U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: March 31, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number ______________________
LAPIS TECHNOLOGIES, INC.
---------------------------------------
(Exact name of small business issuer
as specified in its charter)
DELAWARE 27-0016420
------------------------------ --------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
19 W. 34th Street, Suite 1008
New York, NY, 10001
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number (212) 937-3580
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 14, 2004 there were 5,483,000 shares of the registrant's common stock,
par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
LAPIS TECHNOLOGIES, INC.
March 31, 2004 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
Special Note Regarding Forward Looking Statements 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Consolidated Balance Sheet as of March 31, 2004 4
Consolidated Statements of Income for the three months ending March 31, 2004 and 2003 5
Consolidated Statements of Cash Flows for the three months ending March 31, 2004 and 2003 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operations 9
Item 3. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults in Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2004, discusses financial
projections, information or expectations about our products or markets, or
otherwise makes statements about future events, such statements are
forward-looking. We are making these forward-looking statements in reliance on
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These risks and uncertainties
are described, among other places in this Quarterly Report, in "Management's
Discussion and Analysis or Plan of Operations."
In addition, we disclaim any obligations to update any forward-looking
statements to reflect events or circumstances after the date of this Quarterly
Report. When considering such forward-looking statements, you should keep in
mind the risks referenced above and the other cautionary statements in this
Quarterly Report.
3
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
March 31,
2004
-----------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 48
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,232
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,937
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . 264
Due from stockholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
-----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,796
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 483
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------
$ 5,299
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,126
Short term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,228
Current portion of term loans . . . . . . . . . . . . . . . . . . . . . . . 140
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . 1,480
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
-----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 4,093
Term loans, net of current portion. . . . . . . . . . . . . . . . . . . . . . 340
Severance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,490
-----------
Commitments and contingencies
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Stockholders' Equity:
Preferred stock; $.001 par value, 5,000,000 shares authorized, none issued -
Common stock; $.001 par value, 100,000,000 shares authorized, 5,483,000
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . 5
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 78
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . (106)
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665
-----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . 642
-----------
$ 5,299
===========
The accompanying notes are an integral part of these financial statements.
4
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AND SHARE AMOUNTS)
Three Months Ended
March 31,
------------------------
2004 2003
----------- -----------
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,121 $ 1,230
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . 758 754
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 363 476
----------- -----------
Operating expenses:
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . 2 22
General and administrative . . . . . . . . . . . . . . . . . . 252 334
----------- -----------
Total operating expenses . . . . . . . . . . . . . . . . . . 254 356
----------- -----------
Income from operations . . . . . . . . . . . . . . . . . . . . 109 120
----------- -----------
Other income (expense):
Interest expense, net. . . . . . . . . . . . . . . . . . . . . (73) (65)
----------- -----------
Income before provision for income taxes and minority interest 36 55
Provision for income taxes . . . . . . . . . . . . . . . . . . 9 42
Minority interest. . . . . . . . . . . . . . . . . . . . . . . (9) 27
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 40
Other comprehensive (loss) income, net of taxes
Foreign translation (loss) gain. . . . . . . . . . . . . . . . (43) 4
----------- -----------
Comprehensive (loss) income. . . . . . . . . . . . . . . . . . . $ (25) $ 44
=========== ===========
Basic net loss per share . . . . . . . . . . . . . . . . . . . . $ 0.00 $ 0.01
=========== ===========
Basic weighted average common shares outstanding . . . . . . . . 5,483,000 5,483,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
March 31,
------------------
2004 2003
-------- --------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . $ 18 $ 40
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . 31 104
Minority interest . . . . . . . . . . . . . . 15 (27)
Deferred income tax . . . . . . . . . . . . . (1) -
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . 760 169
Inventories . . . . . . . . . . . . . . . . . . (338) (151)
Prepaid expenses and other current assets . . . (34) 58
Accounts payable and accrued expenses . . . . . (178) (316)
Income tax payable. . . . . . . . . . . . . . . 5 27
Customer deposits . . . . . . . . . . . . . . . - (54)
-------- --------
Net cash provided by (used in) operating activities 278 (150)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment. . . . . . . . - (43)
Increase in due from stockholder. . . . . . . . . (140) (60)
-------- --------
Net cash used in investing activities . . . . . . . (140) (103)
-------- --------
Cash flows from financing activities:
Increase in bank line of credit, net. . . . . . . 204 45
Proceeds from long term debt. . . . . . . . . . . 950 1,207
Repayment of long-term debt . . . . . . . . . . . (1,421) (1,096)
-------- --------
Net cash (used in) provided by financing activities (267) 156
-------- --------
Effects of exchange rates on cash . . . . . . . . . (4) 1
-------- --------
Increase (decrease) in cash . . . . . . . . . . . . (133) (96)
Cash, beginning of period . . . . . . . . . . . . . 181 313
-------- --------
Cash, end of period . . . . . . . . . . . . . . . . $ 48 $ 217
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . $ 73 $ 65
======== ========
Income taxes. . . . . . . . . . . . . . . . . . $ 15 $ 12
======== ========
The accompanying notes are an integral part of these financial statements.
6
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
MARCH 31, 2004
NOTE 1 - DESCRIPTION OF BUSINESS
Lapis Technologies, Inc. (the "Company") was incorporated in the State of
Delaware on January 31, 2002. The Company was originally named Enertec
Electronics, Inc. and on April 23, 2002 changed its name to Opal Technologies,
Inc. which changed its name to Lapis Technologies, Inc. on October 3, 2002. The
Company's operations are conducted through its wholly-owned Israeli Subsidiary,
Enertec Electronics Ltd. ("Enertec") and its majority owned Israeli subsidiary
Enertec Systems 2001 LTD ("Systems"). Enertec is engaged in the manufacturing,
distribution and marketing of electronic components and products relating to
power supplies, converters and related power conversion products, automatic test
equipment, simulators and various military and airborne systems, within the
State of Israel.
NOTE 2 - BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying unaudited consolidated financial statements and related
footnotes have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements and
pursuant to the rules and regulations of the Securities and Exchange Commission
for Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information
read the financial statements and footnotes thereto included in the Company's
Annual Report to be filed in accordance with the rules and regulations of the
Securities and Exchange Commission on Form 10-KSB for the year ended December
31, 2003. The results of operations for the three-months ended March 31, 2004
are not necessarily indicative of the operating results that may be expected for
the year ending December 31, 2004.
The accompanying financial statements include the accounts of the Company and
their ownership interest in its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
7
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
MARCH 31, 2004
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Recent Accounting Pronouncements
In December 2003 the FASB issued SFAS No. 132 (revised) "Employers' Disclosures
about Pensions and Other Post Retirement Benefits," that improves the financial
statement disclosures for defined benefit plans. The revision changes the
existing disclosure requirements for pensions by requiring company's to provide
more details about their plan assets, benefit obligations, cash flows, benefit
costs and other relevant information. The Company does not have a defined
benefit pension plan so the adoption of this statement will have no effect on
the Company's financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Certain statements in this Quarterly Report on Form 10-QSB, or the
Report, are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about the plans, objectives,
expectations and intentions of Lapis Technologies, Inc ("Lapis" or the
"Company"), a Delaware corporation and its subsidiaries (collectively referred
to in this report as "we," "us" or "our" ) and other statements contained in
this Report that are not historical facts. Forward-looking statements in this
Report or hereafter included in other publicly available documents filed with
the Securities and Exchange Commission, or the Commission, reports to our
stockholders and other publicly available statements issued or released by us
involve known and unknown risks, uncertainties and other factors which could
cause our actual results, performance (financial or operating) or achievements
to differ from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations. When used in this Report,
the words "expect, "anticipate," "intend," "plan," "believe," "seek," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors," included in our Registration
Statement on Form 10-SB filed with the Securities and Exchange Commission on
March 26, 2004.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and related notes included elsewhere in
this Report.
Overview
We were formed in Delaware on January 31, 2002 under the name Enertec
Electronics, Inc. and have filed two certificates of amendment changing our name
to Opal Technologies, Inc. and then to Lapis Technologies, Inc. We conduct
operations in Israel through our wholly owned subsidiary, Enertec Electronics
Limited ("Enertec Electronics"), an Israeli corporation formed on December 31,
1991, and Enertec Systems 2001 LTD ("Enertec Systems"), an Israeli corporation
formed on August 28, 2001, of which we own a 55% equity interest. Enertec
Electronics is a manufacturer and distributor of electronic components and
products relating to power supplies, converters and related power conversion
products, automatic test equipment (ATE), simulators and various military and
airborne systems. Enertec Electronics maintains two divisions, the Systems
Division and the Electronics Division. The Systems Division designs, develops
and manufactures test systems for electronics manufacturers in accordance with
their specifications. The Electronics Division markets and distributes the test
systems, power supplies and other electronic components manufactured by us, and
by other manufacturers who engage us to distribute their products.
9
The Company had seven distribution agreements as of March 31, 2004. In the
first quarter of 2004, we received several large orders in the commercial
and military domain. Within the commercial arena we received a preliminary order
for 6,200 units of a customized ATX power supply which should generate revenues
of approximately $210,000. Another customer ordered 1,000 high voltage power
supplies which should generate revenues of approximately $95,000. We expect to
receive follow up orders for additional units from this client by the fourth
quarter of 2004. In addition, we have received an order for 200 customized
compact PCI power supplies which should generate revenues of approximately
$56,000. We have also recently received an order for 1,100 power supplies for
Voice Over IP products which should generate approximately $61,000 in revenues.
This is our first entry into the IP Telephony industry, a burgeoning and fast
growing sector of the technology industry, and one in which we expect to take a
dominant position in the market going forward.
Within the military arena, we received our first order for test equipment
of the helicopters' flight computer for $240,000. We anticipate this customer
ordering additional units at a cost of $90,000 per unit over the next twelve
months. This is an important order for us. We are trying to capitalize on our
customer loyalty by introducing more products in different divisions of the same
company, and it represents our success in cross marketing of new products within
the same customer base. In addition to the flight computer testing equipment,
this customer also paid approximately $325,000 for a test system to test all
stages of the Arrow missile. We anticipate them ordering several more systems
over the next year. Another military customer ordered an Automatic Test System
to test the flight computer of the F16 aircraft which is anticipated to generate
revenues of $245,000. We received a first order for a new innovative small size
airborne power supply for infrared payloads. This 10 unit order is expected to
be followed by a much larger order over the next 24 months at an average price
of $3,000.
The following presents certain historical financial information of the
operations of the Company. This financial information includes the results of
the Company for the three months ended March 31, 2003 and the results of the
Company for the three months ended March 31, 2004.
Results of Operations
Revenues
Revenues for the three months ended March 31, 2004 decreased approximately
$109,000, or 8.9% to approximately $1,121,000, as compared to revenues for the
three months ended March 31, 2003 of approximately $1,230,000. This decrease in
revenue is a result of a lower number of orders for military systems received
during the last quarter of 2003 due to end-of-year budget cuts of the Israeli
MOD (Ministry of Defense) this fourth quarter order delay affects the revenues
in the first quarter of the following year.
10
Gross Profit
Gross profit totaled approximately $363,000 for the three months ending
March 31, 2004, as compared to approximately $476,000 for the three months ended
March 31, 2003. This decrease of approximately $113,000, or 23.7% in gross
profit is primarily the result of lower revenues for the quarter and therefore
lower gross profit. The gross profit as a percentage of sales for the three
months ended March 31, 2004 was 32.4%, as compared to 38.7% for the three months
ended March 31, 2003. This decrease in the gross profit percentage is a result
of lower introductory prices of several large orders in order to gain a foothold
in the market for the new products that were being launched, while we don't
anticipate higher per unit prices of these new products as the sales increase
the gross profit should increase since there are many fixed costs associated
with a new product launch that will be spread over a larger amount of units.
Selling, General and Administrative Expenses
For the three months ended March 31, 2004, selling, general and
administrative expenses decreased approximately $102,000 to approximately
$254,000 (22.7% of revenues) from approximately $356,000 (28.9% of revenues)for
the same prior year period. The decrease in selling general and administrative
expenses is attributable to several areas: a decrease in administration staff
payroll and related benefits of approximately $29,000 and a decrease in
depreciation and amortization expenses of $73,000. In addition, there has been a
slight decrease in research and development costs of approximately $10,000 for
the three months ended March 31, 2004 where research and development costs were
approximately $25,000 compared to approximately $35,000 for the three months
ended March 31, 2003.
Other Income and Expenses
Interest income and expense, net - Net interest expense was approximately
$73,000 and approximately $65,000 for the three month period ended March 31,
2004 and 2003, respectively. The increase of approximately $8,000 is due to the
increase of principal balances due. The Company plans to continue to borrow
funds on a short term basis to fund the Company's growth, as required, into the
foreseeable future.
Provision for income taxes
For the three months ended March 31, 2004 our provision for income taxes
decreased approximately $33,000 or 78.6% from approximately $9,000 as compared
to $42,000 for the three months ended March 31, 2003. This decrease is due to a
lower net income before taxes for the three months ended March 31, 2004 as
compared to the three months ended March 31, 2003. The reasons for this decrease
have been enumerated above.
11
Liquidity and Capital Resources
Cash and Working Capital
As of March 31, 2004, the Company had approximately $48,000 cash and cash
equivalents on hand as compared to approximately $216,000 at March 31, 2003. The
Company currently plans to use the cash balance and cash generated from
operations for increasing the Company's working capital reserves and, along with
additional debt financing, for new product development and building up
inventory, hiring more sales staff and funding advertising and marketing.
Management believes that the current cash on hand and additional cash expected
from operations in fiscal 2004 will be sufficient to cover the Company's working
capital requirements for fiscal 2004.
As of March 31, 2004, the Company had working capital of approximately
$703,000 as compared with approximately $234,000 for the same period in the
prior year, this is an increase of approximately $469,000 or 200.4%. This
increase is mainly due to an increase in accounts receivable to approximately
$2,232,000 as of March 31,2204 as compared with approximately $1,823,000 as of
March 31,2003.
Capital Expenditures
The Company did not incur any expenditures for capital improvements as of
March 31,2004 as compared with approximately $43,000 for the same period in the
prior year. The Company currently does not anticipate any significant capital
expenditures during the next six to twelve months.
Financing Transactions
For the three months ended March 31, 2004 our total bank debt was
approximately $2,834,000 as compared with approximately $2,869,000 as of March
31, 2003. This decrease of approximately $35,000 (1.2%) was due to a lowered
financing need since the new orders in the first quarter 2004 were slightly
lower then the same comparative quarter for the prior year. These funds were
borrowed as follows: $1,368,000 as various short term loans due through February
2005; $340,000 of long term debt due through December 2007, and $1,126,000
borrowed as lines of credit. The current portion of long-term debt at March 31,
2004 consisted of $140,000 due February 2005.
Cash Flows
Net cash provided by operating activities was approximately $278,000 for
the three months ended March 31, 2004 compared to net cash used in operating
activities of $150,000 for the same prior year period. The net cash provided by
operating activities for the three months ended March 31, 2004 was primarily the
result of approximately $760,000 of net cash receipts from accounts receivable
offset by additional purchases of inventory of approximately $338,000 and a
reduction in the Companys accounts payable and accrued expenses of approximately
$178,000.
Net cash used in financing activities for the three months ended March 31,
2004 was approximately $267,000, as compared with net cash provided by financing
activites of approximately $156,000 for the same prior year period. The change
is due to the Company reducing its total debt for the three months ended March
31, 2004 as compared to obtaining additional debt during the three months ended
March 31, 2003.
12
PLAN OF OPERATIONS
We anticipate that we will require approximately $240,000 over the next
twelve months in order to carry out the plan of operations for Enertec
Electronics and Enertec Systems 2001. This amount is comprised of the following
amounts:
1. We anticipate that we will spend approximately $ 30,000 to fund the
acquisition of inventory for new standard test systems and power supplies to be
used for demonstrations to potential customers and for the introduction of
prototypes for new customers projects.
2. We expect to spend up to $100,000 to research and develop new products.
3. In additions the Company plans to increase its sales staff by two people
which will cost $80,000 and the technical staff by three for an additional cost
of $120,000 for three more engineers.
4. The Company will utilize $30,0000 to bid on new contracts preparing
presentations of new systems and preparing the technical and budgetary proposal
for some large defense bids.
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) as of the end of the
quarter ended March 31, 2004. Based on this evaluation, our principal executive
officer and principal financial officer have concluded that our controls and
procedures are effective in providing reasonable assurance that the information
required to be disclosed in this report is accurate and complete and has been
recorded, processed, summarized and reported within the time period required for
the filing of this report. Subsequent to the date of this evaluation, there
have not been any significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect our internal
controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not subject to any pending or threatened legal proceedings, except
for the lawsuit described below.
13
Orckit Communications brought an action in the Tel Aviv District Court
against Gaia Converter, a company for which we act as sales representative,
Alcyon Production Systems, a subcontractor of Gaia Converter, and Enertec
Electronics, alleging that the DC converters supplied to it by Gaia Converter
were defective and caused Orckit to replace the converters at a substantial
financial expense. Gaia Converter has advised us that the converters in issue
were free from any and all defects and were in good working order and that it
was the faulty performance of Orckit's product into which the converters were
incorporated that caused them to fail at a greater rate than anticipated by
Orckit. Enertec Electronics filed a defense to this claim on the basis that
there is no cause of action against it, as among other things, Enertec
Electronics is merely the local Israeli sales representative of Gaia Converter
and did not make any implied or express representations or warranties to Orckit
regarding the suitability of the converters or otherwise, nor was Enertec
Electronics required to do so by law. Technical specifications required by
Orckit for the converters were determined and communicated directly by Orckit to
Gaia Converter and all other communications regarding the converters were
directly between Orckit and Gaia Converter. Moreover, Orckit conducted a
qualification test of the converters and confirmed to Gaia Converter that the
converters complied with their requirements subsequent to such testing. Enertec
Electronics has had initial informal discussions with Orkit Communications about
removing Enertec Electronics as a Defendant in the action. Neither Gaia
Converter nor Alcyon Production Systems have filed a defense to this action, and
consequently Orkit Communications requested and obtained default judgments from
the Tel Aviv District Court against both Gaia Converter and Alcyon Production
Systems. The granting of these judgments render the continuation of the action
against Enertec Electronics highly improbable. However, if the proceedings are
continued, Enertec Electronics intends to defend this action vigorously and we
do not believe that it will have a material adverse impact on our business.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: None
b) Reports on Form 8-K: None
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
24th day of May 2004.
Lapis Technologies, Inc.
By: /s/ Harry Mund
------------------------------------
Harry Mund, Chief Executive Officer,
President, and Chairman of the Board
The undersigned, the Chief Financial Officer of the Registrant, certifies
that this report complies with all of the requirements of section 13(a) and
15(d) of the Exchange Act and the information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant.
Date: May 24th, 2004
/s/ Miron Markovitz
--------------------------------------
Miron Markovitz
Chief Financial and Accounting Officer
and Director
16