Year-End 2008:

The increase in revenues in 2008 is attributable to Eltek’s success in receiving the orders from new and existing customers. In 2008, the company strengthened its global marketing position and established itself in the US market. The company recently gained a US Department of State ITAR approval to sell its circuitry solutions for use in US military products, and has received its first orders for PCBs from defense customers.

The gross profit for the year-end 2008 was $5.9 million, 13.6% of revenues, compared with a gross profit of $5.6 million, 14.9% of revenues, for the year-end 2007.

On a non-GAAP basis, the net loss for the year-end 2008 was $1.9 million before an impairment of goodwill charge and related expense, or $0.29 per fully diluted share.

In the fourth quarter of 2008, following an evaluation process that was performed in respect of its German subsidiary, Kubatronik Leiterplatten GmbH (Kubatronik), which was acquired in 2002, the company recorded an impairment of goodwill charge in the amount of $379,000 and related general and administrative expenses of $126,000 associated with the write down of its investment in Kubatronik.

The loss was primarily attributable to the weakness of the US dollar compared to the NIS mainly in the first three quarters of the year, the decrease in revenues in the fourth quarter and the above described impairment charge.

Fourth Quarter – 2008:

Eltek reported revenues for the fourth quarter ended December 31, 2008 of $9 million, down 9%, from the $9.9 million in revenues reported in the fourth quarter of 2007. The decrease in revenues is attributable to the weak worldwide economic climate and customer efforts to reduce their inventories. Additionally, the revenues of Kubatronik declined as a result of the devaluation of the Euro against the dollar.

Gross profit in the fourth quarter ended December 31, 2008 was $1.1 million (11.9% of revenues) compared with $895,000 reported in the fourth quarter of 2007 (9.1% of revenues). The improved gross margin was achieved primarily as a result of reduced raw material consumption.

Net loss for the fourth quarter of 2008 was $784,000 (on a non-GAAP basis) before an impairment of goodwill charge and related expenses, or $0.12 per fully diluted share (non-GAAP), compared with a net loss of $472,000 or $0.07 per fully diluted share for the same period in 2007. In the fourth quarter of 2008 the company recorded an impairment of goodwill charge in respect of Kubatronik, in the amount of $379,000 and general and administrative expenses of $126,000 associated with the write down of its investment in Kubatronik. Net loss in the fourth quarter of 2008 after such impairment charge amounted to $1.3 million or $0.20 per fully diluted share.

EBITDA:

In year 2008, Eltek had EBITDA of $983,000 compared to EBITDA of $2.1 million in year 2007. In the fourth quarter ended December 31, 2008, the company recorded negative EBITDA of ($169,000) compared with EBITDA of $113,000 in the comparable period in 2007.

ELTEK uses EBITDA as a non-GAAP financial performance measurement. EBITDA is calculated by adding back to net income interest, taxes, depreciation and amortization. EBITDA is provided to investors to complement results provided in accordance with GAAP, as management believes the measure helps illustrate underlying operating trends in the company’s business and uses the measure to establish internal budgets and goals, manage the business and evaluate performance. EBITDA should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP.

Management Comments:

Arieh Reichart, president and chief executive officer of Eltek stated: 2008 was a tough year in a very difficult and unprecedented operating environment, in which we were forced to battle two disparate phenomenons. The first, the weakness of the US dollar during the first three quarters of the year, which adversely affected our results, but we managed to minimize such adverse effect mainly through increased sales and a reduced rate of raw material consumption. The second phenomenon, the global financial crisis caused many of our customers to reduce their inventory by withholding purchase orders, thus the immediate effect on us was a significant decline in our revenues in the fourth quarter. Eltek is prepared for the upcoming challenges in 2009 and has taken a number of steps to cope with the new market conditions.

We recently received the necessary approval from US authorities that enables us to sell PCBs to the defense industry, an important market for us. This license has opened the gate for us to a major potential market, which we estimate to account for approximately 40% of the relevant military rigid-flex and high-reliability boards in the western world. We are working hard to leverage this opportunity, which we believe is an important element in the course of our returning to profitability. In 2008, revenues from customers in the defense and medical markets, sectors that we believe have suffered less than other sectors from the current crisis, accounted for 66% of our total revenues, and following a period of inventory adjustments, we believe these customers will once again place orders for our products, as we began to see in the first quarter of 2009, added Reichart.

Amnon Shemer, chief finance officer of Eltek, said: The major portion of our loss in 2008 was recorded in the first and the last quarters. In the first quarter, the loss was due the impact of the plunge of the US dollar that affected the profitability of the large backlog of signed orders we had on hand at the time. We managed to reduce the loss in the second quarter and to break even in the third quarter, although the exchange rate of the dollar was still below NIS/$3.5, which demonstrates our capability to overcome this negative factor. Similarly, we believe that we have implemented an operating plan that will allow us to deal with the negative effects of the downturn caused by the global financial crisis.”

We have executed a cost reduction plan, including a reduction in the number of employees and a salary cut for all management personnel. We expect that these steps along with increased revenues and the higher dollar exchange rate will lead to improved results in the first quarter of 2009,” added Shemer.

The loss we incurred in 2008 along with our repayments of long term loans to the banks and for capital expenditures resulted in a reduced cash position at year end. We are working with our banks and other financial institutions to obtain additional lines of credit, concluded Shemer.