Tingo Group, Inc. - Quarter Report: 2008 September (Form 10-Q)
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, 2008.
COMMISSION
FILE NUMBER 000-10690
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LAPIS
TECHNOLOGIES, INC.
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(Exact
Name of Registrant as Specified in its
Charter)
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Delaware
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27-0016420
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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19
W 34 Street, Suite 1008, New York, NY 10001
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(Address
of principal executive offices)(Zip
code)
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Issuer's
telephone number: (212) 937-3580
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 x
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.
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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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
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING
THE PRECEDING FIVE YEARS
Indicate
by check mark whether the registrant filed all documents and reports required
to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ¨
No
¨
APPLICABLE
ONLY TO CORPORATE ISSUERS
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of October 31, 2008, there were 6,483,000
outstanding shares of the Registrant's Common Stock, $.001 par
value.
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Page
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PART
I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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3
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Item 2. Management’s Discussion and Analysis or Plan of Operation
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9
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Item 3. Controls and Procedures
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13
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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13
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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13
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Item 3. Defaults Upon Senior Securities
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14
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Item 4. Submission of Matters to a Vote of Security Holders
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14
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Item 5. Other Information
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14
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Item 6. Exhibits
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14
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SIGNATURES
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14
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PART
I - FINANCIAL INFORMATION
Item
1.
Financial
Statements.
CONSOLIDATED
BALANCE SHEET
(In
Thousands, Except Share Amounts)
|
September 30,
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December 31,
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||||||
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2008
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2007
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||||||
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(unaudited)
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|||||||
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ASSETS
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|||||||
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Current
Assets:
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|||||||
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Cash
and cash equivalents
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$
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393
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$
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133
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|||
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Accounts
receivable
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6,146
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5,414
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|||||
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Inventories
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4,937
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3,736
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|||||
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Prepaid
expenses and other current assets
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210
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118
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|||||
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Total
current assets
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11,686
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9,450
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|||||
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Property
and equipment, net
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246
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267
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|||||
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Deferred
income taxes
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22
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20
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|||||
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$
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11,954
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$
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9,737
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||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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|||||||
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Current
Liabilities:
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|||||||
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Bank
line of credit
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$
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1,347
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$
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1,362
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|||
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Short
term bank loans
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4,822
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3,907
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|||||
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Current
portion of term loans
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225
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200
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|||||
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Accounts
payable and accrued expenses
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3,472
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2,361
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|||||
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Due
to stockholder
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(75
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)
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-
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||||
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Due
to affilliates
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118
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(97
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)
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||||
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Income
taxes payable
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-
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2
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|||||
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Total
current liabilities
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9,909
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7,735
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|||||
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Term
loans, net of current portion
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104
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247
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|||||
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Severance
payable
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197
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176
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|||||
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Total
liabilities
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10,210
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8,158
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|||||
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Commitments
and contingencies
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|||||||
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Minority
interest
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529
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448
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|||||
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Stockholders'
Equity:
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|||||||
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Preferred
stock; $.001 par value, 5,000,000 shares authorized, none
issued
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-
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-
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|||||
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Common
stock; $.001 par value, 100,000,000 shares authorized, 6,483,000
shares
issued and outstanding
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6
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6
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|||||
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Additional
paid-in capital
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78
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78
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|||||
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Accumulated
other comprehensive loss
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297
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92
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|||||
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Retained
Earnings
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834
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955
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|||||
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Total
stockholders' equity
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1,215
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1,131
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|||||
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$
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11,954
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$
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9,737
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||||
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 Ended
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||||||||||||
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September
30,
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September
30,
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||||||||||||
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2008
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2007
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2008
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2007
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||||||||||
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Sales
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$
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7,613
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$
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6,372
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2,268
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$
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2,238
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||||||
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Cost
of sales
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5,615
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4,639
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1,445
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1,447
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|||||||||
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Gross
profit
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1,998
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1,733
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823
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791
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|||||||||
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Operating
expenses:
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|||||||||||||
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Research
and development expenses
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100
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221
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46
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22
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|||||||||
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Selling
expenses
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124
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151
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109
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24
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|||||||||
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General
and administrative
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1,330
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948
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270
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305
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|||||||||
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Total
operating expenses
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1,554
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1,320
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425
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351
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|||||||||
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Income
from operations
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444
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413
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398
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440
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|||||||||
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Other
income (expense):
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|||||||||||||
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Other
income
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-
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-
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-
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-
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|||||||||
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Interest
expense, net
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(392
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)
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(306
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)
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(147
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)
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(111
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)
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|||||
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Income
before provision for income taxes and minority interest
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52
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107
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251
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329
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|||||||||
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Provision
for income taxes
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-
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7
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-
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7
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|||||||||
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Minority
interest
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40
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5
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23
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57
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|||||||||
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Net
income
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12
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95
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228
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265
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|||||||||
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Other
comprehensive (loss) income, net of taxes
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|||||||||||||
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Foreign
translation (loss) gain
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126
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163
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115
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172
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|||||||||
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Comprehensive
(loss) income
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$
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138
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$
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258
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$
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343
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$
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437
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|||||
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Basic
net loss per share
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$
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0.00
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$
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0.01
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$
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0.04
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$
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0.04
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|||||
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Basic
weighted average common shares outstanding
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6,483,000
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6,483,000
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6,483,000
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6,483,000
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|||||||||
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 Ended
|
|||||||
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September
30,
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|||||||
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2008
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2007
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||||||
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Cash
flows from operating activities:
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|||||||
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Net
income
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$
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12
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$
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58
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|||
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Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
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|||||||
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Depreciation
and amortization
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68
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92
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|||||
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Minority
interest
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81
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20
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|||||
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Gain
on sale of property and equipment
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-
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-
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|||||
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Deferred
income tax
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(2
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)
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(1
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)
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Change
in operating assets and liabilities:
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|||||||
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Accounts
receivable
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(732
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)
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392
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||||
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Inventories
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(1,201
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)
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(1,172
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)
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|||
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Prepaid
expenses and other current assets
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(92
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)
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35
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||||
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Accounts
payable and accrued expenses
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1,172
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(83
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)
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||||
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Income
tax payable
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(2
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)
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-
|
||||
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Customer
deposits
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-
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-
|
|||||
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Severance
payable
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21
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4
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|||||
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Net
cash provided by (used in) operating activities
|
(675
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)
|
(655
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)
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|||
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Cash
flows from investing activities:
|
|||||||
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Proceeds
from the sale of property & equipment
|
-
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-
|
|||||
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Purchase
of property and equipment
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(46
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)
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(70
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)
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|||
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Increase
in due from stockholder
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62
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170
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|||||
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(Increase)
decrease in due from affiliates
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(51
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)
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(100
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)
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|||
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Net
cash used in investing activities
|
(35
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)
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-
|
||||
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Cash
flows from financing activities:
|
|||||||
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Increase
in bank line of credit, net
|
(15
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)
|
(195
|
)
|
|||
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Proceeds
from long term debt
|
5,519
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4,661
|
|||||
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Repayment
of long-term debt
|
(4,722
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)
|
(3,899
|
)
|
|||
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Net
cash (used in) provided by financing activities
|
782
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567
|
|||||
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Effects
of exchange rates on cash
|
189
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167
|
|||||
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Increase
(decrease) in cash
|
260
|
79
|
|||||
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Cash,
beginning of period
|
133
|
7
|
|||||
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Cash,
end of period
|
$
|
393
|
$
|
86
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
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Cash
paid during the period for:
|
|||||||
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Interest
|
$
|
392
|
$
|
306
|
|||
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Income
taxes
|
$
|
16
|
$
|
31
|
|||
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, 2008
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-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-KSB for the year ended December 31, 2007.
The
results of operations for the six and three months ended September 30,
2008 are
not necessarily indicative of the operating results that may be expected
for the
year ending December 31, 2008.
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 Statement of Financial Accounting Statement (“SFAS”) No.
148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS
148”). SFAS 148 amends SFAS No. 123 “Accounting for Stock-Based Compensation”
(“SFAS 123”), and 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 SFAS 123 as of January 1, 2003. Accordingly, stock options,
when
issued, will be recorded in accordance with the terms of that
document.
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.
6
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Per Share Amounts)
SEPTEMBER
30, 2008
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Recent
Accounting Pronouncements
In
July 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement 109,”
(“FIN 48”). FIN 48 prescribes a comprehensive model as to how a company should
recognize, measure, present and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax return.
The
adoption of FIN 48 is effective January 1, 2007. The Company has determined
there will be no effect on their financial statements.
In
June 2006, the FASB ratified the Emerging Issues Task Force
(“EITF”) consensus on EITF Issue No. 06-2, “Accounting for Sabbatical
Leave and Other Similar Benefits Pursuant to FASB Statement No. 43.” EITF
Issue No. 06-2 requires companies to accrue the costs of compensated
absences under a sabbatical or similar benefit arrangement over the requisite
service period. EITF Issue No. 06-2 is effective for us beginning
July 1, 2007. The cumulative effect of the application of this consensus on
prior period results should be recognized through a cumulative-effect adjustment
to retained earnings as of the beginning of the year of adoption. Elective
retrospective application is also permitted. The application of this consensus
won‘t have a material impact on our financial statements.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R),” (“FAS 158”). Among other things, FAS 158 requires companies to
prospectively recognize a net liability or asset and to report the funded
status
of their defined benefit pension and other postretirement benefit plans
on their
balance sheets, with an offsetting adjustment to accumulated other comprehensive
income; such recognition will not affect the Company’s statement of income. The
adoption of FAS 158 is effective for the year ending December 31, 2006. The
Company has determined there will be no effect on their financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115.” This Standard allows entities to voluntarily choose, at
specified election dates, to measure many financial assets and financial
liabilities (as well as certain non-financial instruments that are similar
to
financial instruments) at fair value. The election is made on an
instrument-by-instrument basis and is irrevocable. If the fair value option
is
elected for an instrument, the Statement specifies that all subsequent
changes
in fair value for that instrument shall be reported in earnings. SFAS No.
159 is
effective for ATMI beginning on January 1, 2008. We are currently
evaluating the impact this new Standard could have on our financial position
and
results of operations.
In
December 2007 the FASB issued SFAS No. 160 “Non-controlling Interests in
Consolidated Financial Statements”. FAS 160 seeks to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards. This statement is effective for fiscal
years
beginning after December 15, 2008. The Company has not yet determined what
the
effect will be, if any, on their financial statements.
7
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Per Share Amounts)
SEPTEMBER
30, 2008
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Recent
Accounting Pronouncements
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on
the
accompanying consolidated financial statements.
NOTE
4 – PROVISION FOR INCOME TAXES
The
income tax expense for the nine and three months ended September 30, 2008
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.
NOTE
5 – SALE OF THE COMPANY
On
February 28, 2008, the Company entered into an agreement for the issue
and sale
of shares in Lapis Technologies, Inc. and the transfer of shares of Star
Night
Technologies Ltd. to the Company (the “Lapis SPA”), with Harry Mund and
Mordechai Solomon (the “Investor”). Mr. Mund is the Company’s chief executive
officer, director and majority stockholder.
In
connection with the Lapis SPA, on February 28, 2008, the Company’s indirect
wholly owned subsidiary, Enertec Management Ltd. (“Enertec Management”) (which
the Company owns through its direct wholly owned subsidiary Enertec Electronics
Ltd.), entered into an agreement (the “Systems SPA”) for the sale and purchase
of Enertec Systems 2001 Ltd., with Harry Mund and S.D.S. (Star Defense
Systems)
Ltd., a company that trades on the Tel Aviv Stock Exchange (“S.D.S.”) whose
majority stockholder is Mordechai Solomon.
In
connection with the Lapis SPA and the Systems SPA, the Company also entered
into, on February 28, 2008, an agreement with Mund Holdings Ltd., a company
owned by Harry Mund, for the sale of the entire issued and outstanding
share
capital of Enertec Electronics Ltd. (the “Electronics SPA”).
The
Investor, on behalf of himself and SDS, verbally informed the Company
and
Enertec Management that the Investor and SDS will not complete the transactions
contemplated by the
Lapis
SPA and the Systems SPA. The latter is evidenced by a report filed by
SDS with
the Tel Aviv Stock Exchange on September 10, 2008, to inform that it
cancels the
assembly of its general meeting scheduled for September 11, 2008 (the
"Report").
According to the Report, the assembly was cancelled pursuant to Mordechai
Solomon's, a controlling shareholder in SDS, notice to SDS that the transactions
contemplated by the Lapis SPA (and, as a result, the transactions contemplated
by the Systems SPA) will not be completed.
Because
the transactions contemplated by the Lapis SPA and the Systems SPA will
not be
completed, the Company will also not complete the transactions contemplated
by
the Electronics SPA.
8
Item
2.
Management’s
Discussion and Analysis or Plan of Operation.
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-KSB filed
with
the Securities and Exchange Commission on March 31, 2008.
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 have a 73% equity interest. We are manufacturers
and distributors of various military and airborne systems, simulators, automatic
test equipment (ATE), electronic components and products relating to power
supplies, converters and related power conversion products.
On
February 28, 2008, we entered into an agreement for the issue and sale of
shares
in Lapis Technologies, Inc. and the transfer of shares of Star Night
Technologies Ltd. to us (the “Lapis SPA”), with Harry Mund, and Mordechai
Solomon (the “Investor”). Mr. Mund is the Company’s chief executive officer,
director, and majority stockholder.
9
In
connection with the Lapis SPA, on February 28, 2008, our indirect wholly
owned
subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
our direct wholly owned subsidiary Enertec Electronics Ltd.), entered into
an
agreement (the “Systems SPA”) for the sale and purchase of Enertec Systems 2001
Ltd., with Harry Mund, and S.D.S. (Star Defense Systems) Ltd., a company
traded
on the Tel Aviv Stock Exchange (“S.D.S.”) whose majority stockholder is
Mordechai Solomon.
In
connection with the Lapis SPA and the Systems SPA, we also entered into,
on
February 28, 2008, an agreement with Mund Holdings Ltd., a company owned
by
Harry Mund, for the sale of the entire issued and outstanding share capital
of
Enertec Electronics Ltd. (the
“Electronics SPA”).
The
Investor, on behalf of himself and SDS, verbally informed Enertec, the
Company
and Enertec Management that the Investor and SDS will not complete the
transactions contemplated by the Lapis SPA and the Systems SPA. The latter
is
evidenced by a report filed by SDS with the Tel Aviv Stock Exchange on
September
10, 2008, to inform that it cancels the assembly of its general meeting
scheduled for September 11, 2008 (the “Report”). According to the Report, the
assembly was cancelled pursuant to Mordechai Solomon’s, a controlling
shareholder in SDS, notice to SDS that the transactions contemplated by
the
Lapis SPA (and, as a result, the transactions contemplated by the Systems
SPA) will not be completed.
Because
the transactions contemplated by the Lapis SPA and the Systems SPA will
not be
completed, the Company will also not complete the transactions contemplated
by
the Electronics SPA.
Liquidity
and Capital Resources
As
of
September 30, 2008 our cash balance was $393,000 as compared to $86,000 at
September 30, 2007. Total current assets at September 30, 2008 were $11,686,000
as compared to $ 8,883,000
at
September 30, 2007. The increase in current assets is mainly due to increase
in
accounts receivable and an increase in work in process inventory.
Our
accounts receivables at September 30, 2008 were $6,146,000 as compared to
$4,285,000, at September 30, 2007. This change in accounts receivable is
primarily due to increase in sales and longer credit period we had to grant
for
a current big project following the customer request.
As
of
September 30, 2008 our working capital was $1,777,000 as compared to $1,569,000
at September 30, 2007. The increase in the working capital is due primarily
to a
greater increase in current assets than the increase in current liabilities.
The
current portion of our short-term loans at September 30, 2008 totaled $225,000
as compared to $192,000 at September 30, 2007. Our total short-term loans
amounted to $4,822,000 for the nine month period ended September 30, 2008
as
compared to $2,935,000 for the nine-month period ended September 30, 2007.
As
of
September 30, 2008, our total bank debt was $6,498,000 as opposed to $4,706,000
at the end of September 30, 2007. These funds were borrowed as
follows:
$5,047,000
which includes the current portion of long term debt, as various short term
bank
loans due through 2009, $104,000 of long term debt due through March 2010
and
$1,347,000 using our bank lines of credit. As a result we increased the amount
borrowed for the nine months ended September 30, 2008 by $1,792,000 compared
to
the same period in 2007. The increase in bank debt is mainly due to the increase
in accounts receivables and the decrease in USD/Shekel exchange rate since
the
loans are in shekels. The USD/Shekel exchange rate decreased by 14.75% from
4.013 as of September 30, 2007 to 3.421 as of September 30, 2008.
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, 2008, 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,
other than as described in this report, we expect our capital requirements
to
increase over the next several years as we continue to develop and test our
suite of products, increase 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 sales
and
marketing personnel to promote our products and the cost and timing of the
expansion of our marketing efforts.
10
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. Currently, the only external sources of liquidity are our banks,
and we may seek additional financing from them or through securities offerings
to expand our operations, using new capital to develop new products, enhance
existing products or respond to competitive pressures.
Results
of Operations.
Three
and Nine Months Ended September 30, 2008 Compared to Three and Nine Months
Ended
September 30, 2007
Revenues
for the three and nine months ended September 30, 2008 were $2,268,000 and
$7,613,000 respectively as compared to $2,238,000 and $6,372,000 for the
three
and nine months ended September 30, 2007, respectively. This represents an
increase of $30,000 or 1.3% for the quarter ended September 30, 2008 and
an
increase of $1,241,000 or 19.5%, for the nine months ended September 30,
2008,
when compared to the same periods of 2007. The increase of 19.5% in revenues
for
the nine months period ended September 30, 2008 as compared to the same period
of 2007 is mainly the result of the decrease in USD/Shekel exchange rate
since
the sales are in shekels. The average USD/Shekel exchange rate decreased
by
15.6% from 4.163 as of September 30, 2007 to 3.512 as of September 30,
2008.
Gross
profit totaled approximately $823,000 for the quarter ended September 30,
2008
and $1,998,000 for the nine months ended September 30, 2008. For the three
and
nine months ended September 30, 2007, gross profit totaled $791,000 and
$1,733,000 respectively. Comparing the three-month period ended September
30,
2008 to the same period of 2007, gross profit increased by approximately
$32,000, or 4.0%. For the nine-month period ended September 30, 2008, gross
profit increased approximately $265,000, or15.3%, compared to the same period
of
2007. The increase in gross profits is primarily due to the increase in
sales.
Gross
profit as a percentage of sales was 36.3% for the three-month period ended
September 30, 2008 as compared to 35.3% for the same period of 2007 and for
the
nine-month period ended September 30, 2008, was 26.2% as compared to 27.2%
for
the same period of 2007.
The
increase in gross profit as a percentage of sales for the three-month period
ended September 30, 2008 as compared to the same period of 2007 is a result
of
lower cost of sale and higher profit margin for some projects delivered during
the third quarter 2008 as compared to the same period 2007.
The
decrease in gross profit as a percentage of sales for the nine-month period
ended September 30, 2008 as compared to the same period of 2007 is due to
lower
profit margins during the first quarter of 2008 as compared to the first
quarter
of 2007.
For
the
three months and nine months ended September 30, 2008, operating expenses
totaled $425,000 and $1,554,000 respectively. This was an increase of $74,000
(21.1%) and $234,000 (17.7%) when compared to the three and nine-month periods
ended September 30, 2007. The increase in operating expenses for the nine-month
period as compared to the same period of 2007 is attributable mainly to the
increase in General and Administrative expenses partly offset by the decrease
in
Research and Development and Selling expenses.
Research
and Development expenses increased by $24,000 for the three months period
and
decreased by $121,000 for the nine months period ended September 30, 2008
as
compared to the same period in 2007. The decrease in Research and Development
expenses for the nine month period ended September 30, 2008 as compared to
the
same period in 2007 is the result of more manpower resources allocated during
the first quarter of 2008 to the fulfillment of the increased number of orders
received as compared to the same period 2007.
Selling
expenses increased by $85,000 and decreased by$ 27,000 for the three months
and
nine months period ended September 30, 2008 as compared to the same period
in
2007. The decrease in selling expenses during 2008 as compared to 2007 is
the
result of more manpower resources allocated during the first two quarter
of 2008
to the fulfillment of the increased number of orders received as compared
to the
same period 2007.
11
The
General & Administrative expenses decreased by $35,000 and increased
$382,000 for the three months and nine months period ended September 30,
2008 as
compared to the same period in 2007. The increase in the General &
Administrative expenses during the nine month period ended September 30,
2008 as
compared to the same period in 2007 is mainly due to the increase in the
professional services and the decrease in USD/Shekel exchange rate since
the
G&A expenses are in shekels. The decrease in General and Administrative
expenses during the three months ended September 30, 2008 as compared to
the
same period in 2007 is mainly due to the decrease in professional services
during the third quarter of 2008, partly offset by the decrease in the
USD/sheke/exchange rate since the General and Administrative expenses
are in shekels. The average USD/Shekel exchange rate decreased by 15.6%
from 4.163 as of September 30, 2007 to 3.512 as of September 30,
2008.
Our
net
income was $228,000 for the three months ended September 30, 2008 and $12,000
in
the nine months ended September 30, 2008. This compares to net income of
$265,000 in the three months ended September 30, 2007 and $ 95,000 in the
nine
months ended September 30, 2007. This represents a decrease in net income
of
$37,000, or 14%, comparing the nine months ended September 30, 2008 to the
nine
months ended September 30, 2007, and a decrease in net income of $83,000,
or
87.4%, comparing the nine months ended September 30, 2008 to the nine months
ended September 30, 2007.
The
decrease in the net income for the three-month and nine months period ended
September 30, 2008 as compared to the same period in 2007, was mainly due
a
larger increase in the operating and interest expenses than the increase
in the
gross profit.
As
of
September 30, 2008, we had 2 customers that accounted for approximately 67.5%
of
the accounts receivable. For the nine months ended September 30, 2008,
approximately 66% of our sales were to 2 customers.
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, 2008 were $46,000
and
$100,000, respectively. Research and development costs for the three and
nine
months ended September 30, 2007 were $22,000 and $221,000, respectively.
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.
Revenue
relating to service is recognized on the straight-line basis over the life
of
the agreement, generally one year. For the three months ended September 30,
2008
revenue relating to service contracts was less than one percent of net sales.
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, 2008 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, 2008. The
carrying value of the long-term debt approximate fair value at September
30,
2008 based upon debt terms available for companies under similar
terms.
12
Foreign
Currency Translation - Lapis Technologies, Inc. has one wholly owned subsidiary,
Enertec Electronics Limited, an Israeli corporation, and one majority owned
subsidiary, Enertec Systems 2001 Ltd., 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.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk.
N/A.
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) 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 Security and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the issuer'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 Harry Mund, the
Company’s Chief Executive Officer (“CEO”) and Miron Markovitz, 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) under
the
Exchange Act) as of the period ended September 30, 2008. Based upon that
evaluation, the Company’s CEO and CFO 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, 2008. Based
on that evaluation, our CEO and CFO concluded that no change occurred in
the
Company's internal controls over financial reporting during the 2008 quarter
ended September 30, 2008 that has materially affected, or is reasonably likely
to materially affect, the Company's internal controls over financial
reporting.
PART
II- OTHER INFORMATION
Item
1. Legal Proceedings.
We
are
not a party to any pending legal proceeding, nor is our property the subject
of
a pending legal proceeding, that is not in the ordinary course of business
or
otherwise material to the financial condition of our business. None of our
directors, officers or affiliates is involved in a proceeding adverse to
our
business or has a material interest adverse to our business.
Item
1A. Risk Factors.
N/A.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
N/A.
13
Item
3. Defaults Upon Senior Securities.
N/A.
Item
4. Submission of Matters to a Vote of Security Holders.
N/A.
Item
5. Other Information.
Not
applicable.
Item
6. Exhibits.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule
15d-14(a)
of the Exchange Act
|
|
|
|
|
|
31.2
|
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule
15d-14(a)
of the Exchange Act
|
|
|
|
|
|
32.1
|
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule
15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18
of the
United States Code
|
|
|
|
|
|
32.2
|
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule
15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18
of the
United States Code
|
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 14, 2008
|
By:
|
/s/ Harry
Mund
|
|
|
|
Harry
Mund
Chief Executive Officer (principal executive
officer), President
and
Chairman of the Board
|
|
|
|
|
|
Date:
November 14, 2008
|
By:
|
/s/
Miron Markovitz
|
|
|
|
Miron
Markovitz
Chief
Financial Officer, Chief Accounting
Officer
and Director
|
14