----

----

| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------------|

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

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

| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|---------------------------------------------------------------------------------------------|

| Title of each class                | Name of each exchange on which registered |
|------------------------------------|-------------------------------------------|
| Ordinary Shares, NIS 0.6 Par Value | NASDAQ Capital Market                     |

----

|                      |                |                    |
|---------------------------|---------------------|-------------------------|
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer x |

|        |                                                                                                    |    |
|-------------|---------------------------------------------------------------------------------------------------------|---------|
| U.S. GAAP x | International Financial Reporting Standards as issued by the International Accounting Standards Board o | Other o |

----

----

| ITEM 18.   | FINANCIAL STATEMENTS |
|----------------------|----------------------|

| Index to Financial Statements                           | F-0             |
|---------------------------------------------------------|-----------------|
| Report of Independent Registered Public Accounting Firm | F-1             |
| Consolidated Balance Sheets                             | F-2 – F-3 |
| Consolidated Statements of Comprehensive Income (Loss)  | F-4             |
| Statements of Changes in Shareholders’ Equity     | F-5             |
| Consolidated Statements of Cash Flows                   | F-6             |
| Notes to the Consolidated Financial Statements          | F-7– F-33 |

| ITEM 19.   | EXHIBITS |
|----------------------|----------|

| Exhibit | Description                                                                                                                                       |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                              |
| 12.1    | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.                        |
| 12.2    | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1924, as amended.                        |
| 13.1    | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 13.2    | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

----

----

| Report of Independent Registered Public Accounting Firm          | F-1    |
|------------------------------------------------------------------|--------|
|                                                             |   |
| Consolidated Balance Sheets                                      | F-2    |
|                                                             |   |
| Consolidated Statements of Comprehensive Income (Loss)           | F-4    |
|                                                             |   |
| Consolidated Statements of Changes in Shareholders’ Equity | F-5    |
|                                                             |   |
| Consolidated Statements of Cash Flows                            | F-6    |
|                                                             |   |
| Notes to the Consolidated Financial Statements                   | F-7    |

----

Report of Independent Registered Public Accounting Firm

----

Consolidated Balance Sheets

----

|                                                     |   |   |   |   | December 31    |   |
|----------------------------------------------------------|--------|--------|--------|--------|----------------|--------|
|                                                     |   | Note   |   |   | 2012           |   |   | 2011 |   |
|                                                     |   |   |   |   | $ in thousands |   |
|                                                     |   |   |   |   |           |   |   |   |   |
| Assets                                                   |   |   |   |   |           |   |   |   |   |
|                                                     |   |   |   |   |           |   |   |   |   |
| Current assets                                           |   |   |   |   |           |   |   |   |   |
|                                                     |   |   |   |   |           |   |   |   |   |
| Cash                                                     |   |   | 2      |   |           |   | 1,935 |   |   |   | 892 |   |
| Trade accounts receivable, net of allowance for doubtful |   |   |   |   |           |   |   |   |   |   |   |   |
|  accounts                                           |   |   |   |   |           |   | 6,662 |   |   |   | 8,885 |   |
| Inventories                                              |   |   | 3      |   |           |   | 5,244 |   |   |   | 4,434 |   |
| Prepaid expenses and other current assets                |   |   |   |   |           |   | 417 |   |   |   | 355 |   |
|                                                     |   |   |   |   |           |   |   |   |   |   |   |   |
|                                                     |   |   |   |   |           |   | 14,258 |   |   |   | 14,566 |   |
|                                                     |   |   |   |   |           |   |   |   |   |   |   |   |
| Assets held for employees' severance benefits            |   |   | 9      |   |           |   | 47 |   |   |   | 39 |   |
|                                                     |   |   |   |   |           |   |   |   |   |   |   |   |
| Fixed assets, net                                        |   |   | 4      |   |           |   | 9,075 |   |   |   | 7,746 |   |
|                                                     |   |   |   |   |           |   |   |   |   |   |   |   |
| Goodwill                                                 |   |   | 5      |   |           |   | 69 |   |   |   | 518 |   |
|                                                     |   |   |   |   |           |   |   |   |   |   |   |   |
| Total assets                                             |   |   |   |   |           |   | 23,449 |   |   |   | 22,869 |   |

----

----

|                                                       |   |   |   |   | December 31    |   |
|------------------------------------------------------------|--------|--------|--------|--------|----------------|--------|
|                                                       |   | Note   |   |   | 2012           |   |   | 2011 |   |
|                                                       |   |   |   |   | $ in thousands |   |
| Liabilities and shareholders’ equity                 |   |   |   |   |           |   |   |   |   |
|                                                       |   |   |   |   |           |   |   |   |   |
| Current liabilities                                        |   |   |   |   |           |   |   |   |   |
| Short-term credit and current maturities of long-term debt |   |   | 6      |   |           |   | 5,105 |   |   |   | 4,856 |   |
| Accounts payable:                                          |   |   |   |   |           |   |   |   |   |   |   |   |
| Trade                                                      |   |   |   |   |           |   | 6,110 |   |   |   | 6,456 |   |
| Related parties                                            |   |   | 16     |   |           |   | 1,336 |   |   |   | 1,046 |   |
| Other current liabilities                                  |   |   | 7      |   |           |   | 4,419 |   |   |   | 3,995 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |           |   | 16,970 |   |   |   | 16,353 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Long-term liabilities                                 |   |   |   |   |           |   |   |   |   |   |   |   |
| Long-term debt, excluding current maturities               |   |   | 8      |   |           |   | 728 |   |   |   | 1,604 |   |
| Employee severance benefits                                |   |   | 9      |   |           |   | 215 |   |   |   | 150 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Total long-term liabilities                                |   |   |   |   |           |   | 943 |   |   |   | 1,754 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Commitments and contingent liabilities                     |   |   | 10     |   |           |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Shareholders’ equity                                 |   |   | 11     |   |           |   |   |   |   |   |   |   |
| Ordinary shares, NIS 0.6 par value                         |   |   |   |   |           |   |   |   |   |   |   |   |
| Authorized 50,000,000  shares, issued and        |   |   |   |   |           |   |   |   |   |   |   |   |
|  outstanding 6,610,107 shares as of December 31, 2012 |   |   |   |   |           |   |   |   |   |   |   |   |
|  and 2011                                             |   |   |   |   |           |   | 1,384 |   |   |   | 1,384 |   |
| Additional paid-in capital                                 |   |   |   |   |           |   | 14,328 |   |   |   | 14,328 |   |
| Cumulative foreign currency translation adjustments        |   |   |   |   |           |   | 2,713 |   |   |   | 2,622 |   |
| Capital reserves                                           |   |   |   |   |           |   | 695 |   |   |   | 695 |   |
| Accumulated deficit                                        |   |   |   |   |           |   | (13,708 | ) |   |   | (14,398 | ) |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Total Eltek Ltd. shareholders’ equity                |   |   |   |   |           |   | 5,412 |   |   |   | 4,631 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Non-controlling interest                                   |   |   |   |   |           |   | 124 |   |   |   | 131 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Total equity                                               |   |   |   |   |           |   | 5,536 |   |   |   | 4,762 |   |
|                                                       |   |   |   |   |           |   |   |   |   |   |   |   |
| Total liabilities, shareholders’ equity and non-     |   |   |   |   |           |   |   |   |   |   |   |   |
|  controlling interest                                 |   |   |   |   |           |   | 23,449 |   |   |   | 22,869 |   |

| /s/ Arieh Reichart                 |   | /s/ Amnon Shemer                                    |   | /s/ Erez Meltzer                   |
|------------------------------------|--------|-----------------------------------------------------|--------|------------------------------------|
| Arieh Reichart                     |   | Amnon Shemer                                        |   | Erez Meltzer                       |
| President, Chief Executive Officer |   | Vice President, Finance and Chief Financial Officer |   | Chairman of the Board of Directors |

----

Consolidated Statements of Comprehensive Income (Loss)

----

|                                                   |   |   |   |   | Year ended December 31       |   |
|--------------------------------------------------------|--------|--------|--------|--------|------------------------------|--------|
|                                                   |   | Note   |   |   | 2012                         |   |   | 2011 |   |   | 2010 |   |
|                                                   |   |   |   |   | $ in thousands               |   |
|                                                   |   |   |   |   | (except loss per share data) |   |
| Revenues                                               |   |   | 12     |   |                         |   | 45,646 |   |   |   | 46,830 |   |   |   | 37,514 |   |
| Cost of revenues                                       |   |   | 16B    |   |                         |   | (37,836 | ) |   |   | (38,101 | ) |   |   | (32,690 | ) |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                           |   |   |   |   |                         |   | 7,810 |   |   |   | 8,729 |   |   |   | 4,824 |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                                     |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses           |   |   |   |   |                         |   | (6,040 | ) |   |   | (6,155 | ) |   |   | (6,033 | ) |
| Impairment on goodwill                                 |   |   |   |   |                         |   | (481 | ) |   |   | - |   |   |   | - |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Operating profit (loss)                                |   |   |   |   |                         |   | 1,289 |   |   |   | 2,574 |   |   |   | (1,209 | ) |
| Financial expenses, net                                |   |   | 13     |   |                         |   | (543 | ) |   |   | (740 | ) |   |   | (609 | ) |
| Other income, net                                      |   |   |   |   |                         |   | 2 |   |   |   | 12 |   |   |   | 2 |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Profit (loss) before income tax expense                |   |   |   |   |                         |   | 748 |   |   |   | 1,846 |   |   |   | (1,816 | ) |
| Income tax expense                                     |   |   | 14     |   |                         |   | (52 | )  |   |   | (31 | )  |   |   | (19 | )  |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Net profit (loss)                                      |   |   |   |   |                         |   | 696 |   |   |   | 1,815 |   |   |   | (1,835 | ) |
| Net (profit) loss attributable to non-controlling      |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  Interest                                         |   |   |   |   |                         |   | (6 | ) |   |   | 31 |   |   |   | 113 |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Net profit (loss) attributable to Eltek Ltd.           |   |   |   |   |                         |   | 690 |   |   |   | 1,846 |   |   |   | (1,722 | ) |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted net profit (loss) per ordinary       |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  share attributable to Eltek Ltd. shareholders    |   |   |   |   |                         |   | 0.1 |   |   |   | 0.28 |   |   |   | (0.26 | ) |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of ordinary                    |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  shares used to compute basic and diluted net     |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  profit (loss) per ordinary share attributable to |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  Eltek Ltd. shareholders                          |   |   |   |   |                         |   | 6,610,107 |   |   |   | 6,610,107 |   |   |   | 6,610,107 |   |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss):                     |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments               |   |   |   |   |                         |   | 78 |   |   |   | (377 | )  |   |   | 20 |   |
| Comprehensive income (loss)                            |   |   |   |   |                         |   | 774 |   |   |   | 1,438 |   |   |   | (1,815 | ) |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss) attributable to            |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  non-controlling interest                         |   |   |   |   |                         |   | (7 | ) |   |   | (44 | )  |   |   | (135 | ) |
|                                                   |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss) attributable to            |   |   |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|  Eltek Ltd.                                       |   |   |   |   |                         |   | 781 |   |   |   | 1,482 |   |   |   | (1,680 | ) |

----

Consolidated Statements of Changes in Shareholders’ Equity

----

|                                     |   |                                   |      |   |   |   |   | Company’s shareholders |   |   |          |   |
|------------------------------------------|--------|----------------------------------------|-----------|--------|--------|--------|--------|------------------------------|--------|--------|---------------|--------|
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   | Equity |   |   |   |   |   |   |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   | Accumulated   |   |   |   |   |   |   |   |   | attributed to |   |   |   |   |   |   |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   | Other         |   |   |   |   |   |   |   |   | Eltek |   |   | Non- |   |   |   |   |
|                                     |   | Ordinary                               |      |   |   |   |   | Additional                   |   |   | comprehensive |   |   | Capital |   |   | Accumulated |   |   | Ltd. and |   |   | controlling |   |   |   |   |
|                                     |   | shares                                 |      |   | Amount |   |   | Paid-in capital              |   |   | income        |   |   | reserves |   |   | deficit |   |   | Subsidiaries |   |   | interest |   |   | Total |   |
|                                     |   | ($ thousands, except number of shares) |      |
| Balance as of January 1, 2010            |   |                                   | 6,610,107 |   |   |   | 1,384  |                         |   |   | 14,328        |   |   |   | 2,944 |   |   |   | 695 |   |   |   | (14,522 | ) |   |   | 4,829 |   |   |   | 310 |   |   |   | 5,139 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Changes during the year                  |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | 42 |   |   |   | - |   |   |   | - |   |   |   | 42 |   |   |   | (22 | ) |   |   | 20 |   |
| Net loss                                 |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | (1,722 | ) |   |   | (1,722 | ) |   |   | (113 | ) |   |   | (1,835 | ) |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive loss                       |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,680 | ) |   |   | (135 | ) |   |   | (1,815 | ) |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2010          |   |                                   | 6,610,107 |   |   |   | 1,384  |                         |   |   | 14,328        |   |   |   | 2,986 |   |   |   | 695 |   |   |   | (16,244 | ) |   |   | 3,149 |   |   |   | 175 |   |   |   | 3,324 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Changes during the year                  |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | (364 | ) |   |   | - |   |   |   | - |   |   |   | (364 | ) |   |   | (13 | ) |   |   | (377 | ) |
| Net loss                                 |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | 1,846 |   |   |   | 1,846 |   |   |   | (31 | ) |   |   | 1,815 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income ( loss)             |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,482 |   |   |   | (44 | ) |   |   | 1,438 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2011          |   |                                   | 6,610,107 |   |   |   | 1,384  |                         |   |   | 14,328        |   |   |   | 2,622 |   |   |   | 695 |   |   |   | (14,398 | ) |   |   | 4,631 |   |   |   | 131 |   |   |   | 4,762 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Changes during the year                  |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustments |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | 91 |   |   |   | - |   |   |   | - |   |   |   | 91 |   |   |   | (13 | ) |   |   | 78 |   |
| Net profit (loss)                        |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | 690 |   |   |   | 690 |   |   |   | 6 |   |   |   | 696 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income (loss)              |   |                                   | -         |   |   |   | -      |                         |   |   | -             |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 781 |   |   |   | (7 | ) |   |   | 774 |   |
|                                     |   |                                   |      |   |   |   |   |                         |   |   |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance as of December 31, 2012          |   |                                   | 6,610,107 |   |   |   | 1,384  |                         |   |   | 14,328        |   |   |   | 2,713 |   |   |   | 695 |   |   |   | (13,708 | ) |   |   | 5,412 |   |   |   | 124 |   |   |   | 5,536 |   |

----

Consolidated Statements of Cash Flows

----

|                                                          |   | Year ended December 31 |   |
|---------------------------------------------------------------|--------|------------------------|--------|
|                                                          |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
|                                                          |   | $ thousands            |   |
| Cash flows from operating activities:                         |   |                   |   |   |   |   |   |   |   |
| Net profit (loss)                                             |   |                   | 696    |   |   |   | 1,815 |   |   |   | (1,835 | ) |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Adjustments to reconcile net profit (loss) to net             |   |                   |   |   |   |   |   |   |   |   |   |   |
|  cash flows provided by operating activities:            |   |                   |   |   |   |   |   |   |   |   |   |   |
| Depreciation and Amortization                                 |   |                   | 2,253  |   |   |   | 2,091 |   |   |   | 2,054 |   |
| Capital gain on disposal of fixed assets, net                 |   |                   |   |   |   |   | - |   |   |   | (18 | ) |
| Revaluation of long term loans                                |   |                   | 25     |   |   |   | 58 |   |   |   | 49 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Increase in employee severance benefits, net                  |   |                   | 53     |   |   |   | 68 |   |   |   | 45 |   |
| Decrease (increase) in trade receivables                      |   |                   | 2,339  |   |   |   | (2,016 | ) |   |   | (186 | ) |
| Decrease (increase) in other receivables and prepaid          |   |                   |   |   |   |   |   |   |   |   |   |   |
|  expenses                                                |   |                   | (58    | ) |   |   | (68 | ) |   |   | 178 |   |
| Increase in inventories                                       |   |                   | (670   | ) |   |   | (487 | ) |   |   | (138 | ) |
| Increase  in income tax payable                     |   |                   | -      |   |   |   | 8 |   |   |   | - |   |
| Increase (decrease) in trade payables                         |   |                   | (147   | ) |   |   | 621 |   |   |   | 1,152 |   |
| Increase  in other liabilities and accrued expenses |   |                   | 281    |   |   |   | 324 |   |   |   | 203 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net cash provided by operating activities                     |   |                   | 4,772  |   |   |   | 2,414 |   |   |   | 1,504 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from investing activities:                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Purchase of fixed assets                                      |   |                   | (1,234 | ) |   |   | (882 | ) |   |   | (489 | ) |
| Proceeds from sale of fixed assets                            |   |                   | -      |   |   |   | - |   |   |   | 38 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in investing activities                         |   |                   | (1,234 | ) |   |   | (882 | ) |   |   | (451 | ) |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cash flows from financing activities:                         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Increase (decrease) in short- term credit                     |   |                   | (192   | ) |   |   | (802 | ) |   |   | 355 |   |
| Repayment of long-term loans                                  |   |                   | (1,149 | ) |   |   | (1,135 | ) |   |   | (1,222 | ) |
| Proceeds from long-term loans                                 |   |                   | -      |   |   |   | 474 |   |   |   | 452 |   |
| Repayment of credit from fixed asset payables                 |   |                   | (1,049 | ) |   |   | (539 | ) |   |   | (400 | ) |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net cash used in financing activities                         |   |                   | (2,390 | ) |   |   | (2,002 | ) |   |   | (815 | ) |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Effect of translation adjustments                             |   |                   | (105   | ) |   |   | (151 | ) |   |   | 17 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Net increase (decrease) in cash                               |   |                   | 1,043  |   |   |   | (621 | ) |   |   | 255 |   |
| Cash at beginning of the year                                 |   |                   | 892    |   |   |   | 1,513 |   |   |   | 1,258 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Cash at end of the year                                       |   |                   | 1,935  |   |   |   | 892 |   |   |   | 1,513 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Supplemental cash flow information:                           |   |                   |   |   |   |   |   |   |   |   |   |   |
| Income tax paid                                               |   |                   | 43     |   |   |   | 55 |   |   |   | - |   |
| Interest paid                                                 |   |                   | 386    |   |   |   | 480 |   |   |   | 421 |   |
|                                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Non-cash activities:                                          |   |                   |   |   |   |   |   |   |   |   |   |   |
| Purchase of fixed assets not yet paid                         |   |                   | 1,212  |   |   |   | 1,377 |   |   |   | 124 |   |

----

Notes to the Consolidated Financial Statements

----

----

----

----

----

|   | 1. | Assets and liabilities are translated according to the exchange rate on the consolidated balance sheet date including goodwill arising from the acquisition of the subsidiary. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Income and expense items are translated according to the weighted average exchange rate on a quarterly basis. |
|--------|----|---------------------------------------------------------------------------------------------------------------|

|   | 3. | The resulting exchange rate differences are classified as a separate item in shareholders’ equity. |
|--------|----|----------------------------------------------------------------------------------------------------------|

----

----

|   | 1. | Balances linked to the Israeli Consumer Price Index (“CPI”) are recorded pursuant to contractual linkage terms of the specific assets and liabilities. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2.  | Details of the CPI and the representative exchange rates are as follows: |
|--------|----------|--------------------------------------------------------------------------|

|                           |   | Israeli |   |   | Exchange rate    |   |   | Exchange rate |   |
|--------------------------------|--------|---------|--------|--------|------------------|--------|--------|---------------|--------|
|                           |   | CPI     |   |   | of one US dollar |   |   | of one Euro   |   |
|                           |   | Points  |   |   | NIS              |   |   | NIS           |   |
| For the year ended:            |   |    |   |   |             |   |   |          |   |
| December 31, 2012              |   |    | 219.80 |   |             |   | 3.733  |          |   |   | 4.9206 |   |
| December 31, 2011              |   |    | 216.26 |   |             |   | 3.821  |          |   |   | 4.938 |   |
| December 31, 2010              |   |    | 211.67 |   |             |   | 3.549  |          |   |   | 4.738 |   |
|                           |   |    |   |   |             |   |   |          |   |   |   |   |
|                           |   | %       |   |   | %                |   |   | %             |   |
|                           |   |    |   |   |             |   |   |          |   |   |   |   |
| Changes during the year ended: |   |    |   |   |             |   |   |          |   |   |   |   |
| December 31, 2012              |   |    | 1.6    |   |             |   | (2.30  | )             |   |   | (0.35 | ) |
| December 31, 2011              |   |    | 2.2    |   |             |   | 7.66   |          |   |   | 4.22 |   |
| December 31, 2010              |   |    | 2.7    |   |             |   | (5.99  | )             |   |   | (12.94 | ) |

----

----

|                                     |   | Year ended December 31 |   |
|------------------------------------------|--------|------------------------|--------|
|                                     |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
|                                     |   | $ thousands            |   |
| Opening balance                          |   |                   | 93     |   |   |   | 340 |   |   |   | 347 |   |
| Additions during the year                |   |                   | 1      |   |   |   | 14 |   |   |   | 10 |   |
| Write off of allowance                   |   |                   | -      |   |   |   | (263 | ) |   |   | (20 | ) |
| Foreign currency translation adjustments |   |                   | 1      |   |   |   | 2 |   |   |   | 3 |   |
|                                     |   |                   |   |   |   |   |   |   |   |   |   |   |
| Closing balance                          |   |                   | 95     |   |   |   | 93 |   |   |   | 340 |   |

|                           |   | %      |   |
|--------------------------------|--------|--------|--------|
| Machinery and equipment        |   |   | 5-33   |   |
| Leasehold improvements         |   |   | 6-14   |   |
| Motor vehicles                 |   |   | 15     |   |
| Office furniture and equipment |   |   | 6-33   |   |

----

----

----

----

----

----

|   | · | Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                        |   | December 31 |   |
|-----------------------------|--------|-------------|--------|
|                        |   | 2012        |   |   | 2011 |   |
| Denominated in U.S. dollars |   |        | 431    |   |   |   | 204 |   |
| Denominated in NIS          |   |        | 872    |   |   |   | 196 |   |
| Denominated in Euro         |   |        | 632    |   |   |   | 492 |   |
|                        |   |        |   |   |   |   |   |   |
|                        |   |        | 1,935  |   |   |   | 892 |   |

|              |   | December 31 |   |
|-------------------|--------|-------------|--------|
|              |   | 2012        |   |   | 2011 |   |
| Raw materials     |   |        | 2,078  |   |   |   | 2,185 |   |
| Work-in-process   |   |        | 2,270  |   |   |   | 1,475 |   |
| Finished products |   |        | 896    |   |   |   | 774 |   |
|              |   |        |   |   |   |   |   |   |
|              |   |        | 5,244  |   |   |   | 4,434 |   |

----

----

|                                       |   | December 31 |    |
|--------------------------------------------|--------|-------------|---------|
|                                       |   | 2012        |    |   | 2011 |   |
| Machinery and equipment                    |   |        | 36,424  |   |   |   | 34,678 |   |
| Leasehold improvements                     |   |        | 8,558   |   |   |   | 8,149 |   |
| Motor vehicles                             |   |        | 102     |   |   |   | 99 |   |
| Office furniture and equipment             |   |        | 1,530   |   |   |   | 1,481 |   |
|                                       |   |        |    |   |   |   |   |   |
| Fixed assets                               |   |        | 46,614  |   |   |   | 44,407 |   |
|                                       |   |        |    |   |   |   |   |   |
| Accumulated depreciation                   |   |        | (37,539 | ) |   |   | (36,661 | ) |
|                                       |   |        |    |   |   |   |   |   |
| Fixed assets less accumulated depreciation |   |        | 9,075   |   |   |   | 7,746 |   |

|                                 |   | December 31 |   |
|--------------------------------------|--------|-------------|--------|
|                                 |   | 2012        |   |   | 2011 |   |
| Balance at the beginning of the year |   |        | 518    |   |   |   | 530 |   |
| Increase due to increase in holding  |   |        | 20     |   |   |   | - |   |
| Impairment on goodwill               |   |        | (481   | ) |   |   | - |   |
| Effect of translation adjustments    |   |        | 12     |   |   |   | (12 | ) |
|                                 |   |        |   |   |   |   |   |   |
|                                 |   |        | 69     |   |   |   | 518 |   |

|                              |   | Annual           |        |   |        |   |
|-----------------------------------|--------|------------------|-------------|--------|-------------|--------|
|                              |   | interest rate at |        |   |        |   |   |   |   |
|                              |   | December 31      |        |   | December 31 |   |
|                              |   | 2012             |        |   | 2012        |   |   | 2011 |   |
|                              |   | %                |        |   |        |   |   |   |   |
| In NIS (linked to the Prime rate) |   |             | 5.25 - 7.0  |   |        |   | 3,774 |   |   |   | 3,795 |   |
| In U.S. dollars                   |   |             | 3.81 - 4.41 |   |        |   | 110 |   |   |   | 110 |   |
| Current maturities of long-term   |   |             |        |   |        |   |   |   |   |   |   |   |
|  debt from banks (Note 8)    |   |             |        |   |        |   | 1,221 |   |   |   | 951 |   |
|                              |   |             |        |   |        |   |   |   |   |   |   |   |
|                              |   |             |        |   |        |   | 5,105 |   |   |   | 4,856 |   |

----

----

|                                               |   | December 31 |   |
|----------------------------------------------------|--------|-------------|--------|
|                                               |   | 2012        |   |   | 2011 |   |
| Accrued payroll and related benefits               |   |        | 1,177  |   |   |   | 1,064 |   |
| Provision for vacation and other employee benefits |   |        | 1,642  |   |   |   | 1,321 |   |
| Net written put option (Note 1A)                   |   |        | 497    |   |   |   | 366 |   |
| Accrued expenses                                   |   |        | 859    |   |   |   | 1,022 |   |
| Other liabilities                                  |   |        | 244    |   |   |   | 222 |   |
|                                               |   |        |   |   |   |   |   |   |
|                                               |   |        | 4,419  |   |   |   | 3,995 |   |

|                                         |   | Annual           |        |   |        |   |
|----------------------------------------------|--------|------------------|-------------|--------|-------------|--------|
|                                         |   | interest rate at |        |   |        |   |
|                                         |   | December 31      |        |   | December 31 |   |
|                                         |   | 2012             |        |   | 2012        |   |   | 2011 |   |
|                                         |   | %                |        |   |        |   |   |   |   |
| Linkage terms                                |   |             |        |   |        |   |   |   |
| U.S. dollar                                  |   |             | 1.88 - 5    |   |        |   | 1,133 |   |   |   | 950 |   |
| NIS - linked to the CPI                      |   |             | 4.5 - 6.5   |   |        |   | - |   |   |   | 57 |   |
| Euro                                         |   |             | 2.17 - 3    |   |        |   | 95 |   |   |   | 554 |   |
| NIS - linked to the Prime rate               |   |             | P+0.9 - P+3 |   |        |   | 980 |   |   |   | 472 |   |
| NIS - not linked                             |   |             | 7.6 - 8.4   |   |        |   | - |   |   |   | 746 |   |
|                                         |   |             |        |   |        |   |   |   |   |   |   |   |
|                                         |   |             |        |   |        |   | 2,208 |   |   |   | 2,779 |   |
| Less - current maturities (banks and others) |   |             |        |   |        |   | (1,480 | ) |   |   | (1,175 | ) |
|                                         |   |             |        |   |        |   |   |   |   |   |   |   |
|                                         |   |             |        |   |        |   | 728 |   |   |   | 1,604 |   |

|   | Minimum future payments at December 31, 2012 due under the long term debt is as follows: |
|--------|------------------------------------------------------------------------------------------|

|                      |   | Long-Term |   |
|---------------------------|--------|-----------|--------|
|                      |   | Loan      |   |
| First year                |   |      | 1,480  |   |
| Second year               |   |      | 259    |   |
| Third year and thereafter |   |      | 469    |   |
|                      |   |      |   |   |
|                      |   |      | 2,208  |   |

----

----

|   | 1. | The Parent has an approval from the Israeli Ministry of Labor and Social Welfare, pursuant to the terms of Section 14 of the Israeli Severance Pay Law, 1963, according to which the current deposits in the pension fund and/or with the insurance company exempt it from any additional obligation to the employees for whom such depository payments were made. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | 2. | The Parent’s employees participate in a pension plan or individual insurance policies are purchased. The Parent’s liability for severance obligations for the employees employed for one year or more is discharged by making regular deposits with a pension fund or the insurance policies. Under Israeli law, there is no liability for severance pay in respect of employees who have not completed one year of employment. The amount deposited with the pension fund or the insurance policies is based on salary components as prescribed in the existing labor agreement. The custody and management of the amounts so deposited are independent of the Parent and accordingly, such amounts funded and related liabilities are not reflected in the balance sheet. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Kubatronik owns an insurance policy and makes regular deposits with an insurance company for securing pension rights on behalf of one of its key employees.  Such amounts deposited and the related liabilities are reflected in the consolidated balance sheet. In December 2012 the employee resigned from Kubatronik, however his pension entitlement up to the end of his employment with the Company continues. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Expenses recorded in respect of the unfunded liability for employee severance payments for the years ended December 31, 2012, 2011, and 2010 are $57 $102 and $157, respectively. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A. | Pledges and guarantees |
|--------|----|------------------------|

|   | 1. | The Company has pledged certain items of its equipment and the rights to any insurance claims on such items to secure its indebtedness with banks, as well as floating liens on all of its remaining assets in favor of the banks. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Company has pledged certain items of its equipment as a guarantee for the implementation of its benefited enterprise. The Company has determined that it is in compliance with the conditions of the approval (see Note 14A). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | The Company has also pledged machines to secure its indebtedness to certain suppliers that provided financing to such equipment. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | B. | Operating leases and other agreements |
|--------|----|---------------------------------------|

|   | 1. | The premises occupied by the Parent and Kubatronik are leased under two operating agreements that expire in February 2017 and June 2014, respectively. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The Parent has signed several lease and maintenance agreements for production equipment with suppliers of equipment and software. Of such agreements, the main principal agreement expires in January 2015. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Several production machines are leased by Kubatronik under operating agreements which will expire in June 2014. |
|--------|----|-----------------------------------------------------------------------------------------------------------------|

|   | 4. | The Parent’s motor vehicles are leased under operating lease agreements, mainly for three-year terms. |
|--------|----|-------------------------------------------------------------------------------------------------------------|

|   | 5. | Minimum future payments at December 31, 2012 due under the above agreements over the next five years and thereafter are as follows: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------|

|                      |   | Premises |   |   | Other      |   |
|---------------------------|--------|----------|--------|--------|------------|--------|
|                      |   | leases   |   |   | agreements |   |
| First year                |   |     | 1,077  |   |       |   | 704 |   |
| Second year               |   |     | 1,025  |   |       |   | 476 |   |
| Third year                |   |     | 975    |   |       |   | 293 |   |
| Fourth year               |   |     | 975    |   |       |   | 212 |   |
| Fifth year and thereafter |   |     | 456    |   |       |   | 109 |   |
|                      |   |     |   |   |       |   |   |   |
|                      |   |     | 4,508  |   |       |   | 1,794 |   |

----

----

----

----

|                                      |   | Authorized    |       |   | Issued and outstanding |   |
|-------------------------------------------|--------|---------------|------------|--------|------------------------|--------|
|                                      |   | December 31   |       |   | December 31            |   |   | December 31 |   |
|                                      |   | 2011 and 2012 |       |   | 2012                   |   |   | 2011 |   |
| Number of shares:                         |   |          |       |   |                   |   |   |   |   |
| Ordinary shares of par value NIS 0.6 each |   |          | 50,000,000 |   |                   |   | 6,610,107 |   |   |   | 6,610,107 |   |
|                                      |   |          |       |   |                   |   |   |   |   |   |   |   |
| Amount in US$                             |   |          |       |   |                   |   |   |   |   |   |   |   |
| Ordinary shares of par value NIS 0.6 each |   |          |       |   |                   |   | 1,384,318 |   |   |   | 1,384,318 |   |

----

----

|                             |   | Year ended December 31 |   |
|----------------------------------|--------|------------------------|--------|
|                             |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
| Customer A  - Sales of |   |                   |   |   |   |   |   |   |   |
|  manufactured products      |   |                   | 17.2   | % |   |   | 14.9 | % |   |   | 13.7 | % |

|              |   | Year ended December 31 |   |
|-------------------|--------|------------------------|--------|
|              |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
| Israel            |   |                   | 21,965 |   |   |   | 22,866 |   |   |   | 17,182 |   |
| Europe            |   |                   | 11,583 |   |   |   | 13,400 |   |   |   | 10,119 |   |
| North America     |   |                   | 7,664  |   |   |   | 5,400 |   |   |   | 6,623 |   |
| Rest of the world |   |                   | 4,434  |   |   |   | 5,164 |   |   |   | 3,590 |   |
|              |   |                   |   |   |   |   |   |   |   |   |   |   |
|              |   |                   | 45,646 |   |   |   | 46,830 |   |   |   | 37,514 |   |

|          |   | Year ended December 31 |   |
|---------------|--------|------------------------|--------|
|          |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
| Israel        |   |                   | 8,617  |   |   |   | 7,233 |   |   |   | 7,769 |   |
| Europe        |   |                   | 445    |   |   |   | 503 |   |   |   | 379 |   |
| North America |   |                   | 13     |   |   |   | 10 |   |   |   | 14 |   |
|          |   |                   |   |   |   |   |   |   |   |   |   |   |
|          |   |                   | 9,075  |   |   |   | 7,746 |   |   |   | 8,162 |   |

|                                               |   | Year ended December 31 |   |
|----------------------------------------------------|--------|------------------------|--------|
|                                               |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
| Interest and exchange rate expenses on             |   |                   |   |   |   |   |   |   |   |
|  long-term loans                              |   |                   | 126    |   |   |   | 166 |   |   |   | 159 |   |
| Expenses on  short-term credit and bank  |   |                   |   |   |   |   |   |   |   |   |   |   |
|  charges                                      |   |                   | 281    |   |   |   | 464 |   |   |   | 342 |   |
| Effect of exchange rate differences on other       |   |                   |   |   |   |   |   |   |   |   |   |   |
|  expenses and net loss (gain) from derivative |   |                   |   |   |   |   |   |   |   |   |   |   |
|  instruments                                  |   |                   | 137    |   |   |   | 110 |   |   |   | 109 |   |
| Other financing expenses (income), net             |   |                   | (1     | ) |   |   | - |   |   |   | (1 | ) |
|                                               |   |                   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                   | 543    |   |   |   | 740 |   |   |   | 609 |   |

----

----

|   | A. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Law") |
|--------|----|---------------------------------------------------------------------------------------------------------|

|   | 1. | One of the Parent’s production facilities in Israel qualifies as a “benefited enterprise” in accordance with the Law, as amended in 2005, which provides certain tax benefits to investment programs of an “approved enterprise” or “benefited enterprise.” The Parent’s benefited enterprise was converted from a previously “approved enterprise” program pursuant to the approval of the Israel Tax Authority that the Parent received in September 2006.  The period of tax benefits for the benefited enterprise has not yet commenced and will expire no later than 2016 (as further discussed below).  In the past certain of the Parent’s production facilities were granted approved enterprise status pursuant to the Law; however, the benefit periods for such approved enterprises expired in 2005. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | A. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Law") (cont’d) |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

----

----

|   | A. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Law") (cont’d) |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Amendment to the Law |
|--------|----|----------------------|

----

----

|   | A. | Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (the “Law") (cont’d) |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Amendment to the Law (cont’d) |
|--------|----|-------------------------------------|

----

----

|   | C. | Taxation under Inflationary Conditions |
|--------|----|----------------------------------------|

|   | D.  | Tax loss carryforwards |
|--------|----------|------------------------|

|   | E.  | Income tax assessments |
|--------|----------|------------------------|

----

----

|   | F. | Profit (Loss) before income tax expense included in the statement of operations |
|--------|----|---------------------------------------------------------------------------------|

|                            |   | Year ended  |      |   | Year ended  |   |        | Year ended  |   |
|---------------------------------|--------|-------------|-----------|--------|-------------|--------|-------------|-------------|--------|
|                            |   | December 31 |      |   | December 31 |   |        | December 31 |   |
|                            |   | 2012        |      |   | 2011        |   |        | 2010        |   |
| Profit (loss) before income tax |   |        |      |   |        |   |        |        |   |
| expense: Israel                 |   |        |  495 |   |        |   |  1,867 |        |   |   | (1,460 | ) |
| Foreign jurisdictions           |   |        | 253       |   |        |   |  (21   | )      |   |   | (356 | ) |
|                            |   |        |      |   |        |   |        |        |   |   |   |   |
| Total                           |   |        | 748       |   |        |   | 1,846       |        |   |   | (1,816 | ) |

|   | G.  | Reconciliation of the theoretical income tax expense to the actual income tax expense |
|--------|----------|---------------------------------------------------------------------------------------|

|                                    |   | Year ended  |      |   | Year ended  |   |   | Year ended  |   |
|-----------------------------------------|--------|-------------|-----------|--------|-------------|--------|--------|-------------|--------|
|                                    |   | December 31 |      |   | December 31 |   |   | December 31 |   |
|                                    |   | 2012        |      |   | 2011        |   |   | 2010        |   |
| Profit (loss) before income taxes as    |   |        |      |   |        |   |   |        |   |
| reported in the consolidated            |   |        |      |   |        |   |   |        |   |
|  statements of operations          |   |        |  748 |   |        |   | 1,846  |        |   |   | (1,816 | ) |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Statutory tax rates                     |   |        | 25        | %      |        |   | 24     | %           |   |   | 25 | % |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Theoretical tax benefit calculated      |   |        | 187       |   |        |   | 443    |        |   |   | (454 | ) |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Differences between the definition      |   |        |      |   |        |   |   |        |   |   |   |   |
|  of capital and assets for tax     |   |        |      |   |        |   |   |        |   |   |   |   |
|  purposes, goodwill impairment and |   |        |      |   |        |   |   |        |   |   |   |   |
|  other                             |   |        | 14        |   |        |   | 14     |        |   |   | (44 | ) |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Change in valuation allowance           |   |        | (148      | )      |        |   | 669    |        |   |   | 500 |   |
| Effective change in corporate tax       |   |        |      |   |        |   |   |        |   |   |   |   |
|  rates                             |   |        | -         |   |        |   | (1,103 | )           |   |   | - |   |
| Foreign tax rate differential in        |   |        |      |   |        |   |   |        |   |   |   |   |
|  subsidiaries                      |   |        | (1        | )      |        |   | 8      |        |   |   | 17 |   |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Total                                   |   |        | (135      | )      |        |   | (412   | )           |   |   | 473 |   |
|                                    |   |        |      |   |        |   |   |        |   |   |   |   |
| Income tax expense                      |   |        | 52        |   |        |   | 31     |        |   |   | 19 |   |

----

----

|   | H.  | Deferred tax assets and liabilities |
|--------|----------|-------------------------------------|

|                                       |   | December 31 |   |   | December 31 |   |
|--------------------------------------------|--------|-------------|--------|--------|-------------|--------|
|                                       |   | 2012        |   |   | 2011        |   |
| Deferred tax assets:                       |   |        |   |   |        |   |
|                                       |   |        |   |   |        |   |
| Tax loss carryforwards (in Israel)         |   |        | 3,885  |   |        |   | 4,071 |   |
| Tax loss carryforwards (outside Israel)    |   |        | 485    |   |        |   | 484 |   |
| Severance benefits                         |   |        | 17     |   |        |   | 16 |   |
| Provision for vacation pay                 |   |        | 363    |   |        |   | 315 |   |
| Allowance for doubtful accounts            |   |        | 24     |   |        |   | 23 |   |
|                                       |   |        |   |   |        |   |   |   |
| Total gross deferred tax assets            |   |        | 4,774  |   |        |   | 4,909 |   |
|                                       |   |        |   |   |        |   |   |   |
| Less valuation allowance                   |   |        | (4,052 | )      |        |   | (4,200 | ) |
|                                       |   |        |   |   |        |   |   |   |
| Net deferred tax assets                    |   |        | 722    |   |        |   | 709 |   |
|                                       |   |        |   |   |        |   |   |   |
| Deferred tax liabilities:                  |   |        |   |   |        |   |   |   |
|                                       |   |        |   |   |        |   |   |   |
| Fixed assets - differences in depreciation |   |        | (722   | )      |        |   | (709 | ) |
|                                       |   |        |   |   |        |   |   |   |
| Total gross deferred tax liabilities       |   |        | (722   | )      |        |   | (709 | ) |
|                                       |   |        |   |   |        |   |   |   |
| Net deferred tax assets                    |   |        | -      |   |        |   | - |   |

----

----

|   | I.  | Accounting for uncertainty in income taxes |
|--------|----------|--------------------------------------------|

|            |   |         |   |   |         |   |   | Quoted prices    |   |   | Significant |   |   |         |   |
|-----------------|--------|--------------|--------|--------|--------------|--------|--------|------------------|--------|--------|-------------|--------|--------|--------------|--------|
|            |   | December 31, |   |   | December 31, |   |   | in active        |   |   | other       |   |   | Significant  |   |
|            |   | 2012         |   |   | 2012         |   |   | markets for      |   |   | observable  |   |   | unobservable |   |
|            |   | Carrying     |   |   |         |   |   | identical assets |   |   | inputs      |   |   | inputs       |   |
|            |   | Amount       |   |   | Fair value   |   |   | (Level 1)        |   |   | (Level 2)   |   |   | (Level 3)    |   |
| Liabilities :   |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |
| Long-term debt  |   |         | 1,296  |   |         |   | 1,271  |             |   |   | -           |   |   |         | 1,271  |   |   |   | - |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
| Net written put |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
|  option    |   |         | 497    |   |         |   | 497    |             |   |   | -           |   |   |         | -      |   |   |   | 497 |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
| Total           |   |         | 1,793  |   |         |   | 1,768  |             |   |   | -           |   |   |         | 1,271  |   |   |   | 497 |   |

----

----

|            |   |         |   |   |         |   |   | Quoted prices    |   |   | Significant |   |   |         |   |
|-----------------|--------|--------------|--------|--------|--------------|--------|--------|------------------|--------|--------|-------------|--------|--------|--------------|--------|
|            |   | December 31, |   |   | December 31, |   |   | in active        |   |   | other       |   |   | Significant  |   |
|            |   | 2011         |   |   | 2011         |   |   | markets for      |   |   | observable  |   |   | unobservable |   |
|            |   | Carrying     |   |   |         |   |   | identical assets |   |   | inputs      |   |   | inputs       |   |
|            |   | Amount       |   |   | Fair value   |   |   | (Level 1)        |   |   | (Level 2)   |   |   | (Level 3)    |   |
| Liabilities :   |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |
| Long-term debt  |   |         | 2,226  |   |         |   | 2,102  |             |   |   | -           |   |   |         | 2,102  |   |   |   | - |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
| Net written put |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
|  option    |   |         | 366    |   |         |   | 366    |             |   |   | -           |   |   |         | -      |   |   |   | 366 |   |
|            |   |         |   |   |         |   |   |             |   |   |        |   |   |         |   |   |   |   |   |   |
| Total           |   |         | 2,592  |   |         |   | 2,468  |             |   |   | -           |   |   |         | 2,102  |   |   |   | 366 |   |

|                   |   | December 31 |   |
|------------------------|--------|-------------|--------|
|                   |   | 2012        |   |   | 2011 |   |
| Trade accounts payable |   |        | 1,336  |   |   |   | 1,046 |   |

----

----

|                 |   | Year ended December 31 |   |
|----------------------|--------|------------------------|--------|
|                 |   | 2012                   |   |   | 2011 |   |   | 2010 |   |
| Cost of revenues (*) |   |                   | 3,287  |   |   |   | 2,674 |   |   |   | 1,963 |   |

|   | (*) | The Company’s purchases from such supplier accounted for 24.5%, 18.4% and 16.1% of its raw material costs in 2012, 2011 and 2010, respectively. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | ELTEK LTD. |                                                |
|--------|------------|-----------------------------------------------------|
|   |       |                                                |   |
|   | By:        | /s/ Arieh Reichart                             |   |
|   | Name:      | Arieh Reichart                                      |   |
|   | Title:     | President and Chief Executive Officer               |
|   |       |                                                |   |
|   | By:   | /s/ Amnon Shemer                                    |   |
|   | Name:      | Amnon Shemer                                        |   |
|   | Title:     | Vice President, Finance and Chief Financial Officer |

----

----