10-K

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


FORM 10-K


(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 0-538

AMPAL-AMERICAN ISRAEL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

New York 13-0435685
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

111 Arlozorov Street, Tel Aviv, Israel 62098
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (866) 447-8636
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on which Registered

Class A Stock, par value $1.00 per share The NASDAQ Global Market

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


        Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).

Yes o No x

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

        The aggregate market value of the registrant’s voting stock held by non – affiliates of the registrant on June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter was $130,530,511 based upon the closing market price of such stock on that date. As of March 5, 2008, the number of shares outstanding of the registrant’s Class A Stock, its only authorized and outstanding common stock, is 57,702,532.



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

Index to Form 10-K

Page
 
PART I    
 
   ITEM 1. BUSINESS 3
   ITEM 1A. RISK FACTORS 15
   ITEM 1B. UNRESOLVED STAFF COMMENTS 18
   ITEM 2. PROPERTY 18
   ITEM 3. LEGAL PROCEEDINGS 18
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
 
PART II
 
   ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 20
   ITEM 6. SELECTED FINANCIAL DATA 20
   ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21
   ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 34
   ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 35
   ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 35
   ITEM 9A. CONTROLS AND PROCEDURES 35
   ITEM 9B. OTHER INFORMATION 35
 
PART III
 
   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 36
   ITEM 11. EXECUTIVE COMPENSATION 38
   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 44
   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 47
   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 48
 
PART IV
 
   ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 49
 
     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1-36

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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
OF AMPAL-AMERICAN ISRAEL CORPORATION

PART I

ITEM 1. BUSINESS

          As used in this report on Form 10-K (the “Report”), the term “Ampal” or “registrant” refers to Ampal-American Israel Corporation. The term “Company” refers to Ampal and its consolidated subsidiaries. Ampal is a New York corporation founded in 1942.

          The Company primarily acquires interests in businesses located in the State of Israel or that are Israel-related. Ampal’s investment focus is principally on companies or ventures where Ampal can exercise significant influence, on its own or with investment partners, and use its management experience to enhance those investments. In determining whether to acquire an interest in a specific company, Ampal considers quality of management, potential return on investment, growth potential, projected cash flow, investment size and financing, and reputable investment partners.

          The Company’s strategy is to invest opportunistically in undervalued assets with an emphasis in the following sectors: Energy, Chemicals, Real Estate, Project Development and Leisure Time. We believe that past experience, current opportunities and a deep understanding of the above-referenced sectors both domestically in Israel and internationally will allow the Company to bring high returns to its shareholders. The Company emphasizes investments which have long-term growth potential over investments which yield short-term returns.

          The Company provides its investee companies with ongoing support through its involvement in the investees’ strategic decisions and introduction to the financial community, investment bankers and other potential investors both in and outside of Israel.

  Significant Developments During 2007

  Acquisition of Gadot Chemical Tankers and Terminals Ltd.

          On December 3, 2007, Ampal completed the purchase of a 65.5% controlling interest (63.66% on a fully diluted basis) in Gadot Chemical Tankers and Terminals Ltd. (“Gadot”) through its wholly owned subsidiary Merhav Ampal Energy Ltd. (“MAE”), from Netherlands Industrial Chemical Enterprises B.V., for approximately NIS 348 million, or approximately $91.2 million, pursuant to an agreement dated November 20, 2007.  

          Gadot and its group of companies form Israel’s leading chemical distribution organization. Gadot ships, stores, and distributes liquid chemicals, oils, and a large variety of materials to the local industry. Gadot’s shares are listed on the Tel Aviv Stock Exchange. For further information regarding Gadot, see “– Chemicals – Gadot Chemical Tankers and Terminals Ltd.”

          Ampal funded the Gadot transaction with a combination of available cash and the proceeds of a new credit facility, dated November 29, 2007 (the “Credit Facility” , attached hereto as Exhibit 10ff), between MAE and Israel Discount Bank Ltd. (the “Lender”), for approximately $60.7 million. The Credit Facility is divided into two equal loans of approximately $30.35 million. The first loan is a revolving loan that has no principal payments and may be repaid in full or in part on December 31 of each year until 2019, when a single balloon payment will become due. The second loan also matures in 2019, has no principal payments for the first two years, and shall thereafter be paid in equal installments over the remaining ten years of the term. Interest on both loans accrues at a floating rate equal to LIBOR plus a percentage spread and is payable on a current basis. Ampal has guaranteed all the obligations of MAE under the Credit Facility and Ampal’s interest in Gadot has also been pledged to the Lender as a security for the Credit Facility. Yosef Maiman, the Chairman and CEO of Ampal and a member of the controlling shareholder group, has agreed with the lender to maintain ownership of a certain amount of the Company’s Class A Common Stock. The Credit Facility contains customary affirmative and negative covenants for credit facilities of this type.

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  Sugarcane Ethanol Production Project

          On December 25, 2007, Ampal entered into an Option Agreement (the “Option Agreement”) with Merhav M.N.F. Ltd. providing Ampal with the option to acquire up to a 35% equity interest in a sugarcane ethanol production project (the “Project”) in Colombia being developed by Merhav M.N.F. Ltd. The option expires on the earlier of December 25, 2008 or the date on which both (i) Merhav M.N.F. Ltd. has obtained third-party debt financing for the Project and (ii) an unaffiliated third party holds at least a 25% equity interest in the Project. The Option Agreement provides that the purchase price for any interest in the Project purchased by Ampal pursuant to the Option Agreement will equal (A) with respect to any portion of such interest being purchased by conversion of the outstanding balance of the Promissory Note referred to below, the lesser of (i) a price based on a currently agreed valuation model as updated from time to time to reflect changes in project, financing and other similar costs (the “Valuation Model”) as such updates are reviewed by Houlihan Lokey Howard & Zukin Financial Advisors, Inc. at the time of the option’s exercise or (ii) the lowest price paid by any unaffiliated third party for an interest in the Project, or (B) with respect to any portion of such interest in the Project being purchased in excess of the balance of the Promissory Note, the lowest price paid by an unaffiliated third party for its interest in the Project, unless no unaffiliated third party has purchased an interest in the Project, in which case the purchase price will be based on the Valuation Model.

          Ampal has loaned Merhav M.N.F. Ltd. $10 million to fund the purchase of the 11,000 hectares of property in Colombia required for growing sugarcane and the construction of an ethanol production facility for the Project, pursuant to a Promissory Note, dated as of December 25, 2007, by Merhav M.N.F. Ltd. in favor of Ampal (the “Promissory Note”). Ampal has agreed to advance up to an additional $10 million to fund the Project pursuant to the Promissory Note. The loan bears interest at an annual rate equal to LIBOR plus 2.25%, and will be convertible into all or a portion of the equity interest purchased pursuant to the option.

          As security for the loan, Merhav M.N.F. Ltd. has pledged to Ampal, pursuant to a pledge agreement, dated December 25, 2007, between Merhav M.N.F. Ltd. and Ampal (the “Pledge Agreement”, attached hereto as Exhibit 10ii), all of the shares of Ampal’s Class A Stock, par value $1.00 per share, owned by Merhav.

          Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling shareholders group of Ampal, is the sole owner of Merhav M.N.F. Ltd. Because of the foregoing relationship, a special committee of the Board of Directors composed of Ampal’s independent directors negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which has been retained as financial advisor to the special committee, advised the special committee on this transaction.

  Wind Energy Project

          On November 25, 2007, MAE signed a joint venture agreement with Clal Electronics Industries Ltd. (“Clal”), an Israel-based holding company, for the formation of a joint venture that will focus on the new development and acquisition of controlling interests in wind energy projects outside of Israel. The joint venture, owned equally by Clal and the Company through MAE, will seek to either develop or acquire wind energy opportunities with a goal of establishing at least 150MW of installed capacity within the next 3.5 years.The joint venture’s initial project is the development of a wind farm in Greece. The Company has approved a $25 million budget for these projects.

  East Mediterranean Gas Company

          On November 29, 2007, Ampal and the Israel Infrastructure Fund (“IIF”), leading a group of institutional investors (the “Investors”), purchased a 4.3% interest in East Mediterranean Gas Co. S.A.E. (“EMG”), through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the “Joint Venture”), from Merhav M.N.F. Ltd. for a purchase price of approximately $95.4 million, using funds provided by the Investors. In addition to the Joint Venture’s purchase from Merhav M.N.F. Ltd., Ampal contributed into the Joint Venture an additional 4.3% interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was valued at the same price per EMG share as the Joint Venture’s purchase. This amount is equivalent to the purchase price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares from Merhav M.N.F. Ltd.

          Merhav M.N.F. Ltd. is a shareholder of Ampal and is wholly owned by Mr. Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling shareholder group of Ampal.

          The Company’s Financial Statements reflect a 16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of which Ampal owns 50%).

  Shelf Registration

          On October 18, 2007, Ampal filed a “shelf” registration statement with the Securities and Exchange Commission. Under this registration statement, Ampal may, from time to time, sell Class A Stock, debt securities, warrants and units, from time to time in one or more offerings, up to a total public offering price of $150 million. The registration statement was declared effective on October 31, 2007.

4



  Conversion of Promissory Note by Merhav M.N.F. Ltd.

          On September 20, 2007, Merhav M.N.F. Ltd. exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the convertible promissory note issued to it as partial consideration for the purchase of a 5.9% interest in EMG by Ampal in December 2006, into 4,476,389 shares of Class A Stock of Ampal. See “Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters – Principal Shareholders of Ampal.”

  Sale of Am-Hal Ltd.

          On August 5, 2007, Ampal, through Ampal Industries Inc., a subsidiary of the Company, completed the sale of all of Ampal’s interest in Am-Hal Ltd. (“Am-Hal”), an indirect wholly owned subsidiary of Ampal, to Phoenix Holdings Ltd. (“Phoenix”) and Golden Meybar (2007) Ltd. (“Golden Meybar”), for an aggregate consideration of $29.3 million, pursuant to the terms of an agreement dated July 10, 2007.

          As a result of the sale, Ampal recorded a gain of approximately $29.4 million (approximately $21.7 million, net of taxes) and a reduction in assets and liabilities of approximately $75.7 million and $74.5 million, respectively, a reduction in income of approximately $5.0 million and a reduction in pre-tax loss of approximately $0.5 million as of September 30, 2007. The sale of Am-Hal is presented as discontinued operations in the accompanying financial statements.

  Listing of Series A Notes

          On August 1, 2007, Ampal filed a final prospectus with the Israeli Securities Authority and the Tel Aviv Stock Exchange (“TASE”) for the resale and listing of its Series A Notes on the TASE. The Series A Notes were sold to Israeli institutional investors in a private placement in November 2006 in the aggregate principal amount of NIS 250 million (approximately $58 million). As of December 31, 2007, the amount of the principal of the notes is approximately $66.6 million.

          According to the prospectus, on August 19, 2007, Ampal paid the Series A Notes holders additional interest of 0.10959% (0.5% annually) for the period commencing May 20, 2006 and ending on August 9, 2007, which is the date the Series A Notes were registered for trade. The additional interest was paid to the Series A Note holders whose names appear in the Series A Note holders register kept by Ampal as of August 7, 2007.

  Sale of Carmel Containers Ltd.

          On May 21, 2007, the Company sold all of its equity method interest in Carmel Containers Ltd. (“Carmel”), which was an affiliated company, for an aggregate sales price of approximately $4.6 million. No gain was recorded relating to the sale of Carmel since an impairment was recorded during the first quarter of 2007.

  Investee Companies by Industry Segment

          Listed below by industry segment are all of the substantial investee companies in which Ampal had ownership interests as of December 31, 2007, the principal business of each and the percentage of equity owned, directly or indirectly, by Ampal. Further information with respect to the more significant investee companies is provided after the following table. For industry segment financial information and financial information about foreign and domestic operations, see Note 16 to Ampal’s consolidated financial statements included in this Report for the fiscal year ended December 31, 2007.

Industry Segment
Principal Business
Percentage
as of
December 31,
2007(1)

 
Chemicals              
   Gadot Chemical Tankers and Terminals Ltd.   Chemical Sales, Storage, Shipping and Transport    65.5  
   
Energy   
   East Mediterranean Gas Company   Natural Gas Provider & Pipeline Owner    12.5 (2)
   
Real Estate   
   Bay Heart Ltd.   Shopping Mall Owner/Lessor    37.0  
   
Leisure-Time   
   Country Club Kfar Saba Ltd.   Country Club Facility    51.0  
   Hod Hasharon Sport Center (1992)  
   Limited Partnership   Country Club Facility    50.0  
   
Finance   
   Ampal (Israel) Ltd.   Holding Company    100.0  
   Ampal Holdings (1991) Ltd.   Holding Company    100.0  

(1) Based upon current ownership percentage. Does not give effect to any potential dilution.

(2) 8.2% of which are held directly and 4.3% of which are held through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership, which is a joint venture between Ampal, the Israel Infrastructure Fund and other institutional investors.

5



Chemicals

        GADOT CHEMICAL TANKERS AND TERMINALS LTD. (“GADOT”)

        General

        On December 3, 2007, Ampal completed the purchase of a 65.5% controlling interest (63.66% on a fully diluted basis) in Gadot through its wholly owned subsidiary, Merhav Ampal Energy Ltd.

        Gadot was founded in 1958 as a privately held Israeli company, with operations in distribution and marketing of liquid chemicals for raw materials used in industry. Since then, Gadot has expanded into a group of companies, which currently forms Israel’s leading chemical distribution organization. Through its subsidiaries, Gadot ships, stores, and distributes liquid chemicals, oils, and a large variety of materials to countries across the globe, with an emphasis on Israel and Western Europe. In our description of Gadot’s business operations, the term “Gadot” refers to Gadot and its consolidated subsidiaries.

        Gadot listed its shares for trade on the Tel Aviv Stock Exchange in 2003.

        Gadot’s business is influenced by certain economic factors, which include (i) global changes in demand for chemicals used in raw materials for industry, (ii) price fluctuations of chemicals and raw materials, (iii) price fluctuations of shipping costs, ship leases and ship fuel, (iv) general global financial stability, and (v) currency fluctuations between the New Israeli Shekel and other currencies, primarily the U.S. dollar.

        Gadot's operations are divided into four main service sectors:

  Importing, marketing and sale of chemicals and other raw materials;

  Shipping;

  Logistical operations in Europe; and

  Ancillary services, including chemical storage and land transport.

        These service sectors are synergistic and complimentary, such that Gadot provides its customers with a full range of services, from acquiring chemicals based on a customer’s needs, logistical handling of shipping and transport, offloading, storage and delivery. Members of the Gadot group of companies also provide services for other members of the group, strengthening the group as a whole.

        Importing, Marketing and Sale of Chemicals and Other Raw Materials

        Gadot imports, markets and sells chemicals and other raw materials, primarily liquid chemicals which are imported in tanker ships. These chemicals and other materials are used as raw materials in the medical, cosmetics, paint, plastic, electronics, agriculture, food and other industries. Other activities of Gadot in this sector include:

  importing oils and other liquid products which are used as food additives in meat and poultry;

  operating a sales agency in Israel for many companies selling a wide range of products, including chemicals, active medicinal agents, electronic components, rubber, polymers, minerals and materials for the textile and paint industry;

  marketing fine chemical agents used in research laboratories and biochemical industries and marketing of laboratory equipment;

  marketing and selling of chemicals in Western Europe; and

  marketing of inorganic chemicals.

6



        The chemicals that Gadot deals with are in many cases poisonous or hazardous and require Gadot to obtain permits for handling poisonous materials. Special permits are also obtained from environmental authorities, fire safety authorities and other governmental bodies for handling hazardous or flammable substances. Gadot conducts inspections and quality assurance testing and provides its employees with training and equipment necessary for working with hazardous and poisonous substances. Gadot has qualified for and received the ISO-9001:2000 quality standard for its quality assurance in chemical and liquid matter transport and distribution, as well as the ISO 14001:2004 quality standard for its environmental management system.

        Gadot generally provides its services in this area of business to long-term customers in Israel that are mostly large industrial factories that use chemicals and other materials as raw materials in their manufacturing processes. These customers are spread over a wide variety of industries which reduces the risk of a downturn in any one type of industry having a significant effect on the revenues of Gadot. Gadot is not dependent on any single customer in this service sector. Nevertheless, the loss of any long-term customer may materially affect the short-term or even mid-term revenues and net profits of Gadot.

        Sales, marketing and distribution are conducted by sales teams consisting of Gadot employees, who are constantly in touch with existing customers and who also actively seek out new markets and customers. Most sales are made by purchase orders which are supplied from the existing stock of Gadot. Gadot does not generally have backlog orders, as supply time is generally quick.

        The chemical market is very competitive and Gadot has many competitors in Israel, Europe and other countries. Gadot’s competitors include sales agents of large chemical manufacturers, small importers and factories that import materials themselves for their own use. Competition is especially fierce in marketing chemicals packaged in barrels and sacks or in ISO-tanks (special containers used to transport liquid matter), since these do not require investment in special storage facilities, which makes it easier for competitors to enter the market. Gadot does not have information regarding its market share in the markets in which it operates.

        Gadot's main advantages over its competition in the chemical market are due to:

  its ability to provide full door-to-door logistical services to its customers, from purchase, shipping and storage, to land transport to the customer’s factory;

  its ability to purchase and maintain surplus in large quantities ready for sale in a variety of packaging types and sizes;

  owning the only chemical loading dock capable of providing storage and transport in Israel;

  decades of experience in the field;

  stable, long term relationships with existing customers;

  the quality of products supplied by it and the reputation and good will of its suppliers; and

  professional support provided by suppliers and by Gadot for its products.

        Gadot’s main disadvantages in the chemical market are (i) the market consisting of highly sophisticated customers that are very knowledgeable of product pricing and alternatives from competitors, which makes it hard to increase profitability and (ii) the high costs of purchasing and maintaining large quantities in surplus for immediate supply.

        Most of the raw materials sold by Gadot are manufactured outside of Israel, in Europe, the United States, the Far East and South Africa. The variety of supply sources allows for increased availability in changing market conditions.

        Gadot is not dependent on any one supplier in the chemicals market. There are numerous suppliers for each product sold by it, mostly located outside of Israel. Purchase of chemicals and raw materials is generally made directly from the manufacturer, by way of purchase orders.

        Shipping

        Gadot provides its customers (including subsidiaries within the Gadot group of companies) with shipping services, shipping liquid chemicals in tanker ships both to and from Israel. Gadot uses a fleet of 25 ships, which are either leased or owned by Gadot, with loading capabilities ranging from 5,000 tons to 25,000 tons. The total capacity of Gadot’s fleet as of December 31, 2007, was approximately 380,000 tons. The main shipping lines operated by Gadot are Israel – Northern Europe and Israel – United States, with many interim stops. Gadot also provides logistical support for ships anchored in the port of Haifa in Israel. These services include coordination of all technical procedures while in port, such as payment of port fees, care of the crew and providing ships with supplies.

        Gadot’s ships are subject to strict international regulation with regard to safety of shipping hazardous chemicals and environmental protection of the seas which mainly provide standards for ship conditions and crew safety. In order to comply with these strict standards and to fulfill customer demand for compliance, all the ships used in Gadot’s fleet are double hulled and the tanks used for chemical storage are made of stainless steel, which reduces the danger of corrosion and leakage. All ships in the fleet are managed by companies with the experience and knowledge necessary to comply with such regulations and they are inspected by the relevant authorities at least once a year for deficiencies. If a ship is found not in compliance with the standards, it is not permitted to set sail until all deficiencies are remedied.

7



        In recent years there has been a rise in demand for chemical shipping in tanker ships, which is mostly due to the growth of the Chinese economy and other emerging markets in Asia, and the growing trade between these countries with other countries. This trend tempered and even decreased during the last quarter of 2005 and the first quarter of 2006, due mainly to the natural disasters that occurred in the United States during that time. This affected Gadot’s Trans-Atlantic lines and caused a decrease in profitability during that period. In the first half of 2007 shipping prices generally rose, particularly in the ‘spot’ shipping assignments. In the second half of 2007 prices stabilized, however the price of ship fuel continued to rise, which caused gross profit to decline compared with the first half of 2007.

        Gadot renewed its annual and long-term shipping contracts with its customers for the year 2007 at an average increase of 5% to 10% of its fees. However, this increase will mostly be off-set by the increase in ship leasing costs.

        There are a number of critical factors necessary for succeeding in the chemical shipping business, including:

  managing a modern fleet of ships capable of transporting a variety of chemicals with a variety of different capacities in order to meet customer needs;

  availability of ships on the various shipping lines;

  professional operation of cargo, in order to increase efficiency and safety;

  having a strategy of buying or leasing ships at low prices, while entering into long-term shipping contracts with customers at high prices, in order to minimize exposure to changes in the shipping market and to increase profitability;

  creating and maintaining strategic relationships with key customers; and

  cooperation with other companies operating in the field, in order to increase the amount of ships working the same line or market and to penetrate new markets.

        Competition in the field of shipping is concentrated mainly in the availability of ships and the price of transport. Larger shipping companies have an advantage over smaller ones because they have more and higher quality ships. Therefore, the large companies are usually chosen by customers with large scale shipping needs for long-term periods of time. The mid-size and small shipping companies usually compete for the ‘spot’ shipping assignments. Most of Gadot’s competitors in this service sector are shipping companies of the same size as Gadot. Gadot’s success is dependent to a large extent on the shipping fees it charges its customers and on its ability to lease ships at reasonable costs. Gadot’s main strengths over its competitors are its steady lines to Israeli ports, along the Mediterranean Sea and from Europe to Central America, and its new and modern fleet. Its main weakness is in international shipping lines, where its competitors have larger fleets capable of providing more frequent service.

        Most of Gadot’s shipping contracts are for periods of between one to five years, some with options to extend the term. The remainder of its contracts are made on an ad hoc basis. Gadot has two open term contracts that terminate only by consent of the parties. These shipping contracts are drafted according to a global standard, called a “Tanker Voyage Charter Party” contract. These contracts state the shipping fee and quantity and provide other standard terms, such as type of goods, size, handling instructions, port of loading and off-loading, loading and off-loading time, late fees, time tables, jurisdiction and insurance. These contracts also incorporate by reference the provisions of certain standardized shipping contracts.

        Gadot is not dependent on any single customer in this service sector.

        Gadot leases the ships in its fleet according to “Time Charter Party” contracts, which provide for the lease of a ship together with its crew. These contracts are drafted according to a global standard, except for the specific terms, such as the lease period and fees. The average lease period of ships in the Gadot fleet is from one to five years, usually with an option to extend the term. The lease fee may fluctuate based on market conditions, or renewal or exit points in the contract. These contracts usually provide for the state of the ship upon delivery to the lessee, maintenance requirements, indemnification to the owners, permission to sub-lease, insurance, inspection rights, compliance with technical specifications and jurisdiction. Sometimes such contracts include an option to purchase the ship at previously agreed terms. Ships are operated commercially by the lessee, by designating shipping lines and cargo for the ship, while the lessor operates the technical aspects of running the ship and crew.

        Logistical Operations in Europe

        Since the end of 2007, Gadot has offered its customers logistical services for chemicals and hazardous materials in Western Europe, including off-loading and storage, filling barrels and containers, door-to-door transport and handling sensitive chemicals. Gadot provides full services to its customers throughout the whole supply chain.

8



        The services provided by Gadot in this sector include:

  Delivery – import and export of goods to and from Europe to other destinations around the world, including contracting with shipping companies, dealing with tax authorities, port release and documentation.

  Storage – storage of customer’s materials in storage facilities, often under specialized conditions (such as temperature control, etc.).

  Transport – complete door-to-door service, from arrival of goods in port, storage, packaging and delivery to final destination.

  Packaging – packaging of dry and liquid chemicals in barrels, containers or sacks.

        Gadot also provides one customer with paint mixing services.

        Gadot has long-term leases over storage facilities in three countries for providing these services, with an aggregate area of 150,000 square meters. These storage facilities maintain very high standards and Gadot is the only entity within the storage sector in Europe with facilities in several countries. This gives Gadot a considerable advantage over its competitors in this field. Gadot also contracts with land and sea transport companies to facilitate its logistical services.

        Operating in this sector requires Gadot to obtain appropriate licenses from authorities and to maintain strict European standards for handling hazardous materials and for operating storage facilities. Stored chemicals are categorized by their hazard level and each facility has in place the appropriate approvals and restrictions for the relevant type of material. Regulation in this field changes from time to time and Gadot needs to constantly conform itself to the existing requirements.

        This sector has experienced growth in recent years in Western Europe, since an increasing number of companies and manufacturers prefer to outsource their logistical operations, due to the strict regulatory requirements. This has caused a rise in profitability in this service sector, as prices have risen due to rising demand.

        Some of the main criteria for success in this service sector are: (i) location of storage facilities near industrial factories or seaports, (ii) wide geographic spread of facilities and (iii) ability to provide quality service at an all-inclusive manner.

        The main entry barrier in operating in the logistics sector is compliance with licensing requirements. Applying for such licenses is an expensive and often long process, without certainty of the outcome. Another entry barrier is the necessity to maintain specialized storage facilities capable of storing chemicals and hazardous materials.

        Gadot’s customers in this service sector include chemical manufacturers and distributors that import or export their goods in Europe. Gadot is not dependent on any one customer in this sector.

        Most customers enter into a framework agreement with Gadot which stipulates the scope of services and fees for each service. Fees are generally adjusted annually. Most agreements do not have a minimum quantity requirement.

        Gadot’s marketing and distribution efforts are conducted by Gadot’s sale people in each country whose goal is to locate potential customers for logistical services.

        Most of Gadot’s competitors in this sector are local operators that have a limited spread of operations. Gadot estimates that it holds a 25% market share in the countries in which it operates. Gadot has an advantage over most of its competitors, due to the location and wide spread of its facilities and the scope and quality of its services.

        Gadot takes great measures to protect the environment in its facilities in Western Europe. The storage facilities are equipped with cement or ceramic flooring, drainage systems and holding tanks to avoid ground contamination. Gadot has qualified for and received the ISO-9001:2000 quality standard for its quality assurance in this sector. Gadot’s facilities have also been inspected a number of times by the CEFIC (the European Chemical Industry Council) according to a safety and quality assessment plan of the CEFIC. The storage facilities are periodically tested by local authorities for ground contamination and fire safety.

        Ancillary Services

        The ancillary services provided by Gadot include:

  land transport;

  storage, loading and off-loading of materials;

  ISO-tank transportation;

  agency services for shipping companies and docked ships; and

  real property.

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        Land Transport

        Gadot offers land transport services to its customers for chemicals and other materials from Israeli ports to the customer’s factory, and vice versa. In 2006, Gadot began supplying transport services to an Israeli gas company in immaterial amounts, but this business is expected to grow if Gadot is able to purchase additional tanker trucks adapted for this type of transport. Land transportation from chemical plants outside of Israel to Gadot’s ships is provided by subcontractors.

        Gadot currently owns a fleet of 72 trucks and 68 tanker trucks (of which 55 tanker trucks are capable of transporting hazardous materials). The fleet of trucks is generally in full use by Gadot, and occasionally it also has to borrow trucks from other companies in order to fulfill demand. The fleet of tanker trucks is generally not in full use, due to the amount of tankers Gadot owns and the highly specialized purpose of each tanker.

        Gadot faces much competition in this field, and it holds an estimated Israeli market share of 15% to 17%.

        Storage, Loading and Off-Loading of Materials

        Gadot provides storage, loading and off-loading services of chemicals and other materials to its customers (including to subsidiaries in the Gadot group of companies) in an area located near the southern terminal in the port of Haifa, which is the port used by Gadot’s ships.

        Gadot is currently the only provider of chemical storage, loading and off-loading services in Israel. These services were declared a monopoly by the Israeli Antitrust Authority and are therefore subject to regulation, which includes a price list stipulated by the Antitrust Authority, and periodical inspections of profitability, the result of which may require Gadot to reduce its prices for these services. To date, Gadot has never received such an instruction. Gadot’s quality control process for storage and loading has qualified for and received the ISO-9001 quality standard.

        Gadot’s facility currently has 80 storage tanks with capacities of between 30 to 2,650 cubic meters each, which are constantly maintained. The total storage capacity of these tanks is approximately 46,000 cubic meters. The facility also has a pipe loading system which allows for direct off-loading of liquid chemicals from a ship’s tank to a storage tank.

        ISO-Tank Transportation

        Gadot provides transportation services for liquid chemicals in ISO-tanks. ISO-tanks are transported in various ways, including by truck, train, ferry and ship. ISO-tank transport allows the customer to purchase liquid chemicals directly from the supplier, without requiring storage and off-loading. The quantities transported in ISO-tanks are usually significantly smaller than quantities transported by tanker.

        Gadot currently owns 142 ISO-tanks and it leases additional ISO-tanks from external sources from time to time in order to meet customer demand. Gadot also leases ISO-tanks to third parties, which include heating systems and upper or lower off-loading apparatuses, as needed.

        Agency Services for Shipping Companies and Docked Ships

        Gadot acts as a general agent for shipping companies and for ships docked in Israel. It is also the exclusive representative in Israel of a large shipping company.

        Gadot’s services to ships at port include logistical support for ships anchored in port in Israel. These services include coordination of all technical procedures while in port, such as payment of port fees, care for the needs of the ship’s crew and providing ships with supplies.

        Gadot’s services to shipping companies include logistical support for cargo arriving in Israel, such as finding local storage facilities for a ship’s cargo, coordinating loading and off-loading of ships, locating and identifying cargo, replacement crews and other services.

        Gadot has one significant customer in this service sector, with revenues that are immaterial in amount.

        Real Property

        Gadot leases out office space in Haifa and Tel Aviv. The rent paid for these leases are immaterial in amount.

        Gadot Dividend policy

        In November 2003 Gadot’s board of directors adopted a dividend policy according to which Gadot distributed 30% of its profits for each of the years 2004, 2005 and 2006, which amounted to NIS 17.0 million ($3.9 million), NIS 24.2 million ($5.4 million) and NIS 21.2 million ($4.8 million), respectively. In 2007 Gadot distributed cash dividends in an aggregate amount of NIS 38,823,529 ($9,621,692).

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Energy

        EAST MEDITERRANEAN GAS COMPANY (“EMG”)

        EMG, an Egyptian joint stock company, organized in accordance with the Egyptian Special Free Zones system, has been granted the right to export natural gas from Egypt to Israel, other locations in the East Mediterranean basin and to other countries. EMG’s first project involves linking the Israeli energy market with the Egyptian national gas grid via an East Mediterranean pipeline. Fully financed and contracted, the pipeline and associated facilities have substantially completed construction with expected first gas delivery scheduled for the first quarter of 2008. EMG shall be the developer, owner and operator of the pipeline and its associated facilities on shore in both the point of departure at El Arish, Egypt and the point of entry in Ashkelon, Israel. In the Israeli market, EMG’s first contract was signed in late 2005 with the Israel Electric Corporation for a quantity of 2.1 BCM annually over 15-20 years. EMG is in the process of negotiating several additional agreements covering much of the anticipated 7.0 BCM annually earmarked for the Israeli market. This project is governed by an agreement signed between Israel and Egypt which designates EMG as the authorized exporter of Egyptian gas, secures EMG’s tax exemption in Israel and provides for the Egyptian government’s guarantee for the arrival of the gas to the Israeli market.

        On November 29, 2007, Ampal and IIF, leading a group of institutional Investors, purchased a 4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the “Joint Venture”), from Merhav M.N.F. Ltd. for a purchase price of approximately $95.4 million, using funds provided by the Investors. In addition to the Joint Venture’s purchase from Merhav M.N.F. Ltd., Ampal contributed into the Joint Venture an additional 4.3% interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was valued at the same price per EMG share as the Joint Venture’s purchase. This amount is equivalent to the purchase price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares from Merhav M.N.F. Ltd.

        As of December 31, 2007, the Company’s Financial Statements reflect a 16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of which Ampal owns 50%). For more information concerning our interest in EMG please see “Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations” below.

Real Estate

        In Israel, most land is owned by the Israeli government. In this Report, reference to ownership of land means either direct ownership of land or a long-term lease from the Israeli Government, which in most respects is regarded in Israel as the functional equivalent of ownership. It is the Israeli government’s policy to renew its long-term leases (which usually have a term of 49 years) upon their expiration.

        AM-HAL LTD. (“AM-HAL”)

        Am-Hal was a wholly-owned subsidiary of the Company. Am-Hal develops and operates luxury retirement centers for senior citizens. In August 2007 the Company sold all of its interest in Am-Hal, which is presented as a discontinued operation in the accompanying financial statements. See “Item 1 – Business – Significant Developments During 2007.”

        BAY HEART LTD. (“BAY HEART”)

        Bay Heart was established in 1987 to develop and lease a shopping mall (the “Mall”) in the Haifa Bay area. Haifa is the third largest city in Israel. The Mall, which opened in May 1991, is a three-story facility with approximately 280,000 square feet of rentable space. The Mall is located at the intersection of two major roads and provides a large mix of retail and entertainment facilities including seven movie theaters. The Mall is currently undergoing extensive renovations, including the construction of a new complex of 23 movie theaters and entertainment facilities.

Leisure-Time

        COUNTRY CLUB KFAR SABA LTD. (“KFAR SABA”)

        Kfar Saba operates a country club facility (the “Club”) in Kfar Saba, a town north of Tel Aviv. Kfar Saba holds a long-term lease to the real estate property on which the Club is situated. The Club’s facilities include swimming pools, tennis courts and a clubhouse.

        The Club, which has a capacity of 2,000 member families, operated at capacity for the 2007 season. The Company owns 51% of Kfar Saba.

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        HOD HASHARON SPORT CENTER (1992) LIMITED PARTNERSHIP (“HOD HASHARON”)

        Hod Hasharon operates a country club facility (the “H.H. Club”) in Hod Hasharon, a town north of Tel Aviv. The H.H. Club, which opened in July 1994, occupies a 7-1/4 acre lot which is leased for a 49 year period. The lease expires in 2043. The H.H. Club has a capacity of 1,600 member families and has operated at capacity for the past three years. In 2007, the H.H. Club distributed $0.2 million to each of its partners. As of December 31, 2007, the Company holds a 50% direct interest in Hod Hasharon.

Capital Markets and Other Holdings

        CARMEL CONTAINERS SYSTEMS LTD. (“CARMEL”)

        Carmel is one of the leading Israeli companies in designing, manufacturing and marketing carton boards and packaging products. In May 2007 the Company sold all of its equity method interest in Carmel. The Company sold its interest in Carmel, which was accounted under the equity method. See “Item 1 – Business – Significant Developments During 2007.”

EMPLOYEES

        The executive officers of Ampal are listed in “Item 11” below.

        As of December 31, 2007:

  Ampal (Israel) Ltd. had 14 employees;

  Gadot, of which the Company owns a 65.5% interest, had 697 employees; and

  Country Club Kfar Saba Ltd., of which the Company owns a 51% interest, had 98 employees.

        Relations between the Company and its employees are satisfactory.

CONDITIONS IN ISRAEL

        Most of the companies in which Ampal directly or indirectly invests conduct their principal operations in Israel and are directly affected by the economic, political, military, social and demographic conditions there. A state of hostility, varying as to degree and intensity, exists between Israel and the Arab countries and the Palestinian Authority (the “PA”). Israel signed a peace agreement with Egypt in 1979 and with Jordan in 1994. Since 1993, several agreements have been signed between Israel and Palestinian representatives regarding conditions in the West Bank and Gaza. While negotiations have taken place between Israel, its Arab neighbors and the PA to end the state of hostility in the region, it is not possible to predict the outcome of these negotiations and their eventual effect on Ampal and its investee companies. Hamas, an Islamist movement, won the majority of the seats in the Parliament of the PA in January 2006 and took control of the Gaza Strip in June 2007. These developments have further strained relations between Israel and the PA. During the summer of 2006, Israel waged a war with the Hezbollah movement in Lebanon, which involved thousands of missile strikes in Northern Israel. This conflict was the most violent outbreak of hostilities in which Israel has been involved during the past several years. This situation had an adverse effect on the economy, primarily in the relevant geographic areas, and increased the political and military uncertainty in Israel and the Middle East. See “Item 1A – Risk Factors” below for a further discussion of the possible impact of the political and military situation in Israel on the Company.

        All male adult citizens and permanent residents of Israel under the age of 48 are obligated, unless exempt, to perform military reserve duty annually. Additionally, all these individuals are subject to being called to active duty at any time under emergency circumstances. Some of the officers and employees of Ampal’s investee companies are currently obligated to perform annual reserve duty. While these companies have operated effectively under these requirements since they began operations, Ampal cannot assess the full impact of these requirements on their workforce or business if conditions should change. In addition, Ampal cannot predict the effect on its business in a state of emergency in which large numbers of individuals are called up for active duty.

CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS

SEC Exemptive Order

        In 1947, the SEC granted Ampal an exemption from the Investment Company Act of 1940, as amended (the “1940 Act”), pursuant to an Exemptive Order. The Exemptive Order was granted based upon the nature of Ampal’s operations, the purposes for which it was organized, which have not changed, and the interest of purchasers of Ampal’s securities in the economic development of Israel. There can be no assurance that the SEC will not reexamine the Exemptive Order and revoke, suspend or modify it. A revocation, suspension or material modification of the Exemptive Order could materially and adversely affect the Company unless Ampal were able to obtain other appropriate exemptive relief. In the event that Ampal becomes subject to the provisions of the 1940 Act, it could be required, among other matters, to make changes, which might be material, to its management, capital structure and methods of operation, including its dealings with principal shareholders and their related companies.

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TAX INFORMATION

        Ampal (to the extent that it has income derived in Israel) and Ampal’s Israeli subsidiaries are subject to taxes imposed under the Israeli Income Tax Ordinance. The corporate tax rate in Israel is 29% for the 2007 tax year. Following an amendment to the Israeli Income Tax Ordinance, which came into effect on January 1, 2006 (“Amendment No. 147”), the corporate tax rate is scheduled to be reduced as follows: 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year and thereafter. The Israeli tax rate on capital gains derived by a corporation after January 1, 2003, is generally 25% (other than gains deriving from the sale of listed securities which are taxed at the corporate tax rate).

        A tax treaty between Israel and the United States became effective on January 1, 1995 (“the Treaty”). The Treaty has not substantially affected the tax position of the Company in either the United States or in Israel.

        Under Israeli domestic law Ampal, as a non-resident, is generally subject to withholding tax at a rate of 25% on dividends it receives from Israeli companies (20% for dividends received as of January 1, 2006, under certain circumstances). This rate may be reduced to either 15% or 12.5%, (under Israeli law and/or the provisions of the Treaty), depending on the ownership percentage in the investee company, and on the type of income generated by such investee company from which the dividend is distributed (by contrast, dividends received by one Israeli company from another Israeli company are generally exempt from Israeli corporate tax, unless (i) they arise from income generated from sources outside of Israel, in which case they are generally subject to tax at a rate of 25% corporate tax (certain tax credits may be available for tax paid or withheld at source); or (ii) they are paid out of the profits of an “approved enterprise” to either residents or non-residents, in which case tax is withheld at a rate of 15%).

        Pursuant to an arrangement with the Israeli tax authorities, Ampal’s income from Israeli sources has been taxed based on principles generally applied in Israel to income of non-residents. Ampal has filed agreed upon tax returns with the Israeli tax authorities through the tax year 2006. Based on the tax returns filed by Ampal through 2006, it has not been required to make any additional tax payments in excess of the tax withheld on dividends it has received. In addition, pursuant to Ampal’s arrangement with the Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and in the United States on interest, rent and dividend income derived from Israeli sources has not exceeded the tax which would have been payable by Ampal in the United States had such interest, rent and dividend income been derived by Ampal from United States sources. There can be no assurance that this arrangement will continue to be in effect in the future. This arrangement does not apply to taxation of Ampal’s Israeli subsidiaries.

        Generally, under the provisions of the Israeli Income Tax Ordinance, taxable income from Israeli sources paid to non-residents of Israel by residents of Israel is subject to withholding tax at the rate of 25%. However, such rate of withholding tax may be reduced under the Treaty, with respect to certain payments made by Israeli tax residents to US tax residents that qualify for benefits of the Treaty. For example, under the Treaty, the rate of withholding tax applicable to interest is generally reduced to 17.5%. The continued tax treatment of Ampal by the Israeli tax authorities in the manner described above is based, among other things, on Ampal continuing to be treated, for tax purposes, as a non-resident of Israel that is not doing business in Israel.

        Under Israeli law, Israeli tax residents are taxed on capital gains generated from sources in Israel or outside of Israel, whereas non-residents are taxable only with respect to gains generated from sources in Israel. Gains are generally regarded as being from Israeli sources if arising from the sale of assets either located in Israel or which represent a right to assets located in Israel (including gains arising from the sale of shares of stock in companies resident in Israel, and of rights in non-resident entities that mainly represent ownership and rights to assets located in Israel, with regard to such assets). Under the Treaty, US tax residents are subject to Israeli capital gains tax on the sale of shares in Israeli companies if they have held 10% or more of the voting rights in such company at any time during the 12 months immediately preceding the sale.

        Since January 1, 1994, the portion of the gain attributable to inflationary differences prior to that date is taxable at a rate of 10%, while the portion of the gain attributable to inflationary differences between such date and the date of disposition of the asset is exempt from tax. Non-residents of Israel are exempt from the 10% tax on the inflationary gain derived from the sale of shares in companies that are considered Israeli tax residents if they elect to compute the inflationary portion of the gain based on the change in the rate of exchange between Israeli currency and the foreign currency in which the shares were purchased, rather than the change in the Israeli consumer price index. Beginning January 1, 2006, the section of the Israeli Tax Ordinance under which the regulations providing such tax exemption to non-Israeli residents were promulgated, was rescinded. It is therefore unclear whether this exemption shall continue to be applicable. The remainder of the gain (“Real Capital Gain”), if any, is taxable to corporations at the rate of 25%. However, Real Capital Gains arising from the sale of capital assets that had been acquired prior to January 1, 2003 shall be apportioned on a linear basis to the periods before and after the same date, namely – the portion of the gain attributed to the period before January 1, 2003 shall be subject to tax at a rate equal to the corporate tax rate in affect at the time of the sale (in 2007 – 29%) and a marginal tax rate (in 2007 – 48%) for individuals, whereas the portion of the gain attributed to the period after January 1, 2003 shall be taxed at the rate of 25%.

        Foreign corporations are generally exempt from tax on gains from the sale of shares in publicly traded companies if the capital gain was not generated from their permanent establishment in Israel. Amendment No. 147 introduces a broader exemption under domestic law for non-residents regardless of their percentage holding in an Israeli company (not holding real estate rights) to include capital gains from the sale of securities (even where not traded in Israel), which are purchased between July 1, 2005 through December 31, 2008, provided certain conditions are met.

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        The Income Tax Law (Adjustments for Inflation), 1985 (“Inflationary Adjustments Law”), which applies to companies which have business income in Israel or which claim a deduction in Israel for financing costs, has been in force since the 1985 tax year. Under the Inflationary Adjustments Law, results for tax purposes are measured in real terms. The law provides for the preservation of equity, whereby certain corporate assets are classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation resistant) Assets. Where shareholders’ equity, as defined therein, exceeds the depreciated cost of Fixed Assets, a tax deduction which takes into account the effect of the annual inflationary change on such excess is allowed, subject to certain limitations. Conversely, if the depreciated cost of Fixed Assets exceeds shareholders’ equity, then such excess, multiplied by the annual inflation change, is added to taxable income. On December 11, 2007, the Israeli Parliament approved a bill proposing an amendment to the Inflationary Adjustments Law that will effectively cancel such law as of the 2008 tax year. If such bill is enacted into law, as of the 2008 tax year most of the provisions of the Inflationary Adjustments Law will no longer be in force, except for certain transitional orders.

        Individuals and companies in Israel pay value added tax (“VAT”) at a rate of 15.5% of the price of assets (excluding shares) sold and services rendered. In computing its VAT liability, Ampal’s Israeli subsidiaries are entitled to claim as a deduction input VAT they have incurred with respect to goods and services acquired for the purpose of their business, to the extent such transactions are subject to VAT.

United States Federal Taxation of Ampal

        Ampal and its United States subsidiaries (in the following discussion, generally referred to collectively as “Ampal U.S.”) are subject to United States taxation on their taxable income, as computed on a consolidated basis, from domestic as well as foreign sources. The gross income of Ampal U.S. for United States tax purposes includes or may include (i) income earned directly by Ampal U.S., (ii) Ampal U.S.‘s pro rata share of certain types of income, primarily “subpart F income” earned by certain Controlled Foreign Corporations in which Ampal U.S. owns or is considered as owning 10 percent or more of the voting power; and (iii) Ampal U.S.‘s pro rata share of ordinary income and capital gains earned by certain Passive Foreign Investment Companies in which Ampal U.S. owns stock, and with respect to which Ampal has elected that such company be treated as a Qualified Electing Fund. Subpart F income includes, among other things, dividends, interest and certain rents and capital gains. Since 1993, the maximum federal rate applicable to domestic corporations is 35%.

        Certain of Ampal’s non-U.S. subsidiaries have elected to be treated as partnerships for U.S. tax purposes. As a result, Ampal is generally subject to U.S. tax on its distributive share of income earned by such subsidiaries (generally computed with reference to Ampal’s proportionate interest in such entity), as it is earned, i.e. – without regard to whether or not such income is distributed by the subsidiary. Certain of Ampal’s wholly-owned non-U.S. subsidiaries have elected to be treated as “disregarded entities” for U.S. federal tax consequences. As a result, Ampal is subject to US tax on all income earned by such subsidiaries, as it is earned.

        Ampal U.S. is generally entitled to claim as a credit against its United States income tax liability all or a portion of income taxes, or of taxes imposed in lieu of income taxes, paid to foreign countries. If Ampal U.S. receives dividends from a non-US corporation in which it owns 10% or more of the voting stock, Ampal U.S. is treated (in determining the amount of foreign income taxes paid by Ampal U.S. for purposes of the foreign tax credit) as having paid the same proportion of the foreign corporation’s post-1986 foreign income taxes as the amount of such dividends bears to the foreign corporation’s post-1986 undistributed earnings.

        In general, the total foreign tax credit that Ampal U.S. may claim is limited to the same proportion of Ampal U.S.‘s United States income taxes that its foreign source taxable income bears to its taxable income from all sources, US and non-US. This limitation is applied separately with respect to passive and active items of income, which may further limit Ampal’s ability to claim foreign taxes as a credit against its U.S. tax liability. The use of foreign taxes as an offset against United States tax liability is further limited by certain rules pertaining to the sourcing of income and the allocation of deductions. As a result of the combined operation of these rules, it is possible that Ampal U.S. would exercise its right to elect to deduct the foreign taxes, in lieu of claiming such taxes as a foreign tax credit.

        Ampal U.S. may also be subject to the alternative minimum tax (“AMT”) on corporations. Generally, the tax base for the AMT on corporations is the taxpayer’s taxable income increased or decreased by certain adjustments and tax preferences for the year. The resulting amount, called alternative minimum taxable income, is then reduced by an exemption amount and subject to tax at a 20% rate. As with the regular tax computation, AMT can be offset by foreign tax credits as well as net operating losses (“NOLs”), both of which are separately calculated under AMT rules. The NOL is generally limited to 90% of the alternative minimum taxable income.

FORWARD-LOOKING STATEMENTS

        This Report (including but not limited to factors discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed elsewhere in this Report) includes forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that are based on the beliefs of management of the Company as well as assumptions made by and information currently available to the management of the Company. When used in this Report, the words “anticipate,” “believe”, “estimate,” “expect,” “intend,” “plan,” and similar expressions, as they relate to the Company or the management of the Company, identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events or future financial performance of the Company, the outcome of which is subject to certain risks and other factors which could cause actual results to differ materially from those anticipated by the forward-looking statements, including among others, the economic and political conditions in Israel, the Middle East, including the situation in Iraq, and in the global business and economic conditions in the different sectors and markets where the Company’s portfolio companies operate. These risks and uncertainties include, but are not limited to, those described in “Item 1A – Risk Factors” and elsewhere in this Report and those described from time to time in our future reports filed with the Securities and Exchange Commission.

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        SHOULD ANY OF THOSE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS OR OUTCOME MAY VARY FROM THOSE DESCRIBED THEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED. SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS PARAGRAPH AND ELSEWHERE DESCRIBED IN THIS REPORT AND OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.

ITEM 1A. RISK FACTORS

        An investment in our securities involves risks and uncertainties. These risks and uncertainties could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Report or that we make in other filings with the SEC under the Securities and Exchange Act of 1934 or in other public statements. The risks described below are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. You should consider the following factors carefully, in addition to the other information contained in this Report, before deciding to purchase, sell or hold our securities.

Because most of the companies in which we invest conduct their principal operations in Israel, we may be adversely affected by the economic, political, social and military conditions in the Middle East.

        Most of the companies in which we directly or indirectly invest have principal operations that are Israel-related. We may, therefore, be directly affected by economic, political, social and military conditions in the Middle East, including Israel’s relationship with the Palestinian Authority and Arab countries. In addition, many of the companies in which we invest are dependent upon materials imported from outside of Israel. We also have interests in companies that import and export significant amounts of products to and from Israel. Our existing 65.5% stake in Gadot (63.66% on a fully diluted basis), an Israeli publicly traded company, and our existing 16.8% stake in East Mediterranean Gas Company (8.6% of which is held by the Joint Venture, of which Ampal owns 50%), an Egyptian joint stock company, together represent a substantial portion of our investment portfolio and may be particularly sensitive to conditions in the Middle East. Accordingly, our operations could be materially and adversely affected by acts of terrorism or if major hostilities should continue or occur in the future in the Middle East or trade between Israel and its present trading partners should be curtailed, including as a result of acts of terrorism in the United States. Any such effects may impact our value and the value of our investee companies.

        Hamas, an Islamist movement, won the majority of the seats in the Parliament of the PA in January 2006 and took control of the Gaza Strip in June 2007. These developments have further strained relations between Israel and the PA. During the summer of 2006, Israel was engaged in a military conflict with the Hezbollah movement in Lebanon. This conflict was the most violent outbreak of hostilities in which Israel has been involved during the past several years. This situation had an adverse effect on the economy, primarily in the relevant geographic areas. Although we do not believe that this situation has had a material adverse effect on our business or financial condition, if such situation resumes and/or escalates, the adverse economic effect may deepen and spread to additional areas and may materially adversely affect the Company and its subsidiaries’ business and financial condition.

Because of our significant investment in Gadot, we may be adversely affected by changes in the financial condition, business, or operations of Gadot.

        As of December 31, 2007, the Company beneficially owns approximately 65.5% of Gadot (63.66% on a fully diluted basis) and we consolidate Gadot in the accompanying financial statements. This investment constitutes one of our largest holdings. As a result, changes in the financial condition, business or operations of Gadot (see “Risk Factors – Risks Relating to Gadot”) will significantly affect our financial condition and results of operations. Although Gadot has historically paid dividends to its shareholders, changes in Gadot’s operations may limit their ability to pay dividends in the future. Further, as a component of Ampal’s consolidated financial statements any dividends paid will not be reflected as income by Ampal. While the payment of dividends would not impact Ampal’s consolidated earnings, it could limit the financial resources available to operate the holding company which could adversely affect our operations and financial condition.

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Because of our significant investment in EMG, we may be adversely affected by changes in the financial condition, business, or operations of EMG.

        As of December 31, 2007, the Company beneficially owns approximately 16.8% of EMG (8.6% of which is held by the Joint Venture, of which Ampal owns 50%), a result of a series of transactions with our controlling shareholder, which was accounted as transaction between entities under common control. This investment constitutes one of our largest holdings. As a result, changes in the financial condition, business or operations of EMG, including, without limitation, unexpected delays in first gas delivery, the completion of the pipeline, and the ability of EMG to utilize the pipeline, whether as a result of environmental, regulatory or political issues or otherwise, may impact our ability to receive dividends from EMG which could adversely affect our operations and financial condition. Additionally, we have a minority interest in EMG, and therefore, do not have the ability to significantly influence or direct the affairs of EMG.

The SEC may re-examine, suspend or modify our exemption from the Investment Company Act of 1940, as amended.

        In 1947, the SEC granted us an exemption from the Investment Company Act of 1940, as amended (the “1940 Act”), pursuant to an exemptive order. The exemptive order was granted based upon the nature of our operations. There can be no assurance that the SEC will not re-examine the exemptive order and revoke, suspend or modify it. A revocation, suspension or material modification of the exemptive order could materially and adversely affect us unless we were able to obtain other appropriate exemptive relief. In the event that we become subject to the provisions of the 1940 Act, we could be required, among other matters, to make changes, which might be material, to our management, capital structure and methods of operation, including our dealings with principal shareholders and their related companies.

As most of our investee companies conduct business outside of the United States, we are exposed to foreign currency and other risks.

        We are subject to the risks of doing business outside the U.S., including, among other risks, foreign currency exchange rate risks, changes in interest rates, equity price changes of our investee companies, import restrictions, anti-dumping investigations, political or labor disturbances, expropriation and acts of war. No assurances can be given that we will be protected from future changes in foreign currency exchange rates that may impact our financial condition or performance.

        Foreign securities or illiquid securities in our portfolio involve higher risk and may subject us to higher price volatility. Investing in securities of foreign issuers involves risks not associated with U.S. investments, including settlement risks, currency fluctuations, local withholding and other taxes, different financial reporting practices and regulatory standards, high costs of trading, changes in political conditions, expropriation, investment and repatriation restrictions, and settlement and custody risks.

Changes in taxation requirements could affect our financial results.

        We are subject to income tax in the numerous jurisdictions in which we generate revenues. Increases in income tax rates could reduce our after-tax income from affected jurisdictions.

We have had a history of losses which may ultimately compromise our ability to implement our business plan.

        We have had losses in four of the past five fiscal years. We will continue to make investments opportunistically and to divest ourselves from certain assets which we believe lack growth potential. However, if we are not able to generate sufficient revenues or we have insufficient capital resources, we will not be able to implement our business plan of investing in, and growing, companies with strong long-term growth prospectus and investors will suffer a loss in their investment. This may result in a change in our business strategies.

The loss of key executives could cause our business to suffer.

        Yosef A. Maiman, the Chairman of our board of directors, President & CEO, and other key executives, have been key to the success of our business to date. The loss or retirement of such key executives and the concomitant loss of leadership and experience that would occur could adversely affect us.

We are controlled by a group of investors, which includes Yosef A. Maiman, our Chairman, and this control relationship could discourage attempts to acquire us.

        A group of shareholders consisting of Yosef A. Maiman, the Chairman of our board of directors, President & CEO, Ohad Maiman, Noa Maiman, and Yoav Maiman, and the companies Merhav M.N.F. Ltd., De Majorca Holdings Ltd. and Di-Rapallo Holdings Ltd. beneficially owns approximately 57.69% of the voting power of our Class A Stock. The group was formed in recognition of the Maiman family’s strong connection with the Company and in furtherance of the group’s common goals and objectives as shareholders, including the orderly management and operation of the Company. By virtue of its ownership of Ampal, this group is able to control our affairs and to influence the election of the members of our board of directors. This group also has the ability to prevent or cause a change in control of Ampal. Mr. Maiman owns 100% of the economic shares and one-quarter of the voting shares of De Majorca and Di-Rapallo. Merhav M.N.F. Ltd. is wholly owned by Mr. Maiman.

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Because we are a “controlled company,” we are exempt from complying with certain listing standards of the NASDAQ Global Market (“NASDAQ”).

        Because a group of investors who are acting together pursuant to an agreement hold more than 50% of the voting power of our Class A Stock, we are deemed to be a “controlled company” under the rules of NASDAQ. As a result, we are exempt from the NASDAQ rules that require listed companies to have (i) a majority of independent directors on the board of directors, (ii) a compensation committee and nominating committee composed solely of independent directors, (iii) the compensation of executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors and (iv) a majority of the independent directors or a nominating committee composed solely of independent directors elect or recommend director nominees for selection by the board of directors. Accordingly, our directors who hold management positions or who are otherwise not independent have greater influence over our business and affairs.

We do not publish the value of our assets.

        It is our policy not to publish the value of our assets or our views on the conditions of or prospects for our investee companies. To the extent the value of our ownership interests in our investee companies were to experience declines in the future, our performance would be adversely impacted.

We do not typically pay cash dividends on our Class A Stock.

        We have not paid a dividend on our Class A Stock other than in 1995. Past decisions not to pay cash dividends on Class A Stock reflected our policy to apply retained earnings, including funds realized from the disposition of holdings, to finance our business activities and to redeem or repay our outstanding debt, including our $65 million (as of December 31, 2007) unsecured notes on which principal payments commence in 2011. The payment of cash dividends in the future will depend upon our operating results, cash flow, working capital requirements and other factors we deem pertinent.

The market price per share of our Class A Stock on NASDAQ and TASE fluctuates and has traded in the past at less than our book value per share.

        Stock prices of companies, both domestically and abroad, are subject to fluctuations in trading price. Therefore, as with a company like ours that invests in stocks of other companies, our book value and market price will fluctuate, especially in the short term. As of March 5, 2008 the market price on NASDAQ was $6.43 per share. However our shares have in the past traded below book value. You may experience a decline in the value of your investment and you could lose money if you sell your shares at a price lower than you paid for them.

Our Class A Stock may not be liquid.

        Our Class A Stock is currently traded on NASDAQ and the TASE. The trading volume of our Class A Stock may be adversely affected due to the limited marketability of our Class A Stock as compared to other companies listed on NASDAQ and the TASE. Accordingly, any substantial sales of our Class A Stock may result in a material reduction in price of our Class A Stock because relatively few buyers may be available to purchase our Class A Stock.

Risks Associated with Gadot’s Business

        Price Fluctuation. Gadot is exposed to fluctuations in chemical prices on the international market. It minimizes this risk by keeping surplus in stock only for its immediate needs, based on expected demand and past experience. Gadot is also exposed to fluctuations in shipping prices resulting from global supply and demand. Since Gadot’s ship leases are generally for long term periods, a downturn in shipping prices may impact the financial condition or performance of Gadot’s shipping business.

        Price Fluctuation of Ship Fuel. Gadot is exposed to fluctuations in ship fuel prices, which have a direct affect on the profitability of its shipping operations. It minimizes this risk by using price adjustment mechanisms tracking the price of ship fuel in its shipping contracts with customers, especially in its long term contracts.

        Exchange Rates. Exchange rate fluctuations between the U.S. dollar and the New Israeli Shekel (“NIS”) may negatively affect Gadot’s earnings. A substantial majority of Gadot’s revenues and expenses are denominated in U.S. dollars. However, a significant portion of the expenses associated with Gadot’s Israeli operations, including personnel and facilities related expenses, are incurred in NIS. Consequently, inflation in Israel will have the effect of increasing the dollar cost of Gadot’s operations in Israel, unless it is offset on a timely basis by a devaluation of the NIS relative to the U.S. dollar. In addition, if the value of the U.S. dollar decreases against the NIS, Gadot’s earnings may be negatively impacted. In 2007, the U.S. dollar depreciated against the NIS by 8.53% and inflation increased by 3.5%. We cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation or appreciation of the NIS against the U.S. dollar or of the U.S. dollar against the NIS. If the U.S. dollar cost of Gadot’s operations in Israel increases and if the current trend of depreciation of the U.S. dollar against the NIS continues, Gadot’s dollar-measured results of operations will be adversely affected. In addition, exchange rate fluctuations in countries other than Israel where Gadot operates and does business may also negatively affect its earnings.

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        Interest Rate Fluctuations. Gadot’s operations are funded mostly through short term and long term bank debt, which causes an exposure to interest rate fluctuations.

        Ecological Concerns and Licensing Requirements. Some of Gadot’s products are characterized by high risk to those who might be exposed to them in the course of their handling and shipping. Some of the products may also potentially cause ecological damage and pollution, if not handled properly. The clean up and correction of such damage could cause Gadot to incur high costs.

        Ongoing environmental pollution or contamination is not covered by Gadot’s insurance policies for ecological damage. These policies only cover pollution caused by sudden, accidental and unexpected occurrences. Gadot takes safety measures to avoid such risks, such as laying concrete buffers to protect soil, continuous maintenance of chemical tanks and periodical ground sampling in the vicinity of chemical tanks. However, these precautions cannot ensure total prevention of contaminating water sources or ground.

        In addition, licensing requirements around the world are becoming stricter, due to growing ecological awareness. Gadot may have to invest increasing amounts of money and resources in order to fulfill all international licensing requirements necessary for its operations.

        Storage Facility License. Gadot’s chemical storage facility is located on land owned by the Haifa port authority. A cancellation or termination of the licenses permitting Gadot to use the land would materially adversely affect Gadot’s ability to operate its chemical storage facility.

ITEM 1B. UNRESOLVED STAFF COMMENTS

        None.

ITEM 2. PROPERTY

        We lease our headquarters located at 111 Arlozorov Street, Tel-Aviv. The lease is for a period of up to 2 years commencing on November 28, 2006. The annual rent for this lease is $186,000.

        We also lease an office at 10 Abba Even St., Herzelia Pituach, which is currently under renovation. The lease is for a period of 10 years commencing on January 24, 2007. The annual rent for this lease is $130,000.

        We also lease an office at 555 Madison Avenue in New York City from Rodney Company N.V., Inc. The lease is for a period of seven years commencing on October 15, 2002. The annual rent for this lease is $120,244. On March 31, 2004, the Company closed this office. The office space has been subleased.

        Gadot leases an 11,000 square meter storage tank facility located in the Kishon port in Haifa from the port authority. The lease expires in 2022. Gadot also leases an additional 30,000 square meter area from the port authority located near the southern terminal in the port of Haifa in connection with its storage and loading services. See “Item 1 – Business – Chemicals – Gadot – Ancillary Services.” This lease expires in 2014.

        Gadot leases an additional 18,000 square meters area located adjacent to the southern terminal land for its storage facility and for its analytical and quality assurance laboratory. Gadot also leases a 1,100 square meter building in Ohr Akiva, Israel, a 7,500 square meter area in the Ashdod, Israel, industrial zone and a 6,300 square meter area in Kiryat Atta, Israel.

        Gadot owns a 60,000 square meter area of land in Greece, which was occupied by a chemical terminal. This terminal was destroyed by a fire in July 2006.

        Gadot owns one ship, with a loading capability of 12,300 tons. Gadot also leases four ships, with an aggregate loading capability of 49,324 tons. The lease period for two of the ships is until 2011. The lease period for one of the ships is until 2009, with an option to extend the term for two additional one-year periods. The lease period for one of the ships is until October 2008, with an option to extend the term for three additional one-year periods. The aggregate lease fees for the four leased ships in 2007 amounted to $17 million. In 2008 the lease fees will amount to $13,004,833 and will decrease to $12,216,438 for the years 2009 and 2010 and thereafter will further decrease to $2,804,500 for 2011. Gadot has ordered four additional ships to be built with a loading capability of 17,000 each, for a consideration of approximately $28 million per ship. These ships will be delivered during 2009 and 2010.

        Country Club Kfar Saba Ltd. occupies a 7-1/4 acre lot in the town of Kfar Saba which will be leased for five consecutive ten-year periods, at the end of which the land returns to the lessor. The lease expires on July 14, 2038, and lease payments in 2007 totaled $199,914.

        Other properties of the Company are discussed elsewhere in this Report. See “Item 1 – Business.”

ITEM 3. LEGAL PROCEEDINGS

        On January 1, 2002, Galha (1960) Ltd. (“Galha”) filed a suit against the Company and other parties, including directors of Paradise Industries Ltd. (“Paradise”) appointed by the Company, in the Tel Aviv District Court, in the amount of NIS 11,560,000 ($3 million). Galha claimed that the Company, which was a shareholder of Paradise, and another shareholder of Paradise, misused funds that were received by Paradise from an insurance company for the purpose of reconstructing an industrial building owned by Galha and used by Paradise which burnt down. Paradise is currently involved in liquidation proceedings. Ampal issued a guarantee in favor of Galha for the payment of an amount of up to NIS 4,172,000 ($1,085,000) if a final judgment against the Company will be given.

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        On May 26, 2003, the Company and the directors of Paradise appointed by the Company filed a third party claim against Arieh Israeli Insurance Company Ltd. in the Tel Aviv District Court claiming that, to the extent the court decides that the directors of Paradise appointed by the Company will have to pay any amounts to Galha, Arieh will pay such amounts on behalf of the directors in accordance with the Directors and Officers insurance policy that the Company had at that time with Arieh. Arieh filed a statement of defense and stated that the policy does not cover the claim. At this stage, the Company cannot estimate the impact this claim will have on it. In March 2008 the dispute was submitted to mediation by order of the court, with the consent of the parties.

        Claims Against Subsidiaries and Affiliates

        Legal claims arising in the normal course of business have been filed against subsidiaries and affiliates of the Company.

        Gadot has received third party notices in a number of lawsuits regarding pollution of the Kishon River in Israel. These lawsuits have been filed by various claimants who claim harm by the polluted water of the river, including soldiers from various units in the Israeli Defense Forces who trained in the river, fishermen who fished in the river, the Haifa rowing club and industrial companies that use the river. Some of the lawsuits are claims for monetary damages (some of the claims are unlimited in amount; one is for approximately $6 million) and some are for injunctions against further pollution of the river. Gadot denies liability in all these claims and has filed statements of defense for each claim. Gadot has not made any provisions in its financial statements against these claims.

        Part of Gadot’s storage tank facility is leased from the Haifa port authority. In 2001 the port authority requested that Gadot participate in an offer to find a consultant to examine ground contamination in the area surrounding the facility. According to the estimate of the port authority, the cost of purifying the ground is estimated to be between $377,000 and $940,000. Gadot has responded, denying the existence of ground contamination and, in any case, that it is the source of such contamination. Gadot believes, that if there is contamination, its source is the contaminated waters of the Kishon River or the Mediterranean Sea. Gadot has not made any provisions in its financial statements with respect to this matter.

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

        At an annual meeting of shareholders called and convened on December 4, 2007, the following proposals were approved by the margins indicated below:

  1. Proposal to elect the eight directors listed below to the Board of Directors of Ampal to hold office for one-year terms and until their respective successors shall be elected and qualified:

For
Withheld
Authority

 
Yosef A. Maiman 33,436,902 471,658
Jack Bigio 33,390,012 518,548
Leo Malamud 33,389,512 519,048
Dr. Joseph Yerushalmi 33,389,912 518,648
Dr. Nimrod Novik 33,390,012 518,548
Yehuda Karni 33,404,264 504,296
Eitan Haber 33,306,727 601,833
Menahem Morag 33,306,827 601,733

  2. Proposal to ratify the appointment of Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited, as the independent registered public accounting firm of Ampal for the fiscal year ending December 31, 2007.

For
Against
Abstained
 
33,249,195 657,797 1,568

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES

PRICE RANGE OF CLASS A STOCK

        Ampal’s Class A Stock is listed on NASDAQ Global Market under the symbol “AMPL.” The following table sets forth the high and low bid prices for the Class A Stock, by quarterly period for the fiscal years 2007 and 2006, as reported by NASDAQ Global Market and representing inter-dealer quotations which do not include retail markups, markdowns or commissions for each period, and each calendar quarter during the periods indicated. Such prices do not necessarily represent actual transactions.

High
Low
 
2007:            
Fourth Quarter    8.50    5.63  
Third Quarter    6.27    4.95  
Second Quarter    6.95    4.27  
First Quarter    5.03    4.28  
   
2006:   
Fourth Quarter    5.15    4.25  
Third Quarter    5.03    4.44  
Second Quarter    5.22    4.13  
First Quarter    4.75    3.60  

        As of March 5, 2008, there were approximately 1,277 record holders of Class A Stock.

        Ampal listed its Class A Stock on the Tel Aviv Stock Exchange on August 6, 2006, and since then it is a dually listed company.

VOTING RIGHTS

        The holders of Class A Stock are entitled to one vote per share on all matters voted upon. The shares of Class A Stock do not have cumulative voting rights in relation to the election of the Company’s directors, which means that any holder of at least 50% of the Class A Stock can elect all of the members of Board of Directors of Ampal.

DIVIDEND POLICY

        Ampal has not paid a dividend on its Class A Stock other than in 1995. Past decisions not to pay cash dividends on Class A Stock reflected the policy of Ampal to apply retained earnings, including funds realized from the disposition of holdings, to finance its business activities and to redeem debentures. The payment of cash dividends in the future will depend upon the Company’s operating results, cash flow, working capital requirements and other factors deemed pertinent by the Board. Ampal is subject to limitations on certain distributions and dividends to stockholders. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

        For equity compensation plan information required by Item 2.01(d) of Regulation S-K, please see “Item 12” below.

ITEM 6. SELECTED FINANCIAL DATA

        The selected consolidated statement of operations data for the years ended December 31, 2005, 2006 and 2007 and consolidated balance sheet data as of December 31, 2006 and 2007 have been derived from our audited consolidated financial statements included in this Report. The selected consolidated statement of operations data for the years ended December 31, 2003 and 2004 and the selected consolidated balance sheet data as of December 31, 2003, 2004 and 2005 have been derived from our unaudited consolidated financial statements not included herein.

        This data should be read in conjunction with our consolidated financial statements and related notes included herein and “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Fiscal year ended December 31,
2007
2006(3)(1)
2005(1)
2004(1)
2003(1)
 
 
 
Unaudited
Unaudited
(U.S. dollars in thousands, except per share data)
 
Revenues     $ 37,797   $ 14,544   $ 21,519   $ 22,672   $ 43,273  
   
Loss income from continuing operations    (13,578 )  (6,027 )  (5,916 )  (18,502 )  (7,996 )
Income (loss) from discontinued operations, net of tax    21,344    (1,060 )  (42 )  117    (851 )





Net income (loss)   $ 7,766   $ (7,087 ) $ (5,958 ) $ (18,385 ) $ (8,847 )
   
Basic and diluted EPS(2):   
Loss income from continuing operations   $ (0.26 ) $ (0.35 ) $ (0.31 ) $ (0.94 ) $ (0.38 )
Loss from discontinued operations, net of tax   $ 0.42   $ (0.05 ) $--   $--   $ (0.04 )





     0.16    (0.40 )  (0.31 )  (0.94 )  (0.42 )

   
Total assets   $ 774,789   $ 401,683   $ 211,485   $ 304,947   $ 354,367  
   
Notes and loans and debentures payable   $ 403,367   $ 104,163   $ 50,366   $ 120,796   $ 138,334  

(1) Results have been restated for the discontinued operations of our real estate operations, which was sold in August 2007.

(2) Computation for the years 2006, 2005, 2004 and 2003 is based on net income (loss) after deduction of preferred stock dividends (in thousands) of $2,438, $191, $200 and $213, respectively for those years. On July 31, 2006, all of the preferred stock was converted into Class A Stock.

(3) In 2006, the Company changed the method by which it accounts for share-based compensation by adopting SFAS 123R, which resulted in expenses of $783 and $720 thousand for the years 2007 and 2006 respectively and impacted the EPS by $(0.015) and $(0.03) respectively.

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

OVERVIEW

        We seek to maximize shareholder value through acquiring and investing in companies that we consider have the potential for growth. In utilizing our core competencies and financial resources, our investment portfolio primarily focuses on Israel-related companies engaged in various market segments including Chemicals, Energy, Real Estate, Project Development and Leisure Time.

        Our investment focus is primarily on companies or ventures where we can exercise significant influence, on our own or with investment partners, and use our management experience to enhance those investments. We are also monitoring investment opportunities, both in Israel and abroad, that we believe will strengthen and diversify our portfolio and maximize the value of our capital stock. In determining whether to acquire an interest in a specific company, we consider the quality of management, return on investment, growth potential, projected cash flow, investment size and financing, and reputable investment partners. We also provide our investee companies with ongoing support through our involvement in the investee companies’ strategic decisions and introductions to the financial community, investment bankers and other potential investors both in and outside of Israel.

        For a description of significant developments during 2007, see “Item 1 – Business – Significant Developments during 2007.”

        Our results of operations are directly affected by the results of operations of our investee companies. A comparison of the financial statements from year to year must be considered in light of our acquisitions and dispositions during each period.

        The results of investee companies which are greater than 50% owned by us are included in the consolidated financial statements. We account for our holdings in investee companies over which we exercise significant influence, generally 20% to 50% owned companies (“affiliates”), under the equity method. Under the equity method, we recognize our proportionate share of such companies’ income or loss based on its percentage of direct and indirect equity interests in earnings or losses of those companies. The results of operations are affected by capital transactions of the affiliates. Thus, the issuance of shares by an affiliate at a price per share above our carrying value per share for such affiliate results in our recognizing income for the period in which such issuance is made, while the issuance of shares by such affiliate at a price per share that is below our carrying value per share for such affiliate results in our recognizing a loss for the period in which such issuance is made. We account for our holdings in investee companies, other than those described above, on the cost method or in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In addition, we review investments accounted for under the cost method and those accounted for under the equity method periodically in order to determine whether to maintain the current carrying value or to write off some or all of the investment. For more information as to how we make these determinations, see “Critical Accounting Policies.”

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        For those subsidiaries and affiliates whose functional currency is considered to be the NIS or EURO, assets and liabilities are translated at the rate of exchange at the end of the reporting period and revenues and expenses are translated at the average rates of exchange during the reporting period. Translation differences of those foreign companies’ financial statements are included in the cumulative translation adjustment account (reflected in accumulated other comprehensive loss) of shareholders’ equity. Should the exchange rate of the NIS or EURO change against the U.S. dollar, cumulative translation adjustments are likely to be effected in the shareholders’ equity. As of December 31, 2007, the accumulated effect on shareholders’ equity was an increase of approximately $2.4 million. Upon the disposition of an investment, the related cumulative translation adjustment balance will be recognized in determining gains or losses.

CRITICAL ACCOUNTING POLICIES

        The preparation of Ampal’s consolidated financial statements is in conformity with generally accepted accounting principles in the United States which requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. Actual results may differ from these estimates. To facilitate the understanding of Ampal’s business activities, described below are certain Ampal accounting policies that are relatively more important to the portrayal of its financial condition and results of operations and that require management’s subjective judgments. Ampal bases its judgments on its experience and various other assumptions that it believes to be reasonable under the circumstances. Please refer to Note 1 to Ampal’s consolidated financial statements included in this Report for the fiscal year ended December 31, 2007 for a summary of all of Ampal’s significant accounting policies.

Business combinations

        Business combinations have been accounted for using the purchase method of accounting. Under the purchase method of accounting the results of operations of the acquired business are included from the date of acquisition. The costs of acquiring companies, including transactions costs, have been allocated to the underlying net assets of each acquired company in proportion to their respective fair values. Any excess of the purchase price over estimated fair values of the identifiable net assets acquired has been recorded as goodwill.

Investment in EMG and other cost basis investments

        The Company accounts for its 16.8% equity interest in EMG and a number of other investments on the basis of the cost method. EMG, which is one of the Company’s most significant holdings as of December 31, 2007, was acquired by Ampal and by a joint venture in which Ampal is a party in a series of transactions from Merhav M.N.F. Ltd. (“Merhav”), which is an entity controlled by one of the members of the Company’s controlling shareholder group. As a result, the transactions were accounted for as transfers of assets between entities under common control, which resulted in Merhav transferring the investment in EMG at carrying value. Due to the nature of Merhav’s operations, this entity would be treated as an investment company under US GAAP, and as such, the carrying value of the investment in EMG would equal fair value. As a result, the 16.8% investment in EMG was transferred at carrying value, which equals fair value. Application of the cost basis method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment. While the Company uses some objective measurements in its review, such as the portfolio company’s liquidity, burn rate, termination of a substantial number of employees, achievement of milestones set forth in its business plan or projections and seeks to obtain relevant information from the company under review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of the company under review to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in the particular company’s industry as well as in the general economy. There can be no guarantee that the Company will be accurate in its assessments and judgments. To the extent that the Company is not correct in its conclusion it may decide to write down all or part of the particular investment.

Marketable Securities

        We determine the appropriate classification of marketable securities at the time of purchase. We hold marketable securities classified as trading securities that are carried at fair value. We classify investment in marketable securities as investment in trading securities, if those securities are bought and held principally for the purpose of selling them in the near term (held for only a short period of time). All the other securities are classified as available for sale securities.

        SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, and Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 59, “Accounting for Noncurrent Marketable Equity Securities”, provides guidance on determining when an investment is other-than-temporarily impaired. Investments are reviewed quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, we evaluate, among other factors, the duration and extent to which the fair value of an investment is less than its cost; the financial health of the investee; and our intent and ability to hold the investment. Investments with an indicator are further evaluated to determine the likelihood of a significant adverse effect on the fair value and amount of the impairment as necessary. If market, industry and/or investee conditions deteriorate, we may incur future impairments.

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Long - lived assets

        On January 1, 2002, Ampal adopted SFAS 144, “Accounting for the Impairment or Disposal of LongLived Assets.” SFAS 144 requires that long- lived assets, to be held and used by an entity, be reviewed for impairment and, if necessary, written down to the estimated fair values, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through undiscounted future cash flows. The Company recognized an impairment of $0.4 million in the nine months period ended September 30, 2007, as a result of indication of decrease in one of the Company’s investment which was later sold.

Accounting for Income Taxes

        As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations. A valuation allowance is currently set against certain tax assets because management believes it is more likely than not that these deferred tax assets will not be realized through the generation of future taxable income. We also do not provide for taxes on undistributed earnings of our foreign subsidiaries, as it is our intention to reinvest undistributed earnings indefinitely outside the United States. In 2007, there were no undistributed earnings from foreign subsidiaries.

        Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to realize any future benefit from our deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, our operating results and financial position could be materially affected.

        We account for uncertain tax positions in accordance with FIN 48. The application of income tax law is inherently complex. As such, we are required to make many assumptions and judgments regarding our income tax positions and the likelihood of such tax positions being upheld if challenged by applicable regulatory authorities. Interpretations and guidance surrounding income tax laws and regulations change over time. As such, changes in our assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations.

Employee Stock-Based Compensation

        Prior to January 1, 2006, we accounted for employees’ share-based payment under the intrinsic value model in accordance with Accounting Principles Board Opinion No “- 25. Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations. In accordance with Statement of Financial Accounting Standards No. 123 – “Accounting for Stock-Based Compensation” (“FAS 123”), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, we disclosed pro forma information assuming we had accounted for employees’ share-based payments using the fair value-based method defined in FAS 123.

        Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-based Payment” (“FAS 123(R)”). FAS 123(R) supersedes APB 25 and related interpretations and amends Statement of Financial Accounting Standards No. 95", Statement of Cash Flows” (“FAS 95”). FAS 123(R) requires awards classified as equity awards to be accounted for using the grant-date fair value method. The fair value of stock options is determined based on the number of shares granted and the price of our common stock, and determined based on the Black-Scholes models, net of estimated forfeitures. We estimated forfeitures based on historical experience and anticipated future conditions.

        In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”). SAB 107 provides supplemental implementation guidance on FAS 123(R), including guidance on valuation methods, inventory capitalization of share-based compensation cost, income statement effects, disclosures and other issues. SAB 107 requires share-based payment to be classified in the same expense line items as cash compensation. We have applied the provisions of SAB 107 in our implementation of FAS 123(R).

        We elected to adopt the modified prospective transition method, permitted by FAS 123(R). Under such transition method, FAS 123(R) was implemented as of the first quarter of 2006 with no restatement of prior periods. The valuation provisions of FAS 123(R) apply to new awards and to awards modified, repurchased, or cancelled after January 1. 2006, Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of January 1, 2006, is recognized over the remaining service period using the grant-date fair value of those awards as calculated for pro forma disclosure purposes under FAS123.

        The cumulative effect of our adoption of FAS 123(R), as of January 1, 2006, was not material.

23



NEWLY ISSUED AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

SFAS No. 157 – Fair Value Measurements

        In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its financial statements.

FAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities

        In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FASB 159”). This standard permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. As applicable to Ampal, this statement will be effective as of the year beginning January 1, 2008. Ampal is currently evaluating the impact that the adoption of FAS 159 would have on its consolidated financial statements.

SFAS No. 141R – Business Combinations

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) which replaces SFAS No. 141, “Business Combination”. SFAS 141R establishes the principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) discloses the business combination. This Statement applies to all transactions in which an entity obtains control of one or more businesses, including transactions that occur without the transfer of any type of consideration. SFAS 141R will be effective on a prospective basis for all business combinations on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. Early adoption is not allowed. The Company is in process of evaluating the impact, if any, the adoption of SFAS 141R will have on the Company’s consolidated results of operations or financial position.

SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements

        In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements–an amendment of ARB No. 51" (“SFAS 160”). SFAS 160 amends ARB No. 51 and establishes accounting and reporting standards that require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest will be remeasured at fair value, with any gain or loss recognized in earnings. SFAS 160 will be effective for the Company commencing January 1, 2009, except for the presentation and disclosure requirements, which will be applied retrospectively. Early adoption is not allowed. The Company is in process of evaluating the impact, if any, that the adoption of SFAS 160 will have on the Company’s consolidated results of operations or financial position.

        SAB No. 110

        In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”), relating to the use of a “simplified” method in developing an estimate of the expected term of “plain vanilla” share options. SAB 107 previously allowed the use of the simplified method until December 31, 2007. SAB 110 allows, under certain circumstances, to continue to accept the use of the simplified method beyond December 31, 2007. The Company believes that the adoption of SAB 110 will not have a material impact on its consolidated financial statements.

RESULTS OF OPERATIONS

Fiscal year ended December 31, 2007 compared to fiscal year ended December 31, 2006:

General

        The Company recorded a consolidated net income of $7.8 million for the fiscal year ended December 31, 2007, as compared to a net loss of $7.1 million for the same period in 2006. The increase in earnings is primarily attributable to the gain on sale of discontinued operations, increase in interest income and including Gadot’s operation for the month of December 2007 for the year ended December 31, 2007, as compared to the same period in 2006. This increase in earnings was partially offset by decrease in net realized gains from investments, losses from affiliates, decrease in marketable securities gain, decrease in gain from sale of fixed assets, increase from impairment of investment and increase in interest expenses and translation loss.

24



        On December 3, 2007, the Company completed the purchase of a 65.5% controlling interest (63.66% on a fully diluted basis) in Gadot. The results of operations of Gadot were included in the consolidated financial statements of the Company commencing November 30, 2007. The Company believes that the results of operations of Gadot will have an impact on its results in future periods.

        Gadot’s revenues for the one month which was included in our results of operations for the year ended December 31, 2007, were approximately $31.9 million and its net income was approximately $2.8 million ($1.8 million net of Minority).

        On August 5, 2007, the Company sold all of its interest in Am-Hal, a 100% wholly owned subsidiary, which accounted for a majority of the Company’s Real Estate Segment, for $29.3 million. The recorded gain relating to the sale is $29.4 million ($21.8 million net of taxes) and it was recorded as a gain on sale from discontinued operation. Loss for 2007 attributable to Am-Hal of $0.4 million compared to a $1.1 million loss for 2006 is recorded as a loss from discontinued operations.

        Income from equity of affiliates decreased to a net loss of $1.5 million for the fiscal year ended December 31, 2007, compared to a net gain of $1.6 million for the same period in 2006. The decrease is primarily attributable to the sale of Coral World International Limited (“CWI”) in June 2006, which had recorded a gain of $1.6 million in 2006, the increase in losses from Bay-Heart Limited (“Bay Heart”) which recorded a loss of $1.5 million in 2007 compared to $0.7 million in 2006, the sale of Carmel in May 2007, which recorded earnings of $0.1 million in 2007, compared to earnings of $0.5 million in 2006 and loss from Chem-Tankers C.V. a 50% partnership held by Gadot.

        In the fiscal year ended December 31, 2007, the Company recorded $0.6 million of net realized gain on investments, as compared to $4.4 million of net realized gain in the same period in 2006. On May 21, 2007, the company sold all of its investment in Carmel Containers Ltd. (“Carmel”) for $4.6 million. No gain was recorded relating to the sale of Carmel since an impairment was recorded during the first quarter of 2007. Additional sale of certain assets by FIMI Opportunity Fund L.P (“FIMI”) contributed most of the gain in 2007 ($0.5 million gain). The net gain recorded in 2006 was primarily attributable to the sale of CWI ($4.2 million gain), additional proceeds from the sale of Modem Art Ltd. (“Modem Art”) ($0.6 million gain), the sale of certain assets by PSINet Europe, one of the holdings of one of Ampal’s investee companies, Telecom Partners (“TP”) ($0.4 million gain) and the sale of certain assets by FIMI ($0.2 million gain). These gains were offset partially by a loss from the sale of Ophir Holdings Ltd. (“Ophir”) ($1.0 million loss).

        The Company recorded realized and unrealized gain from marketable securities in the amount of $0.2 million in fiscal year ended December 31, 2007, compared to $1.1 million in the same period in 2006.

        The Company recorded realized gain of $3.4 million from the sale of a ship by Chem-Tankers C.V. in fiscal year ended December 31, 2007, compared to $2.2 million gain from the sale of a real estate in the same period in 2006.

        In the fiscal year ended December 31, 2007, the Company recorded $0.5 million of losses from the impairment of its investment in Carmel and Clalcom Ltd. ($0.1 million). In the same period in 2006, the Company recorded no such impairments.

        In the fiscal year ended December 31, 2007, the Company recorded $10.1 million of interest expense, compared to $4.3 million for the same period in 2006. The increase in interest expense is primarily attributable to the notes issued to institutional investors in Israel, a loan payable at the amount $60.7 million received from Israel Discount Bank Ltd. and the convertible promissory note (the “Convertible Promissory Note”) issued to Merhav M.N.F. Ltd., which were issued in November and December 2006, respectively. On September 20, 2007, Merhav exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the Convertible Promissory Note into 4,476,389 shares of Class A Stock of the Company.

        In the fiscal year ended December 31, 2007, the Company recorded a $3.1 million translation loss, as compared to a $1.3 million translation gain for the same period in 2006. The increase in translation loss is related to a change in the valuation of the New Israeli Shekel as compared to the U.S. dollar.

        The management of the Company currently believes that inflation has not had a material impact on the Company’s operations.

25



Result of Operations Analyzed by Segments

2007
2006
(U.S. dollars in thousands)
 
Revenues:            
Chemicals   $ 31,922   $--  
Energy    --    --  
Finance    4,867    4,203  
Real Estate    --    2,423  
Leisure-Time    2,531    6,317  
Intercompany adjustments    --    (9 )


     39,320    12,934  
Equity in earning of affiliates    (1,523 )  1,610  


Total   $ 37,797   $ 14,544  



        In the fiscal year ended December 31, 2007, the Company recorded $37.8 million in revenue which was comprised of $31.9 million in the Chemicals segment, due to the acquisition of Gadot in December 2007, $4.9 million in the Finance segment, $2.5 million in the Leisure-Time segment and a $1.5 million loss in equity, as compared to $14.5 million for the same period in 2006 which was comprised of $4.2 million in the Finance segment, $2.4 million in the Real Estate segment, $6.3 million in the Leisure-Time segment and a $1.6 million gain in equity. The increase in the Finance segment revenue is primarily related to the increase in interest income offset by the decrease in realized and unrealized gains on marketable securities and the decrease in realized gain from investments relating to finance segment, which the Company recorded $0.6 million in 2007 compared to $1.2 million in the same period in 2006. The decrease in the Real Estate segment is related to the sale of Am-Hal, a wholly owned subsidiary. The decrease in the Leisure-Time segment is primarily related to the gain of $4.2 million from the sale of CWI which was recorded in 2006.

2007
2006
(U.S. dollars in thousands)
 
Expenses:            
Chemicals   $ 27,788   $--  
Energy    --    --  
Finance    25,216    15,723  
Real Estate    --    272  
Leisure-Time    2,420    1,913  


Total   $ 55,424   $ 17,908  



        In the fiscal year ended December 31, 2007, the Company recorded $55.4 million in expenses which was comprised of $27.8 million in the Chemicals segment, due to the acquisition of Gadot in December 2007, $25.2 million in the Finance segment and $2.4 million in the Leisure-Time segment, as compared to $17.9 million expense for the same period in 2006 which was comprised of $15.7 million in the Finance segment, $0.3 million in the Real Estate segment and $1.9 million in the Leisure-Time segment. The increase in expenses in the Finance segment is primarily attributable to the increase in interest expense relate to the notes issued to institutional investors in Israel, a loan payable at the amount $60.7 million received from Israel Discount Bank Ltd. and the Convertible Promissory Note issued to Merhav M.N.F. Ltd., which were issued in November and December of 2006, respectively. On September 20, 2007, Merhav M.N.F. Ltd. exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the Convertible Promissory Note into 4,476,389 shares of Class A Stock of the Company.

Fiscal year ended December 31, 2006 compared to fiscal year ended December 31, 2005:

General

        The Company recorded a consolidated net loss of $7.1 million for the fiscal year ended December 31, 2006, as compared to $6.0 million loss for the same period in 2005. The increase in net loss is primarily attributable to a decrease in earnings of affiliates and a decrease in other income. The increase in net loss was partially offset by an increase in net realized and unrealized gains from marketable securities and investments, gain on sale of real estate, a decrease in loss from impairment of investments and a decrease in translation losses in 2006, as compared to 2005.

        On August 5, 2007, the Company sold all of its interest in Am-Hal, a 100% wholly owned subsidiary, which accounted for a majority of the Company’s Real Estate Segment, for $29.3 million. Loss for 2006 attributable to Am-Hal of $1.1 million compared to a $42 thousands loss for 2005, is recorded as a loss from discontinued operations.

        Income from equity of affiliates decreased to $1.6 million for the fiscal year ended December 31, 2006 as compared to $6.7 million for the fiscal year ended in 2005. The decrease is primarily attributable to a decrease in the earnings of Ophir, which was sold during the second quarter of 2006 and did not record any earnings in the fiscal year ended December 31, 2006, as compared to a gain of $6.1 million recorded by Ophir in the same period in 2005.

26



        In the fiscal year ended December 31, 2006, Ampal recorded a gain of $2.2 million on the sale of its building in Tel-Aviv (proceeds of $4.6 million).

        In the fiscal year ended December 31, 2006, the Company recorded $0.4 million in other income, as compared to $7.6 million for the same period in 2005. The decrease in other income is primarily related to the committed dividend for 2005 which had been fully paid on October 3, 2005 by Motorola Israel Ltd. as part of the sale of its investment in MIRS Communications Ltd. last year.

        In the fiscal year ended December 31, 2006, the Company recorded $4.4 million of net realized gain on investments, as compared to $2.7 million of net realized loss in the same period in 2005. The gain recorded in 2006 was primarily attributable to the sale of Coral World International ($4.2 million gain), additional proceeds from the sale of Modem Art ($0.6 million gain), the sale of certain assets by PSINet Europe, one of the holdings of Ampal’s investee company, TP ($0.4 million gain) and the sale of certain assets by FIMI ($0.2 million gain). These gains were partially offset by a loss recorded in connection with the sale of Ophir ($1.0 million loss).

        The Company recorded realized and unrealized gains from marketable securities in the amount of $1.1 million in fiscal year ended December 31, 2006, compared to $3.2 million in the same period in 2005.

        In the fiscal year ended December 31, 2005, the Company recorded $14.0 million of losses from the impairment of its investment in MIRS ($13.3 million), Shiron Ltd. ($0.6 million) and other loans ($0.1 million). In the same period in 2006, the Company recorded no such impairments.

        In the fiscal year ended December 31, 2006, the Company recorded a $1.3 million translation gain, as compared to a $2.6 million translation loss for the same period in 2005. The decrease in translation loss is related to a change in the valuation of the New Israeli Shekel as compared to the U.S. dollar.

Result of Operations Analyzed by Segments

2006
2005
(U.S. dollars in thousands)
 
Revenues:            
Energy    $--   $ --  
Finance    4,203    12,412  
Real Estate    2,423    233  
Leisure-Time    6,317    2,208  
Intercompany adjustments    (9 )  --  


     12,934    14,853  
Equity in earning of affiliates    1,610    6,666  


Total   $ 14,544   $ 21,519  



        In the fiscal year ended December 31, 2006, the Company recorded $14.5 million in revenue which was comprised of $4.2 million in the Finance segment, $2.4 million in the Real Estate segment, $6.3 million in the Leisure-Time segment and $1.6 million in equity, as compared to $21.5 million for the same period in 2005 which was comprised of $12.4 millions in the Finance segment, $0.2 million in the Real Estate segment, $2.2 million in the Leisure-Time segment and $6.7 million in equity. The decrease in the Finance segment revenue is primarily related to the dividends payable by Motorola Israel Ltd. to the Company as part of the sale of its investment in MIRS Communications Ltd. which were fully paid on October 3, 2005, and no similar dividend was payable in 2006. The increase in revenue in the Real Estate segment is primarily related to the gain of $2.2 million from the sale of building on Arlozorov Street in Tel-Aviv (the “Arlozorov Building”) and the increase in revenue in the Leisure-Time segment is primarily related to the gain of $4.2 million from the sale of Coral World International.

2006
2005
(U.S. dollars in thousands)
 
Expenses:            
Finance   $ 15,723   $ 32,737  
Real Estate    272    311  
Leisure-Time    1,913    1,963  


Total   $ 17,908   $ 35,011  



27



        In the fiscal year ended December 31, 2006, the Company recorded $17.9 million in expenses which was comprised of $15.7 million in the Finance segment, $0.3 million in the Real Estate segment and $1.9 million in the Leisure-Time segment, as compared to $35.0 million expense for the same period in 2005 which was comprised of $32.7 millions in the Finance segment, $0.3 million in the Real Estate segment and $2.0 million in the Leisure-Time segment. The decrease in Finance expense is primarily attributable to the $14.0 million losses from the impairment of its investments which the Company recorded in 2005 and did not record such impairment in 2006 and the decrease in translation loss to $1.3 million gain in 2006 compared to $2.6 million loss in 2005 which related to a change in the valuation of the New Israeli Shekel as compared to the U.S. dollar.

SELECTED QUARTERLY FINANCIAL DATA

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(U.S. dollars in thousands, except per share data)
Unaudited
 
Fiscal Year Ended December 31, 2007                    
Revenues   $ 1,089   $ 684   $ 872   $ 35,152  
Net interest expense    1,398    1,908    2,926    (64 )
Income (loss) from continuing operations    (4,367 )  (3,598 )  (9,850 )  4,237  
Income (loss) from discontinued operations, net of tax    (682 )  435    21,737    (146 )




Net (loss) income    (5,049 )  (3,163 )  11,887    4,091  
Basic EPS:  
   Loss from continuing operations    (0.10 )  (0.07 )  (0.19 )  0.08  
   Discontinued operations    (0.01 )  0.01    0.41    --  




   Earnings (Loss) per Class A share    (0.11 )  0.06    0.22    0.08  
Diluted EPS:  
   Loss from continuing operations    (0.1 )  (0.07 )  (0.19 )  0.08  
   Discontinued operations    (0.01 )  0.01    0.41    --  
   Earnings (Loss) per Class A share    (0.11 )  0.06    0.22    0.08  

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(U.S. dollars in thousands, except per share data)
Unaudited
 
Fiscal Year Ended December 31, 2006                    
Revenues   $ 3,292   $ 6,195   $ 4,025   $ 1,032  
Net interest expense    (411 )  (371 )  (112 )  (1,955 )
Income (loss) from continuing operations    (570 )  1,366    (1,770 )  (6,035 )
Income (loss) from discontinued operations, net of tax    (5 )  15    (25 )  (63 )




Net (loss) income    (575 )  1,381    (1,795 )  (6,098 )
Basic and Diluted EPS:  
   Loss from continuing operations (1)     (0.03 )  0.06    (0.18 )  (0.19 )
   Discontinued operations    --    --    --    --  




   Earnings (Loss) per Class A share    (0.03 )  0.06    (0.18 )  (0.19 )





(1) After deduction of dividends on the 4% and 6 1/2% Cumulative Convertible Preferred Stock in 2006 (in thousands) of $2,438.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

        On December 31, 2007, cash, cash equivalents and marketable securities were $66.7 million, as compared with $37.1 million at December 31, 2006. The increase in cash, cash equivalents and marketable securities is primarily attributable to the sale of Am-Hal, Carmel and proceeds from the exercise of warrants. This increase in cash flow was partially offset by the investments in Gadot, EMG, Bay Heart and FIMI.

        As of December 31, 2007, the Company had $22.5 million of marketable securities as compared to $0.4 million in 2006.

        The Company may also receive cash from operations and investing activities and amounts available under credit facilities, as described below. The Company believes that these sources are sufficient to fund the current requirements of operations, capital expenditures, investing activities and other financial commitments of the Company for the next 12 months. However, to the extent that contingencies and payment obligations described below and in other parts of this Report require the Company to make unanticipated payments, the Company would need to further utilize these sources of cash. The Company may need to draw upon its other sources of cash, which may include additional borrowing, refinancing of its existing indebtedness or liquidating other assets, the value of which may also decline.

28



        In addition, Ampal’s interest in Gadot has been pledged and cash equal to $12.0 million has been placed as a compensating balance for various loans provided to the Company and would therefore be unavailable if the Company wished to pledge them in order to provide an additional source of cash.

        Cash flows from operating activities

        Net cash used in operating activities totaled approximately $23.6 million for the fiscal year ended December 31, 2007, as compared to approximately $29.8 million provided by operating activities at the same period in 2006. The decrease in cash used in operating activities is primarily attributable to (1) the $5.8 million of net investment in marketable securities in 2007 ($23.8 million investment offset by $18.0 million proceeds) as compared to $39.6 million of net proceeds from the sale of marketable securities ($89.6 million proceeds offset by $50.0 million invested) in the same period of 2006; and (2) the increase in interest expense due to the notes issued to institutional investors in Israel and the Convertible Promissory Note issued to Merhav M.N.F. Ltd., which were issued in November and December of 2006, respectively.

        Cash flows from investing activities

        Net cash used in investing activities totaled approximately $149.7 million for the fiscal year ended December 31, 2007, as compared to approximately $107.3 million used in investing activities for the same period in 2006. The increase in cash used in is primarily attributable to the investment of $95.4 million in EMG (see Investments below), the investment of $91.2 million in Gadot ($78.2 million net of cash), investment in EMG ($5.8 million), investment in Bay Heart ($2.4 million) and capital improvement in Am-Hal. This increase was offset by the proceeds from the sale of Am-Hal, Carmel, FIMI, by the sale of a ship by Gadot in the amount of $6.9 million and by deposit collected of $3.6 million. The cash used in investing activities during 2006 is primarily attributable to the Company’s investments in EMG ($52.7 million), Bay-Heart ($1.4 million) and FIMI ($0.4 million) offset by the proceeds at the amount of $23.0 million from the sale of CWI, Ophir, Modem Art and certain assets of TP and FIMI.

        Cash flows from financing activities

        Net cash provided by financing activities was approximately $179.6 million for the fiscal year ended December 31, 2007, as compared to approximately $86.2 million of net cash provided by financing activities for the same period in 2006. In 2007, the Company received a $60.7 million loan from Israel Discount Bank Ltd. to finance the purchase of Gadot, received $15.2 million from Union Bank Of Israel Ltd. (“UBI”), received $95.4 million from partnership minority to finance the additional purchase of EMG, paid down notes payable to Bank Hapoalim Ltd. (“Bank Hapoalim”) in the amount of $37.0 million, received $27.2 million under a loan facility with Bank Hapoalim and from exercise of warrants in the amount of $18.0 million. In 2006, the Company paid down its existing notes payable to Bank Hapoalim in the amount of $6.0 million while using its own cash and borrowing an additional $0.7 million under a loan facility with Bank Hapoalim. In November 2006, the Company issued notes to institutional investors in Israel in the principal aggregate amount of approximately $58.0 million ($56.4 million after deducting related expense) in accordance with Regulation S under the Securities Act of 1933, as amended. In December 2006, the Company completed a private placement of the sale of 8,142,705 shares of its Class A Stock for aggregate proceeds of $37.8 million ($36.7 million after deducting related expenses) to certain non-U.S. institutional investors in accordance with Regulation S under the Securities Act of 1933, as amended. In 2006, the Company paid down its existing notes payable to banks in the amount of $11.2 million and paid a dividend to the holders of its preferred stock in the aggregate amount of $2.3 million while using its own cash and borrowed an additional $6.0 million.

        Investments

        On December 31, 2007, the aggregate fair value of trading and available-for-sale securities were approximately $22.4 million, as compared to $0.4 million at December 31, 2006. The increase in 2007 is mainly attributable to the purchase of Gadot and to the tradable securities held by Gadot.

a) In 2007, the Company made the following investments:

  1. On December 3, 2007, Ampal completed its acquisition of 65.5% of the control and ownership (63.66% on a fully diluted basis) of Gadot Chemical Tankers and Terminals Ltd. (“Gadot”). The total consideration including direct transaction expenses was $91.2 million. The cash consideration was financed with Ampal’s own resources and with borrowings in the amount of $60.7 million.

  Gadot and its group of companies is an Israeli chemical distribution organization. Gadot ships, stores, and distributes liquid chemicals, oils, and a large variety of materials to the local industry.

  The acquisition was accounted for by the purchase method. The results of operations of Gadot were included in the consolidated financial statements of Ampal commencing November 30, 2007. The consideration for the acquisition was attributed to net assets on the basis of fair value of assets acquired and liabilities assumed, based on an appraisal performed by management, which included a number of factors, including the assistance of independent appraisers.

29



  The following table summarizes the final fair values of the assets acquired and liabilities assumed, with reference to Gadot balance sheet data as of November 30, 2007:

U.S. dollars in millions
 
Current assets     $ 166,365  
Investments and other non-current assets    31,145  
Fixed assets    74,430  
Identifiable intangible assets    9,503  
Goodwill    50,406  

Total assets acquired    331,849  

Current liabilities    (94,703 )
Long-term liabilities, including deferred taxes    (124,523 )
Minority interest    (21,422 )

Total liabilities assumed    (240,648 )

Net assets acquired   $ 91,201  


  Under the purchase method of accounting, the total consideration of $91.2 million allocated to Gadot’s identifiable tangible and intangible assets and liabilities assumed based on their estimated fair values as of the date of the completion of the transaction.

  Below are the unaudited pro forma combined statements of operations data for the years ended December 31, 2007 and 2006 as if the acquisition of Gadot had occurred on January 1, 2007 and 2006, respectively, after giving effect to: (a) purchase accounting adjustments, including amortization of identifiable intangible assets; and (b) estimated additional interest expense due to the loan granted to Ampal in connection with the acquisition. This pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisition taken place at the beginning of 2007 and 2006, respectively, nor is it necessarily indicative of future results.

2007
2006
U.S. dollars in thousands
except earning per share
(unaudited)

 
Total revenues     $ 409,106   $ 241,750  
Income (loss) from continuing operations    (3,224 )  1,222  
   
Basic and diluted Earning per share:  
Loss income from continuing operations    (0.06 )  (0.05 )



  2. During 2007, the Company made an additional investment in EMG as follows:

  On June 4, 2007, EMG called for additional capital from its shareholders. As a result, Ampal paid an additional $5.8 million in order to maintain its pro rata beneficial interest in EMG.

  On November 29, 2007, Ampal and IIF, leading a group of institutional Investors, purchased a 4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the “Joint Venture”), from Merhav M.N.F. Ltd. for a purchase price of approximately $95.4 million, using funds provided by the Investors. In addition to the Joint Venture’s purchase from Merhav M.N.F. Ltd., Ampal contributed into the Joint Venture an additional 4.3% interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was valued at the same price per EMG share as the Joint Venture’s purchase. This amount is equivalent to the purchase price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares from Merhav M.N.F. Ltd., which was accounted for as a transfer of assets between entities under common control, which resulted in Merhav M.N.F. Ltd. transferring the investment in EMG to Ampal at carrying value. Due to the nature of Merhav M.N.F. Ltd.‘s operations, Merhav M.N.F. Ltd. would be treated as an investment company under US GAAP, and as such, the carrying value of the investment in EMG would equal fair value. On this basis, the said investment in EMG was transferred to Ampal at carrying value, which also equals fair value. Based on the terms stipulated in the shareholders agreement of the general partner of the Joint Venture, Ampal and Israel Infrastructure G.P. Ltd. have equal rights in governing the affairs of the Joint Venture. However, in certain events and under certain conditions, matters relating to decisions on how to vote the EMG shares held by the Joint Venture shall be decided by the directors of the general partner of the Joint Venture appointed by Ampal or by IIF. As such, Ampal has consolidated the results of the Joint Venture in its financial statements.

30



  The Company’s Financial Statements reflect a 16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of which Ampal owns 50%).

  Yosef A. Maiman, the Chairman, President and CEO of the Company and a member of the controlling shareholder group of the Company, is the sole owner of Merhav M.N.F. Ltd.

  For more information regarding our interest in EMG, see “Item 13.”

  3. Wind Energy Joint Venture

  On November 25, 2007, MAE signed a joint venture agreement with Clal Electronics Industries Ltd. (“Clal”), an Israel-based holding company, for the formation of a joint venture that will focus on the new development and acquisition of controlling interests in wind energy projects outside of Israel. The joint venture, owned equally by Clal and the Company through MAE, will seek to either develop or acquire wind energy opportunities with a goal of establishing at least 150MW of installed capacity within the next 3.5 years.The joint venture’s initial project is the development of a wind farm in Greece. The Company has approved a $25 million budget for these projects.

  4. Option Agreement for Sugarcane Ethanol Project in Colombia

  On December 25, 2007, Ampal entered into an Option Agreement (the “Option Agreement”) with Merhav M.N.F. Ltd. providing Ampal with the option to acquire up to a 35% equity interest in a sugarcane ethanol production project (the “Project”) in Colombia being developed by Merhav M.N.F. Ltd. The option expires on the earlier of December 25, 2008 or the date on which both (i) Merhav M.N.F. Ltd. has obtained third-party debt financing for the Project and (ii) an unaffiliated third party holds at least a 25% equity interest in the Project. The Option Agreement provides that the purchase price for any interest in the Project purchased by Ampal pursuant to the Option Agreement will be (A) with respect to any portion of such interest being purchased by conversion of the outstanding balance of the Promissory Note referred to below, the lesser of (i) a price based on a currently agreed valuation model as updated from time to time to reflect changes in project, financing and other similar costs (the “Valuation Model”) as such updates are reviewed by Houlihan Lokey Howard & Zukin Financial Advisors, Inc. at the time of the option’s exercise or (ii) the lowest price paid by any unaffiliated third party for an interest in the Project, or (B) with respect to any portion of such interest in the Project being purchased in excess of the balance of the Promissory Note, the lowest price paid by an unaffiliated third party for its interest in the Project, unless no unaffiliated third party has purchased an interest in the Project, in which case the purchase price will be based on the Valuation Model.

  Ampal has loaned Merhav M.N.F. Ltd. $10 million to fund the purchase of the 11,000 hectares of property in Colombia required for growing sugarcane and the construction of an ethanol production facility for the Project, pursuant to a Promissory Note, dated as of December 25, 2007, by Merhav M.N.F. Ltd. in favor of Ampal (the “Promissory Note”). Ampal has agreed to advance up to an additional $10 million to fund the Project pursuant to the Promissory Note. The loan bears interest at an annual rate equal to LIBOR plus 2.25%, and will be convertible into all or a portion of the equity interest purchased pursuant to the option.

  As security for the loan, Merhav M.N.F. Ltd. has pledged to Ampal, pursuant to a pledge agreement, dated December 25, 2007, between Merhav M.N.F. Ltd. and Ampal, all of the shares of Ampal’s Class A Stock, par value $1.00 per share, owned by Merhav.

  Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling shareholders group of Ampal, is the sole owner of Merhav M.N.F. Ltd. Because of the foregoing relationship, a special committee of the Board of Directors composed of Ampal’s independent directors negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which has been retained as financial advisor to the special committee, advised the special committee on this transaction.

  For more information regarding our investment in Colombia, see “Item 13.”

  5. Additional investment of $0.1 million in FIMI.

  6. A loan to Bay Heart of $3.6 million, for a shopping mall in Haifa, Israel.

b) In 2007, Ampal made the following dispositions:

  1. On May 21, 2007, the Company closed the sale of all of its holdings in Carmel, a packaging manufacturer affiliate based in Israel. Pursuant to this transaction, Ampal and its subsidiaries sold to Carmel an aggregate of 522,350 ordinary shares of Carmel for an aggregate sales price of approximately $4.6 million. The Company recorded no gain since impairment was recorded in the first quarter of 2007.

31



  2. During 2007, the Company received proceeds in the total amount of $0.8 million from the sales of certain investments by FIMI.

  3. On August 5, 2007, the Company completed the sale of its holdings in Am-Hal Ltd. for an aggregate consideration of $29.3 million and recorded a gain of approximately $29.4 million (approximately $21.7 million, net of taxes). The gain and Am-Hal’s results of operations until June 30, 2007, were recorded as discontinued operations for all periods presented.

        Debt

        Notes issued to institutional investors in Israel, the convertible note issued to Merhav M.N.F. Ltd. and other loans payable pursuant to bank borrowings are either in U.S. dollars, linked to the Consumer Price Index in Israel or in unlinked New Israel Shekels, with interest rates varying depending upon their linkage provision and mature between 2008-2019.

        The Company finances its general operations and other financial commitments through bank loans from Bank Hapoalim, UBI and Israel Discount Bank Ltd. As of December 31, 2007, the outstanding indebtedness under these bank loans totaled $101.9 million and the loans mature through 2008-2019.

        On February 26, 2007, the Company entered into a bank loan with UBI. Pursuant to the loan agreement, on April 2, 2007, UBI granted the Company a $10 million loan, which bears interest at the rate of LIBOR plus 2% to be repaid in six annual installments commencing on April 2, 2008. The loan is secured by a pledge of certain assets. On December 31, 2007, UBI granted the Company two loans of equal amount, for a total amount of NIS 20 million (approximately $5.2 million). These loans bear interest at the rate of 4.6% and 4.8%, respectively, linked to the Consumer Price Index in Israel. Both loans are for a term of two years and interest will be paid semi-annually.

        On April 26, 2007, the Company repaid its existing loans from Bank Hapoalim and signed a new loan agreement. The new agreement provides for a secured $27 million dollar loan facility to the Company at the value as of March 30, 2007, to be used for general corporate purposes. On March 30, 2007, the Company borrowed the full $27 million under the loan facility. The funds borrowed under the loan facility are due in six annual installments commencing on December 31, 2007 and bear interest at an annual rate of LIBOR plus 2%. The Loan Agreement contains financial and other covenants including an acceleration of payment upon the occurrence of certain changes in the ownership of the Company’s Class A Stock. As of December 31, 2007, the Company is in compliance with its debt covenants.

        On November 29, 2007, as part of the agreement between Ampal and IIF, leading a group of institutional Investors, the Company received $95.4 million to purchased a 4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership, from Merhav. The loan is unlinked to the Consumer Price Index in Israel, bears no interest and is repayable upon agreement by both parties, but with a minimum term of one year.

        A short term loan from Bank Hapoalim in the amount of $3.5 million bears interest of 7.1% and is to be repaid by March 31, 2008.

        On November 20, 2006, the Company entered into a trust agreement with Hermetic Trust (1975) Ltd. pursuant to which the Company issued notes to institutional investors in Israel in the principal aggregate amount of NIS 250 million (approximately $58 million) with an interest rate of 5.75%, which is linked to the Israeli consumer price index. The notes shall rank pari passu with our unsecured indebtedness. The notes will be repaid in five equal annual installments commencing on November 20, 2011, and the interest will be paid semi-annually. As of December 31, 2007, the outstanding debt under the notes amounts to $66.6 million, due to the change in valuation of the New Israeli Shekel as compared to the U.S. dollar. The Company deposited an amount of $10,207,000 with Hermetic Trust (1975) Ltd. to secure the first three years worth of payments of interest on the debentures. As of December 31, 2007, the outstanding amount of the deposit was $7.5 million. Prior to the issuance of the debentures, Midroog Ltd., an affiliate of Moody’s Investors Service, rated the Company as A3.

        On August 1, 2007, Ampal filed a final prospectus with the Israeli Securities Authority and the TASE for the resale and listing with the TASE of its Series A Notes. According to the prospectus, on August 19, 2007, Ampal paid the Series A Notes holders additional interest of 0.10959% (0.5% annually) for the period commencing May 20, 2006 and ending on August 9, 2007, which is the date the Series A Notes were registered for trade. The additional interest was paid to the Series A Note holders whose names appear in the Series A Note holders register kept by Ampal as of August 7, 2007. The debt offering was made solely to certain non-U.S. institutional investors in accordance with Regulation S under the U.S. Securities Act of 1933, as amended. The notes have not been and will not be registered under the U.S. securities laws, or any state securities laws, and may not be offered or sold in the United States or to United States persons without registration unless an exemption from such registration is available.

        Ampal funded the Gadot transaction with a combination of available cash and the proceeds of a new credit facility, dated November 29, 2007 (the “Credit Facility”), between MAE and Israel Discount Bank Ltd. (the “Lender”), for approximately $60.7 million. The Credit Facility is divided into two equal loans of approximately $30.35 million. The first loan is a revolving loan that has no principal payments and may be repaid in full or in part on December 31 of each year until 2019, when a single balloon payment will become due. The second loan also matures in 2019, has no principal payments for the first two years, and shall thereafter be paid in equal installments over the remaining ten years of the term. Interest on both loans accrues at a floating rate equal to LIBOR plus a percentage spread and is payable on a current basis. Ampal has guaranteed all the obligations of MAE under the Credit Facility and Ampal’s interest in Gadot has also been pledged to the Lender as a security for the Credit Facility. Yosef Maiman has agreed with the Lender to maintain ownership of a certain amount of the Company’s Class A Common Stock. The Credit Facility contains customary affirmative and negative covenants for credit facilities of this type.

32



        In addition, as part of the EMG transaction in December 2006, the Company issued to Merhav M.N.F. Ltd. the Convertible Promissory Note in the principal amount of $20 million, which at the option of Merhav M.N.F. Ltd., was payable in cash, additional shares of Ampal Class A Stock (based on a price per share of $4.65 per share), or a combination thereof. The Convertible Promissory Note bore interest at 6 months LIBOR (5.375%) and matured on the earlier of September 20, 2007, or upon demand by Merhav M.N.F. Ltd. On September 20, 2007, Merhav M.N.F. Ltd. exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the Convertible Promissory Note into 4,476,389 shares of Class A Stock of the Company. See “Changes in Shareholders Equity” below.

        Other long term borrowings in the amount of $0.2 million are linked to the Consumer Price Index in Israel, mature between 2007 and 2010 and bear annual interest of 5.7%.

        As of December 31, 2007, Gadot had $0.7 million outstanding under its convertible debentures. Gadot’s debentures were listed on the Tel Aviv Stock Exchange (“TASE”) in December 2003, are linked to the Consumer Price Index in Israel, bear annual interest at the rate of 6.5%, and are repayable in two equal annual installments on December 5, 2008 and 2009. The debentures are convertible into ordinary shares of Gadot, commencing from the date they were listed on the TASE until December 5, 2009, such that as of December 31, 2007, each incremental amount of NIS 3.53 of outstanding debentures (linked to the Consumer Price Index in Israel) is convertible into one ordinary share of Gadot of NIS 0.1 par value, subject to adjustments.

        As of December 31, 2007, Gadot had $12.0 million outstanding under its other debentures. These debentures are not convertible into shares and are repayable in five equal annual installments on September 15, of each of the years 2008 through 2012. The unsettled balance of the principal of the debentures bears annual interest at the rate of 5.3%. The principal and interest of the debentures are linked to the Consumer Price Index in Israel and the interest is payable in semi-annual installments on March 15 and September 15 of each of the years 2006 through 2012.

        As of December 31, 2007, Gadot, a 65.5% subsidiary of Ampal, has short term loans payable in the amount of $96.5 million and long term loans payable in the amount of $30.1 million. The various short term loans payable are either unlinked or linked to the Euro and bear interest at rates between 5.73% to 6.09%. The various long term loans payable are either unlinked, linked to the Consumer Price Index in Israel or linked to the Euro and bear interest at rates between 4.82% to 6.90%.

        The weighted average interest rates and the balances of these short-term borrowings at December 31, 2007 and December 31, 2006 were 6.3% on $136.6 million and 6.3% on $21.2 million, respectively.

Payments due by period (in thousands)
Contractual Obligations
Total
Less than
1 year

1 - 3
years

3 - 5
years

More than
5 years

 
Long-Term Debt     $ 187,405       $ 131,341   $ 31,781   $ 24,283  
Debentures   $ 78,608        $5,662   $ 32,318   $ 40,628  
Convertible Debentures   $ 742       $742            
Short-Term Debt   $ 136,612   $ 136,612                 
Expected interest payment (3)    $ 59,845   $ 16,257   $ 19,770   $ 14,073   $ 9,745  
Capital Call Obligation (1)    $ 2,800   $ 2,800                 
Operating Lease Obligation (2)    $ 36,929   $ 13,735   $ 13,232   $ 3,724   $ 6,238  
Capital Lease Obligation  
Purchase Obligations  
Other Long-Term Liabilities Reflected on the Company's  
Balance Sheet Under GAAP  
Total   $ 502,941   $ 169,404   $ 170,747   $ 81,896   $ 80,894  






  (1) See Note 19(d) to Ampal’s consolidated financial statements included in this Report for the fiscal year ended December 31, 2007.

  (2) See Note 19(a) to Ampal’s consolidated financial statements included in this Report for the fiscal year ended December 31, 2007.

  (3) In calculating estimated interest payments on outstanding debt obligations, the Company assumed an exchange rate as at December 31, 2007 of NIS 3.846 to 1 U.S. dollar.

33



        As of December 31, 2007, the Company had issued guarantees on certain outstanding loans to its investees and subsidiaries in the aggregate principal amount of $27.4 million. This includes:

  1. $5.2 million guarantee on indebtedness incurred by Bay Heart ($0.3 million of which is recorded as a liability in the Company’s financial statements at December 31, 2007) in connection with the development of its property. Bay Heart recorded losses in 2007 as a result of decreased rental revenues. There can be no guarantee that Bay Heart will become profitable or that it will generate sufficient cash to repay its outstanding indebtedness without relying on the Company’s guarantee.

  2. $1.1 million guarantee to Galha 1960 Ltd. as described in Item 3 of this Report.

  3. $ 21.1 million guarantees of Gadot for outstanding loans.

        Off-Balance Sheet Arrangements

        Other than the foreign currency contracts specified below, the Company has no off-balance sheet arrangements.

        Foreign Currency Contracts

        The Company’s derivative financial instruments consist of foreign currency forward exchange contracts to purchase or sell U.S. dollars. These contracts are utilized by the Company, from time to time, to manage risk exposure to movements in foreign exchange rates. None of these contracts have been designated as hedging instruments. These contracts are recognized as assets or liabilities on the balance sheet at their fair value, which is the estimated amount at which they could be settled, based on market prices or dealer quotes, where available, or based on pricing models. Changes in fair value are recognized currently in earnings.

        As of December 31, 2007, the Company had open foreign currency forward exchange contracts to purchase U.S. dollars and sell Euros in the amount of $9 million.

CHANGES IN SHAREHOLDERS EQUITY

        During the second, third and fourth quarter of 2007, the shareholders’ equity changed as follows:

        As of December 31, 2007, the Company issued 3,870,351 Class A Shares to investors that exercised warrants granted to them by the Company on December 28, 2006. The total proceeds from the exercise of warrants were $18.0 million.

        On September 20, 2007, Merhav M.N.F. Ltd. exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the convertible promissory note issued to it as partial consideration for the purchase of a 5.9% interest in EMG by Ampal in December 2006, into 4,476,389 shares of Class A Stock of Ampal. The issuance of the 4,476,389 shares underlying the Convertible Promissory Note received the approval of the shareholders of the Company on February 7, 2007, as required by the marketplace rules of the NASDAQ Global Market.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS AND SENSITIVITY ANALYSIS

        The Company is exposed to various market risks, including changes in interest rates, foreign currency exchange rates and equity price changes. The following analysis presents the hypothetical loss in earnings, cash flows and fair values of the financial instruments which were held by the Company at December 31, 2007, and are sensitive to the above market risks.

        During the fiscal year ended December 31, 2007, there have been no material changes in the market risk exposures facing the Company as compared to those the Company faced in the fiscal year ended December 31, 2006, other than exposure to the Euro exchange rate due to the Company’s acquisition of Gadot.

Interest Rate Risks

        At December 31, 2007, the Company had financial assets totaling $44.6 million and financial liabilities totaling $403.3 million. For fixed rate financial instruments, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate financial instruments, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant.

        At December 31, 2007, the Company did not have fixed rate financial assets and had variable rate financial assets of $44.6 million. A ten percent decrease in interest rates would not increase the unrealized fair value of the fixed rate assets.

        At December 31, 2007, the Company had fixed rate debt of $192.4 million and variable rate debt of $211.3 million. A ten percent decrease in interest rates would increase the unrealized fair value of the financial debts in the form of the fixed rate debt by approximately $1.5 million.

34



        The net decrease in earnings and cash flow for the next year resulting from a ten percent interest rate increase would be approximately $1.3 million, holding other variables constant.

Foreign Currency Exchange Rate Sensitivity Analysis

        The Company’s exchange rate exposure on its financial instruments results from its investments and ongoing operations. As of December 31, 2007, the Company had open foreign exchange forward contracts to purchase U.S. Dollars and sell Euros in the amount of $9 million. Holding other variables constant, if there were a ten percent devaluation of the foreign currency, the Company’s cumulative translation loss reflected in the Company’s accumulated other comprehensive loss would increase by $1.9 million, and regarding the statements of operations a ten percent devaluation of the U.S. Dollar exchange rate would be reflected in a net increase in earnings and cash flow would be $21.8 million, and a ten percent devaluation of the Euro exchange rate would be reflected in a net increase in earnings and cash flow would be $2.8 million.

Equity Price Risk

        The Company’s investments at December 31, 2007, included marketable securities which are recorded at a fair value of $22.5 million, including a net unrealized gain of $0.2 million. Those securities have exposure to equity price risk. The estimated potential loss in fair value resulting from a hypothetical ten percent decrease in prices quoted on stock exchanges is approximately $2.2 million. There will be no impact on cash flow resulting from a hypothetical ten percent decrease in prices quoted on stock exchanges.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages 1 through 36 of the financial statements attached to this annual report.

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

        None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        The Company’s management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

Management’s Report on Internal Control Over Financial Reporting

        The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Company’s management with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As permitted, we have excluded from our evaluation the 2007 acquisitions of Gadot, which is included in our 2007 Consolidated Financial Statements and which represented 44.3% of consolidated total assets and 135.1% of consolidated shareholders’ equity as of December 31, 2007, and 84.5% of consolidated net revenues and $2.5 million gain out of $13.6 million loss from continuing operations for the year ended December 31, 2007. Based on that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2007.

        Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 has been audited by Kessleman & Kesselman, a member of PricewaterhouseCoopers International Limited, an independent registered public accounting firm, as stated in their report attached hereto.

        There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

        None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

MANAGEMENT

        The following table sets forth certain information regarding Ampal’s directors and executive officers as of March 5, 2008:

Name
Position
 
Yosef A. Maiman President, Chief Executive Officer, Chairman of the Board of Directors
Jack Bigio Director
Leo Malamud(1) Director
Dr. Joseph Yerushalmi(1) Director
Dr. Nimrod Novik Director
Yehuda Karni(1)(2)(3)(4) Director
Eitan Haber(2)(3)(4) Director
Menahem Morag(2)(3)(4) Director
Irit Eluz CFO, Senior Vice President - Finance and Treasurer
Yoram Firon Vice President - Investments and Corporate Affairs and Secretary
Amit Mantsur Vice President - Investments
Ofer Gilboa Vice President - Investments
Giora Bar-Nir Vice President - Accounting and Controller


        The numbers listed below, which follow the names of some of the foregoing directors, designate committee membership:

  (1) Member of the Executive Committee of the Board which meets as necessary between regularly scheduled Board meetings and, consistent with certain statutory limitations, exercises all the authority of the Board.

  (2) Member of the Audit Committee of the Board which reviews functions of the outside auditors, auditors’ fees and related matters. Mr. Karni is the Chairman of the Audit Committee of the Board.

  (3) Member of the Stock Option and Compensation Committee of the Board.

  (4) Member of the Special Committee of the Board.

        There are no family relationships between any of Ampal’s directors and executive officers.

        In 2007, the Board met 14 times and acted twice by written consent; the Executive Committee acted once by written consent; the Audit Committee met 6 times and did not act by written consent. The Stock Option and Compensation Committee met once and acted once by written consent. The Special Committee met twice and did not act by written consent. All directors but one attended more than 75% of the aggregate of (1) the total number of Board meetings held during the period in 2007 for which such individual was a director and (2) the total number of meetings held by all committees of the Board on which such individual served in 2007 (during the period of such service). Each director of the Board is elected for a one year term and serves until his or her successor is duly elected and qualified.

        The following sets forth the ages of all of the above-mentioned directors and executive officers, all positions and offices with Ampal or its subsidiaries held by each director and officer and principal occupations during the last five years.

        YOSEF A. MAIMAN, 62, has been the Chairman of the Board of Ampal since April 25, 2002 and President and Chief Executive Officer of Ampal since October 1, 2006. Mr. Maiman has been President and Chief Executive Officer of Merhav M.N.F. Ltd. (“Merhav”), one of the largest international project development companies based in Israel, since its founding in 1975. Mr. Maiman is the Chairman of the Board of Directors of Gadot. Mr. Maiman is also the Chairman of the Board of Directors of Channel Ten, a commercial television station in Israel, a director of Eltek, Ltd. (“Eltek”), a developer and manufacturer of printed circuit boards and Honorary Consul to Israel from Peru. Mr. Maiman is also a member of the Board of Trustees of the Tel Aviv University, Chairman of the Israeli Board of the Jaffee Center for Strategic Studies at Tel Aviv University, a member of the Board of Governors of Ben Gurion University, and the Chairman of the Board of Trustees of the International Policy Institute for Counter Terrorism.

        JACK BIGIO, 42 has been a director of Ampal since March 6, 2002. Mr. Bigio served as the President and Chief Executive Officer of Ampal between April 25, 2002 and September 30, 2006. From 1996 until April 2002, Mr. Bigio served as Senior Vice President – Operations and Finance of Merhav and from October 2006 Mr. Bigio serves as Senior Vice President of Merhav. Mr. Bigio is also a director of Eltek, a member of the Board of Israel-America Chamber of Commerce & Industry and a member of Young Presidents’ Organization.

36



        LEO MALAMUD, 56, has been a director of Ampal since March 6, 2002. Since 1995 Mr. Malamud is Senior Vice President of Merhav M.N.F. Ltd. Mr. Malamud is also a Director of Gadot, Channel 10, 10 News Ltd. and Nana 10 Ltd.

        Dr. JOSEPH YERUSHALMI, 70, has been a director of Ampal since August 16, 2002. Since 1995 Mr. Yerushalmi has been Senior Vice President – Head of Energy and Infrastructure Projects of Merhav M.N.F. Ltd. Mr. Yerushalmi is also a Director of Gadot.

        Dr. NIMROD NOVIK, 62, has been a director of Ampal since September 19, 2006. Dr. Novik has been Senior Vice President of Merhav M.N.F. Ltd. since 1995, responsible for Middle East projects (including the MIDOR petroleum refinery in Egypt and the current EMG project for the export of Egyptian natural gas to Israel) as well as for corporate and government relations. He is a member of the board of EMG and of Channel 10 News Corp. Mr. Novik is an advisor to the Israeli National Security Council as well as to several members of the Israeli cabinet, and a former Special Ambassador of the State of Israel as well as Chief Advisor on Foreign Policy to Israel’s Prime Minister and Minister of Foreign Affairs.

        YEHUDA KARNI, 79, has been a director of Ampal since August 16, 2002. Mr. Karni was a senior partner in the law firm of Firon Karni Sarov & Firon, from 1961 until his retirement in 2000.

        EITAN HABER, 68, has been a director of Ampal since August 16, 2002. Mr. Haber was the Head of Bureau for the former Prime Minister of Israel, Yitzhak Rabin, from July 1992 until November 1995. Since 1996, Mr. Haber has been the President and Chief Executive Officer of Geopol Ltd., which represents the Korean conglomerate Samsung Aircraft and Industries in Israel and the Middle East. Since 2001, Mr. Haber has also served as CEO of Kavim Ltd., a production and project development company. Mr. Haber is a member in the Board of Directors of Africa Israel Ltd. and “Israel Experience Co.”

        MENAHEM MORAG, 57, has been a director of Ampal since January 27, 2004. From 1996 to 1999 Mr. Morag was the Head of Finance and Budget at the Israeli Prime Minister’s office in Tel Aviv. From 1999 to 2001, Mr. Morag was the Controller and Ombudsman at the Israeli Prime Minister’s office in Tel Aviv. From 2001 to 2003, Mr. Morag was the Head of Human Resources Department at the Israeli Prime Minister’s office in Tel Aviv. Since 2003 until 2006, Mr. Morag served as the Head of the Council of the Pensioners Association of the Israeli Prime Minister’s office in Tel Aviv. Mr. Morag has also served as a director in Palram Industries from 2004 until 2006, and from 2005 until 2006 he was the CEO of Keren-Shemesh Foundation for the Encouragement of Young Entrepreneurs. Since 2006 Mr. Morag serves as a Deputy General Manager – Head of Resources Division of Union Bank of Israel Ltd. and as a director in several of the subsidiaries of Union Bank of Israel Ltd.

        IRIT ELUZ, 41, has been the Chief Financial Officer and Senior Vice President – Finance and Treasurer since October 2004. From May 2002 until October 2004, Ms. Eluz was Chief Financial Officer and Vice President – Finance and Treasurer. Ms. Eluz is a Director of Gadot. Since July 2006 Ms. Eluz is a Director of Kamor Ltd. From January 2000 until April 2002, Ms. Eluz was the Associate Chief Financial Officer of Merhav. From June 1995 until December 1999, Ms. Eluz was the Chief Financial Officer of Kamor Group.

        YORAM FIRON, 39, has been Secretary and Vice President – Investments and Corporate Affairs since May 2002. From 1998 until 2002, Mr. Firon was a Vice President of Merhav and before that a partner in the law firm of M. Firon & Co..

        AMIT MANTSUR, 38, has been Vice President – Investments since March 2003. Since August 2006 Mr. Mantsur is a Director of Valor Computerized Systems Ltd. From September 2000 until December 2002, Mr. Mantsur served as Strategy & Business Development Manager at Alrov Group. From February 1997 until September 2000, Mr. Mantsur was a projects manager at the Financial Advisory Services of KPMG Somekh Chaikin.

        OFER GILBOA, 43, has been Vice President – Investments since December 2007. Mr. Gilboa is a Director of Gadot. From 2003 until 2007, Mr. Gilboa served as Chief Financial Officer and Chief Operations Officer at MIRS Communications Ltd. From 1999 through 2002, Mr. Gilboa served as Controller and Financial Manager of Pelephone Communications Ltd.

        GIORA BAR-NIR, 51, has been Vice-President – Accounting and Controller since October 2004. From March 2002 until October 2004 Mr. Bar-Nir was the Controller. From 1999 until 2004, Mr. Bar-Nir was the Controller of the Israeli subsidiaries of Ampal.

AUDIT COMMITTEE

        The Company has an Audit Committee of the Board consisting of Messrs. Karni, Haber and Morag, each of whom is an independent director as defined under the rules of the National Association of Securities Dealers, Inc. and the rules promulgated by the Securities and Exchange Commission. The Board has determined that Mr. Morag is an “audit committee financial expert” for purposes of the rules promulgated by the Securities and Exchange Commission.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Ampal’s executive officers and directors, and persons who own more than 10% of a registered class of Ampal’s equity securities, to file with the Securities and Exchange Commission initial statements of beneficial ownership (Form 3), and statements of changes in beneficial ownership (Forms 4 and 5), of Class A Stock of Ampal. To the Company’s knowledge, based solely on its review of the copies of such forms received by it, all filing requirements applicable to its executive officers, directors and greater than 10-percent stockholders were complied with as of March 5, 2008.

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CODE OF ETHICS

        The Company has adopted a code of ethics (as defined in the rules promulgated under the Securities Exchange Act of 1934) that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, or person performing similar functions. A copy of the Company’s code of ethics is available on the Company’s website at www.ampal.com (the “Company’s Website”).

CODE OF CONDUCT

        The Company has adopted a code of conduct that applies to all of the Company’s employees, directors and officers. A copy of the code of conduct is available on the Company’s Website.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Objectives of Compensation Program

        This section contains a discussion of the material elements of compensation awarded to, earned by or paid to the principal executive and principal financial officers of the Company, and the other three most highly compensated executive officers of the Company. These individuals are referred to as the “Named Executive Officers” in this Report on Form 10-K.

        The objectives of our compensation program are (i) to attract and retain qualified personnel in the Israeli marketplace, (ii) to provide incentives and rewards for their contributions to the Company, and (iii) to align their interests with the long-term interests of the Company’s shareholders.

        Our Named Executive Officers compensation has three primary components: salary, an annual cash incentive bonus and stock option awards. In addition, we provide our Named Executive Officers with benefits that are generally available to our salaried employees.

        We determine the appropriate level for each compensation component based in part, but not exclusively, on competitive benchmarking consistent with a broad spectrum of companies in Israel and in the United States.

        Due to the small size of our executive team and the need to tailor each Named Executive Officer’s compensation package for retention and recruitment purposes, we have not adopted any formal policies or guidelines for allocating compensation between long term and currently payable compensation, between cash and non cash compensation or among different forms of compensation.

Responsibilities

        Prior to September 19, 2006, the Stock Option and Compensation Committee of the Board (the “Compensation Committee”) was responsible for determining all facets of executive compensation including annual base salary and bonuses for executive officers, administration of the Company’s 1998 Long Term Incentive Plan and the Company’s 2000 Incentive Plan (collectively, the “Option Plans”), and director compensation. The Compensation Committee is composed of independent directors as defined under the rules of NASDAQ and the SEC. The Compensation Committee does not operate pursuant to a written charter.

        On September 19, 2006, the members of the Board engaged in discussions regarding the appropriate scope of the responsibilities of the Compensation Committee in light of the Company’s “controlled company” status under the rules of NASDAQ and the fact that Mr. Yosef A. Maiman was appointed as the Chief Executive Officer of Ampal. During these discussions, the Board decided to re-allocate certain of the responsibilities with regard to executive compensation to Yosef A. Maiman, the Chairman, President and Chief Executive Officer.

        Effective as of September 19, 2006, the Board determined that the Compensation Committee will continue to be responsible for (i) administering the Option Plans and determining the officers and key employees who are to be granted options under the Option Plans and the number of shares subject to such options and (ii) determining the annual base salary and non-equity based annual bonus for Mr. Maiman in his capacity as Chairman, President and Chief Executive Officer.

        Effective as of September 19, 2006, the Board also determined that Mr. Maiman will be responsible for (i) determining the annual base salary and non-equity based annual bonuses for all executive officers (other than the Chief Executive Officer) and for (ii) recommending to the Board director compensation and benefit programs. Mr. Maiman also may attend and participate in meetings of the Compensation Committee.

        No outside compensation consultant is engaged by the Company at this time, although the Company may elect to do so in the future.

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Elements of Compensation

        The material elements of the Company’s executive compensation program for Named Executive Officers includes three primary components: salary, an annual cash incentive bonus and stock option awards, In addition, we provide our Named Executive Officers with benefits that are generally available to our salaried employees.

        Base Salary

        We set our salaries for our Named Executive Officers generally based on what we believe enables us to hire and retain individuals in the competitive environment in Israel and rewards individual performance and the contribution to our overall business goals. We also take into account the base salaries paid by similarly situated companies in Israel and in the United States with which we believe we generally compete for talent. There are no formal guidelines or formulas used by us to determine annual base salary for our Named Executive Officers, as annual salary determinations are made on a case by case basis from year to year to react to compensation market trends in Israel and to take into account the Named Executive Officer’s performance. Additionally, stock price performance has not been a factor in determining annual compensation because the price of the Company’s common stock is subject to a variety of factors outside our control. Our approach to annual base salary is designed to retain our Named Executive Officers so that they will continue to operate at high levels in the best interests of the Company.

        Determinations for annual base salary for the fiscal year ended December 31, 2007, were made by the Compensation Committee in consultation with Mr. Maiman and other executive officers.

        Annual Cash Incentive Bonus Compensation

        The non-equity based annual bonus compensation is based on each Named Executive Officer’s individual performance for the Company over the fiscal year, which is measured in terms of overall effort, performance and contribution to the Company. In the past, bonuses were based on a multiple of the Named Executive Officer’s base salary, but in the interest of flexibility, we no longer exclusively utilize this approach. In 2007, we considered the performance of our Named Executive Officers with respect to certain material transactions and the amount of funds raised during the year and allocated an amount among the Named Executive Officers who were involved in those special efforts. We take into account the amount of annual base salary paid to each Named Executive Officers in determining such Named Executive Officers’ non-equity based annual bonus compensation. Determinations for non-equity based annual bonus compensation for the fiscal year ended December 31, 2007 were made by Mr. Maiman.

        Long-Term Equity Incentive Compensation

        At this time, we do not award long-term equity incentive compensation to our Named Executive Officers on an annual basis, however we may elect to award this form of compensation in the future. Following the April 2002 acquisition by Y.M. Noy Investments Ltd. of a controlling interest in the Company, we awarded long-term equity incentive compensation in April 2002 to provide the new management team with incentives aligned with shareholder interests and in December 2004, in recognition of the Named Executive Officers’ assistance to a Special Committee of the Board of Directors that had been appointed to consider alternatives available to the Company to maximize shareholder value. In December 2006, the Stock Option Committee granted Mr. Maiman an option to acquire 250,000 shares of our Class A Stock for his service as Chairman of the Board. The amount of this award was consistent with the amount of the option grant previously awarded to Mr. Maiman in August 2002, which became fully vested in August 2006.

        While our current policy is to award option grants to our executive officers and directors, the awards granted under the Option Plans may be in the form of options, restricted stock, dividend equivalent awards and/or stock appreciation rights. There are no formal guidelines or formulas used by us to determine equity compensation awards for our Named Executive Officers.

        As stated above, the Compensation Committee is responsible for determining long-term equity incentive compensation in accordance with the Option Plans. Such determinations are made in consultation with Mr. Maiman and other executive officers from time to time.

        Perquisites

        As is customary in Israel, we provide each Named Executive Officer with the use of a car, mobile phone, one meal per day, telephone expenses, economic newspapers, and stipends for traveling out of the country from time to time. The value of the specific car an employee receives varies according to his or her pay grade within the Company.

        Additionally, consistent with practice in the Israeli marketplace, the Company reimburses the Named Executive Officers for a portion of the taxes associated with the use of the car and mobile phone.

        Severance and Change of Control Benefits

        Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances, including retirement. The Company’s severance pay is calculated based upon length of service and the latest monthly base salary (one month’s salary for each year worked). Severance pay is paid from a fund into which the Company contributes up to 8 1/3% of the employee’s base salary each month, in accordance with Israeli law and the customary practice in Israel. The Company’s liability for severance pay pursuant to Israeli law is partly offset by insurance policies, where the Named Executive Officers are the beneficiaries of such insurance policies.

39



        In addition to the above the Named Executive Officers are eligible to participate in a Pension Plan in which both the employee and the Company contribute up to 5% of the employee’s base salary each month. The Named Executive Officers are eligible to receive the fund upon termination of employment, including retirement.

        In addition to the above benefits, each of the employment agreements of certain executive officers provide that such executive officer shall receive an additional payment of six months’ salary (together with all related benefits for the six month period including social benefits, use of a vehicle, mobile telephone and any other rights accompanying the executive officer’s employment by the Company) in the event (i) of a change of control of Ampal and (ii) such executive officer’s employment is terminated within six months from the date of the change of control of Ampal. These arrangements were designed to provide these key employees with an additional benefit consistent with Israeli practice for employees in comparable positions.

        Pursuant to the terms of the employment agreements of each of the certain executive officers, following the termination of employment, such executive officers shall not be involved, directly or indirectly, with any business or entity that is in the field of the Company’s activities and/or is in direct competition in the field of the Company’s activities for a period of six months following the termination of employment. Furthermore, during the term of employment at the Company and for a period of twenty four months following the termination of employment, each of these executive officers shall abstain from providing services in any manner whatsoever, including consulting services, either paid or not paid, to any business or occupation in which the Company was involved.

        Education Fund

        The Named Executive Officers are eligible to participate in an education fund in which both the employee and the Company contribute up to 2.5% and 7.5% respectively of the employee’s base salary each month. The Named Executive Officers are eligible to receive the fund upon termination of employment, including retirement. The education fund contribution, which is customary in Israel, can be used by the Named Executive Officers at any time for professional education and every 6 years for any other purpose. As is customary in Israel, the Company also reimburses the Named Executive Officers for taxes associated with Company contributions to this fund beyond the maximum contributed amount allowed according to the Israel Tax law.

        Vacation Provision and Recreation Pay

        The Named Executive Officers are eligible to take one month vacation per year. Additionally, pursuant to Israeli employment laws, each Named Executive Officer is entitled to a certain amount of recreation pay to be used for any other purpose. Each Named Executive Officer is entitled to receive 13 days of recreation pay, which amounts to approximately $1,690 on an annual basis.

        Stock Ownership and Retention Guidelines

The Company does not have any stock ownership or retention guidelines or policies.

Summary Compensation Table
For Fiscal Year Ended December 31, 2007

The following table sets forth all of the compensation awards to our Named Executive Officers for the year ended December 31, 2007.

Name and Principal Position
Year
Salary
Bonus
Stock
Awards

Option
Awards
(9)

All Other
Compensation
(6)

Total (8)
$ $ $ $ $ $
 
Yosef A. Maiman (1) (7)                                
Chairmanof the Board, President and CEO    2007    890,344    1,092,044    -    147,903    24,272    2,154,563  

     2006    632,144    984,627    -    68,947    30,605 (11)  1,716,323  
   
Irit Eluz (2) (7)  
CFO - SVP  
Finance & Treasurer    2007    304,989    832,033    -    132,510    105,368    1,374,900  
     2006    263,848    673,692    -    152,664    152,928    1,243,133  
   
Yoram Firon (3) (7)  
Secretary, Vice  
President Investments    2007    227,470    182,007    -    89,918    86,153    585,548  
     2006    206,194    173,964    -    107,504    80,235    567,897  
   
Amit Mantsur (4)  
Vice President Investments    2007    155,486    62,402    -    35,396    55,236    308,521  
     2006    141,538    49,704    -    37,969    50,902    280,114  
   
Giora Bar Nir (5)  
Vice President Accounting &  
Controller    2007    167,574    31,201    -    14,198    64,444    277,416  
     2006    152,196    29,822    -    30,501    57,362    269,882  
   
Jack Bigio (7)(10)  
Former President & CEO    2006    388,346    206,580    -    148,935    662,570 (12)  1,406,431  

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(1) Mr. Maiman has been employed by Ampal since April 25, 2002 as Chairman of the Board; On September 19, 2006 Mr. Maiman was appointed as the President and CEO of Ampal.

(2) Ms. Eluz has been employed by Ampal since April 25, 2002.

(3) Mr. Firon has been employed by Ampal since April 25, 2002.

(4) Mr. Mantsur has been employed by Ampal since February 2, 2003.

(5) Mr. Bar-Nir has been employed by Ampal since June 17, 1990.

(6) Comprised of Ampal (Israel’s) contribution pursuant to: (i) Ampal (Israel’s) pension plan and (ii) Ampal (Israel’s) education fund and (iii) use of car and (iv) use of mobile and (v) final account settlement and (vi) redemption of vacation provision and (vii) reimbursed for the payment of taxes.

(7) Eligible to receive an additional payment of up to six months salary (i) in the event of a change of control of the Company and (ii) such executive officer’s employment is terminated within six months from the date of the change of control of the Company.

(8) All cash compensation is paid in New Israeli Shekels. The amounts in the table are converted from the New Israeli Shekel to U.S. dollars based on the exchange rate of 4.0355, which represents the exchange rate as of December 31, 2007.

(9) Represents the compensation cost in 2007 in accordance with SFAS No. 123R for stock options, which includes amounts from awards granted in and prior to 2007.

(10) Mr. Bigio served as President and CEO from April 25, 2002 until September 30, 2006. The amounts include final account settlement. Mr. Bigio exercised 150,000 options on October 4, 2006.

(11) Of such amount, for services as director, $22,000 was paid in cash.

(12) Of such amount, for services as director, $4,500 was paid in cash.

Outstanding Equity Awards
For Fiscal Year Ended December 31, 2007

Option Awards

Name
Number of
Securities
Underlying
Unexercised
Options
(Exercisable)
(1)

Number of
Securities
Underlying
Unexercised
Options
(Unexercisable)
(1)

Option
Exercise
Price
($)

Option
Expiration
Date

 
Yosef A. Maiman      250,000         3.12   August 15, 2012    
     62,500    187,500    5.06   December 11, 2016  
Irit Eluz    78,500         3.12   August 15, 2012  
     210,000    70,000    3.5   October 27, 2014  
Yoram Firon    68,500         3.12   August 15, 2012  
     142,500    47,500    3.5   October 27, 2014  
Amit Mantsur    58,000         3.69   February 12, 2013  
     11,250    3,750    3.5   October 27, 2014  
Giora Bar Nir    63,500         3.12   August 15, 2012  
     22,500    7,500    3.5   October 27, 2014  

(1) Options expire 10 years from the grant date and vest in sixteen equal installments on the three month anniversary of the date of grant and each three month period thereafter.

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Compensation of Directors

        Directors of Ampal (other than Mr. Maiman) receive $1,500 per Board meeting attended. The Chairman of the Board receives $2,000 per Board meeting attended. Directors of Ampal also receive the same amount for attendance at meetings of committees of the Board, provided that such committee meetings are on separate days and on a day other than the day of a regularly scheduled Board meeting.

        For attending Special Committee, Audit Committee and Executive Committee meetings Mr. Karni, the Chairman of the Special and the Audit Committee, is entitled to $30,000 per year. Each of Mr. Haber and Mr. Morag are entitled to $20,000 per year, for attending Special Committee and Audit Committee meetings.

        In connection with the formation of the Special Committee on October 28, 2004, the Company entered into an Indemnification and Compensation Agreement with each of Messrs. Karni, Haber and Morag. In consideration for serving as a member of the Special Committee, the Company has agreed pursuant to the terms of the Indemnification and Compensation Agreement, among other things, to indemnify and hold harmless each Director with respect to his service on, and any matter or transaction considered by, the Special Committee to the fullest extent authorized or permitted by law. A copy of the form of this Indemnification and Compensation Agreement is attached as Exhibit 10j to this Report.

        On September 3, 2007, the Stock Option and Compensation Committee of the Board approved the grant, pursuant to the Company’s 2000 Incentive Plan to each of Eitan Haber, Yehuda Karni and Menahem Morag, the Company’s non-employee directors, an option to purchase 90,000 shares of the Company’s Class A Stock. All of the foregoing options have an exercise price of $5.35 per share and will vest in equal installments beginning on December 12, 2007 and each three month anniversary thereafter. Additionally, the exercise price of these options may only be paid by the holders by having the Company withhold from the underlying option stock the number of shares having a fair market value equal to the exercise price.

Director Compensation
For Fiscal Year Ended December 31, 2007

Name
Fees Paid
in Cash ($)

Option(1)
Award
($)

Total ($)
 
Yehuda Karni (2)(3)(8)      46,500    53,720    100,220  
Menahem Morag (2)(4)(8)     25,500    53,720    79,220  
Eitan Haber (2)(3)(8)     27,000    53,720    80,720  
Leo Malamud (5)(8)     7,500    17,748    25,248  
Dr. Yossi Yerushalmi (6)(8)     12,000    47,329    59,329  
Dr. Nimrod Novik (7)(8)     12,000    106,490    118,490  
Jack Bigio    6,000    -    6,000  

(1) Represents the compensation cost in 2007 in accordance with SFAS 123(R) for stock options.

(2) In fiscal year 2007, Messrs. Karni, Morag and Haber were each granted an option to purchase 90,000 shares of our Class A Stock, each with a grant date fair value of $204,598. In fiscal 2006, Messrs. Karni, Morag and Haber were each granted an option to purchase 30,000 shares of our Class A Stock, each with a grant date fair value of $70.993.

(3) In fiscal 2002, Messrs. Karni and Haber were each granted an option to purchase 15,000 shares of our Class A Stock, each with a grant date fair value of $24,299.

(4) In fiscal 2004, Mr. Morag was granted an option to purchase 15,000 shares of our Class A Stock, with a grant date fair value of $31,935.

(5) In fiscal 2006, Mr. Malamud was granted an option to purchase 30,000 shares of our Class A Stock, with a grant date fair value of $70,993. In fiscal 2002, Mr. Malamud was granted an option to purchase 150,000 shares of our Class A Stock, with a grant date fair value of $242,994.

(6) In fiscal 2006, Mr. Yerushalmi was granted an option to purchase 80,000 shares of our Class A Stock, with a grant date fair value of $189,315. In fiscal 2002, Mr. Yerushalmi was granted an option to purchase 100,000 shares of our Class A Stock, with a grant date fair value of $161,996.

(7) In fiscal 2006, Mr. Novik was granted an option to purchase 180,000 shares of our Class A Stock, with a grant date fair value of $425,960.

(8) On December 12, 2006, the Stock Option and Compensation Committee of the Board approved the grant, pursuant to the Company’s 2000 Incentive Plan to (i) Yosef A. Maiman an option to purchase 250,000 shares of the Company’s Class A Stock (ii) Nimrod Novik an option to purchase 180,000 shares of the Company’s Class A Stock, (iii) Joseph Yerushalmi an option to purchase 80,000 options, (iv) Leo Malamud an option to purchase 30,000 shares of the Company’s Class A Stock and (v) each of Eitan Haber, Yehuda Karni and Menahem Morag, the Company’s non-employee directors, an option to purchase 30,000 shares of the Company’s Class A Stock. All of the foregoing options have an exercise price of $5.06 per share and will vest in equal installments beginning on March 12, 2007 and each three month anniversary thereafter. Additionally, the exercise price of these options may only be paid by the holders by having the Company withhold from the underlying option stock the number of shares having a fair market value equal to the exercise price.

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        The following table sets forth certain information regarding stock options granted to purchase our Class A Stock to our directors during the fiscal year ended December 31, 2007.

2007
 
Eitan Haber (1)      90,000  
Yehuda Karni (1)    90,000  
Menahem Morag (2)    90,000  

(1) Director since August 16, 2002.

(2) Director since January 27, 2004.

Stock Option Plan

        In March 1998, the Board approved a Long-Term Incentive Plan (“1998 Plan”) permitting the granting of options to all employees, officers, directors and consultants of the Company and its subsidiaries to purchase up to an aggregate of 400,000 shares of Class A Stock. The 1998 Plan was approved by a majority of the Company’s shareholders at the June 19, 1998 annual meeting of shareholders. The 1998 Plan remains in effect for a period of ten years. As of December 31, 2006, no options of the 1998 Plan are outstanding.

        On February 15, 2000, the Compensation Committee approved a new Incentive Plan (“2000 Plan”), under which the Company has reserved 4 million shares of Class A Stock, permitting the granting of options to all employees, officers and directors. The 2000 Plan was approved by the Board of Directors at a meeting held on March 27, 2000 and was approved by a majority of the Company’s shareholders at the June 29, 2000 annual meeting of shareholders. The 2000 Plan remains in effect for a period of ten years. As of December 31, 2007, 2,434,500 options of the 2000 Plan are outstanding.

        The options granted under the 1998 Plan and the 2000 Plan (collectively, the “Plans”) may be either incentive stock options, at an exercise price to be determined by the Compensation Committee but not less than 100% of the fair market value of the underlying options on the date of grant, or non-incentive stock options, at an exercise price to be determined by the Compensation Committee. The Compensation Committee may also grant, at its discretion, “restricted stock,” “dividend equivalent awards,” which entitle the recipient to receive dividends in the form of Class A Stock, cash or a combination of both and “stock appreciation rights,” which permit the recipient to receive an amount in the form of Class A Stock, cash or a combination of both, equal to the number of shares of Class A Stock with respect to which the rights are exercised multiplied by the excess of the fair market value of the Class A Stock on the exercise date over the exercise price. The options granted under the Plans were granted either at market value or above.

        Under each of the Plans, all granted but unvested options become immediately exercisable upon the occurrence of a change in control of the Company. Prior to January 1, 2006, the Company accounted for all plans under APB Opinion No. 25, under which no compensation costs were incurred in the years ended December 31, 2004 and 2005. If compensation cost for the options under the above Plans had been determined in accordance with SFAS No. 123, the Company’s net income (loss) would have been ($6.8 million) and ($19.0 million) for the years 2005 and 2004, respectively.

        Effective January 1, 2006, the Company adopted SFAS No. 123R SFAS No. 123R, which revises SFAS No. 123, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, over the requisite service period. For the year ended December 31, 2007 the Company recorded $782,000 as compensation expenses.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The current members of Compensation Committee are Mr. Yehuda Karni, Mr. Eitan Haber and Mr. Menahem Morag, none of whom is an officer or employee or former officer or employee of the Company. During 2007, no executive officer of the Company served on the compensation committee or the Board of Directors of another entity whose executive officer(s) served on the Company’s Compensation Committee for the Board of Directors.

        Effective as of September 19, 2006, the Board determined that Mr. Yosef A. Maiman, our President and CEO, shall be responsible for (i) determining the annual base salary and non-equity based annual bonuses for all executive officers (other than the Chief Executive Officer) and for (ii) recommending to the Board director compensation and benefit programs. The Stock Option and Compensation Committee shall continue to be responsible for (i) administering the Option Plans and determining the officers and key employees who are to be granted options under the Option Plans and the number of shares subject to such options and (ii) determining the annual base salary and non-equity based annual bonus for Mr. Maiman in his capacity as Chairman, President and Chief Executive Officer. Mr. Maiman also may attend and participate in meetings of the Stock Option Committee.

COMPENSATION COMMITTEE REPORT

        The Stock Option and Compensation Committee and Yosef A. Maiman have reviewed and discussed the Compensation Discussion and Analysis required by Regulation S-K, Item 402(b) with management. Based on the review and discussions referred to in the preceding sentence, the Stock Option and Compensation Committee and Yosef A. Maiman recommended to the board of directors that the Compensation Discussion and Analysis be included in this Report.

Yehuda Karni
Eitan Harber
Menahem Morag
Yosef A. Maiman

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information(1)
Plan category
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding options,
warrants and rights

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))

(a) (b) (c)
 
Equity compensation plans approved by security                
   holders    2,434,500    4.0    2,434,500 (2)
   
Equity compensation plans not approved by  
   security holders    N/A    N/A    N/A  
   
     Total    2,434,500    4.0    2,434,500  

  (1) All information provided as of December 31, 2007.

  (2) The number of securities remaining available for future issuance under 1998 Plan is 388,000. The number of securities remaining available for future issuance under 2000 Plan is 1,138,625.

44



PRINCIPAL SHAREHOLDERS OF AMPAL

        The following table sets forth information as of March 5, 2008, as to the holders known to Ampal who beneficially own more than 5% of the Class A Stock, the only outstanding series of voting securities of Ampal. As of March 5, 2008, there were 57,702,532 (not including treasury shares) shares of Class A Stock of Ampal outstanding.

Security Ownership of Certain Beneficial Owners

Name and Address
of Beneficial Owner

Title of Class
Number of Shares
and Nature
of Beneficial Ownership

Percent
of Outstanding
Shares of
Class A Stock

 
Di-Rapallo Holdings Ltd., of                  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    9,650,132 (1)  16.72 %
   
De-Majorca Holdings Ltd., of  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    18,850,153 (2)  32.67 %
   
Yosef A. Maiman  
Y.M. Noy Investments Ltd., of  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    33,304,799 (1)(2)(3)  57.39 %
   
Ohad Maiman  
Y.M. Noy Investments Ltd., of  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    28,500,285 (1)(2)  49.39 %
   
Noa Maiman  
Y.M. Noy Investments Ltd., of  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    28,500,285 (1)(2)  49.39 %
   
Yoav Maiman  
Y.M. Noy Investments Ltd., of  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    28,500,285 (1)(2)  49.39 %
   
Merhav M.N.F. Ltd.  
33 Havazelet Hasharon St.,  
Herzliya, Israel   Class A Stock    4,476,389 (4)  7.76 %
   
Clal Finance Ltd.  
and  
Clal Insurance Enterprises Holdings Ltd.  
37 Menachem Begin St.,  
Tel-Aviv 65220, Israel   Class A Stock    3,326,905 (5)  5.78 %

  (1) Consists of 9,650,132 shares of Class A Stock held directly by Di-Rapallo Holdings Ltd. Yosef A. Maiman owns 100% of the economic shares and one-fourth of the voting shares of Di-Rapallo Holdings Ltd. In addition, Mr. Maiman holds an option to acquire the remaining three quarters of the voting shares of Di-Rapallo Holdings Ltd. (which are currently owned by Ohad Maiman, Noa Maiman and Yoav Maiman, the son, daughter and son, respectively, of Mr. Maiman).

  (2) Consists of 18,850,153 shares of Class A Stock held directly by De-Majorca Holdings Ltd. Yosef A. Maiman owns 100% of the economic shares and one-fourth of the voting shares of De-Majorca Holdings Ltd. In addition, Mr. Maiman holds an option to acquire the remaining three quarters of the voting shares of De-Majorca Holdings Ltd. (which are currently owned by Ohad Maiman, Noa Maiman and Yoav Maiman, the son, daughter and son, respectively, of Mr. Maiman).

45



  (3) Includes 328,125 shares of Class A Stock underlying options which are currently exercisable or exercisable within 60 days of March 5, 2008, by Mr. Maiman and 4,476,389 shares of Class A Stock held directly by Merhav M.N.F Ltd. Yosef A. Maiman owns 100% of Merhav M.N.F Ltd.

  (4) Yosef A. Maiman owns 100% of Merhav M.N.F Ltd.

  (5) Consists of 276,092 shares of Class A Stock beneficially owned by Clal Finance Ltd. (“Clal Finance”), of which 145,515 shares of Class A Stock are held for its own account; and 3,050,813 shares of Class A Stock beneficially owned by Clal Insurance Enterprises Holdings Ltd. (“Clal”), of which (i) 2,490,895 shares of Class A Stock are held for members of the public through, among others, provident funds, mutual funds, pension funds and insurance policies, which are managed by subsidiaries of Clal, each of which subsidiaries operates under independent management and makes independent voting and investment decisions, (ii) 182 shares of Class A Stock are held by unaffiliated third-party client accounts managed by Clal Finance Batucha Investment Management Ltd. (“CFB”) as portfolio managers, each of which subsidiaries operates under independent management and makes investment decisions independent of Clal and has no voting power in such client accounts, and (iii) 559,736 shares of Class A Stock are beneficially held for its own account.

  Clal Finance is a majority owned subsidiary of Clal. Through Clal Finance’s wholly owned subsidiary, CFB, Clal may be deemed to beneficially own 182 Common Stock (the “CFB Shares”). Clal may be deemed to beneficially own an aggregate of 3,050,813 Common Stock (the “Clal Shares”). The CFB Shares are included in the Clal Shares. Clal is a majority owned subsidiary of IDB Development Corporation Ltd., an Israeli public corporation (“IDB Development”). By reason of IDB Development’s control of Clal, IDB Development may be deemed to be the beneficial owner of, and to share the power to vote and dispose of, the shares of Class A Stock owned beneficially by Clal. IDB Development is a majority owned subsidiary of IDB Holding Corporation Ltd., an Israeli public corporation (“IDB Holding”). By reason of IDB Holding’s control (through IDB Development) of Clal, IDB Holding may be deemed beneficial owner of, and to share the power to vote and dispose of, the shares of Class A Stock owned beneficially by Clal. Mr. Nochi Dankner, Mrs. Shelly Bergman, Mrs. Ruth Manor and Mr. Avraham Livnat may, by reason of their interests in, and relationships among them with respect to, IDB Holding, be deemed to control the corporations referred to in this footnote. By reason of the control of IDB Holding by Nochi Dankner, Shelly Bergman, Ruth Manor and Avraham Livnat, and the relations among them, Nochi Dankner, Shelly Bergman, Ruth Manor and Avraham Livnat may each be deemed beneficial owner of, and to share the power to vote and dispose of, the shares of Class A Stock owned beneficially by Clal.

  The information regarding the holdings of Clal Finance and Clal, and the beneficial ownership thereof, is based upon a Schedule 13G filed by Clal with the SEC on February 14, 2008.

Security Ownership of Management

        The following table sets forth information as of March 5, 2008 as to each class of equity securities of Ampal or any of its subsidiaries beneficially owned by each director and named executive officer of Ampal listed in the Summary Compensation Table and by all directors and named executive officers of Ampal as a group. All ownership is direct unless otherwise noted. The table does not include directors or named executive officers who do not own any such shares:

Name
Number of Shares and
Nature of Beneficial
Ownership
of Class A Stock

Percent of
Outstanding
Shares of
Class A Stock

 
Yosef Maiman      33,304,799 (1)(2)  56.18 %
Irit Eluz    323,500 (2)  *  
Yoram Firon    234,750 (2)  *  
Amit Mantsur    71,125 (2)  *  
Leo Malamud    159,375 (2)  *  
Dr. Joseph Yerushalmi    125,000 (2)  *  
Dr. Nimrod Novik    56,250 (2)  *  
Eitan Haber    63,750 (2)  *  
Yehuda Karni    63,750 (2)  *  
Menahem Morag    63,750 (2)  *  
Giora Bar-Nir    89,750 (2)  *  
Jack Bigio    150,000 (2)  *  
All Directors and Executive Officers as a Group    34,705,799 (2)  58.54 %

46



* Represents less than 1% of the class of securities.

(1) Attributable to 9,650,132, 18,850,153 and 4,476,389 shares of Class A Stock held directly by Di-Rapallo Holdings Ltd., De-Majorca Holdings Ltd. and Merhav M.N.F Ltd., respectively. See “Security Ownership of Certain Beneficial Owners.” In addition, this represents 328,125 shares underlying options for Yosef Maiman which are presently exercisable or exercisable within 60 days of March 5 2008.

(2) Represents shares underlying options which are presently exercisable or exercisable within 60 days of March 5, 2008.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        On December 25, 2007, Ampal entered into an Option Agreement (the “Option Agreement”) with Merhav M.N.F. Ltd. providing Ampal with the option to acquire up to a 35% equity interest in a sugarcane ethanol production project (the “Project”) in Colombia being developed by Merhav M.N.F. Ltd. The option expires on the earlier of December 25, 2008 or the date on which both (i) Merhav M.N.F. Ltd. has obtained third-party debt financing for the Project and (ii) an unaffiliated third party holds at least a 25% equity interest in the Project. The Option Agreement provides that the purchase price for any interest in the Project purchased by Ampal pursuant to the Option Agreement will be (A) with respect to any portion of such interest being purchased by conversion of the outstanding balance of the Promissory Note referred to below, the lesser of (i) a price based on a currently agreed valuation model as updated from time to time to reflect changes in project, financing and other similar costs (the “Valuation Model”) as such updates are reviewed by Houlihan Lokey Howard & Zukin Financial Advisors, Inc. at the time of the option’s exercise or (ii) the lowest price paid by any unaffiliated third party for an interest in the Project, or (B) with respect to any portion of such interest in the Project being purchased in excess of the balance of the Promissory Note, the lowest price paid by an unaffiliated third party for its interest in the Project, unless no unaffiliated third party has purchased an interest in the Project, in which case the purchase price will be based on the Valuation Model.

        Ampal has loaned Merhav M.N.F. Ltd. $10 million to fund the purchase of the 11,000 hectares of property in Colombia required for growing sugarcane and the construction of an ethanol production facility for the Project, pursuant to a Promissory Note, dated as of December 25, 2007, by Merhav M.N.F. Ltd. in favor of Ampal (the “Promissory Note”). Ampal has agreed to advance up to an additional $10 million to fund the Project pursuant to the Promissory Note. The loan bears interest at an annual rate equal to LIBOR plus 2.25%, and will be convertible into all or a portion of the equity interest purchased pursuant to the option.

        As security for the loan, Merhav M.N.F. Ltd. has pledged to Ampal, pursuant to a pledge agreement, dated December 25, 2007, between Merhav M.N.F. Ltd. and Ampal, all of the shares of Ampal’s Class A Stock, par value $1.00 per share, owned by Merhav.

        Yosef A. Maiman, the Chairman, President and CEO of Ampal and a member of the controlling shareholders group of Ampal, is the sole owner of Merhav M.N.F. Ltd. Because of the foregoing relationship, a special committee of the Board of Directors composed of Ampal’s independent directors negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which has been retained as financial advisor to the special committee, advised the special committee on this transaction.

        On November 29, 2007, Ampal and IIF, leading a group of institutional Investors, purchased a 4.3% interest in EMG, through Merhav Ampal Energy Holdings, LP, an Israeli limited partnership (the “Joint Venture”), from Merhav M.N.F. Ltd. for a purchase price of approximately $95.4 million, using funds provided by the Investors. In addition to the Joint Venture’s purchase from Merhav M.N.F. Ltd., Ampal contributed into the Joint Venture an additional 4.3% interest in EMG already held by Ampal. The Joint Venture now holds a total of 8.6% of the outstanding shares of EMG. Ampal’s contribution was valued at the same price per EMG share as the Joint Venture’s purchase. This amount is equivalent to the purchase price (on a per share basis) paid by Ampal for its December 2006 purchase of EMG shares from Merhav M.N.F. Ltd., which was accounted for as a transfer of assets between entities under common control, which resulted in Merhav M.N.F. Ltd. transferring the investment in EMG to Ampal at carrying value. Due to the nature of Merhav M.N.F. Ltd.‘s operations, Merhav M.N.F. Ltd. would be treated as an investment company under US GAAP, and as such, the carrying value of the investment in EMG would equal fair value. On this basis, the said investment in EMG was transferred to Ampal at carrying value, which also equals fair value.

        The Company’s Financial Statements reflect a 16.8% interest in shares of EMG, with 8.2% held directly and 8.6% held through the Joint Venture (of which Ampal owns 50%).

        On September 20, 2007, Merhav M.N.F. Ltd. exercised its option to convert the outstanding balance of $20.8 million (which includes accrued interest of $0.8 million) on the convertible promissory note issued to it as partial consideration for the purchase of a 5.9% interest in EMG by Ampal in December 2006, into 4,476,389 shares of Class A Stock of Ampal. The issuance of the 4,476,389 shares underlying the Convertible Promissory Note received the approval of the shareholders of the Company on February 7, 2007, as required by the marketplace rules of the NASDAQ Global Market.

47



        Yosef A. Maiman, the Chairman, President and CEO of the Company and a member of the controlling shareholder group of the Company, is the sole owner of Merhav M.N.F. Ltd.

Review and Approval of Transactions with Management and Others

        Pursuant to its written charter and the marketplace rules of the NASDAQ Global Market, the Audit Committee must review with management and approve all transactions or courses of dealing with parties related to the Company. In determining whether to approve a related person transaction, the Audit Committee will consider a number of factors including whether the related person transaction is on terms and conditions no less favorable to us than may reasonably be expected in arm’s-length transactions with unrelated parties. The Audit Committee has the authority to engage independent legal, financial and other advisors. A special committee of the Board of Directors composed of the Company’s independent directors, who also constitute all of the members of the Company’s Audit Committee, has reviewed and approved the terms of each of the transactions described above.

Director Independence

        Because a “group” of shareholders (as defined under Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended) consisting of Yosef A. Maiman, Ohad Maiman, Noa Maiman, and Yoav Maiman, and the companies Merhav M.N.F. Ltd., De Majorca Holdings Ltd. and Di-Rapallo Holdings Ltd. beneficially owns more than 50% of the voting power in the Company, the Company is deemed to be a “controlled company” under the rules of the NASDAQ Global Market. As a result, we are exempt from the NASDAQ rules that require listed companies to have (i) a majority of independent directors on the Board of Directors, (ii) a compensation committee and nominating committee composed solely of independent directors, (iii) the compensation of executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors and (iv) a majority of the independent directors or a nominating committee composed solely of independent directors elect or recommend director nominees for selection by the Board of Directors. The Company has an Audit Committee of the Board consisting of Messrs. Karni, Haber and Morag, each of whom is an independent director as defined under the rules of the National Association of Securities Dealers, Inc. and the rules promulgated by the Securities and Exchange Commission. Other than the members of the Audit Committee, there are no other independent directors that serve on the Board of Directors.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

        AUDIT FEES. The fees of Kesselman & Kesselman (“Kesselman”) CPA (ISR) for professional services rendered for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2007 and December 31, 2006 and reviewing the financial statements included in the Company’s quarterly reports on Form 10-Q were $ 477,000 and $276,000, respectively.

        AUDIT – RELATED FEES . Kesselman’s fees for audit related services for the fiscal year ended December 31, 2007 was $44,000. There was no audit-related fees for the fiscal year ended December 31, 2006.

        TAX FEES. Kesselman’s tax fees for the fiscal years ended December 31, 2007 and December 31, 2006, were $ 53,665 and $205,000, respectively.

        ALL OTHER FEES – Kesselman’s fees for other services for the fiscal years ended December 31, 2007 and December 31, 2006, were $309,142 and $316,500, respectively

        All of the services provided to Ampal by our principal accounting firm described above under the captions “Audit Fees”, “Tax Fees” and “All Other Fees” were approved by Ampal’s Audit Committee. The Audit Committee has determined that the rendering of professional services described above by Kesselman is compatible with maintaining the auditor’s independence.

Audit Committee Pre-Approval Policies

        The Company’s Audit Committee Charter provides that the Audit Committee shall approve in advance all audit services and all non-audit services provided by the independent auditors based on policies and procedures developed by the Audit Committee from time to time. The Audit Committee will not approve any non-audit services prohibited by applicable SEC regulations or any services in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported by the Internal Revenue Code and related regulations.

        Our Audit Committee requires that our independent auditor, in conjunction with our Chief Financial Officer, be responsible for seeking pre-approval for providing services to us and that any request for pre-approval must inform the Audit Committee about each service to be provided and must provide detail as to the particular service to be provided.

48



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this report:

Page
Reference

(1) Financial Statements and Supplementary Data  
 
     Ampal-American Israel Corporation and Subsidiaries
 
             Report of Independent Registered Public Accounting Firm 1
 
             Consolidated Balance Sheets as of December 31, 2007 and 2006 3
 
             Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 5
 
             Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 6
 
             Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2007, 2006 and 2005 9
 
             Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005
               (included as part of the Statements of Changes in Shareholders' Equity for the respective years) 9
 
             Notes to Consolidated Financial Statements 12
 
     Supplementary Data:
 
             Selected quarterly financial data for the years ended December 31, 2007 and 2006 28 of
annual
report

(2) Financial Statement Schedules

  (i) Schedule of Representative Rates of Exchange between the U.S. dollar and New Israeli Shekel for three years ended December 31, 2007:

Representative Rates of Exchange
Between the U.S. dollar and the New Israeli Shekel
For the Three Years Ended December 31, 2007

  The following table shows the amount of New Israeli Shekels equivalent to one U.S. dollar on the dates indicated (or the nearest date thereto, if the exchange rate was not publicized on that date):

2007
2006
2005
 
March 31      4.155    4.665    4.361  
June 30    4.249    4.440    4.574  
September 30    4.013    4.302    4.598  
December 31    3.846    4.225    4.603  

  (ii) Consolidated financial statements filed pursuant to Rule 3-09 of Regulation S-X:

  Bay Heart Ltd.
  Report of Certified Public Accountants
Consolidated Balance Sheets as at December 31, 2006 and 2005
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
Notes to Financial Statements

49



  Coral World International Ltd.
  Report of Certified Public Accountants
Consolidated Balance Sheets as at December 31, 2006 and 2005
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
Notes to Financial Statements

  Ophir Holdings Ltd.
  Report of Certified Public Accountants
Consolidated Balance Sheets as at December 31, 2006 and 2005
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
Notes to Financial Statements

  Ophirtech Ltd.
  Report of Certified Public Accountants
Consolidated Balance Sheets as at December 31, 2005 and 2004
Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2005, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
Notes to Financial Statements

  (iii) Reports of Other Certified Public Accountants filed pursuant to Rule 2-05 of Regulation S-X:

  Bay Heart Ltd.
Carmel Container Systems Ltd.
C.D Packaging System Ltd.
Eurochem Maritime B.V.
Chem Tankers Management B.V.
Hod Hasharon Sport Center Ltd.
Hod Hasharon Sport Center (1992) Limited Partnership

Exhibit 2 – Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession

2a. Purchase and Sale Agreement, dated January 5, 1998, between Ampal Communications, Inc. and Motorola Communications Israel Ltd. (Includes as Exhibit A the form of Partnership Agreement between Ampal Communications, Inc. and Motorola Communications Israel Ltd. and as Exhibit B the form of Shareholders’ Agreement between Ampal Communications, Inc. and Motorola Communications Israel Ltd.) (Filed as Exhibit 2 to a Current Report on Form 8-K, dated February 5, 1998, and incorporated herein by reference, File No. 0-538.)

2b. Amendment, dated January 22, 1998, to (i) Purchase and Sale Agreement, dated January 5, 1998, between Ampal Communications, Inc. and Motorola Communications Israel Ltd., (ii) Partnership Agreement between Ampal Communications, Inc. and Motorola Communications Israel Ltd. and (iii) form of Shareholders’ Agreement between Ampal Communications, Inc. and Motorola Communications Israel Ltd. (Filed as Exhibit 2a to a Current Report on Form 8-K, dated February 5, 1998, and incorporated herein by reference, File No. 0-538.)

Exhibit 3 – Articles of Incorporation and By-Laws

3a. Amended and Restated Certificate of Incorporation of Ampal-American Israel Corporation, dated May 28, 1997. (Filed as Exhibit 3a. to Form 10-Q, for the quarter ended June 30, 1997 and incorporated herein by reference, File No. 0-5380).

3b. Certificate of Amendment of Certificate of Incorporation, dated July 18, 2006 (Filed as Exhibit 3.1 to Form 8-K, filed with the SEC on July 19, 2006, and incorporated herein by reference).

3c. Certificate of Amendment of Certificate of Incorporation, dated July 18, 2006 (Filed as Exhibit 3.1 to Form 8-K, filed with the SEC on July 19, 2006, and incorporated herein by reference).

50



3d. Certificate of Amendment of Certificate of Incorporation, dated February 7, 2007 (Filed as Exhibit 3.4 to Form S-3, filed with the SEC on February 28, 2007, and incorporated herein by reference).

3e. By-Laws of Ampal-American Israel Corporation as amended, dated February 14, 2002 (incorporated by reference to Exhibit 3b. of Ampal’s Form 10-K filed on March 27, 2002).

Exhibit 4 – Instruments Defining the Rights of Security Holders, Including Indentures

4a. Form of Indenture dated as of November 1, 1984. (Filed as Exhibit 4a. to Registration Statement No. 2-88582 and incorporated herein by reference).

4b. Form of Indenture dated as of May 1, 1986. (Filed as Exhibit 4a. to Pre-Effective Amendment No. 1 to Registration Statement No. 33-5578 and incorporated herein by reference).

4c. English translation of the original Hebrew language Trust Deed dated November 20, 2006 between Ampal-American Israel Corporation and Hermetic Trust (1975) Ltd. for debt offering. (Filed as Exhibit 4c to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

Exhibit 10 – Material Contracts

10a. Agreement, dated March 22, 1993, between the Investment Company of Bank Leumi, Ltd., and Ophir Holdings Ltd., Mercazim Investments Ltd., Diur B.P. Ltd. and Mivnat Holdings Ltd. (Filed as Exhibit 10.4 to Pre-Effective Amendment No. 1 to Registration Statement No. 33-51023 and incorporated herein by reference).

10b. Agreement, dated March 30, 1994, between Poalim Investments Ltd., Ampal (Israel) Ltd. and Ampal Industries (Israel) Ltd. (Translation). (Filed as Exhibit 10l, to Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference, File No. 0-538).

10c. Loan Agreement, dated April 27, 1998, between Bank Hapoalim Ltd. and Ampal Communications Limited Partnership (Filed as Exhibit 10.1 to Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-538).

10d. Form of Loan Agreement between Ampal Communications Limited Partnership and Bank Leumi Le-Israel B.M. (Filed as Exhibit 10.2 to Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-538).

10e. Sale and Purchase Agreement, dated November 8, 2000, between Ampal Realty Corporation and Second 800 LLC. (Filed as Exhibit 10I to Form 10-K for the fiscal year ended December 31, 2002, File No. 000-00538).

10f. The Company’s 1998 Long-Term Incentive Plan (Filed as Exhibit A to the Company’s Proxy Statement for the 1998 Annual Meeting of Shareholders).*

10g. The Company’s 2000 Incentive Plan (Filed as an exhibit to the Company’s Proxy Statement for the 2000 Annual Meeting of Shareholders).*

10h. Amendment to the Company’s 1998 Long Term Incentive Plan adopted by the Board of Directors on February 14, 2002.* (Filed as Exhibit 10h to the report on Form 10K. Filed on March 27, 2003).

10i. Amendment to the Company’s 2000 Incentive Plan adopted by the Board of Directors on February 14, 2002.* (Filed as Exhibit 10i to the report on Form 10K. Filed on March 27, 2003).

10j. Compensation and Indemnification Agreement, dated as of December 13, 2004, between Ampal-American Israel Corporation and each of Mr. Yehuda Karni, Mr. Eitan Haber and Mr. Menachem Morag. (Filed as Exhibit 10j to the report on Form 10K. Filed on March 15, 2005).

10k. Stock Option Cancellation Agreement, dated as of November 30, 2004, between Ampal-American Israel Corporation and Dafna Sharir. (Filed as Exhibit 10k to the report on Form 10K. Filed on March 15, 2005).

10l. Omnibus Agreement, dated as of December 1, 2005, between Merhav Ampal Energy Ltd. and Merhav M.N.F. Ltd. (Filed as Exhibit 10l to the report on Form 10K filed on March 29, 2006).

10m. Stock Purchase and Indemnification Agreement, dated as of August 30, 2005, by and among Motorola Israeli Ltd., Ampal Communications Limited Partnership and MIRS Communications Ltd. (Filed as Exhibit 99.1 of Form 8-K, filed with the SEC on October 3, 2005, and incorporated herein by reference).

10n. Form of Option Agreement pursuant to the 2000 Incentive Plan (Filed as Exhibit 99.1 of Form 8-K, filed with the SEC on October 11, 2005, and incorporated herein by reference).

10o. Form of Option Agreement for December 12, 2006 grants pursuant to the 2000 Incentive Plan. (Filed as Exhibit 10o to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

51



10p. Stock Purchase Agreement between Merhav Ampal Energy Ltd.and Merhav M.N.F. Ltd., dated August 1, 2006 (Filed as Exhibit 10 of Form 8-K, filed with the SEC on August 3, 2006, an incorporated herein by reference).

10q. Stock Purchase Agreement between Merhav Ampal Energy Ltd. and Merhav M.N.F. Ltd., dated November 28, 2006 (Filed as Exhibit 10.1 to Form 8-K, filed with the SEC on December 1, 2006, and incorporated herein by reference).

10r. Agreement of Certain Shareholders between Merhav Ampal Energy Ltd. and Merhav M.N.F. Ltd. dated August 1, 2006. (Filed as Exhibit 10r to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

10s. Form of Convertible Promissory Note between Ampal-American Israel Corporation and Merhav M.N.F. Ltd. (Filed as Exhibit 10.2 to Form 8-K, filed with the SEC on December 1, 2006, and incorporated herein by reference).

10t. Form of Securities Purchase Agreement, dated as of November 28, 2006, between Ampal-American Israel Corporation and certain investors (Filed as Exhibit 10.1 of 8-K, filed with the SEC on January 3, 2007, and incorporated herein by reference).

10u. Form of Warrant Agreement, dated as of December 28, 2006, between Ampal-American Israel Corporation and certain investors (Filed as Exhibit 10.2 of 8-K, filed with the SEC on January 3, 2007, and incorporated herein by reference).

10v. Form of Registration Rights Agreement, dated as of December 28, 2006, between Ampal-American Israel Corporation and certain investors (Filed as Exhibit 10.3 of 8-K, filed with the SEC on January 3, 2007, and incorporated herein by reference).

10w. Share Sale and Purchase Agreements dated May 22, 2006, between Ampal-American Israel Corporation and Red Sea Underwater Observatory Ltd. for the sale of Coral World International Ltd. shares and Ted Sea Marinland Holdings 1973 Ltd. (Filed as Exhibit 10w to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

10x. English translation of the original Hebrew language Form of Employment Agreement for each of Yosef A. Maiman, Jack Bigio, Irit Eluz, Yoram Firon and Amit Mantsur.* (Filed as Exhibit 10x to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

10y. English translation of the original Hebrew language Employment Agreement for Giora Bar-Nir.*(Filed as Exhibit 10y to Report on Form 10-K for the fiscal year ended December 31, 2006, File No. 000-00538)

10z. English translation of the original Hebrew language Employment Agreement for Ofer Gilboa (incorporated by reference to Exhibit 10x. of Ampal’s Form 10-K filed on April 2, 2007).*

10aa. Understanding for the Repayment of a Foreign Currency Loan between Bank Hapoalim BM and Ampal (Israel) Ltd. Dated April 26, 2007 (Filed as Exhibit 10.1 to Report on Form 10-Q, filed with the SEC on May 15, 2007).

10bb. Letter of Understanding between Bank Hapoalim BM and Ampal Israel (Ltd), dated April 26 2007 (Filed as Exhibit 10.2 to Report on Form 10-Q, filed with the SEC on May 15, 2007).

10cc. Letter of Understanding between Bank Hapoalim BM and Ampal American Israel Corporation, dated April 26 2007 (Filed as Exhibit 10.3 to Report on Form 10-Q, filed with the SEC on May 15, 2007).

10dd. Agreement among Ampal Industries Inc., Phoenix Holdings Ltd. and Golden Meybar (2007) Ltd., dated July 10, 2007 (Filed as Exhibit 10.2 to Form 10-Q, filed with the SEC on August 8, 2007, and incorporated herein by reference).

10ee. Agreement between Merhav Ampal Energy Ltd. and Netherlands Industrial Chemical Enterprises B.V., dated November 20, 2007, to purchase a 65.5% controlling interest in Gadot Chemical Tankers and Terminals Ltd.

10ff. Credit Facility between Merhav Ampal Energy Ltd. and Israel Discount Bank Ltd., dated November 29, 2007, for the funding of the Gadot transaction.

10gg. Option Agreement between the Company and Merhav M.N.F. Ltd., dated December 25, 2007, providing Ampal with the option to acquire up to a 35% equity interest in a sugarcane ethanol production project in Colombia.

10hh. Promissory Note, dated as of December 25, 2007, by Merhav M.N.F. Ltd. in favor of Ampal.

10ii. Pledge Agreement, dated December 25, 2007, between Merhav M.N.F. Ltd. and Ampal.

* Management contract, compensatory plan or arrangement.

Exhibit 11 – Statement re Computation of Earnings Per Share

Exhibit 12 – Statement re Computation of Ratios

Exhibit 21 – Subsidiaries of the Registrant

52



Exhibit 23 – Consents of Experts and Counsel:

23.1 Kesselman & Kesselman CPAs (Isr) A member of PricewaterhouseCoopers International Limited E-23.1
     
23.2 Brightman Almagor & Co., Certified Public Accountants A member firm of Deloitte Touche Tohmatsu E-23.2
     
23.3 Kost Forer Gabbay & Kasierer Member of Ernst & Young Global E-23.3
     
23.4 Kesselman & Kesselman CPAs (Isr) A member of PricewaterhouseCoopers International Limited E-23.4
     
23.5 Mazars Paardekooper Hoffman Accountants N.V E-23.5
     
23.6 Fahn, Kanne & Co. Certified Public Accountants (Isr.) E-23.6
     
23.7 Mazars Paardekooper Hoffman Accountants N.V E-23.7
     
23.8 KPMG Somekh Chaikin, Certified Public Accountants E-23.8
     
23.9 KPMG Somekh Chaikin, Certified Public Accountants E-23.9
     
23.10 Kesselman & Kesselman CPAs (Isr) A member of PricewaterhouseCoopers International Limited E-23.10
     
23.11 Kesselman & Kesselman CPAs (Isr) A member of PricewaterhouseCoopers International Limited E-23.11

Exhibit 31.1 – Certification of Yosef A. Maiman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 – Certification of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 – Certification of Yosef A. Maiman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 – Certification of Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

53



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 17th day of March, 2008.

AMPAL-AMERICAN ISRAEL CORPORATION


By: /s/ YOSEF A. MAIMAN
——————————————
Yosef A. Maiman, Chief Executive
Officer and President (Principal Executive Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 17, 2008.

Signatures
    Title
    Date
   

/s/ YOSEF A. MAIMAN
——————————————
       Yosef A. Maiman
Chairman of the Board of
Directors, President & CEO
March 17, 2008

/s/ LEO MALAMUD
——————————————
       Leo Malamud
Director March 17, 2008

/s/ DR. JOSEPH YERUSHALMI
——————————————
       Dr. Joseph Yerushalmi
Director March 17, 2008

/s/ DR. NIMROD NOVIK
——————————————
       Dr. Nimrod Novik
Director March 17, 2008

/s/ JACK BIGIO
——————————————
       Jack Bigio
Director March 17, 2008

/s/ YEHUDA KARNI
——————————————
       Yehuda Karni
Director March 17, 2008

/s/ EITAN HABER
——————————————
       Eitan Haber
Director March 17, 2008

/s/ MENAHEM MORAG
——————————————
       Menahem Morag
Director March 17, 2008

/s/ IRIT ELUZ
——————————————
       Irit Eluz
CFO, Senior Vice President
- Finance and Treasurer
(Principal Financial Officer)
March 17, 2008

/s/ GIORA BAR - NIR
——————————————
       Giora Bar-Nir
VP Accounting & Controller
(Principal Accounting Officer)
March 17, 2008

54



FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Ampal-American Israel Corporation

In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows, changes in shareholders’ equity present fairly, in all material respects, the financial position of Ampal-American Israel Corporation and subsidiaries (the “Company”) at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9(A) of the 2007 Annual Report to Shareholders. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audit which was an integrated audit in 2007. We did not audit the financial statements of certain affiliated companies, the which statements reflect total assets of $7,417 thousands and $1,262 thousands as of December 31, 2007 and 2006, respectively, and total share in equity income (loss) of ($1,581), $1,620 and $88 for each of the three years in the period ended December 31, 2007. The financial statements of those affiliated companies were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements expressed herein, insofar as it relates to the amounts included for those companies, is based solely on the report of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of other auditors provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, in 2007 the Company changed the manner in which it accounts for income tax uncertainties and in 2006 the Company changed the manner in which it accounts for stock-based compensation and defined benefit pension and other postretirement plans.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

1



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Gadot Chemical Tankers and Terminals Ltd. from its assessment of internal control over financial reporting as of December 31, 2007 because it was acquired by the Company in a purchase business combination on December 3, 2007.

/s/ Kesselman & Kesselman Certified Public Accountants (Isr.)
A member of PricewaterhouseCoopers International Limited

Tel Aviv, Israel
March 17, 2008

2



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

Assets As At
December 31,
2007

December 31,
2006

(U.S. Dollars in thousands)
 
Current assets:            
Cash and cash equivalents   $ 44,267   $ 36,733  
Marketable securities (Note 2)    22,459    380  
Account receivable    106,665    -  
Deposits, notes and loans receivable    13,737    3,402  
Inventories    28,928    -  
Other assets    23,164    4,047  


       Total current assets    239,220    44,562  


Non-current assets:   
Investments (Notes 2, 3 and 16):    371,791    265,236  
Fixed assets, less accumulated depreciation of $3,697 and $17,055 (Note 6)    73,007    71,881  
Deposits, notes and loans receivable    3,738    6,805  
Deferred tax    11,637    10,398  
Other assets    15,557    2,801  
   
Goodwill (Note 5)    50,406    -  
Intangible assets (Note 4)    9,433    -  


       Total Non-current assets    535,569    357,121  


   
     TOTAL ASSETS   $ 774,789   $ 401,683  



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

3



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

Liabilities and Shareholders'
Equity As At

December 31,
2007

December 31,
2006

(U.S. Dollars in thousands except
amounts per share data)

 
                                       LIABILITIES            
Current liabilities:   
Notes and loans payable and current maturities (Note 7)   $ 136,612   $ 26,373  
Convertible note to related party (Note 11)    --    20,000  
Accounts payable, accrued expenses and others (Note 9)    73,769    6,850  
Deposits from tenants    -    1,166  


       Total current liabilities    210,381    54,389  


Long term liabilities:   
Notes and loans payable (Note 7)    187,405    18,618  
Debentures (Note 8)    79,350    59,172  
Deposits from tenants    --    53,813  
Deferred tax    3,275    974  
Other long term liabilities (Note 9)    12,760    3,140  


       Total long term liabilities    282,790    135,717  


Commitments and Contingencies (note 19)  
   Total liabilities    493,171    190,106  


Minority interests, net (Note 10)    23,206    2,764  


                              SHAREHOLDERS' EQUITY (Note 11)   
   
Class A Stock $1 par value; authorized 100,000,000 and 60,000,000 shares; issued  
63,277,321 and 46,328,429 shares; outstanding 57,702,532 and 40,753,640 shares    63,277    46,328  
   
Receipt on account of unallocated shares    -    40,000  
   
Additional paid-in capital    189,899    126,945  
   
Warrants          308  
   
Retained earnings    47,931    40,165  
   
Accumulated other comprehensive loss    (14,821 )  (17,059 )
   
Treasury stock, at cost    (27,874 )  (27,874 )


   
Total shareholders' equity    258,412    208,813  


   
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 774,789   $ 401,683  



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

4



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year Ended December 31,
2007
2006
2005
(U.S. Dollars in thousands, except per share data)
 
REVENUES:                
Chemical income   $ 28,546 $-   $-  
Real estate income    -    237    233  
Equity in earnings (losses) of affiliates (Note 16)    (1,523 )  1,610    6,666  
Realized gains on investments (Note 3)    552    5,386    -  
Realized and unrealized gains on marketable securities    173    1,126    3,203  
Gain on sale of fixed assets (Note 3)    3,376    2,186    -  
Interest income    3,954    1,479    1,567  
Leisure-time income    2,530    2,167    2,208  
Other income    189    353    7,642  



     Total revenues    37,797    14,544    21,519  



   
EXPENSES:   
Chemical expense    26,220    -    -  
Real estate expenses    -    272    311  
Realized losses on investments (Note 3)    -    1,016    2,735  
Loss from impairment of investments & real estate (Note 3)    575    -    13,984  
Interest expense    10,122    4,328    4,421  
Translation (gain) loss    3,086    (1,256 )  2,603  
Marketing expense    719    --    --  
Other (mainly general and administrative)    14,697    13,548    10,957  



     Total expenses    55,424    17,908    35,011  



Loss before income taxes    (17,627 )  (3,364 )  (13,492 )
Provision for income taxes (tax benefits) (Note 14)    (5,625 )  2,585    (2,909 )



Loss after income taxes (tax benefits)    (12,002 )  (5,949 )  (10,583 )
Minority interests in profits of subsidiaries, net    (1,576 )  (78 )  4,667  



Loss from continuing operations    (13,578 )  (6,027 )  (5,916 )



Discontinued operation:  
Gain disposal, net of tax    21,761            
 Loss from operation of discontinued, net of tax    (417 )  (1,060 )  (42 )



     21,344    (1,060 )  (42 )



Net income (loss) for the year   $ 7,766   $ (7,087 ) $ (5,958 )



   
Basic and diluted EPS (Note 13):  
   Loss from continuing operations    (0.26 )  (0.35 )  (0.31 )
   Discontinued operations    0.42    (0.05 )  -  



    $ 0.16   $ (0.40 ) $ (0.31 )



   
   Shares used in calculation (in thousands)    51,362    24,109    19,967  




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

5



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended December 31,
2007
2006
2005
(U.S. Dollars in thousands)
 
Cash flows from operating activities:                
Net income (loss)   $ 7,766   $ (7,087 ) $ (5,958 )
Adjustments to reconcile net income (loss) to net cash provided by (used in)  
operating activities:  
Equity in losses (earnings) of affiliates    1,523    (1,610 )  (6,666 )
Realized and unrealized gains on investments, net    (725 )  (5,496 )  (468 )
Gain on disposal of discontinued operations, net of tax    (21,761 )            
Gain on sale of fixed assets    (3,376 )  (2,186 )  --  
Depreciation expense    1,367    1,967    1,978  
Income from amortization of tenants deposits    (677 )  (1,747 )  (1,876 )
Impairment of investments    575    --    13,984  
Non cash stock based compensation    782    720    --  
Interest on convertible note to related party    815    --    --  
Minority interests in profits of subsidiaries, net    1,427    (339 )  (4,467 )
Translation (gain) loss    2,967    (303 )  2,220  
Decrease (increase) in other assets    (17,387 )  4,196    13,425  
Increase (decrease) in accounts payable, accrued expenses and other    8,535    1,817    6,968  
Investments made in trading securities    (23,803 )  (49,994 )  (12,868 )
Proceeds from sale of trading securities    18,021    89,622    32,595  
Dividends received from affiliates    185    217    4,335  



   
Net cash (used in) provided by operating activities    (23,766 )  29,777    43,202  



   
Cash flows from investing activities:  
   Deposits, notes and loans receivable collected    3,643    --    2,872  
   Deposits, notes and loans receivable granted    (10,000 )  (10,001 )  (1,024 )
   Capital improvements    (1,178 )  (1,430 )  (9,884 )
   Investments made in Gadot, net of cash(1)     (78,153 )            
   Investments made in EMG, affiliates and others    (105,099 )  (123,031 )  (30,621 )
Proceeds from disposal of investments:  
   Affiliate and others    5,643    23,377    75,356  
   Proceeds from sale of Am-Hal(2),net     27,715    --    --  
   Proceeds from sale of fixed assets    7,694    3,800    --  



   
Net cash (used in) provided by investing activities    (149,735 )  (107,285 )  36,699  




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

6



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended December 31,
2007
2006
2005
(U.S. Dollars in thousands)
 
Cash flows from financing activities:                
Proceeds from notes and loans payable issued   $ 103,131   $ 6,015   $ 8,869  
Proceeds from long term loan from partnership minority    95,429    166    2,050  
Notes and loans payable repaid    (37,000 )  (11,210 )  (78,875 )
Proceeds from exercise of stock options and warrants    17,997    550    251  
Debentures repaid    --    --    (2,023 )
Proceeds from issuance of shares, net    --    36,668    --  
Proceeds from issuance of debentures    --    57,978    --  
Deferred expense relating to issuance of debentures    --    (1,607 )  --  
Contribution (distribution) to partnership by minority interests    130    --    (3,567 )
Dividends paid on preferred stock    --    (2,332 )  (191 )



   
Net cash provided by (used) in financing activities    179,687    86,228    (73,486 )



Effect of exchange rate changes on cash and cash equivalents    1,348    3,699    281  



Net increase in cash and cash equivalents    7,534    12,419    6,696  
Cash and cash equivalents at beginning of year    36,733    24,314    17,618  



   
Cash and cash equivalents at end of year   $ 44,267   $ 36,733   $ 24,314  



   
Supplemental Disclosure of Cash Flow Information Cash paid during the year:  
Interest    9,468    2,969    2,535  



   
Income taxes paid   $ 68   $ 66   $ 68  



   
Supplemental Disclosure of Non-Cash investing and financing activity:  
   
Consideration for sale of an investment recorded as other assets    300    418    --  



   
Consideration for sale of fixed assets recorded as other assets         800    --  



   
Capital improvement recorded as account payable         868    --  



   
Investment made in consideration for sale of shares capital         88,965    --  



   
Investment made in investee by issuance of promissory note payable         20,000    --  



   
Marketable securities received as consideration for sale of an investment    --    --    3,316  



   
Dividend in kind from an affiliate    --    --    7,088  



   
Dividend from an equity investment recorded as payable accounts in previous period         5,060    --  



   
Conversion of promissory note to class A stock    20,815            



   
Issuance of shares for cash receipt on previous year    40,000            



   
Conversion of preferred stock to class A stock         2,111    --  




(1) Assets and liabilities purchased in Gadot - see Note 3

7



(2)  Assets and liabilities disposed of in the sale of Am-Hal discontinued operation:        
       Current assets (net of cash and cash equivalents)    2,976  
       Fixed assets    69,781  
       Deferred tax    7,651  
       Debt    (15,295 )
       Deposits from tenants    (53,711 )
       Current liabilities    (2,974 )
       Minority interest    (2,526 )
       Difference from translation    52  
       Gain on disposal of Am-Hal    21,761  

       Proceeds from sale of Am-Hal    27,715  


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

8



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. Dollars in thousands)

Class A stock
Number
of
shares*

Amount
Receipt
on
account
of
unallocated
shares

Additional
paid in
capital

Warrants
Retained
earnings

Accumulated
other
comprehensive
income (loss)

Treasury
stock

Total
sharehold
equity

 
BALANCE AT JANUARY 1, 2007      46,328    46,328    40,000    126,945    308    40,165    (17,059 )  (27,874 )  208,813  
CHANGES DURING 2007:  
Net income                             7,766              7,766  
Adjustment upon adoption of  
FIN 48                             (2,000 )            (2,000 )
Change in deferred tax  
asset relating to adoption  
of FIN 48                             2,000              2,000  


- -
Unrealized gain from  
marketable securities                                  (43 )       (43 )
Foreign currency  
translation adjustments                                  710         710  
Release of foreign currency  
translation adjustment  
relating to disposal of  
subsidiary and affiliates                                  1,571         1,571  

Total comprehensive income                                            10,004  
Shares issued for  
investment made    8,603    8,603    (40,000 )  31,397                        -  
Shares issued upon  
conversion of convertible  
note    4,476    4,476         16,339                        20,815  
Compensation expense  
recognized under SFAS 123R                   783                        783  
Issuance of shares for  
exercise of Warrants    3,870    3,870    -    14,435    (308 )                 17,997  









  
BALANCE AT DECEMBER 31, 2007    63,277    63,277    -    189,899    -    47,931    (14,821 )  (27,874 )  258,412  










*In thousands

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

9



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. Dollars in thousands)

Class A stock
4 % Preferred stock
6.5% Preferred
stock

Number
of shares

Amount
Number
of
shares

Amount
Number
of
shares

Amount
Receipt on
account of
unallocated
shares

Additional
paid in
capital

Warrants
Retained
earnings

Accumulated
other
comprehensive
income (loss)

Treasury
stock

Total
sharehold
equity

 
BALANCE AT JANUARY 1, 2006      25,827    25,827    114    571    641    3,207    --    58,252    --    51,223    (19,518 )  (30,693 )  88,869  
CHANGES DURING 2006:  
Net loss                                                 (7,087 )            (7,087 )
Other comprehensive  
income (loss):  
Foreign currency  
translation  
adjustments                                                      2,676         2,676  
Unrealized gain on  
marketable securities                                                      109         109  
Sale of available  
for sale securities                                                      (326 )       (326 )

Total comprehensive  
loss                                                                (4,628 )
Conversion of  
110,848 4% preferred  
stock and 518,887  
6.5% preferred stock  
into Class A stock    2,111    2,111    (111 )  (554 )  (519 )  (2,594 )       1,037                        --  
Elimination of  
treasury stock              (3 )  (17 )  (122 )  (613 )                 (1,307 )       1,937    --  
Shares issued for  
investment made    10,248    10,248                        40,000    38,717                        88,965  
Shares issued and  
warrants in a  
private placement    8,142    8,142                             28,219    308                   36,669  
Compensation expense  
recognized under  
SFAS 123R                                       720                        720  
Reissuance of  
176,250 treasury  
stock for exercise  
of stock options                                                 (332 )       882    550  
Dividend   
      - 4% Preferred stock                                                 (285 )            (285 )
      - 6.5 Preferred stock                                                 (2,047 )            (2,047 )













BALANCE AT DECEMBER  
31, 2006    46,328    46,328    -    -    -    -    40,000    126,945    308    40,165    (17,059 )  (27,874 )  208,813  














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

10



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. Dollars in thousands)

Class A stock
4 % preferred
stock

6.5 %
preferred
stock

Number
of
shares

Amount
Number
of
shares

Amount
Number
of
shares

Amount
Additional
paid in
capital

Retained
earnings

Accumulated
other
comprehensive
income
(loss)

Treasury
stock

Total
shareholders
equity

 
BALANCE AT JANUARY 1, 2005       25,715    25,715    124    620    662    3,311    58,211    57,524    (14,272 )  (31,096 )  100,013  
CHANGES DURING 2005:  
Net loss                                       (5,958 )            (5,958 )
Other comprehensive income  
(loss):  
Foreign currency translation  
adjustments                                            348         348  
Unrealized loss on marketable  
securities                                            (1,472 )       (1,472 )
Sale of available for sale  
securities                                            (4,122 )       (4,122 )

Total comprehensive loss                                                      (11,204 )
Conversion of 9,826 4%  
preferred stock and 20,796 6.5%  
preferred stock into Class A  
stock    112    112    (10 )  (49 )  (21 )  (104 )  41                   -  
Reissuance of 80,625 treasury  
stock for exercise of stock  
options                                       (152 )       403    251  
Dividends :  
4% preferred stock, $0.2 per  
share                                       (22 )            (22 )
6.5% preferred stock, $0.325  
per share                                       (169 )            (169 )











   
BALANCE AT DECEMBER 31, 2005    25,827    25,827    114    571    641    3,207    58,252    51,223    (19,518 )  (30,693 )  88,869  












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

11



AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

(a) General

  (1) Ampal-American Israel Corporation is a New York corporation founded in 1942. The Company primarily acquires interests in businesses located in the State of Israel or that are Israel-related.

  (2) As used in these financial statements, the term the “Company” refers to Ampal-American Israel Corporation (“Ampal”) and its consolidated subsidiaries. As to segment information see “Note 17".

  (3) The consolidated financial statements are prepared in accordance with accounting principals generally accepted in the United States of America.

  (4) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(b) Consolidation

        The consolidated financial statements include the accounts of Ampal and its controlled and majority owned entities. Inter-company transactions and balances are eliminated in consolidation.

(c) Translation of Financial Statement in Foreign Currencies

        For those subsidiaries and affiliates whose functional currency is other than the US Dollar, assets and liabilities are translated using year-end rates of exchange. Revenues and expenses are translated at the average rates of exchange during the year. Translation differences of those foreign companies’ financial statements are reflected in the cumulative translation adjustment accounts which are included in accumulated other comprehensive income (loss).

        In subsidiaries where the primary currency is the U.S. Dollar, accounts maintained in currencies other than the U.S. Dollar are remeasured into U.S. Dollars using the representative foreign exchange rate at the balance sheet date. Operational accounts and nonmonetary balance sheet accounts are measured and recorded at the rate in effect at the date of the transaction. The effects of foreign currency remeasurement are reported in current operations.

(d) Foreign Exchange Forward Contracts

        The Company’s derivative financial instruments consist of foreign currency forward exchange contracts. These contracts are utilized by the Company, from time to time, to manage risk exposure to movements in foreign exchange rates. None of these contracts qualify for hedge accounting. These contracts are recognized as assets or liabilities on the balance sheet at their fair value, which is the estimated amount at which they could be settled based on market prices or dealer quotes, where available, or based on pricing models. Changes in fair value are recognized currently in earnings.

        At December 31, 2007, the Company had open foreign exchange forward contracts to purchase U.S. Dollars and sell Euros in the amount of $9 million.

(e) Investments

  (i) Investments in Affiliates

        Investments in which the Company exercises significant influence, generally 20% to 50% owned companies (“affiliates”), are accounted for by the equity method, whereby the Company recognizes its proportionate share of such companies’ net income or loss and in other comprehensive income its proportional share in translation difference on net investments and in other comprehensive income (loss). The Company reduces the carrying value of its investment in an affiliate if an impairment in value of that investment is deemed to be other than temporary.

  (ii) Cost Basis Investments

        Equity investments of less than 20% in non-publicly traded companies are carried at cost subject to impairment.

12



  (iii) Investments in Marketable Securities

        Marketable equity securities, other than equity securities accounted for by the equity method, are reported based upon quoted market prices of the securities. For those securities, which are classified as trading securities, realized and unrealized gains and losses are reported in the statements of operations. Unrealized gains and losses net of taxes from those securities that are classified as available-for-sale, are reported as a separate component of shareholders’ equity and are included in accumulated other comprehensive income (loss) until realized. Decreases in value determined to be other than temporary on available-for-sale securities are included in the statements of income (loss).

(f) Business combinations

        Business combinations have been accounted for using the purchase method of accounting. Under the purchase method of accounting the results of operations of the acquired business are included from the date of acquisition. The costs of acquiring companies, including transactions costs, have been allocated to the underlying net assets of each acquired company in proportion to their respective fair values. Any excess of the purchase price over estimated fair values of the identifiable net assets acquired has been recorded as goodwill.

(g) Inventories

        Inventories – mainly chemicals and other materials intended for sale, are valued at the lower of cost or market. Cost is determined based on the moving average basis.

(h) Risk Factors and Concentrations

        Financial instruments that subject the Company to credit risk consist primarily of cash, cash equivalents, bank deposits, marketable securities and notes and loans receivable. The Company invests cash equivalents and short-term investments through high-quality financial institutions. The Company’s management believes that the credit risk in respect of these balances is not material.

        The company performs ongoing credit evaluations of its receivables allowance for doubtful accounts.

(i) Long – Lived Assets

        The assets are recorded at cost, depreciating these costs over the expected useful life of the related assets.

        Fixed assets of subsidiaries which existed at the time of the subsidiary’s acquisition by the company, are included at their fair value as that date.

        Financial expenses incurred during the construction period have been capitalized to the cost of the land and building.

        The Company applies the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived assets” (“SFAS 144”). SFAS 144 requires that long-lived assets, to be held and used by an entity, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Under SFAS 144, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss would be recognized, and the assets are written down to their estimated fair values.

(j) Discontinued operations

        Under SFAS 144, when a component of an entity, as defined in SFAS 144, has been disposed of or is classified as held for sale, the results of its operations, including the gain or loss on its disposal should be classified as discontinued operations. That is, provided that the operations, assets and liabilities and cash flows of the component have been eliminated from the Company’s consolidated operations and the Company will no longer have any significant continuing involvement in the operations of the component. In 2007 the Company sold its interest in Am-Hal, a wholly owned subsidiary, and classified Am-Hal as discontinued operations.

(k) Fixed assets

        (i) These assets are stated at cost. Fixed assets of subsidiaries, which existed at the time of the subsidiary’s acquisition by the Company, are included at their fair value as of that date.

        (ii) Depreciation is computed by the straight-line method, on the basis of the estimated useful life of the assets.

13



        Annual rates of depreciation are as follows:

%
 
Ships 7-9
Trailers 33.3
Land --
Real estate 6 1/2
Storage tankers 3 1/3
Vehicles 33.3
Equipment 6-33
Rental improvement *


* As per the rental years remaining. 

        Leasehold improvements are amortized by the straight-line method over the term of the lease, which is shorter than the estimated useful life of the improvements.

        (iii) Ships are depreciated over their estimated economic lives. For the purpose of computing the depreciation, an estimation of the salvage value was deducted from the depreciable base of the ships.

        (iv) Vehicles leased by the companies under capital leases are presented as the companies’ assets and are recorded, at the inception of the lease, at the lower of the asset’s fair value or the present value of the minimum lease payments (not including the financial component).

(l) Goodwill and Other Intangible Assets

        In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill is not amortized but is subject to impairment tests annually on December 31 or more often when events or circumstances indicate that the carrying amount of goodwill may not be recoverable. A goodwill impairment loss is recognized to the extent the carrying amount of goodwill exceeds the implied fair value of goodwill. In accordance with SFAS 144, the Company assesses intangible assets subject to amortization, when events or circumstances indicate that the carrying amount of those assets may not be recoverable. Impairments of intangible assets are recognized when the carrying value of the assets are less than the expected cash flows of the assets on an undiscounted basis. All amortizable assets are amortized over their estimated useful lives.

(m) Income Taxes

        The Company applies the asset and liability method of accounting for income taxes, whereby deferred taxes are recognized for the tax consequences of “temporary differences” by applying estimated future tax effects of differences between financial statements carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets are created to the extent management believes that it is more likely than not that it will be utilized, otherwise a valuation is provided for those assets that do not qualify under this term.

        The Company does not record deferred income taxes on undistributed earnings of foreign subsidiaries adjusted for translation effect since such earnings are currently expected to be permanently reinvested outside the United States. As of December 31, 2007 and 2006 there were no undistributed earnings of foreign subsidiaries.

        Income taxes are provided on equity in earnings of affiliates, gains on issuance of shares by affiliates and unrealized gains on investments. Ampal’s foreign subsidiaries file separate tax returns and provide for taxes accordingly.

        On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood greater than 50 percent), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement.

14



(n) Revenue Recognition

        The Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB) No. 104 – “Revenue Recognition”. Revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, delivery has occurred and the Company has determined that collection of the fee is probable.

        Rental income is recorded over the rental period. Revenues from services provided to tenants and country-club subscribers are recognized ratably over the contractual period or as services are performed. Revenue from amortization of tenant deposits is calculated at a fixed periodic rate based on the specific terms in the occupancy agreement signed with the tenants.

        Chemical income is measured at the fair value of the consideration received or the consideration that the Company is entitled to receive, taking into account trade discounts and/or bulk discounts granted by the Company.

        Revenue from sale of goods is recognized when all the following conditions have been satisfied: (a) the significant risks and rewards of ownership of the goods have been transferred to the buyer; (b) the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the Company and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

        The Company recognized revenues arising from the provision of marine transport services proportionally over the period of the marine transport services. As to voyages uncompleted in which a loss is expected, a full provision is made in the amount of the expected loss.

        Revenue from the provision of services is recognized by reference to the stage of completion of the transaction at the balance sheet date, and only when the stage of completion of the transaction at the balance sheet date can be measured reliably.

        Revenues from chemical brokerage commissions are recognized when the right to receive them is created.

(o) Cash and Cash Equivalents

        Cash equivalents are short-term, highly liquid investments that have original maturity dates of three months or less and that are readily convertible into cash.

        Cash equal to $12.0 million has been placed as a compensating balance for various loans provided to the Company.

(p) Earning (loss) per share (EPS)

        Basic and diluted net earning (loss) per share are presented in accordance with SFAS No. 128 “Earnings per share” (“SFAS No. 128”) and with EITF 03-06 “participating securities and the two-class method under FAS 128". In 2007, 2006 and 2005, all outstanding stock options for 2006 and 2005 and also the preferred shares have been excluded from the calculation of the diluted loss per share because all such securities are anti-dilutive for these periods presented. Also, participating 4% Convertible Preferred Stock was not taken into account in the computation of the basic EPS in 2006 and 2005, since its shareholders do not have contractual obligation to share in the losses of the Company.

(q) Comprehensive Income

        SFAS No. 130, “Reporting Comprehensive Income”, (“SFAS No. 130”) established standards for the reporting and display of comprehensive income (loss), its components and accumulated balances in a full set of general purpose financial statements. The Company’s components of comprehensive income (loss) are net income (losses), net unrealized gains or losses on available for sale investments and foreign currency translation adjustments, which are presented net of income taxes.

(r) Employee Stock Based Compensation

        Effective January 1, 2006, the Company adopted SFAS No. 123R, using the Modified Prospective Approach. SFAS No. 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS No. 123R requires the cost of all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at grant date, or the date of later modification, over the requisite service period. In addition, SFAS No. 123R requires unrecognized cost (based on the amounts previously disclosed in the pro forma footnote disclosure) related to options vesting after the date of initial adoption to be recognized in the financial statements over the remaining requisite service period.

        Under the Modified Prospective Approach, the amount of compensation cost recognized includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 and (ii) compensation cost for all share-based payments that will be granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Upon adoption, the Company recognizes the stock based compensation of previously granted share-based options and new share-based options under the straight-line method over the requisite service period. 

15



        The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. The Company recognizes no income tax benefit on its stock compensation expense and will not be able to utilize them to offset future income taxes.

        Prior to January 1, 2006, the Company accounted for the stock-based compensation plans in accordance with the provisions of APB No. 25, as permitted by SFAS No. 123, and accordingly did not recognize compensation expense for stock options since the exercise price was equal to the market price of the underlying stock at the date of grant. If compensation cost for the options under the plans in effect been determined in accordance with SFAS No. 123, the Company’s net income (loss) and EPS for the year 2005 would have been reduced as follows:

Year ended December 31,
2005
(In thousands, except
per share data)

 
Net loss from continuing operations, as reported     $ (5,916 )
   
Less - stock based compensation expense determined under fair value method    (874 )

   
Pro forma, net loss from continuing operations    (6,790 )

   
Basic and diluted EPS:   
As reported (1)(2)    $ (0.31 )
Pro forma (1)(2)    $ (0.35 )

(1) After deduction of accrued Preferred Stock Dividend of $191 thousands.

(2) The effect of the conversion of the 4% and 6.5% Preferred Stock was excluded from the basic and diluted EPS calculation due to its anti-dilutive effect.

(s) Treasury stock

        These shares are presented as a reduction of shareholders’ equity at their cost to the Company. The Company does not have a policy to repurchase its shares.

(t) Newly Issued and Recently Adopted Accounting Pronouncements

SFAS No. 157 – Fair Value Measurements

        In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides guidance on how to measure assets and liabilities that use fair value. SFAS 157 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. This standard also will require additional disclosures in both annual and quarterly reports. SFAS 157 will be effective for fiscal years beginning after November 15, 2007 (January 1, 2008 for the Company). In February 2008, the FASB deferred for one additional year the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its financial statements.

FAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities

        In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FASB 159”). This standard permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. As applicable to Ampal, this statement will be effective as of the year beginning January 1, 2008. Ampal is currently evaluating the impact that the adoption of FAS 159 would have on its consolidated financial statements.

16



SFAS No. 141R – Business Combinations

        In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) which replaces SFAS No. 141, “Business Combination”. SFAS 141R establishes the principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) discloses the business combination. This Statement applies to all transactions in which an entity obtains control of one or more businesses, including transactions that occur without the transfer of any type of consideration. SFAS 141R will be effective on a prospective basis for all business combinations on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. Early adoption is not allowed. The Company is in process of evaluating the impact, if any, the adoption of SFAS 141R will have on the Company’s consolidated results of operations or financial position.

SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements

        In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements–an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB No. 51 and establishes accounting and reporting standards that require noncontrolling interests (previously referred to as minority interest) to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and upon a loss of control, retained ownership interest will be remeasured at fair value, with any gain or loss recognized in earnings. SFAS 160 will be effective for the Company commencing January 1, 2009, except for the presentation and disclosure requirements, which will be applied retrospectively. Early adoption is not allowed. The Company is in process of evaluating the impact, if any, that the adoption of SFAS 160 will have on the Company’s consolidated results of operations or financial position.

SAB No. 110

        In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”), relating to the use of a “simplified” method in developing an estimate of the expected term of “plain vanilla” share options. SAB 107 previously allowed the use of the simplified method until December 31, 2007. SAB 110 allows, under certain circumstances, to continue to accept the use of the simplified method beyond December 31, 2007. The Company believes that the adoption of SAB 110 will not have a material impact on its consolidated financial statements.

(u) Reclassifications

        Certain comparative figures have been reclassified to conform to the current year presentation.

Note 2 – Investments

a. Non-current investments

        The balance of investments as of December 31, 2007 and 2006, are composed of the following items:

As of December 31,
2007
2006
(U.S. Dollars in thousands)
 
EMG     $ 361,323   $ 259,860  
   
Investment in Affiliates    9,339    3,855  
   
Other Investments    1,129    1,521  


   
    $