UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number ______________________
LAPIS TECHNOLOGIES, INC.
------------------------
(Exact name of small business issuer
as specified in its charter)
DELAWARE 27-0016420
------------------------------ --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
19 W. 34th Street, Suite 1008
New York, NY, 10001
(Address of principal executive offices)
Issuer's telephone number (212) 937-3580
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [X] No [ ]
As of November 12, 2004 there were 5,483,000 shares of the registrant's common
stock, par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
LAPIS TECHNOLOGIES, INC.
SEPTEMBER 30, 2004 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
Special Note Regarding Forward Looking Statements
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 2004 1
Consolidated Statements of Income for the three and nine
months ended September 30, 2004 and 2003 2
Consolidated Statements of Changes in Stockholders' Equity
and Comprehensive Income (Loss) 3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2004 and 2003 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operations 6
Item 3. Controls and Procedures 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits 11
SIGNATURES 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
ASSETS
September 30,
2004
---------------
Current Assets:
Cash and cash equivalents $ 56
Accounts receivable 2,373
Inventories 2,122
Prepaid expenses and other current assets 260
Due from stockholder 333
---------------
Total current assets 5,144
Property and equipment, net 439
Due from affiliates 22
Deferred income taxes 20
---------------
$ 5,625
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 679
Short term bank loans 1,996
Current portion of term loans 151
Accounts payable and accrued expenses 1,116
Income taxes payable 162
---------------
Total current liabilities 4,104
Term loans, net of current portion 258
Severance payable 58
---------------
Total liabilities 4,420
---------------
Commitments and contingencies
Minority interest 307
Stockholders' Equity:
Preferred stock; $.001 par value, 5,000,000 shares authorized, none issued -
Common stock; $.001 par value, 100,000,000 shares authorized, 5,483,000
shares issued and outstanding 5
Additional paid-in capital 78
Accumulated other comprehensive loss (99)
Retained Earnings 914
---------------
Total stockholders' equity 898
---------------
$ 5,625
===============
1
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share and Share Amounts)
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Sales $ 4,084 $ 4,257 $ 1,396 $ 1,272
Cost of sales 2,475 2,677 943 872
----------- ----------- ----------- -----------
Gross profit 1,609 1,580 453 400
----------- ----------- ----------- -----------
Operating expenses:
Selling expenses 31 24 24 7
General and administrative 913 846 264 248
----------- ----------- ----------- -----------
Total operating expenses 944 870 288 255
----------- ----------- ----------- -----------
Income from operations 665 710 165 145
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net (180) (258) (62) (85)
----------- ----------- ----------- -----------
Income before provision for income taxes and minority interest 485 452 103 60
Provision for income taxes 71 113 29 24
Minority interest 147 90 12 2
----------- ----------- ----------- -----------
Net income 267 249 62 34
Other comprehensive (loss) income, net of taxes
Foreign translation (loss) gain (36) 15 (2) 40
----------- ----------- ----------- -----------
Comprehensive (loss) income $ 231 $ 264 $ 60 $ 74
=========== =========== =========== ===========
Basic net loss per share $ 0.05 $ 0.05 $ 0.01 $ 0.01
=========== =========== =========== ===========
Basic weighted average common shares outstanding 5,483,000 5,483,000 5,483,000 5,483,000
=========== =========== =========== ===========
2
LAPIS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2002 AND 2003
(In Thousands, Except Share Amounts)
Accumulated
Common Stock Other Total
----------- Additional Comprehensive Retained Stockholders' Comprehensive
Shares Amount Paid-in Capital Loss Earnings Equity Income (Loss)
------- -------- ---------- ---------- ---------- ---------- ----------
Balance, January 1, 2002 4,750,000 $ 5 $ (5) $ (76) $ 472 $ 396
Common stock issued for services 500,000 -- 50 -- -- 50
Sale of common stock under a private
placement, net of expenses of $45 233,000 -- (11) -- -- (11)
Recapitalization on acquisition of subsidiary -- -- 44 -- -- 44
Dividend paid -- -- -- -- (409) (409)
Foreign currency translation adjustment -- -- -- (28) -- (28) $ (28)
Net income -- -- -- -- 332 332 332
---------- ---- ---- ----- ----- ----- -----
Balance, December 31, 2002 5,483,000 5 78 (104) 395 374 $ 304
Foreign currency translation adjustment 41 41 $ 41
Net income -- -- -- -- 252 252 252
---------- ---- ---- ----- ----- ----- -----
Balance, December 31, 2003 5,483,000 5 78 (63) 647 667 $ 293
Foreign currency translation adjustment (36) (36) $ (36)
Net income -- -- -- -- 267 267 267
---------- ---- ---- ----- ----- ----- -----
Balance, September 30, 2004 5,483,000 $ 5 $ 78 $ (99) $ 914 $ 898 $ 231
========== ==== ==== ===== ===== ===== =====
3
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
2004 2003
------- -------
Cash flows from operating activities:
Net income $ 267 $ 249
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 105 81
Capital gain from dispostion of fixed assets (9) --
Minority interest 153 90
Deferred income tax -- (2)
Change in operating assets and liabilities:
Accounts receivable 635 (395)
Inventories (499) (342)
Prepaid expenses and other current assets (36) (50)
Accounts payable and accrued expenses (515) (275)
Income tax payable (48) 107
Customer deposits -- (212)
Severance payable (1) (1)
------- -------
Net cash provided by (used in) operating activities 52 (750)
------- -------
Cash flows from investing activities:
Proceeds from the sale of property & equipment 14 --
Purchase of property and equipment (17) (114)
Increase (decrease) in due from stockholder (158) 146
Increase (decrease) in due from affiliates 48 6
------- -------
Net cash used in investing activities (113) 38
------- -------
Cash flows from financing activities:
Increase (decrease) in bank line of credit, net (254) (958)
Proceeds from long term debt 3,403 4,665
Repayment of long-term debt (3,198) (3,203)
------- -------
Net cash (used in) provided by financing activities (49) 504
------- -------
Effects of exchange rates on cash and cash equivalents (15) 14
------- -------
Increase (decrease) in cash (125) (194)
Cash, beginning of period 181 313
------- -------
Cash, end of period $ 56 $ 119
======= =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ -- $ 173
======= =======
Income taxes $ -- $ 16
======= =======
4
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
SEPTEMBER 30, 2004
NOTE 1 - DESCRIPTION OF BUSINESS
Lapis Technologies, Inc. (the "Company") was incorporated in the State of
Delaware on January 31, 2002. The Company was originally named Enertec
Electronics, Inc. and on April 23, 2002 changed its name to Opal
Technologies, Inc. which changed its name to Lapis Technologies, Inc. on
October 3, 2002. The Company's operations are conducted through its
wholly-owned Israeli Subsidiary, Enertec Electronics Ltd. ("Enertec") and
its majority owned Israeli subsidiary Enertec Systems 2001 LTD ("Systems").
Enertec is engaged in the manufacturing, distribution and marketing of
electronic components and products relating to power supplies, converters
and related power conversion products, automatic test equipment, simulators
and various military and airborne systems, within the State of Israel.
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-QSB. 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-KSB for the year ended December 31, 2003. The results
of operations for the six-months ended June 30, 2004 are not necessarily
indicative of the operating results that may be expected for the year
ending December 31, 2004.
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
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material
effect on the accompanying consolidated financial statements.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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., 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 our Registration Statement on Form 10-SB filed with
the Securities and Exchange Commission on March 26, 2004.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this Report.
Overview
We were formed in Delaware on January 31, 2002 under the name Enertec
Electronics, Inc. and have filed two certificates of amendment changing our name
to Opal Technologies, Inc. and then to Lapis Technologies, Inc. We conduct
operations in Israel through our wholly owned subsidiary, Enertec Electronics
Limited ("Enertec Electronics"), an Israeli corporation formed on December 31,
1991, and Enertec Systems 2001 LTD ("Enertec Systems"), an Israeli corporation
formed on August 28, 2001, of which we own a 55% equity interest. Enertec
Electronics is a manufacturer and distributor of electronic components and
products relating to power supplies, converters and related power conversion
products, automatic test equipment (ATE), simulators and various military and
airborne systems. Enertec Electronics maintains two divisions, the Systems
Division and the Electronics Division. The Systems Division designs, develops
and manufactures test systems for electronics manufacturers in accordance with
their specifications. The Electronics Division markets and distributes the test
systems, power supplies and other electronic components manufactured by us, and
by other manufacturers who engage us to distribute their products.
We had seven distribution agreements as of September 30, 2004. In the
second quarter of 2004, we received several large orders in the commercial and
military domains. Within the commercial arena we received a preliminary order
for 6,200 units of a customized ATX power supply for a total value of $210,000,
as of September 30, 2004 revenues of $100,000 have already been received. We
have received an order for 200 customized compact PCI power supplies which
should generate revenues of approximately $56,000 of which so far $26,000 has
been received. We have also received an order for 1,100 power supplies for Voice
Over IP products which generated revenues of $44,000, with an additional $16,000
expected over the next quarter. Our management believes that this has been a
successful first entry into the IP Telephony industry, a burgeoning and fast
growing sector of the technology industry, and one in which we have begun to
take a position in the market.
During the third quarter, 250 redundant power supplies were delivered
generating revenues of approximately $55,000. There is an outstanding order of
400 units of standard military converters to be delivered partly during the last
quarter of 2004 and partly during the first quarter of 2005. This order should
generate revenues of approximately $75,000.
6
During the third quarter of 2004 we received several new orders in the
commercial and military domains:
-Redundant power supplies, 1050 units, which is expected to generate
$143,000 in revenues with delivery expected during the 4th quarter of
2004 and the 1st quarter of 2005.
-100 Compact PCI power supplies, which is expected to generate revenues
totaling $23,000, delivery projected during the 4th quarter of 2004.
-3Aircraft Battery chargers, for expected revenues of $26,000, with
delivery expected in the 4th quarter of 2004.
-Miniature standard military converters, 3000 units, which is expected
to generate sales of $337,000, with delivery during the 4th quarter
of 2004 and the 1st quarter of 2005.
New product launch
During the first three quarters of 2004 we entered a new field of
military technologies, in addition to our "classic" ATE field of expertise. We
believe that we have successfully marketed a new line of ruggedized Command and
Control mobile stations of modular architecture, allowing
adaptation/customization to various applications. We have already received an
order of $155,000, representing the first batch of a potentially much larger
order of about 200 units, to be delivered over the next 3-4 years.
- External Power Supplies for a Network Security Product. The
first order of 1000 units was received during the third
quarter of 2004 generating revenues of about $16,000.
- We have successfully completed the UL safety approvals for a
new custom-made power supply. It is implemented in a series of
modems for fast network access of data and voice over the IP
network.
- We have already received the first order of 1000 units
totaling
$16,000 in revenue which we expect to deliver in the first
quarter of 2005.
- DC/DC converters for military CDU (Command Display Units). The
first samples are expected to be delivered during the fourth
quarter of 2004. We have already received a 1500 unit order
with revenue of $80,000 for delivery during 2005.
Within the military arena, we received an order for 113 Power
Distribution Units, of military grade, to be delivered over the next four years,
generating revenues of approximately $420,000. $187,000 worth of ATE equipment
has been ordered for the maintenance of the infrared payload delivery expected
to be delivered during the 4th quarter of 2004 and the 1st quarter of 2005.
Three ATE's for air-to-air missiles, at a cost of $67,000 per unit, to be
delivered by the 4th quarter of 2004 and the 1st quarter of 2005. An ATE for
avionics at a unit price of $53,000 delivery expected in the second quarter of
2005. 20 Power Distribution Units, totaling $235,000 in revenues with delivery
expected for 2005 and 2006. Two ATE's for the DataLink, generating $160,000 in
revenue with delivery expected in the last quarter of 2005.
The following presents certain historical financial information of
relating to our operations. This financial information includes our results of
operations for the three and nine months ended September 30, 2003 compared with
our results of operations for the three and nine months ended September 30,
2004.
Results of Operations
Revenues
Revenues for the three and nine months ended September 30, 2004 were
$1,396,000 and $4,084,000, respectively, as compared to $1,272,000 and
$4,257,000 for the three and nine months ended September 30, 2003, respectively.
This represents an increase of $124,000, or 9.75%, for the three months ended
September 30, 2004 and a decrease of $173,000, or 4.06%, for the nine months
ended September 30, 2004 when compared to the same period of 2003. The increase
in revenue for the three months ended September 30, 2004 when compared to the
same period of 2003 was a result of the impact of increase in sales in the
commercial market which finally felt its impact by the third quarter of 2004.
The decrease in revenue for the nine months ended September 30, 2004 when
compared to the same period of 2003 was a result of a lower number of orders for
military systems received due to end-of-year budget cuts of the Israeli Ministry
of Defense. The impact of the government cuts at the end of the year usually
lasts two to three quarters since the average lead-time for a military ATE is
6-10 months.
7
Gross Profit
Gross profit totaled approximately $453,000 for the three months ended
September 30, 2004 and $1,609,000 for the nine months ended September 30, 2004.
For the three and nine months ended September 30, 2003, gross profit totaled
$400,000 and $1,580,000, respectively. Comparing the three-month period ended
September 30, 2004 to the same period of 2003, gross profit increased
approximately $53,000, or 13.25%. For the nine-month period ended September 30,
2004, gross profit increased approximately $29,000, or 1.84%, compared to the
same period of 2003. The increase in gross profit for the three months and nine
months ended September 30, 2004 is primarily the result of a few orders with
lower cost of sales. In the second and third quarter of 2004 we focused on those
projects with higher profit margins, resulting in slightly lower revenues, but
higher net income and profit margin.
Selling, General and Administrative Expenses
For the three months and nine months ended September 30, 2004, selling,
general and administrative expenses totaled $288,000 and $944,000, respectively
versus selling, general and administrative expenses for the same periods for
2003 of $255,000 and $870,000. This was an increase in SG and A of $33,000 (13%)
for the 3 month period ending September 3 2004 versus the same prior period in
2003 due to an increase of $9,000 in depreciation and amortization and
approximately $24,000 due to the increase of the cost of the professional
services legal and accounting associated with being a public company. For the
nine month periods ended Sept 30,2004 versus the nine month period in the prior
year you have an increase of $74,000 (8.5%) in SG and A. The increase in
selling, general and administrative expenses for the nine months ended September
2004 versus the same period in the previous year is attributable to an increase
of $24,000 in depreciation and amortization and approximately $50,000 due to the
increase of the cost of the professional services as previously detailed.
Other Income and Expenses
Net interest expense was approximately $62,000 and $180,000 for the
three and nine months ended September 30, 2004, respectively. For the three
months ended September 30, 2003, net interest income was $85,000. For the nine
months ended September 30, 2003, net interest expense was $258,000. This
represents a decrease of $147,000 and a decrease of $78,000 in interest expense,
when comparing the three and nine months ended September 30, 2004 with the same
periods of 2003, respectively. The lower interest expense comparing the three
months ended September 30, 2004 to the three months ended September 30, 2003 and
the nine month ended September 30, 2004 with the nine months ended September 30,
2003 is due to the combination of a decrease in the total debt by 9% to the
banks (by $308,000) because of the slightly lower revenues for the comparative
period and the lower interest rates in Israel during the nine months period
ending Sept 2004 as compared with the prior year period. The monetary prime rate
in Israel was 6% average for the first nine months of 2004 as compared to 9%
average for the first nine months of 2003,and 5.5% during the three months
period ending Sept 2004 as compared to 8% average with the prior year period.
Provision for income taxes
For the three and nine months ended September 30, 2004, our provision
for income taxes was $29,000 and $71,000. This represents a nominal increase of
$5,000 for the third quarter ending September 30, 2004, versus the same period
in the year prior, and a decrease of $42,000 for the nine months ending
September 30, 2004 versus the same nine-month period for the prior year. The
provision for income taxes for the three and nine months ended Sept 30, 2003 was
$24,000, and $113,000 respectively. The increase in the provision for the third
quarter ended September 2004 versus the third quarter ending September 2003 was
due to slightly higher income before taxes for that period. The decreased
adjustment for the nine-month period comparison ending September 2004 versus the
same period in the year prior reflects the actual updated income taxes. At the
end of September 2003 the provision for taxes of Enertec Systems did not take in
consideration the tax exempt status that allowed tax free income above approx
$330,000. As of Dec 2003 the financials have been adjusted to reflect this
tax-exempt status.
8
Liquidity and Capital Resources Cash and Working Capital
As of September 30, 2004, we had approximately $56,000 of cash and cash
equivalents on hand and $1,040,000 of working capital as compared to $119,000 of
cash and cash equivalents on hand and $792,000 of working capital as of
September 30, 2003. The increase in working capital is due to a decrease of
current liabilities.
We currently plan to use the cash balance and cash generated from
operations for increasing our working capital reserves and, along with
additional debt financing, for new product development and building up
inventory, hiring more sales staff and funding advertising and marketing.
Management believes that the current cash on hand and additional cash expected
from operations in fiscal 2004 will be sufficient to cover our working capital
requirements for fiscal 2004.
Capital Expenditures
We did not incur any expenditures for capital improvements as of
September 30, 2004 and management does not currently anticipate any significant
capital expenditures during the next six to twelve months.
Financing Transactions
As of September 30, 2004, our total bank debt was approximately
$3,084,000 as compared with approximately $3,392,000 as of September 30, 2003.
This decrease of approximately $308,000(9.1%) was due to a lowered financing
need since the volume of new orders and the accounts receivables for the nine
month period ended September 30, 2004 were lower than the same comparative
period for the prior year. These funds were borrowed as follows: $1,996,000 as
various short-term loans due through February 2005; $258,000 of long term debt
due through December 2007, and $ 679,000 borrowed as lines of credit. The
current portion of long-term debt at September 30, 2004 consisted of $151,000
due February 2005.
Cash Flows
Net cash provided by operating activities was approximately $52,000 for
the nine months ended September 30, 2004 compared to net cash used in operating
activities of $750,000 for the same period of 2003. The net cash provided by
operating activities for the nine months ended September 30, 2004 was primarily
a result of a $635,000 net cash receipt from accounts receivable offset by
additional purchase of inventory of approximately $499,000.
Net cash used in investing activities was $113,000 for the nine months
ended September 30, 2004 compared with net cash provided by investing activities
of $38,000 for the nine months ended September 30, 2004. is due to a decrease in
due from stockholders.
Net cash used in financing activities for the nine months ended
September 30, 2004 was approximately $49,000, as compared with net cash provided
by financing activities of approximately $504,000 for the same period of 2003.
This decrease is due to a reduction in our total debt as compared to the nine
months ended September 30, 2003 when we incurred additional debt.
9
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms. There was no significant change in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not subject to any pending or threatened legal proceedings,
except as described below.
On April 16, 2002, Orckit Communications brought an action in the Tel
Aviv District Court against Gaia Converter, a French company and Alcyon
Production Systems, also a French company and a subcontractor of Gaia Converter,
seeking $1,627,966, alleging that the DC converters supplied to it by Gaia
Converter were defective and caused Orckit to replace the converters at a
substantial financial expense. Enertec Electronics was joined in the action as a
local Israeli distributor of the Gaia Converter products. Gaia Converter has
advised us that the converters in issue were free from any and all defects and
were in good working order and that it was the faulty performance of Orckit's
product into which the converters were incorporated that caused them to fail at
a greater rate than anticipated by Orckit. Enertec Electronics filed a response
to this claim that there is no cause of action against it, as among other
things, Enertec Electronics is merely the local Israeli sales representative of
Gaia Converter and did not make any implied or express representations or
warranties to Orckit regarding the suitability of the converters or otherwise,
nor was Enertec Electronics required to do so by law. Technical specifications
required by Orckit for the converters were determined and communicated directly
by Orckit to Gaia Converter and all other communications regarding the
converters were directly between Orckit and Gaia Converter. Moreover, Orckit
conducted a qualification test of the converters and confirmed to Gaia Converter
that the converters complied with their requirements subsequent to such testing.
Neither Gaia Converter nor Alcyon Production Systems have filed a response to
this action, and consequently Orkit Communications requested and obtained
default judgments from the Tel Aviv District Court against both Gaia Converter
and Alcyon Production Systems. Enertec Electronics is defending and is
continuing to defend this action vigorously and we do not believe that it will
have a material adverse impact on our business. Orkit has filed affidavits
setting out the evidence supporting their allegations and Enertec will file
answering affidavits in response.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
10
ITEM 6. EXHIBITS
Exhibit Number Description
------------------ -- ------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of Enertec Electronics, Inc. filed January 31, 2002*
3.2 Certificate of Amendment of Enertec Electronics, Inc. filed April 23, 2002*
3.3 Certificate of Amendment of Opal Technologies, Inc. filed October 17, 2002*
3.4 By-Laws of Lapis Technologies, Inc.*
4.1 Specimen Common Stock Certificate**
10.1 Stock Option Plan of 2002*
10.2 An Agreement for an Unprotected Tenancy, dated in June 2002 between Amnoni Brothers - Carmiel
Transporters Ltd. and Enertec Systems Ltd.**
10.3 Lease Agreement dated October 31, 2002 between Mund Holdings Ltd., and Enertec Electronics
Ltd.**
10.4 Manufacturer's Representative Agreement dated December 20, 1988 between Cytec Corporation and
Enertec International.**
10.5 Exclusive Distribution Agreement dated June 26, 2002 between Gaia Converter by the Company
Enertec (Israel) Gaia Converter Sa and Enertec Electronics Ltd.**
10.6 Annual Agreement dated February 05, 2001 between BigBand Networks Ltd. and Enertec Electronics
Ltd.**
10.7 Supply Agreement between Enertec Ltd. and The Israeli Aeronautical Industries Ltd.**
10.8 Distributor Agreement dated January 1, 1998 between Christie Electric Corp. and Enertec
Electronics Ltd.**
10.9 Sale Representative Agreement dated July 6, 1998 between EMCO High Voltage Co. and Enertec
International.**
31.1 Certification by Harry Mund, Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.***
31.2 Certification by Miron Markovitz, Chief Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.***
32.1 Certification by Harry Mund, Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***
32.2 Certification by Miron Markovitz, Chief Financial Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.***
* Previously filed with Amendment No. 2 to the Form SB-2 registration statement
filed with the Securities and Exchange Commission on May 14, 2003, and
incorporated herein by reference. ** Previously filed with Amendment No. 1 to
the Form SB-2 registration statement filed with the Securities and Exchange
Commission on February 11, 2003, and incorporated herein by reference.
*** Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
14th day of November 2004.
Lapis Technologies, Inc.
By: /s/ Harry Mund
-----------------------------------------
Harry Mund, Chief Executive Officer,
President and Chairman of the Board
By: /s/ Miron Markovitz
-----------------------------------------
Miron Markovitz, Chief Financial Officer,
Chief Accounting Officer and Director
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