UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





(Mark
One)





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


ACT
OF 1934





FOR
THE QUARTERLY PERIOD ENDED: June 30, 2010





COMMISSION
FILE NUMBER 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.)





70
      Kinderkamack Road, Emerson, New Jersey
                  
                  07630(Address
      of principal executive offices)
                  
                  (Zip
      Code)





(201)
      225-0190(Registrant’s telephone number, including area code)





n/a(Former name, former address and former fiscal year, if
                  changed
      since last report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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   o      
No   x




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files).  Yes  o    No 
o




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





Large accelerated filer   o
                Accelerated
      filer   oNon-accelerated
      filer   o    (Do
      not check if a smaller
                  reporting
      company)
                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   o  
 No   x




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of August 23, 2010, there were
6,483,000 outstanding shares of the Registrant's Common Stock, $0.001 par
value.







TABLE
OF CONTENTS




PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                    Financial
      Statements.
                    3Item
      2.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                    8Item
      3.
                    Quantitative
      and Qualitative Disclosures about Market Risk.
                    11Item
      4T.
                    Controls
      and Procedures.
                    11PART
      II - OTHER INFORMATIONItem
      1A.
                    Risk
      Factors.
                    13Item
      6.
                    Exhibits.
                    13SIGNATURES
                    14




2





PART
1 – FINANCIAL INFORMATION




Item
1. Financial Statements




LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


(In
Thousands, Except Share Amounts)





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    360
                    
                    
                    $
                    313Accounts
      receivable
                    
                    
                    3,587
                    
                    
                    
                    4,307Inventories
                    
                    
                    3,007
                    
                    
                    
                    3,577Prepaid
      expenses and other current assets
                    
                    
                    429
                    
                    
                    
                    159Total
      current assets
                    
                    
                    7,383
                    
                    
                    
                    8,356Property
      and equipment, net
                    
                    
                    182
                    
                    
                    
                    116Deferred
      income taxes
                    
                    
                    12
                    
                    
                    
                    20$
                    7,577
                    
                    
                    $
                    8,492LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent  Liabilities:Bank
      line of credit
                    
                    $
                    1
                    
                    
                    $
                    96Short
      term bank loans
                    
                    
                    1,287
                    
                    
                    
                    2,990Current
      portion of term loans
                    
                    
                    99
                    
                    
                    
                    88Accounts
      payable and accrued expenses
                    
                    
                    2,230
                    
                    
                    
                    2,279Due
      to affilliates
                    
                    
                    1,032
                    
                    
                    
                    1,033Income
      taxes payable
                    
                    
                    102
                    
                    
                    
                    4Total
      current liabilities
                    
                    
                    4,751
                    
                    
                    
                    6,490Term
      loans, net of current portion
                    
                    
                    297
                    
                    
                    
                    310Severance
      payable
                    
                    
                    189
                    
                    
                    
                    197Total
      liabilities
                    
                    
                    5,237
                    
                    
                    
                    6,997Commitments
      and contingenciesStockholders'
      Equity:Preferred
      stock; $.001 par value, 5,000,000  shares authorized, none
      issued
                    
                    
                    -
                    
                    
                    
                    -Common
      stock; $.001 par value, 100,000,000 shares authorized,
      6,483,000shares
      issued and outstanding
                    
                    
                    6
                    
                    
                    
                    6Additional
      paid-in capital
                    
                    
                    78
                    
                    
                    
                    78Accumulated
      other comprehensive income (loss)
                    
                    
                    179
                    
                    
                    
                    201Retained
      Earnings
                    
                    
                    1,329
                    
                    
                    
                    702Stockholders'
      equity Lapis Technologies
                    
                    
                    1,593
                    
                    
                    
                    987Non-controlling
      interest in subsidiary
                    
                    
                    747
                    
                    
                    
                    508Total
      stockholders' equity
                    
                    
                    2,340
                    
                    
                    
                    1,495$
                    7,577
                    
                    
                    $
                    8,492





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




3


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF INCOME


(In
Thousands, Except Earnings Per Share and Share Amounts)





Six Months Ended
                      
                      
                      Three Months EndedJune 30,
                      
                      
                      June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)
                      
                      
                      (Unaudited)
                      
                      
                      (Unaudited)Sales
                      
                      
                      5,383
                      
                      
                      $
                      4,332
                      
                      
                      
                      3,036
                      
                      
                      
                      2,213Cost
      of sales
                      
                      
                      3,157
                      
                      
                      
                      3,269
                      
                      
                      
                      1,705
                      
                      
                      
                      1,693Gross
      profit
                      
                      
                      2,226
                      
                      
                      
                      1,063
                      
                      
                      
                      1,331
                      
                      
                      
                      520Operating
      expenses:Research
      and development expenses
                      
                      
                      119
                      
                      
                      
                      64
                      
                      
                      
                      54
                      
                      
                      
                      43Selling
      expenses
                      
                      
                      74
                      
                      
                      
                      50
                      
                      
                      
                      27
                      
                      
                      
                      25General
      and administrative
                      
                      
                      939
                      
                      
                      
                      618
                      
                      
                      
                      466
                      
                      
                      
                      314Total
      operating expenses
                      
                      
                      1,132
                      
                      
                      
                      732
                      
                      
                      
                      547
                      
                      
                      
                      382Income
      from operations
                      
                      
                      1,094
                      
                      
                      
                      331
                      
                      
                      
                      784
                      
                      
                      
                      138Other
      income (expense):Interest
      expense, net
                      
                      
                      (109
                      )
                      
                      
                      (140
                      )
                      
                      
                      29
                      
                      
                      
                      (61
                      )Other
      income (expense)
                      
                      
                      1
                      
                      
                      
                      -
                      
                      
                      
                      1
                      
                      
                      
                      -Income
      (loss) before provision forincome
      taxes and minority interest
                      
                      
                      986
                      
                      
                      
                      191
                      
                      
                      
                      814
                      
                      
                      
                      77Provision
      for income taxes
                      
                      
                      74
                      
                      
                      
                      -
                      
                      
                      
                      63
                      
                      
                      
                      -Net
      income (loss)
                      
                      
                      912
                      
                      
                      
                      191
                      
                      
                      
                      751
                      
                      
                      
                      77Less:
      net income atributable tonon-controlling
      shareholders
                      
                      
                      258
                      
                      
                      
                      56
                      
                      
                      
                      193
                      
                      
                      
                      28Net
      income atributable to Lapis Technology shareholders
                      
                      
                      654
                      
                      
                      
                      135
                      
                      
                      
                      558
                      
                      
                      
                      49Other
      comprehensive (loss) income, net of taxesForeign
      translation (loss) gain
                      
                      
                      (27
                      )
                      
                      
                      275
                      
                      
                      
                      279
                      
                      
                      
                      593Comprehensive
      (loss) income
                      
                      $
                      627
                      
                      
                      $
                      410
                      
                      
                      $
                      837
                      
                      
                      $
                      642Basic
      net income (loss) per share
                      
                      
                      0.10
                      
                      
                      
                      0.02
                      
                      
                      
                      0.09
                      
                      
                      
                      0.01Basic
      weighted average common shares outstanding
                      
                      
                      6,483,000
                      
                      
                      
                      6,483,000
                      
                      
                      
                      6,483,000
                      
                      
                      
                      6,483,000





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




4





LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
Thousands)





Six Months EndedJune 30,2010
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)Cash
      flows from operating activities:Net
      income
                  
                  $
                  654
                  
                  
                  $
                  135Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                  
                  
                  10
                  
                  
                  
                  43Minority
      interest
                  
                  
                  239
                  
                  
                  
                  48Gain
      on sale of property and equipment
                  
                  
                  1
                  
                  
                  
                  -Deferred
      income tax
                  
                  
                  (8
                  )
                  
                  
                  1Change
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  720
                  
                  
                  
                  1,498Inventories
                  
                  
                  570
                  
                  
                  
                  335Prepaid
      expenses and other current assets
                  
                  
                  (270
                  )
                  
                  
                  4Accounts
      payable and accrued expenses
                  
                  
                  (49
                  )
                  
                  
                  (879
                  )Income
      tax payable
                  
                  
                  98
                  
                  
                  
                  28Severence
      payable
                  
                  
                  (8
                  )
                  
                  
                  (5
                  )Net
      cash provided by operating activities
                  
                  
                  1,957
                  
                  
                  
                  1,208Cash
      flows from investing activities:Purchase
      of property and equipment
                  
                  
                  (76
                  )
                  
                  
                  (13
                  )Net
      cash used in investing activities
                  
                  
                  (76
                  )
                  
                  
                  (13
                  )Cash
      flows from financing activities:Decrease
      in bank line of credit, net
                  
                  
                  (1,787
                  )
                  
                  
                  (707
                  )Decrease
      in due to affilliates
                  
                  
                  (1
                  )
                  
                  
                  (50
                  )Repayment
      of long-term debt
                  
                  
                  (13
                  )
                  
                  
                  (447
                  )Net
      cash used in financing activities
                  
                  
                  (1,801
                  )
                  
                  
                  (1,204
                  )Effects
      of exchange rates on cash
                  
                  
                  (33
                  )
                  
                  
                  (43
                  )Increase
      (decrease) in cash
                  
                  
                  47
                  
                  
                  
                  (52
                  )Cash,
      beginning of period
                  
                  
                  313
                  
                  
                  
                  763Cash,
      end of period
                  
                  $
                  360
                  
                  
                  $
                  711Supplemental
      disclosure of cash flow information:Amount
      paid during the period for:Interest
                  
                  $
                  152
                  
                  
                  $
                  140Taxes
                  
                  $
                  25
                  
                  
                  $
                  686





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




5


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(In
Thousands, Except Per Share Amounts)


JUNE 30,
2010





NOTE 1 -
DESCRIPTION OF BUSINESS




Lapis was
formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc.
Lapis, via its subsidiary Enertec Systems 2001 LTD (“Enertec Systems”), an
Israeli corporation formed on August 28, 2001, is a manufacturer and provider of
various military and airborne systems, simulators, automatic test equipment
(ATE), electronic components and products related to power supplies, converters
and other power conversion products. Our business is focused in two major
product lines: (i) the development and manufacturing of simulators and automatic
test equipment (ATE) to a large variety of weapons systems and at all levels of
maintenance, development and integration and (ii) the development and
manufacturing of comprehensive, large scale, electronics systems for the
military industry providing comprehensive solution to power supply, command and
control including systems design, development, manufacturing and implementation
on a turn-key basis. The management of Lapis has begun to implement its strategy
of focusing on developing comprehensive electronics turn-key solutions via its
controlled subsidiary Enertec Systems. This strategy potentially includes larger
scale transactions enabling higher revenue as well as increasing the gross
margin and overall profitability. Presently, Lapis conducts its operations in
Israel through its wholly owned subsidiary Enertec Electronics Limited (“Enertec
Electronics”) which owns a 73% equity interest of Enertec Systems. The Enertec
Electronics business is gradually decreasing as a result of our strategy to exit
from the business of selling electronics components to focus on the development,
design and manufacturing of large systems. The vast majority of the Lapis
business is conducted by Enertec Systems through its factory located in Karmiel
in the northern part of Israel.




NOTE 2 –
BASIS OF PRESENTATION AND CONSOLIDATION




The
accompanying unaudited consolidated financial statements and related footnotes
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial statements and pursuant to
the rules and regulations of the Securities and Exchange Commission for Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. For further information read the financial
statements and footnotes thereto included in the Company's Annual Report to be
filed in accordance with the rules and regulations of the Securities and
Exchange Commission on Form 10-K for the year ended December 31, 2009. The
results of operations for the three and six months ended June 30, 2010 are not
necessarily indicative of the operating results that may be expected for the
year ending December 31, 2010.




The
accompanying financial statements include the accounts of the Company and their
ownership interest in its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.




NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Stock
based compensation




The
Company has adopted ASC Topic No. 718, Compensation — Stock Compensation (“ASC
718”), a revision to Statement of Financial Accounting Statement (“SFAS”) No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure, which
amended SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). ASC
718 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. The
Company has adopted the fair value method of accounting as discussed in ASC 718
as of January 1, 2003. Accordingly, stock options, when issued, will be recorded
in accordance with the terms of that document.




6


LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


(In
Thousands, Except Per Share Amounts)


JUNE 30,
2010





NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued




Recent
Accounting Pronouncements





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





NOTE 4 -
CONCENTRATIONS




Approximately
91%, 72%, 92%, and 74% of total sales were made to 2 customers for the six
months ended June 30, 2010 and 2009, and the three months ended June 30, 2010
and 2009, respectively. Accounts receivable from these two customers represented
89% and 82% of total receivables at June 30, 2010 and December 31, 2009,
respectively.





NOTE 5 –
PROVISION FOR INCOME TAXES




The
income tax expense for the six months ended June 30, 2010 is based upon the
income tax laws of Israel. Israeli tax law does not allow a parent company to
offset its income with losses from any of its subsidiaries.




7


Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.




This
quarterly report on Form 10-Q (the “Report”) contains or may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “predict,” “potential” or “continue,” the negative of
such terms, or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially from those in the
forward-looking statements as a result of various important factors. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, such should not be regarded as a representation by Lapis
Technologies, Inc. (“Lapis” or the “Company”), or any other person, that such
forward-looking statements will be achieved. The business and operations of
Lapis Technologies, Inc. and its subsidiaries are subject to substantial risks,
which increase the uncertainty inherent in the forward-looking statements
contained in this Report. Because these forward-looking statements involve risks
and uncertainties, there are important factors that could cause actual results
to differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under “Risk Factors,” included in the quarterly report
on Form 10-Q for the period ended March 31, 2010 filed with the U.S. Securities
and Exchange Commission (“SEC”) on May 24, 2010.




The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Report.




Lapis was
formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc.
Lapis, via its subsidiary Enertec Systems, an Israeli corporation formed on
August 28, 2001, is a manufacturer and provider of various military and airborne
systems, simulators, automatic test equipment (ATE), electronic components and
products related to power supplies, converters and other power conversion
products. Our business is focused in two major product lines: (i) the
development and manufacturing of simulators and automatic test equipment (ATE)
to a large variety of weapons systems and at all levels of maintenance,
development and integration and (ii) the development and manufacturing of
comprehensive, large scale, electronics systems for the military industry
providing comprehensive solution to power supply, command and control including
systems design, development, manufacturing and implementation on a turn-key
basis. The management of Lapis has begun to implement its strategy of focusing
on developing comprehensive electronics turn-key solutions via its controlled
subsidiary Enertec Systems. This strategy potentially includes larger scale
transactions enabling higher revenue as well as increasing the gross margin and
overall profitability. Presently, Lapis conducts its operations in Israel
through its wholly owned subsidiary Enertec Electronics, which owns a 73% equity
interest of Enertec Systems. The Enertec Electronics business is gradually
decreasing as a result of our strategy to exit from the business of selling
electronics components to focus on the development, design and manufacturing of
large systems. The vast majority of the Lapis business is conducted by Enertec
Systems through its factory located in Karmiel in the northern part of
Israel.




Liquidity
and Capital Resources




As of
June 30, 2010, our cash balance was $360,000 as compared to $711,000 at June 30,
2009. Total current assets at June 30, 2010 were $7,383,000 as compared to
$8,154,000 at June 30, 2009. The decrease in current assets is mainly due to the
decrease in inventory.




Our
accounts receivable at June 30, 2010 were $3,587,000 as compared to $3,386,000
at June 30, 2009. This increase in accounts receivables is primarily due to an
increase in sales.




As of
June 30, 2010 our working capital was $2,632,000 as compared to $1,853,000 at
June 30, 2009. The increase in working capital is due primarily to a decrease in
current liabilities.




There was
no current portion of long-term loans at June 30, 2009. The current portion of
long-term loans at June 30, 2010 was $99,000. Our total short-term loans
amounted to $1,287,000 as of June 30, 2010 as compared to $3,926,000 as of June
30, 2009.




8


As of
June 30, 2010, our total bank debt was $1,684,000 as compared to $4,467,000 at
June 30, 2009 and $3,484,000 as compared to December 31, 2009. These funds were
borrowed as follows:




$1,287,000
was borrowed as various short term bank loans due through 2010, and $1,000 using
our bank lines of credit. As a result we decreased the amount borrowed for the
six months ended June 30, 2010 by $2,783,000 as compared to the same period in
2009. The decrease in bank debt is mainly due to (i) better collection of
accounts receivables, (ii) a shareholder loan in the amount of $1,032,000, and
(iii) an increase in net income as compared to June 30, 2009.




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 June 30, 2010, we are current
with all of our bank debt and compliant with all the terms of our bank
debt.




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 support the growth of our business, develop, manufacture and market
larger scale solutions, support our growing manufacturing and finance needs,
continue the development and testing of our suite of products and systems,
respond to competitive pressures, increase management, 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 highly skilled professionals (mainly engineers and
technicians), qualified stronger management, sales and marketing personnel to
promote our products and the cost and timing of the expansion of our
development, manufacturing and 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. However, management may undertake additional debt or equity financings
to better enable Lapis to grow and meet its future operating and capital
requirements. There is no assurance that we will be able to consummate such
offerings on favorable terms or at all. Currently, the only external sources of
liquidity are our bank facilities.




Results
of Operations




Three
and Six Months Ended June 30, 2010 Compared to Three and Six Months Ended June
30, 2009




Revenues
for the three and six months ended June 30, 2010 were $3,036,000 and $5,383,000,
respectively, as compared to $2,213,000 and $4,322,000 for the three and six
months ended June 30, 2009. This represents an increase of $823,000 or 37% for
the quarter ended June 30, 2010 and an increase of $1,051,000 or 24% for the six
months ended June 30, 2010, when compared to the same periods of 2009. The
increase in revenues for the three and six months ended June 30, 2010 as
compared to the same periods of 2009 is mainly the result of Lapis focusing on
its growing comprehensive electronics turn-key solutions market, which generated
larger scale transactions, as well as Lapis’s success in deepening its
cooperation with its major strategic current customers, which generated
additional business for Lapis. Lapis experienced a substantial change in the
source of the revenue. The portion of the revenue attributed to Enertec Systems
for the three and six months ended June 30, 2010 is 92% and 95%, respectively,
of total revenues as compared to 74% and 78%, respectively, of total revenues
for the three and six months ended June 30, 2009. Management believes that this
trend will continue and that by the end of 2010 most revenue will be derived
from the Enertec Systems business.




Gross
profit totaled approximately $1,331,000 for the quarter ended June 30, 2010 and
$2,226,000 for the six months ended June 30, 2010. The gross profit for the
three and six months ended June 30, 2009, totaled $520,000 and $1,063,000
respectively. Comparison of the three months ended June 30, 2010 to the three
months ended June 30, 2009 reflects a significant increase of $811,000 in the
gross profit, which represents an increase of 156%. Comparison of the six months
ended June 30, 2010 to the six months ended June 30, 2009 reflects a significant
increase of $1,163,000 which represents an increase of 109% as compared to the
same period of 2009. The substantial increase in the gross profit is
attributable primarily to the increase in sales of the comprehensive system
solutions according to the new strategy. These system solutions combine better
utilization of our existing know-how with the performance of larger scale
projects with higher profitability.




9




Gross
profit as a percentage of sales was 44% and 41% for the three-and six-month
period ended June 30, 2010, respectively, compared to 23.5% and 24.5% for the
three and six month period ended June 30, 2009, respectively. This increase is
primarily due to the transition into higher and more complex simulation systems,
from which the Company can achieve a higher gross margin in various
projects.




For the
three and six months ended June 30, 2010, operating expenses totaled $547,000
and $1,132,000, respectively. This was an increase of $165,000 (43%) and
$400,000 (55%), respectively, when compared to $382,000 and $732,000 for the
three and six month periods ended June 30, 2009, respectively. This increase in
operating expenses is primarily due to the (i) change of control in Lapis in
November 2009 and the increased general and administrative expenses incurred as
a result of the new controlling shareholder's desire to strengthen the Lapis
and/or Enertec Systems management and corporate headquarters services to the
business unit; the company has recorded an approximately $80,000 write-off for
doubtful receivables in the last quarter of 2010 (ii) increase in research and
development expenses of $11,000 and $55,000, respectively, for three and six
month periods ended June 30, 2010 compared to the same periods of 2009,
primarily due to Lapis’s efforts to develop its comprehensive systems and
solutions line of business, the development of its market, and the efforts made
by Lapis to develop new solutions tailored made for the major
customers.




Our net
profit was $558,000 for the three months ended June 30, 2010 and $654,000 for
the six months ended June 30, 2010. This compares to a net profit of $49,000 in
the three months ended June 30, 2009 and $135,000 in the six months ended June
30, 2009. This represents an increase in net income of $509,000 (1,039%) and
$519,000 (384%), respectively, comparing the three and six month periods ended
June 30, 2010 to the same periods in 2009. The increase was primarily the result
of sales of products with higher gross margins despite incurring increased
expenses as described above.




As of
June 30, 2010, we had two customers that accounted for approximately 89% of the
accounts receivables.




Research
and Development Costs




Research
and development costs are part of operating expenses. Research and development
costs for the three and six months ended June 30, 2010 were $54,000 and
$119,000, respectively, compared to $43,000 and $64,000, respectively, for the
three and six months ended June 30, 2009. The increase in research and
development costs is due to increased efforts in developing new products and
solutions.




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, and 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, 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.


10




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 June
30, 2010 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 June 30, 2010.  The carrying
value of the long-term debt approximate fair value at June 30, 2010 based upon
debt terms available for companies under similar terms.




Foreign
Currency Translation - Lapis has one wholly owned subsidiary, Enertec
Electronics, an Israeli corporation, and one majority owned subsidiary, Enertec
Systems, 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 periods reported.
Resulting translation adjustments, if material, are recorded as a separate
component of accumulated other comprehensive income or loss.




Preparation
of our financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. We believe the most complex and sensitive judgments, because of
their significance to our consolidated financial statements, result primarily
from the need to make estimates about the effects of matters that are inherently
uncertain. Management’s Discussion and Analysis and Note 3 to the consolidated
financial statements presented in our 2009 Annual Report on Form 10-K, filed
with the SEC on March 31, 2010, describe the significant accounting estimates
and policies used in preparation of our consolidated financial statements.
Actual results in these areas could differ from management’s estimates. There
were no significant changes in our critical accounting estimates during the
three months ended June 30, 2010.




Item
3.  Quantitative and Qualitative Disclosures about Market
Risk.




Not
Applicable.




Item
4T.  Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures




Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)) that
is designed to ensure that information required to be disclosed by the Company
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time specified in the SEC rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.




Pursuant
to Rule 13a-15(b) under the Exchange Act the Company carried out an evaluation
with the participation of the Company’s management, including Mr. David Lucatz,
the Company’s Chief Executive Officer (“CEO”) and Mrs. Tali Dinar, the Company’s
Chief Financial Officer (“CFO”), of the effectiveness of the Company’s
disclosure controls and procedures (as defined under Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act) as of the period ended June 30, 2010. Based
upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
the reports that the Company files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including the Company’s CEO and CFO,
as appropriate, to allow timely decisions regarding required
disclosure.


11




Changes
in internal controls




Our
management, with the participation our CEO and CFO, performed an evaluation as
to whether any change in our internal controls over financial
reporting occurred during the quarter ended June 30, 2010. Based on that
evaluation, our CEO and CFO concluded that no change occurred in the Company's
internal controls over financial reporting during the quarter ended June 30,
2010 that has materially affected, or is reasonably likely to materially affect,
the Company’s internal controls over financial reporting.


12


PART
II - OTHER INFORMATION




Item
1A.  Risk Factors.




There are
no material changes from the risk factors previously disclosed in our Quarterly
Report on Form 10-Q for the period ended March 31, 2010 filed with the SEC on
May 24, 2010.




Item
6.  Exhibits.




Exhibit
                Number
            
            Description31.1
            
            Certification
      by Chief Executive Officer pursuant to Sarbanes Oxley Section
      30231.2
            
            Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      30232.1
            
            Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section
    135032.2
            
            Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section
    1350


13


SIGNATURES




In
accordance with the requirements 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:
      August 23, 2010
              By:
              /s/ David LucatzDavid
      LucatzPresident
      and Chief Executive Officer (Principal
                Executive
      Officer)Date:
      August 23, 2010
              By:
              /s/ Tali DinarTali
      DinarSecretary
      and Chief Financial Officer (Principal
                Financial
      Officer and Principal Accounting
Officer)


14


EXHIBIT
INDEX




Exhibit
                Number
            
            Description31.1
            
            Certification
      by Chief Executive Officer pursuant to Sarbanes Oxley Section
      30231.2
            
            Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      30232.1
            
            Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section
    135032.2
            
            Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section
    1350