Item 1.  Financial Statements.

LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
ASSETS
		September 30,
		2007
Current Assets:
Cash and cash equivalents		$	86
Accounts receivable			4,285
Inventories			4,141
Prepaid expenses and other current assets			371
Total current assets			8,883
Property and equipment, net			277
Deferred income taxes			23
		$	9,183
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit		$	1,294
Short term bank loans			2,935
Current portion of term loans			192
Accounts payable and accrued expenses			2,617
Due to stockholder			180
Due to affilliates			96
Income taxes payable			-
Total current liabilities			7,314
Term loans, net of current portion			285
Severance payable			88
Total liabilities			7,687
Commitments and contingencies
Minority interest			434
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
Additional paid-in capital			78
Accumulated other comprehensive loss			(140	)
Retained Earnings			1,118
Total stockholders' equity			1,062
		$	9,183

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

 

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share and Share Amounts)
		Nine Months Ended						Three Months Ended
		September 30,						September 30,
		2007			2006			2007			2006
Sales		$	6,372		$	5,028		$	2,238			1,401
Cost of sales			4,639			3,596			1,447			1,162
Gross profit			1,733			1,432			791			239
Operating expenses:
Research and development expenses			221			232			22			118
Selling expenses			151			73			24			8
General and administrative			948			905			305			342
Total operating expenses			1,320			1,210			351			468
Income from operations			413			222			440			(229	)
Other income (expense):
Other income			-			6			-			(3	)
Interest expense, net			(306	)		(267	)		(111	)		(92	)
Income before provision for income taxes and minority interest			107			(39	)		329			(324	)
Provision for income taxes			7			136			7			53
Minority interest			5			(24	)		57			(52	)
Net income(loss)			95			(151	)		265			(325	)
Other comprehensive (loss) income, net of taxes
Foreign translation (loss) gain			163			21			172			(38	)
Comprehensive (loss) income		$	258		$	(130	)	$	437		$	(363	)
Basic net loss per share		$	0.01		$	(0.02	)	$	0.04		$	(0.05	)
Basic weighted average common shares outstanding			6,483,000			6,483,000			6,483,000			6,483,000

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

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
		Nine Months Ended
		September 30,
		2007			2006
Cash flows from operating activities:
Net income		$	58		$	(151	)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization			92			69
Minority interest			20			(10	)
Gain on sale of property and equipment			-			(10	)
Deferred income tax			(1	)		(1	)
Change in operating assets and liabilities:
Accounts receivable			392			519
Inventories			(1,172	)		(296	)
Prepaid expenses and other current assets			35			(193	)
Accounts payable and accrued expenses			(83	)		(333	)
Income tax payable			-			-
Customer deposits			-			-
Severance payable			4			4
Net cash provided by (used in) operating activities			(655	)		(402	)
Cash flows from investing activities:
Proceeds from the sale of property & equipment			-			68
Purchase of property and equipment			(70	)		(123	)
Increase in due from stockholder			170			4
(Increase) decrease in due from affiliates			(100	)		36
Net cash used in investing activities			-			(15	)
Cash flows from financing activities:
Increase in bank line of credit, net			(195	)		(129	)
Proceeds from long term debt			4,661			3,365
Repayment of long-term debt			(3,899	)		(2,791	)
Net cash (used in) provided by financing activities			567			445
Effects of exchange rates on cash			167			4
Increase (decrease) in cash			79			31
Cash, beginning of period			7			78
Cash, end of period		$	86		$	109
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	306		$	175
Income taxes		$	31		$	80

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

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

September 30, 2007

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, 2006. The results of operations for the nine, six and three months ended September 30, 2007 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2007.

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.

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

SEPTEMBER 30, 2007

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent Accounting Pronouncements

In December 2004, FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (SFAS 123 (revised 2004), effective for public entities that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. This Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123 (revised 2004) eliminates the alternative to use Opinion No. 25’s intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under Opinion 25, issuing stock options to employees generally resulted in recognition of no compensation cost. This Statement requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions). Recognition of that compensation cost helps users of financial statements to better understand the economic transactions affecting an entity and to make better resource allocation decisions. The Company is required to adopt Statement 123 (revised 2004) as of January 1, 2006, and does not expect this statement to have a material effect on its results of operations.

In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a Replacement of APB Opinion No. 20 (Accounting Changes) and FASB No. 3 (Reporting Accounting Changes in Interim Financial Statements),” that changes requirements for the accounting for and reporting of a change in accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, this Statement requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable.

Statement 154 is effective for accounting changes and error corrections made in fiscal years beginning after December 15, 2005 (calendar year 2006). Early adoption is permitted.

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LAPIS TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

SEPTEMBER 30, 2007

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115.” This Standard allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities (as well as certain non-financial instruments that are similar to financial instruments) at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, the Statement specifies that all subsequent changes in fair value for that instrument shall be reported in earnings. SFAS No. 159 is effective for ATMI beginning on January 1, 2008. We are currently evaluating the impact this new Standard could have on our financial position and results of operations.

NOTE 4 - PROVISION FOR INCOME TAXES -

 

The income tax expense for the nine, six and three months ended September 30, 2007 is based upon the income tax laws of Israel. Israeli tax law does not allow a parent company to offset its’ income with losses from any of its subsidiaries.

 

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Item 2.  Management’s Discussion and Analysis 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.

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 have a 73% equity interest. Enertec Electronics is a distributor of electronic components and products relating to power supplies, converters and related power conversion products. Enertec Systems designs, develops and manufactures airborne, shipborne and land military electronic equipment, automatic test systems as well as various other military electronic products for manufacturers of defense systems in accordance with their specifications.

Liquidity and Capital Resources

Our cash balance at September 30, 2007 has decreased compared to the cash balance at September 30, 2006, with cash and cash equivalents of $86,000 as of September 30, 2007 compared to $109,000 at September 30, 2006. Total current assets at September 30, 2007 were $8,883,000 as compared to $6,446,000 at September 30, 2006. The increase in current assets is mainly due to increase in accounts receivable and an increase in work in process inventory.

Our accounts receivable at September 30, 2007 was $4,285,000, as compared to $3,193,000 at September 30, 2006. This change in accounts receivable is primarily due to increase in sales.

As of September 30, 2007 our working capital was $1,569,000 as compared to $1,286,000 at September 30, 2006. The increase in the working capital is primarily due to a greater increase in work in process and accounts receivable relative to the increase in accounts payable and the increase in banks debt.

 

The current portion of our short-term loans at September 30, 2007 totaled $192,000 compared to $179,000 at September 30, 2006. Our total short-term loans amounted to $2,935,000 for the nine-month period ended September 30, 2006 as compared to $1,957,000 at September 30, 2006.

 

As of September 30, 2007, our total bank debt was $4,706,000 as opposed to $3,761,000 at the end of September 30, 2006. These funds were borrowed as follows; $3,127,000 which includes the current portion of long term debt, as various short term bank loans due through 2007, $ 285,000 of long term debt due through March 2010, and $ 1,294,000 using our bank lines of credit. As a result we increased the amount borrowed for the nine months ended September 30, 2007 by $945,000 as compared to the same period of 2006.

UPDATE BELOW SECTION AS NECESSARY

Item 1.    Legal Proceedings.

 

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.