Tingo Group, Inc. - Quarter Report: 2010 September (Form 10-Q)

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Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

 

 

PART 1 – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In Thousands, Except Share Amounts)

 

		September 30,				December 31,
		2010				2009
		(Unaudited)				(Audited)
ASSETS
Current Assets:
Cash and cash equivalents		$	875			$	241
Accounts receivable			3,697				3,519
Inventories			2,908				3,449
Prepaid expenses and other current assets			493				23
Total current assets			7,973				7,232
Assets of discontinued operations			395				1,144
Property and equipment, net			190				116
Deferred income taxes			14				-
		$	8,572			$	8,492
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit		$	-			$	96
Short term bank loans			1,495				2,459
Current portion of term loans			105				88
Accounts payable and accrued expenses			2,253				1,898
Due to affilliates			1,091				1,033
Income taxes payable			142				4
Total current liabilities			5,086				5,578
Liabilities of discontinued operations			267				985
Term loans, net of current portion			286				310
Severance payable			135				124
Total liabilities			5,774				6,997
Stockholders' Equity:
Preferred stock; $.001 par value, 5,000,000 shares
authorized, none issued			-				-
Common stock; $.001 par value, 100,000,000 shares
authorized 6,483,000 shares issued and outstanding			6				6
Additional paid-in capital			78				78
Accumulated other comprehensive income			306				201
Retained Earnings			1,551				702
Stockholders' equity Lapis Technologies			1,941				987
Non-controlling interest in subsidiary			857				508
Total stockholders' equity			2,798				1,495
		$	8,572			$	8,492

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

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

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

 

		Nine Months Ended								Three Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Sales		$	7,517			$	4,811			$	2,402			$	1,432
Cost of sales			4,561				3,651				1,571				1,101
Gross profit			2,956				1,160				831				331
Operating expenses:
Research and development expenses			181				95				62				31
Selling expenses			272				19				198				5
General and administrative			951				615				226				191
Total operating expenses			1,404				729				486				227
Income from operations			1,552				431				345				104
Other income (expense):
Interest expense, net			(193	)			(179	)			(75	)			(63	)
Other income (expense)			(2	)			-				(3	)			-
Income (loss) from continuing operations before provision for income taxes			1,357				252				267				41
Provision for income taxes			103				-				29				-
Net income (loss) from continuing operations			1,254				252				238				41
Income (loss) from discontinued operations			(71	)			(7	)			33				13
Net Income			1,183				245				271				54
Less: net income atributable to non-controlling shareholders			329				67				71				11
Net income atributable to Lapis Technology shareholders			854				178				200				43
Other comprehensive (loss) income, net of taxes
Foreign translation (loss) gain			(5	)			37				22				(238	)
Comprehensive (loss) income		$	849			$	215			$	222			$	(195	)
Basic net income (loss) per share
Continuing Operations			0.14				0.03				0.03				0.00
Discontinued Operations			(0.01	)			(0.00	)			0.01				0.00
			0.13				0.03				0.03				0.01
Basic weighted average common shares outstanding			6,483,000				6,483,000				6,483,000				6,483,000

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

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

		Nine Months Ended
		September 30,
		2010				2009
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Net income		$	849			$	178
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization			20				54
Minority interest			349				75
Gain on sale of property and equipment			(2	)			-
Deferred income tax			14				-
Change in operating assets and liabilities:
Accounts receivable			(178	)			1,133
Inventories			541				131
Prepaid expenses and other current assets			(470	)			(397	)
Accounts payable and accrued expenses			355				(607	)
Income tax payable			138				(16	)
Severence payable			11				1
Net cash provided by (used in) operating activities - continuing operations			1,627				552
Net cash provided by (used in) operating activities - discontinued operations			(237	)			(256	)
Net cash provided by (used in) operating activities			1,390				296
Cash flows from investing activities:
Increase (decrease) in due to affiliates							46
Purchase of property and equipment			(92	)			(40	)
Increase in due to stockholder			-				78
Net cash used in investing activities - continuing operations			(92	)			84
Cash flows from financing activities:
Repayment of short term bank loans			(1,043	)			(795	)
Decrease in due to affilliates			58
Proceeds from long-term debt							462
Repayment of long-term debt			(24	)			-
Net cash used in financing activities - continuing operations			(1,009	)			(333	)
Net cash used in financing activities - discontinued operations			269				(393	)
Net cash used in financing activities			(740	)			(726	)
Effects of exchange rates on cash			76				(80	)
Increase (decrease) in cash			634				(426	)
Cash, beginning of period			241				763
Cash, end of period		$	875			$	337
Supplemental disclosure of cash flow information:
Amount paid during the period for:
Interest		$	181			$	227
Taxes		$	38			$	36

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

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

SEPTEMBER 30, 2010

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

Lapis Technologies Inc. ("Lapis" or the "Company") was formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc. We are, via our subsidiary Enertec Systems 2001 Ltd ("Enertec Systems"), an Israeli corporation formed on August 28, 2001, a manufacturer and provider of various military and airborne systems, simulators, automatic test equipment (ATE), electronic components and products related to power supplies, converters and other power conversion products. Our business is focused in two major product lines: (i) the development and manufacturing of simulators and automatic test equipment (ATE) to a large variety of weapons systems and at all levels of maintenance, development and integration and (ii) the development and manufacturing of comprehensive, large scale, electronics systems for the military industry providing comprehensive solution to power supply, command and control including systems design, development, manufacturing and implementation on a turn-key basis.

 

Our operations are located in Israel and serve leading Israeli defense integrators in the market for both local Israeli and worldwide sales. We combine our deep expertise in the industry with strong technical capabilities to provide a complete range of high quality products, systems and services on a global scale. By integrating our abilities and focusing on business and project teams, we leverage our corporate knowledge and experience, intellectual property and infrastructure to develop innovative solutions for clients we serve worldwide.

 

The management of Lapis has begun to implement its strategy of focusing on developing comprehensive electronics turn-key solutions via its controlled subsidiary Enertec Systems. This strategy potentially includes larger scale transactions that we anticipate could result in higher revenue as well as increased gross margin and overall profitability. Presently, Lapis conducts its operations in Israel through its wholly owned subsidiary Enertec Electronics Ltd.("Enertec Electronics"), which owns a 73% equity interest of Enertec Systems. The Enertec Electronics business is gradually decreasing as a result of our strategy to exit from the business of selling electronics components to focus on the development, design and manufacturing of large systems. The vast majority of the Lapis business is conducted by Enertec Systems through its factory located in Karmiel in the northern part of Israel.

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

SEPTEMBER 30, 2010

 

NOTE 2– BASIS OF PRESENTATION

 

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

 

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

 

On October 17, 2010, Enertec Electronics Ltd., a wholly owned subsidiary entered into an asset purchase agreement to sell substantially all its electronics assets and business for an aggregate consideration of 1,020,000NIS (approximately $278,000). Enertec Electronics is engaged in the trading of electronics equipment (such as power supplies and other related power products). As a result of the agreement and in accordance with ASC Topic No. 205-20, Presentation of Financial Statements – Discontinued Operations, the operations of Enertec Electronics are classified as discontinued operations in the Company’s consolidated statement of operations and all assets and liabilities are presented separately on the consolidated balance sheets. All prior period information has been reclassified to be consistent with the current period presentation.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Stock based compensation

 

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

 

Recent Accounting Pronouncements

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

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

SEPTEMBER 30, 2010

 

NOTE 4 - INVENTORIES

Inventories consist of the following at September 30, 2010:

Raw materials			609
Work in process			2,299
Finished goods
			2,908

 

NOTE 5 - CONCENTRATIONS

 

Approximately 95%, 90%, 95%, and 88% of total sales were made to 2 customers for the nine months ended September 30, 2010 and 2009, and the three months ended September 30, 2010 and 2009, respectively. Accounts receivable from these two customers represented 91% and 85% of total receivables at September 30, 2010 and December 31, 2009, respectively.

NOTE 6– PROVISION FOR INCOME TAXES

 

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

 

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

 

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

 

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

 

Lapis was formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc. Lapis, via its subsidiary Enertec Systems, an Israeli corporation formed on August 28, 2001, is a manufacturer and provider of various military and airborne systems, simulators, automatic test equipment (ATE), electronic components and products related to power supplies, converters and other power conversion products. Our business is focused in two major product lines: (i) the development and manufacturing of simulators and automatic test equipment (ATE) to a large variety of weapons systems and at all levels of maintenance, development and integration and (ii) the development and manufacturing of comprehensive, large scale, electronics systems for the military industry providing comprehensive solution to power supply, command and control including systems design, development, manufacturing and implementation on a turn-key basis.

 

Our operations are located in Israel and serve leading Israeli defense integrators in the market for both local Israeli and worldwide sales. We combine our deep expertise in the industry with strong technical capabilities to provide a complete range of high quality products, systems and services on a global scale. By integrating our abilities and focusing on business and project teams, we leverage our corporate knowledge and experience, intellectual property and infrastructure to develop innovative solutions for clients we serve worldwide.

 

The management of Lapis has begun to implement its strategy of focusing on developing comprehensive electronics turn-key solutions via its controlled subsidiary Enertec Systems. This strategy potentially includes larger scale transactions that we anticipate could result in higher revenue as well as increased gross margin and overall profitability. Presently, Lapis conducts its operations in Israel through its wholly owned subsidiary Enertec Electronics, which owns a 73% equity interest of Enertec Systems. The Enertec Electronics business is gradually decreasing as a result of our strategy to exit from the business of selling electronics components to focus on the development, design and manufacturing of large systems. On October 17, 2010, Enertec Electronics entered into an agreement to sell substantially all of its electronics assets and business. The vast majority of the Lapis business is conducted by Enertec Systems through its factory located in Karmiel in the northern part of Israel.

 

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Liquidity and Capital Resources

 

As of September 30, 2010, our cash balance was $875,000 as compared to $241,000 at December 31, 2009. Total current assets at September 30, 2010 were $7,937,000 as compared to $7,232 at December 31, 2009.

 

Our accounts receivable at September 30, 2010 were $3,697,000 as compared to $3,519,000 at December 31, 2009.

 

As of September 30, 2010, our working capital was $2,887,000 as compared to $1,654,000 at December 31, 2009. The increase in working capital is due primarily to a decrease in current liabilities.

 

Current portion of long-term loans as for December 31, 2009 were $88,000. The current portion of long-term loans at September 30, 2010 was $105,000. Our total short-term loans amounted to $1,600,000 as of September 30, 2010 as compared to $2,547,000 as of December 31, 2009.

 

As of September 30, 2010, our total bank debt was $1,011,000 as compared to $2,712,000 at December 31, 2009. These funds were borrowed as follows:

 

$1,495,000 was borrowed as various short term bank loans due through 2010, and $391,000 using long term loans. As a result we decreased the amount borrowed for the nine months ended September 30, 2010 by $1,701,000 as compared to December 31, 2009. The decrease in bank debt is mainly due to (i) better collection of accounts receivables, (ii) a shareholder loan in the amount of $1,091,000, and (iii) an increase in net income as compared to September 30, 2009.

 

There are no other lines of credit available to us to refinance our short-term bank loans. Additionally, we currently do not have any other sources of financing available to us for refinancing our short-term loans. As of September 30, 2010, we are current with all of our bank debt and compliant with all the terms of our bank debt.

 

Financing Needs

 

Although we currently do not have any material commitments for capital expenditures, we expect our capital requirements to increase over the next several years as we continue to support the growth of our business, develop, manufacture and market larger scale solutions, support our growing manufacturing and finance needs, continue the development and testing of our suite of products and systems, respond to competitive pressures, increase management, marketing and administration infrastructure, and embark on developing in-house business capabilities and facilities. Our future liquidity and capital funding requirements will depend on numerous factors, including, but not limited to, the levels and costs of our research and development initiatives, the cost of hiring and training additional highly skilled professionals (mainly engineers and technicians), qualified stronger management, sales and marketing personnel to promote our products and the cost and timing of the expansion of our development, manufacturing and marketing efforts.

 

Based on our current business plan, we anticipate that our existing cash balances and cash generated from future sales will be sufficient to permit us to conduct our operations and to carry out our contemplated business plans for the next twelve months. However, management may undertake additional debt or equity financings to better enable Lapis to grow and meet its future operating and capital requirements. There is no assurance that we will be able to consummate such offerings on favorable terms or at all. Currently, the only external sources of liquidity are our bank facilities.

 

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Item 4T. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in internal controls

 

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

 

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