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: September 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  ̈ 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  ̈ No  ̈




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  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (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  ̈ 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 November 17, 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.
                9Item
      3.
                Quantitative
      and Qualitative Disclosures about Market Risk.
                13Item
      4T.
                Controls
      and Procedures.
                13PART
      II - OTHER INFORMATIONItem
      1A.
                Risk
      Factors.
                14Item
      6.
                Exhibits.
                14SIGNATURES
                15




2





PART
1 – FINANCIAL INFORMATION
  Item
1. Financial Statements
  LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEET
 (In
Thousands, Except Share Amounts)
  September 30,
                          
                          
                          December 31,2010
                          
                          
                          2009(Unaudited)
                          
                          
                          (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                          
                          $
                          875
                          
                          
                          $
                          241Accounts
      receivable
                          
                          
                          3,697
                          
                          
                          
                          3,519Inventories
                          
                          
                          2,908
                          
                          
                          
                          3,449Prepaid
      expenses and other current assets
                          
                          
                          493
                          
                          
                          
                          23Total
      current assets
                          
                          
                          7,973
                          
                          
                          
                          7,232Assets
      of discontinued operations
                          
                          
                          395
                          
                          
                          
                          1,144Property
      and equipment, net
                          
                          
                          190
                          
                          
                          
                          116Deferred
      income taxes
                          
                          
                          14
                          
                          
                          
                          -$
                          8,572
                          
                          
                          $
                          8,492LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Bank
      line of credit
                          
                          $
                          -
                          
                          
                          $
                          96Short
      term bank loans
                          
                          
                          1,495
                          
                          
                          
                          2,459Current
      portion of term loans
                          
                          
                          105
                          
                          
                          
                          88Accounts
      payable and accrued expenses
                          
                          
                          2,253
                          
                          
                          
                          1,898Due
      to affilliates
                          
                          
                          1,091
                          
                          
                          
                          1,033Income
      taxes payable
                          
                          
                          142
                          
                          
                          
                          4Total
      current liabilities
                          
                          
                          5,086
                          
                          
                          
                          5,578Liabilities
      of discontinued operations
                          
                          
                          267
                          
                          
                          
                          985Term
      loans, net of current portion
                          
                          
                          286
                          
                          
                          
                          310Severance
      payable
                          
                          
                          135
                          
                          
                          
                          124Total
      liabilities
                          
                          
                          5,774
                          
                          
                          
                          6,997Stockholders'
      Equity:Preferred
      stock; $.001 par value, 5,000,000 sharesauthorized,
      none issued
                          
                          
                          -
                          
                          
                          
                          -Common
      stock; $.001 par value, 100,000,000 sharesauthorized
      6,483,000 shares issued and outstanding
                          
                          
                          6
                          
                          
                          
                          6Additional
      paid-in capital
                          
                          
                          78
                          
                          
                          
                          78Accumulated
      other comprehensive income
                          
                          
                          306
                          
                          
                          
                          201Retained
      Earnings
                          
                          
                          1,551
                          
                          
                          
                          702Stockholders'
      equity Lapis Technologies
                          
                          
                          1,941
                          
                          
                          
                          987Non-controlling
      interest in subsidiary
                          
                          
                          857
                          
                          
                          
                          508Total
      stockholders' equity
                          
                          
                          2,798
                          
                          
                          
                          1,495$
                          8,572
                          
                          
                          $
                          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)
  Nine Months Ended
                        
                        
                        Three Months EndedSeptember 30,
                        
                        
                        September 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009(Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)
                        
                        
                        (Unaudited)Sales
                        
                        $
                        7,517
                        
                        
                        $
                        4,811
                        
                        
                        $
                        2,402
                        
                        
                        $
                        1,432Cost
      of sales
                        
                        
                        4,561
                        
                        
                        
                        3,651
                        
                        
                        
                        1,571
                        
                        
                        
                        1,101Gross
      profit
                        
                        
                        2,956
                        
                        
                        
                        1,160
                        
                        
                        
                        831
                        
                        
                        
                        331Operating
      expenses:Research
      and development expenses
                        
                        
                        181
                        
                        
                        
                        95
                        
                        
                        
                        62
                        
                        
                        
                        31Selling
      expenses
                        
                        
                        272
                        
                        
                        
                        19
                        
                        
                        
                        198
                        
                        
                        
                        5General
      and administrative
                        
                        
                        951
                        
                        
                        
                        615
                        
                        
                        
                        226
                        
                        
                        
                        191Total
      operating expenses
                        
                        
                        1,404
                        
                        
                        
                        729
                        
                        
                        
                        486
                        
                        
                        
                        227Income
      from operations
                        
                        
                        1,552
                        
                        
                        
                        431
                        
                        
                        
                        345
                        
                        
                        
                        104Other
      income (expense):Interest
      expense, net
                        
                        
                        (193
                        )
                        
                        
                        (179
                        )
                        
                        
                        (75
                        )
                        
                        
                        (63
                        )Other
      income (expense)
                        
                        
                        (2
                        )
                        
                        
                        -
                        
                        
                        
                        (3
                        )
                        
                        
                        -Income
      (loss) from continuing operations before provision for income
      taxes
                        
                        
                        1,357
                        
                        
                        
                        252
                        
                        
                        
                        267
                        
                        
                        
                        41Provision
      for income taxes
                        
                        
                        103
                        
                        
                        
                        -
                        
                        
                        
                        29
                        
                        
                        
                        -Net
      income (loss) from continuing operations
                        
                        
                        1,254
                        
                        
                        
                        252
                        
                        
                        
                        238
                        
                        
                        
                        41Income
      (loss) from discontinued operations
                        
                        
                        (71
                        )
                        
                        
                        (7
                        )
                        
                        
                        33
                        
                        
                        
                        13Net
      Income
                        
                        
                        1,183
                        
                        
                        
                        245
                        
                        
                        
                        271
                        
                        
                        
                        54Less:
      net income atributable to non-controlling shareholders
                        
                        
                        329
                        
                        
                        
                        67
                        
                        
                        
                        71
                        
                        
                        
                        11Net
      income atributable to Lapis Technology shareholders
                        
                        
                        854
                        
                        
                        
                        178
                        
                        
                        
                        200
                        
                        
                        
                        43Other
      comprehensive (loss) income, net of taxesForeign
      translation (loss) gain
                        
                        
                        (5
                        )
                        
                        
                        37
                        
                        
                        
                        22
                        
                        
                        
                        (238
                        )Comprehensive
      (loss) income
                        
                        $
                        849
                        
                        
                        $
                        215
                        
                        
                        $
                        222
                        
                        
                        $
                        (195
                        )Basic
      net income (loss) per shareContinuing
      Operations
                        
                        
                        0.14
                        
                        
                        
                        0.03
                        
                        
                        
                        0.03
                        
                        
                        
                        0.00Discontinued
      Operations
                        
                        
                        (0.01
                        )
                        
                        
                        (0.00
                        )
                        
                        
                        0.01
                        
                        
                        
                        0.000.13
                        
                        
                        
                        0.03
                        
                        
                        
                        0.03
                        
                        
                        
                        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)
  Nine Months EndedSeptember 30,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Cash
      flows from operating activities:Net
      income
                    
                    $
                    849
                    
                    
                    $
                    178Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                    
                    
                    20
                    
                    
                    
                    54Minority
      interest
                    
                    
                    349
                    
                    
                    
                    75Gain
      on sale of property and equipment
                    
                    
                    (2
                    )
                    
                    
                    -Deferred
      income tax
                    
                    
                    14
                    
                    
                    
                    -Change
      in operating assets and liabilities:Accounts
      receivable
                    
                    
                    (178
                    )
                    
                    
                    1,133Inventories
                    
                    
                    541
                    
                    
                    
                    131Prepaid
      expenses and other current assets
                    
                    
                    (470
                    )
                    
                    
                    (397
                    )Accounts
      payable and accrued expenses
                    
                    
                    355
                    
                    
                    
                    (607
                    )Income
      tax payable
                    
                    
                    138
                    
                    
                    
                    (16
                    )Severence
      payable
                    
                    
                    11
                    
                    
                    
                    1Net
      cash provided by (used in) operating activities - continuing
      operations
                    
                    
                    1,627
                    
                    
                    
                    552Net
      cash provided by (used in) operating activities - discontinued
      operations
                    
                    
                    (237
                    )
                    
                    
                    (256
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    1,390
                    
                    
                    
                    296Cash
      flows from investing activities:Increase
      (decrease) in due to affiliates
                    
                    
                    
                    
                    
                    
                    46Purchase
      of property and equipment
                    
                    
                    (92
                    )
                    
                    
                    (40
                    )Increase
      in due to stockholder
                    
                    
                    -
                    
                    
                    
                    78Net
      cash used in investing activities - continuing operations
                    
                    
                    (92
                    )
                    
                    
                    84Cash
      flows from financing activities:Repayment
      of short term bank loans
                    
                    
                    (1,043
                    )
                    
                    
                    (795
                    )Decrease
      in due to affilliates
                    
                    
                    58Proceeds
      from long-term debt
                    
                    
                    
                    
                    
                    
                    462Repayment
      of long-term debt
                    
                    
                    (24
                    )
                    
                    
                    -Net
      cash used in financing activities - continuing operations
                    
                    
                    (1,009
                    )
                    
                    
                    (333
                    )Net
      cash used in financing activities - discontinued
operations
                    
                    
                    269
                    
                    
                    
                    (393
                    )Net
      cash used in financing activities
                    
                    
                    (740
                    )
                    
                    
                    (726
                    )Effects
      of exchange rates on cash
                    
                    
                    76
                    
                    
                    
                    (80
                    )Increase
      (decrease) in cash
                    
                    
                    634
                    
                    
                    
                    (426
                    )Cash,
      beginning of period
                    
                    
                    241
                    
                    
                    
                    763Cash,
      end of period
                    
                    $
                    875
                    
                    
                    $
                    337Supplemental
      disclosure of cash flow information:Amount
      paid during the period for:Interest
                    
                    $
                    181
                    
                    
                    $
                    227Taxes
                    
                    $
                    38
                    
                    
                    $
                    36
 
 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)
 SEPTEMBER
30, 2010
  NOTE 1 –
DESCRIPTION OF BUSINESS
  Lapis
Technologies Inc. ("Lapis" or the "Company") was formed in Delaware on January
31, 2002 under the name Enertec Electronics, Inc. We are, via our subsidiary
Enertec Systems 2001 Ltd ("Enertec Systems"), an Israeli corporation formed on
August 28, 2001, 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.
  Our
operations are located in Israel and serve leading Israeli defense integrators
in the market for both local Israeli and worldwide sales. We combine our deep
expertise in the industry with strong technical capabilities to provide a
complete range of high quality products, systems and services on a global scale.
By integrating our abilities and focusing on business and project teams, we
leverage our corporate knowledge and experience, intellectual property and
infrastructure to develop innovative solutions for clients we serve
worldwide.
  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 that we anticipate could result in higher revenue as well as
increased gross margin and overall profitability. Presently, Lapis conducts its
operations in Israel through its wholly owned subsidiary Enertec Electronics
Ltd.("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.
  6
 
 LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (In
Thousands, Except Per Share Amounts)
 SEPTEMBER
30, 2010
  NOTE 2–
BASIS OF PRESENTATION
  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 nine months ended September 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.
  On
October 17, 2010, Enertec Electronics Ltd., a wholly owned subsidiary entered
into an asset purchase agreement to sell substantially all its electronics
assets and business for an aggregate consideration of 1,020,000NIS
(approximately $278,000). Enertec Electronics is engaged in the trading of
electronics equipment (such as power supplies and other related power products).
As a result of the agreement and in accordance with ASC Topic No. 205-20,
Presentation of Financial Statements – Discontinued Operations, the operations
of Enertec Electronics are classified as discontinued operations in the
Company’s consolidated statement of operations and all assets and liabilities
are presented separately on the consolidated balance sheets. All prior period
information has been reclassified to be consistent with the current period
presentation.
 
 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 authoritative guidance.
  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.
  7
  LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (In
Thousands, Except Per Share Amounts)
 SEPTEMBER
30, 2010
  NOTE 4 -
INVENTORIES
 
 Inventories
consist of the following at September 30, 2010:
 
 Raw
      materials
                        
                        
                        609Work
      in process
                        
                        
                        2,299Finished
      goods2,908
  NOTE 5 -
CONCENTRATIONS
  Approximately
95%, 90%, 95%, and 88% of total sales were made to 2 customers for the nine
months ended September 30, 2010 and 2009, and the three months ended September
30, 2010 and 2009, respectively. Accounts receivable from these two customers
represented 91% and 85% of total receivables at September 30, 2010 and December
31, 2009, respectively.
 
 NOTE 6–
PROVISION FOR INCOME TAXES
  The
income tax expense for the nine months ended September 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.
  8
  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.
  Our
operations are located in Israel and serve leading Israeli defense integrators
in the market for both local Israeli and worldwide sales. We combine our deep
expertise in the industry with strong technical capabilities to provide a
complete range of high quality products, systems and services on a global scale.
By integrating our abilities and focusing on business and project teams, we
leverage our corporate knowledge and experience, intellectual property and
infrastructure to develop innovative solutions for clients we serve
worldwide.
  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 that we anticipate could result in higher revenue as well as
increased 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. On October 17, 2010, Enertec Electronics
entered into an agreement to sell substantially all of its electronics assets
and business. The vast majority of the Lapis business is conducted by Enertec
Systems through its factory located in Karmiel in the northern part of
Israel.
  9
  Liquidity
and Capital Resources
  As of
September 30, 2010, our cash balance was $875,000 as compared to $241,000 at
December 31, 2009. Total current assets at September 30, 2010 were $7,937,000 as
compared to $7,232 at December 31, 2009.
  Our
accounts receivable at September 30, 2010 were $3,697,000 as compared to
$3,519,000 at December 31, 2009.
  As of
September 30, 2010, our working capital was $2,887,000 as compared to $1,654,000
at December 31, 2009. The increase in working capital is due primarily to a
decrease in current liabilities.
  Current
portion of long-term loans as for December 31, 2009 were $88,000. The current
portion of long-term loans at September 30, 2010 was $105,000. Our total
short-term loans amounted to $1,600,000 as of September 30, 2010 as compared to
$2,547,000 as of December 31, 2009.
  As of
September 30, 2010, our total bank debt was $1,011,000 as compared to $2,712,000
at December 31, 2009. These funds were borrowed as follows:
  $1,495,000
was borrowed as various short term bank loans due through 2010, and $391,000
using long term loans. As a result we decreased the amount borrowed for the nine
months ended September 30, 2010 by $1,701,000 as compared to December 31, 2009.
The decrease in bank debt is mainly due to (i) better collection of accounts
receivables, (ii) a shareholder loan in the amount of $1,091,000, and (iii) an
increase in net income as compared to September 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 September 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.
  10
  Results of Operations
  Three
and Nine Months Ended September 30, 2010 Compared to Three and Nine Months Ended
September 30, 2009
  Revenues
for the three and nine months ended September 30, 2010 were $2,402,000 and
$7,517,000, respectively, as compared to $1,432,000 and $4,811,000 for the three
and nine months ended September 30, 2009. This represents an increase of
$970,000 or 68% for the quarter ended September 30, 2010 and an increase of
$2,706,000 or 56% for the nine months ended September 30, 2010, when compared to
the same periods of 2009. The increase in revenues for the three and nine months
ended September 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 transactions of a larger scale, as well as
Lapis’s success in deepening its cooperation with its major strategic current
customers, which generated additional business for Lapis. Over the one-year
period from September 30, 2009 to September 30, 2010, Lapis experienced a
substantial change in the source of the revenue. The portion of the revenue
attributed to Enertec Systems for the three and nine months ended September 30,
2010 is 100% and 96%, respectively, of total revenues as compared to 72% and
76%, respectively, of total revenues for the three and nine months ended
September 30, 2009. Consistent with management's strategic plan, all revenues
for the last quarter were derived from the Enertec Systems
business.
  Gross
profit totaled approximately $831,000 for the quarter ended September 30, 2010
and $2,956,000 for the nine months ended September 30, 2010. The gross profit
for the three and nine months ended September 30, 2009, totaled $331,000 and
$1,116,000, respectively. Comparison of the three months ended September 30,
2010 to the three months ended September 30, 2009 reflects a significant
increase of $500,000 in gross profit, which represents an increase of 151%,
comparison of the nine months ended September 30, 2010 to the nine months ended
September 30, 2009 reflects a significant increase of $1,796,000 which
represents an increase in gross profit of 155% 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
strategic plan. These system solutions combine better utilization of our
existing know-how with the performance of larger scale projects with higher
profitability.
  Gross
profit as a percentage of sales was 35% and 39% for the three- and nine-month
period ended September 30, 2010, respectively, compared to 23% and 24% for the
three- and nine- month period ended September 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 nine months ended September 30, 2010, operating expenses totaled
$486,000 and $1,404,000, respectively. This was an increase of $259,000 (114%)
and $675,000 (92%), respectively, when compared to $227,000 and $729,000 for the
three- and nine- month periods ended September 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's recording an approximately $96,000 write-off
for doubtful receivables in the nine months ended September 30, 2010 (ii)
increase in research and development expenses of $31,000 and $86,000,
respectively, for three- and nine-month periods ended September 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, and (iii) increase in selling
expenses of $193,000 and $253,000, respectively, for three- and nine-month
periods ended September 30, 2010 compared to the same periods of 2009 primarily
due to Lapis's efforts to increase marketing efforts for more projects and new
customers.
  11
  Our
comprehensive net income was $222,000 for the three months ended September 30,
2010 and $849,000 for the nine months ended September 30, 2010. This compares to
a comprehensive net loss of $195,000 in the three months ended September 30,
2009 and comprehensive net income of $215,000 in the nine months ended September
30, 2009. This represents an increase in net income of $417,000 (213%) and
$634,000 (294%), respectively, comparing the three and nine month periods ended
September 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
September 30, 2010, we had two customers that accounted for approximately 91% 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 nine months ended September 30, 2010 were $62,000 and
$181,000, respectively, compared to $31,000 and $95,000, respectively, for the
three and nine months ended September 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.
  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
September 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 September 30, 2010. The
carrying value of the long-term debt approximate fair value at September 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 September 30, 2010.
  12
  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 September 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.
  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 September 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 September 30, 2010 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal controls over financial reporting.
  13
  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
 
 14
  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:
      November 18, 2010
                    By:
                    /s/
      David LucatzDavid
      LucatzPresident
      and Chief Executive Officer (Principal
                      Executive
      Officer)Date:
      November 18, 2010
                    By:
                    /s/
      Tali DinarTali
      DinarSecretary
      and Chief Financial Officer (Principal
                      Financial
      Officer and Principal Accounting
Officer)
  15
  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
  16