in the Tilapia permit ("Contractor") of a claim
by Contractor against Naphtha Congo of approximately $1.2 million in respect of
drilling services rendered. The Contractor and Naphtha Congo entered into a
drilling agreement in October 2000 with respect to the Tilapia 1 well. Naphtha
Congo is authorized to represent the Company and Naphtha Israel, each of which
holds a 50% participation interest in the joint venture holding the rights in
the Tilapia permit. Drilling was commenced in the third quarter of 2000 and,
based on production tests, the license participants decided to plug and abandon
the Tilapia 1 well. Naphtha Congo represents the Company and Naphtha Israel, a
related party. See "Summary Description of the Ventures, the Petroleum Assets,
Related Work Obligations and Exploration Efforts -- Congo".

      Naphtha Congo disputes the amount claimed and has claimed offsetting
damages caused to it by the Contractor. Naphtha Congo is currently attempting to
resolve this matter, though no assurance can be provided that it will be
successful in achieving such resolution. The Contractor has threatened to
commence legal action unless this matter is resolved to its satisfaction and has
threatened to levy against the assets of the Company.

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

      The Company held its Annual Meeting of Shareholders on October 24, 2001
and the shareholders voted as to the following: (a) election of Haim Tsuff,
Jackob Maimon, Tina Maimon Arckens, Professor Avihu Ginzburg, Eyal Gibor and Max
Pridegon 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 Mann Frankfort
Stein & Lipp CPAs LLP as Company auditors for the year ended December 31, 2001.
All matters were approved at the meeting.

      Results of the vote were as follows:

                                                For         Against    Abstain
1. Directors

            (i) Haim Tsuff                   1,381,979       5,820         --

            (ii) Jackob Maimon               1,381,804       5,995         --

            (iii) Tina Maimon Arckens        1,381,419       6,380         --

            (iv) Avihu Ginzburg              1,371,519      16,280         --

            (v) Eyal Gibor                   1,381,519       6,280         --

            (vi) Max Pridgeon                1,381,519       6,280         --

2. Auditors                                  1,382,996       1,503      3,300


12
<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 28,
2002 was approximately 810 not including an undetermined number of persons who
hold their stock in street name.

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

                                                            Common Stock

Quarter Ended                                               High          Low

2001
March 31                                                   $6 1/2       $5 1/4
June 30                                                    $5 1/2       $4 11/32
September 30                                               $4 1/2       $3 1/4
December 31                                                $4           $3 1/4

2000
March 31                                                   $6 1/16      $3 11/32
June 30                                                    $5 3/4       $4 21/32
September 30                                               $6 5/8       $5
December 31                                                $6 7/8       $5 1/8

      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.

Item 6. Selected Consolidated Financial Data

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


13
<PAGE>

<TABLE>
<CAPTION>
                                                  2001           2000          1999          1998           1997
<S>                                          <C>            <C>           <C>           <C>            <C>
Operator's fees                                $   234        $ 1,265        $1,744       $   720        $   461
Oil and Gas Sales                              $ 3,068        $ 2,080        $1,107       $ 1,410        $ 2,001
Interest income                                $   541        $ 1,277        $1,011       $   557        $ 1,085
Office services to related parties
and other                                      $   857        $ 1,018        $  881       $   613        $   483
Equity in earnings (losses) of investees       $  (177)       $   106        $  108       $    69        $    39
Reinbursement of exploration cost              $    --        $    --        $   --       $   255        $    --
Gain from sale of oil and gas properties
and equipment                                  $     4        $     6        $   17       $   931        $    --

Gain (Loss) on marketable securities           $  (199)       $    (9)       $1,264       $(1,004)       $  (272)
Other                                          $    --        $    --        $   13       $    --        $    --
Realized gain on investment in affiliate       $    --        $    --        $  100       $    --        $    --
Gain on BG Transaction                         $    --        $ 3,626        $   --       $    --        $    --
Impairment of oil & gas properties             $    --        $ 2,550        $   --       $   571        $    12
Impairment of Investment                       $    --        $   400        $   --       $    --        $    --
Exploration costs                              $   204        $ 2,956        $  154       $    81        $    11
Lease operating expenses and severance
Taxes                                          $   905        $   630        $  469       $   883        $   972
Depreciation, depletion and
Amortization                                   $   568        $   443        $  609       $   815        $   684
Operator expense                               $   696        $   634        $  514       $   487        $   507
General and administrative expenses            $ 2,044        $ 1,740        $1,061       $ 1,196        $ 1,289
Interest Expense                               $    --        $    55        $  157       $   326        $   341
Income tax expense (benefit)                   $    50        $  (356)       $  298       $    38        $    --
Net Income (loss)                              $  (139)       $   317        $2,983       $  (808)       $   (14)
Earnings (loss) per common
share - basic                                  $ (0.05)       $  0.12        $ 1.13       $ (0.31)       $ (0.01)
Earnings (loss) per common
share - diluted                                $ (0.05)       $  0.12        $ 1.13       $ (0.31)       $ (0.01)

Weighted average number of
common outstanding - basic                   2,639,853      2,639,853     2,639,853     2,639,853      2,634,853

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

                                              December 31,

                                   2001      2000      1999      1998
                                 -------   -------   -------   -------
Balance Sheet Data

Total assets                     $26,615   $27,281   $30,713   $24,462
Total liabilities                $ 1,160   $ 1,449   $ 4,537   $ 2,422
Shareholders' equity             $25,455   $25,832   $26,176   $22,040

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

      STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-K THAT ARE NOT PURELY
HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS,
HOPES, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN FACTORS THAT COULD CAUSE ACTUAL RESULTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OR FROM ANY
FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS.


14
<PAGE>

Liquidity and Capital Resources

      Working capital (current assets minus current liabilities) was $6,534,000
and $16,194,000 at December 31, 2001and 2000, respectively.

      Net cash flow provided by operating activities was $1,186,000 and
$1,511,000 in 2001 and 2000, respectively.

      Net cash used in investing activities in 2001 was $9,612,000 compared to
$2,715,000 in 2000. The cash used in 2001 was primarily attributable to
purchases of marketable securities, investments in affiliates and oil and gas
property costs in the United States. The cash used in investing activities in
2000 was primarily attributable to purchases of marketable securities and
investment in affiliates, offset by sales of such investments and proceeds from
BG transaction.

      Capital expenditures for property and equipment were $2,276,000 and
$2,337,000 in 2001 and 2000, respectively.

      In 2001, IsramTec, Inc., a Delaware corporation and wholly-owned
subsidiary (hereinafter, "IsramTec") invested, by way of a convertible loan, a
total of $168,000 in a high-tech venture. In January 2002, an additional $50,000
equity investment was made in such venture. In June 2000, the Company
established IsramTec for purposes primarily of identifying and investing in
promising high-tech ventures. In July 2000, IsramTec invested approximately
$400,000 in this high tech venture. In December 2000, the Company determined the
original investment to be impaired and, accordingly, charged $400,000 to
impairment expenses.

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

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.

      The Company reported net loss of $139,000 (loss of $0.05 per share) in
2001 compared to a net income of $317,000 (earnings of $0.12 per share) in 2000.
The decrease in net income in 2001 compared to 2000 is primarily attributable to
a decrease in operator fees and interest income, losses on marketable securities
and net losses attributable to investments which are accounted for as equity.
The relatively higher income posted in the 2000 period compared to the 2001
period is primarily attributable to payments received from BG in connection with
certain transactions.

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

United States

Oil and Gas Volume and Revenues (in thousands)

                                                           2001             2000

Oil Volume Sold (Bbl)                                        20               23

Gas Volume Sold (MCF)                                       643              431

Oil Sales ($)                                               477              618


15
<PAGE>

Gas Sales ($)                                             2,591            1,462

Average Unit Price

Oil ($/Bbl) *                                             23.59            26.87
Gas ($/MCF) **                                             4.03             3.39

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

** MCF - 1,000 Cubic Feet

Israel

The Offshore Licenses

      During 2001, approximately $5,000 was expended by the Company in respect
of the Offshore Licenses compared to $139,000 in 2000. The decrease in the
amounts expended in respect of the Offshore licenses in 2001 compared to 2000
are attributable to a reduction in 2001 in exploration activities in connection
with the Offshore Licenses.

Operator's Fees

      In 2001 the Company earned $ 234,000 in operator fees, compared to
$1,265,000 in 2000. In 2000, the operator fees were primarily attributable to
the drilling of the Nir 1 and Romi 1 wells. The decrease is primarily
attributable to a decrease in the number of offshore licenses in Israel in
respect of which operator fees were collected.

Oil and Gas Revenues

      In 2001and 2000 the Company had oil and gas revenues of $3,068,000 and
$2,080,000,respectively. The increase is due mainly to the increase in volume
sales of gas

Lease Operating Expenses and Severance Taxes

      Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $905,000 and $630,000 for 2001 and
2000, respectively. The increase in lease operating expenses and severance taxes
is primarily due to the work-overs performed in connection with producing wells
and increased production.

Interest and dividend Income

      Interest income during the year ended December 31, 2001 was $541,000
compared to $1,277,000 for the year ended December 31, 2000. The decrease in
interest income is primarily attributable to the increase in cash used in
investing activities.

Gain on Marketable Securities

      In 2001, the Company recognized net realized and unrealized losses on
marketable securities of $199,000 compared to net realized and unrealized losses
on marketable securities of $9,000 in 2000.

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


16
<PAGE>

Operator Expenses

      There was no material change in operator costs in 2001 compared to 2000.

General and Administrative Expenses

      In 2001, the Company incurred $2,048,000 as general and administrative
expenses compared to $1,740,000 incurred in 2000. The increase is primarily
attributable to the increase of consulting services to the Company by third and
related parties and to compensation of senior personnel and bonuses awarded to
senior officers.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.

      The Company reported net income of $317,000 ($0.12 per share) in 2000
compared to a net income of $2,983,000 ($1.13 per share) in 1999. The decrease
in net income in 2000 compared to 1999 is primarily attributable to the
abandonment of the Telapia Permit in the Congo and related exploration an
impairment expenses.

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

United States

Oil and Gas Volume and Revenues (in thousands)

                                                            2000            1999

Oil Volume Sold (Bbl)                                         23              23

Gas Volume Sold (MCF)                                        431             410

Oil Sales ($)                                                618             310

Gas Sales ($)                                              1,462             797

Average Unit Price

Oil ($/Bbl) *                                              26.87           13.48
Gas ($/MCF) **                                              3.39            1.90

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

** MCF - 1,000 Cubic Feet

Israel

The Licenses

      During 2000, approximately $139,000 were expended by the Company in
respect of the Med Licenses compared to $173,000 in 1999.


17
<PAGE>

Operator's Fees

      In 2000 the Company earned $1,265,000 in operator fees, compared to
$1,744,000 in 1999. In 2000, the operator fees were primarily attributable to
the drilling of the Nir 1 and Romi 1 wells. In 1999, the operator fees were
primarily attributable to the drilling of the Yam West 2, Or 1 and Or South
wells.

Oil and Gas Revenues

      In 2000 and 1999 the Company had oil and gas revenues of $2,080,000 and
$1,107,000, respectively. The increase is due mainly to the increase in gas and
oil prices. Lease Operating Expenses and Severance Taxes

      Lease operating expenses and severance taxes were incurred primarily in
connection with oil and gas fields in the United States. Oil and gas lease
operating expenses and severance taxes were $630,000 and $469,000 for 2000 and
1999, respectively. The increase in lease operating expenses and severance taxes
is due to work-overs performed in connection with producing wells.

Interest Income

      Interest income during the year ended December 31, 2000 was $1,277,000
compared to $1,011,000 for the year ended December 31, 1999.

Gain on Marketable Securities

      In 2000, the Company recognized net realized and unrealized losses on
marketable securities of $9,000 compared to net realized and unrealized gains of
$1,264,000 in 1999.

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

Gain on BG Transaction

      During 2000, the Company completed its transaction with BG International
Limited, a member of British Gas Group ("BG") which included the sale of
participation interests in certain licenses offshore Israel to BG and BG's
replacement of the Company as operator on Med Yavne license. As a result of the
transaction, the Company recognized a gain of approximately $3,626,000.

Operator Expenses

      There was no material change in operator costs in 2000 compared to 1999.

Exploration and Impairment of Oil & Gas Assets.

      In 2000, the Company expended approximately $1,900,000 in connection with
the drilling in the Tilapia Permit in the Congo. Subsequently, upon the
Company's abandonment of the Tilapia Permit, the Company recorded an impairment
of oil and gas assets in the amount of $2.55 million, which represents the
acquisition cost to the Company of the Tilapia Permit. In connection with the
purchase by the Company of certain affiliates' interest in Naphtha Congo L.P.
(which holds a 5% working interest in the Congo), the Company recorded $800,000,
representing the cash purchase price paid for such interest, to exploration


18
<PAGE>

costs, as such payment represents a reimbursement of exploration costs
previously expensed by the Company affiliates.

General and Administrative Expenses

      In 2000, the Company incurred $1,740,000 as general and administrative
expenses compared to $1,061,000 incurred in 1999. The increase is primarily
attributable to the compensation of senior personnel and bonuses awarded to
senior officers and to the non-cash charges attributable to the issuance in
March 2000 of stock options to senior Company officers.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

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

Item 8. Financial Statements and Supplementary Data

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

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

      On June 21, 2001, the Company dismissed KPMG LLP ("KPMG") as its
independent accountants. The decision to change accountants was approved by the
Board of Directors of the Company.

      The reports of KPMG LLP on the financial statements of the Company for
each of the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with the audits of the Company's financial
statements for each of the fiscal years ended December 31, 1999 and December 31,
2000, and in the subsequent interim period ending March 31, 2001, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of KPMG LLP would have caused
them to make reference thereto in their report on the financial statements of
the Company for such years.

      On June 21, 2001, the the Board of Directors approved the engagement of
Mann Frankfort Stein & Lipp CPAs, LLP ("MFS&L") as the Company's new
independent accountants for its fiscal year ending December 31, 2001. During the
two most recent fiscal years and through the date of the engagement of MFS&L,
neither the Company nor anyone on its behalf consulted with MFS&L regarding
either the application of accounting principles to a specified transaction,
either contemplated or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements.

      The Company previously provided KPMG with a copy of the disclosures made
with respect to the change in accountants in connection with filing the Current
Report on Form 8-K filed June 26, 2001. KPMG furnished the Company with a letter
addressed to the Securities and Exchange Commission stating that it agreed with
the statements made by the Company in such Current Report. A copy of the letter
from KPMG was filed as an exhibit to the Company's Current Report on Form 8-K
filed June 26, 2001.

                                    Part III

      The information called for by items 10, 11, 12 and 13 will be contained in
the Company's definitive proxy statement which the Company intends to file
within 120 days after the end of the Company's fiscal year ended December 31,
2001 and such information is incorporated herein by reference.

                                    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.

      "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.

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

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

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

      "Israel Petroleum Law"

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

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

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

      Drilling for petroleum is permitted pursuant to a license issued by the
Commissioner. The term of a license is for three (3) years, subject to extension
under certain circumstances for an additional period up to four (4) years. A
license holder is required to commence test drilling within two (2) years from
the grant of a license (or earlier if required by the terms of the license) and
not to interrupt operations between test drillings for more than four (4)
months. If any well drilled by the Company is determined to be a commercial
discovery prior to expiration of the license, the Company will be entitled to
receive a Petroleum Lease granting it the exclusive right to explore for and
produce petroleum in the lease area. The term of a lease is for thirty (30)
years, subject to renewal for an additional term of twenty (20) years.

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

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

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

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

      (a) Exhibits


19
<PAGE>

3.1   Articles of Incorporation of Registrant with all amendments filed as an
      Exhibit to the S-l Registration Statement, File No. 2-83574.
3.2   Amendment to Certificate of Incorporation filed March 17, 1993, filed as
      an Exhibit with the S-l Registration Statement, File No. 33-57482.
3.3   By-laws of Registrant with all amendments, filed as an Exhibit to the S-l
      Registration Statement, File No. 2-83570.
4.1   Form of Deposit Agreement, filed as an Exhibit with the S-l Registration
      Statement, File No. 33-57482.

10.1  Oil Marketing Agreement, filed as Exhibit with the S-l Registration
      Statement, File No. 2-83574.
10.2  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.
10.3  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.
10.4  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).
10.5  Farmout Agreement dated March 30, 1986 between the Company and Naphtha
      Israel Petroleum Corp. Ltd., filed as an Exhibit to Form 10-K Fiscal 1986,
      and incorporated herein by reference.
10.6  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.
10.7  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.
10.8  Joint Venture Agreement and Joint Operating Agreement dated June 30, 1988
      by and among HEI Oil and Gas Limited Partnership, JOEL - Jerusalem Oil
      Exploration Ltd., Delek Oil Exploration Ltd., Delek, The Israel Fuel
      Corporation Ltd., the Company, Southern Shipping and Energy (U.K.),
      Naphtha, Israel Petroleum Company Ltd., Oil Exploration of Pat Ltd., LPS
      Israel Oil Inc., Donesco Venture Fund One, a Limited Partnership and
      Mazaloil Inc. filed as an Exhibit to Form 8-K for the month of September
      1988.
10.9  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.
10.10 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.
10.11 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.
10.12 Grant Agreement with the Government of Israel, undared, between the
      Company and the Government of Israel on behalf of the State of Israel,
      filed as an Exhibit to Form 10-Q for the Company for the period ending
      September 30, 1988 and incorporated herein by reference.
10.13 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.
10.14 Translated from Hebrew, Limited Partnership Agreement between Isramco Oil
      and Gas Ltd. and Isramco Management (1988) Ltd. dated March 2, 1989, filed
      as an Exhibit to Form 8-K for the month of March 1989 and incorporated
      herein by reference.
10.15 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.


20
<PAGE>

10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 Amendment No. 1 to the Negev 2 Venture Agreement made as of August 1, 1989
      and Amendment No. 2 to the Negev 2 Venture Agreement made as of September
      22, 1989 by and between the Negev 2 Venture Participants, filed as an
      Exhibit to the Post-effective Amendment No. 8 to Form S-l Registration
      Statement. File No. 2-83574.
10.21 Amendment Agreement to Grant Agreement between the Company and the
      Government of Israel, filed as an Exhibit to this Post-effective Amendment
      No. 8 to Form S-l Registration Statement. File No. 2- 83574.
10.22 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.
10.23 Stock Option Agreement dated as of May 25, 1990 between the Company and J.
      Jerome Williams, filed as an Exhibit to Form 8-K for the month of May,
      1990 and incorporated herein by reference.
10.24 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.
10.25 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.
10.26 Underwriting Agreement dated March 11, 1992 between Isramco-Negev 2
      Limited Partnership, Isramco Oil and Gas Ltd., Pat Oil Exploration
      Limited, JOEL -Jerusalem Oil Exploration Ltd., Isramco Management (1988)
      Limited, East Mediterranean Oil and Gas 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.
10.27 Assignment of Rights Agreement dated March 8, 1992 between JOEL Jerusalem
      Oil Exploration Ltd., Pat Oil Exploration Limited, the Company and
      Isramco-Negev 2 Limited Partnership (executed in Hebrew with an English
      translation attached), filed as an Exhibit to Form 10-K for Calendar Year
      ended December 31, 1991 dated March 26, 1992, and incorporated herein by
      reference.
10.28 Supplement to Assignment of Rights Agreement dated March 8, 1992 between
      JOEL -Jerusalem Oil Exploration Ltd., Pat Oil Exploration Limited, the
      Company and Isramco-Negev 2 Limited Partnership (executed in Hebrew with
      an English translation attached), filed as an Exhibit to Form 10-K for
      Calendar Year ended December 31, 1991 dated March 26, 1992, and
      incorporated herein by reference.
10.29 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.
10.30 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.
10.31 Option Agreement between Isramco Resources Inc. and J.O.E.L. - Jerusalem
      Oil Exploration Ltd., Oil Exploration of Pat Ltd., Isramco- Negev 2
      Limited Partnership and the Company filed as an Exhibit to Form 8-K for
      the month of January 1993 dated January 21, 1993 and incorporated herein
      by reference.


21
<PAGE>

10.32 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.
10.33 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.
10.34 Investment Banking Agreement filed as an Exhibit with the S-l Registration
      Statement, Filed No. 33-574482.
10.35 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.
10.36 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.
10.37 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.
10.38 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.
10.39 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.
10.40 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.
10.41 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.
10.42 Amendment to Consulting Agreement between Goodrich Global L.T.D. B.V.I.
      and the Company dated December _, 1997, filed as an Exhibit to Form 8-K
      for the month of December, 1997 and incorporated herein by reference.
10.43 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.
10.44 Settlement Agreement and Release dated March _, 1998 between Reuven Hello,
      Jay Resources Corporation, Jay Natural Resources Inc., Jay Petroleum LLC
      and Jay Management Company LLC, as Claimants and the Company, NIR
      Resources Inc., Jay Petroleum LLC and Jay Management Company LLC, as
      Respondents, filed as an Exhibit to Form 8-K for the month of March, 1998
      and incorporated herein by reference.
10.45 Inventory Services Management Agreement dated December _, 1997 between the
      Company and Equital Ltd. filed herewith as Exhibit 10.70.
10.46 Consulting Agreement dated August 20, 1997 between the Company and JFC
      Enterprises, LLC filed herewith as Exhibit 10.71.

      (b) Reports on Form 8-K

            Report for the month of June 2001

      (c) Financial Statements

            Report of Independent Accountants


22
<PAGE>

                                   SIGNATURES

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

                                         ISRAMCO,  INC.
                                         Registrant

                                         By: HAIM TSUFF

                                              /s/ Haim Tsuff,
                                         Chairman of the Board and
                                           Chief Executive Officer

Date: March 28, 2002

      In accordance with the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the capacities and on the dates indicated.

Signature                           Capacity                         Date

Jackob Maimon                 Director, President                March 28, 2002
/s/ Jackob Maimon



Tina Maimon Arckens           Director and Secretary             March 28, 2002
/s/ Tina Maimon Arckens



Prof. Avihu Ginzburg          Director                           March 28, 2002
/s/ Prof. Avihu Ginzburg



Eyal Gibor                    Director                           March 28, 2002
/s/ Eyal Gibor



Max Pridgeon                  Director                           March 28, 2002
/s/ Max Pridgeon


23
<PAGE>

                          Index to Financial Statements

                                                                            Page
                                                                            ----

Independent Auditors' Reports                                               F-1

Consolidated Balance Sheets at December 31, 2001 and 2000                   F-6

Consolidated Statements of Operations for the years ended December 31,
2001, 2000 and 1999                                                         F-7

Consolidated Statements of changes in Shareholders' Equity and
Comprehensive Income for the years ended December 31, 2001, 2000 and 1999   F-8

Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999                                                         F-9

Notes to Consolidated Financial Statements                                 F-10


                                      (i)
<PAGE>

                          Independent Auditors' Report

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

We have audited the consolidated balance sheet of Isramco, Inc. and subsidiaries
(the "Company") as of December 31, 2001, and the related consolidated statements
of operations, changes in shareholders' equity and comprehensive income, 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 did
not audit the financial statements of Isramco Oil and Gas, Ltd.; Isramco B.V.,
Cruquius; or Isramco, Inc. - Israel Branch, which are wholly owned subsidiaries
whose combined statements reflect total assets of $10,881,724 as of December 31,
2001, and total revenues of $1,039,244 for the year then ended. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for these subsidiaries,
is based solely on the reports of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 and reports of the other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Isramco, Inc. and
subsidiaries at December 31, 2001, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.


/s/ MANN FRANKFORT STEIN & LIPP CPAs, LLP

Houston, Texas
March 14, 2002


                                      F-1
<PAGE>

                          Independent Auditor's Report

The Board of Directors
Isramco, Inc.

      We have audited the accompanying consolidated balance sheet of Isramco,
Inc. and subsidiaries as of December 31, 2000, and the related consolidated
statements of operations, changes in shareholders' equity and comprehensive
income, and cash flows for each of the years in the two-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Isramco,
Inc. and subsidiaries as of December 31, 2000, and the consolidated results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.


/s/ KPMG

Houston, Texas
March 21, 2001, except as to Note D
which is as of May 21, 2001


                                      F-2
<PAGE>

                          Independent auditors' report

To the Shareholders of
Isramco Inc. - Israel Branch

We have audited the accompanying balance sheets of Isramco Inc. - Israel Branch
(hereinafter - "the Company") as at December 31, 2001 and 2000, and the related
statements of income, shareholders' equity and the Cash flows for each of the
years ended on such dates. These financial statements are the responsibility of
the Company's Board of Directors and of its 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, including standards prescribed by the Auditors Regulations (Manner of
Auditor's Performance) 1973. Such standards require that we plan and perform the
audit to obtain reasonable assurance that 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 the Board of Directors and by Management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

The above-mentioned financial statements were prepared on the basis of the
historical cost convention and no information on the effect of changes in the
general purchasing power of the Israeli currency on the operating results in the
financial statements has been provided.

In our opinion, except for the non-inclusion of the information mentioned in the
previous paragraph, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at December
31, 2001 and 2000 and the results of its operations, changes in the
shareholders' equity and its cash flows for each of the years ended on such
dates, in conformity with generally accepted accounting principles.


/s/ Somekh Chaikin
Certified Public Accountants (Isr.)

March 1, 2002


                                      F-3
<PAGE>

                          Independent auditors' report

To the Shareholders of
Isramco Oil and Gas Limited

We have audited the accompanying balance sheets of Isramco Oil and Gas Limited
(hereinafter - "the Company") as at December 31, 2001 and 2000, and the related
statements of income, and shareholders' equity, for each of the years ended on
such dates. These financial statements are the responsibility of the Company's
Board of Directors and of its 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, including standards prescribed by the Auditors Regulations (Manner of
Auditor's Performance) 1973. Such standards require that we plan and perform the
audit to obtain reasonable assurance that 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 the Board of Directors and by Management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

The above - mentioned financial statements were prepared on the basis of the
historical cost convention and no information on the effect of changes in the
general purchasing power of the Israeli currency on the operating results in the
financial statements has been provided.

In our opinion, except for the non-inclusion of the information mentioned in the
previous paragraph, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as at December
31, 2001 and 2000 and the results of its operations and the changes in the
shareholders' equity for each of the years ended on such dates, in conformity
with generally accepted accounting principles.


/s/ Somekh chaikin
Certified Public Accountants (Isr.)

March 1, 2002


                                      F-4
<PAGE>

                          Independent auditors' report

To the Shareholders of
Isramco BV,.Cruquius

Introduction

We have audited the financial statements of Isramco BV, Cruquius, for the year
2001. 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 audit.

Scope

We conducted our audit in accordance with generally accepted international
audition 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 presentation of the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the
financial position of the company as at 31 December 2001 and of the result for
the year 2001 then ended in accordance with accounting principles generally
accepted in the United States of America and comply with the financial reporting
requirements included in the General Accepted Accounting Principles (US GAAP).


/s/ OUSSOREN Van GARDEREN REGITERACCOUNTANTS

Amsterdam, 20 March 2002


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                           ------------
                                                                         2001        2000
                                                                       --------    --------
<S>                                                                    <C>         <C>
                                     ASSETS
Current assets:
   Cash and cash equivalents                                           $  4,280    $ 12,706
        Marketable securities, at market                                  2,847       3,526
        Accounts receivable                                                 455         831
        Prepaid expenses and other current assets                           112         580
                                                                       --------    --------
        Total current assets                                              7,694      17,643

Property and equipment, net (successful efforts method for oil
        and gas properties)                                               4,180       2,447
Marketable securities, at market                                          7,611       1,019
Investment in affiliate                                                   6,227       5,544
Covenants not to compete, less accumulated amortization of $470 and
   $450 at December 31, 2001 and 2000, respectively                          --          20
Deferred tax asset                                                          732         603
Other                                                                       171           5
                                                                       --------    --------
         Total assets                                                  $ 26,615    $ 27,281
                                                                       ========    ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts payable and accrued expenses                                  1,160       1,449
                                                                       --------    --------
        Total current liabilities                                         1,160       1,449
                                                                       --------    --------
Commitments, contingencies and other matters

Shareholders' equity:
    Common stock $.0l par value; authorized 7,500,000 shares;
    issued 2,669,120 shares; outstanding 2,639,853
    at December 31, 2001 and 2000                                            27          27
    Additional paid-in capital                                           26,240      26,240
    Accumulated deficit                                                    (784)       (645)
    Accumulated other comprehensive income                                  136         374
    Treasury stock, 29,267 shares at December 31, 2001 and 2000            (164)       (164)
                                                                       --------    --------
            Total shareholders' equity                                   25,455      25,832
                                                                       --------    --------
            Total liabilities and shareholders' equity                 $ 26,615    $ 27,281
                                                                       ========    ========
</TABLE>

              See notes to the consolidated financial statements.


                                      F-6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                         -----------------------
                                                                      2001           2000          1999
                                                                      ----           ----          ----
<S>                                                            <C>            <C>            <C>
Revenues:
      Operator fees from related party                         $       234    $     1,265    $    1,744
      Oil and gas sales                                              3,068          2,080         1,107
      Interest income                                                  541          1,277         1,011
      Office services to related party                                 857          1,018           881
      Gain from sale of oil and gas properties and equipment             4              6            17
      Gain on marketable securities                                     --             --         1,264
      Gain on BG transaction                                            --          3,626            --
      Gain on sale of investments in affiliates                         --             --           100
      Equity in net income of investees                                 --            106           108
      Other                                                             --             --            13
                                                               -----------    -----------    ----------
                     Total revenues                                  4,704          9,378         6,245
                                                               -----------    -----------    ----------
Expenses:

      Interest expense                                                  --             55           157
      Depreciation, depletion and amortization                         564            443           609
      Lease operation expense and severance taxes                      905            630           469
      Exploration costs                                                204          2,956           154
      Operator expense                                                 696            634           514
      General and administrative                                     2,048          1,740         1,061
      Loss on marketable securities                                    199              9            --
      Equity in net loss of investees                                  177             --            --
      Impairment of oil and gas assets                                  --          2,550            --
      Impairment of investment                                          --            400            --
                                                               -----------    -----------    ----------
                     Total expenses                                  4,793          9,417         2,964
                                                               -----------    -----------    ----------
Income (loss) before income taxes                                      (89)           (39)        3,281
Income taxes (benefit)                                                  50           (356)          298

                                                               -----------    -----------    ----------
NET INCOME  (LOSS)                                             $      (139)   $       317    $    2,983

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

Earnings per common share - basic                              $     (0.05)   $      0.12    $     1.13

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

Earnings per common share - diluted                            $     (0.05)   $      0.12    $     1.13

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

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

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

Weighted average number of common outstanding - diluted          2,639,853      2,706,731     2,639.853

                                                               ===========    ===========    ==========
</TABLE>

              See notes to the consolidated financial statements.


                                      F-7
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
                   (in thousands except for share information)

                 Common Stock Additional Accumulated Accumulated

<TABLE>
<CAPTION>
                                                                                          Accumulated
                                           Common Stock        Additional                    Other
                                       --------------------     Paid-In    Accumulated   Comprehensive  Treasury   Shareholders'
                                         Shares      Amount     Capital      Deficit        Income       Stock        Equity
                                       ----------    ------    ----------  -----------   -------------  --------   -------------
<S>                                     <C>           <C>      <C>            <C>           <C>          <C>         <C>
Balances-December 31, 1998              2,669,120     $  27     $26,122       $(3,945)           --      $(164)      $ 22,040

Comprehensive income:

    Net Income                                 --        --          --         2,983            --         --          2,983
    Unrealized gain on
       marketable securities, net of
       taxes                                             --          --            --         1,153         --          1,153
                                                                                                                     --------

Total comprehensive income                                                                                              4,136

Balances-December 31, 1999              2,669,120     $  27     $26,122       $  (962)      $ 1,153      $(164)      $ 26,176

Options issued as directors'
compensation                                   --        --         118            --            --         --            118
Comprehensive income:

    Net Income                                 --        --          --           317            --         --            317

    Unrealized loss on
       marketable securities,
       net of taxes                            --        --          --            --          (779)        --           (779)
                                                                                                                     --------

Total comprehensive income                                                                                               (462)

Balances December 31, 2000              2,669,120     $  27     $26,240       $  (645)      $   374      $(164)      $ 25,832

Comprehensive income:

    Net Loss                                                                     (139)                                   (139)

    Unrealized loss on
       marketable securities,
       net of taxes                                                                            (238)                     (238)
                                                                                                                     --------

Total comprehensive income                                                                                               (377)

Balances December 31, 2001              2,669,120     $  27     $26,240       $  (784)      $   136      $(164)      $ 25,455
                                        =========     =====     =======       =======       =======      =====       ========
</TABLE>

               See notes to the consolidated financial statements


                                      F-8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                  --------------------------------
                                                                                    2001        2000        1999
                                                                                    ----        ----        ----
<S>                                                                               <C>         <C>         <C>
Cash flows from operating activities:
Net income (loss)                                                                 $   (139)   $    317    $  2,983
      Adjustment to reconcile net income (loss) to net cash provided by
       operating activities:
             Depreciation, depletion, amortization and provision for impairment        564       2,993         609
             Dry hole costs                                                             --       1,902          --
             (Gain) loss on marketable securities                                      199           9      (1,264)
             Realized gain on investment in affiliate                                   --          --        (100)
             Gain on BG transaction                                                     --      (3,626)         --
             Gain on sale of oil and gas properties and equipment                       (4)         (6)        (17)
             Equity in net (income) loss of investees                                  177        (106)       (108)
             Employee stock awards                                                      --         118          --
             Impairment of investment                                                   --         400          --
             Deferred taxes                                                             --        (701)         (8)
             Changes in assets and liabilities:
                  Accounts receivables                                                 376        (450)       (113)
                  Prepaid expenses and other current assets                            468         642      (1,015)
                  Other                                                               (166)          2          11
                  Accounts payable and accrued liabilities                            (289)         17         811
                                                                                  --------    --------    --------
             Net cash provided by operating activities                               1,186       1,511       1,789

Cash flows from investing activities:
      Addition to property and equipment                                            (2,276)     (2,337)       (117)
      Purchase of Jay petroleum, L.L.C and of Jay Management
         L.L.C, net of cash acquired                                                    --          --         (60)
      Proceeds from sale of oil and gas properties and equipment                         3           6          89
      Purchase of marketable securities                                             (7,393)     (3,389)     (2,722)
      Proceeds from BG transaction                                                      --       1,925       1,701
      Proceeds from sale of marketable securities                                    1,168       2,546       4,335
      Purchase of convertible promissory note                                           --        (400)         --
      Proceeds from sale of investments in affiliates                                               --       1,018
      Purchase of investment in affiliates                                          (1,114)     (1,066)     (4,585)
                                                                                  --------    --------    --------
             Net cash used in investing activities                                  (9,612)     (2,715)       (341)
                                                                                  --------    --------    --------
Cash flows from financing activities:
         Principal payments on long-term debt                                           --      (1,404)       (374)
                                                                                  --------    --------    --------
             Net cash used in financing activities                                      --      (1,404)       (374)
                                                                                  --------    --------    --------
NET INCREASE (DECREASE) IN CASH AND
        CASH EQUIVALENTS                                                            (8,426)     (2,608)      1,074
Cash and cash equivalents - beginning of year                                       12,706      15,314      14,240
                                                                                  --------    --------    --------
Cash and cash equivalents - end of year                                           $  4,280    $ 12,706    $ 15,314
                                                                                  ========    ========    ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest                                          $     --    $     55    $    157
                                                                                  ========    ========    ========
Cash paid during the period for taxes                                             $     25    $    695    $     --
                                                                                  ========    ========    ========
</TABLE>

               See notes to the consolidated financial statements


                                      F-9
<PAGE>

                          ISRAMCO INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE A) -- General and Summary of Significant Accounting Policies:

      [1] The Company

      Isramco Inc. and subsidiaries (the Company) is primarily engaged in the
acquisition, exploration, operation and development of oil and gas properties.
As of December 31, 2001, the Company owns properties in Texas, Louisiana,
Oklahoma, Wyoming, New Mexico, the Republic of Congo, Africa, and approximately
a 0.5% working interest in various properties located in Israel.

      [2] Consolidation

      The consolidated financial statements include the accounts of the Company,
its direct and indirect wholly-owned subsidiaries Isramco Oil and Gas Ltd. (Oil
and Gas) and Isramco Resources Inc., a British Virgin Islands company, its
wholly owned subsidiary, Jay Petroleum, L.L.C., (Jay) , Jay Management L.L.C
(Jay Management), IsramTec Inc. (IsramTec) and a wholly-owned foreign
subsidiary. Intercompany balances and transactions have been eliminated in
consolidation.

      [3] Method of Accounting for Oil and Gas Operations

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

      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
$519,000, $2,917,000 and $609,000 for 2001, 2000 and 1999, respectively.

      [4] Marketable Securities

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

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


                                      F-10
<PAGE>

[5] Investment in Affiliates

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

[6] Equipment

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

[7] Translation of Foreign Currencies

Foreign currency is translated in accordance with Statement of Financial
Accounting Standards No. 52, which provides the criteria for determining the
functional currency for entities operating in foreign countries. The Company has
determined its functional currency is the United States (U.S.) dollar since all
of its contracts are in U.S. dollars. The financial statements of Oil and Gas
and the Israel branch have been remeasured into U.S. dollars as follows: at
rates prevailing during the year for revenue and expense items (except
depreciation); at year-end rates for assets and liabilities except for fixed
assets and prepaid expenses which are translated at the rate in effect at the
time of their acquisition. Depreciation is remeasured based on the historical
dollar cost of the underlying assets. The net effects of currency translations
were not material in any period.

[8] Earnings Per Share (EPS)

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

[9] Cash Equivalents

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

[10] Non-compete Agreements

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

[11] New Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement, as amended by SFAS No. 137
and SFAS No. 138, establishes standards of accounting for and disclosures of
derivative instruments and hedging activities. This statement requires all
derivative instruments to be carried on the balance sheet at fair value and is
effective for the Company beginning


                                      F-11
<PAGE>

January 1, 2001. The company's January 1, 2001 adoption of SFAS No. 133 had no
material impact on its financial statements.

In June, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, "Business Combinations", SFAS 142, "Goodwill and Other Intangible Assets"
and SFAS No. 143, "Accounting for Asset Retirement Obligations". In August,
2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS 141 requires all business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting. In
addition, it requires application of the provisions of SFAS 142 for goodwill and
other intangible assets related to any business combinations completed after
June 30, 2001, but prior to the adoption date of SFAS 142. SFAS 142 changes the
accounting for goodwill and other intangible assets. Upon adoption, goodwill
will no longer be subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for impairment
by applying a fair-value-based test. All other acquired intangibles will be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, or exchanged, regardless of the Company's intent to do
so. Other intangibles will be amortized over their useful lives. SFAS 142
becomes effective for the Company on January 1, 2002. SFAS 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS 143 becomes effective for the Company on January 1, 2003. SFAS 144
replaces SFAS 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of and other related provisions. SFAS Policies
144 provides updated guidance concerning the recognition (continued) and
measurement of an impairment loss for certain types of long-lived assets. It
also expands the scope of a discontinued operation to include a component of an
entity, and it eliminates the current exemption to consolidation when control
over a subsidiary is likely to be temporary. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those years. The Company's adoption of the provisions of
SFAS 141, SFAS 142, SFAS 143 and SFAS 144 is not expected to have any material
impact on its financial statements.

[12] Use of Estimates

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

Oil and gas reserve quantities are the basis for the calculation of
depreciation, depletion and impairment of oil and gas properties. An independent
petroleum-engineering firm determines the Company's reserve estimates. However,
management emphasizes that reserve estimates are inherently imprecise and that
estimates of more recent discoveries and non-producing reserves are more
imprecise than those for properties with long production histories. At December
31, 2001, approximately 20% of the Company's oil and gas reserves were
attributable to non-producing reserves. Accordingly, the Company's estimates are
expected to change, as future information becomes available.

As mandated under SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of, the Company is required
under certain circumstances to evaluate the possible impairment of the carrying
value of its long-lived assets. For proved oil and gas properties, this involves
a comparison to the estimated future undiscounted cash flows, as described in
the paragraph below. In addition to the uncertainties inherent in the reserve
estimation process, these amounts are affected by management`s estimates for
projected prices for oil and natural gas, which have typically been volatile. It
is reasonably possible that the Company's oil and gas reserve estimates will
materially change in the forthcoming year.


                                      F-12
<PAGE>

[13] Impairment of Long-Lived Assets

The provisions of SFAS No. 121 require the Company to assess impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived asset may not be recoverable. When an assessment for impairment of
oil and gas properties is performed, the Company is required to compare the net
carrying value of oil and gas properties on a field-by-field basis (the lowest
level at which cash flows can be determined on a consistent basis) to the
related estimates of undiscounted future net cash flows for such properties. If
the net carrying value exceeds the net cash flows, then an impairment is
recognized to reduce the carrying value to the estimated fair value. The Company
recorded impairment provisions of $571,000 during 1998 on the excess of the
carrying value of the Company's oil and gas properties over the estimated future
discounted cash flows from such properties. There were no such impairments
recognized during 2001 or 1999.

Unproved oil and gas properties that are individually significant are
periodically assessed for impairment value, and a loss is recognized to the
extent, if any, that the cost of the property has been impaired. During 2000,
the Company recorded an impairment of $ 2,550,000 relating to its unproved
properties. There are no such impairments recognized during 2001 and 1999.

[14] Income Taxes

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

[15] Oil and Gas Revenues

The Company records oil and gas revenues following the entitlement method of
accounting for production, in which any excess amounts received above the
Company's share is treated as a liability. If less than the Company's share is
received, the underproduction is recorded as an asset. The Company's imbalance
position was not significant in terms of volumes or values at December 2001 and
2000.

[16] Environmental

The Company is subject to extensive Federal, state, local and foreign
environmental laws and regulations. These laws, which are constantly changing,
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of petroleum or chemical substances at various sites. Liabilities for
expenditures of noncapital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably estimated. No
significant amounts for environmental liabilities are recorded at December 31,
2001 and 2000.

[17] Stock-Based Compensation

The Company applies SFAS No.123, "Accounting for Stock-Based Compensation",
which allows a company to adopt a fair value based method of accounting for
stock-based employee compensation plan or to continue to use the intrinsic value
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employee". The Company chose to continue to
account for stock-based compensation under the intrinsic value method and
provides the pro forma effects of the fair value method as required.


                                      F-13
<PAGE>

(18) Reclassifications

Certain amounts in prior financial statements have been reclassed to conform to
the 2001 financial statements presentation.

(NOTE B) - Transactions with Affiliates and Related Parties

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

Operator fees earned and related operator expenses are as follows:

                                                      Year Ended December 31,
                                                  ------------------------------
                                                   2001        2000        1999
                                                  ------      ------      ------
                                                          (in thousands)

Operator fees:
                Negev Med Venture ..........      $   --      $   85      $  252
                Shederot Venture ...........          --           1          18
                Yam Ashdod Carveout ........          54          87          65
                Yam West 2 .................          --          --         575
                OR-1 .......................          --          16         283
                OR South-1 .................          --          --         509
                Marine North ...............          72          72          42
                Marine Center ..............          72         396          --
                Marine South ...............          36          39          --
                Nir-1 ......................          --         569          --
                                                  ------      ------      ------
                                                  $  234      $1,265      $1,744
                                                  ======      ======      ======
Operator expenses ..........................      $  696      $  634      $  514
                                                  ======      ======      ======

In August of 1997 the Company entered into a Consulting Agreement with Romulas
Investment Ltd. (which Agreement has been assigned to Remarkable Holdings Ltd.),
a company which is wholly owned and controlled by Daniel Avner, the Vice
President of the Company. Pursuant to this Agreement, the Company agreed to pay
the Consultant the sum of $7,500 per month plus expenses. In February 1999, the
Consulting Agreement was amended to increase the monthly compensation payable
thereunder to $15,000 and pursuant to the amendment, the reimbursement of
expenses was disallowed. The Consulting Agreement is in effect through July
2002.

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

The Company paid Naphtha $ 6,500 per month for rent, office, secretarial and
computer services from July 1998 through April 30, 2000 and $9,125 per month
from May 1,2000 for such services. A subsidiary of the Company is the general
partner of Isramco-Negev 2 Limited Partnership from which it received management
fees and expense reimbursements of $480,000, $530,000, $580,000 and for the year
ended December 31, 2001, 2000 and 1999 respectively.


                                      F-14
<PAGE>

During the years ended December 31, 2001, 2000 and 1999 the Company incurred
$292,000, $283,000 and $273,000 respectively, for consulting services rendered
by officers/directors of the Company.

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

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

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

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

In December 2000, the Company assumed from Naphtha Israel Petroleum Corp.,
I.O.C. Israel Petroleum Company and affiliate entities (all commonly controlled
companies) their respective interest in Naphtha Congo L.P. in Congo (which holds
a 5% working interest in the Congo). In connection with this transaction, the
Company paid $800,000 to these commonly controlled entities and also agreed to
pay royalties of 17.5% of its net revenues associated with the working interest.
The Company recorded the $800,000 paid as exploration costs because the payment
represents reimbursement of exploration costs previously expensed by the
commonly controlled companies.

(NOTE C) - Investments in Affiliate

A wholly owned subsidiary of the Company is the General Partner in the Isramco
Negev 2 Limited Partnership. The daily management of the Limited Partnership
vests with the General Partner, however, matters involving the rights of the
Limited Partnership unit holders, are subject to supervision of the Supervisor,
appointed to supervise the Limited Partnership activities, and in some instances
the approval of the Limited Partnership unit holders. The Company's General
Partnership interest in the Limited Partnership is 0.01% which is accounted for
by the equity method of accounting due to its ability to exercise significant
influence.


                                      F-15
<PAGE>

At December 31, 2001 the Company also owned 283,171,196 units of the Isramco
Negev 2 Limited Partnership with a cost and market value of $5,018,000 and
$3,976,000, respectively. At December 31, 2000 the Company owned 184,184,615
units of the Isramco Negev 2 Limited Partnership, with a cost and market value
of $3,989,000 and $3,145,000, respectively. These investments are also accounted
for under the equity method of accounting. During 1999, the Company sold
approximately 43,100,000 units, realizing a gain of $100,000 in earnings.

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

                                                             As of December 31,
                                                           ---------------------
Balance Sheet                                                2001         2000
                                                           --------     --------
     Current Assets                                        $106,000     $105,000
     Other Assets                                             4,000       15,000
                                                           --------     --------
                  Total Assets                             $110,000     $120,000
                                                           ========     ========
     Current Liabilities                                   $  2,000     $  3,000
     Equity                                                 108,000      117,000
                                                           --------     --------
                  Total liabilities and equity             $110,000     $120,000
                                                           ========     ========

                                                    Year ended December 31,
                                               --------------------------------
Statement of Operations                         2001        2000          1999
                                               ------     -------      --------
     Income                                    $8,000     $ 3,000      $ 10,000
     Expenses                                   7,000       6,000        13,000
                                               ------     -------      --------
                  Net income (loss)            $1,000     $(3,000)     $ (3,000)
                                               ======     =======      ========

The Company's equity in net income (loss) is adjusted for the amortization of
the difference between the carrying amount of the investment and its underlying
equity in the net assets of the investee.

(NOTE D) - Marketable Securities

At December 31, 2001 and 2000, the Company had net unrealized gains (losses) on
marketable securities of $ (179,000) and $16,000, respectively.

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

                        December 31, 2001           December 31, 2000
                        -----------------           -----------------
                       Cost      Market Value      Cost      Market Value
                    ----------   ------------   ----------   ------------
Debentures and
Convertible
Debentures          $2,234,000   $  2,189,000   $2,981,000   $  3,015,000

Equity securities      768,000        636,000      529,000        511,000

Investment Trust
Funds                   24,000         22,000           --             --
                    ----------   ------------   ----------   ------------
                    $3,026,000   $  2,847,000   $3,510,000   $  3,526,000
                    ==========   ============   ==========   ============


                                      F-16
<PAGE>

Available-for-sale securities, which are primarily traded on the Tel-Aviv Stock
Exchange, consist of equity securities with amortized cost of $7,214,000, net
gross unrealized holding gains of $397,000 and a fair market value of
$7,611,000.

During 2001, an investment of the Company, which was previously included in
available for Sale securities, is now accounted for on the equity method. In
accordance with Accounting Principles Board Opinion No. 18 prior period amounts
have been adjusted to reflect the investment on the equity method. The effect of
the adjustment was to reduce equity at December 31, 2000 and 1999 by $633,000
and $121,000 respectively and to increase net income for the years ended
December 31, 2000 and 1999 by $15,000 and $138,000 respectively.

Sales of marketable securities resulted in realized gains (losses) of $ (3,000),
$(18,000) and $1,256,000 for the years ended December 31, 2001, 2000 and 1999
respectively.

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

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

In 2001, the Company invested, by way of a convertible loan in such high-tech
venture approximately $168,000. The investment was conditioned upon the
fulfillment by the high-tech venture of certain milestones.

(NOTE F) - Oil and Gas Properties

                                                                    Total
                                                                    Capitalized
                                        Unproved        Proved      Costs
                                      -----------    -----------    -----------
Balance--December 31, 1998            $ 2,700,000    $ 4,347,000    $ 7,047,000
Acquisition costs                              --         57,000         57,000
Sale of oil and gas properties                 --       (402,000)      (402,000)
                                      -----------    -----------    -----------
Balance--December 31, 1999            $ 2,700,000    $ 4,002,000    $ 6,702,000
Acquisition costs                         927,000             --        927,000
Development costs                       1,902,000        262,000      2,164,000
Sale of oil and gas properties                 --       (252,000)      (252,000)
Dry hole costs                         (1,902,000)            --     (1,902,000)
Impairment                             (2,550,000)            --     (2,550,000)
                                      -----------    -----------    -----------
Balance - December 31, 2000           $ 1,077,000    $ 4,012,000    $ 5,089,000
Acquisition costs                              --      1,599,000      1,599,000
Development costs                              --        624,000        624,000
Sale of oil and gas properties                 --             --             --
Dry hole costs                                 --             --             --
Impairment                                     --             --             --
                                      -----------    -----------    -----------
Balance - December 31, 2001           $ 1,077,000    $ 6,235,000    $ 7,312,000
                                      ===========    ===========    ===========

In September 2000 the company drilled an exploration well within the Tilapia
permit in the Congo. Based on the results of the production tests that were
performed on the well, the license participants decided to plug and abandon the
well. The costs of the dry hole of $1,902,000 were recorded to exploration
expense during the year ended December 31, 2000. In December 2000 the Board of
Directors of the Company decided to abandon the Tilapia permit. Accordingly, the
Company recognized an impairment of unproved property costs of $2,550,000.


                                      F-17
<PAGE>

(NOTE G) -- Equipment

Cost:

Balance--December 31, 1999 .......................................   $ 294,000
Purchases ........................................................      46,000
Sales ............................................................      (7,000)
                                                                     ---------
Balance--December 31, 2000 .......................................   $ 333,000
Purchases ........................................................      53,000
Sales ............................................................     (21,000)
                                                                     ---------
Balance--December 31, 2001 .......................................   $ 365,000

Accumulated Depreciation:

Balance--December 31, 1999 .......................................   $ 192,000
Depreciation expense .............................................      37,000
Depreciation of equipment that was sold or retired ...............      (7,000)
                                                                     ---------
Balance--December 31, 2000 .......................................   $ 222,000
Depreciation expense .............................................      23,000
Depreciation of equipment that was sold or retired ...............     (21,000)
                                                                     ---------
Balance--December 31, 2001 .......................................   $ 224,000

Cost less accumulated depreciation--December 31, 2001 ............   $ 141,000
                                                                     =========
Cost less accumulated depreciation--December 31, 2000 ............   $ 111,000
                                                                     =========
Annual rates of depreciation are as follows:
   Office equipment and furniture ................................     7%--20%
   Motor vehicles ................................................    15%--30%

      A summary of property and equipment is as follows:

                                                               December, 31
                                                               ------------
                                                            2001         2000
                                                         ----------   ----------
Unproved properties ..................................   $  277,000   $  277,000
  Oil and gas properties .............................    6,235,000    4,012,000
  Transportation equipment ...........................      214,000      179,000
  Office equipment ...................................      150,000      154,000
                                                         ----------   ----------
                                                          6,876,000    4,622,000
                                                         ----------   ----------
  Less accumulated depletion, depreciation,
    amortization and provision for impairment ........    2,696,000    2,175,000
                                                         ----------   ----------
                                                         $4,180,000   $2,447,000
                                                         ==========   ==========

(NOTE H) - Shareholders' Equity

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


                                      F-18
<PAGE>

EPS Computation

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

<TABLE>
<CAPTION>
                                                        For the year ended December 31,
                                    ----------------------------------------------------------------------
                                             2001                    2000                    1999
                                    ----------------------   --------------------   ----------------------
                                     Income       shares      Income     shares       Income      shares
                                    ---------    ---------   --------   ---------   ----------   ---------
<S>                                 <C>          <C>         <C>        <C>         <C>          <C>
Earnings per common share-basic     $(139,000)   2,639,853   $317,000   2,639,853   $2,983,000   2,639,853
Effect of dilutive securities:
Stock options                              --           --         --      66,878           --          --
                                    ---------    ---------   --------   ---------   ----------   ---------
Earnings per common share-Diluted   $(139,000)   2,639,853   $317,000   2,706,731   $2,983,000   2,639,853
                                    =========    =========   ========   =========   ==========   =========
</TABLE>

The 1993 stock option plan (the 1993 Plan) was approved at the Annual General
Meeting of Shareholders held on August 13, 1993. At December 31, 2001, 2000 and
1999, 50,000 shares of common stock are reserved under the 1993 Plan. Options
granted under the 1993 Plan might be either incentive stock options under the
Internal Revenue Code or options which do not qualify as incentive stock
options. Options are granted for a period of up to ten years from the grant
date. The exercise price for an incentive stock option may not be less than 100%
of the fair market value of the Company's common stock on the date of grant. The
options granted under this plan were fully vested at grant date. The
administrator may set the exercise price for a nonqualified stock option.

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

                                                    Weighted-
                                                     Average
1993 Plan:                         Options       Exercise Price
                                   -------       --------------
Outstanding at December 31, 1998    29,750           $21.00
Granted ........................        --               --
Expired ........................        --               --
                                    ------
Outstanding at December 31, 1999    29,750           $21.00
                                    ======
Granted ........................        --               --
Expired ........................        --               --
                                    ------
Outstanding at December 31, 2000    29,750           $21.00
                                    ======           ======
Granted ........................        --               --
Expired ........................        --               --
                                    ------
Outstanding at December 31, 2001    29,750           $21.00
                                    ======           ======


                                      F-19
<PAGE>

As of December 31, 2001, 29,750 options were outstanding and exercisable with a
price of $21.00 and a weighted-average remaining contractual life of 1.3 years.

                                                                    Weighted-
                                                                     Average
Consultants and others:                              Options      Exercise Price
                                                     -------      --------------
Outstanding at December 31, 1998                      2,000           $23.00
Granted                                                  --               --
Expired                                                  --               --
                                                      -----
Outstanding at December 31, 1999                      2,000           $23.00
Granted                                                  --               --
Expired                                                  --               --
Outstanding at December 31, 2000                      2,000           $23.00
                                                      =====           ======
Granted                                                  --               --
Expired                                                  --               --
Outstanding at December 31, 2001                      2,000           $23.00
                                                      =====           ======

As of December 31, 2001, 2,000 options were outstanding and exercisable with a
price of $23.00 and a weighted-average remaining contractual life of 1.7 years.

On March 24, 2000, Haim Tsuff, the Chairman of the Board of Director and Chief
Executive officer of the Corporation and Jacob Maimon, the president of the
Corporation were each granted five year options to purchase up to 69,995 shares
of the company's common stock at an exercise price of $4.28.

No stock options were granted during 2001.

Shares of common stock reserved for future issuance are:

      Options granted under the 1993 Plan                           29,750
      Options available for grant under the 1993 Plan               20,250
      Options granted to directors                                 139,990
      Other                                                          2,000
                                                                   -------
      Total                                                        191,990
                                                                   =======

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


                                      F-20
<PAGE>

The Company applies Accounting Principles Bulletin Opinion No. 25 and related
interpretations in accounting for its options. Accordingly, compensation expense
of $118,000 has been recognized for its stock option grants to its directors
during 2000. Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS No. 123, Accounting for Stock-based Compensation, the
Company's net income (loss) and income (loss) per share would have been reduced
to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
                                                       2001        2000        1999
                                                    ---------    --------   ----------
<S>                                                 <C>          <C>        <C>
Net income (loss) - as reported                     $(139,000)   $317,000   $2,983,000
                                                    =========    ========   ==========
                  - pro forma                       $(139,000)   $ 71,000   $2,983,000
                                                    =========    ========   ==========

Earnings (loss) per share (basic and diluted)
                  - as reported                     $   (0.05)   $   0.12   $     1.13
                                                    =========    ========   ==========
                  - pro forma (basic and diluted)   $   (0.05)   $   0.02   $     1.13
                                                    =========    ========   ==========
</TABLE>

(NOTE I) -- Income Taxes

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

                                          Year Ended December 31,

                                 2001               2000                1999

U.S.                          $ 605,000          $(455,000)         $  (640,000)
Foreign                       $(694,000)         $ 416,000          $ 3,921,000
                              ---------          ---------          -----------
  Total                       $ (89,000)         $ (39,000)         $ 3,281,000
                              =========          =========          ===========

Total income taxe expenses (benefit) for each of the years ended December 31,
2001, 2000 and 1999 were allocated as follows:

                                                  2001        2000        1999

Income (loss) from continuing operations       $ 50,000    $(356,000)   $298,000
Shareholders' equity for unrealized holding
    gains of marketable securities             $(63,000)     178,000          --
                                               --------    ---------    --------
Total                                          $(13,000)   $(178,000)   $298,000
                                               ========    =========    ========

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

                                                   Year Ended December 31,

                                               2001          2000         1999
Current:
     State                                  $ 10,000     $  40,000     $     --
     Federal                                  73,000       403,000      311,000
     Foreign                                 276,000       (72,000)      72,000
Deferred                                    (309,000)     (727,000)     (85,000)
                                            --------     ---------     --------
Total                                       $ 50,000     $(356,000)    $298,000
                                            ========     =========     ========


                                      F-21
<PAGE>

The deferred tax assets (liabilities) as of December 31, 2001and 2000 are as
follows:

<TABLE>
<CAPTION>
                                                                       As of  December 31,
                                                                      --------------------
                                                                        2001        2000
                                                                      --------    --------
<S>                                                                   <C>         <C>
Net unrealized depreciation (appreciation) of marketable securities   $224,500    $155,000
        Basis differences in property and equipment                    468,500     426,000
        U.S. state taxes                                               (52,500)    (49,000)
        Other timing differences                                        91,500      71,000
                                                                      --------    --------
                                                                       732,000     603,000
        Valuation allowance                                                 --          --
                                                                      --------    --------
                                                                      $732,000    $603,000
                                                                      ========    ========
</TABLE>

The Company has determined that it is more likely than not that the deferred tax
assets will be realized. A valuation allowance for such assets is not required
at December 31, 2001 and 2000. This determination considered, among other
things, estimated future cash flows from proved reserves and the market value of
securities and expected resulting taxable income.

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

                                                      Year Ended December 31,
                                                    --------------------------
                                                     2001       2000      1999
                                                    -----     ------     -----
Computed at U.S. statutory rates                    (35.0)%    (35.0)%    35.0%
State income taxes, net of federal benefit          (11.2)      49.8       2.9
Adjustment to valuation allowance                      --     (497.5)    (31.2)
Other                                               (10.0)       9.9       0.5
                                                    -----     ------     -----
                                                    (56.2)    (472.8)%     7.2%
                                                    =====     ======     =====

(NOTE J) -- 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, 2001.

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

A significant portion of the Company's cash and cash equivalents is invested in
marketable securities.

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


                                      F-22
<PAGE>

(NOTE K) -- Commitments and Contingencies

Commitments:

The Company leases corporate office facilities under a three-year operating
lease expiring October 2003 at a monthly rental of $ 2,854. The Company shares
office space with Jay Petroleum, L.L.C. and Jay Management L.L.C., affiliates,
under an informal sublease agreement.

At December 31, 2001, future minimum lease payments under non-cancelable
operating leases are approximately $34,248 for the year ending December 31, 2002
and $28,540 for the year ending December 31, 2003.

Contingencies:

The Company is currently involved in a dispute with a contractor relating to
drilling costs of the Telapia well in Congo. The Company believes that it had
adequately accrued for all amounts due to this contractor as of December 31,
2001.

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

(NOTE L) - Sale of Interests

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

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

Under the terms of the BG Transaction, BG replaced the Company as operator of
the Med Yavne license as of January 1, 2000. The Company will continue to serve
as operator of each of the remaining Med Licenses on the same terms and
conditions currently existing among the Company and the other license
participants until each such license's expiration. As of March 2002 the Company
serves as operator of the Med Ashdod Lease. The remaining Med Licenses have
expired.


                                      F-23
<PAGE>

(NOTE M) - Long - term debt

In May 2000, Jay Petroleum repaid in full the principal of approximately
$1,404,000 and accrued interest on its loan from Comerica Bank - Texas.

(NOTE N) - Geographical Segment Information

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

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

<TABLE>
<CAPTION>
                                                                        Geographic Segments
                                                         --------------------------------------------
                                                          United                         Consolidated
                                                          States     Israel      Congo      Total
                                                         --------    -------    -------  ------------
<S>                                                      <C>         <C>        <C>        <C>
                2001
Sales and other operating revenue ....................   $  3,171    $   988    $    --    $ 4,159
Costs and operating expenses .........................     (1,451)      (723)      (199)    (2,373)
                                                         --------    -------    -------    -------
Operating profit (loss) ..............................   $  1,720    $   265    $  (199)   $ 1,786
                                                         ========    =======    =======

Interest income and other corporate revenues .........                                         545
General corporate expenses ...........................                                      (2,044)
Loss on marketable securities and
     net loss in investee ............................                                        (376)
Income taxes .........................................                                         (50)
                                                                                           -------
Net loss .............................................                                     $  (139)
                                                                                           =======

Identifiable assets at December 31, 2001
Net property and equipment ...........................   $  3,850    $   180    $   150    $ 4,180
Cash and corporate assets ............................                                     $22,435
                                                                                           -------
Total assets at December 31, 2001 ....................                                     $26,615
                                                                                           =======
</TABLE>

<TABLE>
<CAPTION>
                                                                        Geographic Segments
                                                         --------------------------------------------
                                                          United                         Consolidated
                                                          States     Israel      Congo      Total
                                                         --------    -------    -------  ------------
<S>                                                      <C>         <C>        <C>        <C>
                2000
Sales and other operating revenue ....................   $  2,165    $ 2,198    $    --    $ 4,363
Gain on sale of right to BG ..........................         --      3,626         --      3,626
Costs and operating expenses .........................     (1,215)      (746)    (5,252)    (7,213)
                                                         --------    -------    -------    -------
Operating profit (loss) ..............................   $    950    $ 5,078    $(5,252)   $   776
                                                         ========    =======    =======

Interest income and other corporate revenues .........                                       1,283
Net gain in investee and loss on marketable securities                                          97
General corporate expenses ...........................                                      (1,740)
Interest expense .....................................                                         (55)
Impairment of investment .............................                                        (400)
Income taxes benefit .................................                                         356
                                                                                           -------
Net income ...........................................                                     $   317
                                                                                           =======
</TABLE>

                                      F-24
<PAGE>
<TABLE>
<S>                                                      <C>         <C>        <C>        <C>
Identifiable assets at December 31, 2000
Net property and equipment ...........................   $  2,143    $   154    $   150    $ 2,447
Cash and corporate assets ............................                                     $24,834
                                                                                           -------
Total assets at December 31, 2000 ....................                                     $27,281
                                                                                           =======
</TABLE>

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

Interest income and other corporate revenues .........                                       1,041
Gain on marketable securities and net gain in investee                                       1,372
Gain on investment in affiliate ......................                                         100
General corporate expenses ...........................                                      (1,061)
Interest expense .....................................                                        (157)
Income taxes .........................................                                        (298)
                                                                                           -------
Net income ...........................................                                     $ 2,983
                                                                                           =======

Identifiable assets at December 31, 1999 .............   $  2,175    $    90    $ 2,700    $ 4,965
Cash and corporate assets ............................                                      25,748
                                                                                           -------
Total assets at December 31, 1999 ....................                                     $30,713
                                                                                           =======
</TABLE>

                      SUPPLEMENTARY OIL AND GAS INFORMATION
        For the years ended December 31, 2001, 2000 and 1999 (unaudited)

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

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

<TABLE>
<CAPTION>
                                                                        2001                  2000                 1999
                                                                  ----------------    ------------------    -----------------
                                                                  United              United                United
                                                                  States     Congo    States      Congo     States      Congo
                                                                  ------     -----    ------      -----     ------      -----
<S>                                                               <C>        <C>      <C>        <C>        <C>        <C>
Unproved properties not being amortized .......................   $   123    $ 150    $    79    $   950    $    --    $2,700
Proved property being amortized ...............................     5,632       --      4,012         --      4,002        --
Accumulated depreciation, depletion amortization and
        impairment ............................................    (1,953)      --     (1,953)        --     (1,840)       --
                                                                  -------    -----    -------    -------    -------    ------

Net capitalized costs .........................................   $ 3,802    $ 150    $ 2,138    $   950    $ 2,162    $2,700
                                                                  =======    =====    =======    =======    =======    ======
</TABLE>


                                      F-25
<PAGE>

Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Activities (in thousands)

<TABLE>
<CAPTION>
                                                                        2001                  2000                 1999
                                                                  ----------------    ------------------    -----------------
                                                                  United              United                United
                                                                  States     Congo    States      Congo     States      Congo
<S>                                                               <C>        <C>      <C>        <C>        <C>        <C>
Property acquisition costs--proved and
unproved properties ...........................................   $ 1,059    $  --    $    79    $   800    $    57    $   --
Exploration costs .............................................       765      199        164      1,902         --        --
Development costs .............................................       399       --        262         --         --        --
(Israel exploration costs in 2001- 5$; 2000 -$90; 1999 - $154.)
</TABLE>

Results of Operations for Oil and Gas Producing Activities (in thousands)

<TABLE>
<CAPTION>
                                                                        2001                  2000                 1999
                                                                  ----------------    ------------------    -----------------
                                                                  United              United                United
                                                                  States     Congo    States      Congo     States      Congo
                                                                  ------     -----    ------      -----     ------      -----
<S>                                                               <C>        <C>      <C>        <C>        <C>
Oil and gas sales .............................................   $ 3,068    $  --    $ 2,080    $    --    $ 1,107        --
Lease operating expense and severance taxes ...................       905       --        630         --        469        --
Depreciation, depletion, amortization and
provision for impairment ......................................       519       --        367      2,550        609        --
Exploration costs .............................................         5      199        164      2,702         --        --
                                                                  -------    -----    -------    -------    -------    ------
Income (Loss) before tax provision ............................     1,639     (199)       919     (5,252)        29        --
Provision for income taxes ....................................      (535)      70       (348)     1,838       (221)       --
                                                                  -------    -----    -------    -------    -------    ------
Results of operations .........................................   $ 1,104    $(129)   $   571    $(3,414)   $  (192)       --
                                                                  =======    =====    =======    =======    =======    ======
</TABLE>

Oil and Gas Reserves

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

The following table represents the Company's net interest in estimated
quantities of proved developed and undeveloped reserves of crude oil, condense,
natural gas liquids and natural gas and changes in such quantities at December
31, 2001, 2000, 1999 and 1998, and for the years then ended. Net proved reserves
are the estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are proved reserve volumes that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are proved reserve volumes that
are expected to be recovered from new wells on undrilled acreage or from
existing wells where a significant expenditure is required for recompletion. All
of the Company's proved reserves are in the United States. The Company's oil and
gas reserves are priced at $19.84 per barrel and $2.70 per Mcf, respectively, at
December 31, 2001.


                                      F-26
<PAGE>

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

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

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

December 31, 1999                                     182,423         3,923,499
Revisions of previous estimates                        21,098           831,779
Acquisition of minerals in place                           --                --
Sales of minerals in place                                 --                --
Net discoveries and extensions                          1,102         1,234,713
Production                                            (22,587)         (430,625)
                                                     --------        ----------

December 31, 2000                                     182,036         5,559,366
Revisions of previous estimates                       (19,580)          118,727
Acquisition of minerals in place                       47,689           190,345
Sales of minerals in place                                 --                --
Net discoveries and extensions                             --                --
Production                                            (19,835)         (656,169)
                                                     --------        ----------
December 31, 2001                                     190,310         5,212,269

      The Company's proved developed reserves are as follows:

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

December 31, 2001                                     190,310         5,212,269
December 31, 2000                                     181,333         4,609,431
December 31, 1999                                     182,423         3,040,710
December 31, 1998                                     151,435         3,384,986

Standardized Measure of Discounted Future Net Cash Flow

The standardized measure of discounted future net cash flows relating to the
Company's proved oil and gas reserves is calculated and presented in accordance
with Statement of Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and gas prices to the
Company's estimated share of the future production from proved oil and gas
reserves. Future production and development costs were computed by applying
year-end costs to future years. Applying year-end statutory tax rates to the
estimated net future cash flows derived future income taxes. A prescribed 10%
discount factor was applied to the future net cash flows.


                                      F-27
<PAGE>

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.

<TABLE>
<CAPTION>
                                                          2001            2000            1999
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Future cash inflows ...............................   $ 16,363,650    $ 55,556,404    $ 15,512,720
Future development costs ..........................       (141,574)       (426,525)       (286,187)
Future production costs ...........................     (5,180,472)    (11,207,839)     (4,931,404)
                                                      ------------    ------------    ------------
Future net cash flows .............................     11,041,604      43,922,040      10,295,129
Future income tax expenses ........................     (3,643,729)    (14,492,448)             --
Annual 10% discount rate ..........................     (3,020,874)    (14,554,720)     (5,012,695)
                                                      ------------    ------------    ------------

Standardized measure discounted future
net cash flows ....................................   $  4,377,001    $ 14,874,872    $  5,282,434
                                                      ============    ============    ============
</TABLE>

Changes in Standardized Measure of Discounted Future Net Cash Flows

The principal sources of change in the standardized measure of discounted future
net cash flows for the years ended December 31, 2001, 2000 and 1999 were as
follows:

<TABLE>
<CAPTION>
                                                          2001            2000            1999
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Beginning of the year .............................   $ 14,874,872    $  5,282,434    $  2,750,512
Sales and transfers of oil and gas produced, net of
    production costs ..............................             --      (1,423,372)       (637,849)
Sales of reserves in place ........................             --              --         (81,100)
Net changes in prices and production costs ........     (4,100,459)     10,541,051       2,258,520
Net changes in income taxes .......................             --      (7,325,052)             --
Changes in estimated future development costs,
net of current development costs ..................       (284,951)       (197,414)             --
Acquisition of minerals in place ..................   $  1,212,580              --              --
Revision of previous estimates ....................     (7,325,041)      3,239,923         717,351
Changes in production rate and other ..............                      4,229,059              --
Accretion of discount .............................             --         528,243         275,000
                                                      ------------    ------------    ------------
End of year .......................................   $  4,377,001    $ 14,874,872    $  5,282,434
                                                      ============    ============    ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     Quarter Ended
                                           -----------------------------------------------------------------
                                           March 31,   June 30,   September 30,    December 31,
                                              2001       2001          2001            2001          Total
                                           ---------   --------   -------------    ------------    ---------
<S>                                        <C>         <C>        <C>              <C>             <C>
Total Revenues                             $   1,475   $  1,253   $       1,002    $        974    $   4,704
Net Income (loss) before taxes             $     352   $    767   $        (277)   $       (931)   $     (89)
Net Income                                 $     195   $    524   $        (177)   $       (681)   $    (139)
Earnings (loss) per Common Share-Basic     $    0.07   $   0.20   $       (0.07)   $      (0.24)   $   (0.05)
Earnings (loss) per Common Share-Diluted   $    0.07   $   0.20   $       (0.07)   $      (0.24)   $   (0.05)

<CAPTION>
                                                                   Quarter Ended
                                           -----------------------------------------------------------------
                                           March 31,   June 30,   September 30,    December 31,
                                            2000(2)      2000          2000           2000(1)        Total
                                           ---------   --------   -------------    ------------    ---------
<S>                                        <C>         <C>        <C>              <C>             <C>
Total Revenues                             $   4,903   $  1,874   $       1,806    $        795    $   9,378
Net Income (loss) before taxes             $   4,215   $    487   $       1,041    $     (5,782)   $     (39)
Net Income                                 $   1,844   $    219   $         566    $     (2,312)   $     317
Earnings (loss) per Common Share-Basic     $    0.70   $   0.08   $        0.21    $      (0.88)   $    0.12
Earnings (loss) per Common Share-Diluted   $    0.69   $   0.08   $        0.21    $      (0.88)   $    0.12
</TABLE>

      (1) Includes impairment and dry hole costs of $4,852.
      (2) Includes gain on the BG transaction of $3,626.


                                      F-28