The preparation of Ampal - American Israel Corporation's ("Ampal", and collectively with its subsidiaries, the "Company") consolidated financial statements is in conformity with accounting principles generally accepted in the United States ("GAAP") 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 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for a summary of all of Ampal's significant accounting policies.

No significant updates have occurred since our last annual report on form 10-K, except for a revenue recognition policy resulting from the recent acquisition of Gadot Chemical Tankers and Terminals Ltd. ("Gadot").

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

Chemical income is recognized in accordance with SAB 104 provisions, namely when (a) persuasive evidence of an arrangement exists, (b) the sales price is fixed or determinable, (c) collectibility is probable, (d) no material obligations remain under the selling agreements, and (e) product delivery has occurred or the service has been rendered. Revenue for services is recognized over the period during which those services are preformed.

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

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

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

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

SFAS No. 161 - Disclosures about derivative instruments and hedging activities

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161").SFAS 161 requires enhanced disclosures regarding derivatives and hedging activities, including: (a) the manner in which an entity uses derivative instruments;
(b) the manner in which derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities"; and (c) the effect of derivative instruments and related hedged items on an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is in process of evaluating the impact, if any, that the adoption of SFAS 161 will have on its financial statements.

SFAS No. 162 - The hierarchy of generally accepted accounting principles

In May 2008, the FASB issued Financial Accounting Standard (FAS) No. 162, "The Hierarchy of Generally Accepted Accounting Principles." The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in conformance with generally accepted accounting principles. Unlike Statement on Auditing Standards (SAS No. 69, "The Meaning of Present in Conformity With GAAP," FAS No. 162 is directed to the entity rather than the auditor. The statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with GAAP," and is not expected to have any impact on the Company's results of operations, financial condition or liquidity.

In April 2008, the FASB issued FASB Staff Position (the "FSP") FAS No. 142-3, which amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under FAS No. 142, "Goodwill and Other Intangible Assets." The FSP requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141, "Business Combinations." The FSP is effective for fiscal years beginning after December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The FSP is not expected to have a significant impact on the Company's results of operations, financial condition or liquidity.

In October 2008, the FASB issued FASB Staff Position SFAS No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active," ("SFAS No. 157-3"). This position clarifies the application of FASB No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This position was effective for us on September 30, 2008. The adoption of this position did not have an effect on our financial statements.

Changes in pricing and demand for chemicals

The overall demand for chemical products, especially commodity chemicals, is highly dependent on general economic conditions. In the past few months, both the prices and demand for chemicals have been volatile. The economic indicators from the United States and Europe have started to negatively influence demand. The economic slow down is already being felt in the construction sector, mainly in the United States, which had enjoyed significant growth in recent years. The construction sector is a large consumer of chemical products.

In recent years, the increased demand for chemicals led to an increase in shipping demand in the chemical carrier sector. Fuel prices significantly impact the profitability of this segment in Gadot's activity. The rapid increase in oil prices during the first nine months of 2008 had a significant negative influence on the gross profit of Gadot. Any future reduction in oil prices may contribute positively to Gadot's gross profit.

On April 29, 2008, Gadot announced that an agreement had been signed for the winding-up of Chem-Tankers C.V., a limited partnership registered in the Netherlands, which was engaged in the maritime shipping of chemicals in bulk (hereafter - the "Partnership"). The Partnership was established pursuant to an agreement signed on October 1, 2005 between Gadot Yam Chemical Shipping Ltd., a wholly owned and controlled subsidiary of Gadot, and a foreign company registered in Cyprus (hereafter - the "Partners"). The agreement sets forth the manner in which the Partnership will wind down, including provisions relating to the settling of accounts between the Partners, the distribution of the operating routes, the ships, and the fixed assets of the Partnership and the payment of winding-up expenses. Following the winding-up of the Partnership, the Company shall continue to operate the operating routes that it operated prior to the establishment of the Partnership in 2005, viz., the North Europe-Mediterranean Sea route and the North America-Mediterranean Sea route.

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

The Company recorded a consolidated net loss of $40.3 million for the nine months ended September 30, 2008 compared to a net gain of $3.7 million for the corresponding period in 2007. The increase in loss is primarily attributable to an increase in interest expense, translation loss and increase in the Israeli consumer price index that the Company's debentures are linked to for the nine months ended September 30, 2008 as compared to the corresponding period in 2007.

In the nine months ended September 30, 2008, the Company included the results of operations of Gadot, which was purchased in three parts, on December 3, 2007, May 29, 2008 and August 6, 2008. Below is data from Gadot results of operations (in millions of dollar):

  Chemical income                                       -   $  420

  Chemical expense                                      -   $  388

  Marketing expense                                     -   $  8.2

  Other expense (mainly general and administrative)     -   $ 16.8

  Interest expense                                      -   $  7.6

  Net loss                                              -   $  3.6

In the nine months ended September 30, 2008, the Company recorded $8.2 million of marketing expense, as compared to recording no marketing expense in the corresponding period in 2007. These expenses are attributable to Gadot, whose results of operation was consolidated for the first time in 2008. Marketing expense is composed mainly of salary and commission expenses.

In the nine months ended September 30, 2008, the Company recorded a $27.3 million of general, administrative and other expense, as compared to $8.1 million in the corresponding period in 2007. The increase is mainly due to consolidating Gadot for the first time in 2008.

In the nine months ended September 30, 2008, the Company recorded a $9.6 million of Minority interests share in losses of subsidiaries, net, as compared to none in the corresponding period in 2007. These losses are mainly attributable to translation losses in the notes issued to the partners in the Joint Venture, resulting from valuate of the New Israeli Shekel compared to the U.S. Dollar.

In the nine months ended September 30, 2008, the Company recorded a $33.3 million interest expense, as compared to a $7.8 million interest expense for the corresponding period in 2007. The increase in interest expense relates to the increase in notes payable which the Company received to finance the purchase of Gadot, issuance of the Company's Series B debentures, increase in the Israeli consumer price index and the interest expense of Gadot which the Company included for the first time in 2008.

In the nine months ended September 30, 2008, the Company recorded a $19.5 million translation loss, as compared to a $1.0 million translation loss for the corresponding period in 2007. The increase in translation loss is related to a change in the valuation of the New Israeli Shekel as compared to the U.S. Dollar, an increase of 11% in the nine month ended September 30, 2008 as compared to a decrease of 0.5% for the corresponding period in 2007.

Share in losses of affiliates increased to a net loss of $1.2 million for the nine months ended September 30, 2008, compared to a net loss of $1.0 million for the corresponding period in 2007.

In the nine month period ended September 30, 2008, the Company recorded $0.5 million gain from issuance of shares by Gadot in 2008.

In the nine month period ended September 30, 2008, the Company recorded $1.2 million of net realized gain on investments, compared to $0.2 million of net realized gain in the same period in 2007. The net gain recorded in 2008 was primarily attributable to the sale of Hod Hasharon Limited Partnership ($0.8 million gain), the sale of certain assets by PSINet Europe, one of the holdings of one of Ampal's investee companies, Telecom Partners ("TP") ($0.3 million gain) and the sale of certain assets by FIMI Opportunity Fund L.P ("FIMI") ($0.1 million gain).

On August 5, 2007, the Company completed the sale of Am-Hal Ltd ("Am-Hal"). Am-Hal was a wholly owned subsidiary which owned and operated a chain of senior citizens facilities located in Israel. Accordingly, Am-Hal has been reported as a discontinued operation for the nine months ended September 30, 2007.

Results of operations analyzed by segments for nine months ended September 30:

                                               2008               2007
                                          ---------------    --------------
                                             (U.S. Dollars in thousands)
                                          ---------------------------------

         Revenues:

         Chemicals                        $       420,110    $            -
         Finance                                    5,360             1,905
         Leisure-time                               2,309             1,816
         Intercompany adjustments                       -               (39 )
                                          -- ------------    -- -----------
                                                  427,779             3,682
         Equity in losses of affiliates            (1,209 )          (1,037 )
                                          -- ------------    -- -----------

         Total                            $       426,570    $        2,645
                                          -- ------------    -- -----------

The chemicals income relates solely to Gadot and derives from the following activities: sales of a wide range of liquid chemicals, providing maritime shipping services of chemicals by ships and providing other services which include logistics and storage services for chemicals.

In the nine months ended September 30, 2008, the Company recorded $426.6 million in revenue which was comprised of $420.1 million in the Chemicals segment, due to the acquisition of Gadot, $5.4 million in the Finance segment, $2.3 million in the Leisure-Time segment and a $1.2 million loss in share in earnings of affiliates, as compared to $2.6 million for the same period in 2007, which was comprised of $1.9 million in the Finance segment, $1.8 million in the Leisure-time segment and a $1.0 million loss in share in earnings of affiliates. The increase in the Finance segment revenue is primarily related to the increase in realized and unrealized gains on marketable securities and interest income from deposits.

                                      2008               2007
                                 ---------------    --------------
                                    (U.S. Dollars in thousands)
                                 ---------------------------------

                  Expenses:

                  Chemicals      $       420,369    $            -
                  Finance                 54,448            15,573
                  Leisure-time             2,368             1,713
                                 -- ------------    -- -----------

                  Total          $       477,185    $       17,286
                                 -- ------------    -- -----------

In the nine months ended September 30, 2008, the Company recorded $477.2 million in expenses which was comprised of $420.4 million in the Chemicals segment, due to the acquisition of Gadot, $54.4 million in the Finance segment and $2.4 million in the Leisure-time segment, as compared to $17.3 million expense for the same period in 2007 which was comprised of $15.6 million in the Finance segment and $1.7 million in the Leisure-Time segment. The increase in expenses in the Finance segment is primarily attributable to the $19.5 million translation loss which was recorded due to the change in the valuate of the New Israeli Shekel as compared to the U.S. dollar, increase in the Israeli consumer price index, the interest expense of Gadot which the Company included for the first time in 2008 and to the increase in interest expense related to the notes payable which the Company received to finance the purchase of Gadot.

Three months ended September 30, 2008 compared to three months ended September 30, 2007

The Company recorded a consolidated net loss of $12.6 million for the three months ended September 30, 2008 compared to a net gain of $11.9 million for the same period in 2007. The increase in loss is primarily attributable to an increase in interest expense, translation loss and an increase in Israeli consumer price index that the Company's debentures are linked to for the three months ended September 30, 2008 as compared to the same period in 2007.

In the three months ended September 30, 2008 the Company included the results of operations from Gadot, which was purchased in three parts, on December 3, 2007, June 3, 2008 and August 12, 2008. Below is data from Gadot results of operations (in millions of dollar):

  Chemical income                                       -   $ 143

  Chemical expense                                      -   $ 124

  Marketing expense                                     -   $ 2.1

  Other expense (mainly general and administrative)     -   $   6

  Interest expense                                      -   $   4

  Net income                                            -   $   2

In the three months ended September 30, 2008, the Company recorded a $2.1 million of marketing expense, as compared to recording no marketing expense in the corresponding period in 2007. These expenses are attributable to Gadot, whose results of operation were consolidated for the first time in 2008. Marketing expense is composed mainly of salary and commission expenses.

In the three months ended September 30, 2008, the Company recorded a $9.0 million of general, administrative and other expense, as compared to $3.6 million in the corresponding period in 2007. The increase is mainly due to consolidating Gadot for the first time in 2008.

In the three months ended September 30, 2008, the Company recorded a $3.3 million of Minority interests share in gain of subsidiaries, net, as compared to none in the corresponding period in 2007. These gains are mainly attributable to translation losses in the notes issued to the partners in the Joint Venture, resulting from valuate of the New Israeli Shekel compared to the U.S. Dollar.

In the three months ended September 30, 2008, the Company recorded a $18.3 million interest expense, as compared to a $3.6 million interest expense for the same period in 2007. The increase in interest expense relates to the increase in notes payable which the Company received to finance the purchase of Gadot, issuance of the Company's Series B debentures, increase in the Israeli consumer price index and the interest expense of Gadot, which the Company included for the first time in 2008.

In the three months ended September 30, 2008, the Company recorded a $5.9 million translation gain, as compared to a $1.5 million translation loss for the same period in 2007. The net gain is related to a change in the valuation of the New Israeli Shekel as compared to the U.S. Dollar which influences net gain the debentures Series B that were issued in 2008, an increase of 2% in the three months ended September 30, 2008 as compared to a decrease of 5.5% for the corresponding period in 2007.

In the three months ended September 30, 2008, the Company recorded $1.8 million loss of share in earnings of affiliates, compared to a net loss of $0.7 million for the same period in 2007. The increase in loss is primarily attributable to the losses from Gadot's affiliates which were included for the first time in 2008.

In the three months ended September 30, 2008, the Company recorded $0.8 million of realized gain on investments, compared to $0.2 million of net realized gain in the same period in 2007.

On August 5, 2007, the Company completed the sale of Am-Hal. Am-Hal was a wholly owned subsidiary which owned and operated a chain of senior citizens facilities located in Israel. Accordingly, Am-Hal has been reported as a discontinued operation for the three months ended September 30, 2007.

Results of operations analyzed by segments for three months ended September 30:

                                                2008              2007
                                          ----------------    ------------
                                            (U.S. Dollars in thousands)
                                          --------------------------------

          Revenues:

          Chemicals                       $        142,597    $          -
          Finance                                    2,310             902
          Leisure-time                                 817             670
          Intercompany adjustments                       -              (5 )
                                          -- -------------    -- ---------
                                                   145,724           1,567
          Share in losses of affiliates             (1,787 )          (695 )
                                          -- -------------    -- ---------

          Total                           $        143,937    $        872
                                          -- -------------    -- ---------

In the three months ended September 30, 2008, the Company recorded $143.9 million in revenue which was comprised of $142.6 million in the Chemicals segment, due to the acquisition of Gadot, $2.3 million in the Finance segment, $0.8 million in the Leisure-time segment and $1.8 million loss in share in earnings of affiliates, as compared to $0.9 million for the corresponding period in 2007, which was comprised of $0.9 million in the Finance segment, $0.7 million in the Leisure-time segment and $0.7 million loss in share in earnings of affiliates. The increase in the Finance segment revenue is primarily related to the increase in interest on deposits.

                                        2008              2007
                                  ----------------    ------------
                                    (U.S. Dollars in thousands)
                                  --------------------------------

                   Expenses:

                   Chemicals      $        140,519    $          -
                   Finance                  11,550           7,976
                   Leisure-time                863             679
                                  -- -------------    -- ---------

                   Total          $        152,932    $      8,655
                                  -- -------------    -- ---------

In the three months ended September 30, 2008, the Company recorded $152.9 million in expenses which was comprised of $140.5 million in the Chemicals segment, due to the acquisition of Gadot, $11.5 million in the Finance segment and $0.9 million in the Leisure-time segment, as compared to $8.7 million expense for the same period in 2007 which was comprised of $8.0 million in the Finance segment and $0.7 million in the Leisure-Time segment. The increase in expenses in the Finance segment is primarily attributable to the increase in the Israeli consumer price index, the interest expense of Gadot, which the Company included for the first time in 2008, the increase in interest expense related to the notes payable which the Company received to finance the purchase of Gadot and to the interest on the debenture Series B.

In the nine month and three month periods ended September 30, 2008 the Company reported a minor tax benefit from income taxes as compared to . . .