UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
(mark
one)
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIESEXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
¨
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period from _______ to _______
Commission
File No. 333-100979
LAPIS TECHNOLOGIES,
INC.
(Exact
Name of registrant as specified in its charter)
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Delaware
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27-0016420
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(State
or Other Jurisdiction of Incorporation
or
Organization)
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(I.R.S. Employer
Identification No.)
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19
W. 34
th
Street,
Suite 1008, New York, New York
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10001
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(212)
937-3580
(Issuer’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Exchange Act:
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Title
of Each Class
to be so registered:
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Name of each exchange on which
registered:
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None
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None
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Securities
registered under Section 12(g) of the Act:
None.
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act.
Yes
¨
No
x
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, 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
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or amendment to Form
10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of “large accelerated filer”, “accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check One):
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Large
Accelerated Filer
¨
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Accelerated
Filer
¨
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Non-accelerated
Filer
¨
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Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
As of
June 30, 2009, the aggregate market value of the issued and outstanding common
stock held by non-affiliates of the registrant, based upon the closing price of
the common stock, under the symbol “LPST” as quoted on the National
Association of Securities Dealers Inc. OTC Bulletin Board was approximately
$344,800. For purposes of the statement in the preceding
statement, all directors, executive officers and 10% shareholders are assumed to
be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for any other purpose.
(ISSURERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes
¨
No
¨
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: The Registrant’s common stock as of February
28, 2010, was 6,483,000 shares.
TABLE OF
CONTENTS
PRINTER
PLEASE UPDATE PAGE NUMBERS
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Page
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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11
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Item
1B.
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Unresolved
Staff Comments
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11
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Item
2.
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Properties
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11
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Reserved
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11
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PART
II
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Item
5.
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MMarket
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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11
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Item
6.
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Selected
Financial Data
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12
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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12
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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14
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Item
8.
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Financial
Statements and Supplementary Data
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14
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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14
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Item
9A.
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Controls
and Procedures
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14
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Item
9B .
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Other
Information
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15
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PART
III
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Item
10.
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Directors,
Executive Officers, Corporate Governance
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15
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Item
11.
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Executive
Compensation
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17
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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17
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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19
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Item
14.
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Principal
Accounting Fees and Services
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20
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Item
15.
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Exhibits,
Financial Statement Schedules
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21
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SIGNATURES
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22
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PART
I
ITEM 1.
BUSINESS.
Lapis
Technologies Inc. was formed in Delaware on January 31, 2002 under the name
Enertec Electronics, Inc. and has 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 73% equity interest. We
are manufacturers and distributors of various military and airborne systems,
simulators, automatic test equipment (ATE), electronic components and products
relating to power supplies, converters and related power conversion products.
Where the context requires, references to "we" "us" or "our" throughout this
document include reference to Enertec Electronics and Enertec
Systems.
Our
revenues are derived from two main sources, the military and the commercial
markets. In the military market we, design, develop and manufacture test
systems, airborne, shipborne, land electronic equipment and other various
military systems, for military manufacturers in accordance with their
specifications. Most of this military business is carried out by the majority
owned subsidiary Enertec Systems. In the commercial market we market and
distribute, power supplies and other electronic components manufactured by other
manufacturers who engage us to distribute their products. This activity is
carried out primarily by Enertec Electronics, a wholly owned subsidiary. We have
entered into representative and distribution agreements with seven such
manufacturers, four of which have been reduced to written
contracts.
OUR
SUBSIDIARIES
In April
2002, we acquired all of the outstanding capital stock of Enertec Electronics,
making it our wholly owned subsidiary. In this transaction, we acquired 99
ordinary shares of Enertec Electronics from Harry Mund, our President and Chief
Executive Officer, in exchange for 4,750,000 shares of our common stock. The
common stock issued to Mr. Mund represented 86.6% of our outstanding common
stock after the transaction.
Enertec
Management Limited (f/k/a Elcomtech Ltd.), a private Israeli company, is a
wholly owned subsidiary of Enertec Electronics.
Enertec
Systems, a private Israeli company, is owned by Enertec Management Limited
("Enertec Management") (73%), and Harry Mund (27%), our President and Chief
Executive Officer of Enertec Electronics Limited. The Chief Executive Officer of
Enertec Systems is Zvika Avni. Enertec Systems commenced operations on January
1, 2002.
ENERTEC
ELECTRONICS
Enertec
Electronics is responsible for:
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·
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The marketing and distribution of
power supplies and other related power products manufactured by
third-party firms that engage us to distribute their
products;
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Our
customers have products that require power supplies. We are contacted by them
with their specifications, and based on that data, we provide a standard, or if
necessary, a semi-custom or custom, power supply solution. We provide
support to customers from the early stages of product definition and first
sampling, through the production stages and up to after-sales support. Examples
of products that require power supplies are computers, modems, printers, faxes,
telephones, transmitter/receivers for commercial and military communications, ,
telecom network routers, video-conference routers, cellular telephone
transmitters/receivers, television on-routers, internet-routers, medical MRI
scanners, x-ray equipment, robots, drivers for electric motors, and industrial
control systems.
We have
also entered into representative or distribution agreements with various
international power supply manufacturers. These manufacturers granted us rights
to sell their products in Israel. We solicit sales within Israel and, upon
receipt of purchase orders, we contact the supply manufacturers to fulfill such
orders.
Enertec
Electronics is focusing its efforts almost exclusively on developing its
business within the power supplies arena.
ENERTEC
SYSTEMS
Enertec
Systems is responsible for designing, developing and manufacturing of various
military systems for airborne, land and seaborne applications - for example,
electronic systems used in aircrafts such as power supplies, laser drivers,
mission computers and control systems for motor and pumps, radio transceivers,
altitude measuring devices, ground systems for missile control and
sub-assemblies, which are parts of a system developed with a customer's
specifications. We also design and manufacture test systems for electronics
manufacturers in the military industry based on their specifications for the
test and ground support of missiles, aircrafts and other various defense
systems.
Enertec
Systems exclusively manufactures customized military related products. Enertec
Systems also meets the stringent security clearance requirements for the most
sensitive defense programs we are involved.
Our
quality control systems are compliant with ISO9001:2000.
The
International Organization of Standardization ("ISO") designated ISO9001:2000 to
apply to organizations that design, develop, produce, install, and service
products. ISO expects organizations to apply this model, and to meet certain
requirements, by developing a quality control system. ISO9001:2000 is the
international standard for quality assurance and quality design. This is the
most common worldwide standard and is implemented across all kinds of
organizations, including manufacturers, schools and shops. Most customers in our
industry insist on doing business with companies that are at least ISO9002:2000
approved, a standard that is less demanding than IS9001:2000. The ISO9002:2000
standard is related mainly to the quality assurance of the manufacturing
process, while the higher ISO9001:2000 standard includes both the quality
assurance of the manufacturing process component as well as the quality of the
design. The ISO9001:2000 standard is important to customers who are placing
orders for custom made products.
The
ISO9001:2000 quality assurance model is made up of a combination of quality
system requirements.
The key
requirements are that an organization should:
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Determine the needs and
expectations of customers and other interested
parties;
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Establish policies, objectives
and a work environment necessary to motivate the organization to satisfy
these needs;
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Design, resource and manage a
system of interconnected processes necessary to implement the policy and
attain the objectives;
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Measure and analyze the adequacy,
efficiency and effectiveness of each process in fulfilling its purpose and
objectives; and
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Pursue the continual improvement
of the system from an objective evaluation of its
performance.
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A typical
process for designing, planning and implementing a quality system typically
involves:
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Planning the quality initiative
and obtaining executive
sponsorship;
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Establishing the quality policy
for the organization;
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Designing and planning the
Quality Management System (QMS), usually based on international
standards;
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Establishing the quality
organization, developing the quality manual and structure of quality
records;
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Determining the scope of
implementation;
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Assuring quality
plans;
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Reviewing deliverables and
determining any actions;
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Auditing quality
records;
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Defining areas for process
improvement; and
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Managing the improvement
program.
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NEW
PRODUCTS
ENERTEC
SYSTEMS
Enertec
Systems is focusing almost exclusively on the military arena, and entered into
several new fields of military technology in addition to our "classic" ATE field
of expertise.
During
2007-2008 we marketed a new line of ruggedized Command and Control mobile
stations of modular architecture, allowing adaptation/customization to various
applications.. The qualification process was performed during 2007 and 2008 and
was completed by the end of 2008. Following the successful qualification the
customer has released orders for additional 10 sets scheduled for delivery
during 2009-2010.
6 sets
have been delivered during 2009 and 4 sets will be delivered during
2010 .
During
2007-2008 we have introduced a new line of ruggedized
mission computers for combat vehicles. We have already delivered
several prototypes to I.A.I. (Israeli Aircraft Industry) who intends
to replace their computers previously manufactured in-house and active in the
field for many years with updated modern design models from a new outsourced
supplier to fulfill IAI's need over the following 5-10 years. These first units
that we delivered have successfully passed all qualification and validation
tests. As a result of the success of the first prototypes, we have
received new orders for additional prototypes for three different
products delivered during 2007-2009.New orders for 90 pcs have been received
during 2009 for delivery during 2010.
We
introduced a new line of military grade Power Distribution Units for use in
airborne applications, representing an upgraded version of a previous system
introduced several years ago which generated about $800,000 in
revenues. The first set was submitted to stringent electrical and environmental
qualification tests which were completed in the first quarter of 2007 and
further units were delivered during 2007.New orders are expected to be received
during 2010-2011.
We
introduced a new test system for the helicopter's flight computer and the other
helicopter's avionics units. We have completed the testing with the
various units and during 2009 3 systems were first delivered and
integrated. Its successful launch generated new orders for 2 systems
for delivery during 2010-2011 and is expected to generate several additional
follow up orders for deliveries during 2010-2012. We introduced a new
line of small airborne multiple-output power supply specially designed for
attack payloads, based on a proprietary technology that was developed in-house
implementing a planar switching transformer which enables further
miniaturization and a higher output power to size ratio. This line
has been well received by our customers, and passed the stringent
military screening tests. During 2008-2009, we have delivered about orders in
the amount of $ 400,000.
By the
end of 2009 we had new orders for additional 130 pcs for delivery during
2010.
The Laser
system and driver for Airborne Targeting Pods utilizing laser designation of
targets which was originally introduced during 2005 is continuing to be well
accepted by our customers. This is a new entry into the field of high-tech, high
accuracy and high power military lasers. Our innovative and unique design is
based on a state of the art high-power laser diode which provides high accuracy
and long range detection and tracking of targets. This project is a turn-key
product from the initial electronic and mechanical design up to the production
and delivery of the complete system. The first prototypes have been delivered
during 2006-2007 and following the successful qualification tests in 2007 we
have received new order for additional 25 pcs for delivery during 2008-2009 and
we expect to receive additional orders of 50-100 pcs during
2010-2011.
By the
end of 2005 we introduced a Simulation and Test System for a highly classified
defense project. This technologically complex design is being outsourced for the
first time, and so it was very tentative in progress. However, we have already
delivered the first batch in December of 2005 resulting in revenues of about
$1,250,000 with a record lead-time of 3 months. During 2006 we received an
additional order of about $ 1,000,000 which has also been delivered. As a result
of our success we expect new orders of about same size each during the following
years.
A
Generic Test and Validation System for new anti-tank missiles. This system
incorporates state of the art hardware and software designs and is used for the
tests and validation of about 30 different modules of the missile. The first
systems were ordered in the amount of about $1.4 Million dollars with scheduled
delivery of the first unit during 2008. During 2008 we received an additional
order for the implementation of upgrades which was delivered during
2009. This test system for anti-tank missiles could generate orders for a couple
of units a year for approximately the next ten years.
A
Control System for airborne attack platforms for naval application. The system
receives data from aircrafts and transmits it in real time. The design was based
on upgraded versions of previous designs already proven in the field. We have
already received our first order for several units scheduled for delivery during
2008. In 2007 we have received a new order from a new customer for delivery
during 2008-2010. During 2008 we have delivered orders in the
amount of approximately $ 1,100,000 and about $ 500,000 during
2009.
Generic
System for Simulation and Test of multiple stage missiles. This very complex
high technology system simulates each stage of the missile and performs a
comprehensive suite of tests. The first order for the design was received during
2006, generating revenues of several hundreds of dollars. During
2008, we have delivered orders in amount of approximately $ 1,000,000
and during 2009 about $ 500,000.
During
2007, we introduced a new Generic ATE System based on VXI technology for
testing air-to-air missiles. The first order has already been received for 15
units which will generate revenues of about $ 2 mill over the following years.
The first prototype was completed by the end of 2008 and during 2009
delivered orders of about $ 200,000.
ENERTEC
ELECTRONICS
During
2004, we completed UL safety approvals for a new custom-made power supply. It is
implemented in a series of modems for fast network access of data and voice over
the IP network. In 2005, 1500 units were ordered, 2,000 units were ordered
during 2006, 900 units during 2007, 1000 units during 2008 and 900 units during
2009.
We
introduced the first samples of DC/DC converters for military CDU (Command
Display Units) in the fourth quarter of 2004. These samples were followed with
orders for 1500 pcs which were delivered over the course of 2005, for 1700 pcs
delivered during 2006, for 1000 pcs delivered during 2007, for 1000 pcs
delivered during 2008 and for 500 pcs delivered during 2009.
During
2004, we entered into a new arena of customized power supplies for fast data
networking systems. We customized compact PCI power supplies and received orders
for 200 units. This successful launch resulted in more than 200 units in
follow-up orders in 2005, 100 pcs during 2006, 100 pcs during 2007. During 2008
and 2009 we have not received new orders.
A
compact, and economical optimized cost/performance redundant power supply for
data communication application. The first samples were delivered during 2005 and
have already resulted in follow up orders of approximately 5000 pcs
delivered during 2007-2008 and for 600 pcs for delivery during 2009 and
2010.
We
introduced a customized external power supply for military note-book computers
which will be installed by our customers to the US military within the army,
navy, air-force etc. The first 25 power supplies have already been delivered and
successfully passed all the stringent military qualification tests, followed by
orders for additional 260 pcs during 2006, 800 pcs during 2007 , 300 pcs during
2008 and 600 pcs during 2009.
In 2006,
we introduced a new multiple output customized power supply for outdoor wireless
application and have submitted for UL safety approvals. No orders have been
received during 2008 and 2009.
In 2006,
we introduced a line of 150W dc/dc military converters. We received
orders for first 75 units from four different manufacturers of defense systems
during 2006, additional 40 units during 2007, 30 units during 2008 and 90 units
during 2009.
During 2008 and
2009, we have not been able to introduce any additional new products.
We concentrated our efforts on the implementation of the products previously
introduced and the maintaining of the relationships with our strategic
partners.
MARKETING
STRATEGIES
We market
our products to a diverse group of manufacturers of electronic equipment. Our
products serve the various needs of local Israeli manufacturers of electronic
systems in the following fields:
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·
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Military;
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Telecommunications;
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Medical;
and
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Industrial.
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We
currently sell only to Israeli companies that, in turn, incorporate our
components into their products for resale to the global markets. However, in the
future we anticipate creating some kind of platform to market Enertec Systems'
products to U.S. companies as well as creating a manufacturing base within the
United States so as to benefit from U.S. government dollars directed to Israel's
military aid with the condition of being spent on U.S manufactured products.
Currently, we advertise in the local Israeli technical magazines and participate
in electronic seminars, exhibitions and shows four to six times a year. A
substantial part of the business is from our existing customers. Many companies
have engaged us from the inception of their new programs, and have implemented
our custom designed solutions. Many of our customers rely on us for technical
services, products and support, and consider us to be their own "power supply
department" and "ATE systems department". Since 2004, we have been a "systems
house" of military systems, making turn-key projects from design to production
on behalf of our customers.
We also
derive a considerable percentage of our business from word-of-mouth referrals.
Our reputation is backed by many years of providing quality products and
services. Our marketing strategy has been based on our brand name and
reputation, which has grown substantially over the last twenty years, including
eight years prior to the formation of Enertec Electronics, when business was
conducted under the name "Enertec International."
Over the
next 24 months, we plan on continuing our aggressive marketing efforts. Part of
our success within Enertec Systems has been to anticipate the needs of our
clients, invest in R&D and to start working on products that we believe they
will need thus gaining an edge on our competition in our time to market.
Furthermore, we have been able to identify those of our clients and
potential clients that look poised to get the big orders and focus our attention
on gaining a foothold within that client. When successful, this strategy enables
us to benefit from the large order flow that they receive both in terms of the
typical products they would expect us to produce for them as well as the more
sophisticated products that they might not expect that we are then in the
perfect position to offer to them, especially if they are inundated with
business we are able to step in and ease the burden of some of the non-core
components as well as some of the core components.
By
continuously diversifying into new and more complex products, Enertec Systems
has been able to set itself apart from its competition. In 2009,
following the trend we started in 2004, we continued to increase our suite of
custom products based on our proprietary design and technology. These products
are core components of several long term military programs spearheaded by our
customers, with expected purchase lifecycles over periods of up to 10
years.
At
Enertec Systems the competitive edge lies with the sophistication and the
complex nature of the products. Enertec Electronics however, maintains its
competitive advantage primarily through its range of products, their pricing,
cost effective adaptation to the customers' needs and the technical application
support provided to customers.
MARKET
CONDITIONS
Enertec
Systems
Manufacturers
that sell defense end products such as missiles, aircrafts or computers, also
provide a support system (e.g., an ATE) to the end-user. The end-user uses this
support system for maintenance of the end product. Historically, support systems
were made by manufacturers selling the end products. Recently, however,
manufacturers have been focusing their resources on the end products rather than
on support systems. This has opened up a market for us to develop these
systems.
The local
Israeli market for ATE's simulators and support systems is estimated at $100 to
$200 million annually. We have about 5% of this market, approximately the same
level of market penetration as our competitors. This market is largely
controlled by big local defense manufacturers. However, there has been a
noticeable trend by these and other defense manufacturers to outsource test and
support systems to specialized firms so that large manufacturers can focus their
resources on designing their core products.
During
2007 – 2009, we have introduced several new military products implemented in
high volume long term defense programs.
Since
2005, the local military market is improving significantly resulting in many new
orders received which contributed to the increase in our sales and backlog of
military products. This trend continued through 2006-2009 resulting in a backlog
of $ 6,363,000 dollars by the end of 2009.
A key
element of our growth potential is our ability to enhance our sales and
marketing team. We will need to expand our sales and marketing team
significantly over the next several years to achieve our sales targets. We will
face significant challenges and risks in building and managing our sales and
marketing team, including managing geographically dispersed sales efforts and
adequately training our sales people in the use and benefits of our
products.
Enertec
Electronics
The
worldwide market for high-tech, telecommunications, and Internet related
products affects the Electronics Division's power supplies sales. The overall
market started to slow down during 2008 and 2009 resulting in a decrease of
sales of our customers to this sector and this trend is reflected in our sales
to our customers.
We
service clients in the telecommunications, industrial control, medical and the
military core business sectors. We offer more customized power supplies, which,
we believe, makes it more difficult for our competitors to bid successfully on
the same projects or replace our product down the road in production or for
follow-on orders.
Enertec
Electronics prospects are dependent on the electronics and electrical product
industries in Israel. Since 2007 this industry is being strongly
affected by the trend of outsourcing. Many Israeli companies
manufacture their initial quantities using power supplies purchased locally from
suppliers such as Enertec Electronics. However, when volumes increase they move
production overseas, especially to China, leaving the subcontractors to source
the components locally. This trend affects the receiving of high volume orders
from our customers.
CUSTOMERS
Our
customers are mostly local Israeli manufacturers of electronic systems from
different segments of the electronics industry, within the military, industrial,
commercial, medical, and telecommunications fields. Due to this level of
diversification of our customers, we are not that dependent on any one specific
market segment; so our overall performance is less affected by fluctuation in
the markets. Until 2003 IAI (Israel Aircraft Industries) was our major customer
representing approximately 38% of our sales. During 2004 we realized that
several Rafael divisions were receiving an increasingly high number of new
orders as a result of their aggressive marketing around the world but that they
had not increased their technical and manufacturing staff to accommodate this
growth. We positioned ourselves to become their outsourcing team for their new
orders in the areas of design, engineering and production. We increased our
investment in R&D that resulted in new designs and products that enabled us
to successfully bid on a large number of projects. During 2005-2007, we focused
our efforts in diversifying our sales across other technologies, for example
avionic equipment and combat control stations. By the end of 2009
Rafael became our major customer representing approximately 37.4% of our total
sales and 49.7% of Enertec Systems sales.
Investing
in R&D has given us an edge with our time to market which resulted in
several agreements, with Rafael bringing out products utilizing our systems
within long project cycles, in many cases up to 10 years. This has created a
significant increase in the backlog of orders from Rafael.
During
2005, the Israeli Aircraft Industry (IAI) started to design and manufacture a
range of new products for which we have been asked to provide Test Equipment,
Simulators and Support Systems. For the year ended December 31,
2009, sales to IAI was 29.2% of our total sales .
and 38.7% of Enertec Systems sales.
The rest
of our sales are pretty much evenly spread between our other main customers:
Elbit, El-Op and Tadiran Spectralink, at the military field and
a large number of customers at the commercial field.
BACKLOG
As of
December 31, 2009, we had a backlog of orders for our products and services in
the amount of approximately $_6,553,000 as compared to a backlog of
approximately $6,548,000 as of December 31, 2008. The increase of approximately
0.07% in the backlog as of December 31, 2009 compared to December 31, 2008 is
mainly due to the increase of the backlog at Enertec Systems offset by a
decrease of the backlog at Enertec Electronics. The increase of the backlog at
Enertec Systems of $ 492,000 is mainly due to the receipt of some new orders at
Enertec Systems for airborne power supplies and test systems for missiles and
infra-red payloads The decrease of the backlog at Enertec
Electronics of $ 487,000 is mainly due the market slow-down and the outsourcing
to the Far-East causing many of our customers to place orders with much shorter
lead-times as opposed to larger cover orders during the previous
years.
The
orders included in the December 31, 2009 backlog figure are as
follows:
Enertec
Systems
| $ | 3,453,000 |
representing
airborne power supplies, laser systems, flight computers, test systems for
avionics and military systems, missiles command & control
systems
|
|
| $ | 2,426,000 |
representing
test systems for IAI missiles and avionic systems
|
|
| $ | 284,000 |
representing
airborne power supplies and test systems for infra-red
payloads
|
|
| 144,000 |
representing
medical systems
|
||
| $ | 56,000 |
various
systems
|
|
| $ | 6,363,000 |
TOTAL
backlog for Enertec Systems
|
|
|
Enertec
Electronics
|
|||
| $ | 190,000 |
This
figure includes a variety of orders for commercial, telecom, medical,
industrial and military off- the-shelf power
supplies..
|
|
COMPETITION
ENERTEC
SYSTEMS
Our chief
source of competition for Enertec Systems is our clients themselves. Most of our
clients have done their own testing systems and core component manufacturing in
house. But as their volume of sales start increasing it is easier for us to
provide an outsourcing capability for them. Furthermore, as we continue to prove
our expertise and our clients allow us to create increasingly complex products
for them, we have started to build their trust and are overtaking a lot of the
functions that previously they would have produced in house. Outside main
competitors that we face are: Chaban Electronics Ltd, Symcotech Ltd, and Rada
Electronic Industries Ltd.
ENERTEC
ELECTRONICS
We face
intense competition within Enertec Electronics from the existing local
manufacturers and distributors of electronic components and products. Presently,
several competing companies that have greater resources than we do, such as
financial, operational, sales, marketing, and research and development
resources, are actively engaged in the manufacture and distribution of power
supplies. Our main competitors include Advice Electronics Ltd., EDCO, Nemic
Lambda, Dan-El, Bruno International, Appletec Ltd., Migvan Technologies Ltd.,
Boran Technologies Ltd., Telkoor Power Supplies Ltd., Nisko and Horizon
Electronics Ltd.
However,
we have been able to compete with these companies for the following
reasons:
·
The power supplies we distribute are good quality, economically priced, and
are backed by a good level of technical engineers.,
·
Our products are sold in diversified activity fields, namely commercial,
industrial, military and medical.
.However,since
2007 we have been affected by the strong trend of overseas outsourcing of the
high volume projects.Our customers have transfered production overseas,
especially to China, leaving the subcontractors to source the components
locally. This trend affected the receiving of new high volume orders from our
customers.
SUPPLIES
AND SUPPLIERS
Our
suppliers are diversified and we are not dependent upon a limited number of
suppliers for essential raw materials, energy or other items. The manufacturers
that supply to us are all established companies with facilities and products in
compliance with all relevant international standards. However, while we are not
dependent on any one supplier, disruptions in normal business arrangements by
the loss of one or a few suppliers could cause possible short-term losses. These
disruptions may be experienced if our existing suppliers are no longer able to
meet our requirements. They may also occur if there is an industry shortage of
electronic or mechanical components. Not only could these disruptions affect our
product line and limit our production capacity, but also, in relation to the
shortage of components, could result in higher costs due to the supply shortage
or the need to use higher cost substitute components.
The raw
materials we use are either electronic components or mechanical components. The
electronic components are purchased from suppliers and the mechanical components
are mainly manufactured by local subcontractors.
EMPLOYEES
As of December 31, 2009, Enertec
Electronics had 9 employees and Enertec Systems had 55
employees. All key technical employees must sign a two-year confidentiality
agreement and a two-year non-compete agreement, which prohibits our employees,
if they cease working for us, from directly competing with us or working for our
competitors. However, Israeli courts have required employers seeking to enforce
non-compete undertakings of a former employee to demonstrate that the
competitive activities of the former employee will harm one of a limited number
of material interests of the employer, such as the secrecy of a company's
confidential commercial information or its intellectual property. We may not be
able to demonstrate that harm would be caused to us, and therefore, may be
unable to prevent our competitors from hiring and benefiting from the expertise
of our former employees. None of our employees are subject to a collective
bargaining agreement. The
C.E.O. of Enertec Systems is entitled
to receive certain benefits based on a yearly performance. All of our
employees are full-time. Management considers its employee relations to be
good.
RESEARCH
AND DEVELOPMENT EXPENDITURES
Research
and Development costs totaled approximately$251,000 and $143,000 for the
twelve months ended December 31, 2009 and 2008, respectively, which equates to
approximately 2.8% and 1.4% of revenues, respectively, for both periods.
These expenditures have adequately satisfied our research and development
requirements.
The increase of our R&D
expenditures as compared to 2008 is a result of allocating of larger percentage
of our engineering resources to the task of making progress in the design of new
technologies which we expect to implement into new projects and big military
programs o
f our core
customers.
SEASONAL
ASPECTS OF OUR BUSINESS
The sales
of military products experience seasonal variations this is due to the fact that
the Israeli Ministry of Defense frequently delays the release of budgets near
the end of the fiscal year. Therefore, new orders to the military industry are
delayed, leading to delays of orders to the local subcontractors. When this
happens, it negatively affects the sales volume of the 1st quarter of the year.
In addition, some of our customers push for increased deliveries during the last
weeks of the year in order to fulfill contractual delivery obligations to their
customers and also to show better business results. This often causes an upward
spike in our fourth quarter sales.
PATENTS
AND TRADEMARKS
We are
not dependent on patents or trademark protection with regards to the operation
of our business and do not expect to be at any time in the future.
GOVERNMENT
REGULATION
Every
electronic product must comply with the UL standards of the United States and CE
standards of Europe to be eligible for sale in the respective countries subject
to these standards. Every system must be tested, qualified and labeled under the
relevant standards. This is a complicated and expensive process and once
completed, the approved product may not be altered for sale.
Change of
Control
Pursuant
to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 5, 2009, on
December 3, 2009, Mr. Mund transferred to D.L Capital Ltd. (“D.L. Capital”),
3,306,330 shares of the Common Stock of Lapis Technologies,
Inc. The number of shares purchased represents 51% of the issued and
outstanding shares of Lapis Technologies, Inc.’s common stock (the “Controlling
Shares”). Pursuant to the Purchase Agreement, D.L Capital is also obligated to
purchase an additional 1,443,670 shares of the Common Stock beneficially owned
by Mr. Mund, which shares are being held in escrow (the “Escrowed Shares”). Mr.
Mund is Lapis Technologies, Inc.’s Chief Executive Officer and President, and
prior to this transaction was its majority stockholder.
The
purchase price for the Controlling Shares was 1,000,000 New Israeli Shekels
("NIS") (approximately $260,000) in cash plus the assumption by D.L Capital of
financial liabilities and guarantees in the sum of 11,000,000 NIS (approximately
$2,900,000). In addition, in consideration of the Escrowed Shares D.L Capital
shall pay for a period of three years, a yearly cash payment of the higher
between 1,000,000 NIS or 25% of annual net profit of Enertec System 2001 Ltd.
and shall assume additional financial liabilities and guarantees in the sum of
3,000,000 NIS (approximately $790,000). D.L. Capital’s source of the funds and
liabilities and guarantees assumed was its working capital.
The
Escrowed Shares will be released in accordance with the terms and conditions set
out in the Purchase Agreement.
Pursuant
to the Purchase Agreement, D.L. Capital and Mr. Mund agreed that, as soon as
practicable following the closing under the Purchase Agreement, (i) the Company
or a subsidiary of the Company would enter into an employment agreement with Mr.
Mund pursuant to which Mr. Mund would be employed as a special advisor to the
board of directors of the Company or a subsidiary thereof, for two days per
week, for a term of 3 years, for a salary of 25,000 New Israeli Shekels
(approximately $6,500) per month, (ii) D.L. Capital and Mr. Mund would enter
into a shareholders agreement, pursuant to which Mr. Mund would vote the
Escrowed Shares in accordance with how D.L. Capital shall vote the Controlling
Shares, and Mr. Mund shall receive certain protective provisions relating to his
rights as a minority shareholder, including, without limitation, veto rights in
respect the sale of the majority of the business or assets of the Company, and
(iii) D.L. Capital (directly or indirectly) and the Company would enter into a
consulting agreement under which D.L Capital shall provide Company or any of its
subsidiaries with consulting services for a monthly compensation of 50,000 New
Israeli Shekels (approximately $13,100) per month.
On August
12, 2009, Mr. Mund and Enertec Systems 2001 Ltd. entered into an employment
agreement on the terms contemplated by the Purchase Agreement, and D.L. Capital
entered and Enertec Systems 2001 Ltd. entered into a consulting agreement on the
terms contemplated by the Purchase Agreement.
ITEM 1A.
RISK FACTORS
NOT
APPLICABLE
ITEM 1B.
UNRESOLVED STAFF COMMENTS
NOT
APPLICABLE
ITEM 2.
PROPERTIES.
We
currently maintain plants in both Haifa and Carmiel. We have no plans to secure
more space, as we believe both locations are suitable for our
needs.
Our Haifa
plant is 400 square meters and includes a production hall and management
offices. We lease this property for $21,901 per annum from Mund Holding Limited,
an entity wholly owned by our President and Chief Executive Officer, Harry Mund.
We entered into this lease in January 2001. The Haifa plant houses the
headquarters and accounting offices, the imports department, sales and
administration employees, application engineers, and a service laboratory. This
plant is suitable for our present and near future needs. There is enough space
to accommodate an additional two to four sales engineers, if needed. This space
is also used to sell standard power supplies products.
Our
Carmiel plant is 800 square meters and also includes a production hall, with a
research and development and engineering facility for our Systems Division. The
Carmiel property is leased at $$41,239 per annum. We use the Carmiel plant for
manufacturing. It houses engineers, software programmers, electronic hardware
designers, mechanical designers, and electronic and mechanical assembly
personnel. It consists of office rooms for one to three people, and contains one
room for electronics assembly, one for mechanical assembly, and two for final
testing of finished products. The Systems Division manufactures its customized
products in this facility, and accordingly, it is not a plant for high volume
production. It is located in the Carmiel industrial area, and is in close
proximity to many of our Systems Division clients. Every engineer has individual
workstations, which contain computers that are inter-connected by our own local
network for fast communication. The plant has been updated to satisfy all our
present and near future needs. In this facility, there is space for five
additional offices, which would accommodate approximately 15 more people, and
the existing assembly rooms could accommodate eight to ten additional
workers.
ITEM 3.
LEGAL PROCEEDINGS.
We are
not subject to any pending or threatened legal proceedings, nor is our property
the subject of a pending or threatened legal proceeding. None of our directors,
officers or affiliates is involved in a proceeding adverse to our business or
has a material interest adverse to our business.
ITEM
4.(REMOVED AND RESERVED)
PART
II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASERS OF EQUITY SECURITES.
MARKET
INFORMATION
Our
common stock began quotation on the OTC Bulletin Board on June 1, 2004 under the
symbol LPST.OB. For the periods indicated, the following table sets forth the
high and low bid prices per share of common stock. These prices represent
inter-dealer quotations without retail markup, markdown, or commission and may
not necessarily represent actual transactions.
|
Fiscal Quarter
|
Fiscal 2009
|
Fiscal 2008
|
||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter Ended March 31
|
$
|
.20
|
$
|
.10
|
$
|
.20
|
$
|
.20
|
||||||||
|
Second
Quarter Ended June 30
|
$
|
.10
|
$
|
.10
|
$
|
.20
|
$
|
.20
|
||||||||
|
Third
Quarter Ended September 30
|
$
|
.10
|
$
|
.10
|
$
|
.20
|
$
|
.20
|
||||||||
|
Fourth
Quarter Ended December 31
|
$
|
.10
|
$
|
.10
|
$
|
.20
|
$
|
.20
|
||||||||
HOLDERS
As of
February 28, 2010, we had 6,483,000 shares of common stock outstanding and such
shares were held by approximately 42 stockholders of record. The transfer agent
of our common stock is Continental Stock Transfer and Trust
Company.
DIVIDENDS
We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends.
RECENT
SALES OF UNREGISTERED SECURITIES
During
the fiscal year ended December 31, 2009, we did not issue any securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act").
ITEM 6.
SELECTED FINANCIAL DATA.
NOT
APPLICABLE
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
FORWARD-LOOKING
STATEMENTS
The
information in this annual report contains forward-looking statements. All
statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. Our actual results may differ
significantly from management's expectations.
The
following discussion and analysis should be read in conjunction with the
financial statements of Lapis Technologies, Inc. included herewith. This
discussion should not be construed to imply that the results discussed herein
will necessarily continue into the future, or that any conclusion reached herein
will necessarily be indicative of actual operating results in the future. Such
discussion represents only the best present assessment of our
management.
LIQUIDITY
AND CAPITAL RESOURCES
Our cash
balance at December 31, 2009 has decreased compared to the cash balance at
December 21, 2008. As of December 31, 2009, our cash balance was $313,000 as
compared to $763,000 at December 31, 2008. Total current assets at December 31,
2009 were $8,356,000 as compared to $10,043,000 at December 31, 2008. The
decrease in current assets is mainly due to the decrease in cash balance ,the
decrease in inventories and the decrease in accounts receivables.
Our
accounts receivable at December 31, 2009 were $4,307,000 as compared to
$4,884,000 at December 31, 2008. This decrease is a result of improved payment
terms of certain large orders during 2009 resulting in an increased cash
balance.
As
of December 31, 2009 our working capital was $1,866,000 as compared to
$1,706,000 at December 31, 2008. The increase in the working capital is mainly
due a larger decrease in the total current liabilities than the decrease in the
total current assets.
A
consortium of banks, composed of the 1st international Bank, Bank Otzar
Hachayal, Bank HaPoalim and Mercantile Bank have provided us a combined total
credit line of some $5,059,000 out of it we used only$ 3,484,000 as of December
31, 2009, as compared to a total debt of $5,621,000 as of December 31, 2008.
This debt is made up of a number of different components: short-term debt,
long-term debt and in the form of lines of credit, which we use from time to
time to satisfy our temporary cash flow needs. The credit line
provided is based on the pledge of our working capital and customers'
receivables and by the pledge of financial assets and personal guarantees
of Mr. David Lucatz. and Mr Harry Mund
The
current portion of our term loans at December 31, 2009 consisted of $88,000 as
compared to $197,000 at December 31, 2008. Our short-term loans consisted of
$2,990,000 of short-term loans and broken down as follows:
$1,618,000 due January 2010, $719,000
due February 2010, $122,000
due March 2010, $531,000 due November
2010
At December 31,
2009, our total bank debt was $3,484,000 compared to $5,621,000 at December 31,
2008. These funds were borrowed as follows:
$3,078,000
which includes the current portion of long term debt, as various short term bank
loans due through 2010, $310,000 of long-term debt due June 2014 and $96,000
borrowed using our bank lines of credit. As a result, we decreased the amount
borrowed for the year ended December 31, 2009 by $2,137,000 from $5,621,000. The
decrease in bank debt is mainly a result of the improved
payment terms of certain large orders during 2009,a decrease in inventory ,a
decrease in cash balance and an increase in the due to
stockholders.
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 December 31, 2009, we are
current with all of our bank debt and compliant with all the terms of our bank
debt.
At
December 31, 2008, Mr. Mund, our Chief Executive Officer and President, had
receivables from the company in the amount of $13,000. As of Dec 31, 2009, DL
Capital, our major shareholder, had receivables from the company in the amount
of $1,060.
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 develop and test our suite of products, increase marketing and
administration infrastructure, and embark on developing in-house business
capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to, the
levels and costs of our research and development initiatives, the cost of hiring
and training additional sales and marketing personnel to promote our products
and the cost and timing of the expansion of our marketing efforts.
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. 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
FISCAL
YEAR ENDED DECEMBER 31, 2009 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
2008
For the
fiscal year ended December 31, 2009, we had total revenue of $9,090,000 as
compared to revenue of $10,464,000 for the fiscal year ended December 31, 2008.
The decrease in revenue of $1,374,000, or 13.1% is mainly due to the
decrease in the commercial business and the increase in USD/Shekel exchange
rate, since part of the sales are Shekel related: The average USD/shekel
exchange rates increased/ by 9.6% from 3.5878 the average for 2008 to
3.9326 the average for 2009.
Gross
profit totaled $2,242,000 for the fiscal year ended December 31, 2009 as
compared to $2,912,000 for the fiscal year ended December 31, 2008, a decrease
of $670,000 or 23.0%. The decrease in gross profit is mainly due to the decrease
in sales. Gross profit as a percentage of sales for the fiscal year ended
December 31, 2009 was 24.7% as compared to 27.8% for the fiscal year ended
December 31, 2008. The decrease in gross profit as a percentage of sales is
mainly a result of the decrease in gross profit as a percentage of sales at
Enertec Electronics from 30.4% to 19.1% due to the intense competition in the
commercial market and the decrease in gross profit as a percentage of sales at
Enertec Systems from 26.8% to 26.5% due to several new projects with upgraded
technology delivered during 2009 with lower profit margin as a result of the
higher engineering cost.
Total
operating expenses are comprised of R&D costs, selling, general and
administrative expenses. Operating expenses for the fiscal years ended December
31, 2009 and 2008 were $1,950,000 and $2,180,000 respectively, a
decrease of $230,000 or 10.6%. The decrease in operating expenses is
attributable to the following factors:
|
|
·
|
Decrease in G&A expenses of
$294,000, mainly due the decrease in professional services
expenses and the decrease in USD/Shekel exchange rate and the decrease in
selling expenses of $ 44,000, partly offset by an increase in R&D
spending of $108,000
|
We
experienced a loss of $120,000 in the fiscal year ended 2009 compared to a
profit of $171,000 in the fiscal year ended December 31, 2008. This decrease in
net income in the amount of $291,000 or 170.2% is mainly due to the decrease of
$670,000 in gross profit , an increase in the
other expenses of $ 49,000partly offset by the decrease in the total
operating expenses of $230,000, the decrease in provision for income taxes
of $13,000, the decrease in interest expenses of $138,000 and the
decrease in minority interest of $47,000.
As
detailed in this annual report, our business is comprised of Enertec Electronics
which derives its revenues from the commercial arena and Enertec Systems, which
derives its revenues from the military arena.
For the
fiscal year ended December 31, 2009, Enertec Electronics' revenue, costs of
sales and gross profits were and $2,245,000, $1,816,000 and $429,000,
respectively, and $2,927,000, $2,037,000 and $890,000 for the fiscal year ended
December 31, 2008. Revenue decreased $682,000 or 23.3% due to the overall market
slow down during 2009 resulting in a decrease of sales of our customers to this
sector which is reflected in our sales to our customers and the
increase in USD/Shekel exchange rate .
Costs of
sales decreased approximately by $221,000 or 10.8%. Gross profit
decreased by $461,000 or 51.8% mainly due to a lower decrease in cost of sales
than the decrease in the revenues during 2009
Gross
profit as a percentage of sales has decreased from 30.4% to 19.1% mainly due to
new orders received with a lower profit margin.Due to the intense competition in
this market by agressive local and overseas outsorcing we had to deeply cut in
our profit margins.
For the
twelve months ended December 31, 2009, revenues, costs of sales and gross
profits from Enertec Systems 2001 were $6,845,000, $5,033,000, and $1,812,000,
respectively, and $7,537,000, $5,516,000 and $2,021,000, respectively, for
twelve months ended December 31, 2008. Revenue decreased by $692,000 or
9.2% mainly as a result an increase of 9.6% in the USD/shekel
exchange rates since part of the sales are Shekel related.
Cost of
sales decreased approximately $483,000 or 8.8% mainly due to the decrease in
sales.
Gross
Profit decreased by $209,000 or 10.3% mainly due to the decrease in
sales.
Gross
profit as a percentage of sales has decreased from 26.8% to 26.5% mainly due to
several new projects with upgraded technology delivered during 2009 with lower
profit margin as a result of the higher engineering cost.
As of
December 31, 2009, we had two customers that accounted for approximately 68.2%
of accounts receivable. For the years ended December 31, 2009 and 2008,
approximately 66.6% and 63.4% of our sales were to two customers,
respectively.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues, results of operations, liquidity, capital expenditures or
capital resources.
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, collectibility is reasonably assured and
all material specific performance obligations have been completed. The product
sold by the Company is made to the specifications of each customer; sales
returns and allowances are allowed on a case-by-case basis, are not material to
the financial statements and are recorded as an adjustment to sales. Cash
payments received in advance are recorded as customer deposits.
Revenue
relating to service is recognized on the straight-line basis over the life of
the agreement, generally one year. For the years ended December 31, 2009 and
2008 revenue relating to service contracts is less than one percent of net sales
and the financial instruments are at fair value.
Research
and Development Costs - Research and development costs are charged to general
and administrative expense in the accompanying statement of income and consist
mainly of salaries. Research and development cost for the years ended December
31, 2009 and 2008 were approximately $251,000 and $143,000,
respectively.
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
December 31, 2009 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 December 31, 2009. The
carrying value of the long-term debt approximate fair value at December 31, 2009
based upon debt terms available for companies under similar terms.
Foreign
Currency Translation - Lapis Technologies, Inc. has one wholly owned subsidiary,
Enertec Electronics Limited, an Israeli corporation, and one majority owned
subsidiary, Enertec Systems 2001 Ltd., an Israeli corporation. The assets and
liabilities of the foreign subsidiaries are translated at current exchange rates
and related revenues and expenses at average exchange rates in effect during the
year. Resulting translation adjustments, if material, are recorded as a separate
component of accumulated other comprehensive income or loss.
ITEM 7A.
QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NOT
APPLICABLE
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by
reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
NOT
APPLICABLE.
ITEM 9A.
CONTROLS AND PROCEDURES.
As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is: (1) accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure; and (2) recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. There was no change to our internal controls or in other
factors that could affect these controls during the three months ended December
31, 2009, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was designed to
provide reasonable assurance to our management and Board of Directors regarding
the preparation and fair presentation of published financial
statements.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework. Based on our
assessment we believe that, as of December 31, 2009, our internal control over
financial reporting is effective based on those criteria.
This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission
ITEM 9B.
OTHER INFORMATION.
None.
PART
III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
The
members of our board of directors and our executive officers, together with
their respective ages and certain biographical information are set forth below.
Our directors receive no compensation for their services as board members but
are reimbursed for expenses incurred by them in connection with attending board
meetings. All directors hold office until the next annual meeting of our
stockholders and until their successors have been duly elected and qualified.
Our executive officers are elected by, and serve at the designation and
appointment of, the board of directors. There are no family relationships among
any of our directors or executive officers.
|
Name
|
Age
|
Position
|
||
|
Harry
Mund
|
62
|
Chairman
of the Board, Chief Executive Officer,
|
||
|
President
and Secretary
|
||||
|
Miron
Markovitz
|
62
|
Director,
Chief Financial Officer and Principal
|
||
|
Accounting
Officer
|
The
following is a brief account of the business experience of each of our directors
and executive officers during the past five years or more.
HARRY
MUND, our Chairman of the Board, Chief Executive Officer, President and
Secretary since our inception, and has been the Chief Executive Officer and
President of our subsidiary, Enertec Electronics Limited, since 1987. Mr. Mund
is also the Chief Executive Officer and managing director of Enertec Management
Limited (f/k/a Elcomtech Limited), a wholly owned subsidiary of Enertec
Electronics Limited. From 1983 to 1987, Mr. Mund was the President and Chief
Executive Officer of Enercon International, a marketing and sales firm of
military and commercial power supplies and test equipment. Enercon
International's activities were transferred to Enertec International in 1987,
which subsequently became Enertec Electronics Limited in 1992. From 1975 to
1983, Mr. Mund worked for Elbit Systems as a design engineer of advanced test
systems and as the head of the ATE engineering group. Mr. Mund attended
Ben-Gurion University from 1970 to 1974 and earned a Bachelor of Science as an
Electronic Engineer.
MIRON
MARKOVITZ, a Director, our Chief Financial Officer and Principal Accounting
Officer since our inception, has been the Chief Financial Officer of our
subsidiary, Enertec Electronics Limited, since 1992, responsible for its
accounting and financial management. He attended Haifa University from 1975 to
1978 and earned a BA in economics and accounting.
DIRECTOR
COMPENSATION:
During
2009, our directors did not receive any compensation for serving on our
board.
SIGNIFICANT
EMPLOYEES
The
following is a brief description of the business experience of each of our
significant employees:
ZVI AVNI,
age 48, was the System Division Manager for our subsidiary, Enertec Electronics
Limited, from February 1997 to January 2002. His responsibilities included the
design and manufacture of automatic test systems. Mr. Avni has 18 years of
experience with ATE systems for the military market and worked at Elbit Systems
for 12 years as an ATE group leader. Since January 2002, Mr. Avni has worked for
Enertec Systems 2001 Ltd., which is owned by Enertec Management Limited 73 % and
Harry Mund (27%) and continues to be responsible for the design and manufacture
of the Automatic Test Systems and military systems. Mr. Avni graduated from
Haifa Technion Institute of Technology in 1982 and earned a degree as a
Practical Electronic Engineer.
Our
future success depends, in significant part, on the continued service of
certain key executive officers, managers, and sales and technical
personnel, who possess extensive expertise in various aspects of the our
business, including Mr. Mund ,Mr. Markovitz and Mr. Avni,. We may not be able to
find an appropriate replacement for any of our key personnel. Any loss or
interruption of our key personnel's services could adversely affect our ability
to implement our business plan. It could also result in our failure to create
and maintain relationships with strategic partners that are critical to our
success. We do not presently maintain key-man life insurance policies on any of
our officers.
EMPLOYMENT
AGREEMENTS
None of
our employees are subject to a collective bargaining agreement.
On August
12, 2009, Harry Mund entered into an employment agreement with Enertec Systems
2001 Ltd., pursuant to which Mr. Mund will be employed as a special advisor to
the board of directors of Enertec Systems 2001 Ltd., for two days per week, for
a term of 3 years, for a salary of 25,000 New Israeli Shekels (approximately
$6,500) per month
AUDIT
COMMITTEE
Our Board
of Directors acts as our audit committee. We do not have an audit
committee financial expert because we have not been able to identify a suitable
nominee to serve as an audit committee financial expert.
CODE OF
ETHICS
We have
adopted a Code of Ethics and Business Conduct for Officers, Directors and
Employees that applies to all of our officers, directors and employees,
including our chief executive officer and chief financial officer. The Code of
Ethics is filed as Exhibit 14.1 to our annual report on Form 10-KSB for the
fiscal year ended December 31, 2003, filed with the Securities and Exchange
Commission on June 28, 2004. Upon request, we will provide to any person without
charge a copy of our Code of Ethics. Any such request should be made to Attn:
Harry Mund, C/O Ira Strassberg, Rogoff and Company, 275 Madison Avenue, NY, NY,
10016. Our telephone number is (212) 937-3580.
CHANGES
IN NOMINATING PROCESS
None.
Outstanding
Equity Awards at December 31, 2009
The
Company did not have any equity awards outstanding as of December 31,
2009.
SECTION
16(A) BENEFICIAL OWNERSHIP COMPLIANCE
We do not
have affiliated persons required to file reports under Section 16(a) of the
Exchange Act.
Board
Leadership Structure and Role in Risk Oversight
Although
we have not adopted a formal policy on whether the Chairman and Chief Executive
Officer positions should be separate or combined, we have traditionally
determined that it is in the best interests of the Company and its shareholders
to combine these roles. Mr. Mund has served as our Chairman since
inception. Due to the small size and early stage of the Company, we
believe it is currently most effective to have the Chairman and Chief Executive
Officer positions combined.
Our board
of directors is primarily responsible for overseeing our risk management
processes on behalf of the Company. The board of directors receives
and reviews periodic reports from management, auditors, legal counsel, and
others, as considered appropriate regarding our company’s assessment of risks.
The board of directors focuses on the most significant risks facing our company
and our company’s general risk management strategy, and also ensure that risks
undertaken by our Company are consistent with the board’s appetite for risk.
While the board oversees our company’s risk management, management is
responsible for day-to-day risk management processes. We believe this division
of responsibilities is the most effective approach for addressing the risks
facing our company and that our board leadership structure supports this
approach.
ITEM 11.
EXECUTIVE COMPENSATION.
EXECUTIVE
COMPENSATION
SUMMARY
COMPENSATION TABLE
The
following information is furnished for the years ended December 31, 2009 and
2008 for our principal executive officer. No executive officer other than Mr.
Mund received total annual compensation in excess of $100,000, during fiscal
years 2008 and 2009.
|
Name
and
Principal
Position
|
Year
|
Salary
$
|
Bonus
$ (3)
|
Stock
Awards
$
|
Option
Awards
$ (5)
|
Non-Equity
Incentive Plan
Compensation
$
|
Nonqualified
Deferred
Compensation
Earnings
$
|
All Other
Compensation
$
|
Total
$
|
|||||||||||||||||||||||||
|
Harry
Mund
|
2009
|
$ | 360,885 | $ | 45,778 | $ | 25,178 | $ | 431,84 1 | |||||||||||||||||||||||||
|
Chief
Executive Officer
and
President
|
2008
|
$ | 387,050 | — | — | — | — | — | $ | 18,484 | * | $ | 405,534 | |||||||||||||||||||||
*
Represents compensation in lieu of accrued vacation and recreation days pursuant
to Company policies. In Israel it is customary to offer financial compensation
in lieu of vacation and recreation days (days set aside for employees to enjoy
recreational activities)
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
he
following table sets forth certain information, as of February 23, 2010 with
respect to the beneficial ownership of the outstanding common stock by (i) each
person known by us to be the beneficial owner of more than 5% of our common
stock; (ii) each of our directors; (iii) each of our executive officers; and
(iv) our executive officers and directors as a group. Unless otherwise
indicated, the persons named in the table below have sole voting and investment
power with respect to the number of shares indicated as beneficially owned by
them. The address for each of the below persons is c/o Enertec Electronics
Limited, 27 Rechov Ha'Mapilim, Kiriat Ata, Israel, P.O. Box 497, Kiriat Motzkin
26104, Israel.
|
Name
of Beneficial Owner
|
Number
of
Shares
Beneficially
Owned
|
Percentage
Ownership
*
|
||||||
|
D.L
Capital Ltd. (“D.L. Capital”
|
3,306,330 | 51 | % | |||||
|
Harry
Mund
|
1,443,670 | 22.3 | ||||||
|
Miron
Markovitz
|
9,000 | ** | % | |||||
|
Zvi
Avni
|
1,000,000 | 15.4 | % | |||||
|
All Directors and Executive
Officers
as a Group
(2 persons)
|
1,452,670 | 22.4 | % | |||||
|
|
*
|
Applicable percentage ownership
is based on 6,483,000 shares of common stock outstanding as of February
23, 2009, together with securities exercisable or convertible into shares
of common stock within 60 days of February 23, 2009 for each stockholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that
are currently exercisable or exercisable within 60 days of February 23,
2009 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other
person.
|
|
|
*
|
Less than 1% of the outstanding
shares of common stock
|
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The
following table shows information with respect to each equity compensation plan
under which the Company's common stock is authorized for issuance as of the
fiscal year ended December 31, 2010.
EQUITY
COMPENSATION PLAN INFORMATION
|
Plan category
|
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants and rights
|
Weighted average
exercise price
of outstanding options,
warrants and rights
|
Number of
securities remaining
available for future
issuance
under equity
compensation
plans (excluding
securities reflected
in column (a)
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity
compensation plans approved
|
||||||||||||
|
by
security holders
|
-0- | -0- | 500,000 | |||||||||
|
Equity
compensation plans not
|
||||||||||||
|
approved
by security holders
|
-0- | -0- | -0- | |||||||||
|
Total
|
-0- | -0- | 500,000 | |||||||||
2002
STOCK OPTION PLAN
We
adopted, subject to stockholder approval, our 2002 Stock Option Plan on October
16, 2002. Our stockholders approved the plan on October 16 2002. The plan
provides for the grant of options intended to qualify as "incentive stock
options", options that are not intended to so qualify or "nonstatutory stock
options" and stock appreciation rights. The total number of shares of common
stock reserved for issuance under the plan is 500,000, subject to adjustment in
the event of a stock split, stock dividend, recapitalization or similar capital
change, plus an indeterminate number of shares of common stock issuable upon the
exercise of "reload options" described below. We have not yet granted any
options or stock appreciation rights under the plan.
The plan
is administered by our board of directors, which will select the eligible
persons to whom options shall be granted, determines the number of common shares
subject to each option, the exercise price therein and the periods during which
options are exercisable, interprets the provisions of the plan and, subject to
certain limitations, may amend the plan. Each option granted under the plan
shall be evidenced by a written agreement between us and the
optionee.
Options
may be granted to our employees (including officers) and directors, any of our
subsidiaries, and certain of our consultants and advisors. Incentive stock
options can be issued to all employees (including officers). Nonstatutory stock
options can be issued to employees, non-employee directors, or consultants and
advisors.
The
exercise price for incentive stock options granted under the plan may not be
less than the fair market value of the common stock on the date the option is
granted, except for options granted to 10% stockholders which must have an
exercise price of not less than 110% of the fair market value of the common
stock on the date the option is granted. The exercise price for nonstatutory
stock options is determined by the board of directors, in its sole discretion,
but may not be less than 85% of the fair market value of the Company's common
stock at the date of grant. Incentive stock options granted under the plan have
a maximum term of ten years, except for 10% stockholders who are subject to a
maximum term of five years. The term of nonstatutory stock options is determined
by the Board of Directors. Options granted under the plan are not transferable,
except by will and the laws of descent and distribution.
The board
of directors may grant options with a reload feature. Optionees granted a reload
feature shall receive, contemporaneously with the payment of the option price in
common stock, a right to purchase that number of common shares equal to the sum
of (i) the number of shares of common stock used to exercise the option, and
(ii) with respect to nonstatutory stock options, the number of shares of common
stock used to satisfy any tax withholding requirement incident to the exercise
of such nonstatutory stock option.
Also, the
plan allows the board of directors to award to an optionee for each share of
common stock covered by an option, a related alternate stock appreciation right,
permitting the optionee to be paid the appreciation on the option in lieu of
exercising the option. The amount of payment to which an optionee shall be
entitled upon the exercise of each stock appreciation right shall be the amount,
if any, by which the fair market value of a share of common stock on the
exercise date exceeds the exercise price per share of the
option.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Our
management believes the terms of each of the below transactions are at least as
favorable as could be obtained from unrelated third parties.
During
2001, our subsidiary Enertec Electronics Limited sold a building to Mund Holding
Limited, an entity wholly owned by Harry Mund, our Chief Executive Officer and
President, for approximately $170,320. An independent appraiser and governmental
body, The Capital Gains Authority, determined the sale price. The building was
paid in part with cash in the amount of $93,245, and the balance by a
non-interest bearing loan. There are no written agreements setting for the
repayment terms. The parties have orally agreed that the amount outstanding is
due on demand. As of December 31, 2008, the loan was fully repaid.
Enertec
Electronics rents the building's office and manufacturing space from Mund
Holding Limited for $32,008 annually for twenty-four months ending December
31, 2009.
On
February 28, 2008, we entered into an agreement for the issue and sale of shares
in Lapis Technologies, Inc. and the transfer of shares of Star Night
Technologies Ltd. to us (the “Lapis SPA”), with Harry Mund, and Mordechai
Solomon (the “Investor”). Mr. Mund is the Company’s chief executive officer,
director, and majority stockholder.
In
connection with the Lapis SPA, on February 28, 2008, our indirect wholly owned
subsidiary, Enertec Management Ltd. (“Enertec Management”) (which we own through
our direct wholly owned subsidiary Enertec Electronics Ltd.), entered into an
agreement (the “Systems SPA”) for the sale and purchase of Enertec Systems 2001
Ltd., with Harry Mund, and S.D.S. (Star Defense Systems) Ltd., a company traded
on the Tel Aviv Stock Exchange (“S.D.S.”) whose majority stockholder is
Mordechai Solomon.
In
connection with the Lapis SPA and the Systems SPA, we also entered into, on
February 28, 2008, an agreement with Mund Holdings Ltd., a company owned by
Harry Mund, for the sale of the entire issued and outstanding share capital of
Enertec Electronics Ltd. (the “Electronics SPA”).
The
Investor, on behalf of himself and SDS, verbally informed Enertec, the Company
and Enertec Management that the Investor and SDS will not complete the
transactions contemplated by the Lapis SPA and the Systems SPA. The latter is
evidenced by a report filed by SDS with the Tel Aviv Stock Exchange on September
10, 2008, to inform that it cancels the assembly of its general meeting
scheduled for September 11, 2008 (the “Report”). According to the Report, the
assembly was cancelled pursuant to Mordechai Solomon’s, a controlling
shareholder in SDS, notice to SDS that the transactions contemplated by the
Lapis SPA (and, as a result, the transactions contemplated by the Systems
SPA) will not be completed.
Because
the transactions contemplated by the Lapis SPA and the Systems SPA will not be
completed, the Company will also not complete the transactions contemplated by
the Electronics SPA.
Pursuant
to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 5, 2009, on
December 3, 2009, Mr. Mund transferred to D.L Capital Ltd. (“D.L. Capital”),
3,306,330 shares of the Common Stock of Lapis Technologies,
Inc. The number of shares purchased represents 51% of the issued and
outstanding shares of Lapis Technologies, Inc.’s common stock (the
“Controlling Shares”). Pursuant to the Purchase Agreement, D.L Capital is also
obligated to purchase an additional 1,443,670 shares of the Common Stock
beneficially owned by Mr. Mund, which shares are being held in escrow (the
“Escrowed Shares”). Mr. Mund is Lapis Technologies, Inc.’s Chief Executive
Officer and President, and prior to this transaction was its majority
stockholder.
The
purchase price for the Controlling Shares was 1,000,000 New Israeli Shekels
("NIS") (approximately $260,000) in cash plus the assumption by D.L Capital of
financial liabilities and guarantees in the sum of 11,000,000 NIS (approximately
$2,900,000). In addition, in consideration of the Escrowed Shares D.L Capital
shall pay for a period of three years, a yearly cash payment of the higher
between 1,000,000 NIS or 25% of annual net profit of Enertec System 2001 Ltd.
and shall assume additional financial liabilities and guarantees in the sum of
3,000,000 NIS (approximately $790,000). D.L. Capital’s source of the funds and
liabilities and guarantees assumed was its working capital.
The
Escrowed Shares will be released in accordance with the terms and conditions set
out in the Purchase Agreement.
Pursuant
to the Purchase Agreement, D.L. Capital and Mr. Mund agreed that, as soon as
practicable following the closing under the Purchase Agreement, (i) the Company
or a subsidiary of the Company would enter into an employment agreement with Mr.
Mund pursuant to which Mr. Mund would be employed as a special advisor to the
board of directors of the Company or a subsidiary thereof, for two days per
week, for a term of 3 years, for a salary of 25,000 New Israeli Shekels
(approximately $6,500) per month, (ii) D.L. Capital and Mr. Mund would enter
into a shareholders agreement, pursuant to which Mr. Mund would vote the
Escrowed Shares in accordance with how D.L. Capital shall vote the Controlling
Shares, and Mr. Mund shall receive certain protective provisions relating to his
rights as a minority shareholder, including, without limitation, veto rights in
respect the sale of the majority of the business or assets of the Company, and
(iii) D.L. Capital (directly or indirectly) and the Company would enter into a
consulting agreement under which D.L Capital shall provide Company or any of its
subsidiaries with consulting services for a monthly compensation of 50,000 New
Israeli Shekels (approximately $13,100) per month.
Neither
of our directors are independent as that term is defined under the Nasdaq
Marketplace Rules.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVIES.
AUDIT
FEES
The
aggregate fees billed for professional services rendered by our principal
accountants for the audit of our financial statements, for the reviews of the
financial statements included in our annual report on Form 10-K and Form 10-KSB,
and for other services normally provided in connection with statutory filings
were $16,150 and $20,492 for the years ended December 31, 2009 and 2008,
respectively.
AUDIT-RELATED
FEES
We
incurred fees of $41,900 and $43,600 for the years ended December 31, 2009 and
2008, respectively, for professional services rendered by our principal
accountants that are reasonably related to the performance of the audit or
review of our financial statements and not included in "Audit
Fees."
TAX
FEES
The
aggregate fees billed for professional services rendered by our principal
accountants for tax compliance, tax advice, and tax planning were $2,000 and
$2,000 for the years ended December 31, 2009 and December 31, 2008,
respectively. The services for which such fees were paid consisted of filing our
tax returns for 2009 and 2008.
ALL OTHER
FEES
We did
not incur any fees for other professional services rendered by our principal
accountants during the years ended December 31, 2009 and December 31,
2008.
AUDIT
COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
Our Board
of Directors acts as our audit committee, and consults with respect to audit
policy, choice of auditors, and approval of out of the ordinary financial
transactions.
ITEM 15.
EXHIBITS, FINACIAL STATEMENTS AND SCHEDULES.
|
Exhibit
Number
|
Description
|
|
|
3.1
|
Certificate
of Incorporation of Enertec Electronics, Inc. filed January 31, 2002
(Incorporated by reference to our registration statement on Form SB-2
(File No. 333-100979), filed with the Securities and Exchange Commission
on November 4, 2002)
|
|
|
3.2
|
Certificate
of Amendment of Enertec Electronics, Inc. filed April 23, 2002
(Incorporated by reference to our registration statement on Form SB-2
(File No. 333-100979), filed with the Securities and Exchange Commission
on November 4, 2002)
|
|
|
3.3
|
Certificate
of Amendment of Opal Technologies, Inc. filed October 17, 2002
(Incorporated by reference to our registration statement on Form SB-2
(File No. 333-100979), filed with the Securities and Exchange Commission
on November 4, 2002)
|
|
|
3.4
|
By-Laws
of Lapis Technologies, Inc. (Incorporated by reference to our registration
statement on Form SB-2 (File No. 333-100979), filed with the Securities
and Exchange Commission on November 4, 2002)
|
|
|
10.1
|
Employment
Agreement, dated August 12, 2009, between Harry Mund and Enertec Systems
2001 Ltd.
|
|
|
10.2
|
Consulting
Agreement, dated August 12, 2009, between D.L. Capital Ltd. and Enertec
Systems 2001 Ltd.
|
|
|
14.1
|
Code
of Ethics (Incorporated by reference to our annual report on Form 10-KSB
for the fiscal year ended December 31, 2003, filed with the Securities and
Exchange Commission on June 28, 2004)
|
|
|
16.1
|
Letter
from Rogoff & Company dated April 1, 2004 (Incorporated by reference
to our current report on Form 8-K filed with the Securities and Exchange
Commission on July 6, 2004)
|
|
|
21.1
|
List
of Subsidiaries
|
|
|
31.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act
|
|
|
31.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act
|
|
|
32.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code
|
|
|
32.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
United States Code
|
SIGNATURES
In
accordance with Section 13 or 15(d) 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:
March 31, 2010
|
By:
|
/s/ Harry Mund
|
|
Harry
Mund
|
||
|
Chief
Executive Officer
|
||
|
Principal
Executive Officer
|
||
|
Date:
March 31, 2010
|
By:
|
/s/ Miron Markovitz
|
|
Miron
Markovitz
|
||
|
Chief
Financial Officer and
|
||
|
Principal
Accounting Officer
|
||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signature
|
Title
|
Date
|
||
|
/s/ Harry Mund
|
Chief
Executive Officer and Chairman of the Board
|
March
31, 2010
|
||
|
Harry
Mund
|
||||
|
/s/ Miron Markovitz
|
Director,
Chief Financial Officer and Principal Accounting Officer
|
March
31, 2010
|
||
|
Miron
Markovitz
|
Independent
Auditors' Report
To the
Stockholders' and the Board of Directors of
Lapis
Technologies, Inc.
We have
audited the accompanying consolidated balance sheet of Lapis Technologies, Inc.
and Subsidiaries (the "Company") as of December 31, 2009 and 2008, and the
related consolidated statements of income, changes in stockholders' equity and
comprehensive income and cash flows for each of the two years in the period
ended December 31, 2009. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Lapis Technologies, Inc.
and Subsidiaries as of December 31, 2009 and 2008 and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Gville and Co.
Gvilli
& Co.
March 22,
2010
Casarea,
Israel
CONSOLIDATED
BALANCE SHEET
(In
Thousands, Except Share Amounts)
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 313 | $ | 763 | ||||
|
Accounts
receivable
|
4,307 | 4,884 | ||||||
|
Inventories
|
3,577 | 4,305 | ||||||
|
Prepaid
expenses and other current assets
|
159 | 91 | ||||||
|
Due
from stockholder
|
- | - | ||||||
|
Total
Current Assets
|
8,356 | 10,043 | ||||||
|
Property
and equipment, net
|
116 | 202 | ||||||
|
Deferred
income taxes
|
20 | 20 | ||||||
| $ | 8,492 | $ | 10,265 | |||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Bank
line of credit
|
$ | 96 | $ | 1,248 | ||||
|
Short
term bank loans
|
2,990 | 4,124 | ||||||
|
Current
portion of term loans
|
88 | 197 | ||||||
|
Accounts
payable and accrued expenses
|
2,279 | 2,660 | ||||||
|
Due
to affiliates & stockholders
|
1,033 | 79 | ||||||
|
Due
to stockholder
|
- | 13 | ||||||
|
Income
taxes payable
|
4 | 16 | ||||||
|
Total
Current Liabilities
|
6,490 | 8,337 | ||||||
|
Term
loans, net of current portion
|
310 | 52 | ||||||
|
Severance
payable
|
197 | 190 | ||||||
| 6,997 | 8,579 | |||||||
|
Commitments
and contingencies
|
||||||||
|
Minority
interest
|
508 | 501 | ||||||
|
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 loss
|
201 | 108 | ||||||
|
Retained
Earnings
|
702 | 993 | ||||||
|
Total
Stockholders' Equity
|
987 | 1,185 | ||||||
| $ | 8,492 | $ | 10,265 | |||||
The
accompanying notes are an integral part of these financial
statements.
CONSOLIDATED
STATEMENTS OF INCOME
(In
Thousands, Except Earnings Per Share and Share Amounts)
|
Years
Ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Sales
|
9,090 | $ | 10,464 | |||||
|
Cost
of sales
|
6,848 | 7,552 | ||||||
|
Gross
profit
|
2,242 | 2,912 | ||||||
|
Operating
Expenses:
|
||||||||
|
Research
and development expenses
|
251 | 143 | ||||||
|
Selling
expenses
|
150 | 194 | ||||||
|
General
and administrative
|
1,549 | 1,843 | ||||||
|
Total
operating expenses
|
1,950 | 2,180 | ||||||
|
Income
from operations
|
292 | 732 | ||||||
|
Other
Income (Expense):
|
||||||||
|
Interest
expense, net
|
(355 | ) | (493 | ) | ||||
|
Other
income
|
(49 | ) | - | |||||
|
Foregiveness
of debt
|
||||||||
|
Total
other income (expense)
|
(404 | ) | (493 | ) | ||||
|
Income
before provision for income taxes and minority interest
|
(112 | ) | 239 | |||||
|
Provision
for income taxes
|
4 | 17 | ||||||
|
Minority
interest
|
(4 | ) | (51 | ) | ||||
|
Net
income (loss)
|
$ | (120 | ) | $ | 171 | |||
|
Basic
net income (loss) per share
|
$ | (0.02 | ) | $ | 0.03 | |||
|
Basic
weighted average common shares outstanding
|
6,483,000 | 6,483,000 | ||||||
The
accompanying notes are an integral part of these financial
statements.
LAPIS
TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS)
YEARS
ENDED DECEMBER 31, 2009 AND 2008
(In
Thousands, Except Share Amounts)
|
Accumulated
|
||||||||||||||||||||||||||||
|
Other
|
Total
|
|||||||||||||||||||||||||||
|
Common
Stock
|
Additional
|
Comprehensive
|
Retained
|
Stockholders'
|
Comprehensive
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
Loss
|
Earnings
|
Equity
|
Income
|
||||||||||||||||||||||
|
Balance,
January 1, 2007
|
6,483,000 | 6 | 78 | (30 | ) | 842 | 896 | |||||||||||||||||||||
|
Foreign
currency translation adjustment
|
122 | 16 | 138 | $ | 138 | |||||||||||||||||||||||
|
Net
income (loss)
|
|
|
|
|
97 | 97 | 97 | |||||||||||||||||||||
|
Balance,
12-31-07
|
6,483,000 | 6 | 78 | $ | 92 | $ | 955 | $ | 1,131 | $ | 235 | |||||||||||||||||
|
Foreign
currency translation adjustment
|
16 | (133 | ) | (117 | ) | $ | (117 | ) | ||||||||||||||||||||
|
Net
income (loss)
|
171 | 171 | 171 | |||||||||||||||||||||||||
|
Balance,
12-31-08
|
6,483,000 | 6 | 78 | 108 | 993 | 1,185 | $ | 54 | ||||||||||||||||||||
|
Foreign
currency translation adjustment
|
93 | (171 | ) | (78 | ) | $ | (78 | ) | ||||||||||||||||||||
|
Net
income (loss)
|
- | - | - | - | (120 | ) | (120 | ) | (120 | ) | ||||||||||||||||||
|
Balance,
12-31-09
|
6,483,000 | $ | 6 | $ | 78 | $ | 201 | $ | 702 | $ | 987 | $ | (198 | ) | ||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
Thousands)
|
Years
Ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income (loss)
|
$ | (120 | ) | $ | 171 | |||
|
Adjustments
to reconcile net income to net cash used in operating
activities:
|
||||||||
|
Depreciation
and amortization
|
65 | 111 | ||||||
|
Minority
interest
|
7 | 53 | ||||||
|
Gain
on sale of property and equipment
|
58 | - | ||||||
|
Deferred
income tax
|
- | |||||||
|
Change
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
577 | 530 | ||||||
|
Inventories
|
728 | (569 | ) | |||||
|
Prepaid
expenses and other current assets
|
(68 | ) | 27 | |||||
|
Accounts
payable and accrued expenses
|
(258 | ) | 342 | |||||
|
Income
taxes payable
|
(12 | ) | 14 | |||||
|
Severance
payable
|
7 | 14 | ||||||
|
Net
cash used in operating activities
|
984 | 693 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Proceeds
from sale of property and equipment
|
2 | - | ||||||
|
Purchase
of property and equipment
|
(39 | ) | (46 | ) | ||||
|
(Increase)
decrease in due from stockholder
|
1,048 | 62 | ||||||
|
(Increase)
decrease in due from affiliates
|
(230 | ) | 16 | |||||
|
Net
cash (used in) provided by investing activities
|
781 | 32 | ||||||
|
Cash
flows from financing activities:
|
||||||||
|
Increase
(decrease) in bank line of credit, net
|
(1,152 | ) | (114 | ) | ||||
|
Proceeds
from long term debt
|
7,073 | 7,568 | ||||||
|
Repayment
of long-term debt
|
(8,058 | ) | (7,550 | ) | ||||
|
Net
cash provided by financing activities
|
(2,137 | ) | (95 | ) | ||||
|
Effects
of exchange rates on cash
|
(78 | ) | - | |||||
|
Increase
(decrease) in cash
|
(450 | ) | 630 | |||||
|
Cash,
beginning of period
|
763 | 133 | ||||||
|
Cash,
end of period
|
$ | 313 | $ | 763 | ||||
The
accompanying notes are an integral part of these financial
statements.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
Thousands)
|
Years
Ended
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 351 | $ | 469 | ||||
|
Income
taxes
|
$ | 45 | $ | 28 | ||||
|
Supplemental
disclosure of non-cash financing activities:
|
||||||||
|
Common
stock issued for services
|
$ | - | $ | - | ||||
The
accompanying notes are an integral part of these financial
statements.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 1 -
DESCRIPTION OF BUSINESS AND ACQUISITION
Lapis
Technologies, Inc. (the “Company”) was incorporated in the State of Delaware on
January 31, 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.
On
January 1, 2002 Enertec assisted in the organization of Systems in exchange for
25% of the common stock of Systems. This investment was accounted for
under the equity method. Systems is engaged in the manufacturing of
electronic components primarily for military use. On December 31,
2002 Enertec increased its common stock ownership interest in Systems to 55% for
$71, which was included in accounts payable and accrued expenses in the
accompanying consolidated balance sheet at December 31, 2002. This
amount was paid during January 2003.
NOTE 2 –
BASIS OF PRESENTATION
The
accompanying consolidated financial statements present the results of operations
of the Company for the years ended December 31, 2009 and 2008 and their wholly
owned subsidiary
Enertec
Electronics Ltd.
and their ownership interest in
Enertec Systems 2001
Ltd.
All material intercompany accounts and transactions have
been eliminated in consolidation.
NOTE 3 -
SUMMARY OF SIGNIFICANT 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.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Cash and
Cash Equivalents
For the
purpose of the statement of cash flows the Company considers all highly liquid
investments with an original maturity of three months or less at the time of
purchase to be cash equivalents.
Allowance
for Doubtful Accounts
The
Company estimates uncollectibility of accounts receivable by analyzing
historical bad debts, customer concentrations, customer credit worthiness and
current economic trends when evaluating the adequacy of the allowance for
doubtful accounts. At December 31, 2009 the Company has not recorded
an allowance for doubtful accounts.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out basis) or
market.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and
amortization. Routine maintenance and repairs and minor replacement
costs are charged to expense as incurred, while expenditures that extend the
life of these assets are capitalized. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives. The Company uses the same
depreciation method for both financial reporting and tax
purposes. Upon the sale or retirement of property and equipment, the
cost and related accumulated depreciation and amortization will be removed from
the accounts and the resulting profit or loss will be reflected in the statement
of income. The estimated lives used to determine depreciation and
amortization are:
|
Leasehold
improvements
|
10
years
|
|
Machinery
and equipment
|
10
years
|
|
Furniture
and fixtures
|
14
years
|
|
Transportation
equipment
|
7
years
|
|
Computer
equipment
|
3
years
|
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income
Taxes
The
Company uses the liability method of accounting for income taxes as required by
Statement of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for
Income Taxes.” Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
it is determined that it is more likely than not that the deferred tax assets
will not be realized.
Warranty
Reserves
The
Company includes a one-year warranty on all products sold. A
provision for estimated warranty costs, if material, is recorded at the time of
sale. Based upon historical experience the Company has not incurred
material costs relating to its warranty and has therefore not recorded a
warranty provision at December 31, 2009.
Revenue
Recognition and Customer Deposits
Revenue
is recorded as product is shipped, the price has been fixed or determined,
collectability is reasonably assured and all material specific performance
obligations have been completed. The product sold by the Company is made to the
specifications of each customer; sales returns and allowances are allowed on a
case-by-case basis, are not material to the financial statements and are
recorded as an adjustment to sales.
Cash payments received
in advance are recorded as customer deposits.
Revenue
relating to service is recognized on the straight-line basis over the life of
the agreement, generally one year. For the years ended December 31,
2009 and 2008 revenue relating to service contracts is less than one percent of
net sales.
Shipping
and Handling Costs
Shipping
and handling costs are included in cost of sales in accordance with guidance
established by the Emerging Issues Task Force (“EITF”) issue No. 00-10,
“Accounting for Shipping and Handling Costs.”
Stock
Based Compensation
Effective
January 1, 2003 the Company adopted the fair method value alternative of SFAS
No. 148, “Accounting for Stock-Based Compensation-Transition and
Disclosure.” Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. For
stock options, fair value is determined using an option-pricing model that takes
into account the stock price at the grant date, the exercise price, the expected
life of the option, the volatility of the underlying stock and the expected
dividends on it, and the risk-free interest rate over the expected life of the
option. For the years ended December 31, 2009 and 2008 the Company
did not issued any stock options.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Research
and Development Costs
Research
and development costs are charged to general and administrative expense in the
accompanying statement of income and consist of salaries. Research
and development cost for the years ended December 31, 2009 and 2008 were
approximately $251and $ 143 respectively.
Earnings
per Share
The
Company presents basic earnings per share and, if appropriate, diluted earnings
per share in accordance with the provisions of SFAS No. 128 “Earnings per Share”
(“SFAS 128”).
Under
SFAS 128 basic net earnings per share is computed by dividing the net earnings
for the year by the weighted average number of common shares outstanding during
the year. Diluted net earnings per share is computed by dividing the
net earnings for the year by the weighted average number of common shares and
common share equivalents outstanding during the year. Common stock
equivalents would arise from the granting of stock options. For the
years ended December 31, 2009, and 2008 the Company did not grant any stock
options. Diluted earnings per share is not included as it is the same
as basic for all periods shown.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever circumstances and
situations change such that there is an indication that the carrying amounts may
not be recovered. In such circumstances, the Company will estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. Future cash flows are the future cash inflows expected
to be generated by an asset less the future outflows expected to be necessary to
obtain those inflows. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, the Company will recognize an impairment loss to adjust to the fair
value of the asset. Management believes that there is no impairment
of long-lived assets at December 31, 2009.
Minority
Interest
Minority
interest represents the minority stockholders' proportionate share of the equity
of the Company's subsidiary at December 31, 2009. The minority
interest is adjusted for the minority's share of the earnings or loss of
Systems.
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 December 31, 2009 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 December 31, 2009. The carrying value
of the long-term debt approximate fair value at December 31, 2009 based upon
debt terms available for companies under similar terms.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Comprehensive
Income (Loss)
Comprehensive
income (loss) consists of net income for the year and foreign currency
translation adjustments.
Foreign
Currency Translation
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 year. Resulting translation adjustments, if
material, are recorded as a separate component of accumulated other
comprehensive income or loss.
Use of
Estimates
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required 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.
Reclassification
Certain
reclassifications have been made to the prior year’s financial statements in
order to conform to the current year presentation.
New
Accounting Pronouncements
In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting. SFAS 168 represents the last
numbered standard to be issued by FASB under the old (pre-Codification)
numbering system, and amends the GAAP hierarchy. On July 1, FASB launched the
new FASB’s Codification (full name: the FASB Accounting Standards Codification
TM.) The Codification supersedes existing GAAP for nongovernmental entities;
governmental entities will continue to follow standards issued by FASB's sister
organization, the Governmental Accounting Standards Board (GASB). This
pronouncement has no effect on the Company’s financial
statements.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 3 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In
June 2009, the FASB issued SFAS No. 167, a revision to FASB Interpretation No.
46(R), Consolidation of Variable Interest Entities, 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 SFAS
No. 167, 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. SFAS 167 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 SFAS No. 167 will have a material effect
on its financial position, results of operations or cash flows.
In June
2009, the FASB issued SFAS No. 166, a revision to SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
and will require more information about transferred of financial assets and
where companies have continuing exposure to the risks related to transferred
financial assets. SFAS 166 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 SFAS No. 140 will have a material effect on its financial
position, results of operations or cash flows.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165
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. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company does not expect the adoption of SFAS No. 165 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.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 4 -
INVENTORIES
Inventories
consist of the following at December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$ | 916 | $ | 955 | ||||
|
Work
in process
|
2,532 | 3,075 | ||||||
|
Finished
goods
|
128 | 275 | ||||||
| $ | 3,577 | $ | 4,305 | |||||
NOTE 5 -
PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at December 31, 2008
|
2008
|
||||||||
|
Leasehold
improvements
|
$ | 96 | $ | 123 | ||||
|
Machinery
and equipment
|
9 | 15 | ||||||
|
Furniture
and fixtures
|
154 | 60 | ||||||
|
Transportation
equipment
|
162 | 252 | ||||||
|
Computer
equipment
|
350 | 594 | ||||||
| 771 | 1,044 | |||||||
|
Less
accumulated depreciation and amortization
|
655 | 842 | ||||||
| $ | 116 | $ | 202 | |||||
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 6 -
INCOME TAXES
The
provision for income taxes consists of the following for the years ended
December 31:
|
2009
|
2008
|
|||||||
|
Current:
|
||||||||
|
Foreign
|
$ | 4 | $ | 17 | ||||
|
Deferred:
|
||||||||
|
Foreign
|
$ | - | $ | - | ||||
|
Total
provision for income taxes
|
$ | 4 | $ | 17 | ||||
NOTE 6 -
INCOME TAXES – (continued)
At
December 31, 2009 the Company has a net operating loss carryforward of
approximately $370 which may be utilized to offset future taxable income for
United States Federal tax purposes. This net operating loss carryforward begins
to expire in 2022. The only timing difference which creates a
deferred tax asset is the net operating loss carryforward. This net
operating loss carryforward creates a deferred tax asset of approximately
$10. Since it is more likely than not that the Company will not
realize a benefit from these net operating loss carryforwards a 100% valuation
allowance has been recorded to reduce the deferred tax asset to its net
realizable value.
Deferred
tax assets are classified as current or non-current, according to the
classification of the related asset or liability for financial
reporting. At December 31, 2008 the Company’s wholly owned Israeli
subsidiary has a deferred tax asset of approximately $20, due to timing
differences relating to severance payable. The Israeli subsidiary has not
recorded a valuation allowance as it is more likely than not that the timing
differences will be utilized.
The
following is a summary of the components of non-current deferred tax assets at
December 31, 2008:
|
Severance payable
|
$ | 20 | ||
|
Net
operating loss carryforward
|
370 | |||
|
Valuation
allowance
|
(370 | ) | ||
|
Deferred
tax assets
|
$ | 20 |
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 6 -
INCOME TAXES - continued
Differences
between the United States Federal statutory income tax rate and the effective
tax rate are as follows for the years ended December 31:
|
2009
|
2008
|
|||||||
|
Federal
statutory rate
|
34.0 | % | 34.0 | % | ||||
|
Valuation
Allowance
|
(34.0 | ) | (34.0 | ) | ||||
|
Effect
of foreign taxes
|
0.0 | 7.0 | ||||||
| 0.0 | 7.0 | |||||||
NOTE 7 -
LONG-TERM DEBT
Long-term
debt consists of the following at December 31, 2009 and 2008:
|
2009
|
2008
|
|||||||
|
Bank
line of credit due December 31, 2009 at 6.7% per annum
|
$ | 96 | $ | 1,248 | ||||
|
Short-term
bank loans, payable within twelve months at rates
ranging
from 5.5% per annum and 7.5% per annum
|
2,990 | 4,124 | ||||||
|
Long
Term loans, due between January 2010 and June 2014 at rates ranging from
7.25%per annum and 8.15% per annum
|
398 | 249 | ||||||
| 3,484 | 5,621 | |||||||
|
Less
current portion of term loans
|
3,174 | 5,569 | ||||||
| $ | 310 | $ | 52 | |||||
The
Company has pledged its
working
capital including its
accounts receivables as collaterals against its
long term debt, which is payable to several financial
institutions. In addition,
two of
the company’s officers have pledged personal assets as collateral
for the
Company’s debt as defined in the agreement.
The
aggregate maturities of long-term debt are as follows at December 31,
2009
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 8 -
SEVERANCE PAYABLE
Severance
payable represents amounts computed on employees’ most recent salary and the
number of years working in Israel. The Company’s liability is partially offset
by amounts deposited to insurance policies, which are under the company’s
control.
NOTE 9 –
STOCK OPTION PLAN
On
October 16, 2002 the Board of Directors of the Company authorized the formation
of the 2002 Stock Option Plan (the “Plan”), subject to stockholder
approval. The Plan provides for the granting of incentive stock
options, non-statutory stock options and stock appreciation
rights. The incentive stock options can be granted to employees,
including officers, or any subsidiary of the Company. The
non-statutory stock options can be granted to all employees, including officers,
non-employee directors, consultants or any subsidiary of the Company.
Non-statutory stock options can only be granted to consultants that have
rendered a bona fide service to the Company, so long as the service is not in
connection with the offer or sale of securities in a capital raising
transaction. The number of shares of common stock reserved for
issuance under the Plan is 500,000, subject to adjustment in the event of a
stock split, stock dividend, recapitalization or similar change in the Company’s
capital structure.
Incentive
stock options must be granted prior to ten years from the date the Plan was
initially adopted by the Board of Directors. The option price for
shares issued as incentive stock options shall not be less than the fair market
value of the Company’s common stock at the date of grant unless the option is
granted to an individual who, at the date of the grant, owns more than 10% of
the total combined voting power of all classes of the Company’s stock (the
“Principal Stockholder”). Then the option price shall be at least
110% of the fair market value at the date the option is granted. No
incentive stock option granted under the Plan shall be exercisable after ten
years from its grant date. If the incentive stock option is granted
to a Principal Stockholder then the exercise period is five years from the date
of grant. Every incentive stock option granted under the Plan shall
be subject to earlier termination as expressly provided for in the
Plan.
NOTE 9 –
STOCK OPTION PLAN - continued
The
option price for shares issued under the non-statutory stock options shall be
determined at the sole discretion of the Board of Directors, but may not be less
than 85% of the fair market value of the may
be of such duration as shall be determined by the Board of
Directors.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 10 –
RELATED PARTIES
Due to
Stockholder
At
December 31, 2009 the majority stockholder had advanced the Company a total of
$1,060.
NOTE 11 –
RELATED PARTIES - continued
Due from
Affiliate
During
2001 the Company entered into a sale-leaseback transaction with an entity owned
by the majority stockholder of the Company. The Company sold a
building for approximately $170 and received approximately $113 in cash and a
note receivable for $57, which was paid in full during the year ended December
31, 2003. No gain or loss was recorded on this transaction, as the
book value of the building equaled the fair market value. The Company
has agreed to exercise its option to rent this property through December 31,
2008 at approximately $32 annually with an option to renew the lease for an
additional two years ending December 31, 2010 This lease has been
classified as an operating lease.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 12 -
COMMITMENTS AND CONTINGENCIES
Lease
commitments
The
Company leases certain office and manufacturing space under two non-cancellable
operating leases expiring at December 31, 2010 and March 31,
2010. Rent expense, including municipal tax
es and
utilities associated with the leases approximated $84 and $65, respectively, for
the years ended December 31, 2009 and 2008.
At
December 31, 2009, total minimum rentals under noncancellable operating leases
with an initial or remaining term lease term of one year or more are as
follows:
|
Year
Ending
|
||||
|
December 31:
|
||||
|
2009
|
$ | 63 | ||
Legal
proceedings
We are
not subject to any pending or threatened legal proceedings, nor is our property
the subject of a pending or threatened legal proceeding. None of our directors,
officers or affiliates is involved in a proceeding adverse to our business or
has a material interest adverse to our business.
NOTE 12 -
CONCENTRATIONS
The
Company had deposits with commercial financial institutions, which, at times,
may exceed the FDIC insured limits of $100 in the United
States. Management has placed these funds in high quality
institutions in order to minimize the risk. Cash held in Israel at
December 31, 2087 was $ 763 and at December 31, 2009 was $313
As of
December 31, 2009, we had two customers that accounted for approximately 68.2%
of accounts receivable. For the years ended December 31, 2009 and 2008
approximately 66.6% and 63.4% of our sales were to two customers
respectively.
NOTE 13-
SEGMENT AND GEOGRAPHIC INFORMATION
Information
about the Company's assets in different geographic locations at December 31,
2009 is shown below pursuant to the provisions of SFAS 131, “Disclosures About
Segments of an Enterprise and Related Information.”
|
Total
assets:
|
||||
|
Israel
|
$ | 9,976 | ||
|
United
States
|
1,050 | |||
| $ | 11,026 | |||
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 14 –
CHANGE OF CONTROL
Pursuant
to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 5, 2009, on
December 3, 2009, Mr. Mund transferred to D.L Capital Ltd. (“D.L. Capital”),
3,306,330 shares of the Common Stock of Lapis Technologies,
Inc. The number of shares purchased represents 51% of the issued and
outstanding shares of Lapis Technologies, Inc.’s common stock (the
“Controlling Shares”). Pursuant to the Purchase Agreement, D.L Capital is also
obligated to purchase an additional 1,443,670 shares of the Common Stock
beneficially owned by Mr. Mund, which shares are being held in escrow (the
“Escrowed Shares”). Mr. Mund is Lapis Technologies, Inc.’s Chief Executive
Officer and President, and prior to this transaction was its majority
stockholder.
The
purchase price for the Controlling Shares was 1,000,000 New Israeli Shekels
("NIS") (approximately $260,000) in cash plus the assumption by D.L Capital of
financial liabilities and guarantees in the sum of 11,000,000 NIS (approximately
$2,900,000). In addition, in consideration of the Escrowed Shares D.L Capital
shall pay for a period of three years, a yearly cash payment of the higher
between 1,000,000 NIS or 25% of annual net profit of Enertec System 2001 Ltd.
and shall assume additional financial liabilities and guarantees in the sum of
3,000,000 NIS (approximately $790,000). D.L. Capital’s source of the funds and
liabilities and guarantees assumed was its working capital.
The
Escrowed Shares will be released in accordance with the terms and conditions set
out in the Purchase Agreement.
Pursuant
to the Purchase Agreement, D.L. Capital and Mr. Mund agreed that, as soon as
practicable following the closing under the Purchase Agreement, (i) the Company
or a subsidiary of the Company would enter into an employment agreement with Mr.
Mund pursuant to which Mr. Mund would be employed as a special advisor to the
board of directors of the Company or a subsidiary thereof, for two days per
week, for a term of 3 years, for a salary of 25,000 New Israeli Shekels
(approximately $6,500) per month, (ii) D.L. Capital and Mr. Mund would enter
into a shareholders agreement, pursuant to which Mr. Mund would vote the
Escrowed Shares in accordance with how D.L. Capital shall vote the Controlling
Shares, and Mr. Mund shall receive certain protective provisions relating to his
rights as a minority shareholder, including, without limitation, veto rights in
respect the sale of the majority of the business or assets of the Company, and
(iii) D.L. Capital (directly or indirectly) and the Company would enter into a
consulting agreement under which D.L Capital shall provide Company or any of its
subsidiaries with consulting services for a monthly compensation of 50,000 New
Israeli Shekels (approximately $13,100) per month.
Change of
Control
Pursuant
to a Stock Purchase Agreement (the “Purchase Agreement”), dated July 5, 2009, on
December 3, 2009, Mr. Mund transferred to D.L Capital Ltd. (“D.L. Capital”),
3,306,330 shares of the Common Stock of Lapis Technologies,
Inc. The number of shares purchased represents 51% of the issued and
outstanding shares of Lapis Technologies, Inc.’s common stock (the
“Controlling Shares”). Pursuant to the Purchase Agreement, D.L Capital is also
obligated to purchase an additional 1,443,670 shares of the Common Stock
beneficially owned by Mr. Mund, which shares are being held in escrow (the
“Escrowed Shares”). Mr. Mund is Lapis Technologies, Inc.’s Chief Executive
Officer and President, and prior to this transaction was its majority
stockholder.
LAPIS
TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009
(In
Thousands, Except Share and Per Share Amounts)
NOTE 14 –
CHANGE OF CONTROL
-
continued
The
purchase price for the Controlling Shares was 1,000,000 New Israeli Shekels
("NIS") (approximately $260,000) in cash plus the assumption by D.L Capital of
financial liabilities and guarantees in the sum of 11,000,000 NIS (approximately
$2,900,000). In addition, in consideration of the Escrowed Shares D.L Capital
shall pay for a period of three years, a yearly cash payment of the higher
between 1,000,000 NIS or 25% of annual net profit of Enertec System 2001 Ltd.
and shall assume additional financial liabilities and guarantees in the sum of
3,000,000 NIS (approximately $790,000). D.L. Capital’s source of the funds and
liabilities and guarantees assumed was its working capital.
The
Escrowed Shares will be released in accordance with the terms and conditions set
out in the Purchase Agreement.
Pursuant to the Purchase Agreement,
D.L. Capital and Mr. Mund agreed that, as soon as practicable following the
closing under the Purchase Agreement, (i) the Company or a subsidiary of the
Company would enter into an employment agreement with Mr. Mund pursuant to which
Mr. Mund would be employed as a special advisor to the board of directors of the
Company or a subsidiary thereof, for two days per week, for a term of 3 years,
for a salary of 25,000 New Israeli Shekels (approximately $6,500) per month,
(ii) D.L. Capital and Mr. Mund would enter into a shareholders’ agreement,
pursuant to which Mr. Mund would vote the Escrowed Shares in accordance with how
D.L. Capital shall vote the Controlling Shares, and Mr. Mund shall receive
certain protective provisions relating to his rights as a minority shareholder,
including, without limitation, veto rights in respect the sale of the majority
of the business or assets of the Company, and (iii) D.L. Capital (directly or
indirectly) and the Company would enter into a consulting agreement under which
D.L Capital shall provide Company or any of its subsidiaries with consulting
services for a monthly compensation of 50,000 New Israeli Shekels
(approximately $13,100) per month
.
F-19
