Edgar Filing: AMPAL-AMERICAN ISRAEL CORP

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, 2006

	OR

¨	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 an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes o No x

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, 2006, the last business day of the registrant’s most recently completed second fiscal quarter was $41,854,745 based upon the closing market price of such stock on that date. As of March 28, 2007, the number of shares outstanding of the registrant’s Class A Stock, its only authorized and outstanding common stock, is 49,355,791.

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES

Index to Form 10-K


		Page


PART I

ITEM 1.	BUSINESS	3
ITEM 1A.	RISK FACTORS	10
ITEM 1B.	UNRESOLVED STAFF COMMENTS	12
ITEM 2.	PROPERTY	12
ITEM 3.	LEGAL PROCEEDINGS	12
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13

PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	13
ITEM 6.	SELECTED FINANCIAL DATA	14
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	27
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	58
ITEM 9A.	CONTROLS AND PROCEDURES	58
ITEM 9B.	OTHER INFORMATION	59

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	59
ITEM 11.	EXECUTIVE COMPENSATION	62
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	70
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	72
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	73

PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	74

ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
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. An important objective of Ampal is to seek investments in companies that operate in Israel initially and then expand abroad. 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 on the following sectors: Energy, 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.

	Listed below by industry segment are all of the substantial investee companies in which the Ampal had ownership interests as of December 31, 2006, 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 additional information concerning the investee companies, previously provided annual reports on Forms 10-K of Ampal are incorporated by reference herein. For industry segment financial information and financial information about foreign and domestic operations, see “Note 14” to the Company’s consolidated financial statements included elsewhere in this Report.


Industry Segment	Principal Business	Percentage as of December 31, 2006⁽¹⁾


Energy

East Mediterranean Gas Company	Natural Gas Provider & Pipeline Owner	12.5

Real Estate
Am-Hal Ltd.	Chain of Senior Citizen Facilities	100.0
Bay Heart Limited	Shopping Mall Owner/Lessor	37.0

Leisure-Time
Country Club Kfar Saba Limited	Country Club Facility	51.0
Hod Hasharon Sport Center (1992)
Limited Partnership	Country Club Facility	50.0

Finance
Ampal (Israel) Ltd.	Holding Company and Real Estate	100.0
Ampal Development (Israel) Ltd.	Holding Company	100.0
Ampal Holdings (1991) Ltd.	Holding Company	100.0

Capital Markets and Other Holdings
Carmel Container Systems Limited	Packaging Materials and Carton Production
	Holding Company	21.8
Fimi Opportunity Fund, L.P	Investment Fund	2.1


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

Significant Developments Since the Fiscal Year Ended December 31, 2006

On February 18, 2007, Ampal reached a non binding letter of understanding with Merkaz Mishan Ltd. (“Mishan”) for a potential sale of all of its holdings in Am-Hal Ltd., a wholly owned subsidiary of Ampal (“Am-Hal”). The potential transaction is subject to the customary due diligence process, negotiation and signing of a definitive sale and purchase agreement, the approvals of the Board of Directors of Ampal (the “Board”) and “Mishan” and the receipt of all necessary regulatory and governmental approvals and other customary conditions. There can be no assurance that the parties will consummate a transaction regarding Am-Hal Ltd.

On March 18, 2007, tenants of the retirements centers for senior citizens of Am-Hal filed a lawsuit in the Tel Aviv District Court against Ampal, Am-Hal and other subsidiaries of Ampal. The lawsuit was filed after Ampal announced the potential sale of its holdings in Am-Hal to Mishan. Among other things, the plaintiffs requested that the District Court (i) issue warrants that will oblige Am-Hal to keep the deposits received from the tenants in a designated account for each tenant controlled by an accountant agreed to by Am-Hal and the tenants, (ii) maintain the level of services provided by Am-Hal to the tenants and (iii) maintain the ratio of independent tenants and supportive tenants in the centers. The plaintiffs also asked the District Court to issue temporary ex parte injunctions to prohibit Ampal from signing an agreement for the sale of its holdings in Am-Hal and to nominate a receiver to locate and keep the tenants’ deposits. The District Court did not grant the temporary injunctions ex parte and requested that the defendants reply to the claim in accordance with normal procedures.

On March 7, 2007, Ampal entered into an agreement to sell to Carmel Container Systems Ltd., a packaging manufacturer based in Israel (“Carmel”), all of the holdings of Carmel held by Ampal and its subsidiaries. Pursuant to this transaction, Ampal and its subsidiaries will sell to Carmel an aggregate of 522,350 ordinary shares of Carmel for an expected aggregate sales price of approximately $4.57 million. The Company expects to record a loss before tax of $0.4 million. The completion of the sale of shares to Carmel is subject to the satisfaction of certain closing conditions.

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 are under 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.

As of December 31, 2006, the Company beneficially owns approximately 12.5% of EMG. 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 is a wholly-owned subsidiary of the Company, which develops and operates luxury retirement centers for senior citizens.

In March 1992, the first center was opened in Rishon LeZion, a city located approximately 10 miles south of Tel-Aviv. This center, of about 120,000 square feet, includes 149 self-contained apartments, a 74-bed nursing care ward, a 21-bed assisted-living ward, a swimming pool, a health care center and other recreational facilities. The nursing care ward is leased to a non-affiliated health care provider.

In June 2000, the second center was opened in Hod Hasharon, a city located approximately 7 miles north of Tel Aviv. This center, which is approximately 250,000 square feet, includes 235 self-contained apartments, a 33-bed nursing care ward and a 22-bed assisted-living ward.

On April 7, 2005 Am-Hal Ltd. entered into an agreement to build a new project in Tel-Aviv. Am-Hal Ltd. holds 75% of the new project through a limited partnership (Ad 120 Ramat-Hahayal), the project, which is in its early stages, is still subject to further regulatory and financing approvals.(See “Significant Developments Since the Fiscal Year Ended December 31, 2006”).

BAY HEART LIMITED (“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. A train station on the west side of the Mall was completed in September 2001. A transportation complex, in conjunction with a subsidiary of Egged Bus Corporation, was opened in January 2002. The Company owns 37% of Bay Heart.

Leisure-Time

COUNTRY CLUB KFAR SABA LIMITED (“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 currently is seeking to obtain building permits for an additional 30,000 square feet of commercial development on the Club grounds.

The Club, which has a capacity of 2,000 member families, had approximately 1,722 member families for the 2006 season. The Company owns 51% of Kfar Saba.

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 2006, the H.H. Club contributed $0.2 million to each of its partners. As of December 31, 2006, the Company holds a 50% direct interest in Hod Hasharon.

Capital Markets and Other Holdings

CARMEL CONTAINERS SYSTEMS LIMITED (“CARMEL”)

Carmel is one of the leading Israeli companies in designing, manufacturing and marketing carton boards and packaging products. Carmel and its subsidiaries manufacture a varied line of products, including corrugated shipping containers, moisture-resistant packaging, consumer packaging, triple-wall packaging and wooden pallets and boxes. The Company’s equity interest in Carmel is 21.75%. As of December 31, 2006, the Company accounts for this investment pursuant to the equity method as $3.5 million (which includes impairment in an amount of $3.0 million). For information about our agreement to sell our holdings of Carmel, please see the section entitled “Significant Developments Since the Fiscal Year Ended December 31, 2006.”

EMPLOYEES

The executives officers of Ampal are listed in “Item 11” below. As of December 31, 2006, Ampal (Israel) Ltd. had 13 employees, Am-Hal Ltd. (a wholly owned subsidiary of Ampal) had 180 employees and Country Club Kfar Saba Ltd., of which the Company owns 51% of the interest, had 100 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. During the summer of 2006, Israel was engaged in a military conflict with the Hizballa 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, 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.

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. Through December 31, 2003, the corporate tax rate was 36%. In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of the provisions of this amendment is that the corporate tax rate is to be gradually reduced from 36% to 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%.

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.

Ampal generated income from interest and dividends resulting from its investments in Israel. Under Israeli law, Ampal has been required to file tax returns with the Israeli tax authorities with respect to such income. 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% 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 subject to tax at a rate of 25%; 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 tax returns with the Israeli tax authorities through the tax year 2004. Based on the tax returns filed by Ampal through 2004, 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 effective 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 2006 – 31%), whereas the portion of the gain attributed to the period after January 1, 2003 shall be taxed at the preferential rate of 25%. This 25% preferential tax rate may also apply to a certain portion of the profit upon the sale of Israeli shares.

Foreign corporations are generally exempt from tax on gains from the sale of shares in publicly traded companies. 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.

The Income Tax Law (Adjustment for Inflation), 1985 (“Inflationary Adjustment 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 Adjustment 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.

Individuals and companies in Israel pay value added tax (“VAT”) at a rate of 15.5% (16.5% until June 30, 2006, 17.0% from March 1, 2004 to August 31, 2005) of the price of assets sold and services rendered. In computing its VAT liability, Ampal’s Israeli subsidiaries are entitled to claim as a deduction input VAT it has incurred with respect to goods and services acquired for the purpose of the business.

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.

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 on Form 10-K) 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 Part I, “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.

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 QYALIFIED 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 on Form 10-K 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 the companies in which we invest conduct their principal operations in Israel and Israel-related, 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 export significant amounts of products from Israel. Our existing 12.5% stake in East Mediterranean Gas Company, an Egyptian joint stock company, represents 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.

During the summer of 2006, Israel was engaged in a military conflict with the Hizballa 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 EMG, we may be adversely affected by changes in the financial condition, business, or operations of EMG.

As of December 31, 2006, the Company beneficially owns approximately 12.5% of EMG, a result of a transaction with our controlling shareholder, which was accounted as transaction between entities under common control. This investment constitutes our single largest holding. 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 received 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 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, the purposes for which we were organized, which have not changed, and the interest of purchasers of our securities in the economic development of Israel. 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 accounting standards and taxation requirements could affect our financial results.

New accounting standards or pronouncements that may become applicable to the Company from time to time, or changes in the interpretation of existing standards and pronouncements, could have a significant effect on our reported results for the affected periods. We are also 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. The net loss for 2006 was approximately $7.1 million. 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, Ohad Maiman, Noa Maiman, and Yoav Maiman, and the companies Merhav (M.N.F.) Limited, De Majorca Holdings Ltd. and Di-Rapallo Holdings Ltd. beneficially owns approximately 62.0% 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.) Limited is wholly owned by Mr. Maiman.

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 $58,000,000 unsecured debentures 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 9, 2007 the market price on NASDAQ was $4.50 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.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.


ITEM 2.	PROPERTY

On September 12, 2006, we sold our building located at 111 Arlozorov Street, Tel-Aviv which contains our headquarters. The new owner has agreed to lease to us the office space that contains our headquarters for a period of up to 2 years commencing on November 28, 2006. The annual rent for this lease is $162,000.

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 period is seven years commencing on October 15, 2002. The annual rent for this lease is $120,588. On March 31, 2004, the Company closed this office. The office space has been subleased.

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 2006 totaled $185,020.

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 10,927,100 ($2.6 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 4,059,000 ($961,000) if a final judgment against the Company will be given.

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. There have not been any significant developments in this matter as of the date of filing this report.

Claims Against Subsidiaries and Affiliates:

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


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

None.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY 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 2006 and 2005, 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


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

2005:
Fourth Quarter		4.05		2.80
Third Quarter		4.09		3.21
Second Quarter		4.29		3.52
First Quarter		4.38		3.61

As of March 20 2007, there were approximately 1,339 record holders of Class A Stock.

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.

For equity compensation plan information required 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, 2004, 2005 and 2006 and consolidated balance sheet data as of December 31, 2005 and 2006 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, 2002 and 2003 and the selected consolidated balance sheet data as of December 31, 2002, 2003 and 2004 have been derived from our audited 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.”


	Fiscal year ended December 31,

FISCAL YEAR ENDED DECEMBER 31,	2006⁽²⁾			2005			2004			2003		2002

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


Revenues	$	23,949		$	30,530		$	31,464		$	51,814	$	16,732

Net income (loss)	$	(7,087	)	$	(5,958	)	$	(18,385	)	$	8,847	$	(44,047	)

Earnings (loss) per Class A Share⁽¹⁾:
Basic EPS	$	(0.40	)	$	(0.31	)	$	(0.94	)	$	0.42	$	(2.27	)
Diluted EPS	$	(0.40	)	$	(0.31	)	$	(0.94	)	$	0.40	$	(2.27	)

Total assets	$	401,683		$	211,485		$	304,947		$	354,367	$	323,699

Notes and loans and debentures payable	$	105,625		$	50,366		$	120,796		$	138,334	$	136,803


⁽¹⁾	Computation is based on net income (loss) after deduction of preferred stock dividends (in thousands) of $2,438, $191, $200, $213 and $218 for the years ended 2006, 2005, 2004, 2003, and 2002, respectively.

⁽²⁾	In 2006, the Company changed the method by which it accounts for share-based compensation by adopting SFAS 123R, which resulted in expenses of $720 thousand and impacted the EPS by $(0.03).

See “Significant Developments Since the Fiscal Year Ended December 31, 2006.”


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 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.

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.”

For those subsidiaries and affiliates whose functional currency is considered to be the New Israeli Shekel (“NIS”), 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 NIS be devalued against the U.S. dollar, cumulative translation adjustments are likely to result in a reduction in shareholders’ equity. As of December 31, 2006, the accumulated effect on shareholders’ equity was a decrease of approximately $16.6 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 Annual Report for the fiscal year ended December 31, 2006 for a summary of all of Ampal’s significant accounting policies.

Investment in EMG and other cost basis investments

The Company accounts for its 12.5% equity interest in EMG and a number of other investments on the basis of the cost method. EMG, which is the Company’s most significant holding as of December 31, 2006, was acquired 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 transaction was accounted for as a transfer of assets between entities under common control, which resulted in Merhav transferring the investment in EMG to Ampal 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 12.5% 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.

Long- lived assets

On January 1, 2002, Ampal adopted SFAS 144, “Accounting for the Impairment or Disposal of Long- Lived 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.

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 2006, 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.

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.

NEWLY ISSUED AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

SFAS No. 155 – Accounting for Certain Hybrid Financial Instruments - an Amendment of FASB Statements No. 133 and 140.

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an Amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders’ election. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006 (January 1, 2007 for the Company). Management does not expect the adoption of SFAS No. 155 will have a material impact on the Company’s consolidated financial condition or results of operations.

ASB Interpretation No. 48 – Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the recognition threshold and measurement of a tax position taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006 (January 1, 2007 for the Company). FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. Management does not expect the adoption of this interpretation to have a material impact on the Company’s financial statements.

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). The Company is currently evaluating the impact, if any, the adoption of SFAS 157 will have on its financial statements.

Staff Accounting Bulletin No. 108 - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 was issued in order to eliminate the diversity of practice in how public companies quantify misstatements of financial statements, including misstatements that were not material to prior years’ financial statements. The Company adopted SAB 108 and follows SAB 108 requirements when quantifying financial statement misstatements. The adoption of SAB 108 did not have any impact on the Company’s consolidated financial condition or results of operations.

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.” 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 the Company, this statement will be effective as of the year beginning January 1, 2008. The Company is currently evaluating the impact that the adoption of FAS 159 would have on its consolidated financial statements.

RESULTS OF OPERATIONS

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

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.

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 Holdings Ltd., 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 Holdings, Ltd. in the same period in 2005.

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 $2.5 million in other income, as compared to $9.9 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 Ltd. ($0.6 million gain), the sale of certain assets by PSINet Europe, one of the holdings of Ampal’s investee company, Telecom Partners (“TP”)($0.4 million gain) and the sale of certain assets by FIMI Opportunity Fund L.P (“FIMI”) ($0.2 million gain). These gains were partially offset by a loss recorded in connection with the sale of Ophir Holding Ltd. ($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 $0.3 million translation gain, as compared to a $2.2 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.

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

Fiscal year ended December 31, 2005 compared to fiscal year ended December 31, 2004:

The Company recorded a consolidated net loss of $6.0 million for the fiscal year ended December 31, 2005, as compared to $18.4 million loss for the same period in 2004. The decrease in net loss is primarily attributable to an increase in earnings of affiliates, an increase in interest income and a decrease in loss from impairment of investments. The decrease in net loss was partially offset by a decrease in realized and unrealized gains from marketable securities and investments and an increase in translation losses in 2005, as compared to 2004.

Income from equity of affiliates increased to $6.7 million for the fiscal year ended December 31, 2005 as compared to $4.0 million for the fiscal year ended in 2004. The increase is primarily attributable to a $6.6 million gain recorded by Ophir Holding Ltd. as a result of the sale of all its holdings in Industrial Building Corporation Ltd.

In the fiscal year ended December 31, 2005, the Company recorded $14.0 million in losses from the impairment of its investments and loans relating primarily to MIRS ($13.3 million) and Shiron Satelite Communications (1996) Ltd. (“Shiron Ltd.”) ($0.6 million). On October 3, 2005, the Company, through Ampal Communications L.P., a limited partnership controlled by the Company, completed the previously announced sale to Motorola Israel Ltd. of all of its holdings of MIRS pursuant to the terms of a Stock Purchase and Indemnification Agreement, dated as of August 30, 2005, by and among Motorola Israel, Ampal Communications L.P. and MIRS. In connection with the sale of its holdings of MIRS, Ampal Communications L.P. received approximately US $89 million of total proceeds, composed of $67.7 million for the purchase price and an additional $ 21.3 million related to guaranteed dividend payments. In the fiscal year ended December 31, 2004, the Company recorded $38.8 million in losses from the impairment of its investments and loans which was comprised primarily of the following losses: MIRS ($30.0 million), ShellCase ($3.8 million) and Star Management ($1.6 million).

During the fiscal year ended December 31, 2005, Ampal recorded $2.7 million of realized losses on investments, as compared to $6.0 million of realized gains in the same period in 2004. The loss recorded in 2005 was primarily attributable to the third-party investment in the high-tech portfolio (which is treated as a disposition for accounting purposes) which resulted in a $7.3 million loss ($4.6 net loss after tax). This loss was partially offset by the gain recorded from the sale of all of Ampal’s shares of Modem Art Ltd. ($3.3 million gain) and the sale of all of its shares in Epsilon investment ($1.4 million gain). The $6.0 million gain recorded in 2004 is mainly attributable to the sale of PowerDsine Ltd. and the sale of assets by PSINet Europe, one of the holdings of Ampal’s investee company, TP.

The Company recorded realized and unrealized gains from marketable securities in the amount of $3.2 million in the year 2005 as compared to $1.9 million in 2004.

The increase in real estate income and expenses in 2005 as compared to 2004 is primarily attributable to the increase in the tenant occupancy rate in Am-Hal Ltd.

Other income realized by the Company is principally composed of guaranteed dividend payments from Motorola equal to $7.1 million for the years ended December 31, 2005, and December 31, 2004.

The Company recorded higher interest income in the fiscal year ended December 31, 2005, as compared to the same period in 2004, primarily as a result of a $0.7 million gain from forward contracts to purchase U.S. Dollars and increases in interest rates.

The Company recorded an interest expense of $5.3 million in the fiscal year ended December 31, 2005, as compared to $4.9 million in the same period in 2004, primarily as a result of increases in applicable interest rates.

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, 2006
Revenues	$	5,548		$	8,519		$	6,424		$	3,458
Net interest expense		(781	)		(408	)		(339	)		(2,147	)
Net (loss) income		(575	)		1,381			(1,795	)		(6,098	)
Basic EPS:
Earnings (Loss) per Class A share⁽¹⁾		(0.03	)		0.06			(0.18	)		(0.19	)
Diluted EPS:
Earnings (Loss) per Class A share.		(0.03	)		0.06			(0.18	)		(0.19	)


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter

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

	Unaudited

Fiscal Year Ended December 31, 2005
Revenues	$	15,634		$	5,827		$	7,907		$	1,162
Net interest expense		(1,017	)		(1,439	)		(1,143	)		(91	)
Net (loss) income		6,728			(2,511	)		(10,630	)		455
Basic EPS:
Earnings (Loss) per Class A share⁽¹⁾		0.33			(0.13	)		(0.53	)		0.02
Diluted EPS:
Earnings (Loss) per Class A share.		0.30			(0.13	)		(0.53	)		0.02


⁽¹⁾	After deduction of dividends on the 4% and 6 1/2% Cumulative Convertible Preferred Stock in 2006 and 2005 (in thousands) of $2,438 and $191, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

On December 31, 2006, cash, cash equivalents and marketable securities were $37.1 million, as compared with $62.9 million at December 31, 2005. The decrease in cash, cash equivalents and marketable securities is primarily attributable to the sale of marketable securities, which were used to partially finance our acquisition of interests in EMG in August and November 2006 as described below.

The Company has sources of cash from operations, cash from 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. In the event of a decline in the market price of its marketable securities, 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.

In addition, cash equal to $9 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 provided by operating activities totaled approximately $29.8 million for the fiscal year ended December 31, 2006, as compared to approximately $43.2 million at the same period in 2005. The decrease is primarily attributable to (i) the receipt of a $21.3 million dividend from MIRS Communications Ltd. as part of the sale of MIRS to Motorola Communication Israel Ltd. in 2005 while there was none in 2006 and (ii) the $0.2 million in dividend payments received from affiliates as compared to $4.3 million in dividend payments received from affiliates in 2005. The decrease was primarily offset by $39.6 million of net proceeds from marketable securities ($89.6 million proceeds offset by $50.0 million invested) as compared to $19.7 million net proceeds in the same period of 2005.

Cash flows from investing activities

Net cash used in investing activities totaled approximately $107.3 million for the fiscal year ended December 31, 2006, as compared to approximately $36.7 million provided by investing activities for the same period in 2005. The change is primarily attributable to the Company’s investments in EMG ($120.9 million), Bay Heart ($1.7 million) and FIMI ($0.4 million) and $10.0 million deposit at Hermatic Trust (1975) Ltd. to secure the payment of interest on the debenture. This increase was partially offset by proceeds in the amount of $23.4 million from the sale of our interests in Coral World International, Ophir Holdings Ltd., Modem Art Ltd., certain dispositions by FIMI, certain dispositions by TP, other dispositions and $3.8 million from the sale of the building which contains our headquarters in Tel-Aviv.

Cash flows from financing activities

Net cash provided by financing activities was approximately $86.2 million for the fiscal year ended December 31, 2006, as compared to approximately $73.5 million of net cash used in financing activities for the same period in 2005. 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. In 2005, the Company repaid in full the $73.1 million loan which was received from Bank Hapoalim Ltd. and Bank Leumi Le-Israel Ltd. relating to the investment in MIRS Communications Ltd., repaid $2.5 million of loans made to Am-Hal Ltd. and used its own cash to pay down Ampal’s existing notes payable and debentures in the amount of $5.3 million. Those effects were offset in 2005 by the borrowing of $8.8 million to finance a new project by Am-Hal Ltd. and its minority partner.

Investments

On December 31, 2006, the aggregate fair value of trading and available-for-sale securities were approximately $0.4 million, as compared to $38.6 million at December 31, 2005. The decrease in 2006 is mainly attributable to the sale of various marketable securities in order to finance the purchase of EMG.


a)	In 2006, the Company made the following investments:

	1.	During 2006, the Company made an additional investment of $229.9 million in EMG as follows:

		The Company, through Merhav Ampal Energy, Ltd., a wholly-owned subsidiary of the Company, entered into an agreement with Merhav (M.N.F.) Ltd. (“Merhav”) for the purchase from Merhav a portion of its interest in East Mediterranean Gas Co. S.A.E., an Egyptian joint stock company (“EMG”). The sole owner of Merhav is Yosef A. Maiman, who is also the Chairman, President and CEO of the Company and a member of the controlling shareholder group of Ampal.

		On August 1, 2006 the Company acquired the beneficial ownership of 4.6% of the outstanding shares of EMG’s capital stock from Merhav. The transaction was accounted for as a transfer of assets between entities under common control, which resulted in Merhav transferring the investment in EMG to Ampal 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. On this basis, the 4.6% investment in EMG was transferred to Ampal at carrying value, which also equals fair value. The purchase price for the shares was $100.0 million, of which, $50.0 million was paid in cash and the balance was paid in 10,248,002 shares of the Company Class A Stock (based on a purchase price of $4.88 per share) that was accounted for at a fair value of $49.0 million (the fair value was determined based on the average price per share from 2 days before the agreement press release through 2 days after the agreement press release). The issuance of the shares of Class A Stock received the approval of the shareholders of the Company as required by the marketplace rules of the NASDAQ Global Market. As a result of this transaction, the Company beneficially owned 6.6% of the total outstanding shares of EMG. Through August 2008, the purchase price may be adjusted downward should Merhav sell any of its remaining shares of EMG to a third-party purchaser at a purchase price per share lower than the price per share paid by the Company pursuant to the agreement. Additionally, pursuant to the agreement, the Company was granted an option for a period of up to two years to have the right to acquire up to an additional 5.9% of the total outstanding shares of EMG stock.

		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. Because of the foregoing relationships, 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, negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which was retained as financial advisor to the special committee, delivered a fairness opinion to the special committee regarding the transaction. On August 22, 2006, EMG called for additional capital from all of its shareholders. As a result, the Company paid an additional $2.7 million in order to maintain its pro rata beneficial interest in this investment.


		On December 21, 2006, the Company acquired the beneficial ownership of an additional 5.9% of the outstanding shares of EMG’s capital stock pursuant to an option granted by Merhav in August 2006. The transaction was accounted for as a transfer of assets between entities under common control, which resulted in Merhav transferring the investment in EMG to Ampal 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. On this basis, the 5.9% investment in EMG was transferred to Ampal at carrying value, which also equals fair value. The purchase price for the shares was approximately $128.3 million, of which approximately $68.3 million was paid in cash, $40 million was paid in 8,602,151 shares of the Company’s Class A Stock and the balance was satisfied by the issuance of a promissory note in the principal amount of $20 million (the “Convertible Promissory Note”), which, at the option of Merhav, will be paid in cash, additional shares of the Company Class A Stock (based on a price per share of $4.65 per share), or a combination thereof. As permitted under the stock purchase agreement, Merhav assigned its right to the 8,602,151 Shares to De Majorca Holdings Limited as part of Merhav’s restructuring process. The Convertible Promissory Note bears interest at 6 months LIBOR (5.375%) and matures on the earlier of September 20, 2007 or upon demand by Merhav. Ampal may pre-pay the Convertible Promissory Note at any time in whole or in part. The maximum number of shares that can be issued in this transaction (including accrued interest payable through the maturity date on the Convertible Promissory Note) is 13,078,540 shares of Class A Stock. As a result of this transaction, Ampal beneficially owns 12.5% of the total outstanding shares of EMG. The issuance of the 8,602,151 shares and the 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. Due to the agreement of the controlling shareholder group to vote in favor of the issuance of these shares to Merhav as of the closing date of the EMG transaction (which ensured that the proposal would be adopted by the requisite shareholder vote on February 7, 2007), the Company classified for accounting purposes the sale of these shares as part of the exchange with Merhav on December 21, 2006, and recognized the $40 million within shareholders’ equity as “Receipt on account of unallocated shares.” The investment in EMG is included in the energy segment. 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. Because of the foregoing relationships, 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, negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which was retained as financial advisor to the special committee, advised the special committee on these transactions.

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

	2.	Additional investment of $0.4 million in FIMI Opportunity Fund, L.P.

	3.	A loan to Bay Heart of $1.7 million, for a shopping mall in Haifa, Israel.

b)	In 2006, Ampal made the following dispositions:

	1.	In June and December 2006, the Company received proceeds in the total amount of $0.6 million from the sales of certain investments by FIMI.

	2.	On June 13, 2006, the Company sold its holdings in Coral World International for $21.0 million and recorded a gain of $4.2 million.

	3.	In March 2006, the Company received additional proceeds from the sale of Modem Art Ltd. in the amount of $ 0.6 million.

	4.	In April 2006, the Company received additional proceeds in the amount of $0.4 million from the sale of certain assets by PSINet Europe, one of the holdings of Ampal’s investee company, TP.

	5.	On May 8, 2006, the Company sold its holdings in Ophir Holdings Ltd. for $1.1 million and recorded a loss of $1.0 million.

	6.	On September 12, 2006, the Company sold the building in Tel-Aviv containing its headquarters for proceeds of $4.6 million and recorded a gain of $2.2 million. The new owner has agreed to lease to us the office space that contains our headquarters for a period of up to 2 years commencing on November 28, 2006. The annual rent for this lease is $162,000.

Debt

Notes issued to institutional investors in Israel, the convertible note issued to Merhav 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 Israel Shekels, with interest rates varying depending upon their linkage provision and mature between 2007-2015.

The Company finances its general operations and other financial commitments through bank loans from Bank Hapoalim. These loans in the amount of $26.3 million mature through 2007-2010. (As of December 31, 2005 the amount was $31.3 million).

On November 20, 2006, the Company entered into a trust agreement with Hermatic Trust (1975) Ltd. pursuant to which the Company issued notes to institutional investors in Israel in the principal aggregate amount of NIS 250,000,000 (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. The Company received the funds from the private placement on November 20, 2006. Midroog Ltd., an affiliate of Moody’s Investors Service rated the Company as A3.

The Company intends to register the notes for trading on the TASE subject to publishing a final prospectus approved by the Israeli Securities Authority as well as the approval of the TASE for the listing of the notes. Until the listing is approved, Ampal will pay an additional annual interest rate of 0.5% on the notes.

The following additional terms apply to the notes:


—	Until the listing of the notes is approved, if the rating of the notes from Midroog is reduced below A3, the interest rate per annum of the notes will increase by 0.2% increments subject to the terms and conditions set forth in the notes;

—	Ampal may issue additional notes without limitation, but until the listing is approved by the TASE, Ampal cannot issue additional notes if such issuance would adversely affect the Midroog rating of our existing series of notes, which are the subject of this prospectus;

—	The notes will be listed for trade on the TASE no sooner than 47 days after the final prospectus is approved by the Israeli Securities Authority and the TASE, and during such 47 day period, the notes will not be tradable;

—	If Yosef A. Maiman ceases to directly or indirectly own the largest amount of shares of Ampal (relative to the rest of the shareholders of Ampal) before the notes are listed on the TASE, a meeting of the noteholders will be convened to discuss whether the notes will be redeemed.

In addition, as part of the EMG transaction in December 2006, the Company issued to Merhav a promissory note in the principal amount of $20 million, which at the option of Merhav, will be paid 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 bears interest at 6 months LIBOR (5.375%) and matures on the earlier of September 20, 2007 or upon demand by Merhav. Ampal may pre-pay the Convertible Promissory Note at any time in whole or in part.

The Company financed a portion of the development of Am-Hal, a wholly-owned subsidiary of the Company, which develops and operates luxury retirement centers for senior citizens, through a revolving credit facility from Bank Hapoalim Ltd., Phoenix Insurance Company and others. On December 1, 2005, a loan agreement creating the facility was signed between Am-Hal, Phoenix Insurance Company and others. Pursuant to the loan agreement, the lenders granted the Company a revolving credit facility in Israeli Shekels equal to $12.5 million. The annual interest rate on the loan, which matures in 10 years, is 7.5%. The interest rate and the principal of the loan will be adjusted based on the changes in the Israeli Consumer Price Index. As of December 31, 2006 the Company had drawn $2.5 million from the facility. As of December 31, 2006 and December 31, 2005 the amount of Am-Hal’s outstanding debt under the loans from Bank Hapoalim Ltd., Phoenix Insurance Company and others, were $15.0 million and $13.5 million, respectively. The loans, excluding the Phoenix loan, mature in up to one year and have interest rates ranging between 6.5% and 7.5%. The Company generally repays these loans with the proceeds received from deposits and other payments from the apartments in Am-Hal facilities. The loans are secured by a lien on Am-Hal’s properties. The Company also issued guarantees in the amount of $2.9 million in favor of tenants of Am-Hal in order to secure their deposits.

Other long term borrowings in the amount of $1.7 million are linked to the Israeli C.P.I and mature between 2007 and 2010, of which an amount of $1.5 million bears no interest. The remaining $0.2 million bears an annual interest of 5.7%.

The weighted average interest rates and the balances of these short-term borrowings at December 31, 2006 and December 31, 2005 were 6.4% on $21.2 million and 6.0% on $15.0 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	$	25,260	$	6,212	$	10,672	$	5,139	$	3,237
Debentures	$	59,172		-		-	$	11,834	$	47,338
Convertible Promissory Note	$	20,000	$	20,000
Short-Term Debt	$	21,193	$	21,193
Capital Call Obligation⁽¹⁾	$	2,800	$	2,800
Operating Lease ⁽²⁾Obligation	$	7,827	$	591	$	887	$	647	$	5,702
Capital Lease Obligation		--		--		--		--		--
Purchase Obligations		--		--		--		--		--
Other Long-Term Liabilities Reflected on the Company’s Balance Sheet Under GAAP		--		--		--		--		--
Total	$	136,252	$	50,796	$	11,559	$	17,620	$	56,277


⁽¹⁾	See note 16(d)

⁽²⁾	See note 16(a)

As of December 31, 2006, the Company had issued guarantees on certain outstanding loans to its investees and subsidiaries in the aggregate principal amount of $9.5 million. This includes:


	1.	$5.6 million guarantee on indebtedness incurred by Bay Heart ($2.6 million of which is recorded as a liability in the Company’s financial statements at December 31, 2006) in connection with the development of its property. Bay Heart recorded losses in 2006 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.	$2.9 million guarantee to Am- Hal tenants as described above.

	3.	$1.0 million guarantee to Galha 1960 Ltd. as described in Item 3 of this Report.

In each of 2005 and 2004, Ampal paid dividends in the amount of $0.20 and $0.325 per share on its 4% and 6 ½% Cumulative Convertible Preferred Stocks, respectively. Total dividends paid in each year amounted to approximately $0.2 million. In 2006, the preferred shares were converted to Class A Shares and the dividend paid was approximately $2.3 million (see “Change in Shareholders Equity”- below).

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 US 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, 2006, the Company did not have any open foreign currency forward exchange contracts to purchase or sell U.S. Dollars.

CHANGES IN SHAREHOLDERS EQUITY

During the third and fourth quarter of 2006, the shareholders’ equity changed as follows:

On July 31, 2006, all outstanding shares of our 4% Cumulative Convertible Preferred Stock and our 6-1/2% Cumulative Convertible Preferred Stock were converted as follows:

Each share of our 4% Cumulative Convertible Preferred Stock was converted to five shares of Ampal’s Class A Stock plus an additional $2.58 per share paid in cash and each share of Ampal’s 6-1/2% Cumulative Convertible Preferred Stock was converted to three shares of Ampal’s Class A Stock plus an additional $4.09 per share paid in cash.

Holders of our 4% Cumulative Convertible Preferred Stock and 6-1/2% Cumulative Convertible Preferred Stock who voted in favor of the amendments to Ampal’s Restated Certificate of Incorporation received an additional $0.15 per share.

As of July 31, 2006, the only class of outstanding shares of our capital stock is our Class A Stock.

On October 9, 2006, as part of our additional investment in EMG, the Company sold to Merhav (M.N.F.) Ltd. 10,248,002 shares of the Company’s Class A Stock that was accounted for at a fair market value of $49.0 million. The issuance of these shares received the approval of the shareholders of the Company on September 19, 2006, as required by the marketplace rules of the NASDAQ Global Market.

On December 21, 2006, as part of the closing of the Company’s additional investment in EMG, the Company sold to Merhav (M.N.F.) Ltd. 8,602,151 shares of the Company’s Class A Stock that was accounted for at a fair market value of $40.0 million. The sale of these shares received the approval of the shareholders of the Company on February 7, 2007, as required by the marketplace rules of the NASDAQ Global Market. Due to the agreement of the controlling shareholder group to vote in favor of the issuance of these shares to Merhav as of the closing date of the EMG transaction (which ensured that the proposal would be adopted by the requisite shareholder vote on February 7, 2007), the Company classified for accounting purposes the sale of these shares as part of the exchange with Merhav on December 21, 2006, and recognized the $40 million within shareholders’ equity as “Receipt on account of unallocated shares.”

On December 28, 2006, the Company completed the sale of 8,142,705 shares of our Class A Stock (based on a price per share of $4.65) for an aggregate price of approximately $37.9 million (recorded at $36.7 million after deducting related expenses) and warrants to purchase 4,071,352 shares of the Class A Stock of the Company for an exercise price of $4.65 per share. The warrants will expire on August 27, 2007. The shareholders of the Company approved the issuance of the shares underlying the warrants on February 7, 2007, as required by the marketplace rules of the NASDAQ Global Market. The fair value market, from an accounting stand point, of the warrants is $308,000, and it was estimated using the following weighted average assumption: 1) expected life of warrants of 8 months, 2) dividend yield of 0%, 3) volatility of 13.76% and 4) risk free interest of 4.97%. The 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.


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, 2006, and are sensitive to the above market risks.

During the fiscal year ended December 31, 2006, 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, 2005.

Interest Rate Risks

At December 31, 2006, the Company had financial assets totaling $27.7 million and financial liabilities totaling $105.6 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, 2006, the Company did not have fixed rate financial assets and had variable rate financial assets of $27.7 million. A ten percent decrease in interest rates would not increase the unrealized fair value of the fixed rate assets.

At December 31, 2006, the Company had fixed rate debt of $66.3 million and variable rate debt of $39.3 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 $0.1 million.

The net decrease in earnings and cash flow for the next year resulting from a ten percent interest rate increase would be approximately $0.2 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 in Israel. During 2006, the Company entered into various foreign exchange forward purchase contracts to partially hedge this exposure. At December 31, 2006, the Company didn’t have any open foreign exchange forward purchase contracts. 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 $1.3 million, and regarding the statements of operations a ten percent devaluation of the foreign currency would be reflected in a net increase in earnings and cash flow would be $7.3 million.

Equity Price Risk

The Company’s investments at December 31, 2006, included marketable securities which are recorded at a fair value of $0.4 million, including a net unrealized gain of $0.1 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 $0.1 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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Ampal-American Israel Corporation and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, cash flows, changes in shareholders’ equity, for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of certain affiliated companies, the company’s interest in which as reflected in the balance sheets as of December 31, 2006 and 2005 is $1,262 thousands and $14,001 thousands, respectively, and the Company’s share in excess of profits over losses in a net amount of $1,620 thousands, $88 thousands and $1,931 thousands for the years ended December 31, 2006, 2005 and 2004, respectively. The financial statements of those affiliated companies were audited by other independent registered public accounting firms whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for those companies, is based solely on the reports of the other independent registered public accounting firms. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Boards (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other independent auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other independent registered public accounting firms, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1(n) to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for share based payment, to conform with FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”.


Tel Aviv, Israel March 30, 2007

	/s/ KESSELMAN & KESSELMAN CPAs (ISR) A member of PricewaterhouseCoopers International Limited

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	Assets As At

	December 31, 2006		December 31, 2005


	(U.S. Dollars in thousands)


Cash and cash equivalents	$	36,733	$	24,314


Deposits, notes and loans receivable (Note 6)		10,207		343
Investments (Notes 2, 3 and 13):
Non marketable securities		265,236		54,903
Marketable securities		380		38,575

Total investments		265,616		93,478

Real estate property, less accumulated depreciation of $14,003 and $13,907		69,319		70,989

Other assets (Note 4)		19,808		22,361


TOTAL ASSETS	$	401,683	$	211,485

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

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	Liabilities and Shareholders’ Equity As At

	December 31, 2006			December 31, 2005

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

LIABILITIES

Notes and loans payable (Note 5)	$	46,453		$	50,366
Debentures (Note 6)		59,172			--
Deposits from tenants		54,979			53,461
Accounts payable, accrued expenses and others (Note 7)		30,964			17,369

Commitments and Contingencies (note 16)
Total liabilities		191,568			121,196

Minority interests, net (Note 8)		1,302			1,420


SHAREHOLDERS’ EQUITY (Note 9)

Class A Stock $1 par value; authorized 60,000,000 shares; issued 46,328,429 and 25,826,821 shares; outstanding 40,753,640 and 20,075,782 shares		46,328			25,827

4% Cumulative Convertible Preferred Stock, $5 par value as of December 31, 2005; authorized 189,287 shares; issued 114,198 shares; outstanding 110,848 shares		-			571

6-1/2% Cumulative Convertible Preferred Stock, $5 par value as of December 31, 2005; authorized 988,055 shares; issued 641,423 shares; outstanding 518,887 shares		-			3,207

Receipt on account of unallocated shares		40,000			-

Additional paid-in capital		126,945			58,252

Warrants		308			-

Retained earnings		40,165			51,223

Accumulated other comprehensive loss		(17,059	)		(19,518	)

Treasury stock, at cost		(27,874	)		(30,693	)


Total shareholders’ equity		208,813			88,869


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	401,683		$	211,485

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

AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS


	Fiscal Year Ended December 31,

	2006			2005			2004

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

REVENUES:
Real estate income	$	9,642		$	9,244		$	9,020
Equity in earnings of affiliates (Note 13)		1,610			6,666			4,031
Realized gains on investments (Note 3)		5,386			--			5,964
Realized and unrealized gains on marketable securities		1,126			3,203			1,929
Gain (loss) on sale of real estate rental property (Note 3)		2,186			--			(123	)
Interest income		1,479			1,567			590
Other income		2,520			9,850			10,053

Total revenues		23,949			30,530			31,464


EXPENSES:
Real estate expenses		9,229			8,651			8,874
Realized losses on investments (Note 3)		1,016			2,735			--
Loss from impairment of investments & real estate (Note 3)		--			13,984			38,811
Interest expense		5,154			5,257			4,880
Translation (gain) loss		(303	)		2,220			(194	)
Other (mainly general and administrative)		13,548			10,957			11,806

Total expenses		28,644			43,804			64,177

Loss before income taxes		(4,695	)		(13,274	)		(32,713	)
Provision for income taxes (tax benefits) (Note 12)		2,731			(2,849	)		(10,198	)


Loss after income taxes (tax benefits)		(7,426	)		(10,425	)		(22,515	)
Minority interests, net		(339	)		(4,467	)		(4,130	)

NET LOSS	$	(7,087	)	$	(5,958	)	$	(18,385	)


Basic and diluted EPS (Note 11):
Loss per Class A share	$	(0.40	)	$	(0.31	)	$	(0.94	)

Shares used in calculation (in thousands)		24,109			19,967			19,841

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

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


	Fiscal Year Ended December 31,

	2006			2005			2004

	(U.S. Dollars in thousands)

Cash flows from operating activities:
Net loss	$	(7,087	)	$	(5,958	)	$	(18,385	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Equity in earnings of affiliates		(1,610	)		(6,666	)		(4,031	)
Realized and unrealized gains on investments, net		(5,496	)		(468	)		(7,893	)
Loss (gain) on sale of real estate rental property		(2,186	)		--			123
Depreciation expense		1,967			1,978			2,168
Amortization income from tenants deposits		(1,747	)		(1,876	)		(1,944	)
Impairment of investments		--			13,984			38,811
Non cash stock based compensation		720			--			--
Minority interests		(339	)		(4,467	)		(4,130	)
Translation (gain) loss		(303	)		2,220			(194	)
Decrease in other assets		4,196			13,425			537
Increase (decrease) in accounts payable, accrued expenses and other		1,817			6,968			(18,273	)
Investments made in trading securities		(49,994	)		(12,868	)		(36,811	)
Proceeds from sale of trading securities		89,622			32,595			59,834
Dividends received from affiliates		217			4,335			3,277


Net cash provided by operating activities		29,777			43,202			13,089


Cash flows from investing activities:
Deposits, notes and loans receivable collected		--			2,872			14,935
Deposits, notes and loans receivable granted		(10,001	)		(1,024	)		(6,696	)
Investments made		(123,031	)		(30,621	)		(6,295	)
Proceeds from sale of investments:
Affiliate companies		21,714			3,041			--
Others		1,663			72,315			16,556
Capital improvements		(1,430	)		(9,884	)		(1,075	)
Proceeds from sale of real estate property		3,800			--			236


Net cash provided by (used in) investing activities		(107,285	)		36,699			17,661

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

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


	Fiscal Year Ended December 31,

	2006			2005			2004

	(U.S. Dollars in thousands)

Cash flows from financing activities:
Notes and loans payable received	$	6,015		$	8,869		$	6,463
Long term loan received by partnership minority		166			2,050			--
Notes and loans payable repaid		(11,210	)		(78,875	)		(23,655	)
Proceeds from exercise of stock options		550			251			--
Debentures repaid		--			(2,023	)		(1,753	)
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		--			(3,567	)		40
Dividends paid on preferred stock		(2,332	)		(191	)		(200	)


Net cash provided by (used) in financing activities		86,228			(73,486	)		(19,105	)

Effect of exchange rate changes on cash and cash equivalents		3,699			281			1,401

Net increase in cash and cash equivalents		12,419			6,696			13,046
Cash and cash equivalents at beginning of year		24,314			17,618			4,572


Cash and cash equivalents at end of year	$	36,733		$	24,314		$	17,618


Supplemental Disclosure of Cash Flow Information Cash paid during the year:
Interest		2,969			2,535			5,170


Income taxes paid	$	66		$	68		$	3,763


Supplemental Disclosure of Non-Cash investing and financing activity:

Consideration for sale of an investment recorded as other assets		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			2,267


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


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


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

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

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.

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.

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			Additional paid in capital		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total shareholders equity

BALANCE AT JANUARY 1, 2004		25,567		25,567		132			660			697			3,487			58,143		76,109			(17,847	)		(31,096	)		115,023
CHANGES DURING 2004:
Net loss																				(18,385	)								(18,385	)
Other comprehensive income (loss):
Foreign currency translation adjustments																							513						513
Unrealized loss on marketable securities																							3,396						3,396
Sale of available for sale securities																							(334	)					(334	)

Total comprehensive loss																													(14,810	)
Conversion of 7,928 4% preferred stock and 35,161
6.5% preferred stock into Class A stock		148		148		(8	)		(40	)		(35	)		(176	)		68
4% preferred stock, $0.2 per share																				(24	)								(24	)
6.5% preferred stock, $0.325 per share																				(176	)								(176	)



BALANCE AT DECEMBER 31, 2004		25,715		25,715		124			620			662			3,311			58,211		57,524			(14,272	)		(31,096	)		100,013

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

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 14”.

	(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 subsidiaries. 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, 2006, the Company did not have any open foreign currency forward exchange contracts to purchase or sell US Dollars.


(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)	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 income (loss). 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).


	(iii)	Cost Basis Investments

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


(f)	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.


(g)	Long - Lived Assets

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

Real-estate property of a subsidiary, 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.


(h)	Leasehold improvements

Fixed assets leased by the companies under capital leases are classified 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). 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.


(i)	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, 2006 and 2005 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.


(j)	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.


(k)	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 $9.0 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.


(l)	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 2006, 2005 and 2004, all outstanding stock options and 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 for those years (in the period in which it was outstanding) since its shareholders do not have contractual obligation to share in the losses of the Company.


(m)	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.


(n)	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.

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 as it is not “more likely than not” that it will 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 years 2005 and 2004 would have been reduced as follows:


	Year ended December 31,
		2005			2004
	(In thousands, except per share data)			(In thousands, except per share data)


Net loss, as reported	$	(5,958	)	$	(18,385	)

Less – stock based compensation expense determined under fair value method		(874	)		(569	)


Pro forma, net loss		(6,832	)		(18,954	)


Basic and diluted EPS:
As reported ⁽¹⁾⁽²⁾	$	(0.31	)	$	(0.94	)
Pro forma ⁽¹⁾⁽²⁾	$	(0.35	)	$	(0.97	)

⁽¹⁾After deduction of accrued Preferred Stock Dividend of $191 thousands and $200 thousands for the years 2005 and 2004, respectively.

⁽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 antidilutive effect.


(o)	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 it’s shares.


(p)	Newly Issued and Recently Adopted Accounting Pronouncements

SFAS No. 155 – Accounting for Certain Hybrid Financial Instruments - an Amendment of FASB Statements No. 133 and 140.

FASB Interpretation No. 48 – Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109

SFAS No. 157 - Fair Value Measurements

Staff Accounting Bulletin No. 108 - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 was issued in order to eliminate the diversity of practice in how public companies quantify misstatements of financial statements, including misstatements that were not material to prior years’ financial statements. The Company adopted SAB 108 and follows SAB 108 requirements when quantifying financial statement misstatements. The adoption of SAB No.108 did not have any impact on the Company’s 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.” 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.


(q)	Reclassifications

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

Note 2 – Investments

The balance of investments as of December 31, 2006 and 2005, are composed of the following items:


	As of December 31,


	2006		2005


	(U.S. Dollars in thousands)


EMG	$	259,860	$	29,960

Investment in Affiliates		3,855		23,427

Other Investments		1,521		1,516

Marketable Securities⁽¹⁾		380		38,575


	$	265,616	$	93,478


	⁽¹⁾ The Company classifies investments in marketable securities as trading securities or available-for-sale securities.


	(a)	Trading Securities

		The cost and market values of Trading securities at December 31, 2006 and 2005 are as follows:


	Cost		Unrealized Gains		Market Value


	(U.S. Dollars in thousands)


2006	$	245	$	135	$	380


2005	$	36,316	$	71	$	36,387


	(b)	Available-For-Sale Securities

		The cost and market values of available-for-sale securities consisting of marketable securities only at December 31, 2006 and 2005 are as follows:


	Cost		Unrealized Gains		Market Value

	(U.S. Dollars in thousands)


2006	$	-	$	-	$	-


2005	$	1,855	$	333	$	2,188

Note 3 – Acquisitions, Dispositions and Impairments


a)	In 2006, the Company made the following investments:

	1.	During 2006, the Company made an additional investments of $229.9 million in EMG as follows:

		The Company, through Merhav Ampal Energy, Ltd., a wholly-owned subsidiary of the Company, entered into an agreement with Merhav (M.N.F.) Ltd. (“Merhav”) for the purchase from Merhav a portion of its interest in East Mediterranean Gas Co. S.A.E., an Egyptian joint stock company (“EMG”). The sole owner of Merhav is Yosef A. Maiman, who is also the Chairman, President and CEO of the Company and a member of the controlling shareholder group of Ampal.

		On August 1, 2006 the Company acquired the beneficial ownership of 4.6% of the outstanding shares of EMG’s capital stock from Merhav. The transaction was accounted for as a transfer of assets between entities under common control, which resulted in Merhav transferring the investment in EMG to Ampal 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. On this basis, the 4.6% investment in EMG was transferred to Ampal at carrying value, which also equals fair value. The purchase price for the shares was $100.0 million, of which, $50.0 million was paid in cash and the balance was paid in 10,248,002 shares of the Company Class A Stock (based on a purchase price of $4.88 per share) that was accounted for at a fair value of $49.0 million (the fair value was determined based on the average price per share from 2 days before the agreement press release through 2 days after the agreement press release). The issuance of the shares of Class A Stock received the approval of the shareholders of the Company as required by the marketplace rules of the NASDAQ Global Market. As a result of this transaction, the Company beneficially owned 6.6% of the total outstanding shares of EMG. Through August 2008, the purchase price may be adjusted downward should Merhav sell any of its remaining shares of EMG to a third-party purchaser at a purchase price per share lower than the price per share paid by the Company pursuant to the agreement. Additionally, pursuant to the agreement, the Company was granted an option for a period of up to two years to have the right to acquire up to an additional 5.9% of the total outstanding shares of EMG stock.

		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. Because of the foregoing relationships, 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, negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which was retained as financial advisor to the special committee, delivered a fairness opinion to the special committee regarding the transaction.

		On August 22, 2006, EMG called for additional capital from all of its shareholders. As a result, the Company paid an additional $2.7 million in order to maintain its pro rata beneficial interest in this investment.

		On December 21, 2006, the Company acquired the beneficial ownership of an additional 5.9% of the outstanding shares of EMG’s capital stock pursuant to an option granted by Merhav in August 2006. The transaction was accounted for as a transfer of assets between entities under common control, which resulted in Merhav transferring the investment in EMG to Ampal 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. On this basis, the 5.9% investment in EMG was transferred to Ampal at carrying value, which also equals fair value.


		The purchase price for the shares was approximately $128.3 million, of which approximately $68.3 million was paid in cash, $40 million was paid in 8,602,151 shares of the Company’s Class A Stock and the balance was satisfied by the issuance of a promissory note in the principal amount of $20 million (the “Convertible Promissory Note”), which, at the option of Merhav, will be paid in cash, additional shares of the Company Class A Stock (based on a price per share of $4.65 per share), or a combination thereof. As permitted under the stock purchase agreement, Merhav assigned its right to the 8,602,151 Shares to De Majorca Holdings Limited as part of Merhav’s restructuring process. The Convertible Promissory Note bears interest at 6 months LIBOR (5.375%) and matures on the earlier of September 20, 2007 or upon demand by Merhav. Ampal may pre-pay the Convertible Promissory Note at any time in whole or in part. The maximum number of shares that can be issued in this transaction (including accrued interest payable through the maturity date on the Convertible Promissory Note) is 13,078,540 shares of Class A Stock. As a result of this transaction, Ampal beneficially owns 12.5% of the total outstanding shares of EMG. The issuance of the 8,602,151 shares and the 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. Due to the agreement of the controlling shareholder group to vote in favor of the issuance of these shares to Merhav as of the closing date of the EMG transaction (which ensured that the proposal would be adopted by the requisite shareholder vote on February 7, 2007), the Company classified for accounting purposes the sale of these shares as part of the exchange with Merhav on December 21, 2006, and recognized the $40 million within shareholders’ equity as “Receipt on account of unallocated shares.” The investment in EMG is included in the energy segment. 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. Because of the foregoing relationships, 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, negotiated and approved the transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc., which was retained as financial advisor to the special committee, advised the special committee on these transactions.

	2.	Additional investment of $0.4 million in FIMI Opportunity Fund, L.P. (“FIMI”).

	3.	A loan to Bay Heart of $1.7 million, for a shopping mall in Haifa, Israel

b)	In 2006, Ampal made the following dispositions:

	1.	In June and December 2006, the Company received proceeds in the total amount of $0.6 million from the sales of certain investments by FIMI.

	2.	On June 13, 2006, the Company sold its holdings in Coral World Iinternational for $21.0 million and recorded a gain of $4.2 million. The gain is included in the leisure-time segment.

	3.	In March 2006, the Company received an additional proceeds from the sale of Modem Art Ltd. in the amount of $0.6 million.

	4.	In April 2006, the Company received additional proceeds in the amount of $0.4 million from the sale of certain assets by PSINet Europe, one of the holdings of Ampal’s investee company, TP.

	5.	On May 8, 2006, the Company sold its holdings in Ophir Holdings Ltd. for $1.1 million and recorded a loss of $1.0 million.

	6.	In September 2006, the Company sold the building in Tel-Aviv containing its headquarters for a proceeds of $4.6 million and recorded a gain of $2.2 million. The new owner has agreed to lease to the Company the office space containing the Company’s headquarters for a period of up to 2 years commencing on November 28, 2006. The annual rent for this lease is $162,000. The gain from the sale is included in the real-estate segment.

(c)	In 2005, the Company made the following investments:

	1.	On December 1, 2005, the Company acquired a 2% interest in EMG from Merhav. EMG is an Egyptian joint stock company organized in accordance with the Egyptian Special Free Zones system which has been given the right to export natural gas from Egypt to Israel and other locations in the East Mediterranean basin and other countries. Egyptian natural gas shall reach the Israeli market via an underwater pipeline owned by EMG. Under the terms of the transaction, the Company acquired a 2% beneficial ownership in EMG for a purchase price of $29,960,000. Additionally, the Company was granted the exclusive right to negotiate to acquire a substantial portion of Merhav’s remaining shares of EMG. The Company also has the right for a period of time to require Merhav to repurchase the EMG interest.

		Yosef A. Maiman, the chairman of the Company’s Board of Directors, is the sole owner of Merhav. The transaction was approved by a special committee of the Board of Directors composed of the Company’s independent directors. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. acted as financial advisors to the special committee.


	2.	Additional investment of $0.7 million in FIMI Opportunity Fund, L.P.

	3.	A loan to Bay Heart Ltd. of $0.9 million.

(d)	In 2005, the Company made the following dispositions:

	1.	During the third and fourth quarter of 2005, one of the holdings of Ampal’s investee companies, TP, received proceeds at the amount of $1.1 million from selling all its assets in Grapes Communications N.V./S.A. and its holdings in PSINet Europe B.V.

	2.	On October 3, 2005, the Company, through Ampal Communications L.P., completed the sale to Motorola Israel Ltd. of all of its 25% holdings of MIRS pursuant to the Agreement. In connection with the sale of its holdings of MIRS, Ampal Communications L.P. received approximately US $89 million of total proceeds, composed of US $67.7 million for the purchase price and an additional US $21.3 million related to guaranteed dividend payments. During the third quarter of 2005, the Company recorded a $13.3 million loss from impairment relating to this investment.

	3.	On September 7, 2005, a third-party Israeli based venture fund and certain of its affiliated companies invested $2.65 million in the Company’s high-tech and communications portfolio. Ampal received $2.5 million in connection with this transaction. The Company treated this investment as a disposition for accounting purposes and recorded a loss of $7.3 million ($4.6 million after taxes).

	4.	On August 15, 2005, the Company sold its holdings in Epsilon Investment House Ltd. and Renaissance Investment Company Ltd. for $2.0 million and recorded a $1.4 million gain.

	5.	On July 11, 2005, the Company sold its holdings in Xpert Ltd. for $0.8 million and recorded a loss of $0.2 million.

	6.	On March 8, 2005, the Company sold its holdings in Modem Art Ltd. for $4.4 million and recorded a gain of $3.3 million.

(e)	In 2005, the Company recorded loss from impairment of investments and loans of $14.0 million as follows:

	1. MIRS Communications Ltd. ($13.3 million) 2. Shiron Ltd. ($0.6 million) 3. Other loans ($0.1 million)

(f)	In 2004, the Company made investments aggregating $6.3 million, as follows:

	1.	The Company invested EUR 4.9 million (approximately US$5.8 million) in Telecom Partners Limited Partnership (“TP”), a newly formed entity that will serve as a platform for investments in the telecommunication industry predominantly outside of Israel. Ampal holds 33.3% of TP which currently holds investments in two European telecom service providers: PSINet Europe B.V. (“PSInet”) and Grapes Communications N.V./S.A.

	2.	A loan of $0.2 million to ShellCase, the principal business of which is the packaging process of semiconductor chips.

	3.	An investment of $0.3 million in FIMI Opportunity Fund, L.P.

(g)	In 2004, the Company made the following dispositions:

	1.	On February 19, 2004, Ampal sold its holdings in XACCT Technology Ltd. for $3.8 million.


	2.	During May 2004, the Company sold 49% of its holdings in PowerDSine Ltd. for approximately $7.4 million.

	3.	During the third quarter of 2004, PSInet, one of the holdings of Ampal’s investee company, TP, sold all its assets to large telecommunications providers. Following the sale, a portion of the proceeds was distributed to TP, of which Ampal received $7.1 million and recorded a gain of $2.5 million in connection with this transaction. The remaining carrying value is $1.2 million.

(h)	In 2004, the Company recorded loss from the impairment of investments in an aggregate amount equal to $38.8 million as follows:

	1. MIRS Communications Ltd. ($30 million)* 2. Star Management of Investment ($1.6 million) 3. Courses Investment in Technology Ltd. ($0.3 million) 4. VisionCare Opthalmic Technologies ($0.5 million investment) 5. ShellCase Ltd. ($3.8 million) 6. Identify Solutons Ltd. ($0.7 million) 7. Xpert Integrated Systems Ltd. ($1.7 million) 8. Peptor Ltd. ($0.2 million).

	* Management determined that a reduction in the carrying value of MIRS by $30 million was appropriate at the time due to the then existing relationship with Motorola.

Note 4 – Other Assets

The balance of “Other Assets” as of December 31, 2006 and 2005 is composed as follows:


	As of December 31,

	2006		2005

	(U.S. Dollars in thousands)


Deferred tax assets	$	10,398	$	15,681

Accounts receivable-trade		1,943		1,713

Deferred expenses		2,727		1,424

Leasehold improvements		2,562		2,595

Other		2,178		948


	$	19,808	$	22,361

Note 5 – Notes and Loans Payable

Notes issued in December 2006 to institutional investors in Israel, the convertible note issued to Merhav and other loans payable pursuant to bank borrowings are either in U.S. dollars, linked to the Consumer Price Index (“CPI”) in Israel or in unlinked Israel Shekels, with interest rates varying depending upon their linkage provision and mature between 2007-2015.

The Company financed a portion of the development of Am-Hal, a wholly-owned subsidiary of the Company, which develops and operates luxury retirement centers for senior citizens, through a revolving credit facility from Bank Hapoalim Ltd., Phoenix Insurance Company and others. On December 1, 2005, a loan agreement creating the facility was signed between Am-Hal, Phoenix Insurance Company and others. Pursuant to the loan agreement, the lenders granted the Company a revolving credit facility in Israeli Shekels equal to $12.5 million. The annual interest rate on the loan, which matures in 10 years, is 7.5%. The interest rate and the principal of the loan will be adjusted based on the changes in the Israeli Consumer Price Index. As of December 31, 2006 the Company had drawn $2.5 million from the facility. As of December 31, 2006 and December 31, 2005 the amount of Am-Hal’s outstanding debt under the loans from Bank Hapoalim Ltd., Phoenix Insurance Company and others, were $15.0 million and $13.5 million, respectively. The loans, excluding the Phoenix Insurance Company loan, mature in up to one year and have interest rates ranging between 6.5% and 7.5%. The Company generally repays these loans with the proceeds received from deposits and other payments from the apartments in Am-Hal facilities. The loans are secured by a lien on Am-Hal’s properties. The Company also issued guarantees in the amount of $2.9 million in favor of tenants of Am-Hal in order to secure their deposits.

The Company finances its general operations and other financial commitments through bank loans from Bank Hapoalim. As of December 31, 2006, these loans in the amount of $26.3 million will mature during 2007-2010. (As of December 31, 2005 the amount was $31.3 million).

Other long term borrowings in the amount of $1.7 million are linked to the Israeli CPI and mature between 2007 and 2010, of which an amount of $1.5 million bears no interest. The remaining $0.2 million bears an annual interest of 5.7%.

The weighted average interest rates and the balances of these short-term borrowings at December 31, 2006 and December 31, 2005 were 6.4% on $21.2 million and 6.0% on $15.0 million, respectively.

Payments due by period:


	(US. Dollars in thousands)


	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years


Long-Term Debt	$	25,260	$	6,212	$	10,672	$	5,139	$	3,237

Short-Term Debt	$	21,193	$	21,193


	$	46,453	$	27,405	$	10,672	$	5,139	$	3,237

Note 6 – Debentures

On November 20, 2006, the Company entered into a trust agreement with Hermatic Trust (1975) Ltd. pursuant to which the Company issued notes to institutional investors in Israel in the principal aggregate amount of NIS 250,000,000 (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 the Company’s 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. The Company deposited an amount of $10,207 thousands at Hermatic Trust (1975) Ltd. to secure the first 3 years worth of payments of interest on the debentures. Prior to the issuance of the debentures Midroog Ltd., an affiliate of Moody’s Investors Service, rated the Company as A3.

The following additional terms apply to the notes:


	•	Until the listing of the notes is approved, if the rating of the notes from Midroog is reduced below A3, the interest rate per annum of the notes will increase by 0.2% increments subject to the terms and conditions set forth in the notes;

	•	Ampal may issue additional notes without limitation, but until the listing is approved by the TASE, Ampal cannot issue additional notes if such issuance would adversely affect the Midroog rating of our existing series of notes, which are the subject of this prospectus;

	•	The notes will be listed for trade on the TASE no sooner than 47 days after the final prospectus is approved by the Israeli Securities Authority and the TASE, and during such 47 day period, the notes will not be tradable;


	•	If Yosef A. Maiman ceases to directly or indirectly own the largest amount of shares of Ampal (relative to the rest of the shareholders of Ampal) before the notes are listed on the TASE, a meeting of the noteholders will be convened to discuss whether the notes will be redeemed.

Note 7 – Accounts payable accrued expenses and others


(a)	The balance of accounts payable accrued expenses and others as of December 31, 2006 and 2005 is comprised as follows:


	As of December 31,

	2006		2005

	(U.S. Dollars in thousands)


Deferred tax liabilities	$	974	$	3,310

Deferred income and accrued expenses		2,808		2,283

Excess of share in losses of affiliate over the investment therein		2,574		3,456

Related party		--		5,081

Convertible promissory note*		20,000		--

Others		4,608		3,239


	$	30,964	$	17,369

The Convertible Promissory Note bears interest at 6 months LIBOR (5.375%) and matures on the earlier of September 20, 2007 or upon demand by Merhav. Ampal may pre-pay the Convertible Promissory Note at any time in whole or in part. The maximum number of shares that can be issued with respect to the promissory note (including accrued interest payable through the maturity date on the Convertible Promissory Note) is 4,476,389 shares of Class A Stock. The Company concluded that there was no beneficial conversion feature embedded within the Convertible Promissory Note.


(b)	Accrued severance liabilities

	Israeli labor laws and agreements require payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. Ampal severance pay liability in Israel, which reflects the undiscounted amount of the liability as if it was payable at each balance sheet date, is calculated based upon length of service and the latest monthly salary (one month’s salary for each year worked).

	The Company’s liability for severance pay pursuant to Israeli law is partly covered by insurance policies. The accrued severance pay liability of $0.3 million, is included in accounts payable, accrued expenses and other liabilities - others.

	The Company expects that the payments relating to future benefits to its employees upon their retirement at normal retirement age in the next 10 years will be immaterial. These payments are determined based on recent salary rates and do not include amounts that might be paid to employees that will cease working with the Company, before their normal retirement age or amount paid to employees that their normal retirement age extends beyond the year 2016.

Note 8 – Minority Interest, net

The minority interest is mostly attributable to the warrants granted by Am-Hal to Phoenix Insurance Company. As part of the loan agreement which was signed on December 1, 2005 between Am-Hal and Phoenix Insurance Company, the lender is granted a warrant to purchase 19.9% (on fully diluted basis) of the issued and paid capital of Am-Hal (the “warrant”). The warrant is exercisable during a period of 4 years and can be exercised for payment of $5,960,000. The number of shares under the warrant is adjusted for stock splits or bonus shares, and also adjusted for any new issuances to third parties; in such case the lender’s number of shares under the warrant will increase respectively, so as to provide the lender with 19.9% of the outstanding shares after the issuance to a third party. The exercise price for the additional shares (19.9% of the shares issued to the third party) will be equal the price paid by such third party. Also if there is a public offering in a price less then the exercise price of the warrant, the exercise price of the warrant will be adjusted to represent the price in the public offering discounted by 15%. The warrant can only be exercised for the full 19.9% - there can be no partial exercise at any time. The value of the warrant was estimated at approximately $1.3million and recorded as deferred expenses (Note 4). The amortization that was recorded in the reported period is $0.2 million.

Note 9 – Shareholders’ Equity

During the third quarter of 2006 the sharesholders’ equity changed as follows:

On July 31, 2006, all outstanding 4% Cumulative Convertible Preferred Stock and 6-1/2% Cumulative Convertible Preferred Stock were converted as follows:

Each share of Ampal’s 4% Cumulative Convertible Preferred Stock was converted to five shares of Ampal’s Class A Stock plus an additional $2.58 per share paid in cash and each share of Ampal’s 6-1/2% Cumulative Convertible Preferred Stock was converted to three shares of Ampal’s Class A Stock plus an additional $4.09 per share paid in cash. The total amount paid upon conversion was $2.3 million.

Holders of Ampal’s 4% Cumulative Convertible Preferred Stock and 6-1/2% Cumulative Convertible Preferred Stock who voted in favor of the amendments to Ampal’s Restated Certificate of Incorporation received an additional $0.15 per share. These payments amounted to $49,000.

As of July 31, 2006, the only class of outstanding shares of our capital stock is our Class A Stock.

On October 9, 2006, as part of the Company’s additional investment in EMG, the Company issued to Merhav (M.N.F.) Ltd. 10,248,002 shares of the Company’s Class A Stock that was accounted for at a fair market value of $49.0 million. The issuance of these shares received the approval of the shareholders of the Company on September 19, 2006, as required by the marketplace rules of the NASDAQ Global Market.

On December 28, 2006, the Company completed the sale of 8,142,705 shares of its Class A Stock (based on a price per share of $4.65) for an aggregate price of approximately $37.9 million (recorded at $36.7 millions after deducting related expenses) and warrants to purchase 4,071,352 shares of the Class A Stock of the Company for an exercise price of $4.65 per share. The warrants will expire on August 27, 2007 as the shareholders of the Company approved the issuance of the shares underlying the warrants on February 7, 2007, as required by the marketplace rules of the NASDAQ Global Market. The fair value market of the warrants is $308 thousand and it was estimated using the following weighted average assumption: 1) expected life of warrants of 8 months; 2) dividend yield of 0%; 3) volatility of 13.76%; and 4) risk free interest of 4.97%. The 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.

Set forth below is our treasury stock as of December 31, 2006, 2005 and 2004:


	Fiscal Year Ended December 31,

	2006			2005			2004

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

TREASURY STOCK:

4% PREFERRED STOCK
Balance, beginning of year 3,350 shares	$	(84	)	$	(84	)	$	(84	)

Elimination of treasury stock 3,350 shares		84			--			--

Balance, at the end of year	$	--		$	(84	)	$	(84	)


6-1/2% PREFERRED STOCK
Balance, beginning and end of year 122,536 shares	$	(1,853	)	$	(1,853	)	$	(1,853	)

Elimination of treasury stock 122,536 shares		1,853			--			--

Balance, at the end of year	$	--		$	(1,853	)	$	(1,853	)


CLASS A STOCK
Balance, beginning of year – 5,751,039, 5,831,664 and 5,831,664 shares, at cost	$	(28,756	)	$	(29,159	)	$	(29,159	)

Issuance of 176,250 and 80,625 shares		882			403			--

Balance, end of year – 5,574,789, 5,751,039 and 5,831,664 shares, at cost	$	(27,874	)	$	(28,756	)	$	(29,159	)

Balance end of year	$	(27,874	)	$	(30,693	)	$	(31,096	)

Note 10 – Stock Options

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 the majority of the Company’s shareholders at the June 19, 1998, annual meeting of shareholders. The plan remains in effect for a period of ten years. As of December 31, 2006, no options of the 1998 Plan are fully vested and outstanding.

On February 15, 2000, the Stock Option 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 of Ampal (the “Board”) at the 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 plan remains in effect for a period of ten years. As of December 31, 2006, 2,164,500 options under the 2000 Plan are outstanding.

The option term is for a period of five years from the grant date for the options granted under the 1998 Plan and ten years from the grant date for the options granted under the 2000 Plan. If the options are not exercised and the shares not paid for by such date, all interests and rights of any grantee shall expire. These options were granted for no consideration.

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 Stock Option Compensation Committee (the “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 Committee. The stock options granted under the plans were granted either at market value or above. Under the Plans, the 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. During 2006, no such compensation instrument were granted by the Committee.

Under each of the Plans, all granted but unvested options become immediately exercisable upon the occurrence of a change in control of the Company.

The following table summarizes the activity of both Plans for the years 2006, 2005 and 2004 respectively:


	Options (in thousands)			Weighted- Average Exercise Price (U.S. Dollars)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (U.S. Dollars in thousands)


Outstanding at January 1, 2006		2,024		$	3.37
Granted at fair value		630		$	5.06
Exercised		(176	)	$	3.12
Forfeited		(284	)	$	3.50
Expired		(30	)	$	5.94


Outstanding at December 31, 2006		2,164		$	3.83		7.70		2,078

Exercisable at December 31, 2006		1,111		$	3.24		-		1,644


	Options (in thousands)			Weighted- Average Exercise Price (U.S. Dollars)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (U.S. Dollars in thousands)


Outstanding at January 1, 2005		2,064		$	3.39
Granted at fair value		135		$	3.69
Exercised		-		$	-
Forfeited		(175	)	$	3.85
Expired		-		$	-


Outstanding at December 31, 2005		2,024		$	3.37		7.72		-

Exercisable at December 31, 2005		1,044		$	3.29		-		-


	Options (in thousands)			Weighted- Average Exercise Price (U.S. Dollars)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (U.S. Dollars in thousands)


Outstanding at January 1, 2004		1,396		$	3.46
Granted at fair value		886		$	3.49
Exercised		-		$	-
Forfeited		(218	)	$	4.22
Expired		-		$	-


Outstanding at December 31, 2004		2,064		$	3.39		8.40		-

Exercisable at December 31, 2004		678		$	3.43		-		-

Valuation and Expenses under 123R

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted below. Expected life is based on the Company’s management estimate for future behavior. Expected volatility is based on the historical volatility of the Class A common stock. The risk free rate is based on the U.S. Treasury yield curve for a term consistent with the expected life of the award, in effect at the date of grant.

The fair value of options granted during the years ended December 31, 2006, 2005 and 2004 were estimated using the following weighted average assumptions: (1) expected life of options of 5, 5 and 6 years, respectively; (2) dividend yield of 0%; (3) volatility of 41.11%, 46.07% and 60%, respectively; and (4) risk free interest of 4.42%, 4.08% and 3.3%, respectively.

Total stock-based compensation expense recognized under SFAS No. 123R, was approximately $720,000 for the year 2006. No share-based compensation was capitalized in the consolidated financial statements.

The total intrinsic value (market value on date of exercise less exercise price) of options exercise during 2006 was $260,000.

Cash received from option exercises for the year 2006 was $550,000.

At December 31, 2006, there was $2.16 million of total unrecognized, pre-tax compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted-average period of approximately four years. The Company settles employee stock options exercises primarily with newly issued common shares and occasionally with treasury shares.

Note 11 – Earnings (Loss) Per Class A Share

Basic net loss per share is computed by dividing net loss after deduction of preferred stock dividends by the weighted-average number of common stock shares outstanding for the period. In 2006, 2005 and 2004, all outstanding stock options and 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 were not taken into account in the computation of the basic EPS for those years (in the period in which it was outstanding) since its shareholders did not have contractual obligation to share in the losses of the Company. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share follows (in thousands, except per share amounts):


	Year Ended December 31,

	2006			2005			2004


Net loss		(7,087	)		(5,958	)		(18,385	)

Less: preferred stock dividend		(2,438	)		(191	)		(200	)


Net loss available for class A stock		(9,525	)		(6,149	)		(18,585	)


Weighted average class A shares outstanding		24,109			19,967			19,841


Net loss per share:

Basic and diluted	$	(0.40	)	$	(0.31	)	$	(0.94	)

The following table summarized securities that were not included in the calculations of diluted earnings per class A shares for the years ended December 31, 2006, 2005 and 2004 because such shares are anti-dilutive.


	December 31,
(Shares in thousands)	2006		2005		2004


Options and Rights		2,164		2,024		2,064
6-1/2% Preferred Stock		-		641		662
4% Preferred Stock		-		114		124
Warrants		4,071		-		-
Promissory note		4,476		-		-

Note 12 – Income Taxes


	Fiscal Year Ended December 31,

	2006			2005			2004

	(U.S. Dollars in thousands)

The components of current and deferred income tax expense (benefit) are:
Current:
Federal	$	-		$	-		$	-
Foreign		308			-			1,472
Deferred:
State and local		-			3			-
Federal		2,464			(2,955	)		(20,404	)
Foreign		(41	)		103			8,734

Total	$	2,731		$	(2,849	)	$	(10,198	)


The domestic and foreign components of income (loss) before income taxes are:

Domestic	$	(4,855	)	$	(14,046	)	$	(29,286	)
Foreign		160			772			(3,427	)

Total	$	(4,695	)	$	(13,274	)	$	(32,713	)


A reconciliation of income taxes between the statutory and effective tax is as follows:

Federal income tax (benefit) at 34%	$	(1,596	)	$	(4,513	)	$	(11,123	)
Taxes on foreign Gain (Loss) below U.S. rate		5,058			(12,796	)		(806	)
Changes in valuation allowance		(446	)		14,639			2,304
Other		(285	)		(179	)		(573	)

Total effective tax: 58.2%; 22% and 31%	$	2,731		$	(2,849	)	$	(10,198	)


	As of December 31,

	2006			2005


Deferred tax assets:
The components of deferred tax assets and liabilities are as follows:
Net operating loss and capital loss carryforwards	$	30,629		$	35,925
Unrealized losses on investments		700			1,132
Foreign tax credits carryforwards		5,456			5,456

Total deferred assets		36,785			42,513
Valuation allowance		(26,387	)		(26,832	)

Net deferred tax assets		10,398			15,681


Deferred tax liabilities:
Tax on equity in earnings of affiliates		434			2,470
Other		540			840

Total deferred tax liability		974			3,310


Net deferred tax assets	$	9,424		$	12,371

As of December 31, 2006, valuation allowance is provided against tax benefits on domestic and foreign net operating loss carryforwards of $5.1 million and $21.3 million, respectively.

As of December 31, 2006, the Company has foreign tax credits of $5.5 million that will expire in the years 2009 through 2014.

As of December 31, 2006, the Company has U.S. Federal net operating loss carryforwards of approximately $24.7 million that will expire in the years 2022 through 2025. The utilization of net operating loss carryforwards may be subject to substantial annual limitations if there has been a significant “change in ownership”. Such a “change in ownership”, as described in Section 382 of the Internal Revenue Code, may substantially limit the Company’s utilization of the net operating loss carryforwards.

Note 13 – Investments in Affiliates

The companies accounted for by the equity method and the Company’s share of equity in those investees are:


	As of December 31,

	2006	2005

	%	%

Bay Heart Limited	37	37
Carmel Containers Systems Limited	21.8	21.8
Coral World International Limited	--	50
Hod Hasharon Sport Center (1992) Limited Partnership	50	50
Ophir Holdings	--	42.5
Trinet Investment in High-Tech Ltd.	37.5	37.5
Trinet Venture Capital Ltd.	50	50

Combined summarized financial information for the above companies is as follows:


	Fiscal Year Ended December 31,

	2006		2005		2004

	(U.S. Dollars in thousands)


Revenues	$	100,567	$	140,197	$	129,091
Gross profit		12,707		30,918		22,200
Net income		57		15,803		8,184


	As of December 31,

	2006		2005

	(U.S. Dollars in thousands)


Property and equipment	$	56,835	$	65,931
Other assets		63,240		134,700

Total assets	$	120,075	$	200,631


Total liabilities, including bank borrowings	$	104,176	$	143,217

Note 14 – Operating Segments Information

SFAS 131 “Disclosure about Segments of an Enterprise and Related Information” establishes annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. Segment information presented below results primarily from operations in Israel.

The energy segment consists of the investment in EMG, an Egyptian Joint Stock Company, which holds the rith to supply natural gas to Israel through a pipe line to be constructed from Egypt to Israel.

The real estate rental segment consists of rental property owned in Israel and the United States leased to unrelated parties, and operations of Am-Hal Ltd., a wholly-owned subsidiary which owns and operates a chain of senior citizens facilities located in Israel.

The leisure-time segment consists of Coral World International Limited (marine parks located around the world) and Country Club Hod Hasharon Sport Center and Kfar Saba, the Company’s 51%-owned subsidiary located in Israel. In June 2006, the Company sold all of its interest in Coral World International Limited (see “Note 3”).

The finance segment consists of all other activity which are not part of the above segments.


	Fiscal Year Ended December 31,

	2006			2005			2004

	(U.S. Dollars in thousands)

Revenues:
Finance	$	4,271		$	12,475		$	16,379
Real estate income		11,828			9,244			8,897
Leisure-time		6,317			2,208			2,233
Intercompany adjustments		(77	)		(63	)		(76	)

		22,339			23,864			27,433
Equity in earning of affiliates		1,610			6,666			4,031

Total	$	23,949		$	30,530		$	31,464


Equity in Earnings (losses) of Affiliates:
Finance	$	566		$	106		$	1,523
Real estate rental		(676	)		5,448			590
Leisure-time		1,720			1,112			1,122
Others		--			--			796

Total	$	1,610		$	6,666		$	4,031


Interest Income:
Finance	$	1,502		$	1,586		$	613
Intercompany adjustments		(23	)		(19	)		(23	)

Total	$	1,479		$	1,567		$	590


Interest Expense:
Finance	$	4,248		$	4,278		$	4,246
Real estate rental		849			836			540
Leisure-time		83			162			117
Intercompany adjustments		(26	)		(19	)		(23	)

Total	$	5,154		$	5,257		$	4,880


Pretax Operating (Loss) Income:
Finance	$	(11,570	)	$	(20,472	)	$	(36,192	)
Real estate rental		861			287			(963	)
Leisure-time		4,404			245			411

		(6,305	)		(19,940	)		(36,744	)
Equity in earning of affiliates		1,610			6,666			4,031

Total	$	(4,695	)	$	(13,274	)	$	(32,713	)


Income (Benefit) Tax Expense:
Finance	$	2,518		$	(2,970	)	$	(10,558	)
Real estate rental		146			63			334
Leisure-time		67			58			26

Total	$	2,731		$	(2,849	)	$	(10,198	)


Net Income:
Finance	$	(13,522	)	$	(17,396	)	$	(24,111	)
Real estate rental		39			5,672			(707	)
Leisure-time		6,057			1,299			1,507
Others		--			--			796

		(7,426	)		(10,425	)		(22,515	)
Minority interest, net		(339	)		(4,467	)		(4,130	)

Total	$	(7,087	)	$	(5,958	)	$	(18,385	)


Total Assets for year end:
Finance	$	330,548		$	88,498		$	225,577
Energy		259,860			29,960			--
Real estate rental		76,513			76,117			64,128
Leisure-time		2,874			17,568			17,426
Intercompany adjustments		(268,112	)		(1,239	)		(2,184	)

Total	$	401,683		$	210,904		$	304,947


Investments in Affiliates for year end:
Finance	$	3,498		$	8,360		$	3,389
Real estate rental		(2,574	)		(3,456	)		10,987
Leisure-time		357			15,066			14,479

Total	$	1,281		$	19,970		$	28,855


Capital Expenditures:
Finance	$	28		$	--		$	5
Real estate rental		1,300			9,794			774
Leisure-time		102			90			296

Total	$	1,430		$	9,884		$	1,075


Depreciation, Amortization and Impairment:
Finance	$	66		$	14,039		$	38,984
Real estate rental		(32	)		(160	)		(111	)
Leisure-time		186			207			162

Total	$	220		$	14,086		$	9,035

Corporate office expense is principally applicable to the financing operation and has been charged to that segment above. Revenues and pretax operating gain above exclude equity in earnings of affiliates.

Note 15 – Disclosures about Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:


(a)	Cash and Cash Equivalents

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value (see “Note 1(k)”).

(b)	Deposits, Notes and Loans Receivable

The fair value of these deposits, notes and loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

(c)	Investments

For financial instruments with maturities between 91 days and 1 year, and all marketable securities, the carrying amount is a reasonable estimate of fair value.

(d)	Financial Instruments

The fair value of the financial instruments included in other assets, accounts payable, and accrued expenses presented at a fair value.

(e)	Commitments

Due to the relatively short term of commitments discussed in “Note 16”, the contract value is considered to be at fair value.

(f)	Financial Assets and Financial Liabilities

The fair value of notes and loans payable, deposits payable and debentures outstanding is estimated by discounting the future cash flows using the current rates offered by lenders for similar borrowings with similar credit ratings and for the same remaining maturities.


	As of December 31,

	2006				2005

	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(U.S. Dollars in thousands)
Financial assets:

Cash and cash equivalents	$	36,733	$	36,733	$	24,314	$	24,314
Deposits, notes and loans receivable		--		--		343		343
Investments		380		380		38,575		38,575

	$	37,113	$	37,113	$	63,232	$	63,232


Financial liabilities:

Notes and loans payable	$	46,453	$	46,648	$	50,366	$	50,362
Debentures outstanding		59,172		58,353		--		--

	$	105,625	$	105,001	$	50,366	$	50,362

Note 16– Commitments and Contingencies


(a)	The combined minimum annual lease payments on Ampal’s corporate offices in New York and in Israel and its subsidiary Country Club Kfar Saba Ltd. in 2006 were $0.3 million. The lease of the corporate office in New York expires in 2009, the lease of the office in Tel Aviv expires in 2008, the lease of the office in Herzelia Pituach expires in 2017 and the Kfar Saba lease expires in 2038. In the years 2007-2011, the combined annual lease payments on those premises will be in an aggregate amount of $2.1 million, and thereafter, an amount totaling $5.7 million.

(b)	AM-Hal provided a lien to Bank Hapoalim on AM-Hal properties in Rishon – Le Zion and Hod Hasharon to guarantee a loan of $11.5 million.

(c)	The Company has issued guarantees on bank loans to its investees and subsidiaries totaling $9.5 million as follows:

	(1)	The Company provided a $2.9 million guarantee to AM–Hal tenants.

	(2)	The Company provided a $5.6 million guarantee on indebtedness incurred by Bay Heart.

	(3)	The Company provided a $1.0 million guarantee to Galha (1960) Ltd, for the payment of the Company’s subsidiary of a final judgment, if entered against the Company’s subsidiary. (See below)

(d)	The Company made a commitment to invest $2.8 million in Star II (2000 L.P.).

(e)	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 10,927,100 ($2.6 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 4,059,000 ($961,000) if a final judgment against the Company will be given.

	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. There have not been any significant developments in this matter as of the date of filing this report.

Note 17 – Subsequent Events

Significant Developments Since the Fiscal Year Ended December 31, 2006


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.

Internal Control Over Financial Reporting

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

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 Yosef A. Maiman an option to purchase 250,000 shares of the Company’s Class A Stock. This option has 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 this option may only be paid by the holder by having the Company withhold from the underlying option stock the number of shares having a fair market value equal to the exercise price. The form of option agreement pursuant to which this option was granted under the 2000 Plan is being filed as Exhibit 10o hereto.

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 28, 2007:


Name		Position