UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC  20549





FORM
10-K


(mark
one)


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


EXCHANGE
ACT OF 1934


For the fiscal year ended December 31,
2008


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


EXCHANGE
ACT OF 1934


For the
transition period from _______ to _______


Commission
File No. 333-100979


LAPIS TECHNOLOGIES,
INC.


(Exact
Name of registrant as specified in its charter)





Delaware
                        
                        27-0016420(State
      or Other Jurisdiction of Incorporation
                          or
      Organization)
                        
                        (I.R.S.  Employer
      Identification No.)19 W.
      34thStreet,
      Suite 1008, New York, New York
                        
                        10001(Address
      of Principal Executive Offices)
                        
                        (Zip
      Code)
  (212) 937-3580(Issuer’s
      Telephone Number, Including Area
Code)





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





Title
      of Each Class
                    to be so Registered:
                  
                  Name of each exchange on which
                    registeredNone
                  
                  None





Securities
registered under Section 12(g) of the Act:





Common Stock, Par Value
$.003


(Title of
Class)





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


Yes  ̈     No
x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.    Yes
 ̈    No
x





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or amendment to Form
10-K. Yes  ̈No
x









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





Large
Accelerated Filer  ̈                                  Accelerated
Filer  ̈


Non-accelerated
Filer      ̈                                    Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No
x





As of
June 30, 2008, the aggregate market value of the issued and outstanding common
stock held by non-affiliates of the registrant, based upon the closing price of
the common stock, under the symbol  “LPST” as quoted on the National
Association of Securities Dealers Inc. OTC Bulletin Board was approximately
$344,800.   For purposes of the statement in the preceding
statement, all directors, executive officers and 10% shareholders are assumed to
be affiliates.  This determination of affiliate status is not
necessarily a conclusive determination for any other purpose.




(ISSURERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)





Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes  ̈No
 ̈





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: The Registrant’s common stock as of February
23, 2009, was 6,483,000 shares.





TABLE OF
CONTENTS




PagePART
      IItem
      1.
                                        
                                        Business
                                        
                                        1Item
      1A
                                        
                                        Risk
      Factors
                                        
                                        12Item
      1B
                                        
                                        Unresolved
      Staff Comments
                                        
                                        12Item
      2.
                                        
                                        Properties
                                        
                                        12Item
      3.
                                        
                                        Legal
      Proceedings
                                        
                                        13Item
      4.
                                        
                                        Submission
      of Matters to a Vote of Security Holders
                                        
                                        13PART
      IIItem
      5.
                                        
                                        MMarket
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                        
                                        13Item
      6.
                                        
                                        Selected
      Financial Data
                                        
                                        14Item
      7.
                                        
                                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                        
                                        14Item
      7A
                                        
                                        Quantitative
      and Qualitative Disclosures About Market Risk
                                        
                                        18Item
      8.
                                        
                                        Financial
      Statements and Supplementary Data
                                        
                                        18Item
      9.
                                        
                                        Changes
      in and Disagreements with Accounts on Accounting and Financial
      Disclosure
                                        
                                        18Item
      9A
                                        
                                        Controls
      and Procedures
                                        
                                        18Item
      9B
                                        
                                        Other
      Information
                                        
                                        19PART
      IIIItem
      10.
                                        
                                        Directors,
      Executive Officers, Promoters and  Corporate
      Governance
                                        
                                        19Item
      11.
                                        
                                        Executive
      Compensation
                                        
                                        21Item
      12.
                                        
                                        Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                        
                                        22Item
      13.
                                        
                                        Certain
      Relationships and Related Transactions, and Director
      Independence
                                        
                                        22Item
      14.
                                        
                                        Principal
      Accounting Fees and Services
                                        
                                        24Item
      15.
                                        
                                        Exhibits,
      Financial Statement Schedules
                                        
                                        2526SIGNATURES
                                        
                                        27










PART
I




ITEM 1.
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.




3




NEW
PRODUCTS




ENERTEC
SYSTEMS




Enertec
Systems is focusing almost exclusively on the military arena, and entered into
several 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. The
qualification process was performed during 2007 and 2008 and was completed by
the end of 2008. Following
the successful qualification the customer has released order for additional 10
sets scheduled for delivery during 2009.  New orders for about 40 set
are expected to be received during 2009.




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 2007-2008.  During 2009 we
expect to receive orders for about 80 pcs. and additional support equipment for
delivery during 2009-2011.




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 which
have been completed 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.




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 2007-2008. We are expecting its successful launch to generate several
follow up orders within the next twelve months of about 5-10 additional units
for deliveries during 2009-2012.




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 have already
passed the stringent military screening tests. During 2008, we have delivered
about orders in the amount of $ 130,000.  By the end of 2008, we had
new orders for additional 100 units for delivery during 2009.




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. 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
2009, this system will be upgraded to implement new enhanced performances and we
will receive orders to retrofit all delivered units .  We also expect
new orders for about 30 units to be received during 2009 and for additional 100
pcs. to be received during 2010.


4




By the
end of 2005 we 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 2008 have received additional order for the
implementation of upgrades with scheduled delivery during 2009. 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. We 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.   During 2008 have delivered orders in amount of
approximately $ 1,100,000




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 have delivered orders in amount of  approximately $
1,000,000.




During
2007, we  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.
The first prototype was completed by the end of 2008 and deliveries will start
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, 900 units during 2007 and 1000 units during 2008.




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, for 1000 pcs delivered during 2007 and for 1000 pcs
delivered during 2008.




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, 100 pcs during 2007 During 2008,
we have not received new orders.




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


5





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 follow up orders  of approximately 5000 pcs
delivered during 2007-2008.




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, 800 pcs during 2007 and 300 pcs
during 2008.





In 2006,
we introduced a new multiple output customized power supply for outdoor wireless
application and have submitted for UL safety approvals. No orders have been
received during 2008.





In 2006,
we introduced a line of 150W dc/dc military converters.  We received
orders for first 75 units from four different manufacturers of defense systems
during 2006, additional 40 units during 2007 and 30 during 2008.





During
2008, we 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."


6




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,  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.




By
continuously diversifying into new and more complex products, Enertec Systems
has been able to set itself apart from its competition. In 2008, 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.





During
2007 – 2008, we 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 the increase in our sales and backlog of
military products. This trend continued through 2006-2008 resulting in a backlog
of $ 5,757,600 Million dollars by the end of 2008.





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.


7





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 slow down during 2008 resulting in a decrease of sales of our
customers to this sector and this trend is reflected in our sales to our
customers.





We
service clients in the telecommunications, industrial control, medical and the
military core business sectors. We offer more customized power supplies, 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.





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.





Enertec
Electronics prospects are dependent on the electronics and electrical product
industries in Israel. Although these sectors have seen good growth until 2008,
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.




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 2005-2007, we focused our
efforts in diversifying our sales across other technologies, for example avionic
equipment and combat control stations.  By the end of 2008 Rafael
became our major customer representing approximately 36,6% 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.





During
2005, the Israeli Aircraft Industry (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.   For the year ended December 31,
2008, sales to IAI was 26.7 % of our total sales.




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.


8




BACKLOG




As of
December 31, 2008, we had a backlog of orders for our products and services in
the amount of approximately $ 6,548,000  as compared to a backlog of
approximately $6,766,000 as of December 31, 2007. The decrease of approximately
3.2% in the backlog as of December 31 2008 compared to December 31 2007 is
mainly due to the receival of some new orders at Enertec Systems being postponed
from the end of year 2008 to the first quarters of the year 2009 as well as the
market slow-down at Enertec Electronics.




The
orders included in the December 31, 2008 backlog figure are as
follows:




Enertec
Systems





$
                        3,428,000
                        
                        
                        representing
      airborne power supplies, laser systems, flight computers, test systems for
      avionics and military systems, missiles command & control
      systems$
                        2,202,000
                        
                        
                        representing
      test systems for IAI missiles and avionic systems$
                        36,000
                        
                        
                        representing
      airborne power supplies and test systems for infra-red
      payloads$
                        205,000
                        
                        
                        representing
      medical systems$
                        5,871,000
                        
                        
                        TOTAL
      backlog for Enertec
Systems




Enertec
Electronics





$
                677.000
                
                
                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 main
competitors that we face are: Chaban Electronics Ltd, Symcotech Ltd, and Rada
Electronic Industries ltd.




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:


9





·




·





·





·




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.





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, 2008, Enertec Electronics had 10 employees and Enertec Systems had
54 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.


10




RESEARCH
AND DEVELOPMENT EXPENDITURES




Research
and Development costs totaled approximately$143,000 and  $244,000 for
the twelve months ended December 31, 2008 and 2007, respectively, which equates
to approximately  1.4% and 2.5% 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 2007 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 technologies developed during previous
years.




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.




In
connection with the Lapis SPA, on February 28, 2008, our indirect wholly owned
subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
our direct wholly owned subsidiary Enertec Electronics Ltd.), entered into an
agreement (the “Systems SPA”) for the sale and purchase of Enertec Systems 2001
Ltd., 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.


11





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, for the sale of the entire issued and outstanding share capital of
Enertec Electronics Ltd. (the “Electronics SPA”).




The
Investor, on behalf of himself and SDS, verbally informed Enertec, the Company
and Enertec Management that the Investor and SDS will not complete the
transactions contemplated by the Lapis SPA and the Systems SPA. The latter is
evidenced by a report filed by SDS with the Tel Aviv Stock Exchange on September
10, 2008, to inform that it cancels the assembly of its general meeting
scheduled for September 11, 2008 (the “Report”). According to the Report, the
assembly was cancelled pursuant to Mordechai Solomon’s, a controlling
shareholder in SDS, notice to SDS that the transactions contemplated by the
Lapis SPA (and, as a result, the transactions contemplated by the Systems
SPA) will not be completed.





Because
the transactions contemplated by the Lapis SPA and the Systems SPA will not be
completed, the Company will also not complete the transactions contemplated by
the Electronics SPA.





ITEM 1A
RISK FACTORS





NOT
APPLICABLE





ITEM 1B.
UNRESOLVED STAFF COMMENTS





Not
Applicable





ITEM 2.
PROPERTIES.




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.




Our Haifa
plant is 400 square meters and includes a production hall and management
offices. We lease this property for $32,008 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 $52,344 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.


12




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.




PART
II




ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASERS OF EQUITY SECURITES.




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
      Quarter
                            
                            Fiscal
      2008
                            
                            
                            Fiscal
      2007High
                            
                            
                            Low
                            
                            
                            High
                            
                            
                            LowFirst
      Quarter Ended March 31
                            
                            $
                            .20
                            
                            
                            $
                            .20
                            
                            
                            $
                            1.11
                            
                            
                            $
                            1.01Second
      Quarter Ended June 30
                            
                            $
                            .20
                            
                            
                            $
                            .20
                            
                            
                            $
                            1.10
                            
                            
                            $
                            1.10Third
      Quarter Ended September 30
                            
                            $
                            .20
                            
                            
                            $
                            .20
                            
                            
                            $
                            1.10
                            
                            
                            $
                            0.80Fourth
      Quarter Ended December 31
                            
                            $
                            .20
                            
                            
                            $
                            .20
                            
                            
                            $
                            .85
                            
                            
                            $
                            .20





HOLDERS




As of
February 23, 2009, we had 6,483,000 shares of common stock outstanding and such
shares were held by approximately 42 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.


13




RECENT
SALES OF UNREGISTERED SECURITIES




During
the fiscal year ended December 31, 2008,  we did not issue any
securities without registration under the Securities Act of 1933, as amended
(the "Securities Act").





ITEM 6.
SELECTED FINANCIAL DATA.





NOT
APPLICABLE




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





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.




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, 2008 has increased compared to the cash balance at Dec
21,2007. As of December 31, 2008, our cash balance was $763,000 as compared to
$133,000  at December 31, 2007. Total current assets at December 31,
2007 were $10,043,000 as compared to $9,450,000 at December 31, 2007. The
increase in current assets is mainly due to the increase in cash balance and the
increase in inventories partly offset by the decrease in accounts
receivables.




Our
accounts receivable at December 31, 2008 were $4,884,000 as compared to
$5,414,000  at December 31, 2007. This decrease is a result of
improved payment terms of certain large orders during Dec 2008 resulting in an
increased cash balance.





As
of December 31, 2008 our working capital was $1,706,000 as compared to
$1,715,000  at December 31, 2007. The minor decrease in the working
capital is mainly due a larger increase in the total liabilities than the
increase in the total current assets.


14





Bank
Leumi and Bank Hapoalim have extended us a combined total loan  of
$5,621,000 as of December 31, 2008, as compared to $5,716,000 as of December 31,
2008. 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
$3,457,000 of total debt based on our pledge of our working capital and
customers' receivables and by the pledge of some of the financial assets of our
president, Harry Mund. Bank Hapoalim has provided us with $2,164,000
of total debt based on the pledging of some of the financial assets of Mr. Mund.
Mr. Mund has personally on deposit with our banks, monies in excess of
$2,500,000 which he has pledged as collateral against our bank
debt.




The
current portion of our term loans at December 31, 2008 consisted of $197,000 as
compared to $200,000  at December 31, 2007. Our total short-term loans
consisted of $4,124,000 of short-term loans and $197,000 of current portion of
long-term debt broken down as follows:




$401,000
due January 2009, $517,000 due February 2009, $819,000 due March 2009, $905,000
due May 2009, $830,000 due July 2009, $504,000 due Nov 2009, $345,000 due Dec
2009.





At
December 31, 2008, our total bank debt was $5,621,000 compared to $5,716,000 at
December 31, 2007. These funds were borrowed as follows:




$4,321,000
which includes the current portion of long term debt, as various short term bank
loans due through 2009, $52,000 of long-term debt due March 2010 and $1,248,000
borrowed using our bank lines of credit. As a result, we decreased the amount
borrowed for the year ended December 31, 2008 by $95,000 from $5,716,000. The
decrease in bank debt is mainly due to the decrease in accounts
receivable.





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, 2008, 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 of Dec 31, 2008,
Mr Mund had $13,000 receivables from the company.





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.


15




RESULTS
OF OPERATIONS




FISCAL
YEAR ENDED DECEMBER 31, 2008 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2007




For the
fiscal year ended December 31, 2008, we had total revenue
of  $10,464,000 as compared to revenue of $9,642,000 for the fiscal
year ended December 31, 2007. The increase  in revenue of $822,000, or
8.5 % is mainly due to to increase in military business partly offset by a
decrease in the commercial
business.




1. The
increase in revenues of the military business is the result 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 12.7 % from
4.108 the average for 2007 to 3,588 the average for 2008.




Gross
profit totaled $2,912,000 for the fiscal year ended December 31, 2008 as
compared to $2,538,000 for the fiscal year ended December 31, 2007, an increase
of $374,000 or 14.7 %. 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, 2008 was 27.8 % as compared to 26.3% for the fiscal year
ended December 31, 2007. The increase in gross profit as a percentage of sales
is mainly a result of several sales having been repeat orders to our customers
with higher profit margin.





Total
operating expenses are comprised of R&D costs, selling, general and
administrative expenses. Operating expenses for the fiscal years ended December
31, 2008 and 2007 were $2,180,000 and $1,782,000 respectively, an increase of
$398,000 or 22.3 %. The increase in operating expenses is attributable to the
following factors:




·
            Decrease
      in R&D spending of $101,000 and an increase in G&A expenses of
      $498,000 mainly due to increased professional services expenses and the
      decrease in USD/Shekel exchange
rate




We
experienced a profit of $171,000 in the fiscal year ended 2008 compared to a
profit of $97,000 in the fiscal year ended December 31, 2007. This increase in
net income in the amount of $74,000 or 76.3% is mainly due to the increase of
$374,000  in gross profit and decrease in provision for income taxes
of  $217,000 partly offset by the increase in operating expenses of
$398,000,the increase in interest expenses of $74,000 and the increase in
minority interest of $45,000.




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, 2008, Enertec Electronics' revenue, costs of
sales and gross profits were $2,927,000, $2,037,000 and $890,000 respectively
and $3,392,000, $2,640,000 and  $752,000 for the fiscal year ended
December 31, 2007. Revenue decreased $465,000 or 13.7 % due to the overall
market slow down during 2008 resulting in a decrease of sales of our customers
to this sector and this trend is reflected in our sales to our
customers.


16





Costs of
sales decreased approximately by $603,000 or 22.8 %.  Gross profit
increased by $138,000 or 18.4 % mainly due to a higher decrease in cost of sales
than the decrease in the revenues during 2008 since most of the sales have been
repeat orders to our customers.





For the
twelve months ended December 31, 2008, revenues, costs of sales and gross
profits from Enertec Systems 2001 were $7,537,000, $5,516,000 and $2,021,000,
respectively and $6,250,000, $4,464,000 and $1,786,000  respectively
for twelve months ended December 31, 2007. Revenue increased
by  $1,287,000 or 20.6 % 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  12.7 % in the USD/shekel exchange rates since part of the sales
are Shekel related.





Cost of
sales increased approximately $1,052,000 or 23.6 % mainly due to the increase in
sales.




Gross
Profit increased by $235,000 or 13.2 % mainly due to the increase in
sales.




As of
December 31, 2008, we had two customers that accounted for approximately 75.9%
of accounts receivable. For the years ended December 31, 2008 and 2007,
approximately 63.4% and 60.6% 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, 2008 and
2007 revenue relating to service contracts is less than one percent of net sales
and the financial
instruments are  at fair value.




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, 2008 and 2007 were approximately $143,000 and $244,000
respectively.


17




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, 2008 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, 2008. The
carrying value of the long-term debt approximate fair value at December 31, 2008
based upon debt terms available for companies under similar terms.




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 7A
QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


N/A


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.




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




N/A




ITEM 9A.
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, 2008. 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, 2008, our internal control over
financial reporting is effective based on those criteria.


18





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




ITEM 9B.
OTHER INFORMATION.




None.


PART
III




ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.




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
                
                61
                
                Chairman
      of the Board, Chief Executive Officer,President
      and SecretaryMiron
      Markovitz
                
                61
                
                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.


19




DIRECTOR
COMPENSATION:




During
2008, 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 47, 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.




YAAKOV
OLECH, age 59, 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 62, 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.





EMPLOYMENT
AGREEMENTS





We are
not party to any employment agreements.


20




AUDIT
COMMITTEE




Our Board
of Directors acts as our audit committee.  We do not have an audit
committee financial expert because 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.





CHANGES
IN NOMINATING PROCESS





None.




Outstanding
Equity Awards at December 31, 2008




The
Company did not have any equity awards outstanding as of December 31,
2008.




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 11.
EXECUTIVE COMPENSATION.




EXECUTIVE
COMPENSATION




SUMMARY
COMPENSATION TABLE




The
following information is furnished for the years ended December 31, 2008 and
2007 for our principal executive officer. No executive officer other than Mr.
Mund received total annual compensation in excess of $100,000, during fiscal
2008 and 2007.




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
                                
                                2008
                                
                                $
                                387,050
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                18,484
                                
                                
                                $
                                405,534Chief
      Executive Officer
                                  and President
                                
                                2007
                                
                                $
                                315,076
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                $
                                21,473
                                *
                                
                                $
                                336,549




21





*
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)




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




The
following table sets forth certain information, as of February 23, 2009 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 February 23, 2009, together with securities exercisable
      or convertible into shares of common stock within 60 days of February 23,
      2009 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 February 23, 2009 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.




*
            Less
      than 1% of the outstanding shares of common
  stock





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, 2008.




22




EQUITY
COMPENSATION PLAN INFORMATION




Plan
      category
                        
                        Number
      of
                          securities to
      be issued
                          upon
      exercise
                          of outstanding
      options,
                          warrants
      and rights
                        
                        Weighted average
                          exercise price
                          of outstanding
      options,
                          warrants and rights
                        
                        Number
      of
                          securities remaining
                          available
      for future
                          issuance
                          under equity
                          compensation
                          plans (excluding
                          securities reflected
                          in
      column (a)(a)
                        
                        (b)
                        
                        
                        (c)Equity
      compensation plans 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.


23




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.




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 13.
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 for the
repayment terms. The parties have orally agreed that the amount outstanding is
due on demand. As of December 31, 2008, the loan was fully repaid.




Enertec
Electronics rents the building's office and manufacturing space from Mund
Holding Limited for  $32,008 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.




In
connection with the Lapis SPA, on February 28, 2008, our indirect wholly owned
subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
our direct wholly owned subsidiary Enertec Electronics Ltd.), entered into an
agreement (the “Systems SPA”) for the sale and purchase of Enertec Systems 2001
Ltd., 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.





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, for the sale of the entire issued and outstanding share capital of
Enertec Electronics Ltd. (the “Electronics SPA”).


24




The
Investor, on behalf of himself and SDS, verbally informed Enertec, the Company
and Enertec Management that the Investor and SDS will not complete the
transactions contemplated by the Lapis SPA and the Systems SPA. The latter is
evidenced by a report filed by SDS with the Tel Aviv Stock Exchange on September
10, 2008, to inform that it cancels the assembly of its general meeting
scheduled for September 11, 2008 (the “Report”). According to the Report, the
assembly was cancelled pursuant to Mordechai Solomon’s, a controlling
shareholder in SDS, notice to SDS that the transactions contemplated by the
Lapis SPA (and, as a result, the transactions contemplated by the Systems
SPA) will not be completed.





Because
the transactions contemplated by the Lapis SPA and the Systems SPA will not be
completed, the Company will also not complete the transactions contemplated by
the Electronics SPA.





Neither
of our directors are independent as that term is defined under the Nasdaq
Marketplace Rules.




Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVIES.




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-K and Form 10-KSB,
and for other services normally provided in connection with statutory filings
were $20,492 and $17,568  for the years ended December 31, 2008 and
2007, respectively.




AUDIT-RELATED
FEES




We
incurred fees of $43,600 and $40,000 for the years ended December 31, 2008 and
2007, 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 $2,000 and
$1,750 for the years ended December 31, 2008 and December 31, 2007,
respectively. The services for which such fees were paid consisted of filing our
tax returns for 2008 and 2007.




ALL OTHER
FEES




We did
not incur any fees for other professional services rendered by our principal
accountants during the years ended December 31, 2008 and December 31,
2007.




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.




25




ITEM 15.
EXHIBITS, FINACIAL STATEMENTS AND SCHEDULES.





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)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





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




26





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, 2009
                  By:
                  /s/
      Harry MundHarry
      Mund
                    Chief
      Executive Officer
                    Principal
      Executive OfficerDate:
      March 31, 2009
                  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, 2009Harry
      Mund/s/
      Miron Markovitz
                          
                          Director,
      Chief Financial Officer and Principal Accounting Officer
                          
                          March
      31, 2009Miron
      Markovitz




27








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") as of December 31, 2008 and 2007, and the
related consolidated statements of income, changes in stockholders' equity and
comprehensive income and cash flows for each of the two years in the period
ended December 31, 2008. 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 audits 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 as of December 31, 2008 and 2007 and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2008, in conformity with accounting principles generally
accepted in the United States of America.




/s/
Gvilli and
Co.


Gvilli
&
Co.


March30,
2009


Casarea,  Israel







F-1


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


(In
Thousands, Except Share Amounts)





2008
                  
                  
                  2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  763
                  
                  
                  $
                  133Accounts
      receivable
                  
                  
                  4,884
                  
                  
                  
                  5,414Inventories
                  
                  
                  4,305
                  
                  
                  
                  3,736Prepaid
      expenses and other current assets
                  
                  
                  91
                  
                  
                  
                  118Due
      from stockholder
                  
                  
                  -
                  
                  
                  
                  49Total
      Current Assets
                  
                  
                  10,043
                  
                  
                  
                  9,450Property
      and equipment, net
                  
                  
                  202
                  
                  
                  
                  267Deferred
      income taxes
                  
                  
                  20
                  
                  
                  
                  20$
                  10,265
                  
                  
                  $
                  9,737LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent  Liabilities:Bank
      line of credit
                  
                  $
                  1,248
                  
                  
                  $
                  1,362Short
      term bank loans
                  
                  
                  4,124
                  
                  
                  
                  3,907Current
      portion of term loans
                  
                  
                  197
                  
                  
                  
                  200Accounts
      payable and accrued expenses
                  
                  
                  2,660
                  
                  
                  
                  2,361Due
      to affiliates
                  
                  
                  79
                  
                  
                  
                  (97
                  )Due
      to stockholder
                  
                  
                  13Income
      taxes payable
                  
                  
                  16
                  
                  
                  
                  2Total
      Current Liabilities
                  
                  
                  8,337
                  
                  
                  
                  7,735Term
      loans, net of current portion
                  
                  
                  52
                  
                  
                  
                  247Severance
      payable
                  
                  
                  190
                  
                  
                  
                  1768,579
                  
                  
                  
                  8,158Commitments
      and contingenciesMinority
      interest
                  
                  
                  501
                  
                  
                  
                  448Stockholders'
      Equity:Preferred
      stock; $.001 par value, 5,000,000  shares authorized, none
      issued
                  
                  
                  -
                  
                  
                  
                  -Common
      stock; $.001 par value, 100,000,000 shares authorized, 6,483,000 shares
      issued and outstanding
                  
                  
                  6
                  
                  
                  
                  6Additional
      paid-in capital
                  
                  
                  78
                  
                  
                  
                  78Accumulated
      other comprehensive loss
                  
                  
                  108
                  
                  
                  
                  92Retained
      Earnings
                  
                  
                  993
                  
                  
                  
                  955Total
      Stockholders' Equity
                  
                  
                  1,185
                  
                  
                  
                  1,131$
                  10,265
                  
                  
                  $
                  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 31,2008
                    
                    
                    2007Sales
                    
                    $
                    10,464
                    
                    
                    $
                    9,642Cost
      of sales
                    
                    
                    7,552
                    
                    
                    
                    7,104Gross
      profit
                    
                    
                    2,912
                    
                    
                    
                    2,538Operating
      Expenses:Research
      and development expenses
                    
                    
                    143
                    
                    
                    
                    244Selling
      expenses
                    
                    
                    194
                    
                    
                    
                    193General
      and administrative
                    
                    
                    1,843
                    
                    
                    
                    1,345Total
      operating expenses
                    
                    
                    2,180
                    
                    
                    
                    1,782Income
      from operations
                    
                    
                    732
                    
                    
                    
                    756Other
      Income (Expense):Interest
      expense, net
                    
                    
                    (493
                    )
                    
                    
                    (419
                    )Other
      income
                    
                    
                    -
                    
                    
                    
                    -Foregiveness
      of debtTotal
      other income (expense)
                    
                    
                    (493
                    )
                    
                    
                    (419
                    )Income
      before provision for income taxes and minority interest
                    
                    
                    239
                    
                    
                    
                    337Provision
      for income taxes
                    
                    
                    17
                    
                    
                    
                    234Minority
      interest
                    
                    
                    (51
                    )
                    
                    
                    (6
                    )Net
      income (loss)
                    
                    $
                    171
                    
                    
                    $
                    97Basic
      net income (loss) per share
                    
                    $
                    0.03
                    
                    
                    $
                    (0.00
                    )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)





AccumulatedOther
                                        
                                        
                                        
                                        
                                        
                                        TotalCommon Stock
                                        
                                        
                                        Additional
                                        
                                        
                                        Comprehensive
                                        
                                        
                                        Retained
                                        
                                        
                                        Stockholders'
                                        
                                        
                                        ComprehensiveShares
                                        
                                        
                                        Amount
                                        
                                        
                                        Paid-in 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
                                        
                                        
                                        $
                                        235Foreign
      currency translation adjustment
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        16
                                        
                                        
                                        
                                        (133
                                        )
                                        
                                        
                                        (117
                                        )
                                        
                                        $
                                        (117
                                        )Net
      income (loss)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        171
                                        
                                        
                                        
                                        171
                                        
                                        
                                        
                                        171Balance,
      12-31-08
                                        
                                        
                                        6,483,000
                                        
                                        
                                        $
                                        6
                                        
                                        
                                        $
                                        78
                                        
                                        
                                        $
                                        108
                                        
                                        
                                        $
                                        993
                                        
                                        
                                        $
                                        1,185
                                        
                                        
                                        $
                                        54





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


F-4





LAPIS
      TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      Thousands)





Years EndedDecember 31,2008
                
                
                2007Cash
      flows from operating activities:Net
      income (loss)
                
                $
                171
                
                
                $
                97Adjustments
      to reconcile net income to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                111
                
                
                
                144Minority
      interest
                
                
                53
                
                
                
                34Gain
      on sale of property and equipment
                
                
                -
                
                
                
                -Deferred
      income tax
                
                
                -
                
                
                
                2Change
      in operating assets and liabilities:Accounts
      receivable
                
                
                530
                
                
                
                (737
                )Inventories
                
                
                (569
                )
                
                
                (767
                )Prepaid
      expenses and other current assets
                
                
                27
                
                
                
                288Accounts
      payable and accrued expenses
                
                
                342
                
                
                
                (493
                )Income
      taxes payable
                
                
                14
                
                
                
                2Severance
      payable
                
                
                14
                
                
                
                92Net
      cash used in operating activities
                
                
                693
                
                
                
                (1,338
                )Cash
      flows from investing activities:Proceeds
      from sale of property and equipment
                
                
                -
                
                
                
                -Purchase
      of property and equipment
                
                
                (46
                )
                
                
                (112
                )(Increase)
      decrease in due from stockholder
                
                
                62
                
                
                
                (59
                )(Increase)
      decrease in due from affiliates
                
                
                16
                
                
                
                (161
                )Net
      cash (used in) provided by investing activities
                
                
                32
                
                
                
                (332
                )Cash
      flows from financing activities:Increase
      (decrease) in bank line of credit, net
                
                
                (114
                )
                
                
                (127
                )Proceeds
      from long term debt
                
                
                7,568
                
                
                
                6,227Repayment
      of long-term debt
                
                
                (7,550
                )
                
                
                (4,523
                )Net
      cash provided by financing activities
                
                
                (95
                )
                
                
                1,577Effects
      of exchange rates on cash
                
                
                -
                
                
                
                219Increase
      (decrease) in cash
                
                
                630
                
                
                
                126Cash,
      beginning of period
                
                
                133
                
                
                
                7Cash,
      end of period
                
                $
                763
                
                
                $
                133





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 31,2008
                
                
                2007Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                
                $
                493
                
                
                $
                419Income
      taxes
                
                $
                28
                
                
                $
                98Supplemental
      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, 2008





(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, 2008, 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, 2008


(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, 2008 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, 2008


(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, 2008





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
31,2008, 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, 2008, 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, 2008


(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, 2008, 2007 and 2006 were
approximately $143, $ 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, 2008, 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, 2008.


Minority
Interest





Minority
interest represents the minority stockholders' proportionate share of the equity
of the Company's subsidiary at December 31, 2008.  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, 2008 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, 2008.  The carrying value
of the long-term debt approximate fair value at December 31, 2008 based upon
debt terms available for companies under similar terms.


F-10


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(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, 2008


(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, 2008


(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, 2008


(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.





In March
2008 the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, do not provide adequate
information about how derivative and hedging activities affect an entity’s
financial position, financial performance, and cash flows. Accordingly, this
Statement requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.





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, 2008:





Raw
      materials
                          
                          $
                          955Work
      in process
                          
                          
                          3,075Finished
      goods
                          
                          
                          275$
                          4,305





NOTE 5 -
PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at December 31, 2008





Leasehold
      improvements
                          
                          $
                          123Machinery
      and equipment
                          
                          
                          15Furniture
      and fixtures
                          
                          
                          60Transportation
      equipment
                          
                          
                          252Computer
      equipment
                          
                          
                          5941,044Less
      accumulated depreciation and amortization
                          
                          
                          842$
                          202


F-14


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(In
Thousands, Except Share and Per Share Amounts)





NOTE 6 -
INCOME TAXES





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





2008
                      
                      
                      2007
                      
                      
                      2006Current:
                      
                      -Foreign
                      
                      $
                      17
                      
                      
                      $
                      234
                      
                      
                      $
                      134Deferred:Foreign
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Total
      provision for income taxes
                      
                      $
                      17
                      
                      
                      $
                      234
                      
                      
                      $
                      134





NOTE 6 -
INCOME TAXES – (continued)





At
December 31, 2008 the Company has a net operating loss carryforward of
approximately $308 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, 2008 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, 2008:





Severance  payable
                      
                      $
                      20Net
      operating loss carryforward
                      
                      
                      308Valuation
      allowance
                      
                      
                      (308
                      )Deferred
      tax assets
                      
                      $
                      20


F-15


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(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:





2008
                    
                    
                    2007
                    
                    
                    2006Federal
      statutory rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %Valuation
      Allowance
                    
                    
                    (34.0
                    )
                    
                    
                    (34.0
                    )
                    
                    
                    (34.0
                    )Effect
      of foreign taxes
                    
                    
                    7.0
                    
                    
                    
                    69.0
                    
                    
                    
                    239.07.0
                    
                    
                    
                    69.0
                    
                    
                    
                    239.0





NOTE 7 -
LONG-TERM DEBT





Long-term
debt consists of the following at December 31, 2008:





Bank
      line of credit due December 31, 2008 at 6.7% per annum
                        
                        $
                        1,248Short-term
      bank loans, payable within twelve months at ratesranging
      from5.5% per annum and 7.5% per annum
                        
                        
                        4,124Long
      Term loans, due between January 2008 and March 2010at
      rates ranging from 7.25%per annum and 8.15% per annum
                        
                        
                        2495,621Less
      current portion of term loans
                        
                        
                        5,569$
                        52





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,
2008





Year Ended2009
                            
                            $
                            4,3212010
                            
                            
                            52$
                            4,373


F-16


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(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, 2008


(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, 2008 the majority stockholder had advanced the Company of $13 that
accrue interest at 4% per annum.  These advances are repayable within
the next twelve months.


F-18


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(In
Thousands, Except Share and Per Share Amounts)





NOTE 11 –
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 $113 in cash and a
note receivable for $57, which was paid in full during the year ended December
31, 2003.  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,
2008 at approximately $32 annually with an option to renew the lease for an
additional two years ending December 31, 2010  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, 2010 and March 31,
2010.  Rent expense, including municipal taxes and utilities
associated with the leases approximated $84 and $65, respectively, for the years
ended December 31, 2008 and 2007.





At
December 31, 2008, 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
      31:2009
                          
                          $
                          84





Legal
proceedings





A
Customer has 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, 2008


(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, 2007 was $ 133 and at December 31, 2008 was $763





As of
December 31, 2008, we had two customers that accounted for approximately 75.9%
of accounts receivable. For the years ended December 31, 2008, 2007 and 2006
approximately 63.4%, 60.6% and 43% of our 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,
2008 is shown below pursuant to the provisions of SFAS 131, “Disclosures About
Segments of an Enterprise and Related Information.”





Total assets:Israel
                        
                        $
                        9,228United
      States
                        
                        
                        1,037$
                        10,265


F-20





LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2008


(In
Thousands, Except Share and Per Share Amounts)





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.


:


The
Investor, on behalf of himself and SDS, verbally informed Enertec, the Company
and Enertec Management that the Investor and SDS will not complete the
transactions contemplated by the Lapis SPA and the Systems SPA. The latter is
evidenced by a report filed by SDS with the Tel Aviv Stock Exchange on September
10, 2008, to inform that it cancels the assembly of its general meeting
scheduled for September 11, 2008 (the “Report”). According to the Report, the
assembly was cancelled pursuant to Mordechai Solomon’s, a controlling
shareholder in SDS, notice to SDS that the transactions contemplated by the
Lapis SPA (and, as a result, the transactions contemplated by the Systems
SPA) will not be completed.





Because
the transactions contemplated by the Lapis SPA and the Systems SPA will not be
completed, the Company will also not complete the transactions contemplated by
the Electronics SPA.


F-21