Tingo Group, Inc. - Quarter Report: 2010 March (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
FOR
THE QUARTERLY PERIOD ENDED: March 31, 2010
COMMISSION
FILE NUMBER 333-100979
LAPIS TECHNOLOGIES,
INC.
(Exact
Name of Registrant as Specified in its Charter)
|
Delaware
|
27-0016420
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
70
Kinderkamack Road, Emerson, New Jersey
|
07630
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(201)
654-4173
|
||
|
(Registrant’s
telephone number, including area code)
|
|
n/a
|
||
|
(Former
name, former address and former fiscal year, if
changed
since last report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes o
No x
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
Non-accelerated
filer o (Do
not check if a smaller
reporting
company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No x
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of May 24, 2010, there
were 6,483,000 outstanding shares of the Registrant's Common Stock, $0.001 par
value.
TABLE
OF CONTENTS
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Page
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| PART I - FINANCIAL INFORMATION | ||
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Item 1.
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Financial Statements
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1
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|
Item 2.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
7
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|
Item 3.
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Quantitative and Qualitative Disclosures about Market Risk |
10
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Item
4T.
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Controls
and Procedures
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10
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|
|
||
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PART II - OTHER INFORMATION
|
||
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|
||
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Item
1A
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Risk
Factors
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11
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Item 6.
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Exhibits
|
12
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||
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SIGNATURES
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13
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PART
I - FINANCIAL INFORMATION
Item 1. Financial
Statements.
CONSOLIDATED BALANCE
SHEET
(In Thousands, Except Share
Amounts)
ASSETS
|
March 31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
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(Unaudited)
|
||||||||
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Current
Assets:
|
||||||||
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Cash and cash
equivalents
|
$ | 361 | $ | 313 | ||||
|
Accounts
receivable
|
3,350 | 4,307 | ||||||
|
Inventories
|
3,344 | 3,577 | ||||||
|
Prepaid
expenses and other current assets
|
77 | 159 | ||||||
|
Total
current assets
|
7,132 | 8,356 | ||||||
|
Property and equipment,
net
|
121 | 116 | ||||||
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Deferred income
taxes
|
20 | 20 | ||||||
| $ | 7,273 | $ | 8,492 | |||||
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
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Current Liabilities:
|
||||||||
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Bank line of
credit
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$ | 2 | $ | 96 | ||||
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Short term bank
loans
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2,092 | 2,990 | ||||||
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Current portion
of term loans
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67 | 88 | ||||||
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Accounts
payable and accrued expenses
|
2,030 | 2,279 | ||||||
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Due to
affilliates
|
851 | 1,033 | ||||||
|
Income taxes
payable
|
11 | 4 | ||||||
|
Total
current liabilities
|
5,053 | 6,490 | ||||||
|
Term loans, net of current
portion
|
315 | 310 | ||||||
|
Severance
payable
|
197 | 197 | ||||||
|
Total
liabilities
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5,565 | 6,997 | ||||||
|
Commitments and
contingencies
|
||||||||
|
Minority
interest
|
580 | 508 | ||||||
|
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 (loss)
|
129 | 201 | ||||||
|
Retained
Earnings
|
915 | 702 | ||||||
|
Total
stockholders' equity
|
1,128 | 987 | ||||||
| $ | 7,273 | $ | 8,492 | |||||
1
CONSOLIDATED STATEMENTS OF
INCOME
(In Thousands, Except Earnings Per Share
and Share Amounts)
|
Three Months
Ended
|
||||||||||
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March 31,
|
||||||||||
|
2010
|
2009
|
|||||||||
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Sales
|
2,347 | $ | 2,119 | |||||||
|
Cost of
sales
|
1,452 | 1,576 | ||||||||
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Gross
profit
|
895 | 543 | ||||||||
|
Operating
expenses:
|
||||||||||
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Research and
development expenses
|
65 | 21 | ||||||||
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Selling
expenses
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47 | 25 | ||||||||
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General and
administrative
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473 | 304 | ||||||||
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Total operating
expenses
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585 | 350 | ||||||||
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Income from
operations
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310 | 193 | ||||||||
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Other income
(expense):
|
||||||||||
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Interest
expense, net
|
(138 | ) | (79 | ) | ||||||
|
Income (loss)
before provision for income taxes and minority
interest
|
172 | 114 | ||||||||
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Provision for
income taxes
|
11 | - | ||||||||
|
Minority
interest
|
65 | 28 | ||||||||
|
Net income
(loss)
|
96 | 86 | ||||||||
|
Other comprehensive (loss) income,
net of taxes
|
||||||||||
|
Foreign
translation (loss) gain
|
(306 | ) | (318 | ) | ||||||
|
Comprehensive (loss)
income
|
$ | (210 | ) | $ | (232 | ) | ||||
|
Basic net income (loss) per
share
|
0.01 | $ | 0.01 | |||||||
|
Basic weighted average common
shares outstanding
|
6,483,000 | 6,483,000 | ||||||||
2
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In Thousands)
|
Three Months
Ended
|
||||||||
|
March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Cash flows from operating
activities:
|
||||||||
|
Net
income
|
$ | 96 | $ | 86 | ||||
|
Adjustments to reconcile net
income to net cash
|
||||||||
|
provided by (used in)
operating activities:
|
||||||||
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Depreciation and
amortization
|
16 | 34 | ||||||
|
Minority
interest
|
72 | (6 | ) | |||||
|
Gain on sale of property and
equipment
|
(2 | ) | - | |||||
|
Deferred income
tax
|
- | 2 | ||||||
|
Change in operating assets
and liabilities:
|
||||||||
|
Accounts
receivable
|
957 | 1,474 | ||||||
|
Inventories
|
233 | 454 | ||||||
|
Prepaid expenses and other
current assets
|
82 | 43 | ||||||
|
Accounts payable and accrued
expenses
|
(221 | ) | (911 | ) | ||||
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Income tax
payable
|
7 | (16 | ) | |||||
|
Severence
payable
|
- | (17 | ) | |||||
|
Net cash provided by (used
in) operating activities
|
1,239 | 1,143 | ||||||
|
Cash flows from investing
activities:
|
||||||||
|
Purchase of property and
equipment
|
(19 | ) | (2 | ) | ||||
|
Increase in due to
affilliates
|
(279 | ) | (39 | ) | ||||
|
Increase in due to
stockholder
|
16 | (13 | ) | |||||
|
Net cash used in investing
activities
|
(282 | ) | (54 | ) | ||||
|
Cash flows from financing
activities:
|
||||||||
|
Increase (decrease) in bank
line of credit, net
|
(94 | ) | (664 | ) | ||||
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Repayment of long-term
debt
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(914 | ) | (248 | ) | ||||
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Net cash (used in) provided
by financing activities
|
(1,008 | ) | (912 | ) | ||||
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Effects of exchange rates on
cash
|
99 | (162 | ) | |||||
|
Increase (decrease) in
cash
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48 | 15 | ||||||
|
Cash, beginning of
period
|
313 | 763 | ||||||
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Cash, end of
period
|
$ | 361 | $ | 778 | ||||
|
Supplemental disclosure of
cash flow information:
|
||||||||
|
Cash paid during the period
for:
|
||||||||
|
Interest
|
$ | 137 | $ | 79 | ||||
|
Income
taxes
|
$ | 2 | $ | 6 | ||||
3
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Per Share Amounts)
MARCH 31,
2010
NOTE 1 -
DESCRIPTION OF BUSINESS
Lapis was
formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc.
Lapis via its subsidiary Enertec Systems 2001 LTD (“Enertec Systems”), an
Israeli corporation formed on August 28, 2001, is a manufacturer and provider of
various military and airborne systems, simulators, automatic test equipment
(ATE), electronic components and products related to power supplies, converters
and other power conversion products. Our business is focused in two major
product lines: (i) the development and manufacturing of simulators and automatic
test equipment (ATE) to a large various of weapons systems and at all levels of
maintenance, development and integration (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. Lapis, as part of its strategic plan, has begun to focus on its growing
comprehensive electronics turn-key solutions which potentially include larger
scale transactions enabling and a higher volume of revenues and growth. Lapis
conducts its operations in Israel through its wholly owned subsidiary, Enertec
Electronics Limited (“Enertec Electronics”), an Israeli corporation formed on
December 31, 1991, and Enertec Systems, of which we have a 73% equity interest.
The vast majority of the Lapis business is conducted by Enertec Systems through
its factory located in Karmiel in the northern part of Israel.
NOTE 2 –
BASIS OF PRESENTATION AND CONSOLIDATION
The
accompanying unaudited consolidated financial statements and related footnotes
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial statements and pursuant to
the rules and regulations of the Securities and Exchange Commission for Form
10-Q. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For
further information read the financial statements and footnotes thereto included
in the Company's Annual Report to be filed in accordance with the rules and
regulations of the Securities and Exchange Commission on Form 10-K for the year
ended December 31, 2009. The results of operations for the three
months ended March 31, 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.
4
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Per Share Amounts)
MARCH 31,
2010
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock
based compensation
The
Company has adopted ASC Topic No. 718, Compensation — Stock Compensation (“ASC
718”), a revision to Statement of Financial Accounting Statement (“SFAS”) No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure, which
amended SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). ASC
718 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. The Company has adopted the fair value method of accounting
as discussed in ASC 718 as of January 1, 2003. Accordingly, stock options,
when issued, will be recorded in accordance with the terms of that
document.
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
In June
2009, the FASB issued ASC Topic No. 105, Generally Accepted Accounting
Principles (“FASB Codification”). FASB Codification is effective for interim and
annual periods ending after September 15, 2009 and became the single official
source of authoritative, non-governmental U.S. GAAP, other than guidance issued
by the Securities and Exchange Commission. All other literature will become
non-authoritative. The standard does not have a material impact on our
consolidated financial statements and notes.
5
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(In
Thousands, Except Per Share Amounts)
MARCH 31,
2010
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Recent
Accounting Pronouncements (continued)
In June
2009, the FASB issued ASC Topic No. 810, a revision to FASB Interpretation No.
46(R), Consolidation of Variable Interest Entities (“ASC 810”), and will change
how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. Under
ASC 810 determining whether a company is required to consolidate an entity will
be based on, among other things, an entity’s purpose and
design and a company’s ability to
direct the activities of the entity that most significantly impact the entity's
economic performance ASC 810 is effective at the start of a company’s first
fiscal year beginning after November 15, 2009, or January 1, 2010 for companies
reporting earnings on a calendar-year basis. The Company does not
expect the adoption of ASC 810 will have a material effect on its financial
position, results of operations or cash flows.
In June
2009, the FASB issued ASC Topic No. 860, a revision to SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (“ASC 860”), and will require more information about transferred of
financial assets and where companies have continuing exposure to the risks
related to transferred financial assets. ASC 860 is effective at the start of a
company’s first fiscal year beginning after November 15, 2009, or January 1,
2010 for companies reporting earnings on a calendar-year basis. The Company does
not expect that the adoption of ASC 860 will have a material effect on its
financial position, results of operations or cash flows.
In May
2009, the FASB issued ASC Topic No. 855, Subsequent Events (“ASC 855”). ASC 855
is intended to establish general standards of accounting for and disclosures of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. ASC 855 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company does not expect the adoption of ASC 855 will have a material effect
on its financial position, results of operations or cash flows.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or
future consolidated financial statements.
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 three months ended March 31, 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.
6
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 this quarterly report
on Form 10-Q for the period ended March 31, 2010.
The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
Report.
Overview
Lapis was
formed in Delaware on January 31, 2002 under the name Enertec Electronics, Inc.
Lapis via its subsidiary Enertec Systems 2001 LTD ("Enertec Systems"), an
Israeli corporation formed on August 28, 2001, is a manufacturer and provider of
various military and airborne systems, simulators, automatic test equipment
(ATE), electronic components and products related to power supplies, converters
and other power conversion products. Our business is focused in two major
product lines: (i) the development and manufacturing of simulators and automatic
test equipment (ATE) to a large various of weapons systems and at all levels of
maintenance, development and integration (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. Lapis, as part of its strategic plan, has begun to focus on its growing
comprehensive electronics turn-key solutions which potentially include larger
scale transactions enabling and a higher volume of revenues and growth. Lapis
conducts its operations in Israel through its wholly owned subsidiary, Enertec
Electronics Limited ("Enertec Electronics"), an Israeli corporation formed on
December 31, 1991, and Enertec Systems, of which we have a 73% equity interest.
The vast majority of the Lapis business is conducted by Enertec Systems through
its factory located in Karmiel in the northern part of Israel.
Liquidity
and Capital Resources
As of
March 31, 2010, our cash balance was $361,000 as compared to $778,000 at March
31, 2009. Total current assets at March 31, 2010 were $7,132,000 as compared to
$8,087,000 at March 31,
2009. The decrease in current assets is mainly due to the decrease in accounts
receivable and work in process and inventory.
Our
accounts receivable at March 31, 2010 were $3,350,000 as compared to $3,410,000
at March 31, 2009. This decrease in accounts receivables is primarily due to an
improvement of customer's credit terms and better collection
practices.
As of
March 31, 2010 our working capital was $2,079,000 as compared to $1,433,000 at
March 31, 2009. The increase in the working capital is due primarily to a
decrease in current liabilities.
There was
no current portion of long-term loans at March 31, 2009. The current portion of
long-term loans at March 31, 2010 was $67,000. Our total short-term loans
amounted to $2,092,000 for the three months ended March 31, 2010 as compared to
$3,812,000 for the three months ended March 31, 2009.
As of
March 31, 2010, our total bank debt was $2,476,000 as compared to $4,709,000 at
March 31, 2009. These funds were borrowed as follows:
7
$2,092,000
as various short term bank loans due through 2010, and $2,000 using our bank
lines of credit. As a result we decreased the amount borrowed for the three
months ended March 31, 2010 by $2,233,000 compared to the same period in 2009.
The decrease in bank debt is mainly due to better collection of accounts
receivables and a shareholder loan in the amount of $1,077,000.
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 March 31, 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,
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 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
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
Revenues
for the three months ended March 31, 2010 were $2,347,000 as compared
to $2,119,000 for the three months ended March 31, 2009. This represents an
increase of $228,000 or 11% for the quarter ended March 31, 2010 when compared
to the same period of 2009. The increase in revenues for the three
months ended March 31, 2010 as compared to the same period of 2009 is mainly the
result of Lapis focusing on its growing comprehensive electronics turn-key
solutions market, which generated larger scale transactions, as well as Lapis’s
success in deepening its cooperation with its major strategic current customers,
which generated additional business for Lapis. Although the increase in revenue
is relatively minor
Lapis experienced a
substantial change in the source of the revenue. The portion of the revenue
attributed to Enertec Systems for the three months ended March 31, 2010 is 92%
of total revenues as compared to 76% of total revenues for the three months
ended March 31, 2009. Management believes that this trend will continue and that
by the end of 2010 most revenue will be derived from the Enertec Systems
business.
Gross
profit increased by $352,000, to $895,000 for the three months ended March 31,
2010 as compared to $543,000 for the three months ended March 31, 2009. The
increase in gross profit is primarily the result of Lapis’s increase in the sale
of its comprehensive system solutions rather than its product solutions,
enabling it to better utilize its existing know-how and perform large scale
projects with higher profitability.
Gross
profit as a percentage of sales was 38.1% for the three-month period ended
March 31, 2010 compared to 25.6% for the three month period ended March 31,
2009. This increase is primarily due to the transition into higher and more
complex simulation systems, from which the Company can achieve a higher gross
margin in various projects.
8
For the
three months ended March 31, 2010, operating expenses totaled
$585,000. This was an increase of $235,000, or 67%, when compared to
$350,000 for the three-month period ended March 31, 2009. This increase in
operating expenses is primarily due to the (i) change of control in Lapis in
November 2009 and the increased general and administrative expenses of $169,000
incurred as a result of the new management’s desire to strengthen the Lapis
management and corporate headquarter services to the business unit; (ii)
increase of $44,000 in research and development expenses primarily due to
Lapis’s efforts to develop its comprehensive systems and solutions line of
business, the development of its market, and the efforts made by Lapis to
develop new solutions tailored made for the major customers; and (iii) increase
of $22,000 in selling expenses primarily due to an increase in sales
efforts.
Our net
profit was $96,000 in the three months ended March 31, 2010, compared to a net
profit of $86,000 in the three months ended March 31, 2009. This represents an
increase in net income of $10,000 or 11% comparing the three month period ended
March 31, 2010 to the same period in 2009 and was primarily the result of sales
of products with higher gross margins despite incurring increased expenses as
described above.
As of
March 31, 2010, we had two customers that accounted for approximately 74% of the
accounts receivables.
Research
and Development Costs
Research
and development costs are part of operating expenses. Research and development
costs for the three months ended March 31, 2010 were $65,000, compared to $
21,000 for the three months ended March 31, 2009. The increase in research
and development costs is due to increased efforts in developing new products and
solutions.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
Critical
Accounting Policies
Concentration
of Credit Risk - Concentrations of credit risk with respect to trade receivables
are limited to customers dispersed primarily across Israel. All trade
receivables are concentrated in the manufacturing and distribution of electronic
components segment of the economy; accordingly the Company is exposed to
business and economic risk. Although the Company does not currently foresee a
concentrated credit risk associated with these trade receivables, repayment is
dependent upon the financial stability of this segment of the
economy.
Revenue
Recognition and Customer Deposits - Revenue is recorded as product is shipped,
the price has been fixed or determined, collectability is reasonably assured and
all material specific performance obligations have been completed. The product
sold by the Company is made to the specifications of each customer; sales
returns and allowances are allowed on a case-by-case basis, are not material to
the financial statements and are recorded as an adjustment to sales. Cash
payments received in advance are recorded as customer deposits.
Financial
Instruments - The carrying amounts of financial instruments, including cash and
cash equivalents, accounts receivable, bank line of credit, short term bank
loans and accounts payable and accrued expenses approximate fair value at March
31, 2010 because of the relatively short maturity of the instruments. The fair
value of due from stockholder is not practical to estimate without incurring
excessive cost and is carried at cost at March 31, 2010. The carrying
value of the long-term debt approximate fair value at March 31, 2010 based upon
debt terms available for companies under similar terms.
Foreign
Currency Translation - Lapis has one wholly owned subsidiary, Enertec
Electronics, an Israeli corporation, and one majority owned subsidiary, Enertec
Systems, an Israeli corporation. The assets and liabilities of the foreign
subsidiaries are translated at current exchange rates and related revenues and
expenses at average exchange rates in effect during the periods reported.
Resulting translation adjustments, if material, are recorded as a separate
component of accumulated other comprehensive income or loss.
Preparation
of our financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. We believe the most complex and sensitive judgments, because of
their significance to our consolidated financial statements, result primarily
from the need to make estimates about the effects of matters that are inherently
uncertain. Management’s Discussion and Analysis and Note 3 to the consolidated
financial statements presented in our 2009 Annual Report on Form 10-K, filed
with the Securities and Exchange Commission (“SEC”) on March 31, 2010, describe
the significant accounting estimates and policies used in preparation of our
consolidated financial statements. Actual results in these areas could differ
from management’s estimates. There were no significant changes in our critical
accounting estimates during the three months ended March 31,
2010.
9
Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
Not
Applicable.
Item 4T. Controls and
Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)) that
is designed to ensure that information required to be disclosed by the Company
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time specified in the SEC rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Pursuant
to Rule 13a-15(b) under the Exchange Act the Company carried out an evaluation
with the participation of the Company’s management, including Mr. David Lucatz,
the Company’s Chief Executive Officer (“CEO”) and Mrs. Tali Dinar, the Company’s
Chief Financial Officer (“CFO”), of the effectiveness of the Company’s
disclosure controls and procedures (as defined under Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act) as of the period ended March 31, 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 March 31, 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
March 31, 2010 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal controls over financial
reporting.
10
PART
II- OTHER INFORMATION
Item
1A. Risk Factors.
We depend on two major customers
for a significant portion
of our revenues.
More than
88% of our quarterly revenues in
the three months ended March 31, 2010
were from the two leading Israeli defense groups that
perform large scale strategic projects for the Israeli government among other
tasks. Israeli defense
spending historically has been driven by perceived threats to its national security. Although Israel has been under a sustained elevated
threat level in recent
years, we cannot provide any assurance that defense budgets will
continue to grow at the
pace it has over the past
decade. A decrease in
Israel's defense spending
or changes in spending allocation could result in one or more of our programs
being reduced, delayed or terminated. Reductions in our existing programs could
adversely affect our future
revenues and earnings.
Our future success depends, in part, on our ability to develop new
products and maintain a qualified workforce to meet the needs of our
customers.
Virtually all of the products that we
produce and sell are highly engineered and require sophisticated manufacturing
and system-integration techniques and capabilities. The commercial and
government markets in which we operate are characterized by rapidly changing
technologies. The products,
systems and solutions needs
of our customers change and evolve regularly. Accordingly, our future
performance depends in part on our ability to develop and manufacture
competitive products and
solutions, and bring those
products to market quickly at cost-effective prices. In addition, because of the
highly specialized nature of our business, we must be able to hire and retain
the skilled and qualified personnel necessary to perform the services required
by our customers. If we are unable to develop new products that meet customers’
changing needs or successfully attract and retain qualified personnel, our
future revenues and earnings may be adversely affected.
Developing new
technologies entails significant risks and uncertainties that may not be
covered
by indemnity or insurance.
A significant portion of our business
relates to developing
products for defense-related
applications. New
technologies may be untested or unproven. In addition, we may incur significant
liabilities that are unique to our products and services. While we maintain insurance for some
business risks, it is not practicable to obtain coverage to protect against all
operational risks and liabilities. Where possible, we seek indemnification from
our customers. In addition, we may seek limitation of
potential liability related to the sale and use of our products and systems. We may elect to provide products or
services even in instances where we are unable to obtain such indemnification or
qualification. Accordingly, we may be forced to bear
substantial costs resulting from risks and uncertainties of our business, which
could have a material adverse effect on our operating results, financial
condition, and/or cash flows.
Our earnings and margins depend on our
ability to perform under our contracts.
When agreeing to contractual terms, our
management makes assumptions and projections about future conditions or events.
These projections assess
|
•
|
the productivity and availability
of labor,
|
|
•
|
the complexity of the work to be
performed,
|
|
•
|
the cost and availability of
materials,
|
|
•
|
the impact of delayed performance
and
|
|
•
|
the timing of product
deliveries.
|
If there is a significant change in one
or more of these circumstances or estimates, or if we face unexpected contract
costs, the profitability of one or more of these contracts may be adversely
affected and could affect
our earnings and margins
due to the fact that Lapis’s contracts are fixed-price
contracts.
11
We rely on other companies to provide
raw materials, major components and subsystems for our products. Subcontractors
perform some of the services that we provide to our customers. We depend on
these subcontractors and vendors to meet our contractual obligations in full
compliance with customer requirements. Occasionally, we rely on only one or two
sources of supply that, if disrupted, could have an adverse effect on our
ability to meet our commitments to customers. Our ability to perform our
obligations as a prime contractor may be adversely affected if one or more of
these suppliers is unable to provide the agreed-upon supplies or perform the
agreed-upon services in a timely and cost-effective manner. Further, deficiencies in the performance of our
subcontractors and vendors
could result in a customer terminating a contract for default. A termination for
default could expose us to liability and adversely affect our financial
performance and our ability to win new contracts.
Item 6.
Exhibits.
|
Exhibit
Number
|
Description
|
|
|
31.1
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302
|
|
|
31.2
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302
|
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section
1350
|
|
|
32.2
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section
1350
|
12
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:
May 24, 2010
|
By:
|
/s/
David Lucatz
|
|
David
Lucatz
|
||
|
President
and Chief Executive Officer (Principal Executive
Officer)
|
||
|
Date: May
24, 2010
|
By:
|
/s/
Tali Dinar
|
|
Tali
Dinar
|
||
|
Secretary
and Chief Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
|
||
13
EXHIBIT
INDEX
|
Exhibit
Number
|
Description
|
|
|
31.1
|
Certification
by Chief Executive Officer pursuant to Sarbanes Oxley Section
302
|
|
|
31.2
|
Certification
by Chief Financial Officer pursuant to Sarbanes Oxley Section
302
|
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section
1350
|
|
|
32.2
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section
1350
|
14