**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**Form
      10-KSB**




(Mark
      One)




**xANNUAL
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**


OF1934




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**




**oTRANSITION
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**


**OF
      1934**




**FOR
      THE TRANSITION PERIOD FROM __________ TO __________**




*COMMISSION
      FILE NUMBER 333-100979*





LAPIS
                TECHNOLOGIES, INC.
              (Name
                of small business issuer in its
                charter)


DELAWARE
              
              27-0016420(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)




19
      W.
      34th Street, Suite 1008, New York, NY 10001


(Address
      of principal executive offices) (Zip Code)





Issuer's
      telephone Number: (212) 937-3580




Securities
      registered under Section 12(b) of the Exchange Act: None.




Securities
      registered under Section 12(g) of the Exchange Act: None.




Check
      whether the issuer is not required to file reports pursuant to Section
      13


or
      15(d)
      of the Exchange Act. o




Check
      whether the issuer (1) filed all reports required to be filed by




Section
      13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days. Yes xNo o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x




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


Yes
oNo
x




State
      issuer's revenues for its most recent fiscal year. $9,642,000




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates, computed by reference to the average high and low price of
      such
      common equity as of March 28, 2008, was $1,296,600.




As
      of
      March 28, 2008, the issuer had 6,483,000 outstanding shares of Common
      Stock.




**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**




Transitional
      Small Business Disclosure Format (check one): Yes oNo x








**TABLE
      OF CONTENTS**


PagePART
                  IItem
                  1.
              
              Description
                  of Business
              
              1Item
                  2.
              
              Description
                  of Property
              
              10Item
                  3.
              
              Legal
                  Proceedings
              
              11Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              11PART
                  IIItem
                  5.
              
              Market
                  for Common Equity and Related Stockholder Matters
              
              12Item
                  6.
              
              Management's
                  Discussion and Analysis or Plan of Operation
              
              12Item
                  7.
              
              Financial
                  Statements
              
              16Item
                  8.
              
              Changes
                  In and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              16Item
                  8A.
              
              Controls
                  and Procedures
              
              16Item
                  8B.
              
              Other
                  Information
              
              17PART
                  IIIItem
                  9.
              
              Directors,
                  Executive Officers, Promoters and Control Persons;Compliance
                  With Section 16(a) of the Exchange Act
              
              17Item
                  10.
              
              Executive
                  Compensation
              
              18Item
                  11.
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              19Item
                  12.
              
              Certain
                  Relationship and Related Transactions
              
              21Item
                  13.
              
              Exhibits
              
              22Item
                  14.
              
              Principal
                  Accountant Fees and Services
              
              23SIGNATURES
              
              
              
              24








**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS.**




Lapis
      Technologies Inc. was formed in Delaware on January 31, 2002 under the name
      Enertec Electronics, Inc. and has filed two Certificates of Amendment changing
      our name to Opal Technologies, Inc. and then to Lapis Technologies, Inc. We
      conduct operations in Israel through our wholly owned subsidiary, Enertec
      Electronics Limited ("Enertec Electronics"), an Israeli corporation formed
      on
      December 31, 1991, and Enertec Systems 2001 LTD ("Enertec Systems"), an Israeli
      corporation formed on August 28, 2001, of which we own a 73% equity interest.
      We
      are manufacturers and distributors of various military and airborne systems,
      simulators, automatic test equipment (ATE), electronic components and products
      relating to power supplies, converters and related power conversion products,
      .
      Where the context requires, references to "we" "us" or "our" throughout this
      document include reference to Enertec Electronics and Enertec
      Systems.




Our
      revenues are derived from two main sources, the military and the commercial
      markets. In the military market we, design, develop and manufacture test
      systems, airborne, shipborne, land electronic equipment and other various
      military systems, for military manufacturers in accordance with their
      specifications. Most of this military business is carried out by the majority
      owned subsidiary Enertec Systems. In the commercial market we market and
      distribute, power supplies and other electronic components manufactured by
      other
      manufacturers who engage us to distribute their products. This activity is
      carried out primarily by Enertec Electronics, a wholly owned subsidiary. We
      have
      entered into representative and distribution agreements with seven such
      manufacturers, four of which have been reduced to written contracts **.**




**OUR
      SUBSIDIARIES**




In
      April
      2002, we acquired all of the outstanding capital stock of Enertec Electronics,
      making it our wholly owned subsidiary. In this transaction, we acquired 99
      ordinary shares of Enertec Electronics from Harry Mund, our President and Chief
      Executive Officer, in exchange for 4,750,000 shares of our common stock. The
      common stock issued to Mr. Mund represented 86.6% of our outstanding common
      stock after the transaction.




Enertec
      Management Limited (f/k/a Elcomtech Ltd.), a private Israeli company, is a
      wholly owned subsidiary of Enertec Electronics.




Enertec
      Systems, a private Israeli company, is owned by Enertec Management Limited
      ("Enertec Management") (73%), and Harry Mund (27%), our President and Chief
      Executive Officer of Enertec Electronics Limited. The President and Chief
      Executive Officer of Enertec Systems is Harry Mund, and the Chief Operating
      Officer is Zvika Avni. Enertec Systems commenced operations on January 1,
      2002.




**ENERTEC
      ELECTRONICS**




Enertec
      Electronics is responsible for:




·
            The
                marketing and distribution of power supplies and other related power
                products manufactured by third-party firms that engage us to distribute
                their products; and  ·
            The marketing and distribution of power
              supply
              testing equipment to our military and commercial
              customers.




1


Our
      customers have products that require power supplies. We are contacted by them
      with their specifications, and based on that data, we provide a standard, or
      if
      necessary, a semi-custom or custom, power supply solution. Our technical sales
      staff in Israel has a comprehensive understanding of our customers' product
      base, which allows us to provide the most efficient power supply solution to
      our
      customers. Our professional marketing and sales teams include engineers who
      provide support to customers from the early stages of product definition and
      first sampling, through the production stages and up to after-sales support.
      Examples of products that require power supplies are computers, modems,
      printers, faxes, telephones, transmitter/receivers for commercial and military
      communications, radar, airborne infra-red cameras, surveillance equipment,
      telecom network routers, video-conference routers, cellular telephone
      transmitters/receivers, television on-routers, internet-routers, medical MRI
      scanners, x-ray equipment, robots, drivers for electric motors, and industrial
      control systems.




We
      have
      also entered into representative or distribution agreements with various
      international power supply manufacturers. These manufacturers granted us rights
      to sell their products in Israel. We solicit sales within Israel and, upon
      receipt of purchase orders, we contact the supply manufacturers to fulfill
      such
      orders. With some of these manufactures we have agreements that the supply
      manufacturers will not promote their products directly within Israel.
      Furthermore, if a customer contacts the supply manufacturers directly, such
      manufacturer will redirect the customer to us, or advise us to contact the
      customer regarding the order.




We
      are
      also a local Israeli distributor of power supply testing equipment. This
      includes DC and AC electronic loads, that is, equipment used for the testing
      of
      power supplies which utilize alternate current (AC) and direct current (DC)
      technology.




Enertec
      Electronics is focusing its efforts almost exclusively on developing its
      business within the power supplies and power supply testing equipment
      arena. ****




**ENERTEC
      SYSTEMS**




Enertec
      Systems is responsible for designing, developing and manufacturing of various
      military systems for airborne, land and seaborne applications - for example,
      electronic systems used in aircrafts such as power supplies, laser drivers,
      mission computers and control systems for motor and pumps, radio transceivers,
      altitude measuring devices, ground systems for missile control and
      sub-assemblies, which are parts of a system developed with a customer's
      specifications. We also design and manufacture test systems for electronics
      manufacturers in the military industry based on their specifications for the
      test and ground support of missiles, aircrafts and other various defense
      systems.




Enertec
      Systems exclusively manufactures customized military related products. Enertec
      Systems also meets the stringent security clearance requirements for the most
      sensitive defense programs we are involved.




Our
      quality control systems are compliant with ISO9001:2000.




The
      International Organization of Standardization ("ISO") designated ISO9001:2000
      to
      apply to organizations that design, develop, produce, install, and service
      products. ISO expects organizations to apply this model, and to meet certain
      requirements, by developing a quality control system. ISO9001:2000 is the
      international standard for quality assurance and quality design. This is the
      most common worldwide standard and is implemented across all kinds of
      organizations, including manufacturers, schools and shops. Most customers in
      our
      industry insist on doing business with companies that are least ISO9002:2000
      approved, a standard that is less demanding than IS9001:2000. The ISO9002:2000
      standard is related mainly to the quality assurance of the manufacturing
      process, while the higher ISO9001:2000 standard includes both the quality
      assurance of the manufacturing process component as well as the quality of
      the
      design. The ISO9001:2000 standard is important to customers who are placing
      orders for custom made products.




2


The
      ISO9001:2000 quality assurance model is made up of a combination of quality
      system requirements.




The
      key
      requirements are that an organization should:




·
            Determine
                the needs and expectations of customers and other interested
                parties;




·
            Establish
                policies, objectives and a work environment necessary to motivate
                the
                organization to satisfy these
                needs;




·
            Design,
                resource and manage a system of interconnected processes necessary
                to
                implement the policy and attain the
                objectives;




·
            Measure
                and analyze the adequacy, efficiency and effectiveness of each process
                in
                fulfilling its purpose and objectives;
                and




·
            Pursue
                the continual improvement of the system from an objective evaluation
                of
                its performance.




A
      typical
      process for designing, planning and implementing a quality system typically
      involves:




·
            Planning
                the quality initiative and obtaining executive
                sponsorship;




·
            Establishing
                the quality policy for the
                organization;




·
            Designing
                and planning the Quality Management System (QMS), usually based on
                international standards;




·
            Establishing
                the quality organization, developing the quality manual and structure
                of
                quality records;




·
            Determining
                the scope of implementation;




·
            Assuring
                quality plans;




·
            Reviewing
                deliverables and determining any
                actions;




·
            Auditing
                quality records;




·
            Defining
                areas for process improvement; and




·
            Managing
                the improvement program.




**NEW
      PRODUCTS**




**ENERTEC
      SYSTEMS**




Enertec
      Systems  is
      focusing almost exclusively on the military arena, and entered into numerous
      new
      fields of military technology in addition to our "classic" ATE field of
      expertise.




During
      2004-2007 we marketed a new line of ruggedized Command and Control mobile
      stations of modular architecture, allowing adaptation/customization to various
      applications for which we received orders for several sets in 2005. During
      2006,
      we delivered several units for qualification and integration.




Over
      the
      last twelve months of 2005, we started selling ruggedized mission computers
      for
      combat vehicles. We have already delivered three different prototypes to I.A.I.
      (Israeli Aircraft Industry) who intends to replace their computers previously
      manufactured in-house and active in the field for many years with updated modern
      design models from a new outsourced supplier to fulfill IAI's need over the
      following 5-10 years. These first units that we delivered, have successfully
      passed all qualification and validation tests. As a result of the success of
      the
      first prototypes, in 2006 we have received new order for three new prototypes
      for three different products delivered during 2007. During 2008 we anticipate
      receiving additional orders of about 20-40 pcs for each of the three models
      to
      be delivered during 2009-2010.




We
      introduced in 2005 a new line of military grade Power Distribution Units for
      use
      in airborne, shipborne and ground applications. We have already received the
      first batch of orders generating about $800,000 in revenues. The first set
      was
      submitted to stringent electrical and environmental qualification tests
      scheduled for completion in the first quarter of 2007. Further units have been
      delivered during 2007 and new orders are expected for about 30-40 sets with
      deliveries over the next four years .




3


We
      introduced a new test system for the helicopter's flight computer and the other
      avionics units which generated an order for the first unit in 2004. This system
      was designed and built during 2005 and during 2006 we began the testing with
      the
      various units it will be integrated with. First orders have been delivered
      during 2007. We are expecting its successful launch to generate several follow
      up orders within the next twelve months of about 10-16 additional units for
      deliveries during 2008 and 2009.




During
      2004 we also started to design a small airborne multiple-output power supply
      specially designed for attack payloads. It uses a proprietary technology that
      was developed in-house implementing a planar switching transformer which enables
      further miniaturization and a higher output power to size ratio. This new line
      has been well received by our customers, and the first samples has already
      passed the stringent military screening tests. As of the end of 2005 we received
      our first orders in the amount of $240,000 and part of this order has been
      delivered during the 4th quarter of 2005. .During 2006 have delivered about
      100
      pcs and received orders for about 200 pcs who have been delivered during 2007.
      During 2007 have received new orders for additional 200 units for delivery
      during 2008.




During
      2005 we introduced a Laser system and driver for Airborne Targeting Pods
      utilizing laser designation of targets. This is a new entry into the field
      of
      high-tech, high accuracy and high power military lasers. Our innovative and
      unique design is based on a state of the art high-power laser diode which
      provides high accuracy and long range detection and tracking of targets. This
      project is a turn-key product from the initial electronic and mechanical design
      up to the production and delivery of the complete system. We have received
      an
      order for the first systems with a delivery date staggered over 2006 and 2007.
      The first prototypes have been delivered during 2006-2007 and following the
      successful qualification tests in 2007 have received new order for additional
      25
      pcs for delivery during 2008.




During
      2005 we introduced a Ground Control System for airborne attack platforms. The
      system receives data from aircrafts and transmits it in real time. The design
      was based on an upgraded version of one of ours previous design already proven
      in the field. We received several orders in the amount of $240,000 and delivered
      them during 2006 followed by new order for about 20 more units with deliveries
      over 2008-2009.




By
      the
      end of 2005 we have introduced a Simulation and Test System for a highly
      classified defense project. This technologically complex design is being
      outsourced for the first time, and so was very tentative in progress, however
      we
      have already delivered the first batch in December of 2005 resulting in revenues
      of about $1,250,000 with a record lead-time of 3 months. During 2006 we received
      an additional order of about $ 1,000,000 which has also been delivered. As
      a
      result of our success we expect new orders of about same size each during the
      following years.




During
      2006-2007 we introduced several new products:




A
      Generic
      Test and Validation System for new anti-tank missiles. This system incorporates
      state of the art hardware and software designs and is used for the tests and
      validation of about 30 different modules of the missile. The first systems
      were
      ordered in the amount of about $1.4 Million dollars with scheduled delivery
      of
      the first unit during 2008. During 2006 have received additional order of about
      $ 300,000 for the implementation of upgrades with scheduled delivery on 2008.
      This test system for anti-tank missiles could generate orders for a couple
      of
      units a year for approximately the next ten years.




A
      Control
      System for airborne attack platforms for naval application. The system receives
      data from aircrafts and transmits it in real time. The design was based on
      upgraded versions of previous designs already proven in the field. Have already
      received first order for several units scheduled for delivery during 2008.
      On
      2007 have received a new order from a new customer for delivery during
      2008-2010.




Generic
      System for Simulation and Test of multiple stage missiles. This very complex
      high technology system simulates each stage of the missile and performs a
      comprehensive suite of test. The first order for the design was received during
      2006, generating revenues of several hundreds of dollars. During 2008 we expect
      to deliver the first two systems and expect to receive new orders for additional
      two systems with scheduled delivery over the next four years.




During
      2007 have introduced a new Generic ATE System based on VXI technology for
      testing air-to-air missiles. First order has already been received for 15 units
      which will generate revenues of about $ 2 mill over the following years. We
      expect to complete the first prototype by the end of 2008 and start deliveries
      during 2009.




**ENERTEC
      ELECTRONICS**




During
      2004, we completed UL safety approvals for a new custom-made power supply.
      It is
      implemented in a series of modems for fast network access of data and voice
      over
      the IP network. In 2005, 1500 units were ordered, 2,000 units were ordered
      during 2006 and 900 units during 2007.




We
      introduced the first samples of DC/DC converters for military CDU (Command
      Display Units) in the fourth quarter of 2004. These samples were followed with
      orders for 1500 pcs which were delivered over the course of 2005, for 1700
      pcs
      delivered during 2006 and for 1000 pcs delivered during 2007.




During
      2004 we entered into a new arena of customized power supplies for fast data
      networking systems. We customized compact PCI power supplies and received orders
      for 200 units. This successful launch resulted in more than 200 units in
      follow-up orders in 2005, 100 pcs during 2006 and 100 pcs during 2007.





4


During
      2005 we introduced several new products with long expected lifecycles, which
      are
      described below:




A
      compact, and economical optimized cost/performance redundant power supply for
      data communication application. The first samples were delivered during 2005
      and
      have already resulted in a follow up order for 800 units delivered over
      2007.




We
      introduced a customized external power supply for military note-book computers
      which will be installed by our customers to the US military within the army,
      navy, air-force etc. The first 25 power supplies have already been delivered
      and
      successfully passed all the stringent military qualification tests, followed
      by
      orders for additional 260 pcs during 2006 and 800 pcs during 2007.





In
      2006,
      we introduced a new multiple output customized power supply for outdoor wireless
      application and have submitted for UL safety
      approvals. Upon receiving this approval orders for 800 units have been received
      during 2007.





We
      have
      introduced a new medical grade 250W power supply and already received the first
      order for samples from a big manufacturer of
      medical equipment. This project is still in the initial design phase at our
      customer.





We
      have
      introduced a new line of 150W dc/dc military converters and have received orders
      for first 75 units from four different manufacturers
      of defense systems during 2006 and additional 40 units during 2007.





During
      2007 have not been able to introduce any additional new products. We
      concentrated our efforts on the implementation of the products previously
      introduced and the maintaining of the relationships with our strategic
      partners.





**MARKETING
      STRATEGIES**





We
      market
      our products to a diverse group of manufacturers of electronic equipment. Our
      products serve the various needs of local Israeli manufacturers of electronic
      systems in the following fields:




·
            Military


·
            Telecommunications;


·
            Medical;


·
            Industrial.




We
      currently sell only to Israeli companies that, in turn, incorporate our
      components into their products for resale to the global markets. However in
      the
      future we anticipate creating some kind of platform to market Enertec Systems'
      products to U.S. companies as well as creating a manufacturing base within
      the
      United States so as to benefit from U.S. government dollars directed to Israel's
      military aid with the condition of being spent on U.S manufactured products.
      Currently we advertise in the local Israeli technical magazines and participate
      in electronic seminars, exhibitions and shows four to six times a year. A
      substantial part of the business is from our existing customers. Many companies
      have engaged us from the inception of their new programs, and have implemented
      our custom designed solutions. Many of our customers rely on us for technical
      services, products and support, and consider us to be their own "power supply
      department" and "ATE systems department". Since 2004 we have been a "systems
      house" of military systems, making turn-key projects from design to production
      on behalf of our customers.




We
      also
      derive a considerable percentage of our business from word-of-mouth referrals.
      Our reputation is backed by many years of providing quality products and
      services. Our marketing strategy has been based on our brand name and
      reputation, which has grown substantially over the last twenty years, including
      eight years prior to the formation of Enertec Electronics, when business was
      conducted under the name "Enertec International."




Over
      the
      next 24 months, we plan on continuing our aggressive marketing efforts. Part
      of
      our success within Enertec Systems has been to anticipate the needs of our
      clients, invest in R&D and to start working on products that we believe they
      will need thus gaining an edge on our competition in our time to market.
      Furthermore, by having our ear close to the ground, we have been able to
      identify those of our clients and potential clients that look poised to get
      the
      big orders and focus our attention on gaining a foothold within that client.
      When successful, this strategy enables us to benefit from the large order flow
      that they receive both in terms of the typical products they would expect us
      to
      produce for them as well as the more sophisticated products that they might
      not
      expect that we are then in the perfect position to offer to them, especially
      if
      they are inundated with business we are able to step in and ease the burden
      of
      some of the non-core components as well as some of the core
      components.




5


By
      continuously diversifying into new and more complex products, Enertec Systems
      has been able to set itself apart from its competition. In 2006 and 2007,
      following the trend we started in 2004, we continued to increase our suite
      of
      custom products based on our proprietary design and technology. These products
      are core components of several long term military programs spearheaded by our
      customers, with expected purchase lifecycles over periods of up to 10
      years.




At
      Enertec Systems the competitive edge lies with the sophistication and the
      complex nature of the products. Enertec Electronics however, maintains its
      competitive advantage primarily through its range of products, their pricing,
      cost effective adaptation to the customers' needs and the strong technical
      application support provided to customers.




**MARKET
      CONDITIONS**





**Enertec
      Systems**





Manufacturers
      that sell defense end products such as missiles, aircrafts or computers, also
      provide a support system (e.g., an ATE) to the end-user. The end-user uses
      this
      support system for maintenance of the end product. Historically, support systems
      were made by manufacturers selling the end products. Recently, however,
      manufacturers have been focusing their resources on the end products rather
      than
      on support systems. This has opened up a market for us to develop these
      systems.





The
      local
      Israeli market for ATE's simulators and support systems is estimated at $100
      to
      $200 million annually. We have about 5% of this market, approximately the same
      level of market penetration as our competitors. This market is largely
      controlled by big local defense manufacturers. However, there has been a
      noticeable trend by these and other defense manufacturers to outsource test
      and
      support systems to specialized firms so that large manufacturers can focus
      their
      resources on designing their core products.





The
      local
      market for outsourced custom designed military systems is above $500 million.
      We
      have just begun to penetrate parts of this market with products in the field
      of
      avionic systems, ruggedized control systems to name but a few. We are actively
      working to increase our product portfolio. During 2006 and 2007 have introduced
      several new military products implemented in high volume long term defense
      programs.





Since
      2005, the local military market is improving significantly resulting in many
      new
      orders received which contributed to a backlog of military products totaling
      increasing from $ 4.5 million dollars. This trend continued through 2006 and
      2007 resulting in a further increase in the backlog, which as of the year ended
      December 31, 2006 totaled $6.182 Million dollars and $ 6,070 by the end of
      2007.





A
      key
      element of our growth potential is our ability to enhance our sales and
      marketing team. We will need to expand our sales and marketing team
      significantly over the next several years to achieve our sales targets. We
      will
      face significant challenges and risks in building and managing our sales and
      marketing team, including managing geographically dispersed sales efforts and
      adequately training our sales people in the use and benefits of our
      products.





**Enertec
      Electronics**





The
      worldwide market for high-tech, telecommunications, and Internet related
      products affects the Electronics Division's power supplies sales. The overall
      market started to improve, during 2005 resulting in an increase of sales of
      our
      customers to this sector and this trend continued during 2006-2007. Our
      stability is largely due to our diversified client base. We service clients
      in
      the telecommunications, industrial control, medical and the military core
      business sectors. In addition to this our sales force pays a significant amount
      of attention to our customer relationships, providing more opportunities to
      gain
      our foothold into a contract than our competition does. Furthermore we offer
      more customized power supplies than our competitors, which, we believe, makes
      it
      more difficult for our competitors to bid successfully on the same projects
      or
      replace our product down the road in production or for follow- on
      orders.





Enertec
      Electronics prospects are fully dependent on the electronics and electrical
      product industries in Israel. Although these sectors are seeing good growth,
      the
      industry is being affected by the strong trend of outsourcing. Many Israeli
      companies manufacture their initial quantities using power supplies purchased
      locally from suppliers such as Enertec Electronics. However, when volumes
      increase they move production overseas, especially to China, leaving the
      subcontractors to source the components locally. This trend affects the
      receiving of high volume orders from our customers.





6


**CUSTOMERS**




Our
      customers are mostly local Israeli manufacturers of electronic systems from
      different segments of the electronics industry, within the military, industrial,
      commercial, medical, and telecommunications fields. Due to this level of
      diversification of our customers, we are not that dependent on any one specific
      market segment; so our overall performance is less affected by fluctuation
      in
      the markets. Until 2003 IAI (Israel Aircraft Industries) was our major customer
      representing approx 38% of our sales. During 2004 we realized that several
      Rafael divisions were receiving an increasingly high number of new orders as
      a
      result of their aggressive marketing around the world but that they had not
      increased their technical and manufacturing staff to accommodate this growth.
      We
      positioned ourselves to become their outsourcing team for their new orders
      in
      the areas of design, engineering and production. We increased our investment
      in
      R&D that resulted in new designs and products that enabled us to
      successfully bid on a large number of projects. During 2004, we focused our
      efforts in diversifying our sales across other technologies, for example avionic
      equipment and combat stations. This resulted in increased sales to Rafael
      comprising approximately 25% of our total sales in 2004 as compared to 10%
      in
      2003. By the end of 2005 Rafael became our major customer representing
      approximately 40% of our total sales.




Investing
      in R&D has given us an edge with our time to market which resulted in
      several agreements, with Rafael bringing out products utilizing our systems
      within long project cycles, in many cases up to 10 years. This has created
      a
      significant increase in the backlog of orders from Rafael.




By
      the
      end of 2006 Rafael accounted for 32.1% of our total sales and by the end of
      2007
      accounted for 39.6% of our total sales.




In
      2004
      Israeli Aircraft Industry (IAI) accounted for approximately 18% of our sales.
      During 2005 IAI started to design and manufacture a range of new products for
      which we have been asked to provide Test Equipment, Simulators and Support
      Systems We have received several new orders for the first units delivered during
      2006 and have worked on a large number of new proposals which have resulted
      in
      an increase of our sales to IAI's as a percentage of our total sales to 24.3%
      in
      2006 and 21% in 2007.




The
      rest
      of our sales are pretty much evenly spread between our other main customers:
      Elbit, El-Op and Tadiran Spectralink, at the military field and a very large
      number of customers at the commercial field.




**BACKLOG**




As
      of
      December 31, 2007, we had a backlog of orders for our products and services
      in
      the amount of approximately $6,766,000 as compared to a backlog of approximately
      $6,917,000 as of December 31, 2006. The decrease of approximately 2% in the
      backlog as of December 31 2007 compared to December 31 2006 is mainly due
      to  some
      new
      orders at Enertec Systems being postponed from the end of year 2007 to the
      first
      quarter of the year 2008 combined with a higher than usual deliveries during
      Dec
      2007 .




The
      orders included in the December 31, 2007 backlog figure are as follows:




**Enertec
      Systems**


$
              2,867,480
              
              
              representing
                  airborne power supplies, laser systems, flight computers and test
                  systems
                  for avionics and military systems$
              2,912,430
              
              
              representing
                  test systems for IAI missiles and avionic systems$
              35,000
              
              
              representing
                  airborne power supplies and test systems for infra-red
                  payloads$
              136,500
              
              
              representing
                  data link test equipment.$
              216,000
              
              
              representing
                  medical systems$
              6,068,600
              
              
              TOTAL
                  backlog for Enertec Systems




**Enertec
      Electronics**


$
              698.000
              
              
              This
                  figure includes a variety of orders for commercial, telecom, medical,
                  industrial and military off- the-shelf power supplies as well as
                  several
                  orders for standard test equipment for both the commercial and
                  military
                  industry.




**COMPETITION**




**ENERTEC
      SYSTEMS**




Our
      chief
      source of competition for Enertec Systems is our clients themselves. Most of
      our
      clients have done their own testing systems and core component manufacturing
      in
      house. But as their volume of sales start increasing it is easier for us to
      provide an outsourcing capability for them. Furthermore as we continue to prove
      our expertise and our clients allow us to create increasingly complex products
      for them, we have started to build their trust and are overtaking a lot of
      the
      functions that previously they would have produced in house. Outside competitors
      that we face are: Chaban Electronics Ltd, Symcotech Ltd, and Rada Electronic
      Industries ltd.




7




**ENERTEC
      ELECTRONICS**




We
      face
      intense competition within Enertec Electronics from the existing local
      manufacturers and distributors of electronic components and products. Presently,
      several competing companies that have greater resources than we do, such as
      financial, operational, sales, marketing, and research and development
      resources, are actively engaged in the manufacture and distribution of power
      supplies and power supply testing equipment. Our main competitors include Advice
      Electronics Ltd.,EDCO,Nemic Lambda,Dan-El, Bruno International, Appletec Ltd.,
      Migvan Technologies Ltd., Boran Technologies Ltd., Telkoor Power Supplies Ltd.,
      Nisko and Horizon Electronics Ltd.




However,
      we have been able to compete effectively with these companies for the following
      reasons:


· The power
        supplies we distribute are good quality, economically priced , and are
        backed by a good level of technical engineers, who have an understanding
        of our
        customer's requirements, allowing us to provide cost-effective
        solutions.


· We
        have
        comprehensive experience in power supply test equipment , which enables our
        sales people to propose the most cost-effective testing solutions
 · We
        maintain a strong technical team that provides solutions to our customers'
        needs
        within our target niche.


· Our
        products are sold in diversified activity fields, namely commercial, industrial,
        military and medical .




Our
      products have been incorporated into several high volume production projects
      with long-term purchasing agreements of up to two years. Since our customers'
      products are sold intermittently but in high volume, our customers place
      long-term orders with us to cover their production needs over a period of
      several months to up to a year to ensure delivery in a timely fashion.
      Additionally, we  are
      a
      major supplier to several providers of telecom, datacom, video on demand and
      video conferencing. Due to the significant approval process these products
      must
      pass to get to the market, it is not cost effective to replace our component
      with a perhaps cheaper competitor's product because they would have to resubmit
      the product for re-approval with the new component inside.




**SUPPLIES
      AND SUPPLIERS**




Our
      suppliers are diversified and we are not dependent upon a limited number of
      suppliers for essential raw materials, energy or other items. The manufacturers
      that supply to us are all established companies with facilities and products
      in
      compliance with all relevant international standards. However, while we are
      not
      dependent on any one supplier, disruptions in normal business arrangements
      by
      the loss of one or a few suppliers could cause possible short-term losses.
      These
      disruptions may be experienced if our existing suppliers are no longer able
      to
      meet our requirements. They may also occur if there is an industry shortage
      of
      electronic or mechanical components. Not only could these disruptions affect
      our
      product line and limit our production capacity, but also, in relation to the
      shortage of components, could result in higher costs due to the supply shortage
      or the need to use higher cost substitute components.





8





The
      raw
      materials we use are either electronic components or mechanical components.
      The
      electronic components are purchased from suppliers and the mechanical components
      are mainly manufactured by local subcontractors.




**EMPLOYEES**




As
      of
      December 31, 2007, Enertec Electronics had 11 employees and Enertec Systems
      had
      59 employees. All key technical employees must sign a two-year confidentiality
      agreement and a two-year non-compete agreement, which prohibits our employees,
      if they cease working for us, from directly competing with us or working for
      our
      competitors. However, Israeli courts have required employers seeking to enforce
      non-compete undertakings of a former employee to demonstrate that the
      competitive activities of the former employee will harm one of a limited number
      of material interests of the employer, such as the secrecy of a company's
      confidential commercial information or its intellectual property. We may not
      be
      able to demonstrate that harm would be caused to us, and therefore, may be
      unable to prevent our competitors from hiring and benefiting from the expertise
      of our former employees. None of our employees are subject to a collective
      bargaining agreement. We do not employ any supplemental benefits or incentive
      arrangements for our officers or employees. All of our employees are full-time.
      Management considers its employee relations to be good.




**RESEARCH
      AND DEVELOPMENT EXPENDITURES**




Research
      and Development costs totaled approximately $244,000 and $399,000 for the twelve
      months ended December 31, 2007 and 2006, respectively, which equates to
      approximately 2.5 % and 5.1% of revenues, respectively, for both periods. These
      expenditures have adequately satisfied our research and development
      requirements.




The
      decrease of our R&D expenditures as compared to 2006 is a result of
      allocating of larger percentage of our engineering resources to the task of
      making progress in the design of the long term projects and big military
      programs which incorporated the developed technologies, the result of the
      R&D spendings during 2005 and 2006.




The
      sales
      of military products experience seasonal variations this is due to the fact
      that
      the Israeli Ministry of Defense frequently delays the release of budgets near
      the end of the fiscal year. Therefore new orders to the military industry are
      delayed, leading to delays of orders to the local subcontractors. When this
      happens it negatively affects the sales volume of the 1st quarter of the year.
      In addition, some of our customers push for increased deliveries during the
      last
      weeks of the year in order to fulfill contractual delivery obligations to their
      customers and also to show better business results. This often causes an upward
      spike in our fourth quarter sales.




**SEASONAL
      ASPECTS OF OUR BUSINESS**




The
      sales
      of military products experience seasonal variations this is due to the fact
      that
      the Israeli Ministry of Defense frequently delays the release of budgets near
      the end of the fiscal year. Therefore new orders to the military industry are
      delayed, leading to delays of orders to the local subcontractors. When this
      happens it negatively affects the sales volume of the 1st quarter of the year.
      In addition, some of our customers push for increased deliveries during the
      last
      weeks of the year in order to fulfill contractual delivery obligations to their
      customers and also to show better business results. This often causes an upward
      spike in our fourth quarter sales.




**PATENTS
      AND TRADEMARKS**




We
      are
      not dependent on patents or trademark protection with regards to the operation
      of our business and do not expect to be at any time in the future.




**GOVERNMENT
      REGULATION**




Every
      electronic product must comply with the UL standards of the United States and
      CE
      standards of Europe to be eligible for sale in the respective countries subject
      to these standards. Every system must be tested, qualified and labeled under
      the
      relevant standards. This is a complicated and expensive process and once
      completed, the approved product may not be altered for sale.




**SUBSEQUENT
      EVENT**





On
      February 28, 2008, we entered into an agreement for the issue and sale of shares
      in Lapis Technologies, Inc. and the transfer of shares of Star Night
      Technologies Ltd. to us (the “Lapis SPA”), with Harry Mund, and Mordechai
      Solomon (the “Investor”). Mr. Mund is the Company’s chief executive officer,
      director, and majority stockholder. The Lapis SPA will close (subject to
      fulfillment or waiver of certain closing conditions or the waiver thereof prior
      to closing, as well as the performance of certain covenants by the parties
      that
      include, *inter
      alia* ,
      the
      receipt of a fairness opinion) 21 days following the date on which an
      information statement on Schedule 14C under the Securities Exchange Act of
      1934,
      as amended, is mailed to stockholders of the Company (the “Closing Date”), which
      closing shall occur concurrently with that of the Systems SPA (defined below)
      and the Electronics SPA (defined below). Pursuant to the Lapis SPA, we agreed
      to
      issue to the Investor, on the Closing Date, 75,129,500 shares of the Company’s
      common stock, representing 92% of the Company’s issued and outstanding shares on
      a fully diluted basis. The Investor agreed to transfer to the Company, on the
      Closing Date, 4,539,557 shares in Star Night Technologies Ltd., a company traded
      on the Tel Aviv Stock Exchange, held by the Investor in person.




9





In
      addition, pursuant to the Lapis SPA, the Investor agreed to grant to Mr. Mund
      an
      option (the “Mund Option”), exercisable by Mr. Mund in his sole discretion, to
      sell to the Investor, Mr. Mund’s 4,750,000 shares of the Company’s common stock
      (the “Option Shares”). The Mund Option will be exercisable during a period of 90
      calendar days immediately following the first anniversary of the Closing Date
      (with respect to 50% of the Option Shares, at an exercise price of US $0.5434
      per share, subject to adjustment in the event of stock splits, stock dividends,
      and similar transactions) and/or the second anniversary of the Closing Date
      (with respect to all of the Option Shares, at an exercise price of US $0.6038
      per share, subject to adjustment in the event of stock splits, stock dividends,
      and similar transactions). The Mund Option is subject to the aggregate value
      of
      the Option Shares being no higher than US $2,868,000, subject to certain
      adjustments, for a period of 65 consecutive calendar days commencing 120 days
      after the Closing Date (so long as Mr. Mund may sell his shares pursuant to
      Rule
      144 under the Securities Act of 1933, as amended (the “Securities Act”)) during
      a period of 65 consecutive calendar days during a period of 24 months following
      the Closing Date.





In
      connection with the Lapis SPA, on February 28, 2008, our indirect wholly owned
      subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
      its direct wholly owned subsidiary Enertec Electronics Ltd.), entered into
      an
      agreement for the sale and purchase of Enertec Systems 2001 Ltd. (the “Systems
      SPA”), with Harry Mund, and S.D.S. (Star Defense Systems) Ltd., a company traded
      on the Tel Aviv Stock Exchange (“S.D.S.”) whose majority stockholder is
      Mordechai Solomon. The Systems SPA will close on the Closing Date concurrently
      with the Lapis SPA and the Electronics SPA (defined below). Pursuant to the
      Systems SPA, Etertec Management and Mr. Mund agreed to sell, and S.D.S. agreed
      to purchase, on the Closing Date, an aggregate of 251,000 shares of Enertec
      Systems 2001 Ltd. (“Enertec Systems”), representing all of the issued and
      outstanding capital stock of Enertec Systems, for an aggregate purchase price
      of
      US $1,500,000. The 251,000 shares to be sold pursuant to the Systems SPA
      represent 67,770 shares to be sold by Mr. Mund and 183,230 shares to be sold
      by
      Enertec Management.





In
      connection with the Lapis SPA and the Systems SPA, we also entered into, on
      February 28, 2008, an agreement with Mund Holdings Ltd., a company owned by
      Harry Mund (the “Electronics SPA”). The Electronics SPA will close on the
      Closing Date concurrently with the Lapis SPA and the Systems SPA. Pursuant
      to
      the Electronics SPA, we agreed to sell, and Mund Holdings Ltd. agreed to
      purchase, on the Closing Date, NIS (New Israeli Shekel) 100 divided into 100
      shares of NIS 1 each, of Enertec Electronics Ltd. (“Enertec Electronics”),
      representing all of the issued and outstanding capital stock of Enertec
      Electronics, for a purchase price of US $250,000.





Our
      issuance of shares of common stock to Mr. Solomon under the Lapis SPA will
      be
      made pursuant to the exemption from registration requirements under Regulation
      D
      and/or Regulation S of the Securities Act of 1933, as amended (the “Securities
      Act”). No form of general solicitation or general advertising was conducted in
      connection with the issuance. The certificates representing the shares will
      contain restrictive legends preventing the sale, transfer of such shares unless
      registered under the Securities Act or pursuant to an exemption therefrom.
      Mr.
      Mordechai is an “accredited investor” as defined under Regulation D and/or is
      not a “U.S. Person” as defined under Regulation S.




**ITEM
      2. DESCRIPTION OF PROPERTY.**




We
      currently maintain plants in both Haifa and Carmiel. We have no plans to secure
      more space, as we believe both locations are suitable for our
      needs.




10





Our
      Haifa
      plant is 400 square meters and includes a production hall and management
      offices. We lease this property for $27,329 per annum from Mund Holding Limited,
      an entity wholly owned by our President and Chief Executive Officer, Harry
      Mund.
      We entered into this lease in January 2001. The Haifa plant houses the
      headquarters and accounting offices, the imports department, sales and
      administration employees, application engineers, and a service laboratory.
      This
      plant is suitable for our present and near future needs. There is enough space
      to accommodate an additional two to four sales engineers, if needed. This space
      is also used to sell standard power supplies products.




Our
      Carmiel plant is 800 square meters and also includes a production hall, with
      a
      research and development and engineering facility for our Systems Division.
      The
      Carmiel property is leased at $37,485 per annum. We use the Carmiel plant for
      manufacturing. It houses engineers, software programmers, electronic hardware
      designers, mechanical designers, and electronic and mechanical assembly
      personnel. It consists of office rooms for one to three people, and contains
      one
      room for electronics assembly, one for mechanical assembly, and two for final
      testing of finished products. The Systems Division manufactures its customized
      products in this facility, and accordingly, it is not a plant for high volume
      production. It is located in the Carmiel industrial area, and is in close
      proximity to many of our Systems Division clients. Every engineer has individual
      workstations, which contain computers that are inter-connected by our own local
      network for fast communication. The plant has been updated to satisfy all our
      present and near future needs. In this facility, there is space for five
      additional offices, which would accommodate approximately 15 more people, and
      the existing assembly rooms could accommodate eight to ten additional
      workers.




**ITEM
      3. LEGAL PROCEEDINGS.**




We
      are
      not subject to any pending or threatened legal proceedings, nor is our property
      the subject of a pending or threatened legal proceeding. None of our directors,
      officers or affiliates is involved in a proceeding adverse to our business
      or
      has a material interest adverse to our business.




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




No
      matter
      was submitted to a vote of security holders during the fourth quarter of the
      fiscal year covered by this report.





11




**PART
      II**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**




**MARKET
      INFORMATION**




Our
      common stock began quotation on the OTC Bulletin Board on June 1, 2004 under
      the
      symbol LPST.OB. For the periods indicated, the following table sets forth the
      high and low bid prices per share of common stock. These prices represent
      inter-dealer quotations without retail markup, markdown, or commission and
      may
      not necessarily represent actual transactions.




Fiscal
                2007
            
            Fiscal
                2006Fiscal
                Quarter
            
            High
            
            Low
            
            High
            
            LowFirst
                Quarter Ended March 31
            
            $
            1.11
            
            $
            1.01
            
            $
            1.11
            
            $
            1.01Second
                Quarter Ended June 30
            
            $
            1.10
            
            $
            1.10
            
            $
            1.11
            
            $
            1.01Third
                Quarter Ended September 30
            
            $
            1.10
            
            $
            .80
            
            $
            1.11
            
            $
            1.01Fourth
                Quarter Ended December 31
            
            $
            .85
            
            $
            .20
            
            $
            1.11
            
            $
            1.01




**HOLDERS**




As
      of
      March 27, 2008, we had 6,483,000 shares of common stock outstanding and such
      shares were held by approximately 43 stockholders of record. The transfer agent
      of our common stock is Continental Stock Transfer and Trust Company.




**DIVIDENDS**




We
      have
      not declared any dividends to date. We have no present intention of paying
      any
      cash dividends on our common stock in the foreseeable future, as we intend
      to
      use earnings, if any, to generate growth. The payment by us of dividends, if
      any, in the future, rests within the discretion of our Board of Directors and
      will depend, among other things, upon our earnings, our capital requirements
      and
      our financial condition, as well as other relevant factors. There are no
      restrictions in our articles of incorporation or bylaws that restrict us from
      declaring dividends.




**RECENT
      SALES OF UNREGISTERED SECURITIES**




During
      the fiscal year ended December 31, 2007 we did not issue any securities without
      registration under the Securities Act of 1933, as amended (the "Securities
      Act").




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**




**FORWARD-LOOKING
      STATEMENTS**




The
      information in this annual report contains forward-looking statements. All
      statements other than statements of historical fact made in this report are
      forward looking. In particular, the statements herein regarding industry
      prospects and future results of operations or financial position are
      forward-looking statements. Forward-looking statements reflect management's
      current expectations and are inherently uncertain. Our actual results may differ
      significantly from management's expectations.




12


The
      following discussion and analysis should be read in conjunction with the
      financial statements of Lapis Technologies, Inc. included herewith. This
      discussion should not be construed to imply that the results discussed herein
      will necessarily continue into the future, or that any conclusion reached herein
      will necessarily be indicative of actual operating results in the future. Such
      discussion represents only the best present assessment of our
      management.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Our
      cash
      balance at Dec 31, 2007 has increased compared to the cash balance at Dec
      21,2006. As of December 31, 2007, our cash balance was $ 133,000 as compared
      to
      $7,000 at December 31, 2006.Total current assets at December 31, 2007 were
      $
      9,450,000 as compared to $8,047,000 at December 31, 2006. The increase in
      current assets is mainly due to the increase in accounts receivables and the
      increase in inventories.




Our
      accounts receivable at December 31, 2007 was $ 5,414,000 as compared to
      $4,667,000 at December 31, 2006. This increase is attributable to an increase
      in
      sales of $ 1,803,000 in 2007 as compared to the sales of 2006, and the decrease
      in USD/Shekel exchange rate since the receivables are in Shekels. The USD/shekel
      exchange rates decreased by 9% from 4.225 as of Dec 2006 to 3.846 as of Dec
      2007.




As
      of
      December 31, 2007 our working capital was $ 1,715,000 as compared to $1,310,000
      at December 31, 2006. The increase in the working capital is mainly due to
      the
      decrease in accounts payable.




Bank
      Leumi and Bank Hapoalim have extended us a combined total bank debt of
      $5,716,000 in 2007 as opposed to $ 4,139,000 at December 31,2006. This debt
      is
      made up of a number of different components: short-term debt, long-term debt
      and
      in the form of lines of credit, which we use from time to time to satisfy our
      temporary cash flow needs. Bank Leumi has provided us with $4,203,000of total
      debt based on our pledge of $ 3,200,000 of our working capital and customers'
      receivables due from Israeli Aircraft Industry and Rafael and $1,203,000 by
      the
      pledge of some of the financial assets of our president, Harry Mund. Bank
      Hapoalim has provided us with $ 1,513,000 of total debt based on our pledging
      of
      $ 215,000 of our customers' receivables due from USR,Expand and DataSafe and
      $1,100,000 by the pledging of some of the financial assets of Mr. Mund. Mr.
      Mund
      has personally on deposit with our banks, monies in excess of $1,500,000 which
      he has pledged as collateral against our bank debt.




The
      current portion of our term loans at December 31, 2007 consisted of $200,000
      as
      compared to $271,000 at December 31, 2006. Our total short-term loans consisted
      of $ 3,907,000 of short-term loans and $200,000 of current portion of long-term
      debt broken down as follows:




$1,184,000
      due January 2008, $180,000 due March 2008, $129,000 due April 2008, $848,000
      due
      June 2008, $335,000 due July 2008, $523,000 due October 2008, $547,000 due
      November 2008, $361,000 due December 2008.




At
      December 31, 2007, our total bank debt was $ 5,716,000 as opposed to $4,139,000
      at December 31, 2006. These funds were borrowed as follows:




$
      4,107,000 which includes the current portion of long term debt, as various
      short
      term bank loans due through 2008, $247,000 of long-term debt due through March
      2010 and $ 1,362,000 borrowed using our bank lines of credit. As a result,
      we
      increased the amount borrowed for the year ended December 31, 2007 by $1,577,000
      from $ 4,139,000. The increase in bank debt is mainly due to the increase in
      accounts receivable, the financing of the increase in work in process and the
      decrease in USD/Shekel exchange rate since the loans are in Shekels. The
      USD/shekel exchange rates decreased by 9% from 4.225 as of Dec 2006 to 3.846
      as
      of Dec 2007.




There
      are
      no other lines of credit available to us to refinance our short-term bank loans.
      Additionally, we currently do not have any other sources of financing available
      to us for refinancing our short-term loans. As of December 31, 2006 we are
      current with all of our bank debt and compliant with all the terms of our bank
      debt.




At
      December 31, 2007, the Company had receivables from Mr. Mund, our Chief
      Executive Officer and President, in the amount of $49,000 as compared to $6,000
      receivables Mr. Mund had from the Company at December 31, 2006 .




13


**FINANCING
      NEEDS**




Although
      we currently do not have any material commitments for capital expenditures,
      we
      expect our capital requirements to increase over the next several years as
      we
      continue to develop and test our suite of products, increase marketing and
      administration infrastructure, and embark on developing in-house business
      capabilities and facilities. Our future liquidity and capital funding
      requirements will depend on numerous factors, including, but not limited to,
      the
      levels and costs of our research and development initiatives, the cost of hiring
      and training additional sales and marketing personnel to promote our products
      and the cost and timing of the expansion of our marketing efforts.




Based
      on
      our current business plan, we anticipate that our existing cash balances and
      cash generated from future sales will be sufficient to permit us to conduct
      our
      operations and to carry out our contemplated business plans for the next twelve
      months. Currently, the only external sources of liquidity are our banks, and
      we
      may seek additional financing from them or through securities offerings to
      expand our operations, using new capital to develop new products, enhance
      existing products or respond to competitive pressures.




**RESULTS
      OF OPERATIONS**




**FISCAL
      YEAR ENDED DECEMBER 31, 2007 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,**


**2006**




For
      the
      fiscal year ended December 31, 2007 we had total revenue of $ 9,642,000 as
      compared to revenue of $ 7,839,000 for the fiscal year ended December 31, 2006.
      The increase in revenue of $ 1,803,000, or 23 % is mainly due to:




1.
      The
      increase in revenues of the military business as a consequence of :




1.1.
      The
      overall improvement of the military market resulting in an increase in sales
      to
      this sector.




1.2.
      Several military projects for which we have received orders during previous
      years entered production stage resulting in higher number of units delivered
      to
      the customers.




2.
      The
      decrease in USD/Shekel exchange rate, since part of the sales are Shekel
      related: The average USD/shekel exchange rates decreased by 7.8% from 4.456
      the
      average as of 2006 to 4.108 the average as of 2007.




Gross
      profit totaled $ 2,538,000 for the fiscal year ended December 31, 2007 as
      compared to $2,163,000 for the fiscal year ended December 31, 2006, an increase
      of $375,000 or 17.3 %. The increase in gross profit is mainly due to the
      increase in sales. Gross profit as a percentage of sales for the fiscal year
      ended December 31, 2007 was 26.3 % as compared to 27.6% for the fiscal year
      ended December 31, 2006. The decrease in gross profit as a percentage of sales
      is mainly due to the increase in the cost of sales due to the increase in wages
      of the technical staff as a consequence of the continuously increasing demand
      for highly qualified technical staff in the military industry sector. The wages
      are paid in Shekels, while a significant part of the revenues are in USD. During
      2007 the USD/Shekel exchange rate has decreased significantly.




Total
      operating expenses are comprised of R&D costs, selling, general and
      administrative expenses. Operating expenses for the fiscal years ended December
      31, 2007 and 2006 were $1,782,000 and $1,735,000 respectively, an increase
      of $
      47,000 or 2.7 %. The increase in operating expenses is attributable to the
      following factors:




·
            Decrease
                in R&D spending of $155,000; increased marketing and selling expenses
                of $83,000 as a result of our efforts to develop the market for our
                new
                products and an increase in G&A expenses of $119,000 mainly due to
                increased professional services expenses and the decrease in USD/Shekel
                exchange rate




14


We
      experienced a profit of $ 97,000 in the fiscal year ended December 31, 2007
      compared to a loss of $ 115,000 in the fiscal year ended December 31, 2006.
      This
      increase in net income in the amount of $ 212,000 or 184.6 % is mainly due
      to
      the increase of $375,000 in gross profit and the decrease in minority interest
      of $ 31,000, partly offset by the increase in operating expenses of $
      47,000,increase in interest expenses of $ 41,000 and increase in provision
      for
      income taxes of $ 100,000 .




As
      detailed in this annual report, our business is comprised of Enertec Electronics
      which derives its revenues from the commercial arena and Enertec Systems, which
      derives its revenues from the military arena.




For
      the
      fiscal year ended December 31, 2007, Enertec Electronics' revenue, costs of
      sales and gross profits were $ 3,392,000, $ 2,640,000 and $ 752,000
      respectively, and $3,262,000, $2,602,000, and $660,000 respectively for the
      fiscal year ended December 31, 2006. Revenue increased $ 130,000 or 4 %. Costs
      of sales increased approximately by $ 38,000 or 1.5 %. Gross profit increased
      by
      $ 92,000 or 13.8 % mainly due to the decrease in the average USD/Shekel exchange
      by 7.8% from 4.456 the average as of 2006 to 4.108 the average as of 2007 and
      lower cost of sales during 2007 since most of the sales have been repeat orders
      to our customers.




For
      the
      twelve months ended December 31, 2007, revenues, costs of sales and gross
      profits from Enertec Systems 2001 were $ 6,250,000, $4,464,000 and $ 1,786,000
      respectively, and $ 4,577,000, $3,075,000 and $1,502,000 respectively for twelve
      months ended December 31, 2006. Revenue increased by $ 1,673,000 or 36.6 %
      as a
      result of the successful penetration to new customers with new products ,the
      entering into production stage of several products introduced during the
      previous years and the decrease of 7.8% in the USD/shekel exchange rates since
      part of the sales are Shekel related.




Cost
      of
      sales increased approximately $ 1,389,000 or 45.2 % mainly due to the increase
      in wages of the technical staff as a consequence of the continuously increasing
      demand for highly qualified technical staff in the military industry sector
      and
      the decrease of 7.8% in the average USD/Shekel exchange rate.




Gross
      Profit increased by $ 284,000 or 18.9 % mainly due to the increase in sales.




As
      of
      December 31, 2007, we had two customers that accounted for approximately 73.1%
      of accounts receivable. For the years ended December 31, 2007 and 2006,
      approximately 60.6 % and 48.7% of our sales were to two customers
      respectively.




**OFF-BALANCE
      SHEET ARRANGEMENTS**




We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.




**CRITICAL
      ACCOUNTING POLICIES**




Concentration
      of Credit Risk - Concentrations of credit risk with respect to trade receivables
      are limited to customers dispersed primarily across Israel. All trade
      receivables are concentrated in the manufacturing and distribution of electronic
      components segment of the economy; accordingly the Company is exposed to
      business and economic risk. Although the Company does not currently foresee
      a
      concentrated credit risk associated with these trade receivables, repayment
      is
      dependent upon the financial stability of this segment of the
      economy.




Revenue
      Recognition and Customer Deposits - Revenue is recorded as product is shipped,
      the price has been fixed or determined, collectibility is reasonably assured
      and
      all material specific performance obligations have been completed. The product
      sold by the Company is made to the specifications of each customer; sales
      returns and allowances are allowed on a case-by-case basis, are not material
      to
      the financial statements and are recorded as an adjustment to sales. Cash
      payments received in advance are recorded as customer deposits.




Revenue
      relating to service is recognized on the straight-line basis over the life
      of
      the agreement, generally one year. For the years ended December 31, 2007 and
      2006 revenue relating to service contracts is less than one percent of net
      sales.




Research
      and Development Costs - Research and development costs are charged to general
      and administrative expense in the accompanying statement of income and consist
      mainly of salaries. Research and development cost for the years ended December
      31, 2007 and 2006 were approximately $ 244,000 and $ 399,000,
      respectively.




Financial
      Instruments - The carrying amounts of financial instruments, including cash
      and
      cash equivalents, accounts receivable, bank line of credit, short term bank
      loans and accounts payable and accrued expenses approximate fair value at
      December 31, 2007 because of the relatively short maturity of the instruments.
      The fair value of due from stockholder is not practical to estimate without
      incurring excessive cost and is carried at cost at December 31, 2007. The
      carrying value of the long-term debt approximate fair value at December 31,
      2007
      based upon debt terms available for companies under similar terms.




15


Foreign
      Currency Translation - Lapis Technologies, Inc. has one wholly owned subsidiary,
      Enertec Electronics Limited, an Israeli corporation, and one majority owned
      subsidiary, Enertec Systems 2001 Ltd., an Israeli corporation. The assets and
      liabilities of the foreign subsidiaries are translated at current exchange
      rates
      and related revenues and expenses at average exchange rates in effect during
      the
      year. Resulting translation adjustments, if material, are recorded as a separate
      component of accumulated other comprehensive income or loss.




**ITEM
      7. FINANCIAL STATEMENTS.**




All
      financial information required by this Item is attached hereto at the end of
      this report beginning on page F-1 and is hereby incorporated by
      reference.




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




**N/A**




**ITEM
      8A. CONTROLS AND PROCEDURES.**




As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our Chief Executive Officer and Chief
      Financial Officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is: (1) accumulated and communicated to our management, including
      our Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow
      timely decisions regarding required disclosure; and (2) recorded, processed,
      summarized and reported, within the time periods specified in the Commission's
      rules and forms. There was no change to our internal controls or in other
      factors that could affect these controls during the period covered by this
      report that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.




**Management’s
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Our internal control system was designed
      to
      provide reasonable assurance to our management and Board of Directors regarding
      the preparation and fair presentation of published financial
      statements.




Our
      management assessed the effectiveness of our internal control over financial
      reporting as of December 31, 2007. In making this assessment, it used the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO) in *Internal
      Control—Integrated Framework* . Based
      on
      our assessment we believe that, as of December 31, 2007, our internal control
      over financial reporting is effective based on those criteria.





This
      annual report does not include an attestation report of the Company’s registered
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission




16


**ITEM
      8B. OTHER INFORMATION.**




None.




**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT.**




The
      members of our board of directors and our executive officers, together with
      their respective ages and certain biographical information are set forth below.
      Our directors receive no compensation for their services as board members but
      are reimbursed for expenses incurred by them in connection with attending board
      meetings. All directors hold office until the next annual meeting of our
      stockholders and until their successors have been duly elected and qualified.
      Our executive officers are elected by, and serve at the designation and
      appointment of, the board of directors. There are no family relationships among
      any of our directors or executive officers.




Name
              
              Age
              
              PositionHarry
                  Mund
              
              60
              
              Chairman
                  of the Board, Chief Executive Officer,President
                  and SecretaryMiron
                  Markovitz
              
              60
              
              Director,
                  Chief Financial Officer and PrincipalAccounting
                Officer




The
      following is a brief account of the business experience of each of our directors
      and executive officers during the past five years or more.




HARRY
      MUND, our Chairman of the Board, Chief Executive Officer, President and
      Secretary since our inception, and has been the Chief Executive Officer and
      President of our subsidiary, Enertec Electronics Limited, since 1987. Mr. Mund
      is also the Chief Executive Officer and managing director of Enertec Management
      Limited (f/k/a Elcomtech Limited), a wholly owned subsidiary of Enertec
      Electronics Limited. From 1983 to 1987, Mr. Mund was the President and Chief
      Executive Officer of Enercon International, a marketing and sales firm of
      military and commercial power supplies and test equipment. Enercon
      International's activities were transferred to Enertec International in 1987,
      which subsequently became Enertec Electronics Limited in 1992. From 1975 to
      1983, Mr. Mund worked for Elbit Systems as a design engineer of advanced test
      systems and as the head of the ATE engineering group. Mr. Mund attended
      Ben-Gurion University from 1970 to 1974 and earned a Bachelor of Science as
      an
      Electronic Engineer.




MIRON
      MARKOVITZ, a Director, our Chief Financial Officer and Principal Accounting
      Officer since our inception, has been the Chief Financial Officer of our
      subsidiary, Enertec Electronics Limited, since 1992, responsible for its
      accounting and financial management. He attended Haifa University from 1975
      to
      1978 and earned a BA in economics and accounting.




**DIRECTOR
      COMPENSATION:**




During
      2007, our directors did not receive any compensation for serving on our board.




**SIGNIFICANT
      EMPLOYEES**




The
      following is a brief description of the business experience of each of our
      significant employees:




ZVI
      AVNI,
      age 46, was the System Division Manager for our subsidiary, Enertec Electronics
      Limited, from February 1997 to January 2002. His responsibilities included
      the
      design and manufacture of automatic test systems. Mr. Avni has 18 years of
      experience with ATE systems for the military market and worked at Elbit Systems
      for 12 years as an ATE group leader. Since January 2002, Mr. Avni has worked
      for
      Enertec Systems 2001 Ltd., which is owned by Enertec Management Limited 73
      % and
      Harry Mund (27%) and continues to be responsible for the design and manufacture
      of the Automatic Test Systems and military systems. Mr. Avni graduated from
      Haifa Technion Institute of Technology in 1982 and earned a degree as a
      Practical Electronic Engineer.




17


YAAKOV
      OLECH, age 58, has been employed by our subsidiary, Enertec Electronics Limited,
      since March 1991. Mr. Olech is head of our customer service electronic lab
      and
      technical support, providing after-sales customer support and repair services
      for products under warranty or by utilizing service contracts for repair of
      power supplies. He attended Radiotechnical Institute, Minsk, USSR from 1976
      to
      1979 and has earned a Master in Science in electronic engineering.




DR.
      ALEXANDER VELICHKO, age 61, has 28 years of experience as leading research
      and
      development engineer and head of the research and development group at several
      companies. From 1981 to 1990, he was a lecturer of electronics and automation
      at
      the Engineering Institute, Karatau, Kazahtan. From 1990 to 1999, Dr. Velichko
      was chief engineer of the Laboratory of Electronics and Automatization Karatau,
      Kazakhtan, responsible for development of compact analog/digital measurement
      devices. Since February 2000 he has been Enertec Electronics Limited's chief
      scientist and head of research and development. Dr Velichko is responsible
      for
      the design of custom-made power supplies. He earned a PhD in Automatic Control
      at the Moscow Institute of Mining, which he attended from 1964 to 1969, and
      earned a Master in Science at Tomsk Institute of Electronic
      Engineering.




Our
      future success depends, in significant part, on the continued service of Mr.
      Mund, and certain other key executive officers, managers, and sales and
      technical personnel, who possess extensive expertise in various aspects of
      the
      our business, including Mr. Markovitz, Mr. Avni, Mr. Olech, and Dr. Velichko.
      We
      may not be able to find an appropriate replacement for any of our key personnel.
      Any loss or interruption of our key personnel's services could adversely affect
      our ability to implement our business plan. It could also result in our failure
      to create and maintain relationships with strategic partners that are critical
      to our success. We do not presently maintain key-man life insurance policies
      on
      any of our officers.




**AUDIT
      COMMITTEE FINANCIAL EXPERT**




We
      do not
      have an audit committee financial expert, as that term is defined in Item 401
      of
      Regulation S-B. We have not been able to identify a suitable nominee to serve
      as
      an audit committee financial expert.




**CODE
      OF ETHICS**




We
      have
      adopted a Code of Ethics and Business Conduct for Officers, Directors and
      Employees that applies to all of our officers, directors and employees. The
      Code
      of Ethics is filed as Exhibit 14.1 to our annual report on Form 10-KSB for
      the
      fiscal year ended December 31, 2003, filed with the Securities and Exchange
      Commission on June 28, 2004. Upon request, we will provide to any person without
      charge a copy of our Code of Ethics. Any such request should be made to Attn:
      Harry Mund, C/O Ira Strassberg, Rogoff and Company, 275 Madison Avenue, NY,
      NY,
      10016. Our telephone number is (212) 937-3580.




**SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE**




We
      do not
      have affiliated persons required to file reports under Section 16(a) of the
      Exchange Act.




**ITEM
      10. EXECUTIVE COMPENSATION.**




**EXECUTIVE
      COMPENSATION**




**SUMMARY
      COMPENSATION TABLE**




The
      following information is furnished for the years ended December 31, 2007 and
      2006 for our principal executive officer. No executive officer other than Mr.
      Mund received total annual compensation in excess of $100,000, during fiscal
      2007 and 2006.




Name
                and Principal Position
            
            Year
            
            Salary
              $
            
            Bonus
              $
                (3)
            
            Stock
                Awards
              $
            
            Option
                Awards
              $
                (5)
            
            Non-Equity
                Incentive Plan Compensation
              $
            
            Nonqualified
                Deferred Compensation Earnings
              $
            
            All
                Other Compensation
              $
            
            Total
              $Harry
              Mund
            
            
            2007
            
            $
            315,076
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            21,473
            *
            $
            336,549Chief
                Executive Officer and President
            
            
            2006
            
            $
            288,000
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            —
            
            $
            38,000
            *
            $
            326,500




*
      Represents compensation in lieu of accrued vacation and recreation days pursuant
      to Company policies. In Israel it is customary to offer financial compensation
      in lieu of vacation and recreation days (days set aside for employees to enjoy
      recreational activities)




18




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




**SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




The
      following table sets forth certain information, as of March 27, 2008 with
      respect to the beneficial ownership of the outstanding common stock by (i)
      each
      person known by us to be the beneficial owner of more than 5% of our common
      stock; (ii) each of our directors; (iii) each of our executive officers; and
      (iv) our executive officers and directors as a group. Unless otherwise
      indicated, the persons named in the table below have sole voting and investment
      power with respect to the number of shares indicated as beneficially owned
      by
      them. The address for each of the below persons is c/o Enertec Electronics
      Limited, 27 Rechov Ha'Mapilim, Kiriat Ata, Israel, P.O. Box 497, Kiriat Motzkin
      26104, Israel.




Name
                  of Beneficial Owner
              
              
              Number
                    of Shares
                Beneficially
                  Owned *
              
              
              Percentage
                    Ownership
                      *Harry
                  Mund
              
              
              4,750,000
              
              
              73.3
              %Miron
                  Markovitz
              
              
              9,000
              
              
              *
              %Zvi
                  Avni
              
              
              1,000,000
              
              
              15.4
              %All
                  Directors and Executive Officersas
                  a Group (2 persons)
              
              
              4,759,000
              
              
              73.44
              %




·
            Applicable
                percentage ownership is based on 6,483,000 shares of common stock
                outstanding as of March 21, 2007, together with securities exercisable
                or
                convertible into shares of common stock within 60 days of March 21,
                2007
                for each stockholder. Beneficial ownership is determined in accordance
                with the rules of the Securities and Exchange Commission and generally
                includes voting or investment power with respect to securities. Shares
                of
                common stock that are currently exercisable or exercisable within
                60 days
                of March 21, 2007 are deemed to be beneficially owned by the person
                holding such securities for the purpose of computing the percentage
                of
                ownership of such person, but are not treated as outstanding for
                the
                purpose of computing the percentage ownership of any other
                person.




**SECURITIES
      AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS**




The
      following table shows information with respect to each equity compensation
      plan
      under which the Company's common stock is authorized for issuance as of the
      fiscal year ended December 31, 2007.




19


EQUITY
                  COMPENSATION PLAN INFORMATIONPlan
                category
              
              Number
                    of
                  securities to
                    be issued
                  upon
                    exercise
                  of outstanding
                    options,
                  warrants
                    and rights
              
              Weighted
                  average
                exerciseprice
                of
                  outstanding options,
                warrantsand
                  rights
              
              Number
                  of securitiesremaining
                  available forfuture
                  issuance underequity
                  compensation plans(excluding
                  securitiesreflected
                  in column (a)(a)
              
              
              (b)
              
              
              (c)Equity
                  compensation plans approvedby
                  security holders
              
              
              -0-
              
              
              -0-
              
              
              500,000Equity
                  compensation plans notapproved
                  by security holders
              
              
              -0-
              
              
              -0-
              
              
              -0-Total
              
              
              -0-
              
              
              -0-
              
              
              500,000


**2002
      STOCK OPTION PLAN**




We
      adopted, subject to stockholder approval, our 2002 Stock Option Plan on October
      16, 2002. Our stockholders approved the plan on October 16 2002. The plan
      provides for the grant of options intended to qualify as "incentive stock
      options", options that are not intended to so qualify or "nonstatutory stock
      options" and stock appreciation rights. The total number of shares of common
      stock reserved for issuance under the plan is 500,000, subject to adjustment
      in
      the event of a stock split, stock dividend, recapitalization or similar capital
      change, plus an indeterminate number of shares of common stock issuable upon
      the
      exercise of "reload options" described below. We have not yet granted any
      options or stock appreciation rights under the plan.




The
      plan
      is administered by our board of directors, which will select the eligible
      persons to whom options shall be granted, determines the number of common shares
      subject to each option, the exercise price therein and the periods during which
      options are exercisable, interprets the provisions of the plan and, subject
      to
      certain limitations, may amend the plan. Each option granted under the plan
      shall be evidenced by a written agreement between us and the
      optionee.




Options
      may be granted to our employees (including officers) and directors, any of
      our
      subsidiaries, and certain of our consultants and advisors. Incentive stock
      options can be issued to all employees (including officers). Nonstatutory stock
      options can be issued to employees, non-employee directors, or consultants and
      advisors.




The
      exercise price for incentive stock options granted under the plan may not be
      less than the fair market value of the common stock on the date the option
      is
      granted, except for options granted to 10% stockholders which must have an
      exercise price of not less than 110% of the fair market value of the common
      stock on the date the option is granted. The exercise price for nonstatutory
      stock options is determined by the board of directors, in its sole discretion,
      but may not be less than 85% of the fair market value of the Company's common
      stock at the date of grant. Incentive stock options granted under the plan
      have
      a maximum term of ten years, except for 10% stockholders who are subject to
      a
      maximum term of five years. The term of nonstatutory stock options is determined
      by the Board of Directors. Options granted under the plan are not transferable,
      except by will and the laws of descent and distribution.




The
      board
      of directors may grant options with a reload feature. Optionees granted a reload
      feature shall receive, contemporaneously with the payment of the option price
      in
      common stock, a right to purchase that number of common shares equal to the
      sum
      of (i) the number of shares of common stock used to exercise the option, and
      (ii) with respect to nonstatutory stock options, the number of shares of common
      stock used to satisfy any tax withholding requirement incident to the exercise
      of such nonstatutory stock option.




20




Also,
      the
      plan allows the board of directors to award to an optionee for each share of
      common stock covered by an option, a related alternate stock appreciation right,
      permitting the optionee to be paid the appreciation on the option in lieu of
      exercising the option. The amount of payment to which an optionee shall be
      entitled upon the exercise of each stock appreciation right shall be the amount,
      if any, by which the fair market value of a share of common stock on the
      exercise date exceeds the exercise price per share of the option.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.**




Our
      management believes the terms of each of the below transactions are at least
      as
      favorable as could be obtained from unrelated third parties.




During
      2001, our subsidiary Enertec Electronics Limited sold a building to Mund Holding
      Limited, an entity wholly owned by Harry Mund, our Chief Executive Officer
      and
      President, for approximately $170,320. An independent appraiser and governmental
      body, The Capital Gains Authority, determined the sale price. The building
      was
      paid in part with cash in the amount of $93,245, and the balance by a
      non-interest bearing loan. There are no written agreements setting forth
      repayment terms. The parties have orally agreed that the amount outstanding
      is
      due on demand. As of December 31, 2007, the amount of the loan outstanding
      was $
      77,644




Enertec
      Electronics rents the building's office and manufacturing space from Mund
      Holding Limited for $29,860 annually for twenty-four months ending December
      31,
      2009.





On
      February 28, 2008, we entered into an agreement for the issue and sale of shares
      in Lapis Technologies, Inc. and the transfer of shares of Star Night
      Technologies Ltd. to us (the “Lapis SPA”), with Harry Mund, and Mordechai
      Solomon (the “Investor”). Mr. Mund is the Company’s chief executive officer,
      director, and majority stockholder. The Lapis SPA will close (subject to
      fulfillment or waiver of certain closing conditions or the waiver thereof prior
      to closing, as well as the performance of certain covenants by the parties
      that
      include *inter
      alia* ,
      the
      receipt of a fairness opinion) 21 days following the date on which an
      information statement on Schedule 14C under the Securities Exchange Act of
      1934,
      as amended, is mailed to stockholders of the Company (the “Closing Date”), which
      closing shall occur concurrently with that of the Systems SPA (defined below)
      and the Electronics SPA (defined below). Pursuant to the Lapis SPA, we agreed
      to
      issue to the Investor, on the Closing Date, 75,129,500 shares of the Company’s
      common stock, representing 92% of the Company’s issued and outstanding shares on
      a fully diluted basis. The Investor agreed to transfer to the Company, on the
      Closing Date, 4,539,557 shares in Star Night Technologies Ltd., a company traded
      on the Tel Aviv Stock Exchange, held by the Investor in person.





In
      addition, pursuant to the Lapis SPA, the Investor agreed to grant to Mr. Mund
      an
      option (the “Mund Option”), exercisable by Mr. Mund in his sole discretion, to
      sell to the Investor, Mr. Mund’s 4,750,000 shares of the Company’s common stock
      (the “Option Shares”). The Mund Option will be exercisable during a period of 90
      calendar days immediately following the first anniversary of the Closing Date
      (with respect to 50% of the Option Shares, at an exercise price of US $0.5434
      per share, subject to adjustment in the event of stock splits, stock dividends,
      and similar transactions) and/or the second anniversary of the Closing Date
      (with respect to all of the Option Shares, at an exercise price of US $0.6038
      per share, subject to adjustment in the event of stock splits, stock dividends,
      and similar transactions). The Mund Option is subject to the aggregate value
      of
      the Option Shares being no higher than US $2,868,000, subject to certain
      adjustments, for a period of 65 consecutive calendar days commencing 120 days
      after the Closing Date (so long as Mr. Mund may sell his shares pursuant to
      Rule
      144 under the Securities Act of 1933, as amended (the “Securities Act”)) during
      a period of 65 consecutive calendar days during a period of 24 months following
      the Closing Date.





In
      connection with the Lapis SPA, on February 28, 2008, our indirect wholly owned
      subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
      its direct wholly owned subsidiary Enertec Electronics Ltd.), entered into
      an
      agreement for the sale and purchase of Enertec Systems 2001 Ltd. (the “Systems
      SPA”), with Harry Mund, and S.D.S. (Star Defense Systems) Ltd., a company traded
      on the Tel Aviv Stock Exchange (“S.D.S.”) whose majority stockholder is
      Mordechai Solomon. The Systems SPA will close on the Closing Date concurrently
      with the Lapis SPA and the Electronics SPA (defined below). Pursuant to the
      Systems SPA, Enertec Management and Mr. Mund agreed to sell, and S.D.S. agreed
      to purchase, on the Closing Date, an aggregate of 251,000 shares of Enertec
      Systems 2001 Ltd. (“Enerec Systems”), representing all of the issued and
      outstanding capital stock of Enertec Systems, for an aggregate purchase price
      of
      US $1,500,000. The 251,000 shares to be sold pursuant to the Systems SPA
      represent 67,770 shares to be sold by Mr. Mund and 183,230 shares to be sold
      by
      Enertec Management.





In
      connection with the Lapis SPA and the Systems SPA, we also entered into, on
      February 28, 2008, an agreement with Mund Holdings Ltd., a company owned by
      Harry Mund (the “Electronics SPA”). The Electronics SPA will close on the
      Closing Date concurrently with the Lapis SPA and the Systems SPA. Pursuant
      to
      the Electronics SPA, we agreed to sell, and Mund Holdings Ltd. agreed to
      purchase, on the Closing Date, NIS (New Israeli Shekel) 100 divided into 100
      shares of NIS 1 each, of Etertec Electronics Ltd. (“Enertec Electronics”),
      representing all of the issued and outstanding capital stock of Enertec
      Electronics, for a purchase price of US $250,000.





Our
      issuance of shares of common stock to Mr. Solomon under the Lapis SPA will
      be
      made pursuant to the exemption from registration requirements under Regulation
      D
      and/or Regulation S of the Securities Act of 1933, as amended (the “Securities
      Act”). No form of general solicitation or general advertising was conducted in
      connection with the issuance. The certificates representing the shares will
      contain restrictive legends preventing the sale, transfer of such shares unless
      registered under the Securities Act or pursuant to an exemption therefrom.
      Mr.
      Mordechai is an “accredited investor” as defined under Regulation D and/or is
      not a “U.S. Person” as defined under Regulation S.




Neither
      of our directors are independent.




21




**ITEM
      13. EXHIBITS.**


Exhibit
                  Number
              
              Description3.1
              
              Certificate
                  of Incorporation of Enertec Electronics, Inc. filed January 31,
                  2002
                  (Incorporated by reference to our registration statement on Form
                  SB-2
                  (File No. 333-100979), filed with the Securities and Exchange Commission
                  on November 4, 2002)3.2
              
              Certificate
                  of Amendment of Enertec Electronics, Inc. filed April 23, 2002
                  (Incorporated by reference to our registration statement on Form
                  SB-2
                  (File No. 333-100979), filed with the Securities and Exchange Commission
                  on November 4, 2002)3.3
              
              Certificate
                  of Amendment of Opal Technologies, Inc. filed October 17, 2002
                  (Incorporated by reference to our registration statement on Form
                  SB-2
                  (File No. 333-100979), filed with the Securities and Exchange Commission
                  on November 4, 2002)3.4
              
              By-Laws
                  of Lapis Technologies, Inc. (Incorporated by reference to our registration
                  statement on Form SB-2 (File No. 333-100979), filed with the Securities
                  and Exchange Commission on November 4, 2002)10.1
              
              Letter
                  dated February 22, 2005 confirming the terms of share purchase
                  (Incorporated by reference to our current report on Form 8-K filed
                  with
                  the Securities and Exchange Commission on August 23,
                  2005)10.2
              
              Agreement
                  for the Issue and Sale of Shares in Lapis Technologies, Inc. and
                  the
                  Transfer of Shares in Star Night Technologies, Ltd., dated February
                  28,
                  2008, by and between Lapis Technologies, Inc., Harry Mund and Mordechai
                  Solomon.10.3
              
              Agreement
                  for the Sale and Purchase of Entertec Systems 2001 Ltd., dated
                  February
                  28, 2008, by and between Entertec Management Ltd., Harry Mund and
                  S.D.S.
                  (Star Defense Systems) Ltd.10.4
              
              Agreement,
                  dated February 28, 2008, by and between Lapis Technologies, Inc.
                  and Mund
                  Holdings Ltd.14.1
              
              Code
                  of Ethics (Incorporated by reference to our annual report on Form
                  10-KSB
                  for the fiscal year ended December 31, 2003, filed with the Securities
                  and
                  Exchange Commission on June 28, 2004)16.1
              
              Letter
                  from Rogoff & Company dated April 1, 2004 (Incorporated by reference
                  to our current report on Form 8-K filed with the Securities and
                  Exchange
                  Commission on July 6, 2004)21.1
              
              List
                  of Subsidiaries





22


31.1
              
              Certification
                  by Chief Executive Officer, required by Rule 13a-14(a) or Rule
                  15d-14(a)
                  of the Exchange Act31.2
              
              Certification
                  by Chief Financial Officer, required by Rule 13a-14(a) or Rule
                  15d-14(a)
                  of the Exchange Act32.1
              
              Certification
                  by Chief Executive Officer, required by Rule 13a-14(b) or Rule
                  15d-14(b)
                  of the Exchange Act and Section 1350 of Chapter 63 of Title 18
                  of the
                  United States Code32.2
              
              Certification
                  by Chief Financial Officer, required by Rule 13a-14(b) or Rule
                  15d-14(b)
                  of the Exchange Act and Section 1350 of Chapter 63 of Title 18
                  of the
                  United States Code




**Item
      14. Principal Accountant Fees and Services.**




**AUDIT
      FEES**




The
      aggregate fees billed for professional services rendered by our principal
      accountants for the audit of our financial statements, for the reviews of the
      financial statements included in our annual report on Form 10-KSB, and for
      other
      services normally provided in connection with statutory filings were $17,568
      and
      $12,185 for the years ended December 31, 2007 and 2006,
      respectively.




**AUDIT-RELATED
      FEES**




We
      incurred fees of $40,000 and $24,200 for the years ended December 31, 2007
      and
      2006, respectively, for professional services rendered by our principal
      accountants that are reasonably related to the performance of the audit or
      review of our financial statements and not included in "Audit
      Fees."




**TAX
      FEES**




The
      aggregate fees billed for professional services rendered by our principal
      accountants for tax compliance, tax advice, and tax planning were $1,750 and
      $1,500 for the years ended December 31, 2007 and December 31, 2006,
      respectively. The services for which such fees were paid consisted of filing
      our
      tax returns for 2007 and 2006.




**ALL
      OTHER FEES**




We
      did
      not incur any fees for other professional services rendered by our principal
      accountants during the years ended December 31, 2007 and December 31,
      2006.




**AUDIT
      COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES**




Our
      Board
      of Directors acts as our audit committee, and consults with respect to audit
      policy, choice of auditors, and approval of out of the ordinary financial
      transactions.




23


**SIGNATURES**




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




**LAPIS
                TECHNOLOGIES, INC.**Date:
              March 31, 2008
            By:
            /a/
              Harry MundHarry
                Mund
              Chief
                Executive Officer


Date:
              March 31, 2008
            By:
            /s/
              Miron MarkovitzMiron
                  Markovitz
                Chief
                  Financial Officer and
                Principal
                  Accounting Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.


Signature
              
              Title
              
              Date/s/
                  Harry Mund
              
              Chief
                  Executive Officer and Chairman of the Board
              
              March
                  31, 2008Harry
                  Mund/s/
                  Miron Markovitz
              
              Director,
                  Chief Financial Officer and Principal Accounting Officer
              
              March
                  31, 2008Miron
                  Markovitz





24




**Gvilli
      & Co. C.P.A. (isr.)**




**Independent
      Auditors' Report**




To
      the
      Stockholders' and the Board of Directors of Lapis Technologies,
      Inc.




We
      have
      audited the accompanying consolidated balance sheet of Lapis Technologies,
      Inc.
      and Subsidiaries (the "Company") at December 31, 2007, and the related
      consolidated statements of income, changes in stockholders' equity and
      comprehensive income and cash flows for the year then ended. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      upon
      our audit.




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




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of the Lapis Technologies,
      Inc.
      and Subsidiaries at December 31, 2007, and the consolidated results of their
      operations and their cash flows for the year then ended, in conformity with
      accounting principles generally accepted in the United States of
      America.




/s/
              Gvilli and
              Co.Gvilli
                & Co.March
                31, 2008
              Casarea,
                Israel




F-1





**LAPIS
                TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                BALANCE SHEET****(In
                Thousands, Except Share Amounts)**




December
                31,2007**ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            133Accounts
                receivable
            
            
            5,414Inventories
            
            
            3,736Prepaid
                expenses and other current assets
            
            
            118Due
                from stockholder
            
            
            49Total
                Current Assets
            
            
            9,450Property
                and equipment, net
            
            
            267Deferred
                income taxes
            
            
            20$
            9,737**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                Liabilities:Bank
                line of credit
            
            $
            1,362Short
                term bank loans
            
            
            3,907Current
                portion of term loans
            
            
            200Accounts
                payable and accrued expenses
            
            
            2,361Due
                to affiliates
            
            
            (97
            )Income
                taxes payable
            
            
            2Total
                Current Liabilities
            
            
            7,735Term
                loans, net of current portion
            
            
            247Severance
                payable
            
            
            1768,158Commitments
                and contingenciesMinority
                interest
            
            
            448Stockholders'
                Equity:Preferred
                stock; $.001 par value, 5,000,000 shares authorized, none issued
            
            
            -Common
                stock; $.001 par value, 100,000,000 shares authorized, 6,483,000shares
                issued and outstanding
            
            
            6Additional
                paid-in capital
            
            
            78Accumulated
                other comprehensive loss
            
            
            92Retained
                Earnings
            
            
            955Total
                Stockholders' Equity
            
            
            1,131$
            9,737


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




F-2


**LAPIS
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME****(In
                  Thousands, Except Earnings Per Share and Share Amounts)**Years
                  EndedDecember
                  31,2007
              
              2006Sales
              
              $
              9,642
              
              $
              7,839Cost
                  of sales
              
              
              7,104
              
              
              5,676Gross
                  profit
              
              
              2,538
              
              
              2,163Operating
                  Expenses:Research
                  and development expenses
              
              
              244
              
              
              399Selling
                  expenses
              
              
              193
              
              
              110General
                  and administrative
              
              
              1,345
              
              
              1,226Total
                  operating expenses
              
              
              1,782
              
              
              1,735Income
                  from operations
              
              
              756
              
              
              428Other
                  Income (Expense):Interest
                  expense, net
              
              
              (419
              )
              
              (378
              )Other
                  income
              
              
              -
              
              
              6Foregiveness
                  of debtTotal
                  other income (expense)
              
              
              (419
              )
              
              (372
              )Income
                  before provision for income taxes and minority interest
              
              
              337
              
              
              56Provision
                  for income taxes
              
              
              234
              
              
              134Minority
                  interest
              
              
              (6
              )
              
              (37
              )Net
                  income (loss)
              
              $
              97
              
              $
              (115
              )Basic
                  net income (loss) per share
              
              $
              (0.00
              )
              $
              (0.02
              )Basic
                  weighted average common shares outstanding
              
              
              6,483,000
              
              
              6,483,000


The
        accompanying notes are an integral part of these financial
        statements.
  F-3


**LAPIS
                  TECHNOLOGY, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
                  INCOME
                  (LOSS)****YEARS
                  ENDED DECEMBER 31, 2007 AND 2006****(In
                  Thousands, Except Share Amounts)**


AccumulatedAdditional
              
              Other
              
              
              
              TotalCommon
                  Stock
              
              Paid-in
              
              Comprehensive
              
              Retained
              
              Stockholders'
              
              ComprehensiveShares
              
              Amount
              
              Capital
              
              Loss
              
              Earnings
              
              Equity
              
              IncomeBalance,
                  January 1, 2006
              
              
              6,483,000
              
              
              6
              
              
              78
              
              
              (120
              )
              
              942
              
              
              906Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              90
              
              
              15
              
              
              105
              
              $
              105Net
                  income (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (115
              )
              
              (115
              )
              
              (115
              )Balance,
                  12-31-06
              
              
              6,483,000
              
              
              6
              
              
              78
              
              $
              (30
              )
              $
              842
              
              $
              896
              
              $
              (10
              )Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              122
              
              
              16
              
              
              138
              
              $
              138Net
                  income (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              97
              
              
              97
              
              
              97Balance,
                  12-31-07
              
              
              6,483,000
              
              $
              6
              
              $
              78
              
              $
              92
              
              $
              955
              
              $
              1,131
              
              $
              235


The
        accompanying notes are an integral part of these financial
        statements.
  F-4
 **LAPIS
                    TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS****(In
                    Thousands)**
  Years
                    EndedDecember
                    31,2007
                
                2006Cash
                    flows from operating activities:Net
                    income (loss)
                
                $
                97
                
                $
                (115
                )Adjustments
                    to reconcile net income to net cashused
                    in operating activities:Depreciation
                    and amortization
                
                
                144
                
                
                84Minority
                    interest
                
                
                34
                
                
                59Gain
                    on sale of property and equipment
                
                
                -
                
                
                (10
                )Deferred
                    income tax
                
                
                2
                
                
                (6
                )Change
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (737
                )
                
                (965
                )Inventories
                
                
                (767
                )
                
                (534
                )Prepaid
                    expenses and other current assets
                
                
                288
                
                
                (30
                )Accounts
                    payable and accrued expenses
                
                
                (493
                )
                
                564Income
                    taxes payable
                
                
                2
                
                
                -Severance
                    payable
                
                
                92
                
                
                26Net
                    cash used in operating activities
                
                
                (1,338
                )
                
                (927
                )Cash
                    flows from investing activities:Proceeds
                    from sale of property and equipment
                
                
                -
                
                
                69Purchase
                    of property and equipment
                
                
                (112
                )
                
                (130
                )(Increase)
                    decrease in due from stockholder
                
                
                (59
                )
                
                4(Increase)
                    decrease in due from affiliates
                
                
                (161
                )
                
                82Net
                    cash (used in) provided by investing activities
                
                
                (332
                )
                
                25Cash
                    flows from financing activities:Increase
                    (decrease) in bank line of credit, net
                
                
                (127
                )
                
                180Proceeds
                    from long term debt
                
                
                6,227
                
                
                3,880Repayment
                    of long-term debt
                
                
                (4,523
                )
                
                (3,237
                )Net
                    cash provided by financing activities
                
                
                1,577
                
                
                823Effects
                    of exchange rates on cash
                
                
                219
                
                
                8Increase
                    (decrease) in cash
                
                
                126
                
                
                (71
                )Cash,
                    beginning of period
                
                
                7
                
                
                78Cash,
                    end of period
                
                $
                133
                
                $
                7




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




F-5


**LAPIS
                  TECHNOLOGIES, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(In
                  Thousands)**
  Years
                  EndedDecember
                  31,2007
              
              2006Supplemental
                  disclosure of cash flow information:Cash
                  paid during the period for:Interest
              
              $
              419
              
              $
              372Income
                  taxes
              
              $
              98
              
              $
              201Supplemental
                  disclosure of non-cash financing activities:Common
                  stock issued for services
              
              $
              -
              
              $
              -




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




F-6


LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      1 -
      DESCRIPTION OF BUSINESS AND ACQUISITION





Lapis
      Technologies, Inc. (the “Company”) was incorporated in the State of Delaware on
      January 31, 2002. The Company’s operations are conducted through its wholly
      owned Israeli Subsidiary, Enertec Electronics Ltd. (“Enertec”) and its majority
      owned Israeli subsidiary Enertec Systems 2001 Ltd. (“Systems”). Enertec is
      engaged in the manufacturing, distribution and marketing of electronic
      components and products relating to power supplies, converters and related
      power
      conversion products, automatic test equipment, simulators and various military
      and airborne systems, within the State of Israel.





On
      January 1, 2002 Enertec assisted in the organization of Systems in exchange
      for
      25% of the common stock of Systems. This investment was accounted for under
      the
      equity method. Systems is engaged in the manufacturing of electronic components
      primarily for military use. On December 31, 2002 Enertec increased its common
      stock ownership interest in Systems to 55% for $71, which was included in
      accounts payable and accrued expenses in the accompanying consolidated balance
      sheet at December 31, 2002. This amount was paid during January 2003.





NOTE
      2 -
      BASIS OF PRESENTATION





The
      accompanying consolidated financial statements present the results of operations
      of the Company for the years ended December 31, 2007 and 2006 and their wholly
      owned subsidiary Enertec
      Electronics Ltd. and
      their ownership interest in Enertec
      Systems 2001 Ltd. All
      material intercompany accounts and transactions have been eliminated in
      consolidation.





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Concentration
      of Credit Risk





Concentrations
      of credit risk with respect to trade receivables are limited to customers
      dispersed primarily across Israel. All trade receivables are concentrated in
      the
      manufacturing and distribution of electronic components segment of the economy;
      accordingly the Company is exposed to business and economic risk. Although
      the
      Company does not currently foresee a concentrated credit risk associated with
      these trade receivables, repayment is dependent upon the financial stability
      of
      this segment of the economy.





F-7




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





Cash
      and
      Cash Equivalents





For
      the
      purpose of the statement of cash flows the Company considers all highly liquid
      investments with an original maturity of three months or less at the time of
      purchase to be cash equivalents.





Allowance
      for Doubtful Accounts





The
      Company estimates uncollectibility of accounts receivable by analyzing
      historical bad debts, customer concentrations, customer credit worthiness and
      current economic trends when evaluating the adequacy of the allowance for
      doubtful accounts. At December 31, 2007 the Company has not recorded an
      allowance for doubtful accounts.





Inventories





Inventories
      are stated at the lower of cost (first-in, first-out basis) or
      market.





Property
      and Equipment





Property
      and equipment are stated at cost less accumulated depreciation and amortization.
      Routine maintenance and repairs and minor replacement costs are charged to
      expense as incurred, while expenditures that extend the life of these assets
      are
      capitalized. Depreciation and amortization are provided for in amounts
      sufficient to relate the cost of depreciable assets to operations over their
      estimated service lives. The Company uses the same depreciation method for
      both
      financial reporting and tax purposes. Upon the sale or retirement of property
      and equipment, the cost and related accumulated depreciation and amortization
      will be removed from the accounts and the resulting profit or loss will be
      reflected in the statement of income. The estimated lives used to determine
      depreciation and amortization are:


Leasehold
                  improvements
              
              10
                  yearsMachinery
                  and equipment
              
              10
                  yearsFurniture
                  and fixtures
              
              14
                  yearsTransportation
                  equipment
              
              7
                  yearsComputer
                  equipment
              
              3
                  years




F-8




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





Income
      Taxes





The
      Company uses the liability method of accounting for income taxes as required
      by
      Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for
      Income Taxes.” Under this method, deferred tax assets and liabilities are
      determined based on differences between financial reporting and tax basis of
      assets and liabilities. Deferred tax assets and liabilities are measured using
      enacted tax rates and laws that will be in effect when the differences are
      expected to reverse. Valuation allowances are established when it is determined
      that it is more likely than not that the deferred tax assets will not be
      realized.





Warranty
      Reserves





The
      Company includes a one-year warranty on all products sold. A provision for
      estimated warranty costs, if material, is recorded at the time of sale. Based
      upon historical experience the Company has not incurred material costs relating
      to its warranty and has therefore not recorded a warranty provision at December
      31, 2007





Revenue
      Recognition and Customer Deposits





Revenue
      is recorded as product is shipped, the price has been fixed or determined,
      collectability is reasonably assured and all material specific performance
      obligations have been completed. The product sold by the Company is made to
      the
      specifications of each customer; sales returns and allowances are allowed on
      a
      case-by-case basis, are not material to the financial statements and are
      recorded as an adjustment to sales. **** Cash
      payments received in advance are recorded as customer deposits.





Revenue
      relating to service is recognized on the straight-line basis over the life
      of
      the agreement, generally one year. For the years ended December 31, 2007 and
      2006 revenue relating to service contracts is less than one percent of net
      sales.





Shipping
      and Handling Costs





Shipping
      and handling costs are included in cost of sales in accordance with guidance
      established by the Emerging Issues Task Force (“EITF”) issue No. 00-10,
“Accounting for Shipping and Handling Costs.”





Stock
      Based Compensation





Effective
      January 1, 2003 the Company adopted the fair method value alternative of SFAS
      No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.”
Under the fair value based method, compensation cost is measured at the grant
      date based on the value of the award and is recognized over the service period,
      which is usually the vesting period. For stock options, fair value is determined
      using an option-pricing model that takes into account the stock price at the
      grant date, the exercise price, the expected life of the option, the volatility
      of the underlying stock and the expected dividends on it, and the risk-free
      interest rate over the expected life of the option. For the years ended December
      31, 2007 and 2006 the Company did not issued any stock options.




F-9




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





Research
      and Development Costs





Research
      and development costs are charged to general and administrative expense in
      the
      accompanying statement of income and consist of salaries. Research and
      development cost for the years ended December 31, 2007 and 2006 were
      approximately $ 244 and $399, respectively.





Earnings
      per Share





The
      Company presents basic earnings per share and, if appropriate, diluted earnings
      per share in accordance with the provisions of SFAS No. 128 “Earnings per Share”
(“SFAS 128”).





Under
      SFAS 128 basic net earnings per share is computed by dividing the net earnings
      for the year by the weighted average number of common shares outstanding during
      the year. Diluted net earnings per share is computed by dividing the net
      earnings for the year by the weighted average number of common shares and common
      share equivalents outstanding during the year. Common stock equivalents would
      arise from the granting of stock options. For the years ended December 31,
      2007
      and 2006 the Company did not grant any stock options. Diluted earnings per
      share
      is not included as it is the same as basic for all periods shown.





Impairment
      of Long-Lived Assets





The
      Company reviews long-lived assets for impairment whenever circumstances and
      situations change such that there is an indication that the carrying amounts
      may
      not be recovered. In such circumstances, the Company will estimate the future
      cash flows expected to result from the use of the asset and its eventual
      disposition. Future cash flows are the future cash inflows expected to be
      generated by an asset less the future outflows expected to be necessary to
      obtain those inflows. If the sum of the expected future cash flows (undiscounted
      and without interest charges) is less than the carrying amount of the asset, the
      Company will recognize an impairment loss to adjust to the fair value of the
      asset. Management believes that there is no impairment of long-lived assets
      at
      December 31, 2007.




Minority
      Interest





Minority
      interest represents the minority stockholders' proportionate share of the equity
      of the Company's subsidiary at December 31, 2007. The minority interest is
      adjusted for the minority's share of the earnings or loss of
      Systems.





Financial
      Instruments





The
      carrying amounts of financial instruments, including cash and cash equivalents,
      accounts receivable, bank line of credit, short term bank loans and accounts
      payable and accrued expenses approximate fair value at December 31, 2007 because
      of the relatively short maturity of the instruments. The fair
      value of due from stockholder is not practical to estimate without incurring
      excessive cost and is carried at cost at December 31, 2007. The
      carrying value of the long-term debt approximate fair value at December 31,
      2007
      based upon debt terms available for companies under similar terms.




F-10




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





Comprehensive
      Income (Loss)





Comprehensive
      income (loss) consists of net income for the year and foreign currency
      translation adjustments.





Foreign
      Currency Translation





The
      assets and liabilities of the foreign subsidiaries are translated at current
      exchange rates and related revenues and expenses at average exchange rates
      in
      effect during the year. Resulting translation adjustments, if material, are
      recorded as a separate component of accumulated other comprehensive income
      or
      loss.





Use
      of
      Estimates





In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, management is required
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements and revenues and expenses during the reporting
      period. Actual results could differ from those estimates.





Reclassification





Certain
      reclassifications have been made to the prior year’s financial statements in
      order to conform to the current year presentation.





New
      Accounting Pronouncements





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 153 “Exchange of Non-monetary Assets - an amendment of APB Opinion
      No. 29”. Statement 153 eliminates the exception for nonmonetary exchanges of
      similar productive assets and replaces it with a general exception for exchanges
      of nonmonetary assets that do not have commercial substance, defined as
      transactions that are not expected to result in significant changes in the
      cash
      flows of the reporting entity. This standard, which is effective for exchanges
      of nonmonetary assets occurring in fiscal periods beginning after June 15,
      2005,
      is not applicable to the Company’s current operations.





F-11




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





In
      December 2004, FASB issued Statement No. 123 (revised 2004), “Share-Based
      Payment” (SFAS 123 (revised 2004), effective for public entities that file as
      small business issuers as of the beginning of the first interim or annual
      reporting period that begins after December 15, 2005. This Statement is a
      revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation,”
and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
and its related implementation guidance. SFAS 123 (revised 2004) eliminates
      the
      alternative to use Opinion No. 25’s intrinsic value method of accounting that
      was provided in Statement 123 as originally issued. Under Opinion 25, issuing
      stock options to employees generally resulted in recognition of no compensation
      cost. This Statement requires entities to recognize the cost of employee
      services received in exchange for awards of equity instruments based on the
      grant-date fair value of those awards (with limited exceptions). Recognition
      of
      that compensation cost helps users of financial statements to better understand
      the economic transactions affecting an entity and to make better resource
      allocation decisions. The Company is required to adopt Statement 123 (revised
      2004) as of January 1, 2006, and does not expect this statement to have a
      material effect on its results of operations.





In
      May
      2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a
      Replacement of APB Opinion No. 20 (Accounting Changes) and FASB No. 3 (Reporting
      Accounting Changes in Interim Financial Statements),” that changes requirements
      for the accounting for and reporting of a change in accounting principle. This
      Statement requires retrospective application to prior periods’ financial
      statements of changes in accounting principle unless it is impracticable to
      determine either the period-specific effects or the cumulative effect of the
      change. When it is impracticable to determine the period-specific effects of
      an
      accounting change on one or more individual prior periods presented, this
      Statement requires that the new accounting principle be applied to the balances
      of assets and
      liabilities as of the beginning of the earliest period for which retrospective
      application is practicable and that a corresponding adjustment be made to the
      opening balance of retained earnings (or other appropriate components of equity
      or net assets in the statement of financial position) for that period rather
      than being reported in an income statement. When it is impracticable to
      determine the cumulative effect of applying a change in accounting principle
      to
      all prior periods, this Statement requires that the new accounting principle
      be
      applied as if it were adopted prospectively from the earliest date practicable.





Statement
      154 is effective for accounting changes and error corrections made in fiscal
      years beginning after December 15, 2005 (calendar year 2006). Early adoption
      is
      permitted.





F-12




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      3 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - An Interpretation of FASB Statement 109,” (“FIN
      48”). FIN 48 prescribes a comprehensive model as to how a company should
      recognize, measure, present and disclose in its financial statements uncertain
      tax positions that the company has taken or expects to take on a tax return.
      The
      adoption of FIN 48 is effective January 1, 2007. The Company has not yet
      determined what the effect will be, if any, on their financial
      statements.




In
      June 2006, the FASB ratified the Emerging Issues Task Force
      (“EITF”) consensus on EITF Issue No. 06-2, “Accounting for Sabbatical
      Leave and Other Similar Benefits Pursuant to FASB Statement No. 43.” EITF
      Issue No. 06-2 requires companies to accrue the costs of compensated
      absences under a sabbatical or similar benefit arrangement over the requisite
      service period. EITF Issue No. 06-2 is effective for us beginning
      July 1, 2007. The cumulative effect of the application of this consensus on
      prior period results should be recognized through a cumulative-effect adjustment
      to retained earnings as of the beginning of the year of adoption. Elective
      retrospective application is also permitted. We do not expect the application
      of
      this consensus to have a material impact on our financial
      statements.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
      132(R),” (“FAS 158”). Among other things, FAS 158 requires companies to
      prospectively recognize a net liability or asset and to report the funded status
      of their defined benefit pension and other postretirement benefit plans on
      their
      balance sheets, with an offsetting adjustment to accumulated other comprehensive
      income; such recognition will not affect the Company’s statement of income. The
      adoption of FAS 158 is effective for the year ending December 31, 2006. The
      Company has not yet determined what the effect will be, if any, on their
      financial statements.




In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. SFAS No. 159 gives us the
      irrevocable option to carry many financial assets and liabilities at fair
      values, with changes in fair value recognized in earnings. SFAS No. 159 is
      effective for us beginning July 1, 2008, although early adoption is
      permitted. We are currently assessing the potential impact that adoption of
      SFAS
      No. 159 will have on our financial statements.





In
      December 2007 the FASB issued SFAS No. 141R “Business Combinations”. FAS 141R
      amends and replaces FAS 141 in order to improve the relevance, representational
      faithfulness, and comparability of information that an entity provides in its
      financial reports about business combinations and its effects. This statement
      applies to business combinations for acquisitions with an effective date for
      the
      first fiscal period after December 15, 2008. The Company has not yet determined
      what the effect will be, if any, on their financial statements.





F-13




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





In
      December 2007 the FASB issued SFAS No. 160 “Non-controlling Interests in
      Consolidated Financial Statements”. FAS 160 seeks to improve the relevance,
      comparability, and transparency of the financial information that a reporting
      entity provides in its consolidated financial statements by establishing
      accounting and reporting standards. This statement is effective for fiscal
      years
      beginning after December 15, 2008. The Company has not yet determined what
      the
      effect will be, if any, on their financial statements.




Management
      does not believe that any other recently issued, but not yet effective
      accounting pronouncements, if adopted, would have a material effect on the
      accompanying consolidated financial statements.





NOTE
      4 -
      INVENTORIES





Inventories
      consist of the following at December 31, 2007:


Raw
                  materials
              
              $
              967Work
                  in process
              
              
              2,554Finished
                  goods
              
              
              215$
              3,736




NOTE
      5 -
      PROPERTY AND EQUIPMENT





Property
      and equipment consists of the following at December 31, 2007:


Leasehold
                  improvements
              
              $
              121Machinery
                  and equipment
              
              
              7Furniture
                  and fixtures
              
              
              219Transportation
                  equipment
              
              
              250Computer
                  equipment
              
              
              4221019Less
                  accumulated depreciation and amortization$
              267





NOTE
      6 -
      INCOME TAXES





The
      provision for income taxes consists of the following for the years ended
      December 31:


2007
              
              2006Current:Foreign
              
              $
              234
              
              $
              134Deferred:Foreign
              
              $
              -
              
              $
              -Total
                  provision for income taxes
              
              $
              234
              
              $
              134





F-14




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      6 -
      INCOME TAXES - (continued)





At
      December 31, 2007, the Company has a net operating loss carryforward of
      approximately $206 which may be utilized to offset future taxable income for
      United States Federal tax purposes. This net operating loss carryforward begins
      to expire in 2022. The only timing difference which creates a deferred tax
      asset
      is the net operating loss carryforward. This net operating loss carryforward
      creates a deferred tax asset of approximately $10. Since it is more likely
      than
      not that the Company will not realize a benefit from these net operating loss
      carryforwards a 100% valuation allowance has been recorded to reduce the
      deferred tax asset to its net realizable value.





Deferred
      tax assets are classified as current or non-current, according to the
      classification of the related asset or liability for financial reporting. At
      December 31, 2007 the Company’s wholly owned Israeli subsidiary has a deferred
      tax asset of approximately $20, due to timing differences relating to severance
      payable. The Israeli subsidiary has not recorded a valuation allowance as it
      is
      more likely than not that the timing differences will be utilized.





The
      following is a summary of the components of non-current deferred tax assets
      at
      December 31, 2007:


Severance
                  payable
              
              $
              20Net
                  operating loss carryforward
              
              
              206Valuation
                  allowance
              
              
              (206
              )Deferred
                  tax assets
              
              $
              20





F-15




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      6 -
      INCOME TAXES - continued





Differences
      between the United States Federal statutory income tax rate and the effective
      tax rate are as follows for the years ended December 31:


2007
              
              2006Federal
                  statutory rate
              
              
              34.0
              %
              
              34.0
              %Valuation
                  Allowance
              
              
              (34.0
              )
              
              (34.0
              )Effect
                  of foreign taxes
              
              
              69.0
              
              
              239.069.0
              
              
              239.0




NOTE
      7 -
      LONG-TERM DEBT





Long-term
      debt consists of the following at December 31, 2007:


Bank
                  line of credit due December 31, 2007 at 6.7% per annum
              
              $
              1,362Short-term
                  bank loans, payable within twelve months at rates ranging from
                  7% per
                  annum and 8.5% per annum
              
              
              3,907Long
                  Term loans, due between Sept 2007 to March 2010 at rates ranging
                  from 7.0%
                  per annum and 8.5% per annum
              
              
              4475,716Less
                  current portion of term loans
              
              
              5,469$
              247





The
      Company has pledged its accounts receivables as collateral against its long
      term
      debt, which is payable to one financial institution. In addition, the president
      has guaranteed personal assets, as defined in the agreement, against the
      Company’s long term debt.





The
      aggregate maturities of long-term debt are as follows at December 31,
      2007:


Year
                  Ended2008
              
              $
              4,1082009
              
              
              1982010
              
              
              492011
              
              
              0$
              4,355
  F-16




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      8 -
      SEVERANCE PAYABLE





Severance
      payable represents amounts computed on employees’ most recent salary and the
      number of years working in Israel. The Company’s liability is partially offset
      by amounts deposited to insurance policies, which are under the company’s
      control.





NOTE
      9 -
      STOCK OPTION PLAN





On
      October 16, 2002 the Board of Directors of the Company authorized the formation
      of the 2002 Stock Option Plan (the “Plan”), subject to stockholder approval. The
      Plan provides for the granting of incentive stock options, non-statutory stock
      options and stock appreciation rights. The incentive stock options can be
      granted to employees, including officers, or any subsidiary of the Company.
      The
      non-statutory stock options can be granted to all employees, including officers,
      non-employee directors, consultants or any subsidiary of the Company.
      Non-statutory stock options can only be granted to consultants that have
      rendered a bona fide service to the Company, so long as the service is not
      in
      connection with the offer or sale of securities in a capital raising
      transaction. The number of shares of common stock reserved for issuance under
      the Plan is 500,000, subject to adjustment in the event of a stock split, stock
      dividend, recapitalization or similar change in the Company’s capital
      structure.





Incentive
      stock options must be granted prior to ten years from the date the Plan was
      initially adopted by the Board of Directors. The option price for shares issued
      as incentive stock options shall not be less than the fair market value of
      the
      Company’s common stock at the date of grant unless the option is granted to an
      individual who, at the date of the grant, owns more than 10% of the total
      combined voting power of all classes of the Company’s stock (the “Principal
      Stockholder”). Then the option price shall be at least 110% of the fair market
      value at the date the option is granted. No incentive stock option granted
      under
      the Plan shall be exercisable after ten years from its grant date. If the
      incentive stock option is granted to a Principal Stockholder then the exercise
      period is five years from the date of grant. Every incentive stock option
      granted under the Plan shall be subject to earlier termination as expressly
      provided for in the Plan.





F-17




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      9 -
      STOCK OPTION PLAN - continued





The
      option price for shares issued under the non-statutory stock options shall
      be
      determined at the sole discretion of the Board of Directors, but may not be
      less
      than 85% of the fair market value of the may be of such duration as shall be
      determined by the Board of Directors.





NOTE
      10 -
      RELATED PARTIES





Due
      to
      Stockholder





At
      December 31, 2007 the Company had receivables from the majority
      stockholder $ 49 that accrue interest at 4% per annum.





F-18




LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      10 -
      RELATED PARTIES - continued





Due
      from
      Affiliate





During
      2001 the Company entered into a sale-leaseback transaction with an entity owned
      by the majority stockholder of the Company. The Company sold a building for
      approximately $170 and received approximately $93 in cash and the balance by
      a
      non-interest bearing loan due on demand.The ammount of the loan outstanding
      at
      December 31, 2007 was $77.6 . No gain or loss was recorded on this transaction,
      as the book value of the building equaled the fair market value. The Company
      has
      agreed to exercise its option to rent this property through December 31, 2009
      at
      approximately $29,860 annually with an option to renew the lease for an
      additional two years ending December 31, 2011 This lease has been classified
      as
      an operating lease.





NOTE
      11 -
      COMMITMENTS AND CONTINGENCIES





Lease
      commitments





The
      Company leases certain office and manufacturing space under two non-cancellable
      operating leases expiring at December 31,2009 . Rent expense, not including
      municipal taxes and utilities associated with the leases approximated $65 and
      $59  , for
      the years ended December 31, 2007 and 2006.





At
      December 31, 2007, total minimum rentals under noncancellable operating leases
      with an initial or remaining term lease term of one year or more are as follows:


Year
                  EndingDecember
                  31:2008
              
              $
              75





Legal
      proceedings




A
      Customer had brought an action in the Tel Aviv District Court for an unspecified
      monetary amount against one of the Company’s suppliers, a subcontractor of the
      supplier and Enertec, alleging that the materials supplied were defective and
      caused the Customer to replace the materials at a substantial financial expense.
      Enertec filed a defense claim that there is no cause of action against them
      as
      Enertec is only the local Israeli sales representative and did not make any
      implied or express representation or warranty to the Customer regarding the
      suitability of its materials.




During
      the year 2006 the plaintiff withdrew its action against Enertec
      Electronics.




We
      are
      not subject to any pending or threatened legal proceedings,nor is our property
      the subject of a
      pending
      or threatened legal proceeding.none of our directors,officers or affiliates
      is
      involved in a proceeding adverse to our business or has a material interest
      adverse to our business.





F-19





LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2007


(In
      Thousands, Except Share and Per Share Amounts)





NOTE
      12 -
      CONCENTRATIONS





The
      Company had deposits with commercial financial institutions, which, at times,
      may exceed the FDIC insured limits of $100 in the United States. Management
      has
      placed these funds in high quality institutions in order to minimize the risk.
      Cash held in Israel at December 31, 2006 was $ 133.





At
      December 31, 2007 the Company had two customers that accounted for approximately
      73.1% of accounts receivable. For the years ended December 31, 2007 and 2006
      approximately 60.6% **** and
      48.7% , respectively, of the Company's sales were to two customers,
      respectively.





NOTE
      13-
      SEGMENT AND GEOGRAPHIC INFORMATION





Information
      about the Company's assets in different geographic locations at December 31,
      2007 is shown below pursuant to the provisions of SFAS 131, “Disclosures About
      Segments of an Enterprise and Related Information.”


Total
                  assets:Israel
              
              $
              9,970United
                  States
              
              
              1,037$
              11,007




NOTE
      14 -
      SUBSEQUENT EVENT





On
      February 28, 2008 the Company entered into an agreement with an Israeli Company
      that currently trades on the Tel Aviv Stock Exchange. Under this agreement
      Lapis
      will exchange approximately 75,000,000 of its shares (92% based upon the current
      outstanding amounts) in exchange for approximately 4,500,000 shares of Star
      Night Technologies Ltd. In addition, the Company’s chief executive officer has
      been granted certain options to sell his Lapis shares to Star Night under
      certain circumstances.





The
      agreement also calls for the sale of the Company’s wholly owned subsidiary, as
      well as the subsidiary’s own marority owned subsidiary. The result of these
      transactions will be the ownship of approximately 4,500,000 shares of Star
      Night
      Technologies, Ltd.





For
      further information please refer to Form 8-K filed with the Securities and
      Exchange Commission on March 5, 2008 which is incorporated by reference into
      this filing.




F-20