UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER ________________________________
LAPIS TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 27-0016420
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
19 W. 34th Street, Suite 1008, New York, NY 10001
(Address of principal executive offices)
Issuer's telephone Number: (212) 937-3580
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of August 12, 2005, the
issuer had 5,483,000 outstanding shares of Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements..........................................1
Item 2. Management's Discussion and Analysis or Plan of Operation.....6
Item 3. Controls and Procedures.......................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..10
Item 3. Defaults Upon Senior Securities..............................10
Item 4. Submission of Matters to a Vote of Security Holders..........10
Item 5. Other Information............................................10
Item 6. Exhibits and Reports on Form 8-K.............................10
SIGNATURES.................................................................11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 272
Accounts receivable 2,880
Inventories 2,263
Prepaid expenses and other current assets 628
Due from stockholder 10
------------
Total current assets 6,053
Property and equipment, net 365
Deferred income taxes 19
------------
$ 6,437
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit $ 925
Short term bank loans 1,894
Current portion of term loans 144
Accounts payable and accrued expenses 1,312
Income taxes payable 233
------------
Total current liabilities 4,508
Term loans, net of current portion 166
Severance payable 56
------------
Total liabilities 4,730
------------
Commitments and contingencies
Minority interest 502
Stockholders' Equity:
Preferred stock; $.001 par value, 5,000,000 shares authorized, none issued --
Common stock; $.001 par value, 100,000,000 shares authorized, 5,483,000
shares issued and outstanding 5
Additional paid-in capital 78
Accumulated other comprehensive loss (129)
Retained Earnings 1,251
------------
Total stockholders' equity 1,205
------------
$ 6,437
============
The accompanying notes are an integral part of these financial statements.
1
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share and Share Amounts)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Sales $ 3,531 $ 2,688 1,866 1,567
Cost of sales 2,207 1,532 966 774
------------ ------------ ------------ ------------
Gross profit 1,324 1,156 900 793
------------ ------------ ------------ ------------
Operating expenses:
Selling expenses 29 7 6 5
General and administrative 683 649 399 397
------------ ------------ ------------ ------------
Total operating expenses 712 656 405 402
------------ ------------ ------------ ------------
Income from operations 612 500 495 391
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (119) (118) (58) (45)
------------ ------------ ------------ ------------
Income before provision for income taxes and minority interest 493 382 437 346
Provision for income taxes 67 42 11 33
Minority interest (165) (135) (215) (126)
------------ ------------ ------------ ------------
Net income 261 205 211 187
Other comprehensive (loss) income, net of taxes
Foreign translation (loss) gain (72) (43) (61) 5
------------ ------------ ------------ ------------
Comprehensive (loss) income $ 189 $ 162 $ 150 $ 192
============ ============ ============ ============
Basic net loss per share $ 0.05 $ 0.04 $ 0.04 $ 0.03
============ ============ ============ ============
Basic weighted average common shares outstanding 5,483,000 5,483,000 5,483,000 5,483,000
============ ============ ============ ============
2
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------------
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 261 $ 205
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 91 69
Minority interest 129 141
Deferred income tax 1 1
Change in operating assets and liabilities:
Accounts receivable (336) 772
Inventories 11 (511)
Prepaid expenses and other current assets (261) 49
Accounts payable and accrued expenses (210) (487)
Income tax payable 54 (39)
Customer deposits and other current liabilities 71 1
------------ ------------
Net cash provided by (used in) operating activities (189) 201
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (42) (14)
Increase in due from stockholder 348 (153)
(Increase) decrease in due from affiliates 1 39
------------ ------------
Net cash used in investing activities 307 (128)
------------ ------------
Cash flows from financing activities:
Increase in bank line of credit, net 223 (392)
Proceeds from long term debt 1,881 1,907
Repayment of long-term debt (2,002) (1,711)
------------ ------------
Net cash (used in) provided by financing activities 102 (196)
------------ ------------
Effects of exchange rates on cash (72) (18)
------------ ------------
Increase (decrease) in cash 148 (141)
Cash, beginning of period 124 181
------------ ------------
Cash, end of period $ 272 $ 40
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ 118
============ ============
Income taxes $ -- $ 21
============ ============
3
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
JUNE 30, 2005
NOTE 1 - DESCRIPTION OF BUSINESS
Lapis Technologies, Inc. (the "Company") was incorporated in the State of
Delaware on January 31, 2002. The Company was originally named Enertec
Electronics, Inc. and on April 23, 2002 changed its name to Opal
Technologies, Inc. which changed its name to Lapis Technologies, Inc. on
October 3, 2002. The Company's operations are conducted through its
wholly-owned Israeli Subsidiary, Enertec Electronics Ltd. ("Enertec") and
its majority owned Israeli subsidiary Enertec Systems 2001 LTD ("Systems").
Enertec is engaged in the manufacturing, distribution and marketing of
electronic components and products relating to power supplies, converters
and related power conversion products, automatic test equipment, simulators
and various military and airborne systems, within the State of Israel.
NOTE 2 - BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying unaudited consolidated financial statements and related
footnotes have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
statements and pursuant to the rules and regulations of the Securities and
Exchange Commission for Form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. For further information read the financial statements
and footnotes thereto included in the Company's Annual Report to be filed
in accordance with the rules and regulations of the Securities and Exchange
Commission on Form 10-KSB for the year ended December 31, 2004. The results
of operations for the six and three months ended June 30, 2005 are not
necessarily indicative of the operating results that may be expected for
the year ending December 31, 2005.
The accompanying financial statements include the accounts of the Company
and their ownership interest in its subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock based compensation
The Company has adopted Statement of Financial Accounting Statement
("SFAS") No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), and provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The Company has adopted
the fair value method of accounting as discussed in SFAS 123 as of January
1, 2003. Accordingly, stock options, when issued, will be recorded in
accordance with the terms of that document.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
4
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
JUNE 30, 2005
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Recent Accounting Pronouncements
In December 2003 the FASB issued SFAS No. 132 (revised) "Employers'
Disclosures about Pensions and Other Post Retirement Benefits," that
improves the financial statement disclosures for defined benefit plans. The
revision changes the existing disclosure requirements for pensions by
requiring company's to provide more details about their plan assets,
benefit obligations, cash flows, benefit costs and other relevant
information. The Company does not have a defined benefit pension plan so
the adoption of this statement will have no effect on the Company's
financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE 4 - PROVISION FOR INCOME TAXES -
The income tax expense for the six months ended June 30, 2005 is based upon
the income tax laws of Israel. Israeli tax law does not allow a parent
company to offset its' income with losses from any of its subsidiaries.
5
Item 2. Management's Discussion and Analysis or Plan of Operation.
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of such terms, or other comparable terminology. These statements are
only predictions. Actual events or results may differ materially from those in
the forward-looking statements as a result of various important factors.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, such should not be regarded as a representation by
Lapis Technologies, Inc., or any other person, that such forward-looking
statements will be achieved. The business and operations of Lapis Technologies,
Inc. and its subsidiaries are subject to substantial risks, which increase the
uncertainty inherent in the forward-looking statements contained in this Report.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors," included in our Registration Statement on Form 10-SB filed with
the Securities and Exchange Commission on March 26, 2004.
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this Report.
Overview
We were formed in Delaware on January 31, 2002 under the name Enertec
Electronics, Inc. and have filed two certificates of amendment changing our name
to Opal Technologies, Inc. and then to Lapis Technologies, Inc. We conduct
operations in Israel through our wholly owned subsidiary, Enertec Electronics
Limited ("Enertec Electronics"), an Israeli corporation formed on December 31,
1991, and Enertec Systems 2001 LTD ("Enertec Systems"), an Israeli corporation
formed on August 28, 2001, of which we own a 55% equity interest. Enertec
Electronics is a manufacturer and distributor of electronic components and
products relating to power supplies, converters and related power conversion
products, automatic test equipment (ATE), simulators and various military and
airborne systems. Enertec Electronics maintains two divisions, the Systems
Division and the Electronics Division. The Systems Division designs, develops
and manufactures test systems for electronics manufacturers in accordance with
their specifications. The Electronics Division markets and distributes the test
systems, power supplies and other electronic components manufactured by us, and
by other manufacturers who engage us to distribute their products.
Liquidity and Capital Resources
Our cash balance at June 30, 2005 has increased compared to the cash
balance at June 30, 2004, with cash and cash equivalents of $272,000 as of June
30, 2005 compared to $40,000 at June 30, 2004. Total current assets at June 30,
2005 were $6,053,000 as compared to $4,894,000 at June 30, 2004. The increase in
current assets is mainly due to an increase in accounts receivable.
Our accounts receivable at June 30, 2005 was $2,880,000, as compared to
$2,228,000 at June 30, 2004. This change in accounts receivable is primarily due
to higher sales for the first six months of 2005 as compared to the same period
in 2004.
As of June 30, 2005 our working capital was $1,545,000 as compared to
$968,000 at June 30, 2004. The increase in the working capital is also due
primarily to an increase in accounts receivable.
The current portion of our long-term loans at June 30, 2005 totaled
$144,000 compared to $150,000 at June 30, 2004. Our other short-term loans
amounted to $1,894,000 for the six-month period ended June 30, 2005 as compared
to 1,938,000 at June 30, 2004.
As of June 30, 2005, our total bank debt was $3,129,000 as opposed to
$2,921,000 at the end of June 30, 2004. These funds were borrowed as follows:
6
$2,038,000 includes the current portion of long-term debt as various
short-term bank loans due through December 2006, $166,000 of long-term debt due
through May 2009 and $925,000 borrowed using our bank lines of credit. We
increased the amount borrowed for the six months ended June 30, 2005 by $208,000
from $2,921,000 as of June 30, 2004. The increase in bank debt is mainly due to
an increased need for working capital for financing the higher volume of sales.
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 June
30, 2005 we are current with all of our bank debt and compliant with all the
terms of our bank debt.
As of June 30, 2005, there were no receivables due from Harry Mund, our
Chief Executive Officer and President as compared with June 30, 2004, when the
receivables from Harry Mund, our Chief Executive Officer and President, totaled
$328,000.
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. However, management may undertake additional debt or
equity financings to better enable Lapis to grow and meet its future operating
and capital requirements. Currently, the only external sources of liquidity are
our banks, and we may seek additional financing from them or through securities
offerings to expand our operations, using new capital to develop new products,
enhance existing products or respond to competitive pressures.
Results of Operations
Three and Six Months Ended June 30, 2005 Compared to Three and Six Months Ended
June 30, 2004
Revenues for the three and six months ended June 30, 2005 were
$1,866,000, and $3,531,000, respectively, as compared to $1,567,000 and
$2,688,000 for the three and six months ended June 30, 2004, respectively. This
represents an increase of $299,000, or 19.1%, for the quarter ended June 30,
2005 and an increase of $843,000, or 31.4%, for the six months ended June 30,
2005, when compared to the same periods of 2004. The increase in revenues for
the six months ended June 2005 versus the same period for the prior year is due
to the following reasons: During the fourth quarter of 2004 and the first
quarter of 2005 Enertec Systems introduced several new products in the military
division resulting in higher sales during the first quarter of 2005, a trend
which continued during the second quarter of 2005. Enertec Electronics, the
commercial division, experienced higher sales due to the rising international
demand for high tech products which impacted, Enertec Electronics' customer base
and as a result a higher demand for Enertec Electronics Power Supplies.
Gross profit totaled approximately $900,000 for the quarter ended June
30, 2005 and $1,324,000 for the six months June 30, 2005. For the three and six
months ended June 30, 2004, gross profit totaled $793,000 and $1,156,000,
respectively. Comparing the three-month period ended June 30, 2005 to the same
period of 2004, gross profit increased by approximately $107,000, or 13.5%. For
the six-month period ended June 30, 2005, gross profit increased approximately
$168,000, or 14.5%, compared to the same period of 2004. The increase in gross
profits is primarily a result of higher revenues. Gross profit as a percentage
of sales was 48.2% for the three-month period ended June 30, 2005 as compared to
50.6% for the same period of 2004 and for the six-month period ended June
7
30, 2005, was 37.5% as compared to 43% for the same period of 2004. The decrease
in gross profit as a percentage of sales is a result of lower introductory
prices for new products and an increase in Research and Development Costs
Total operating expenses are comprised of selling, general and
administrative expenses. For the three months and six months ended June 30,
2005, operating expenses totaled $405,000 and $712,000, respectively. This was
an increase of $ 3,000 (0.7%) and $56,000 (8.5%) when compared to the three and
six-month periods ended June 30, 2004. The increase in operating expenses for
the six-month period is attributable mainly to the increase in operating
expenses for the first quarter of 2005 as compared to the same period of 2004.
These were comprised as follows: an increase of $22,000 in selling expenses as a
result of our efforts to introduce new product lines in the marketplace, $20,000
in professional services for legal and accounting cost associated with being a
public company and $14,000 increase in taxes and insurance.
Our net income was $211,000 in the three months ended June 30, 2005 and
$261,000 in the six months ended June 30, 2005. This compares to net income of
$187,000 in the three months ended June 30, 2004 and $205,000 in the six months
ended June 30, 2004. The increase in net income by $24,000, or 12.8%, comparing
the three months ended June 30, 2005 to the three months ended June 30, 2004,
and the increase in net income by $56,000, or 27.3%, comparing the six months
ended June 30, 2005 to the six months ended June 30, 2004. The increase in the
net income in the three-month period ended June 30, 2005 was mainly due to an
increase of $107,000 in the gross profit and a decrease of $22,000 in provisions
for income tax, offset by an increase of $89,000 in the minority interest. For
the six month period ending June 30th 2005, the increase in the net income is
due to an increase of $168,000 in gross profit offset by an increase in
operating expenses of $56,000, and increase in the provision for income tax of
$25,000 as well as an increase of $25,000 in the minority interest.
For the three and six months ended June 30, 2005, our provision for
income taxes was $11,000 and $67,000, respectively. This represents a decrease
over the provision for income taxes for the three months ended June 30, 2004 of
$22,000 and an increase over the provision for income taxes for six months ended
June 30, 2004 of $25,000, respectively. The decrease in provision for income tax
in the second quarter of 2005 as compared to the same period in 2004 is due to a
higher percentage of profits being generated at Lapis from Enertec Systems which
is tax exempt after initial revenues of $340,000 per year versus Enertec
Electronics, whose tax rate is 34%. The increase in provision for income tax for
six months ended June 30, 2005 as compared to the same period in 2004 is due to
a lower percentage of profits being generated at Lapis from Enertec Systems
versus Enertec Electronics.
Enertec Electronics derives its revenues from the commercial arena and
from standard military power supplies that it sells to the military industry as
well as a few residual ATE orders for the military industry that were received
in 2002 that have recurring revenues and delivery dates out into 2005. Going
forward when we refer to commercial revenues we will be referring exclusively to
Enertec Electronics' commercial business and when we refer to military business,
we refer to Enertec Systems 2001 and the residual military orders referred to
above within Enertec Electronics.
As of June 30, 2005, we had three customers that accounted for
approximately 70% of the accounts receivable. For the six months ended June 30,
2005, approximately 51% of our sales were to two customers.
Research and Development Costs
Research and development costs are charged to cost of sale expenses in
the accompanying statement of income and consist of salaries. Research and
development costs for the three and six months ended June 30, 3005 were $34,000
and $114,000, respectively. Research and development costs for the three and six
months ended June 30, 3004 were $28,000 and $70,000, respectively. The increased
R&D cost is related to the costs of developing several new technologies such as
driver modules for airborne lasers.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
8
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 we are
exposed to business and economic risk. Although we do 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 us is made to the specifications of each
customer; sales returns and allowances are allowed on a case-by-case basis, are
not material to the financial statements and are recorded as an adjustment to
sales. Cash payments received in advance are recorded as customer deposits.
Revenue relating to service is recognized on the straight-line basis
over the life of the agreement, generally one year. For the three and six months
ended June 30, 2005 revenue relating to service contracts was less than one
percent of net sales.
Financial Instruments - The carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, bank line of credit,
short-term bank loans and accounts payable and accrued expenses approximate fair
value at June 30, 2005 because of the relatively short maturity of the
instruments.
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 3. 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 all 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
in our internal controls or in other factors that could affect these controls
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II
Item 1. Legal Proceedings.
Except as described below, 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.
On April 16, 2002, Orckit Communications brought an action in the Tel
Aviv District Court against Gaia Converter, a French company and Alcyon
Production Systems, also a French company and a subcontractor of Gaia Converter,
seeking $1,627,966, alleging that the DC converters supplied to it by Gaia
Converter were defective and caused Orckit to replace the converters at a
substantial financial expense. Enertec Electronics was joined in the action as a
local Israeli distributor of the Gaia Converter products. Gaia Converter has
9
advised us that the converters in issue were free from any and all defects and
were in good working order and that it was the faulty performance of Orckit's
product into which the converters were incorporated that caused them to fail at
a greater rate than anticipated by Orckit. Enertec Electronics filed a response
to this claim that there is no cause of action against it, as among other
things, Enertec Electronics is merely the local Israeli sales representative of
Gaia Converter and did not make any implied or express representations or
warranties to Orckit regarding the suitability of the converters or otherwise,
nor was Enertec Electronics required to do so by law. Technical specifications
required by Orckit for the converters were determined and communicated directly
by Orckit to Gaia Converter and all other communications regarding the
converters were directly between Orckit and Gaia Converter. Moreover, Orckit
conducted a qualification test of the converters and confirmed to Gaia Converter
that the converters complied with their requirements subsequent to such testing.
Neither Gaia Converter nor Alcyon Production Systems have filed a response to
this action, and consequently Orkit Communications requested and obtained
default judgments from the Tel Aviv District Court against both Gaia Converter
and Alcyon Production Systems. Enertec Electronics is defending and is
continuing to defend this action vigorously and we do not believe that it will
have a material adverse impact on our business. Orkit has filed affidavits
setting out the evidence supporting their allegations and Enertec will file
answering affidavits in response.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
Exhibit
Number Description
------- ------------------------------------
31.1 Certification by Chief Executive Officer, required by Rule 13a-14(a) or
Rule 15d-14(a) of the Exchange Act.
31.2 Certification by Chief Financial Officer, required by Rule 13a-14(a) or
Rule 15d-14(a) of the Exchange Act.
32.1 Certification by Chief Executive Officer, required by Rule 13a-14(b) or
Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title
18 of the United States Code.
32.2 Certification by Chief Financial Officer, required by Rule 13a-14(b) or
Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title
18 of the United States Code.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LAPIS TECHNOLOGIES, INC.
Dated: August 15, 2005 By: /s/ Harry Mund
--------------------------------------------
Harry Mund
Chief Executive Officer, President
and Chairman of the Board
Dated: August 15, 2005 By: /s/ Miron Markovitz
--------------------------------------------
Miron Markovitz
Chief Financial Officer, Chief Accounting
Officer and Director
11