As filed with the Securities and Exchange Commission on January 8, 2004
Registration No. 333-100979
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NUMBER 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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LAPIS TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Delaware 3629 27-0016420
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
------------------
19 W. 34th Street, Suite 1008
New York, NY, 10001
(212) 937-3580
(Address and telephone number of principal executive offices and principal place
of business)
------------------
Harry Mund
Lapis Technologies, Inc.
19 W. 34th Street, Suite 1008
New York, NY, 10001
(212) 937-3580
(Name, address and telephone number of agent for service)
------------------
With copies to:
Adam S. Gottbetter, Esq.
Salvatore A. Fichera, Esq.
Gottbetter & Partners, LLP
488 Madison Avenue
New York, New York 10022
(212) 400-6900
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities To Be Registered Registered Per Security (1) Price (1) Registration Fee
============================= ================ ==================== ====================== ====================
Common Stock, $.001 Par Value 733,000 $ .15 $ 109,950 $ 10.12
- -----------------------------------------------------------------------------------------------------------------
TOTAL 733,000 $ .15 $ 109,950 $ 10.12 (2)
- -----------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Registration fee was paid when Form SB-2 was filed on November 4, 2002.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION DATED ___________, 20__
LAPIS TECHNOLOGIES, INC.
733,000 Shares of Common Stock
This prospectus relates to the sale of up to 733,000 shares of our common
stock by some of our stockholders.
This is the initial registration of our shares, and no public market
presently exists. The selling stockholders will sell the shares from time to
time at $.15 per share. If our shares become quoted on the OTC Bulletin Board,
sales will be made at prevailing market prices or privately negotiated prices.
We will not receive any proceeds from any sales made by the selling
stockholders, but will pay the expenses of this offering.
Investing in our common stock involves risks. You should carefully consider
The matters described in risk factors beginning on page 3.
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 20__
TABLE OF CONTENTS
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 1
Our Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Selected Historical Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . 1
WHERE YOU CAN GET MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . .. . . 7
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Our Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Electronics Division. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Systems Division. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
New Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Marketing Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Market Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Supplies and Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Research and Development Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 18
Seasonal Aspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Patents and Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . 20
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Liquidity And Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Financing Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Results Of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Significant Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2002 Stock Option Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
i
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . . . . . . . . . . . . 30
SELLING STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Penny Stock Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Delaware Anti-Takeover Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . 39
TRANSFER AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
COMMISSION POSITION ON INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 41
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ii
PROSPECTUS SUMMARY
This summary highlights important information about our business and about
this offering. Since it is a summary, it does not contain all the information
you should consider before purchasing our common stock. In this prospectus,
unless the context requires otherwise, "we" and "us" refer to Lapis
Technologies, Inc. ("Lapis") and its wholly owned subsidiary, Enertec
Electronics Limited.
OUR BUSINESS
We were formed in January 2002. Our operations are conducted in Israel
through our wholly owned subsidiary, Enertec Electronics Limited, an Israeli
entity that has been in business since December 1991, and our majority owned
subsidiary Enertec Systems 2001 LTD, an Israeli corporation formed on August 28,
2001 and commenced business on January 1, 2002 . Our business is to
manufacture, market and distribute electronic components and products relating
to power supplies, converters and related power conversion products, automatic
test equipment (ATE), simulators and various military and airborne electronic
systems. We are a distributor of our own products as well as products
manufactured by other companies that we represent.
Our executive offices are located at 19 W. 34th Street, Suite 1008, New
York, NY, 10001, Telephone: (212) 937-3580.
THE OFFERING
Common Stock Offered By The Selling
Stockholders . . . . . . . . . . . . The selling stockholders are offering up
to 733,000 shares of our common stock.
Use of Proceeds . . . . . . . . . . . We will not receive any of the proceeds
from the sale of the shares offered by
the selling stockholders.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial information regarding
Lapis for the years ended December 31, 2002 and 2001 (audited), and the
nine months ended September 30, 2003 (unaudited). All of this
information was derived from our financial statements appearing elsewhere in
this prospectus. However, only the financial information through December 31,
2002 is audited; the financial information for the nine months ended
September 30, 2003 is unaudited. In the opinion of management, the
financial information for the nine months ended September 30, 2003
contains all adjustments, consisting only of normal recurring accruals,
necessary for the fair presentation of the results of operations and financial
position for such period. You should read this selected financial information in
conjunction with our management's discussion and analysis, financial statements
and related notes to the financial statements, each appearing elsewhere in this
prospectus.
1
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
SELECTED HISTORICAL FINANCIAL DATA
($ in thousands, except share and per share information)
Quarters Ended September 30, Years Ended December 31,
----------------------------- ------------------------
2003 2002
(unaudited) (unaudited) 2002 2001
------------ ----------- ----------- -----------
Consolidated Statements of Income Data:
Net Sales. . . . . . . . . . . . . . . . . . . . $ 4,257 $ 3,491 $ 4,414 $ 4,254
Cost of goods sold . . . . . . . . . . . . . . . 2,677 1,962 2,649 3,124
------------ ----------- ----------- -----------
Gross profit. . . . . . . . . . . . . . . . . . 1,580 1,529 1,765 1,130
Selling, general and administrative expenses . . 870 858 1,091 962
------------ ----------- ----------- -----------
Operating income. . . . . . . . . . . . . . . . 710 671 674 168
------------ ----------- ----------- -----------
Other income (expense)
Interest expense, net . . . . . . . . . . . . . (258) (180) (189) (139)
Gain on sale of property and equipment. . . . . - 49 51 -
Equity in operations of investee. . . . . . . . - 8 42 -
------------ ----------- ----------- -----------
Total other income (expense). . . . . . . . . . (258) (123) (96) (139)
------------ ----------- ----------- -----------
Income before provision for income taxes . . . . 452 548 578 29
Provision for income taxes . . . . . . . . . . . 113 162 246 19
Minority interest. . . . . . . . . . . . . . . . 90 - - -
------------ ----------- ----------- -----------
Net Income . . . . . . . . . . . . . . . . . . . $ 249 $ 386 $ 332 $ 10
============ =========== =========== ===========
Earnings per share (basic and diluted) . . . . . $ 0.05 $ 0.08 $ 0.06 *
============ =========== =========== ===========
Weighted average common shares outstanding . . . 5,483,000 5,128,868 5,218,129 4,750,000
============ =========== =========== ===========
Consolidated Balance Sheet Data:
Total current assets . . . . . . . . . . . . . . $ 5,412 $ 4,652 $ 3,119
============ =========== ===========
Total other assets . . . . . . . . . . . . . . . $ 576 $ 507 $ 286
============ =========== ===========
Total assets . . . . . . . . . . . . . . . . . . $ 5,988 $ 5,159 $ 3,405
============ =========== ===========
Notes payable. . . . . . . . . . . . . . . . . . $ 3,392 $ 2,680 $ 1,580
============ =========== ===========
Total current liabilities. . . . . . . . . . . . $ 4,620 $ 4,350 $ 2,760
============ =========== ===========
Total stockholders' equity . . . . . . . . . . . $ 655 $ 374 $ 396
============ =========== ===========
Total liabilities and stockholder's equity . . . $ 5,988 $ 5,159 $ 3,405
============ =========== ===========
* Per share amount is less than $0.01.
2
WHERE YOU CAN GET MORE INFORMATION
At your request, we will provide you, without charge, with a copy of any
information contained in this prospectus. If you want more information, write or
call us at Lapis Technologies, Inc., 19 W. 34th Street, Suite 1008, New York,
NY, 10001, Telephone Number (212) 937-3580, Attn: Harry Mund.
Our fiscal year ends on December 31. We intend to furnish our shareholders
annual reports containing audited financial statements and other appropriate
reports.
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in our common stock.
We believe this section addresses all material risks specific to us. Investing
in our common stock involves a high degree of risk. Any of the following risks
could adversely affect our business, financial condition and results of
operations and could result in a complete loss of your investment.
Our greatest risk is the intense competition we face from competitors with
larger research and development budgets and larger sales and marketing staffs
than us who may be more efficient in anticipating and responding to rapid
changes involving the electronic components and telecommunications industries,
and may be able to respond more efficiently than we can to existing and
potential customers.
We face the risk that our larger competitors may take advantage of their
greater resources and business reputations to take away some or all of our
existing business and prevent us from attracting new business. The electronic
manufacturing industry is highly fragmented and competitive, with several
national companies as well as a large number of smaller independent businesses
serving local and regional markets. The majority of our competitors have
greater financial and other resources than we do. Many of our competitors also
have a history of successful operations and an established reputation within the
industry. Our lack of research and development expenditures relative to our
competitors may cause us to fail to anticipate or respond adequately to
technological developments. Our products may become obsolete or less useful
than those developed by companies with larger research and development budgets.
Our smaller marketing and sales organization may prevent us from servicing
existing clients to their satisfaction or finding new customers. The sale staffs
of our larger competitors may have the ability to provide more immediate
responses to customer needs and to develop markets our more limited staffs may
not be able to penetrate. Additionally, most of the companies with whom we
compete have more experience in capital raising than us and our officers,
directors and advisors, and have greater market presence and financial,
technical, personnel, marketing and other resources than we have. These
limitations caused by our relatively small size could cause reductions in our
competitiveness, and have an adverse affect on our revenues, profit margins or
market share.
Moreover, our inability to be competitive in obtaining and maintaining
clients when negotiating or renewing contracts would have a material adverse
effect on our revenues and results of operations. Contracts in the electronic
manufacturing industry are generally gained or renewed through a competitive
bidding process. Some of our competitors may be prepared to accept less
favorable fee structures than us when negotiating or renewing contracts.
Some of our competitors with greater resources include Chaban Electronics
Ltd., Advise Electronics Ltd., Appletec Ltd., Migvan Technologies Ltd., Boran
Technologies Ltd., Telkoor Power Supplies Ltd., and Horizon Electronics Ltd.
We may need to raise additional capital in the future and may be unable to
do so on acceptable terms, which could limit our ability to grow and carry out
our business plan.
Based on our current business plan, we have sufficient funds to permit us
to conduct our operations and to carry out our contemplated business plan
through the next twelve months. After that time, we may require additional
capital. Alternatively, we may need to raise additional funds sooner if our
3
estimates of revenues or capital requirements change or are inaccurate. We may
also need to raise additional funds sooner than expected to finance our
expansion plans, develop new products, enhance our existing products or respond
to competitive pressures. We cannot be certain that we will be able to obtain
additional financing on commercially reasonable terms or at all, which could
limit our ability to grow. As of December 31, 2002 our working capital was
$302,000 , as compared to a working capital of $359,000 as of December 31,
2001. As of September 30, 2003, we had a working capital of
$792,000 as compared to a working capital of $875,000 as of
September 30, 2002.
Our international operations will expose us to the risk of fluctuations in
currency exchange rates, which may have a negative impact on our profit margin
for sales of our products.
If the value of a currency in which our receivables are denominated weakens
against the value of a currency in which our expenses are denominated, there
will be a negative impact on our profit margin for sales of our products. We
have acquired an Israeli subsidiary that prepares its financial statements in
the relevant foreign currency. We expect that our receivables will be
denominated primarily in new Israeli shekels, as well as other currencies
including the Euro, while our payables will be denominated in a different mix of
currencies. For example, 35% of our expenses for the year ended December 31,
2001 were denominated in new Israeli shekels. Our shekel denominated expenses
consist principally of salaries and related personnel expenses. We anticipate
that for the foreseeable future a portion of our expenses will continue to be
denominated in shekels. As we expand our sales and marketing efforts in
different regions, we also expect to incur increasing amounts of our expenses in
the Euro, as well as other local currencies.
Although we have been engaged to fill orders for our customized military
related products through 2005, due to increased security issues, we may not
qualify for additional future orders for these products, the effects of which
may be adverse to our revenues, profit margins and market share.
A substantial portion of our revenues is generated through the sales of
customized military related systems. Sales in this sector have been steadily
increasing in light of the current worldwide political situation and the demand
for military products. However, we are not compliant with the stringent security
clearance standards required by some of the military customers who demand
customized systems, nor are we operationally equipped to handle the growth rate
in this sector. We therefore may not qualify for orders for these products on a
going forward basis. Currently, we have been engaged to fill orders for these
products through 2005. Once we have completely satisfied these orders, the
revenues generated from customized military related products may be reduced.
As a result we may experience a material drop in our revenues, profit margins
and market share.
During the year ended December 31, 2002, our revenue, cost of sales, and
gross profits from customized military business were $2,169,000,
$1,591,000 and $578,000, respectively. During the year ended December 31, 2001,
these amounts were $2,399,000, $1,847,000 and $552,000 respectively.
4
For the nine months ended September 30, 2003, our revenue, cost of sales,
and gross profits from customized military business were $2,778,000, $1,889,000
and $889,000, respectively. For the nine months ended September 30, 2002, these
amounts were $1,592,000, $1,102,000 and $490,000 respectively.
To offset this potential loss of business, we have purchased a 55%
equity interest in Enertec Systems 2001 Ltd ("Enertec Systems") through our
wholly-owned subsidiary Enertec Management Limited. Enertec Systems exclusively
manufactures customized military related products. However, this interest may
not be significant enough to offset the potential loss we may experience
from discontinuing this business. We currently do not plan to acquire more
shares in Enertec Systems.
The adverse political, economic and military conditions in Israel affect
our operations and may limit our ability to produce and sell our product, which
would likely have a negative effect on our business condition and harm our
results of operations.
All of our operating and manufacturing facilities, as well as certain of
our corporate offices and back-office functions, are located in the State of
Israel. We are, therefore, directly affected by the political, economic and
military conditions in Israel. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between Israel and its Arab
neighbors. A state of hostility with these Arab neighbors, varying in degree and
intensity, has led to security and economic problems for Israel. Since October
2000, there has been a significant increase in violence, primarily in the West
Bank and Gaza Strip, and negotiations between Israeli and Palestinian
representatives have ceased. Any future armed conflict, political instability or
continued violence in the region would likely have a negative effect on our
business condition and harm our results of operations. Furthermore, several
countries still restrict trade with Israeli companies and that may limit our
ability to make sales in those countries or purchase our raw materials from
outside Israel . These restrictions may have an adverse impact on our
operating results, financial condition or the expansion of our business. In
addition, any major hostilities involving Israel, the United States or Europe,
including military activities in defense against terrorist activities, could
have a material adverse effect on our business and financial condition. Any
interruption or curtailment of trade between Israel and any other country in
which we have strategic relationships could adversely affect such relationships.
Because our operations could be disrupted as a result of the obligation of
key personnel in Israel to perform military services, our continuing operations,
the development of our business and our financial condition could be adversely
affected.
Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform up to 36 days of military
reserve duty annually. Additionally, all Israeli residents of this age are
subject to being called to active duty at any time under emergency
circumstances. Many of our officers and employees are currently obligated to
perform annual reserve duty.
5
Inflation and the Israeli economy may substantially impact our revenue and
profit.
Future inflation or further devaluations of the new Israeli shekel may have
a negative impact on our revenues and profits. Historically, Israel has
suffered from high inflation and the devaluation of its currency, the new
Israeli shekel, as compared to the U.S. dollar. If inflation causes substantial
price increases or if the shekel devalues, we will be required to spend more
shekels to obtain the same product. In addition, the Israeli economy is
currently in the midst of a recession, which further devalues the shekel as
compared to the U.S. dollar, the Euro and other currencies. The Israeli economy
may not improve. If it does improve, it may take an extended period of time to
do so. The longer this recession continues, the more substantially our business
and profit will be negatively impacted.
It may be difficult to serve process on or enforce a judgment against our
Israeli officers and directors, making it difficult to bring a successful
lawsuit against our officers and directors, individually or in the aggregate.
The difficulty of serving process on or enforcing a judgment against our
Israeli officers and directors who are domiciled outside the United States,
could limit the ability of our stockholders to sue our directors and officers
based upon an alleged breach of duty or other cause of action. However, subject
to limitation, Israeli courts may enforce United States final executory
judgments for liquidated amounts in civil matters, obtained after a trial before
a court of competent jurisdiction, according to the rules of private
international law currently prevailing in Israel, which enforce similar Israeli
judgments, provided that:
- - Due service of process has been effected and the defendant was given a
reasonable opportunity to defend;
- - The obligation imposed by the judgment is executionable according to the
laws relating to the enforceability of judgments in Israel and such
judgment is not contrary to public policy, security or sovereignty of
Israel;
- - Such judgments were not obtained by fraud and do not conflict with any
other valid judgments in the same matter between the same parties; and
- - An action between the same parties in the same matter is not pending in any
Israeli court at the time the lawsuit is instituted in the foreign court.
Foreign judgments enforced by Israeli courts generally will be payable in
Israeli currency, which can then be converted into United States dollars and
transferred out of Israel. The judgment debtor may also pay in dollars.
Judgment creditors must bear the risk of unfavorable exchange rates.
Under current Israeli law, we may not be able to enforce covenants not to
compete and may be unable to prevent our competition from benefiting from the
expertise of some of our former employees.
We may be unable to prevent our competitors from hiring and benefiting from
the expertise of our former employees. This may enable our competitors to take
away our business by learning confidential information about the design of our
6
products, our supply sources or our pricing policies. We currently have
non-competition agreements with all of our employees. These agreements prohibit
our employees, if they cease working for us, from directly competing with us or
working for our competitors. Recently, 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. If
we are unable to demonstrate this harm in judicial proceedings, we may be unable
to prevent employees from divulging our procedural and operational know-how,
which may jeopardize our competitive advantages.
There has been no prior public market for our common stock, and a public
market for our common stock may not develop upon the completion of this
offering, which may negatively affect the value of our shares and make it
difficult for you to sell your shares or recover any part of your investment in
us.
Prior to this offering, there has been no public market for our common
stock and a public market for our common stock may not develop upon completion
of this offering. Failure to develop or maintain an active trading market could
negatively affect the value of our shares and make it difficult for you to sell
your shares or recover any part of your investment in us. Even if a market for
our common stock does develop, the market price of our common stock may be
highly volatile. In addition to the uncertainties relating to our future
operating performance and the profitability of our operations, factors such as
variations in our interim financial results, or various, as yet unpredictable
factors, many of which are beyond our control, may have a negative effect on the
market price of our common stock.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement contains certain financial and other
information and statements regarding our operations and financial prospects of a
forward-looking nature. Although these statements accurately reflect
management's current understanding and beliefs, we caution you that certain
important factors may affect our actual results and could cause such results to
differ materially from any forward-looking statements which may be deemed to be
made in this registration statement. Statements in this registration statement,
including without limitation those contained in the sections entitled "Risk
Factors" and "Description of Business" describe factors, among others, that
could contribute to or cause such differences. For this purpose, any statements
contained in this registration statement which are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as, "may", "intend", "expect",
"believe", "anticipate", "could", "estimate", "plan" or "continue" or the
negative variations of those words or comparable terminology are intended to
identify forward-looking statements. Such forward-looking information and
statements may not be reflective in any way of our actual future operations or
financial results, and such information and statements should not be relied upon
either in whole or in part in connection with any decision to invest in the
shares.
7
USE OF PROCEEDS
The selling stockholders are selling their shares covered by this
prospectus for their own accounts. Accordingly, we will not receive any
proceeds from the sale of the shares.
CAPITALIZATION
The following table sets forth the capitalization of Lapis as at December
31, 2002, and September 30, 2003.
December 31, September 30,
2002 2003
------------ ----------
(unaudited)
($in thousands)
Total liabilities . . . . . . . . . . . . . . . . . $ 4,714 $ 5,164
Minority interest . . . . . . . . . . . . . . . . . 71 169
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares. - -
authorized; none outstanding
Common stock, $.001 par value; 100,000,000 shares . 5 5
authorized; 5,483,000 issued and
outstanding, respectively
Additional paid in capital. . . . . . . . . . . . . 78 78
Retained earnings . . . . . . . . . . . . . . . . . 395 644
Accumulated other comprehensive loss. . . . . . . . (104) (72)
------------ ----------
Total stockholders' equity. . . . . . . . . . . . . 374 655
------------ ----------
Total capitalization. . . . . . . . . . . . . . . . $ 5,159 $ 5,988
============ ==========
DESCRIPTION OF BUSINESS
General
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. We are
manufacturers and distributors 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. Where the
8
context requires, references to "we" or "us" throughout this document include
reference to Enertec Electronics and Enertec 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. We have
entered into representative and distribution agreements with seven such
manufacturers, four of which have been reduced to written contracts.
Test systems and testing solutions are used to examine systems, electrical
devices or products, during their final stages of production. Such systems are
tested to ensure their integrity and to foster quality control. The process
involves analyzing the product to determine which of its functions are
vulnerable to error, and to determine which type of testing equipment would best
discover and solve the potential problems.
Our Subsidiary
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. It manages the
importing of raw materials, and our engineering and electronic design services.
Enertec Systems, a private Israeli company, is owned by Enertec Management
Limited ("Enertec Management") (55%), Harry Mund (27%), our President and Chief
Executive Officer, and Zvi Avni (18%), a former employee of Enertec Electronics
Limited. The President and Chief Executive Officer of Enertec Systems is Harry
Mund, and the Chief Operating Officer is Zvi Avni. Enertec Systems commenced
operations on January 1, 2002.
Electronics Division
This division is responsible for:
- The marketing and distribution of power supplies manufactured by us
and third-party firms that engage us to distribute their products; and
- The marketing and distribution of power testing equipment we
manufacture to our customers.
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. Our
technical sales staff in Israel has a comprehensive understanding of our
9
customers' product base, which allows us to provide the most efficient power
supply solution to our customers. Our professional marketing and sales teams
include engineers who 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, radar, airborne infra-red cameras,
surveillance equipment, 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 contracts or distribution
contracts with various power supply manufacturers, namely Gaia Converter SA on
June 26, 2002, Emco High Voltage Co. on July 6, 1998, Christie Electric Corp. on
January 1, 1998 and CYTEC Corp. on December 20, 1988. These manufacturers
granted us exclusive rights to sell their products in Israel. We solicit sales
within Israel and upon receipts of purchase orders, we contact the supply
manufacturers to fulfill such orders. We thereafter either apply a mark-up to
the products ranging between 30% and 50% or are entitled to commissions ranging
between 5% and 15% of the sale price. We have exclusive rights in that the
supply manufacturers do not promote their products directly within Israel.
Further, if a customer contacts the supply manufacturers directly, such
manufacturer will redirect the customer to us, or advise us to contact the
customer regarding the order.
We are also a major local Israeli distributor of power testing equipment.
This includes DC and AC electronic loads, that is, equipment used for the
testing of power supplies which utilize alternate current (AC) and direct
current (DC) technology. We also provide various measurement devices that
measure factors such as electrical values, voltage, current, power, resistance,
and simulators, that is, pieces of equipment used during the testing process to
simulate different input/output conditions while monitoring the responses of the
unit to determine whether the equipment is functioning correctly. Additionally,
we provide complete ATE Systems, that is automatic test systems, which are
complete systems typically built to automatically test electronic systems in
their entirety. Examples of such systems are power supplies, computers, modems,
telecom systems, electronic motors, communication equipment, and various
military systems used on aircrafts, ships or tanks.
Systems Division
This division is responsible for designing, developing and manufacturing
test systems for electronics manufacturers based on their specifications. Our
systems are highly sophisticated and we have achieved recognition as a major
local manufacturer of ATE Systems. We also design and manufacture various
airborne military systems, for example, electronic systems used in aircrafts
such as a power supply, mission computer or a control system for a motor or a
pump, a radio transceiver, an altitude measuring device, and sub-assemblies,
which are parts of a system developed with the customer's specifications.
Military related products are divided into two sub-sections, the customized
systems and the standard (off-the-shelf) systems. Although a significant portion
of our revenues are generated from the sales of customised military related
products, as of December 31, 2002, and on a going forward basis, we have not and
10
continually may not qualify for orders for these products. Consequently, we may
experience a significant decrease in total overall revenues during the
twelve months.
However, we believe that we have taken approprites steps to ensure that the
potential loss of sales from the customized military business will not
have a material affect on our long-term operations and cash flow. First, we have
been utilizing our resouces to focus on our primary business, manufacturing and
distributing standard and customized power supplies in the non-military arena,
as well as the distribution of standard military related power supplies. Second,
we have saved the expense of becoming compliant with the stringent security
clearance standards required by some military customers who demand customized
systems. As a whole, we do not meet these high standards and the cost to become
compliant is not justifiable. Therefore, we have no plans to increase the
security clearance standards of our employees. Lastly, we have increased our
securities postion in Enertec Systems, an entity in which we currently own a 55%
equity interest. Enertec Systems does meet scrupulus customer standands
discussed above. Enertec Systems exclusively manufactures customized military
related products.
We anticipate that the concentration on our primary business coupled with
our equity interest in Enertec Systems, will be sufficient to offset any
potential losses incured from our decision to forego sales of cutomized
miltary related products. There is no formal arrangement or agreement between us
and Enertec Systems.
We are an ISO9001 approved company. The International Organization of
Standardization (ISO) has created this model designation 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 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 the industry insist on doing business with
companies that are least ISO9002 approved, a standard that is less demanding
than IS9001. The ISO9002 standard is related mainly to the quality assurance of
the manufacturing process, while the higher ISO9001 standard includes both the
quality assurance of the manufacturing process component as well as the quality
of the design. The ISO9001 standard is important for customers who are placing
orders for custom made products.
ISO9001 quality assurance model is made up of 20 sets of quality system
requirements. The key requirements are that an organization should:
- - Determine the needs and expectations of customers and other interested
parties.
- - Establish policies, objectives and a work environment necessary to motivate
the organization to satisfy these needs.
- - Design, resource and manage a system of interconnected processes necessary
to implement the policy and attain the objectives.
- - Measure and analyze the adequacy, efficiency and effectiveness of each
process in fulfilling its purpose and objectives.
11
- - Pursue the continual improvement of the system from an objective evaluation
of its performance.
A typical process for design, planning and implementing a quality system is
likely to involve:
- - Planning the quality initiative and obtaining executive sponsorship.
- - Establishing the quality policy for the organization.
- - Designing and planning the Quality Management System (QMS), usually based
on international standards.
- - Establishing the quality organization, and developing the quality manual
and structure of quality records.
- - Determining the scope of implementation.
- - Assuring quality plans.
- - Reviewing deliverables and determining any actions.
- - Auditing quality records.
- - Defining areas for process improvement.
- - Managing the improvement program.
New Products
In the third quarter of 2001, we introduced into the market an ATE for
unmanned aircraft priced at approximately $90,000. This system is designed to
test the datalink, or the communication channels, between the ground station and
the unmanned aircraft. The market has responded well to this ATE. As of
September 30, 2003, we have sold 10 units to Tadrian Spectralink, generating
revenues of approximately $900,000. These products were delivered throughout the
year 2003 and shall continue throughout 2004.
We have recently been approved for sales into the United States by the
Underwriters Laboratories, that is, approved to carry the UL sign, for a low
cost line of power supplies for the ADSL (fast internet) market. This product
line is estimated to cost approximately $10,000 to develop, with an expected
price to our customers of $6 per unit. Although approved, we have not
aggressively marketed this product due to the slowdown in ADSL sales.
In the fourth quarter of 2002, we launched a handheld pre-loadline tester.
This device is intended to test the proper functioning of the communication
between the aircraft and the payload, which payload could be bombs or missiles.
This product is estimated to cost in research and development approximately
$100,000, with an expected price per unit to our customers of $30,000. As of
December 31, 2002, we had received an order from Elbit Systems for five units,
for a total of $150,000. These units were delivered in the first
quarter of 2003.
Marketing Strategies
We market our products to a diverse group of manufacturers. Our products
serve the various needs of local Israeli manufacturers of electronic systems in
the following fields:
12
- Telecommunications
- Medical
- Military
- Industrial
We currently sell only to Israeli companies who, in turn, incorporate our
components into their products for resale to the global markets. We advertise
in all the local Israeli technical magazines and participate in electronic shows
three to five times a year. A substantial part of the business is from
"captive" customers who have been working with us for years. Many companies
have engaged us from their inception, and have implemented our custom designed
solutions. Many of our customers use us exclusively, and have become dependent
on us for technical services, products and support, and consider us to be their
own "power supply department".
Word-of-mouth also drives our business. 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 eighteen years, including eight years prior to the formation of Enertec
Electronics, when Mr. Mund conducted business under the name "Enertec
International". Interest in our business has also been generated at seminars and
exhibitions.
Over the next 24 months, we plan to be more aggressive in our marketing
efforts by introducing an array of new advertisements, a web-site and new
catalogs, as well as offering free samples of our products to new customers. We
intend to provide to new customers for free, custom designed samples, or
prototypes, in accordance with each of their specifications. For instance, a
potential customer in the process of designing a new electronic product will
require a power supply. We may provide a free sample power supply to the
customer to incorporate into its design. When the product enters the production
stage, our power supply will already be an intricate part of the product,
generating orders for us. Free sampling, or prototypes, will allow potential
customers to compare our products with those of our competition and discover our
product specialization and competitive pricing.
Within the Power Supply/Electronics Division, our main competitive
advantage of the standard units is price. The main competitive factor for the
custom units is sophistication and application results. Our Systems Division
does not use pricing as a competitive component because each application is
unique and proprietary. The System Division relies on detailed customization,
innovative state of the art solutions using cutting edge technology, and its
capacity to provide optimal and cost effective solutions based on technological
specialization in all areas of military and avionics systems.
As of December 19, 2003 , this division employs six persons.
Market Conditions
Worldwide recession in high-tech, telecommunications, and Internet related
products has affected the Electronics Division's power supplies' sales. The
overall market dropped by about 50% during 2001. Our power supplies' sales
during 2001 were lower by only approximately 25%. This can be explained
13
by the sale of our military related products. The military related business has
increased significantly in light of the current worldwide political situation
and the demand for military products. Local manufacturers of military equipment
have received increased orders from local and international markets.
Additionally, manufacturers who sell 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 and simulators is estimated at $100 to
$200 million annually. We have about 4% of this market, approximately the same
level of market penetration as our competitors. This market is largely
controlled by big defense manufacturers such as Elbit, El-Op , Rafael, Israeli
Aircraft Industry and Tadiran. However, there has been a noticeable trend by
these and other defense manufacturers to outsource test systems to specialized
firms so that large manufacturers can focus their resources on designing their
core products.
The eligible bidders for military contracts need to be "approved
companies," which are companies that a specific customer has pre-approved to
design and manufacture for it. Few of our competitors fall within this
category.
The Systems Division sales have increased by approximately 30% during 2001,
increased approximately 50% during 2002, and have remained the same through
September 30, 2003. These results are the direct product of our work ethic,
technical superiority, innovations in testing solutions, and cost efficient
productions. At the present time, our plant is working at near full capacity.
Our stable growth is largely due to our diversified client base. Increases
in sales in the telecommunications, industrial control, medical and the military
core business sectors, have made up for the decrease in sales in our commercial
products. However, our commercial market related business decreased less than
the overall market for two reasons. First, our sales force pays greater
attention to our customer relationships, providing more opportunities for
consultation than our competition does. Second, we offer more customized power
supplies, which, we believe, makes it more difficult for our competitors to bid
successfully on the same projects.
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. To
succeed in the implementation of our business strategy, our management team must
rapidly execute our sales and marketing strategy.
14
Customers
Our customers are mostly local Israeli manufacturers of
electronic systems from different segments of the electronics industry,
representing such fields as military, commercial, medical, and
telecommunications industries. Due to the high level of diversification of our
customers, we are not dependent on any one specific market segment, so overall
performance is less affected by fluctuation in the markets.
Israeli Aircraft Industry (IAI) accounts for approximately 57% of our
sales. Although the loss of this account is unlikely, we have made an effort to
decrease this percentage by increasing our sales to Elbit, Rafael and several
other new customers.
We currently are engaged in fulfilling long-term (1-2 years) purchase
orders with various customers for power supplies. Below is a table listing the
names of the customers and, if the orders are completely satisfied, the revenue
that will be generated from each:
Customer Amount
Kollmorgen-Servotronics Ltd. $56,000
Synel Systems Ltd. 20,000
Orex Computed Radiography Ltd. 20,000
Big Band Networks Ltd. 108,000
Camtek Ltd- AQI Systems 10,000
Rom-Phone Ltd. 10,000
RAD Data Communications Ltd 110,000
We also are engaged in fulfilling purchase orders for testing equipment
with various customers. Below is a table listing the names of the customers and
again, if the orders are completely satisfied, the revenue that will be
generated from each:
Customer Amount
Israeli Aircraft Industry $880,000
Tadiran Spectralink Ltd. 430,000
Elbit Systems Ltd. 740,000
El-Op-Electrooptics Industries Ltd. 460,000
Rafael-Armament Development Authority 740,000
Backlog
As of September 30, 2003 we had a backlog of written firm orders for our
products and services in the amount of approximately $2,193,000, as compared to
a backlog of approximately $2,280,000 as of September 30, 2002.
As of December 31, 2002 we had a backlog of written firm orders for our
products and services in the amount of approximately $ 1,964,000, as compared to
a backlog of approximately $2,300,000 as of December 31, 2001.
15
During the years 2001 and 2002, there was a significant increase in orders
for military ATE systems, and a decrease in orders for
commercial/telecommunications power supplies. The delivery lead-time of ATE
systems is six to twelve months, which gives rise to a significant backlog. The
delivery time for commercial products, such as power supplies, is from one to
two weeks to one to two months, so that our backlog is generally small for this
kind of product.
The amounts of orders included in the September 30, 2003 backlog figure are
as follows:
- $913,000 representing test systems for arrow missiles for Israel
Aircraft Industry;
- $75,000 representing airebourne power supplies and test systems for
infra-red payload for El-Op;
- $368,000 representing airebourne power supplies for Rafael Armament
Development Authority; and
- $395,000 representing data link test equipment for Tadrian
Spectralink.
The backlog of firm orders for commercial products is approximately
$390,000.
A typical order size for test systems is $30,000 to $250,000 depending on
the nature of the products for which the system is required.
The backlog and lead-time is also a function of the economy. That is, in
tougher economic times, companies tend to order what they need immediately,
rather than carrying an inventory. In turn, we also do not carry much excess
inventory, and thus the lead-time is slightly longer. We anticipate lowering
lead-time by 50% by keeping standard units in stock and by hiring more
production staff. Currently, we have a 4-week lead-time with our standardized
products, and a 4-month lead-time with our customized products.
Competition
We face intense competition from the existing 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 electronic components
and products. Our main competitors include Chaban Electronics Ltd., Advise
Electronics Ltd., Appletec Ltd., Migvan Technologies Ltd., Boran Technologies
Ltd., Telkoor Power Supplies Ltd., and Horizon Electronics Ltd.
However, we have been able to compete effectively with these companies for
the following reasons:
- Our power supplies are high quality, low cost, and are backed by a
large number of experienced technicians, a unique combination in this
industry. Most of our sales people are engineers, who have an
16
understanding of our customer's requirements, allowing us to provide
cost-effective solutions.
- We have comprehensive experience in test systems, which enables our
sales people to propose the most cost-effective testing solutions,
incorporating the highest grade of software and the most sophisticated
hardware.
- We maintain a strong technical team that provides solutions to our
customer's needs within our target niche.
- Our products are sold in diversified activity fields, namely,
commercial, industrial, military, medical, systems and components. Our
products have been incorporated into many high volume production
projects with long-term purchasing agreements of up to two years. That
is, our customers' products are sold in high volume intervals, and to
ensure delivery in a timely fashion, our customers place long-term
orders with us to cover their production needs over a period of
several months to up to a year. For example, we have backlog orders to
December, 2004 from Tadiran Spectralink, which uses our ATE for
unmanned aircrafts, and Kolmorgen, which incorporates our control
systems into three of their robot models. Additionally, we
mass-produce power supplies for Synel Systems' entry control system.
Moreover, we are the sole manufacturer of power supplies for Big Band
Networks, a Video On Demand provider. We currently have an order for
five hundred (500) power supplies that is incorporated into their
switchboard wideband network. There are three (3) separate power
supply components in Big Band Networks' switchboard.
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.
Our principal suppliers are Emco High Voltage and Hitron Electronics Corp.
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.
17
Employees
Number Of Number Of
Current Enertec Employees Expected
Function Electronics Limited In 2003
Employees
Management & Administration 4 3
Engineering 3 4
Production 4 1
Quality Assurance 1 1
Buyer 1 1
Marketing and Sales 2 7
Programmers 1 1
- -
Total 16 18
All 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. We do not employ any supplemental benefits or incentive arrangements
for our officers or employees. All of our employees are full-time. Management
considers its employee relations to be good.
Research And Development Expenditures
We spent approximately $100,000 (or 2% of revenues), $200,000 (or 5% of
revenues), and $226,000 (or 5% of revenues) for research and development in the
years 2000, 2001, and 2002 respectively. These costs totaled approximately
$75,000 and $145,000 for the nine months ended September 30, 2003 and 2002
respectively (or approximately 2% and 4% of revenues respectively) for both
periods. These expenditures have adequately satisfied our research and
development requirements.
Seasonal Aspects
We do not experience seasonal variations in our operating results.
Patents And Trademarks
We are not dependent on patents or trademark protection with regard to the
operation of our business and do not expect to be at any time in the future.
18
Government Regulation
Every electronic product must comply with the UL standards of the USA 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. The power
supply system has the most stringent approval standards
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 $16,800 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 $38,400 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
manufacturers 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
three to eight additional workers.
Legal Proceedings
We are not subject to any pending or threatened legal proceedings, except
for the lawsuit described below.
Orckit Communications brought an action in the Tel Aviv District Court
against Gaia Converter, a company for which we act as sales representative,
Alcyon Production Systems, a subcontractor of Gaia Converter, and Enertec
Electronics, alleging that the DC converters supplied to it by Gaia Converter
were defective and caused Orckit to replace the converters at a substantial
financial expense. Gaia Converter has advised us that the converters in issue
were free from any and all defects and were in good working order and that it
19
was the faulty performance of Orckit's product into which the converters were
incorporated that caused them to fail at a greater rate than anticipated by
Orckit. Enertec Electronics filed a defense to this claim on the basis that
there is no cause of action against it, as among other things, Enertec
Electronics is merely the local Israeli sales representative of Gaia Converter
and did not make any implied or express representations or warranties to Orckit
regarding the suitability of the converters or otherwise, nor was Enertec
Electronics required to do so by law. Technical specifications required by
Orckit for the converters were determined and communicated directly by Orckit to
Gaia Converter and all other communications regarding the converters were
directly between Orckit and Gaia Converter. Moreover, Orckit conducted a
qualification test of the converters and confirmed to Gaia Converter that the
converters complied with their requirements subsequent to such testing. Enertec
Electronics has had initial informal discussions with Orkit Communications about
removing Enertec Electronics as a Defendant in the action. Neither Gaia
Converter nor Alcyon Production Systems have filed a defense to this action, and
consequently Orkit Communications requested and obtained default judgments from
the Tel Aviv District Court against both Gaia Converter and Alcyon Production
Systems. The granting of these judgments render the continuation of the action
against Enertec Electronics highly improbable. However, if the proceedings are
continued, Enertec Electronics intends to defend this action vigorously and we
do not believe that it will have a material adverse impact on our business.
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations
Overview
Some of the information in this prospectus under this caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains "forward-looking statements" that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate" "believe," "estimate" and "continue,"
or similar words. You should read statements that contain these words carefully
because they:
- discuss our future expectations;
- contain projections of our future results of operations or of our
financial condition; and
- state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and "Description of Business". and elsewhere in this prospectus.
20
Liquidity And Capital Resources
Overview
As of December 31, 2002, our cash balance was $313,000 as compared to
$86,000 at December 31, 2001. Cash balances were $119,000 as of September 30,
2003. Total current assets at December 31, 2002 were $4,652,000, as compared to
$3,119,000 at December 31, 2001. Total current assets were $5,412,000 as of
September 30, 2003.
Our accounts receivable at December 31, 2002 was $1,976,000, as compared to
$739,000 at December 31, 2001. This change in accounts receivable is primarily
due to several large customers paying approximately $630,000 of accounts
receivable in advance of the due dates in December 2001, thereby reducing our
accounts receivable to an unusually low level at December 31, 2001. Our accounts
receivable was $2,515,000 as of September 30, 2003. At September 30, 2003 our
accounts receivable accounts for approximately 59% of our revenues and 42% of
our total assets. The increase in our accounts receivable percentage relating to
revenue is due to multiple reasons. Firstly, the sales generated from our
military related products have increased. These customers take approximately 90
days to pay amounts due to us. This has had the effect of increasing our
accounts receivable both as a percentage of revenue and current assets.
Secondly, our accounts receivables include an 18% value added tax (VAT) which is
not included in revenues. This VAT is recorded on our consolidated balance sheet
as a current liability and is periodically remitted to the taxing authorities.
Lastly, our accounts receivable percentage to revenue is generally greater in
the beginning of any one year and typically decreases with time. As revenue is
zero at January 1 and increases with time, our accounts receivable percentage to
revenue decreases. Consequently, we experience the lowest accounts receivable
percentage to revenue at December 31.
The increase in our accounts receivable percentage relating to total assets
is primarily due to our decision in early 2003 to extend the terms of our
accounts receivable from 60 days to 90 days. We have also granted certain of our
governmental customers additional credit terms of up to 110 days. As discussed
below, two large, financially secure Israeli firms account for approximately 66%
of our accounts receivable at September 30, 2003. An additional 24% of the
receivables consist of several similarly financially positioned companies. A
majority of these firms are triple A companies and have large governmental
contracts. Accordingly, we believe that these amounts will be collected in full.
The decision to increase the payment terms of our accounts receivable was partly
in response to our local competitors providing this accommodation and partly due
to the softer Israeli economy.
21
Based on our two most recent quarters we believe that our accounts
receivable percentage to total assets and to revenues have leveled off and we
anticipate that they will stay at approximately their current levels.
We do not expect much effect on our net profitability due to the increased
period of credit granted to our customers from 60 to 90 days, and up to 110 days
for certain of our governmental customers. This increased period has become an
industry standard in Israel, and accordingly, financial institutions have also
increased their periods of credit, alleviating pressures on us. Although this
change of payment terms will minimize the overall cash-flow to us, our tight
control will enable us to detect adverse situations immediately. Such control
entails credit control and constant monitoring of clients' financial position.
If we detect a problem with a customer, we will more aggressively seek payment
from, and suspend any work in process for, this customer.
As of December 31, 2002 our working capital was $302,000, as compared to a
working capital of $359,000 as of December 31, 2001. As of September 30, 2003,
we had a working capital of $792,000 as compared to a working capital of
$875,000 as of September 30, 2002.
On December 31, 2002, our long-term debt and bank line of credit was
$2,405,000. This debt consisted of several small loans and a line of credit.
During 2003, we have refinanced some of these loans using funds borrowed as
short-term debt. At September 30, 2003, our short-term bank loans payable was
$2,479,000, of which approximately $1,400,000 relates to our refinancing from
December 31, 2002. This leaves us with approximately $1,005,000 of our current
portion of long-term debt from December 31, 2002 to refinance before December
31, 2003. For the foreseeable future we do not expect to repay the principal
portion of this short term debt but we plan to obtain additional financing to
pay for the debt as it becomes due. We believe this is a sound business decision
due to the fact that we are receiving better interest rates on the short term
loans than we could obtain using long term loans. Currently, Israeli banks are
providing current long-term credit with interest rates at prime plus 2.5%. The
Israeli prime rate during 2003 has ranged between 7.6% and 10.2%. Our short term
loans have interest rates ranging between 7.0% and 9.5%. Therefore, we are
paying less in interest expense to carry a larger amount of debt.
At December 31, 2002, and at September 30, 2003, we had receivables from
Harry Mund, our Chief Executive Officer and President, in the amounts of
$296,000 and $150,000, respectively, and from Mund Holding Limited, an entity
wholly owned by Harry Mund, in the amounts of $57,000 and $51,000 at December
31, 2002 and September 30, 2003, respectively. The loan to Mr. Mund was extended
as salary advances. The loan to Mund Holding Limited was made pursuant to
the sale of a building by us to Mund Holding Limited. The building was sold for
part cash and the balance by this loan. There are no written agreements setting
out repayment terms of either loan. The parties have orally agreed that the
amounts outstanding are due on demand. Mr. Mund will make such repayments by
waiving rights to bonus and salaries accrued by him throughout the year 2003. We
believe that the current payment status will not affect our future cash flow or
liquidity.
22
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.
Financings
During the period June 2002 through September 2002, we entered into 31
subscription agreements with private investors, pursuant to which we issued an
aggregate of 233,000 shares of our common stock at $.15 per share. These private
investments generated total proceeds to us of $34,950. The costs relating to
this offering were $45,000.
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. Currenly, 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. At the present time, we do not have definitive plans to seek
additional financing.
Results Of Operations
Nine Months Ended September 30, 2003 Compared to Nine Months ended September 30,
2002.
For the nine months ended September 30, 2003, we had total revenue of
$4,257,000 as compared to $3,491,000 for the nine month period ended September
30, 2002, an increase of $766,000 or 21.9%. This increase in revenue is a result
of our consolidation of Enertec Systems for the nine months ended September 30,
2003 versus Enertec Systems not being part of consolidation for the nine months
ended September 30, 2002.
Gross profit totaled $1,580,000 for the nine months ending September 30,
2003, as compared to $1,529,000 for the nine months ended September 30, 2002, an
increase of $51,000 or 3.3%. The gross profit as a percentage of sales for the
nine months ended September 30, 2003 was 37.1% as compared to 43.8% for the nine
months ended September 30, 2002. This decrease in the gross profit percentage is
a result of our consolidation of Enertec Systems for the nine months ended
September 30, 2003 versus Enertec Systems not being part of consolidation for
the nine months ended September 30, 2002.
23
Total operating expenses in each of the nine month periods ended September
30, 2003 and September 30, 2002 were comprised of selling, general and
administrative expenses. Operating expenses for the nine month periods ended
September 30, 2003 and September 30, 2002 were $870,000 and $858,000,
respectively, an increase of $12,000, or 1.4%.
Our net income was $249,000 in the nine months ended September 30, 2003 as
compared to $386,000 in the nine months ended September 30, 2002. This decrease
in net income is due to several factors. During 2003 we increased our total debt
as compared to 2002 and thereby increased our interest expense by approximately
$78,000 for the nine months ended September 30, 2003.
Fiscal Year ended December 31, 2002 compared to Fiscal Year ended December 31,
2001.
For the fiscal year ended December 31, 2002 we had total revenue of
$4,414,000. Revenue was $4,254,000 for the fiscal year ended December 31,
2001. This increase in revenue of $160,000, or 3.8%, is due to an increase in
the number and size of orders for our products.
Gross profit totaled $1,765,000 for the fiscal year ended December 31, 2002
as compared to $1,130,000 for the fiscal year ended December 31, 2001, an
increase of $635,000 or 56.2%. Gross profit as a percentage of sales for the
fiscal year ended December 31, 2002 was 40.0% as compared to 26.6% for the
fiscal year ended December 31, 2001. The increase in our gross profit
percentage was due to continuing projects where related development
costs were incurred in prior periods.
Total operating expenses in each of the fiscal years ended December 31,
2002 and 2001 were comprised of selling, general and administrative expenses.
Operating expenses for the fiscal years ended December 31, 2002 and 2001 were
$1,091,000 and $962,000, respectively, an increase of $129,000, or 13.4%. The
increase in operating expenses is attributable to the general increase in
overhead which accompanied the expansion of the capacity of our business.
Our net income was $332,000 in the fiscal year ended December 31, 2002
compared to $10,000 in the fiscal year ended December 31, 2001. This increase
was due to the increase in gross profit, which was due to the sales of
repeat projects .
From 2000 through September 2003, our non-military business is down
approximately 50% due to the downturn in the technology industry, coupled with
the effects of the events of September 11th. For the nine months ended September
30, 2003, our revenue, costs of sales and gross profits from our non-military
business were $1,479,000, $788,000 and $691,000 respectively, and $1,899,000,
$860,000 and $1,039,000 respectively for the nine months ended September 30,
2002. Revenue, costs of sales and gross profits have decreased approximately
22.1%, 8.4% and 33.5% for the nine months ended September 30, 2003, as compared
to the same period in the prior year.
From 2000 through September 2002, this downturn was offset by the dramatic
rise of 83.7% in the military sector as a result of the rise in global political
unrest, as exacerbated by the events of September 11th. The increase was due to
a much larger demand for military products by the local and international
military related business. Local manufacturers of military equipment have
received increased orders for the local and international markets. This
prodomintately accounts for our growth in this business sector. From September
2002 to September 2003, the growth in this sector has stabilized. For the nine
month period ended September 30 2003, our revenue, costs of sales and gross
profits from customized military business were $2,778,000, $1,889,000 and
$889,000 respectively, and $1,592,000, $1,102,000 and $490,000, respectively for
nine months ended September 30, 2002. Revenue, costs of sales and gross profits
have changed approximately 74.5%, 71.4% and 81.4% for the nine months ended
September 30, 2003, as compared to the same period in the prior year. When we
combine military revenue, cost of sales and gross profit of Enertec Systems for
the nine months ended September 30, 2002 with our military revenue, cost of
sales and gross profit for the nine months ended September 30, 2002, the
percentage becomes a decrease of 1.0% and 10.3% and an increase of 27.2%
respectively. The stabilization in this sector is primarily due to the troubled
Israeli economy which caused the Israeli government to freeze orders to local
companies, some of whom are our customers. Moreover, many of the products that
we make are destined for export, and, as a result of the negative political
environment, some customers overseas have chosen not to utilize Isreali products
24
when it comes to the military component of our business. This trend is not seen
from the commercial side of the business. However, despite these economic
realities, we anticipate our profits growing in 2004 because we have been
receiving repeat orders in 2003, payments for which we will receive in 2004.
During the year ended December 31 2001, our revenue, costs of sales and
gross profits from customized military business were $2,399,000, $1,847,000 and
$552,000 respectively, and $2,169,000, $1,591,000 and $578,000, respectively for
year ended December 31, 2002. These revenues and gross profits may significantly
decrease in the coming years if we do not qualify for orders for these
customized military related products.
Although we may experience a decrease in customized military related
revenues within Enertec Electronics during the next twelve months, we believe
that we have taken appropriate steps to ensure that the potential loss of sales
from the customized military business will not have a material affect on our
long-term operations and cash flow. We have been utilizing our resources that we
would have otherwise expended on customized military related business, toward
the development of our primary business, that is, manufacturing and distributing
standard and customized power supplies in the non-military arena, as well as the
distribution of standard military related power supplies. Additionally, Enertec
Systems, has doubled its revenues and profits since its inception. It is better
suited to focus on this sector and has aggressively set bids for various
projects. It is building critical mass and economies of scale within this
specialized arena. We have increased our equity interest in Enertec Systems to
55%, and that, coupled with our concentration on our primary business, should be
sufficient to offset any potential losses incurred from engaging in the sales of
customized military products within Enertec Electronics.
On January 1, 2002, Enertec Management, a wholly owned subsidiary of
Enertec Electronics, acquired 25% of Enertec Systems from Harry Mund. This 25%
represented founding equity and was acquired by Enertec Management for $57. On
December 31, 2002, Enertec Management increased its securities position to 55%
of Enertec Systems' outstanding stock by purchasing additional shares from Zvi
Avni for $71,000. A total of 300 shares of Enertec Systems' outstanding stock
were acquired from Mr. Avni for $236.66 per share. The objective of the
acquisition was to consolidate control of Enertec Systems, bring more structure
to management, and increase the ownership position of Enertec Electronics' in a
company dedicated to carrying out specialized military contracts. The purchase
price was paid by Enertec Electronics through Enertec Management. The source of
the funds was Enertec Electronics' cash from operations. No liabilities were
assumed as a result of the purchases.
At September 30, 2003 we had two customers that accounted for approximately
66% of accounts receivable. During the nine months ended September 30, 2003 and
2002, we had two customers in both periods which accounted for approximately 50%
and 80%, respectively, of our sales. For the nine months ended September 30,
2003, approximately 50% of our sales were to: Isreali Aircraft Industry (30%)
and Tadiran Spectralink Ltd. (20%). For the nine months ended September 30,
2002, approximately 80% of our sales were to: Isreali Aircraft Industry (57%)
and Tadiran Spectralink Ltd. (23%).
At December 31, 2002 the company had three customers that accounted for
approximately 62% of the accounts receivable. During the years ended December
31, 2002 and 2001, approximately 71% and 63% of our sales were to three
customers, respectively. For the year ended December 31, 2002, approximately 71%
of our sales were to: Isreali Aircraft Industry (46%), Rafael-Armament
Development Authority (8%) and Elbit Systems Ltd. (16%). For the year ended
December 31, 2001, approximately 63% of our sales were made to: Isreali Aircraft
Industry (44%), Elbit Systems Ltd. (10%) and Rafael-Armament Development
Authority (9%).
25
Management
Directors, Officers, Key Employees And Consultants
Directors And Executive Officers
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 56 Chairman of the Board, Chief Executive
Officer, President and Secretary
Miron Markovitz 56 Director and Chief Financial 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 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 and our Chief Financial Officer since our
inception, and 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.
26
Significant Employees
The following is a brief description of the business experience of each of
our significant employees:
ZVI AVNI, 40, 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 (55%), Harry Mund (27%) and Mr. Avni (18%), and continues to be
responsible for the design and manufacture of the Automatic Test Systems. Mr.
Avni graduated from Haifa Technion Institute of Technology in 1982 and earned a
degree as a Practical Electronic Engineer.
YAAKOV OLECH, 51, has been employed by our subsidiary, Enertec Electronics
Limited, since March 1991. Mr. Olech is head of our customer service electronic
lab and technical support, providing after-sales customer support and repair
services for products under warranty or by utilizing service contracts for
repair of power supplies. He attended Radiotechnical Institute, Minsk, USSR from
1976 to 1979 and has earned a Master in Science in electronic engineering.
DR. ALEXANDER VELICHKO, 55, has 28 years of experience as leading research
and development engineer and head of the research and development group at
several companies. From 1981 to 1990, he was a lecturer of electronics and
automation at the Engineering Institute, Karatau, Kazahtan. From 1990 to 1999,
Dr. Velichko was chief engineer of the Laboratory of Electronics and
Automatization Karatau, Kazakhtan, responsible for development of compact
analog/digital measurement devices. Since February 2000 he has been Enertec
Electronics Limited's chief scientist and head of research and development. Dr
Velichko is responsible for the design of custom made power supplies. He earned
a PhD in Automatic Control at the Moscow Institute of Mining, which he attended
from 1964 to 1969, and earned a Master in Science at Tomsk Institute of
Electronic Engineering.
Our future success depends, in significant part, on the continued service
of Mr. Mund, and certain other key executive officers, managers, and sales and
technical personnel, who possess extensive expertise in various aspects of the
our business, including Mr. Markovitz, Mr. Avni, Mr. Olech, and Dr. Velichko. 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.
27
Executive Compensation
The following table shows compensation earned by our Chief Executive
Officer and President during fiscal 2002, 2001 and 2000. Since Lapis
Technologies, Inc. did not compensate any executive during fiscal 2002, 2001 and
2000, the information in the table includes compensation paid or awarded by
Enertec Electronics Limited only. No executive officer other than Mr. Mund
received total annual compensation in excess of $100,000 during fiscal 2002,
2001 and 2000.
Summary Compensation Table
Long Term Compensation
-----------------------
Annual Compensation Awards Payouts
--------------------------------------- ---------------------- -------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name And Compen- Awards Options/ Payouts Compen-
Principal Positions Year Salary ($) Bonus ($) sation ($) ($) SARs (#) ($) sation ($)
- ---------------------- ---- ---------- --------- ---------- --------- ----------- ------- ----------
Harry Mund, 2002 145,550 0 0 0 0 0 0
President and Chief 2001 405,900 330,000 0 0 0 0 0
Executive Officer 2000 450,000 330,000 0 0 0 0 0
2002 Stock Option Plan
We adopted, subject to stockholder approval, our 2002 Stock Option 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 will be 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 therefor 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.
28
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.
Certain Relationships And Related Transactions
On April 26, 2002, we issued 4,750,000 shares of our common stock to Harry
Mund in exchange for his 99 shares of Enertec Electronics Limited, our wholly
owned subsidiary, which constituted all of its issued and outstanding shares.
The 4,750,000 shares were valued at a price of $.10 per share or a total of
$475,000.
At December 31, 2001, our subsidiary Enertec Electronics Limited had a loan
receivable from Harry Mund, our Chief Executive Officer and President, in the
amount of $687,000 bearing interest at a rate of 4% per annum. This loan was
extended to Mr. Mund in October, 2001. At December 31, 2002, the loan receivable
was $296,000. The loan was extended as a salary advance to Mr. Mund. There are
no written agreements setting out repayment terms. The parties have orally
agreed that the amount outstanding is due on demand.
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. This loan is unrelated to the interest bearing loan
receivable from Mr. Mund discussed above. A portion of the loan was paid down on
June 6, 2003 in the amount of $12,600, and again on July 1, 2003 in the amount
of $10,971. There are no written agreements setting out repayment terms. The
parties have orally agreed that the amount outstanding is due on demand. As
of September 30, 2003, the amount of the loan outstanding was $51,000.
Enertec Electronics rents the building's office and manufacturing space
from Mund Holding Limited for $16,800 annually for twenty-four months ending
December 31, 2003. We have exercised our option to lease the building for an
additional twenty-four months ending December 31, 2005 for approximately $18,000
annually.
On December 31, 2000, Enertec Management Limited (f/k/a Elcomtech Limited),
a wholly-owned subsidiary of Enertec Electronics Limited, and of which Harry
Mund is the Chief Executive Officer and managing director, loaned an aggregate
amount of $23,000 to Enertec Electronics Limited at an interest rate of 4% per
annum due December 31, 2002. This loan was repaid on December 31, 2002.
29
Enertec Systems 2001 Ltd. ("Enertec Systems"), an Israeli company, is owned
by Enertec Management Limited (55%) ("Enertec Management"), Harry Mund (27%) and
Zvi Avni (18%), an employee of Enertec Systems. Enertec Systems commenced
operations on January 1, 2002. Enertec Management initially acquired 25% of
Enertec Systems from Harry Mund on January 1, 2002. This 25% represented
founding equity and was acquired by Enertec Management for 250 NIS. On December
31, 2002, Enertec Management increased its securities position to 55% of
Systems' outstanding stock by purchasing additional shares from Zvi Avni for
$71,000. A total of 300 shares of Systems' outstanding stock were acquired from
Mr. Avni for $236.66 per share. The purchase price was paid by Enertec
Electronics through Enertec Management. The source of the funds was Enertec
Electronics' cash from operations. No liabilities were assumed as a result of
the purchases.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 19, 2003 . The information in
this table provides the ownership information for:
- each person known by us to be the beneficial owner of more than 5% of
our common stock;
- each of our directors;
- each of our executive officers; and
- our executive officers and directors as a group.
The percentages in the table have been calculated on the basis of treating
as outstanding for a particular person, all shares of our common stock
outstanding on December 19, 2003 and all shares of our common stock
issuable to that person in the event of the exercise of outstanding options and
other derivative securities owned by that person which are exercisable within 60
days of December 19, 2003 . Presently, there are no options or derivative
securities outstanding. Except as otherwise indicated, the persons listed below
have sole voting and investment power with respect to all shares of our common
stock owned by them, except to the extent such power may be shared with a
spouse.
Unless otherwise indicated, the address of each beneficial owner is c/o
Enertec Electronics Limited, 27 Rechov Ha'Mapilim, Kiriat Ata, Israel, P.O. BOX
497, Kiriat Motzkin 26104, Israel.
30
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Outstanding
---------------------------- ------------------ -----------
Harry Mund 4,750,000 86.63%
Miron Markovitz 9,000 .16%
All directors and executive
officers as a group (2 persons) 4,759,000 86.79%
Selling Stockholders
The following table provides certain information with respect to the
beneficial ownership of our common stock known by us as of December 19,
2003 by each selling shareholder. None of the selling stockholders are
broker-dealers. The percentages in the table have been calculated on the basis
of treating as outstanding for a particular person, all shares of our common
stock outstanding on December 19, 2003 and all shares of our common stock
issuable to that person in the event of the exercise of outstanding options and
other derivative securities owned by that person at December 19, 2003
which are exercisable within 60 days of December 19, 2003 . Presently,
there are no options or derivative securities outstanding. Except as otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of our common stock owned by them, except to the extent
such power may be shared with a spouse. Amounts shown assume the maximum number
of shares being offered are all sold. The shares being offered by the selling
stockholders are being registered to permit public secondary trading, and the
stockholders may offer all or part of their registered shares for resale from
time to time. However, the selling stockholders are under no obligation to sell
all or any portion of their shares. The table below assumes that all shares
offered by the selling stockholders will be sold. See "Plan of Distribution".
Shares Of
Common Stock
Beneficially Owned Percentage Ownership
Name And Address Of Number Of Before After Before After
Beneficial Owner Shares Offered Offering Offering Offering Offering
- -------------------------------------------------------------------------------------------
Claudia Ben-Dor 6,000 6,000 0 * 0
Mitzpe Tel - El
House No. 408
P.O Oshrat
P.O. Box 25167
Israel
Israel Ben-Dor 6,000 6,000 0 * 0
Mitzpe Tel - El
House No. 408
P.O Oshrat
P.O. Box 25167
Eliaz Bilik 3,200 3,200 0 * 0
Moria Ave. 101/A
Haifa 34616
Israel
31
Shares Of
Common Stock
Beneficially Owned Percentage Ownership
Name And Address Of Number Of Before After Before After
Beneficial Owner Shares Offered Offering Offering Offering Offering
- -------------------------------------------------------------------------------------------
Snir Eitan 1,400 1,400 0 * 0
Parcel 140
Hosen
Israel
Yael Elipaz 1,400 1,400 0 * 0
25 Shoham Pts.
Haifa
Israel
Olga Gross 6,000 6,000 0 * 0
Gedaliahy Street 1517
Neveshaanon 32587
Israel
Shoshy Inbal 1,400 1,400 0 * 0
Hachzav Street 16/21
Nesher 19234
Israel
Barak Koren (12) 1,000 1,000 0 * 0
BAZ 14 Street
Karmiel 20100
Israel
Eitan Koren (11) 7,000 7,000 0 * 0
BAZ 14 Street
Karmiel 20100
Israel
Sasson Koren (10) 12,000 12,000 0 * 0
BAZ 14 Street
Karmiel 20100
Israel
Shoshana Koren (9) 18,000 18,000 0 * 0
BAZ 14 Street
Karmiel 20100
Israel
Elliot Kretzmer 35,000 35,000 0 * 0
3 Chanita Street
Kfar Sava
Israel
32
Shares Of
Common Stock
Beneficially Owned Percentage Ownership
Name And Address Of Number Of Before After Before After
Beneficial Owner Shares Offered Offering Offering Offering Offering
- -------------------------------------------------------------------------------------------
Amir Marcovitz (2) 6,000 6,000 0 * 0
77 Moshe Gorken Street
K. Motykin
Israel
Editha Marcovitz (1) 9,000 9,000 0 * 0
77 Moshe Gorken Street
K. Motykin
Israel
Miron Marcovitz (1)(2)(3)(4) 9,000 9,000 0 * 0
(5)(6)
77 Moshe Gorken Street
K. Motykin
Israel
Revital Marcovitz-Mizrachi (6) 6,000 6,000 0 * 0
16/3 Hativet Hauegev Street
Modiin
Israel
Bracha Meirav 2,600 2,600 0 * 0
64 Haalie Street
Haifa
Israel
Yigal Meirav 2,600 2,600 0 * 0
64 Haalia Street
Haifa
Israel
Sasson Mizrachi (5) 6,000 6,000 0 * 0
16/3 Hativet Hauegev Street
Modiin
Israel
Helena Mund (8) 16,000 16,000 0 * 0
25 Sinai Street
Haifa
Israel
Simon Mund (7) 16,000 16,000 0 * 0
25 Sinai Street
Haifa
Israel
33
Shares Of
Common Stock
Beneficially Owned Percentage Ownership
Name And Address Of Number Of Before After Before After
Beneficial Owner Shares Offered Offering Offering Offering Offering
- -------------------------------------------------------------------------------------------
Alexander Osztreicher (14) 14,000 14,000 0 * 0
15/7, Ghedaliahu
Haifa 32587
Israel
Barak Osztreicher (17) 4,000 4,000 0 * 0
P.O.B. 240
Moledet 19130
Israel
Einat Osztreicher (15) 4,000 4,000 0 * 0
P.O.B. 79
Elyashiu
Israel
Haim Osztreicher (18) 6,600 6,600 0 * 0
P.O.B. 33658
Haifa
Israel
Klara Osztreicher (13) 14,000 14,000 0 * 0
15/7, Ghedaliahu
Haifa 32587
Israel
Lior Osztreicher (16) 4,000 4,000 0 * 0
7, Hashitim
Q. Tivon 36000
Israel
Shimon Tregerman 1,400 1,400 0 * 0
Broshim 205
Tal-El 25167
Israel
Svetlana Tregerman 1,400 1,400 0 * 0
Broshim 205
Tal-El 25167
Israel
Margareta Weissman (4) 6,000 6,000 0 * 0
2/7 Eshkol Street
K. Motykin
Israel
Martin Weissman (3) 6,000 6,000 0 * 0
2/7 Eshkol Street
K. Motykin
Israel
34
Shares Of
Common Stock
Beneficially Owned Percentage Ownership
Name And Address Of Number Of Before After Before After
Beneficial Owner Shares Offered Offering Offering Offering Offering
- -------------------------------------------------------------------------------------------
Fairbain Trading (20) 150,000 150,000 0 * 0
c/o A.P.T. Associates, 19 W.
34th Street, 11th Floor, New
York, NY, 10001
Global Exploration Equities 200,000 200,000 0 * 0
Inc. (19)
c/o A.P.T. Associates, 19 W.
34th Street, 11th Floor, New
York, NY, 10001
Jackson Steinem, Inc. (22) 50,000 50,000 0 * 0
c/o Gottbetter & Partners,
LLP
488 Madison Avenue, Floor 12
New York, New York 10022
Foremost Securities, Ltd (21) 100,000 100,000 0 * 0
c/o A.P.T. Associates, 19 W.
34th Street, 11th Floor, New
York, NY, 10001
*Indicates less than one percent of total outstanding common stock
(1) Miron Marcovitz is married to Edith Marcovitz.
(2) Amir Marcovitz is the son of Miron Marcovitz.
(3) Martin Weissman is Miron Marcovitz's father-in-law.
(4) Margareta Weissman is Miron Marcovitz's mother-in-law.
(5) Sasson Mizrachi is Miron Marcovitz's son-in-law.
(6) Revital Mizrachi is Miron Marcovitz's daughter.
(7) Simon Mund is Harry Mund's father.
(8) Helena Mund is Harry Mund mother.
(9) Shoshana Koren is Harry Mund's sister.
(10) Sasson Koren is Harry Mund's brother-in-law.
(11) Eitan Koren is Harry Mund's nephew.
(12) Barak Koren is Harry Mund's nephew.
(13) Klara Ostreicher is Harry Mund's mother-in-law.
(14) Alexander Osztreicher is Harry Mund's father-in-law.
(15) Einat Osztreicher is Harry Mund's niece.
(16) Lior Osztreicher is Harry Mund's nephew.
(17) Barak Osztreicher is Harry Mund's nephew.
(18) Haim Osztreicher is Harry Mund's brother-in-law.
(19) Sole beneficial owner of which is David Kretzmer.
(20) Sole beneficial owner of which is Solomon Krok.
(21) Sole beneficial owner of which is Samantha Topola Family Trust. Stephen
Silberfein, as trustee of the trust, has sole voting and investment
power of the shares, and is deemed the beneficial owner of the
Samantha Topola Family Trust.
(22) Beneficial owner of which is Adam S. Gottbetter a partner of Gottbetter
& Partners, LLP, counsel to the Company.
35
Description Of Securities
General
Our authorized capital stock currently consists of 100,000,000 shares of
common stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.001 per share, the rights and preferences of which may be
established from time to time by our Board of Directors. As at December 19,
2003 there are 5,483,000 shares of our common stock issued and outstanding.
No other securities, including without limitation any preferred stock,
convertible securities, options, warrants, promissory notes or debentures are
outstanding.
All material rights of common and preferred shareholders are discussed
below.
Common Stock
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any shares of preferred stock outstanding at the time, holders of our common
stock are entitled to receive dividends ratably, if any, as may be declared from
time to time by our board of directors out of funds legally available therefor.
Upon our liquidation, dissolution or winding up, the holders of our common
stock are entitled to receive ratably, our net assets available after the
payment of:
- all secured liabilities, including any then outstanding secured debt
securities which we may have issued as of such time;
- all unsecured liabilities, including any then outstanding unsecured
debt securities which we may have issued as of such time; and
- all liquidation preferences on any then outstanding preferred stock.
Holders of our common stock have no preemptive, subscription, redemption or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate and issue in the future.
As of the date of this prospectus, 94,517,000 shares of our common stock
remain unissued. Our board of directors has the power to issue any or all of the
remaining common shares for general corporate purposes, without shareholder
approval. While we presently have no commitments, contracts or intentions to
issue any additional common shares except as otherwise disclosed in this
prospectus, potential investors should be aware that any such stock issuances
may result in a reduction of the book value of the outstanding common shares. If
36
we issue any additional common shares, such issuance will reduce the
proportionate ownership and voting power of each other common shareholder.
Preferred Stock
Our board of directors is authorized, without further stockholder approval,
to issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares will have rights
senior to our common stock. The issuance of preferred stock may have the effect
of delaying or preventing a change in our control. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of our common stock. At
present, we have no plans to issue any shares of our preferred stock.
Penny Stock Rules
At the present time, there is no public market for our stock. However,
Vfinance, a broker-dealer, filed a Form 211 in November 2002, with the National
Association of Securities Dealers, Inc. in order to allow for the quotation of
our common stock on the OTC Bulletin Board. The quotation of our common stock,
however, may not occur.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
special disclosure relating to the trading of any stock defined as a penny
stock. Commission regulations generally define a penny stock to be an equity
security that has a market price of less than $5.00 per share and is not listed
on The Nasdaq Small Cap Stock Market or a major stock exchange. These
regulations subject all broker-dealer transactions involving such securities to
special Penny Stock Rules. Following the completion of this offering, the
commencement of trading of our common stock, and the foreseeable future
thereafter, the market price of our common stock is expected to be substantially
less than $5 per share. Accordingly, should anyone wish to sell any of our
shares through a broker-dealer, such sale will be subject to the Penny Stock
Rules. These Rules will affect the ability of broker-dealers to sell our shares
and will therefore also affect the ability of purchasers in this offering to
resell their shares in the secondary market, if such a market should ever
develop.
The Penny Stock Rules impose special sales practice requirements on
broker-dealers who sell shares defined as a penny stock to persons other than
their established customers or accredited investors. Among other things, the
Penny Stock Rules require that a broker-dealer make a special suitability
determination respecting the purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. In addition, the Penny Stock
Rules require that a broker-dealer deliver, prior to any transaction, a
disclosure schedule prepared in accordance with the requirements of the
Commission relating to the penny stock market. Disclosure also has to be made
about commissions payable to both the broker-dealer and the registered
representative and the current quotations for the securities. Finally, monthly
statements have to be sent to any holder of such penny stocks disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the rule may affect the ability of
37
broker-dealers to sell our shares and may affect the ability of holders to sell
our shares in the secondary market. Accordingly, for so long as the Penny Stock
Rules are applicable to our common stock, it may be difficult to trade such
stock because compliance with the Penny Stock Rules can delay or preclude
certain trading transactions. This could have an adverse effect on the liquidity
and price of our common stock.
Delaware Anti-Takeover Law
We are not presently subject to Section 203 of the DGCL and will not become
subject to Section 203 in the future unless, among other things, our common
stock is (i) listed on a national securities exchange; (ii) authorized for
quotation on the NASDAQ Stock Market; or (iii) held of record by more than 2,000
stockholders. If Section 203 should become applicable to us in the future, it
could prohibit or delay a merger, takeover or other change in control of our
Company and therefore could discourage attempts to acquire us. Section 203
restricts certain transactions between a corporation organized under Delaware
law and any person holding 15% or more of the corporation's outstanding voting
stock, together with the affiliates or associates of such person (an Interested
Stockholder). Section 203 prevents, for a period of three years following the
date that a person became an Interested Stockholder, the following types of
transactions between the corporation and the Interested Stockholder (unless
certain conditions, described below, are met): (a) mergers or consolidations,
(b) sales, leases, exchanges or other transfers of 10% or more of the aggregate
assets of the corporation, (c) issuances or transfers by the corporation of any
stock of the corporation which would have the effect of increasing the
Interested Stockholder's proportionate share of the stock of any class or series
of the corporation, (d) any other transaction which has the effect of increasing
the proportionate share of the stock of any class or series of the corporation
which is owned by the Interested Stockholder and (e) receipt by the Interested
Stockholder of the benefit (except proportionately as a stockholder) of loans,
advances, guarantees, pledges or other financial benefits provided by the
corporation.
The three-year ban does not apply if either the proposed transaction or the
transaction by which the Interested Stockholder became an Interested Stockholder
is approved by the board of directors of the corporation prior to the time such
stockholder becomes an Interested Stockholder. Additionally, an Interested
Stockholder may avoid the statutory restriction if, upon the consummation of the
transaction whereby such stockholder becomes an Interested Stockholder, the
stockholder owns at least 85% of the outstanding voting stock of the corporation
without regard to those shares owned by the corporation's officers and directors
or certain employee stock plans. Business combinations are also permitted within
the three-year period if approved by the board of directors and authorized at an
annual or special meeting of stockholders by the holders of at least two-thirds
of the outstanding voting stock not owned by the Interested Stockholder. In
addition, any transaction is exempt from the statutory ban if it is proposed at
a time when the corporation has proposed, and a majority of certain continuing
directors of the corporation have approved, a transaction with a party who is
not an Interested Stockholder (or who becomes such with approval of the board of
directors) if the proposed transaction involves (a) certain mergers or
consolidations involving the corporation, (b) a sale or other transfer of over
50% of the aggregate assets of the corporation, or (c) a tender or exchange
offer for 50% or more of the outstanding voting stock of the corporation.
38
Dividend Policy
We have never paid any dividends on our common stock. We do not intend to
declare or pay dividends on our common stock, but to retain our earnings for the
operation and expansion of our business. Dividends will be subject to the
discretion of our board of directors and will be contingent on future earnings,
our financial condition, capital requirements, general business conditions and
other factors as our board of directors deem relevant.
Market For Our Common Stock And Related Stockholder Matters
Before this offering, there has been no public market for our common stock
and a public market for our common stock may not develop after this offering. We
anticipate that our common stock will be traded on the OTC Bulletin Board, but
this may not occur. VFinance, a broker-dealer, filed a Form 211 in November
2002, with the National Association of Securities Dealers, Inc. in order to
allow for the quotation of our common stock on the OTC Bulletin Board. There is
no arrangement between us and VFinance.
Prior to this offering, we have 5,483,000 shares of common stock issued and
outstanding held by approximately 36 persons. A total of 733,000 shares will be
offered by the selling stockholders.
Transfer Agent
Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY
10004, will act as the Transfer Agent for our common stock.
Plan Of Distribution
The selling stockholders may, from time to time, sell any or all of their
shares of common stock covered by this prospectus in private transactions at a
price of $.15 per share or on any stock exchange, market or trading facility on
which the shares may then be traded. Once our shares are quoted on the Over the
Counter Bulletin Board ("OTCBB"), the selling stockholders may sell any or all
of their shares at prevailing market prices or privately negotiated prices. The
term "selling stockholders" includes donees, pledgees, transferees or other
successors-in-interest selling shares received after the date of this prospectus
from a selling stockholder as a gift, pledge, partnership distribution or other
non-sale related transfer. We will pay the expense incurred to register the
shares being offered by the selling stockholders for resale, but the selling
stockholders will pay any underwriting discounts and brokerage commissions
associated with these sales. The commission or discount which may be received by
any member of the National Association of Securities Dealers, Inc. in connection
with these sales will not be greater than 8%. The selling stockholders may use
any one or more of the following methods when selling shares:
a. ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
b. block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
39
c. purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
d. privately negotiated transactions; and
e. a combination of any such methods of sale.
In addition, any shares that qualify for sale under Rule 144 may be sold
under Rule 144 rather than through this prospectus.
The $.15 per share offering price of the common stock being sold under this
prospectus has been arbitrarily set. The price does not bear any relationship to
our assets, book value, earnings or net worth and it is not an indication of
actual value. Additionally, the offering price of our shares is higher than the
price paid by our founder, and exceeds the per share value of our net tangible
assets. Therefore, if you purchase shares in this offering, you will experience
immediate and substantial dilution. You may also suffer additional dilution in
the future from the sale of additional shares of common stock or other
securities, if the need for additional financing forces us to make such sales.
Investors should be aware of the risk of judging the real or potential future
market value, if any, of our common stock by comparison to the offering price.
In offering the shares covered by this prospectus, the selling stockholders
and any broker-dealers who execute sales for the selling stockholders may be
deemed to be an "underwriter" within the meaning of the Securities Act in
connection with such sales. Any profits realized by the selling stockholders and
the compensation of any broker-dealer may be deemed to be underwriting discounts
and commissions.
Selling shareholders will be able to sell their shares in all 50 states in
the U.S. We will apply to the Standard and Poor's Editorial Board to be listed
in its corporation records. The Standard and Poor's Corporation Records is a
recognized securities manual for "blue sky" or "manual exemption" trading in
approximately 35 states. The remaining states have self-executing securities
registration exemptions. The listing should assist the brokerage community in
making a market for the Company's stock. It is recommended, however, that
brokers check with the blue sky laws in their particular state.
Each selling stockholder and any other person participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, selling stockholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
Any securities covered by this prospectus that qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that rule rather than
pursuant to this prospectus.
40
This offering will terminate on the earlier of (i) the date that all shares
offered by this prospectus have been sold by the selling shareholders, (ii)
twenty-four (24) months from the effective date of the Registration Statement on
Form SB-2 that we have filed with the SEC, or (iii) the date all of the selling
shareholders may sell all of the shares described herein without restriction
pursuant to Rule 144 of the Securities Act.
Shares Eligible For Future Sale
As of December 19, 2003 we had 5,483,000 shares of common stock
issued and outstanding. Of these shares, the 733,000 shares that can be sold in
this offering by the Selling Stockholders will be freely tradable without
restriction or further registration under the Securities Act.
In general, under Rule 144, a person or persons whose shares are required
to be aggregated, who has beneficially owned shares of common stock for a period
of one year, including a person who may be deemed an affiliate, is entitled to
sell, within any three-month period, a number of shares not exceeding 1% of the
total number of outstanding shares of such class. A person who is not an
affiliate of ours and who has beneficially owned shares for at least two years
is entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. Under Rule 144, an affiliate of an issuer is a
person that directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, such issuer.
If a public market develops for our common stock, we are unable to predict
the effect that sales made under Rule 144 or other sales may have on the then
prevailing market price of our common stock. None of our presently outstanding
shares of Common Stock will be eligible for sale under Rule 144 prior to April,
2003.
Commission Position On Indemnification
Our Certificate of Incorporation limits, to the maximum extent permitted
under Delaware law, the personal liability of our directors and officers for
monetary damages for breach of their fiduciary duties as directors and officers,
except in certain circumstances involving certain wrongful acts, such as a
breach of the director's duty of loyalty or acts of omission which involve
intentional misconduct or a knowing violation of law.
Section 145(a) of the General Corporation Law of Delaware ("GCL") permits a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
41
Under Section 145(b) of the GCL, a corporation also may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to the best interests of the
corporation. However, in such an action by or on behalf of a corporation, no
indemnification may be in respect of any claim, issue or matter as to which the
person is adjudged liable to the corporation unless and only to the extent that
the court determines that, despite the adjudication of liability but in view of
all the circumstances, the person is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper.
In addition, under Section 145(f) of the GCL, the indemnification provided
by Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
We will not indemnify our directors and officers (a) for any breach of
loyalty to us or our stockholders; (b) if a director or officer does not act in
good faith; (c) for acts involving intentional misconduct; (d) for acts or
omissions falling under Section 174 of the DGCL; or (e) for any transaction for
which the director or officer derives an improper personal benefit. We will
indemnify our directors and officers for expenses related to indemnifiable
events, and will pay for these expenses in advance. Our obligation to indemnify
and to provide advances for expenses are subject to the approval of a review
process with a reviewer to be determined by the Board. The rights of our
directors and officers will not exclude any rights to indemnification otherwise
available under law or under our Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of ours
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Article X of our By-laws, on indemnification provides as follows:
"Any person who at any time serves or has served as a director or
officer of the Corporation, or in such capacity at the request of the
42
Corporation for any other foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or as trustee or administrator
under an employee benefit plan, shall have a right to be indemnified by the
Corporation to the fullest extent permitted by law against (a) reasonable
expenses, including attorneys' fees, actually and necessarily incurred by
him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
whether or not brought by or on behalf of the Corporation, seeking to hold
him liable by reason of the fact that he is or was acting in such capacity,
and (b) reasonable payments made by him in satisfaction of any judgment,
money decree, fine, penalty or settlement for which he may have become
liable in any such action, suit or proceeding.
To the extent permitted by law, expenses incurred by a director or
officer in defending a civil or criminal action, suit or proceeding shall
be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding, upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount unless it shall ultimately
be determined that he is entitled to be indemnified hereunder by the
Corporation.
If a person claiming a right to indemnification under this Section
obtains a non-appealable judgment against the Corporation requiring it to
pay substantially all of the amount claimed, the claimant shall be entitled
to recover from the Corporation the reasonable expense (including
reasonable legal fees) of prosecuting the action against the Corporation to
collect the claim.
Notwithstanding the foregoing provisions, the Corporation shall
indemnify or agree to indemnify any person against liability or litigation
expense he may incur if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his action was unlawful.
The Board of Directors of the Corporation shall take all such action
as may be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this Bylaw, including without limitation, to
the extent needed, making a good faith evaluation of the manner in which
the claimant for indemnity acted and of the reasonable amount of indemnity
due him and giving notice to, and obtaining approval by, the stockholders
of the Corporation.
Any person who at any time after the adoption of this Bylaw serves or
has served in any of the aforesaid capacities for or on behalf of the
Corporation shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided
herein. Such right shall inure to the benefit of the legal representatives
of any such person and shall not be exclusive of any other rights to which
such person may be entitled apart from the provision of this Bylaw.
43
Unless otherwise provided herein, the indemnification extended to a
person that has qualified for indemnification under the provisions of this
Article X shall not be terminated when the person has ceased to be a
director, officer, employee or agent for all causes of action against the
indemnified party based on acts and events occurring prior to the
termination of the relationship with the Corporation and shall inure to the
benefit of the heirs, executors and administrators of such person."
Legal Matters
Gottbetter & Partners, LLP has rendered an opinion as our counsel, that the
shares offered hereby will be legally issued, fully paid and nonassessable. The
partners of Gottbetter & Partners, LLP own 50,000 shares of our common stock
through Jackson Steinem, Inc.
Experts
The financial statements of both Enertec Electronics Limited as of December
31, 2001 and 2002 included in this prospectus, and elsewhere in the registration
statement have been audited by Gvilli and Co., certified public accountants, as
indicated in their reports with respect thereto, and are included in this
prospectus in reliance upon the authority of said firm as experts in accounting
and auditing in giving said report.
The financial statements of the parent company, Lapis Technologies, Inc. as
of and for the year ended December 31, 2002 have been audited by Rogoff &
Company, P.C., as indicated in their report with respect thereto, and are
included in this prospectus in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
Additional Information
We have not previously been required to comply with the reporting
requirements of the Securities Exchange Act. We have filed with the SEC a
registration statement on Form SB-2 to register the securities offered by this
prospectus. The prospectus is part of the registration statement, and, as
permitted by the SEC's rules, does not contain all of the information in the
registration statement. For future information about us and the securities
offered under this prospectus, you may refer to the registration statement and
to the exhibits and schedules filed as a part of the registration statement.
In addition, after the effective date of this prospectus, we will be
required to file annual, quarterly, and current reports, or other information
with the SEC as provided by the Securities Exchange Act. You may read and copy
any reports, statements or other information we file at the SEC's public
reference facility maintained by the SEC at Judiciary Plaza, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference room. Our SEC filings are also available to the public through the SEC
Internet site at http\\www.sec.gov.
44
INDEX TO FINANCIAL STATEMENTS
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
PAGE
----
Auditors' Report of Gvilli & Co., CPA F-1
Auditors' Report of Rogoff & Company, PC F-2
Consolidated Balance Sheet as of December 31, 2002,
and June 30, 2003 (unaudited) F-3
Consolidated Statements of Income for the years ended
December 31, 2002 and 2001, and the six month periods ended
June 30, 2003 and 2002 (unaudited) F-4
Consolidated Statement of Stockholders' Equity and
Comprehensive Income (Loss) for the years ended
December 31, 2002 and 2001, and the six month periods
ended June 30, 2003 and 2002 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2001 and the six month periods
ended June 30, 2003 and 2002 (unaudited) F-6
Notes to Consolidated Financial Statements F-8
Pro Forma Condensed Consolidated Balance Sheet for the year ended
December 31, 2002 (unaudited) F-21
Pro Forma Condensed Consolidated Statement of Operations for the
year ended December 31, 2002 (unaudited) F-22
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited) F-23
45
[LETTERHEAD OF GVILLI & CO, C.P.A.]
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
ENERTEC ELECTRONICS LTD.
We have audited the accompanying consolidated balance sheet of Enertec
Electronics L.T.D (the corporationas) of December 31,2002 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the two years ended December 31, 2002. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the above mentioned financial
statements present fairly, in all material respects, the consolidated financial
position of the company as of December 31, 2002 and the consolidated results of
their operations and their cash flows of the company for each of the two years
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Gvilli & Co., CPA
GVILLI & CO., CPA
Caesarea
April 1, 2003
F-1
[LETTERHEAD OF ROGOFF & COMPANY, PC]
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. (the "Company") at December 31, 2002, and the related
consolidated statements of income, changes in stockholders' equity and
comprehensive income and cash flows for the year then ended. 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 audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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. at December 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/Rogoff & Company, P.C.
New York, New York
April 1, 2003
F-2
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2003 2002
---------- --------------
(Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 119 $ 313
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 2,515 1,976
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 2,260 1,788
Prepaid expenses and other current assets . . . . . . . . . . . 368 279
Due from stockholder. . . . . . . . . . . . . . . . . . . . . . 150 296
---------- --------------
Total current assets. . . . . . . . . . . . . . . . . . . . . 5,412 4,652
Property and equipment, net . . . . . . . . . . . . . . . . . . . 509 435
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . 51 57
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 16 15
---------- --------------
$ 5,988 $ 5,159
========== ==============
LIABILITIES AND STOCKHOLDERS' EQUIY
Current Liabilities:
Bank line of credit . . . . . . . . . . . . . . . . . . . . . . $ 463 $ 1,352
Current portion of long term debt . . . . . . . . . . . . . . . 2,479 1,053
Accounts payable and accrued expenses . . . . . . . . . . . . . 1,405 1,567
Income tax payable. . . . . . . . . . . . . . . . . . . . . . . 273 166
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . - 212
---------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . 4,620 4,350
Long-term debt, net of current portion. . . . . . . . . . . . . . 450 275
Severance payable . . . . . . . . . . . . . . . . . . . . . . . . 94 89
---------- --------------
5,164 4,714
---------- --------------
Commitments and contingencies (See Notes 11 and 12)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 169 71
Stockholders' Equity:
Preferred stock; $.001 par value, 5,000,000 shares authorized,
none outstanding. . . . . . . . . . . . . . . . . . . . . . . - -
Common stock; $.001 par value, 100,000,000 shares authorized,
5,483,000 shares issued and outstanding, respectively . . . . 5 5
Additional paid in capital. . . . . . . . . . . . . . . . . . . 78 78
Accumulated other comprehensive loss. . . . . . . . . . . . . . (72) (104)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 644 395
---------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 655 374
---------- --------------
$ 5,988 $ 5,159
========== ==============
See Notes to Consolidated Financial Statements.
F-3
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share and Share Amounts)
Nine Months Ended Years Ended
September 30, December 31,
------------- -------------
2003 2002 2002 2001
----------- ----------- ----------- -----------
(Unaudited)
Sales . . . . . . . . . . . . . . . . . . . . . . $ 4,257 $ 3,491 $ 4,414 $ 4,254
Cost of sales . . . . . . . . . . . . . . . . . . 2,677 1,962 2,649 3,124
----------- ----------- ----------- -----------
Gross profit. . . . . . . . . . . . . . . . . 1,580 1,529 1,765 1,130
----------- ----------- ----------- -----------
Operating expenses:
Selling expenses. . . . . . . . . . . . . . . . 24 47 68 94
General and administrative. . . . . . . . . . . 846 811 1,023 868
----------- ----------- ----------- -----------
Total operating expenses. . . . . . . . . . . 870 858 1,091 962
----------- ----------- ----------- -----------
Income from operations. . . . . . . . . . . . . . 710 671 674 168
----------- ----------- ----------- -----------
Other income (expense):
Interest expense, net . . . . . . . . . . . . . (258) (180) (189) (139)
Gain on sale of property and equipment. . . . . - 49 51 -
Equity in income of investee. . . . . . . . . . - 8 42 -
----------- ----------- ----------- -----------
Total other income (expense). . . . . . . . . (258) (123) (96) (139)
----------- ----------- ----------- -----------
Income before provision for income taxes and
minority interest . . . . . . . . . . . . . . . 452 548 578 29
Provision for income taxes. . . . . . . . . . . . 113 162 246 19
Minority interest . . . . . . . . . . . . . . . . 90 - - -
----------- ----------- ----------- -----------
Net income. . . . . . . . . . . . . . . . . . . . $ 249 $ 386 $ 332 $ 10
=========== =========== =========== ===========
Basic net income per common share . . . . . . . . $ 0.05 $ 0.08 $ 0.06 $ *
=========== =========== =========== ===========
Basic weighted average common shares outstanding. 5,483,000 5,128,868 5,218,129 4,750,000
=========== =========== =========== ===========
* Amount is less than $.01.
See Notes to Consolidated Financial Statements.
F-4
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(In Thousands, Except Share Amounts)
Accumulated
Common Stock- Additional Other Total
------------ ----------- Paid In Comprehensive Retained Stockholders' Comprehensive
Shares Amount Capital Loss Earnings Equity Income (Loss)
------------ ----------- --------- --------------- ---------- --------------- ---------------
Balance, December 31, 2000. . 4,750,000 $ 5 $ (5) $ (38) $ 462 $ 424
Foreign currency translation. - - - (38) - (38) $ (38)
adjustment
Net income. . . . . . . . . . - - - - 10 10 10
------------ ----------- --------- --------------- ---------- --------------- ---------------
Balance, December 31, 2001. . 4,750,000 5 (5) (76) 472 396 $ (28)
===============
Common stock issued for . . . 500,000 - 50 - - 50
services
Sale of common stock under
a private placement , net . 233,000 - (11) - - (11)
of expenses of $45
Recapitalization on . . . . . - - 44 - - 44
acquisition of subsidiary
Dividends paid. . . . . . . . - - - - (409) (409)
Foreign currency translation. - - - (28) - (28) $ (28)
adjustment
Net income. . . . . . . . . . - - - - 332 332 332
------------ ----------- --------- --------------- ---------- --------------- ---------------
Balance, December 31, 2002. . 5,483,000 5 78 (104) 395 374 $ 304
===============
Foreign currency translation. - - - 32 - 32 $ 32
adjustment (Unaudited)
Net income (Unaudited). . . . - - - - 249 249 249
------------ ----------- --------- --------------- ---------- --------------- ---------------
Balance, September 30, 2003 . 5,483,000 $ 5 $ 78 $ (72) $ 644 $ 655 $ 281
============ =========== ========= =============== ========== =============== ===============
(Unaudited)
See Notes to Consolidated Financial Statements.
F-5
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended Years Ended
September 30, December 31,
------------- -------------
2003 2002 2002 2001
-------- -------- ------ ------
(Unaudited)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 249 $ 386 $ 332 $ 10
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . 81 32 77 55
Minority interest. . . . . . . . . . . . . . . 90 - - -
Equity in income of investee . . . . . . . . . - (8) (42) -
Common stock issued for services . . . . . . . - 50 50 -
Recapitalization on acquisition of subsidiary. - 44 44 -
Gain on sale of property and equipment . . . . - (49) (51) -
Deferred income tax. . . . . . . . . . . . . . (2) - 17 -
Change in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . (395) (689) (392) 891
Inventories. . . . . . . . . . . . . . . . . . (342) (40) (382) (506)
Prepaid expenses and other current assets. . . (50) 181 20 (343)
Accounts payable and accrued expenses. . . . . (275) (318) (495) (46)
Income tax payable . . . . . . . . . . . . . . 107 (53) 113 (185)
Customer deposits. . . . . . . . . . . . . . . (212) 50 192 17
Severance payable. . . . . . . . . . . . . . . (1) (9) (59) 32
-------- -------- ------ ------
Net cash used in operating activities. . . . . . . . (750) (423) (576) (75)
-------- -------- ------ ------
Cash flows from investing activities:
Proceeds from sale of property and equipment . . . - 197 192 83
Purchase of property and equipment . . . . . . . . (114) - (48) -
(Increase) decrease in due from stockholder. . . . 146 465 391 (419)
(Increase) decrease in due from affiliates . . . . 6 (186) 142 (179)
-------- -------- ------ ------
Net cash (used in) provided by financing activities. 38 476 677 (515)
-------- -------- ------ ------
Cash flows from financing activities:
Increase in deferred offering costs. . . . . . . . - (94) - -
Increase (decrease) in bank line of credit, net. . (958) 555 494 603
Proceeds from long term debt . . . . . . . . . . . 4,665 1,352 6,236 70
Repayment of long term debt. . . . . . . . . . . . (3,203) (1,426) (6,178) -
Collection of subscription receivable - 1 - -
Expense on sale of common stock. . . . . . . . . . - - (11) -
Dividends paid . . . . . . . . . . . . . . . . . . - (409) (409) -
-------- -------- ------ ------
Net cash provided by (used in) financing activities. 504 (21) 132 673
-------- -------- ------ ------
Effect of exchange rate changes on cash
and cash equivalents . . . . . . . . . . . . . . . 14 (36) (6) (4)
-------- -------- ------ ------
Increase (decrease) in cash and cash equivalents . . (194) (4) 227 79
Cash and cash equivalents, beginning of period . . . 313 86 86 7
-------- -------- ------ ------
Cash and cash equivalents, end of period . . . . . . $ 119 $ 82 $ 313 $ 86
======== ======== ====== ======
See Notes to Consolidated Financial Statements.
F-6
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended Years Ended
September 30, December 31,
------------- -------------
2003 2002 2002 2001
----- ----- ----- -----
(Unaudited)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $ 258 $ 180 $ 249 $ 144
===== ===== ===== =====
Income taxes. . . . . . . . . . . . . . . . . . . . . . $ 57 $ 364 $ 235 $ 193
===== ===== ===== =====
Supplementary disclosure of non-cash financing activities:
Common stock issued for services. . . . . . . . . . . . . $ - $ 50 $ 50 $ -
===== ===== ===== =====
Common stock issued by subscription . . . . . . . . . . . $ - $ 35 $ - $ -
===== ===== ===== =====
See Notes Consolidated Financial Statements.
F-7
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 1 - DESCRIPTION OF BUSINESS, ACQUISITION AND CONTINUING OPERATIONS
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.
On April 26, 2002 the Company acquired 100% of the outstanding common stock of
Enertec (the "Merger") for 4,750,000 shares of the Company's common stock valued
at $.10 per share or $475,000. Although Lapis is the legal survivor in the
Merger, under accounting principles generally accepted in the United States of
America the Merger was accounted for as a reverse acquisition, whereby Enertec
is considered the "acquirer" of Lapis for financial reporting purposes as
Enertec's stockholders controlled more than 50% of the post Merger combined
entity. The Company has included in its consolidated financial statements the
financial information of Lapis Technologies, Inc., from the date of completion
of the Merger, and the prior historical financial statements and other
information of Enertec. It also requires a retroactive restatement of Enertec's
historical stockholders' equity to reflect the equivalent number of shares of
common stock received in the Merger.
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. Due to the Company's increased ownership of Systems at December
31, 2002 the Systems balance sheet has been consolidated at December 31, 2002
and System's statement of income is being consolidated beginning in 2003.
The acquisition of the additional 30% was accounted for using the purchase
method of accounting. The purchase price as of December 31, 2002 has been
allocated over the fair value of the assets acquired and the liabilities assumed
based upon their fair values at the date of acquisition. The purchase price of
the additional 30% has been allocated at December 31, 2002 as follows:
Current assets $ 741
Fixed assets 196
Accounts payable and accrued expenses (470)
Long term debt (361)
Severance payable (35)
-------------
$ 71
=============
F-8
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 1 - DESCRIPTION OF BUSINESS, ACQUISITION AND CONTINUING OPERATIONS -
continued
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 2002 assume that the Systems acquisitions had occurred
as of January 1, 2002, giving effect to purchase accounting adjustments, if any.
The pro forma data is for informational purposes only and may not necessarily
reflect the actual results of operations had Systems been operated as a part of
the Company since January 1, 2002.
Sales $ 5,920
===========
Net income $ 452
===========
Basic income per common share $ 0.09
===========
Basic weighted average common share outstanding 5,218,129
===========
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements present the results of
operations of the Enertec and its wholly owned subsidiaries for the nine months
ended September 30, 2003 and for the years ended December 31, 2002 and 2001 and
includes the operations of Lapis from April 26, 2002 through September 30, 2003.
All material intercompany accounts and transactions have been eliminated in
consolidation.
The financial information included herein at September 30, 2003 and for the
nine-months ended September 30, 2003 and 2002 is unaudited. Such information
reflects all adjustments (consisting of only normal recurring adjustments),
which are, in the opinion of management, necessary for a fair presentation of
the financial position, results of operations and cash flows of the interim
period. The results of operations for the nine-months ended September 30, 2003
are not necessarily indicative of the results for the full year.
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.
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.
F-9
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 September 30, 2003 and December 31, 2002 the Company has
not recorded an allowance for doubtful accounts.
Inventory
Inventory is 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 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
Equity in Subsidiary
An investment where the Company controls 20% or more but less than 50% of the
voting stock of another entity will be recorded using the equity method. Under
the equity method the initial investment is recorded at cost. Subsequently, the
investment is increased or decreased to reflect the Company's share of income,
losses and dividends actually received.
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.
F-10
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 for the nine
months ended September 30, 2003 and 2002 and the years ended December 31, 2002
and 2001.
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 all periods shown 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, issue No. 00-10,
"Accounting for Shipping and Handling Costs."
Stock Based Compensation
Effective January 1, 2003 the Company adopted 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. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial statements of the
effects of stock-based compensation. The interim disclosure requirements of
SFAS 148 are effective for interim periods beginning after December 15, 2002.
The Company's stock-based compensation related to employees and non-employee
directors is recognized using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and thus there is no compensation expense for options granted with
exercise prices equal to the fair value of the Company's common stock on the
date of the grant. With respect to stock based compensation granted to
nonemployees, the Company records an expense equal to the fair value of the
option on the measurement date, which is either the earlier of the date at which
a commitment for performance is reached or the date at which the service is
complete. At September 30, 2003 and December 31, 2002 the Company has not
issued any stock options.
F-11
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(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 nine months ended September 30, 2003 and 2002 were
approximately $75 and $145, respectively. For the years ended December 31, 2002
and 2001 research and development costs were approximately $226 and $200,
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 period by the weighted average number of common shares
outstanding during the period. Diluted net earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common shares and common share equivalents outstanding during the period.
Common stock equivalents would arise from the granting of stock options. At
September 30, 2003 and December 31, 2002 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 September 30, 2003 and December 31, 2002.
Minority Interest
Minority interest represents the minority stockholders' proportionate share of
the equity of the Company's subsidiary at September 30, 2003 and December 31,
2002. 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 and accounts payable and accrued expenses
approximate fair value at September 30, 2003 and December 31, 2002 because of
the relatively short maturity of the instruments. The fair values of due from
stockholders' and due from affiliates is not practical to estimate without
incurring excessive cost and is carried at cost at September 30, 2003 and
December 31, 2002. The carrying value of the long-term debt approximate fair
value at September 30, 2003 and December 31, 2002 based upon debt terms
available for companies under similar terms.
F-12
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(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 period and foreign
currency translation adjustments.
Foreign Currency Translation
The assets and liabilities of the foreign subsidiary are translated at current
exchange rates and related revenues and expenses at average exchange rates in
effect during the period. Resulting translation adjustments, if material, are
recorded as a separate component of stockholders' equity.
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 2001 the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" ("SFAS 141"). SFAS 141 requires the purchase
method of accounting for all business combinations initiated after June 30, 2001
and eliminates the pooling-of-interest method. SFAS 141 further clarifies the
criteria for recognition of intangible assets separately from goodwill.
In June 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," ("SFAS 142"). SFAS 142 eliminates the amortization of goodwill and
indefinite lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with determinable useful lives will
continue to be amortized. The Company adopted this Statement as of January 1,
2002 and management does not believe that this Statement had a material impact
on the financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"), which is effective for fiscal years beginning after
June 15, 2002. It requires that obligations associated with the retirement of a
tangible long-lived asset be recorded as a liability when those obligations are
incurred, with the amount of the liability initially measured at fair market
value. Upon initial recognition of an accrued retirement obligation, an entity
must capitalize the cost by recognizing an increase in the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over the
useful life of the related asset. Upon settlement of the liability, an entity
either settles the obligation for its recorded amount or incurs a gain or loss
upon settlement. Management believes the adoption of SFAS 143 will not have any
effect on the Company's financial statements.
F-13
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. SFAS
146 is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not expect the adoption of SFAS 146 to have
a material impact on its operating results or financial position.
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." This statement
amends SFAS 133 to provide clarification on the financial accounting and
reporting of derivative instruments and hedging activities and requires
contracts with similar characteristics to be accounted for on a comparable
basis. The Company is in the process of assessing the effect of SFAS 149 and
does not expect the adoption of the statement, which will be effective for
contracts entered into or modified after June 30, 2003, to have a material
effect on its financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150 ("SFAS 150"), "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards on the classification and measurement of financial
instruments with characteristics of both liabilities and equity. SFAS 150 will
become effective for financial instruments entered into or modified after May
31, 2003. The adoption of SFAS 150 has not had a material effect on the
Company's financial position or results of operations.
In November 2002, the FASB issued Emerging Issues Task Force (EITF) Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables." EITF 00-21 addresses
certain aspects of the accounting by a company for arrangements under which it
will perform multiple revenue-generating activities. EITF 00-21 addresses when
and how an arrangement involving multiple deliverables should be divided into
separate units of accounting. EITF 00-21 provides guidance with respect to the
effect of certain customer rights due to company nonperformance on the
recognition of revenue allocated to delivered units of accounting. EITF 00-21
also addresses the impact on the measurement and/or allocation of arrangement
consideration of customer cancellation provisions and consideration that varies
as a result of future actions of the customer or the company. Finally, EITF
00-21 provides guidance with respect to the recognition of the cost of certain
deliverables that are excluded from the revenue accounting arrangement. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company does not expect the
adoption of EITF 00-21 will have a material effect on its financial position or
results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34" ("FIN 45"). FIN 45 requires the
recognition of an initial liability for the fair value of an obligation assumed
by issuing a guarantee. The provision for the initial recognition and
measurement of the liability will be applied on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
is not expected to materially affect the consolidated financial statements.
F-14
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to older entities in the first fiscal
year or interim periods beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
does not have variable interest entities and does not expect the adoption of FIN
46 to have a material effect on its financial position or results of operations.
NOTE 4 - INVENTORY
Inventory consists of the following at:
September 30, December 31,
2003 2002
------------- ----------------
(Unaudited)
Raw materials . . . . . . . . . . . . . . . . . . . $ 698 $ 617
Work in process . . . . . . . . . . . . . . . . . . 1,168 690
Finished goods. . . . . . . . . . . . . . . . . . . 394 481
------------- ----------------
$ 2,260 $ 1,788
============= ================
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
September 30, December 31,
2003 2002
------------- ----------------
(Unaudited)
Leasehold improvements. . . . . . . . . . . . . . . $ 96 $ 102
Machinery and equipment . . . . . . . . . . . . . . 3 4
Furniture and fixtures. . . . . . . . . . . . . . . 173 131
Transportation equipment. . . . . . . . . . . . . . 240 180
Computer equipment. . . . . . . . . . . . . . . . . 267 190
------------- ----------------
779 607
Less: Accumulated depreciation and amortization. . (270) (172)
------------- ----------------
$ 509 $ 435
============= ================
F-15
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 6 - INCOME TAXES
The provision for income taxes consists of the following:
Nine Months Ended Years Ended
September 30, December 31,
------------- ------------- ------------- -------------
2003 2002 2002 2001
------------- ------------- ------------- -------------
(Unaudited)
Current:
Foreign. $ 113 $ 162 $ 232 $ 19
Deferred:
Foreign. - - 14 -
------------- ------------- ------------- -------------
$ 113 $ 162 $ 246 $ 19
============= ============= ============= =============
At September 30, 2003 and December 31, 2002, the Company has a net operating
loss carryforward of approximately $65 for both periods, which may be utilized
to offset future taxable income for United States Federal tax purposes. These
net operating loss carryforwards begin 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
September 30, 2003 and December 31, 2002 the Company's wholly owned Israeli
subsidiary has a deferred tax asset of approximately $16 and $15, respectively,
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 September 30, 2003 and December 31, 2002:
September 30, December 31,
2003 2002
------------- ------------
(Unaudited)
Severance payable. . . . . . . . $ 16 $ 15
Net operating loss carryforward. 10 10
Valuation allowance. . . . . . . (10) (10)
-------------- ------------
Deferred tax assets. . . . . . . $ 16 $ 15
============== ============
F-16
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(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 for the nine months ended September 30, 2003 and 2002 and for
the years ended December 31, 2002 and 2001 are as follows:
Nine Months Ended Years Ended
September 30, December 31,
------------- ------------- ------------- -------------
2003 2002 2002 2001
------------- ------------- ------------- -------------
(Unaudited)
Federal statutory rate . 34.0% 34.0% 34.0% 34.0%
Valuation Allowance. . . (34.0) (34.0) (34.0) (34.0)
Effect on foreign taxes. 25.0 29.6 42.6 65.5
------------- ------------- ------------- -------------
25.0% 29.6% 42.6% 65.5%
============= ============= ============= =============
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following at:
September 30, December 31,
2003 2002
------------- ----------------
(Unaudited)
Bank line of credit due July 23, 2004 at
at 6.7% per annum . . . . . . . . . . . $ 463 $ 1,352
Short-term bank loans, payable within
twelve months at rates ranging from
7% per annum and 9.5% per annum 2,283 1,055
Term loans, due between February 2005 and
September 2007 at rates ranging from
6.75% per annum and 9.55% per annum. . 646 273
------------- ----------------
3,392 2,680
Less: current portion . . . . . . . . . . 2,942 2,405
------------- ----------------
$ 450 $ 275
============= ================
The aggregate maturities of long term debt at December 31, 2002 are as follows:
Year Ended
-----------
2003 $ 2,405
2004 23
2005 236
2006 16
-----------
$ 2,680
===========
F-17
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(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 - EQUITY TRANSACTIONS
On June 4, 2002 the Company sold 233,000 shares of its common stock at a price
of $.15 per share. The Company received aggregate cash proceeds of $34 and had
offering costs of $45.
On April 26, 2002 the Company issued 150,000, 200,000, and 100,000 shares of its
common stock to certain entities in exchange for services provided in connection
with the Company's corporate organization. The Company valued these services at
$.10 per share of common stock.
On April 26, 2002 the Company issued 50,000 shares of its common stock to its
legal counsel for services provided and valued at $.10 per share of common
stock.
During April 2002, the Company issued 4,750,000 shares of its common stock in
exchange for the transfer of 100% of the common stock of Enertec Electronics
LTD. (See Note 1).
NOTE 10 - 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.
F-18
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 10 - 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 Company's common stock at the date
of grant. A non-statutory stock option granted under the Plan may be of such
duration as shall be determined by the Board of Directors.
NOTE 11 - RELATED PARTIES
Due from Stockholder
At September 30, 2003 and December 31, 2002 the majority stockholder had
advances due to the Company that accrue interest at 4% per annum. These
advances are repayable within the next twelve months.
Due from Affiliate
During 2001, Enertec 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. No interest is being accrued on this note receivable. 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, 2005 at approximately $18 annually with
an option to renew the lease for an additional two years ending December 31,
2007. This lease has been classified as an operating lease.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases certain office and manufacturing space under two
noncancellable operating leases expiring at December 31, 2005 and March 31,
2007. Rent expense, including municipal taxes and utilities associated with the
leases approximated $38 and $25 for the nine months ended September 30, 2003 and
2002, respectively and was approximately $59 for both years ended December 31,
2002 and 2001.
At December 31, 2002, 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
-------------
2003 $ 55
2004 39
2005 38
2006 38
2007 10
-----------
$ 180
===========
F-19
LAPIS TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information pertaining to the Nine-Months Ended
September 30, 2003 and 2002 is Unaudited)
(In Thousands, Except Share and Per Share Amounts)
NOTE 12 - COMMITMENTS AND CONTINGENCIES - continued
Legal proceedings
A Customer has brought an action in the Tel Aviv District Court for an
unspecified monetary amount against one of the Company's suppliers, a
subcontractor of the supplier and Enertec, alleging that the materials supplied
were defective and caused the Customer to replace the materials at a substantial
financial expense. Enertec filed a defense claim that there is no cause of
action against them as Enertec is only the local Israeli sales representative
and did not make any implied or express representation or warranty to the
Customer regarding the suitability of its materials. Management believes that
the chance of losing this suit is remote, intends to defend this action
vigorously and does not believe that it will have a materially adverse impact on
the Company's operations and liquidity.
NOTE 13 - CONCENTRATIONS
The Company had deposits with commercial financial institutions, which, at
times, may exceed the FDIC insured limits of $100. Management has placed these
funds in high quality institutions in order to minimize the risk. Cash held in
Israel at September 30, 2003 and December 31, 2002 was $118 and $305,
respectively.
At September 30, 2003 the Company had two customers that accounted for
approximately 66% of accounts receivable. During the nine months ended
September 30, 2003 and 2002 the Company had two customers in both periods which
accounted for approximately 50% and 80%, respectively, of the Company's sales.
At December 31, 2002 the Company had three customers that accounted for
approximately 62% of the accounts receivable. During the years ended December
31, 2002 and 2001 approximately 71% and 63%, respectively, of the Company's
sales were to three customers in both years, respectively.
NOTE 14- SEGMENT AND GEOGRAPHIC INFORMATION
Information about the Company's assets in different geographic locations at
September 30, 2003 and December 31, 2002 is shown below pursuant to the
provisions of SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information."
September 30, December 31,
2003 2002
----------- ---------------
(Unaudited)
Total assets:
Israel . . . . $ 5,987 $ 5,151
United States. 1 8
----------- ---------------
$ 5,988 $ 5,159
=========== ===============
F-20
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
(UNAUDITED)
ENERTEC ENERTEC SYSTEMS
ELECTRONICS LTD 2001 LTD. ADJUSTMENTS PRO FORMA
--------------- --------------- ---------------- -----------
ASSETS
- ---------------------------------------
TOTAL CURRENT ASSETS . . . . . . . . . $3,149 $ 1,326 $ (148) (2) $ 4,327
Property and equipment . . . . . . . . 74 356 (46) (4,5) 384
Due from stockholder . . . . . . . . . 296 21 317
Due from affiliate . . . . . . . . . . 57 - 57
Deferred income taxes. . . . . . . . . 15 - 15
Investment . . . . . . . . . . . . . . 113 - (113) (1) -
--------------- --------------- ---------------- -----------
$3,704 $ 1,703 $ (307) $ 5,100
=============== =============== ================ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL CURRENT LIABILITIES. . . . . . . $3,034 $ 1,456 $ (219) (1,2) $ 4,271
LONG TERM DEBT, NET OF CURRENT PORTION 246 4 250
SEVERANCE PAYABLE. . . . . . . . . . . 25 64 89
Minority interest. . . . . . . . . . . - - 81 (3) 81
STOCKHOLDERS' EQUITY
Common Stock . . . . . . . . . . . . - - -
Additional paid in capital . . . . . - - -
Accumulated other comprehensive loss (104) (2) (106)
Retained earnings. . . . . . . . . . 503 181 (169)(1,3,5) 515
--------------- --------------- ---------------- -----------
$3,704 $ 1,703 $ (307) $ 5,100
=============== =============== ================ ===========
F-21
ENERTEC ELECTRONICS LTD AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(UNAUDITED)
ENERTEC ENERTEC SYSTEMS
ELECTRONICS LTD 2001 LTD. ADJUSTMENTS PRO FORMA
--------------- --------------- ----------- ----------
NET SALES. . . . . . . . . . . . . . . . $ 4,414 $ 1,506 $ 5,920
COST OF SALES. . . . . . . . . . . . . . 2,649 890 3,539
--------------- --------------- ----------- ----------
GROSS PROFIT . . . . . . . . . . . . . 1,765 616 2,381
OPERATING EXPENSES . . . . . . . . . . . 983 394 (5)(5) 1,372
--------------- --------------- ----------- ----------
INCOME FROM OPERATIONS . . . . . . . . . 782 222 1,009
OTHER INCOME (EXPENSE):
Interest expense, net. . . . . . . . . (189) (41) (230)
Gain on sale of property and equipment 51 - (51)(4) -
Equity in income of investee . . . . . 42 - (42)(1) -
--------------- --------------- ----------- ----------
TOTAL OTHER INCOME (EXPENSE) . . . . . (96) (41) (93) (230)
--------------- --------------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST. . . . . . 686 181 (93) 779
PROVISION FOR INCOME TAXES . . . . . . . 246 - 246
MINORITY INTEREST. . . . . . . . . . . . - - 81(3) 81
--------------- --------------- ----------- ----------
NET INCOME . . . . . . . . . . . . . . . $ 440 $ 181 $ (174) $ 452
=============== =============== =========== ==========
BASIC NET INCOME PER SHARE. . . . . . $ 0.09
===========
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 5,218,129
===========
F-22
ENERTEC ELECTRONICS LTD AND SUBSIDIARY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 The pro forma adjustments to the condensed consolidated balance sheet are
as follows:
(1) To eliminate the investment in Enertec Systems 2001 Ltd.
(2) To eliminate current assets and current liabilities.
(3) To record 45% minority interest of Enertec Systems 2001 LTD.
(4) To reverse gain on sale of property and equipment sold to Enertec Systems
LTD.
(5) To reverse depreciation expense on property and equipment sold to Enertec
Systems 2001 LTD.
F-23
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this prospectus in
connection with the offer made hereby. If given or made, such information or
representation must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to any person in any jurisdiction in
which such an offer would be unlawful. Neither the delivery of this prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained throughout this prospectus is correct as of any
time subsequent to the date hereof.
733,000 Shares
LAPIS TECHNOLOGIES, INC.
PROSPECTUS
_________, 20__
Until __________________, 20__ (__ days from the date of this
prospectus), all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriter and with respect to their unsold
allotments or subscriptions.
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation limits the liability of our directors and
officers to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for:
(i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of our Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The effect of the foregoing is to require us to indemnify our officers and
directors for any claim arising against our directors and officers in their
official capacities if such person acted in good faith and in a manner that he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES MAY BE PERMITTED TO OUR DIRECTORS,
OFFICERS AND CONTROLLING PERSONS PURSUANT TO THE FOREGOING PROVISIONS, OR
OTHERWISE, WE HAVE BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION THIS TYPE OF INDEMNIFICATION IS AGAINST PUBLIC POLICY AND
IS, THEREFORE, UNENFORCEABLE.
CORPORATE TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law
We are not presently subject to the provisions of Section 203 of the
Delaware General Corporation Law (Section 203). Under Section 203, certain
business combinations between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
interested stockholder are prohibited for a three-year period following the date
that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (we did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
II-1
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term business combination is defined generally to include mergers
or consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term interested
stockholder is defined generally as a stockholder who, together with affiliates
and associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. If it should become applicable to us in the
future, Section 203 could prohibit or delay a merger, takeover or other change
in control of our company and therefore could discourage attempts to acquire us.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses in connection with the
issuance and distribution of the securities being registered
SEC Registration Fee $ 11
Printing and Engraving Expenses $ 2,500
Legal Fees $ 60,000
Accounting Fees $ 5,000
Transfer Agent Fees $ 2,000
Miscellaneous Expenses $ 2,000
TOTAL ESTIMATED EXPENSES $ 71,511
All such expenses will be borne by us.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 26, 2002, we issued 4,750,000 shares of our common stock to Harry
Mund in exchange for his 99 shares of Enertec Electronics Limited, our wholly
owned subsidiary, which constitutes all of its issued and outstanding shares.
The 4,750,000 shares were valued at $.10 a share.
On April 26, 2002, we issued 200,000 shares of our common stock to Global
Exploration Equities Inc. in exchange for consulting and legal services. Such
services provided were in connection with the assistance of our corporate
structuring and formation and the implementation of our business plan, and the
assistance with our fund raising efforts. These shares were valued at $.10 a
share.
On April 26, 2002, we issued 150,000 of our common stock to Fairbain
Trading S.A. in exchange for accounting services. Such services provided were in
connection with the implementation of solutions in audit, tax, corporate
finance, transactions, and similar critical business-performance issues. These
shares were valued at $.10 a share.
On April 26, 2002, we issued 100,000 shares of our common stock to Foremost
Securities Limited in exchange for consulting services. Such services provided
II-2
were in connection with the listing of our common stock on the Over-the-Counter
Bulletin Board. These shares were valued at $.10 a share.
On April 26, 2002 we issued 50,000 shares of our common stock to KGL
Investments, Ltd., the shareholders of which are Adam S. Gottbetter, Steven
Kaplan, and Paul Levenson. Mr. Gottbetter, Mr. Kaplan and Mr. Levenson are the
former partners of Kaplan Gottbetter & Levenson, LLP, former counsel to the
Company. This issuance was in consideration for non-legal services including
business and financial consulting. These shares were valued at $.10 a share.
These shares were subsequently assigned to Jackson Steinem, Inc., an entity of
which Adam S. Gottbetter is the sole principal.
All of the foregoing securities were sold under the exemption from
registration provided by Section 4(2) of the Securities Act. Neither we nor any
person acting on our behalf offered or sold the securities by means of any form
of general solicitation or general advertising. All purchasers of theses
securities represented in writing that they acquired the securities for their
own accounts. A legend was placed on the stock certificates stating that the
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without registration or an exemption therefrom.
During the period June 2002 through September 2002 we issued an aggregate
of 233,000 shares to offshore persons at a price of $.15 per share or an
aggregate of $34,950. The offering was made in compliance with Regulation S of
the General Rules and Regulations under the Securities Act of 1933, as amended.
The following table indicates the names and addresses of those individuals
who purchased their shares in connection with the Regulation S offering, as well
as the number of shares purchased by each, the price paid per share, and the
date of each sale.
Name Of Shareholder Number Of Shares Date Shares Sold Purchase Price
---------------- ------------------ --------------
Claudia Ben-Dor
Mitzpe Tel - El
House No. 408
P.O Oshrat
P.O. Box 25167. . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Israel Ben-Dor
Mitzpe Tel - El
House No. 408
P.O Oshrat
P.O. Box 25167. . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 August 28, 2002 $ .15
- ------------------------------------------------------------------------------------- ---------------- --------------
Eliaz Bilik
Moria Ave. 101/A
Haifa 34616
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,200 September 3, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Snir Eitan
Parcel 140
Hosen
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
II-3
Name Of Shareholder Number Of Shares Date Shares Sold Purchase Price
---------------- ------------------ --------------
Yael Elipaz
25 Shoham Pts.
Haifa
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 September 5, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Olga Gross
Gedaliahy Street 1517
Neveshaanon 32587
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Shoshy Inbal
Hachzav Street 16/21
Nesher 19234
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Barak Koren
BAZ 14 Street
Karmiel 20100
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 September 11, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Eitan Koren
BAZ 14 Street
Karmiel 20100
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 August 30, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Sasson Koren
BAZ 14 Street
Karmiel 20100
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Shoshana Koren
BAZ 14 Street
Karmiel 20100
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Elliot Kretzmer
3 Chanita Street
Kfar Sava
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 July 31, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Amir Marcovitz
77 Moshe Gorken Street
K. Motykin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Editha Marcovitz
77 Moshe Gorken Street
K. Motykin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Miron Marcovitz
77 Moshe Gorken Street
K. Motykin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
II-4
Name Of Shareholder Number Of Shares Date Shares Sold Purchase Price
---------------- ------------------ --------------
Revital Marcovitz-Mizrachi
16/3 Hativet Hauegev Street
Modiin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Bracha Meirav
64 Haalie Street
Haifa
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Yigal Meirav
64 Haalia Street
Haifa
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600 September 6, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Sasson Mizrachi
16/3 Hativet Hauegev Street
Modiin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 September 5, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Helena Mund
25 Sinai Street
Haifa
Israel. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 16,000 August 27, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Simon Mund
25 Sinai Street
Haifa
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Alexander Osztreicher
15/7, Ghedaliahu
Haifa 32587
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Barak Osztreicher
P.O.B. 240
Moledet 19130
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 September 25, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Einat Osztreicher
P.O.B. 79
Elyashiu
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 September 24, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Haim Osztreicher
P.O.B. 33658
Haifa
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,600 August 29, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Klara Osztreicher
15/7, Ghedaliahu
Haifa 32587
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
II-5
Name Of Shareholder Number Of Shares Date Shares Sold Purchase Price
---------------- ------------------ --------------
Lior Osztreicher
7, Hashitim
Q. Tivon 36000
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 September 3, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Shimon Tregerman
Broshim 205
Tal-El 25167
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Svetlana Tregerman
Broshim 205
Tal-El 25167
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,400 August 28, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Margareta Weissman
2/7 Eshkol Street
K. Motykin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 September 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Martin Weissman
2/7 Eshkol Street
K. Motykin
Israel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 September 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Harry Mund
27 Rechov Ha'Mapilim,
Kiriat Ata, Israel,
P.O. BOX 497,
Kiriat Motzkin 26104,
Israel. . . . . . . . . . . . . . . . . . . . . . . 4,750,000 April 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Fairbain Trading (1)
c/o A.P.T. Associates
19 W. 34th Street, 11th Floor
New York, NY, 10001 . . . . . . . . . . . . . . . . . . . . . . . 150,000 April 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Global Exploration Equities Inc. (2)
c/o A.P.T. Associates
19 W. 34th Street, 11th Floor
New York, NY 10001. . . . . . . . . . . . . . . . . . . . . . . . 200,000 April 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
KGL Investments, Ltd. (3)
c/o Kaplan Gottbetter & Levenson, LLP
630 Third Avenue, 5th Floor
New York, NY 10017. . . . . . . . . . . . . . . . . . . . . . . . 50,000 April 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
Foremost Securities, Ltd. (4)
c/o A.P.T. Associates
19 W. 34th Street, 11th Floor
New York, NY 10001. . . . . . . . . . . . . . . . . . . . . . . . 100,000 April 26, 2002 $ .15
- ----------------------------------------------------------------- ---------------- ------------------ --------------
(1) Sole beneficial owner of which is Solomon Krok.
(2) Sole beneficial owner of which is David Kretzmer.
(3) Beneficial owners of which are Adam S. Gottbetter, Steven Kaplan, and Paul
Levenson. Mr. Gottbetter, Mr. Kaplan and Mr. Levenson are former partners
of Kaplan Gottbetter & Levenson, LLP, former counsel to the Company. These
shares have been assigned to Jackson Steinem, Inc. beneficial owner of
which is Adam S. Gottbetter, a partner of Gottbetter & Partners, LLP,
counsel to the Company.
(4) Sole beneficial owner of which is Samantha Topola Family Trust. Stephen
Silberfein, as trustee, of the trust, has sole voting and investment power
II-6
of the shares, and is deemed the beneficial owner of the Samantha Topola
Family Trust.
The shareholders who purchased their shares in connection with the
Regulation S offering each represented in writing that 1) they were not U.S.
persons and were not acquiring the shares for the account of any U.S. person; 2)
if they were not an individual, they was not formed specifically for the purpose
of acquiring the shares purchased pursuant to the subscription agreement; 3)
they purchased the shares for their own accounts and risks, and not for the
account or benefit of a U.S. Person as defined in Regulation S, and that no
other person had any interest in or participation in the shares or any right,
option, security interest, pledge or other interest in or to the shares; 4)
they, any of their affiliates, or any person acting on their behalf, have made
or are aware of any "directed selling efforts" in the United States; and 5)
during the Restricted Period set forth under Rule 903(b)(iii)(A), they will not
act as distributors, either directly or though any affiliate, nor will they
sell, transfer, hypothecate or otherwise convey the shares other than to a
non-U.S. Person. A legend was placed on the stock certificates stating that the
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without registration or an exemption therefrom.
ITEM 27. EXHIBITS
EXHIBIT NO. ITEM
- ----------- ----
3.1 Certificate of Incorporation of Enertec Electronics, Inc. filed
January 31, 31, 2002*
3.2 Certificate of Amendment of Enertec Electronics, Inc. filed
April 23, 2002*
3.3 Certificate of Amendment of Opal Technologies, Inc. filed
October 17, 2002*
3.4 By-Laws of Lapis Technologies, Inc.*
4.1 Specimen Common Stock Certificate**
5.1 Opinion and Consent of Counsel***
10.1 Stock Option Plan of 2002*
10.2 An Agreement for an Unprotected Tenancy, dated in June 2002
between Amnoni Brothers - Carmiel Transporters Ltd. and
Enertec Systems Ltd.**
10.3 Lease Agreement dated October 31, 2002 between Mond Holdings
Ltd., and Enertec Electronics Ltd.**
10.4 Manufacturer's Representative Agreement dated December 20,
1988 between Cytec Corporation and Enertec International.**
10.5 Exclusive Distribution Agreement dated June 26, 2002
between Gaia Converter by the Company Enertec (Israel)
Gaia Converter Sa and Enertec Electronics Ltd.**
II-7
10.6 Annual Agreement dated February 05, 2001 between BigBand
Networks Ltd. and Enertec Electronics Ltd.**
10.7 Supply Agreement between Enertec Ltd. and The Israeli
Aeronautical Industries Ltd.**
10.8 Distributor Agreement dated January 1, 1998 between
Christie Electric Corp. and Enertec Electronics Ltd.**
10.9 Sale Representative Agreement dated July 6, 1998 between EMCO
High Voltage Co. and Enertec International.**
21 List of Subsidiaries**
23.1 Consent of Gvilli & Co., independent certified public
accountants***
23.2 Consent of Rogoff & Company, PC***
* Previously filed with Amendment No. 2 to the Form SB-2 registration
statement filed May 14, 2003.
** Previously filed with Amendment No. 1 to the Form SB-2 registration
statement filed February 11, 2003.
*** Filed herewith.
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
II-8
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the issuer
of expenses incurred or paid by a director, officer or controlling person of the
issuer in the successful defense of any action, suit or proceedings) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such court.
II-9
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on this Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Kiriat Motzkin,
Israel on 8th day of January, 2004 .
LAPIS TECHNOLOGIES, INC.
By: /s/ Harry Mund
----------------
Harry Mund,
President and Chief Executive Officer
By: /s/ Miron Markovitz
---------------------
Miron Markovitz
Chief Financial and Accounting Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 has been signed by the following persons in
their respective capacities with Lapis Technologies, Inc. and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Harry Mund President, Chief Executive Officer, January 8, 2004
- ---------------- Secretary and Chairman of the Board of
Harry Mund Directors
/s/ Miron Markovitz Chief Financial and Accounting Officer January 8, 2004
- ------------------- and Director
Miron Markovitz