SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
OMB Approval
OMB Number XXXX-XXXX
Expires Approval Pending
Estimated Average Burden Hours Per Response 1.0
Quarterly Report Pursuant to Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the Quarter Ended May 31, 2008
For the Transition Period from_________ to _________
Commission File Number 0-5109
MICROPAC INDUSTRIES, INC.
Delaware 75-1225149
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(State of Incorporation) (IRS Employer Identification No.)
905 E. Walnut, Garland, Texas 75040
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (972) 272-3571
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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On May 31, 2008, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
MAY 31, 2008
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months and six months ended May 31, 2008 and May 26,
2007
Condensed Balance Sheets as of May 31, 2008 and
November 30, 2007
Condensed Statements of Cash Flows for the six months
ended May 31, 2008 and May 26, 2007
Notes to Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 3- CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
31.2 Certification of Chief Accounting Officer pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
32.2 Certification of Chief Accounting Officer pursuant to
18 U. S. C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
(b) Reports on Form 8-K
SIGNATURES
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MICROPAC INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)
Statement of Operations Statement of Operations
For three months ended Year-to-date
05/31/08 05/26/07 05/31/08 05/26/07
----------- ----------- ----------- -----------
NET SALES $ 4,597 $ 4,447 $ 8,782 $ 8,698
COST AND EXPENSES:
Cost of goods sold (3,189) (3,012) (6,102) (5,959)
Research and development (123) (90) (217) (190)
Selling, general & administrative expenses (812) (859) (1,592) (1,585)
----------- ----------- ----------- -----------
Total cost and expenses (4,124) (3,961) (7,911) (7,734)
----------- ----------- ----------- -----------
OPERATING INCOME BEFORE INTEREST 473 486 871 964
AND INCOME TAXES
Interest income 23 49 92 95
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 496 $ 535 $ 963 $ 1,059
Provision for taxes (179) (203) (347) (402)
----------- ----------- ----------- -----------
NET INCOME $ 317 $ 332 $ 616 $ 657
=========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ .12 $ .13 $ .24 $ .25
DIVIDENDS PER SHARE $ 0 $ 0 $ .10 $ .10
WEIGHTED AVERAGE OF SHARES, Basic and diluted 2,578,315 2,578,315 2,578,315 2,578,315
See accompanying notes to financial statements.
These statements reflect all adjustments which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
3
MICROPAC INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)
ASSETS
(Unaudited)
CURRENT ASSETS 5/31/08 11/30/07
-------- --------
Cash and cash equivalents $ 5,767 $ 4,394
Short term investments 504 2,021
Receivables, net of allowance for doubtful accounts of $89 on 2,709 2,415
May 31, 2008 and $89 on November 30, 2007
Inventories:
Raw materials 1,650 1,588
Work-in process 2,148 2,455
-------- --------
Total inventories 3,798 4,043
Prepaid expenses and other current assets 113 69
Deferred income tax 659 659
-------- --------
Total current assets 13,550 13,601
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 6,221 6,119
Furniture and fixtures 595 584
-------- --------
Total property, plant, and equipment 8,190 8,077
Less accumulated depreciation (6,945) (6,843)
-------- --------
Net property, plant, and equipment 1,245 1,234
-------- --------
Total assets $ 14,795 $ 14,835
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 686 $ 608
Accrued compensation 386 544
Other accrued liabilities 174 194
Deferred revenue 87 323
Income taxes payable 173 235
-------- --------
Total current liabilities 1,506 1,904
-------- --------
DEFERRED INCOME TAXES 116 116
SHAREHOLDERS' EQUITY
Common stock, ($.10 par value), authorized 10,000,000 shares, 308 308
3,078,315 issued 2,578,315 outstanding at May 31, 2008 and
November 30, 2007
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 13,230 12,872
-------- --------
Total shareholders' equity 13,173 12,815
-------- --------
Total liabilities and shareholders' equity $ 14,795 $ 14,835
======== ========
See accompanying notes to financial statements.
These statements reflect all adjustments which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
4
MICROPAC INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months ended
05/31/08 05/26/07
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 616 $ 657
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization 127 122
Gain on sale of equipment (3) --
Changes in current assets and liabilities:
Increase in accounts receivable (294) (92)
Decrease in inventories 245 377
Increase in prepaid expenses and other current assets (44) (8)
Decrease (increase) in income taxes, payable and deferred (62) 45
Increase in accounts payable 78 60
Decrease in accrued compensation (158) (121)
(Decrease) increase in other accrued liabilities
and deferred revenue (256) 64
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Net cash provided by operating activities 249 1,104
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short term investments 1,517 (204)
Proceeds from the sale of equipment 9 --
Additions to property, plant and equipment (144) (172)
------- -------
Net cash used (from) in investing activities 1,382 (376)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (258) (258)
------- -------
Net cash used in financing activities (258) (258)
------- -------
Net change in cash and cash equivalents 1,373 470
Cash and cash equivalents at beginning of period 4,394 2,558
------- -------
Cash and cash equivalents at end of period $ 5,767 $ 3,028
======= =======
Supplemental Cash Flow Disclosure:
Cash paid for income taxes $ 406 $ 356
======= =======
See accompanying notes to financial statements.
These statements reflect all adjustments, which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
5
MICROPAC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1
In the opinion of management, the unaudited financial statements include all
adjustments (consisting of only normal, recurring adjustments) necessary to
present fairly the financial position as of May 31, 2008, the cash flows for the
six months ended May 31, 2008 and May 26, 2007, and the results of operations
for the three months and six months ended May 31, 2008 and May 26, 2007.
Unaudited financial statements are prepared on a basis substantially consistent
with those audited for the year ended November 30, 2007. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
have been condensed or omitted pursuant to the rules and regulations promulgated
by the Securities and Exchange Commission. However, management believes that the
disclosures contained are adequate to make the information presented not
misleading.
Note 2
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
Note 3
On December 22, 2006, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.10 per share dividend to all shareholders of record
on January 26, 2007. The dividend payment was paid to shareholders on February
9, 2007.
On December 19, 2007, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.10 per share dividend to all shareholders of record
on January 25, 2008. The dividend payment was paid to shareholders on February
8, 2008.
On January 23, 2008, Mr. Nadolsky announced his plan not to run for re-election
as a Director and Chairman of the Board of Micropac Industries, Inc. (the
"Company") due to health reasons. Mr. Nadolsky continued to serve in such
positions until the Company's Annual Shareholder Meeting on March 7, 2008.
Note 4
On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock
Option Plan (the "Stock Plan"). As of May 31, 2008 there were 500,000 options
available to be granted. No options have been granted to date.
Note 5
On June 1, 2008 the Company renewed an uncollateralized $3,000,000 line of
credit agreement with a bank for a term of two (2) years. The interest rate is
equal to the prime rate less 1/4%. The line of credit requires that the Company
maintain certain financial ratios. The financial covenants require the Company
to maintain a quick ratio of at least 1:1, maintain a tangible net worth of
$10,000,000 plus 75% of future net income, and maintain a total liabilities to
tangible net worth of less than 1.25:1. The Company is in compliance with these
covenants. The Company has not, to date, used any of the available line of
credit.
Note 6
Basic and diluted earnings per share are computed based upon the weighted
average number of shares outstanding during the year. Diluted earnings per share
gives effect to all dilutive potential common shares. For the three months ended
May 31, 2008 and May 26, 2007, the Company had no dilutive potential common
stock.
Note 7
Glast, Phillips & Murray, P.C. serves as the Company's legal counsel. Mr. James
K. Murphey, a director and member of the Company's audit committee, is a member
of Glast, Phillips & Murray, P.C.
6
MICROPAC INDUSTRIES, INC.
(Unaudited)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Business
Micropac Industries, Inc. (the "Company"), a Delaware corporation, manufactures
and distributes various types of hybrid microelectronic circuits, solid state
relays, power operational amplifiers, and optoelectronic components and
assemblies. The Company's products are used as components in a broad range of
military, space and industrial systems, including aircraft instrumentation and
navigation systems, power supplies, electronic controls, computers, medical
devices, and high-temperature (200o C) products. The Company's products are
either custom (being application specific circuits designed and manufactured to
meet the particular requirements of a single customer) or standard, proprietary
components such as catalog items.
Results of Operations
Three months ended Year to Date
5/31/2008 5/26/2007 5/31/2008 5/26/2007
--------- --------- --------- ---------
NET SALES 100.00% 100.00% 100.00% 100.00%
COST AND EXPENSES:
Cost of Goods Sold 69.37% 67.73% 69.48% 68.51%
Research and development 2.68% 2.02% 2.47% 2.18%
Selling, general & administrative expenses 17.66% 19.32% 18.13% 18.22%
Total cost and expenses 89.71% 89.07% 90.08% 88.91%
OPERATING INCOME BEFORE INTEREST 10.29% 10.93% 9.92% 11.09%
AND INCOME TAXES
Interest income .50% 1.10% 1.05% 1.09%
INCOME BEFORE TAXES 10.79% 12.03% 10.97% 12.18%
Provision for taxes 4.11% 4.56% 4.17% 4.62%
NET INCOME 6.68% 7.47% 6.80% 7.56%
Sales for the second quarter and six months ended May 26, 2008 totaled
$4,597,000 and $8,782,000, respectively. Sales for the second quarter increased
3.4% or $150,000 above sales for the same period of 2007, while sales for the
first six months of 2008 increased 1.0% or $84,000 above the first six months of
2007. Sales were 16% in the commercial market, 61% in the military market, and
23% in the space market for the six months ending May 31, 2008.
Cost of goods sold for the second quarter 2008 versus 2007 totaled 69.37% and
67.73% of net sales, respectively, while cost of goods sold for the six months
of the comparable period totaled 69.48% and 68.51%, respectively. The cost of
goods sold increase is attributable to changes in product mix.
Selling, general and administrative expenses for the second quarter and first
six months of 2008 totaled 17.66% and 18.13% of net sales, respectively,
compared to 19.32% and 18.22% for the same period in 2007. In actual dollars
expensed, selling, general and administrative expenses increased $7,000 for the
first six months of 2008, versus 2007.
Net income for the second quarter and year to date 2008 totaled $317,000 and
$616,000, respectively, compared to $332,000 and $657,000 for the comparable
periods in 2007. Net income per share totaled $.24 and $.25 for the comparable
six months of 2008 and 2007, respectively.
7
Total assets decreased $40,000 to $14,795,000 as of May 31, 2008 from
$14,835,000 as of November 30, 2007 with a decrease in cash and short-term
investments of $144,000, inventory decrease of $245,000, accounts receivable
increase of $294,000, increase in prepaid expense of $44,000, and an increase in
net property, plant, and equipment of $11,000.
Accounts receivable, net totaled $2,709,000 as of May 31, 2008 and represents an
increase of $294,000 since November 30, 2007.
Inventories totaled $3,798,000 at the end of the second quarter 2008 compared to
$4,043,000 on November 30, 2007, a decrease of $245,000. Raw materials
inventories increased $62,000 since November 30, 2007, while work-in-process
inventories decreased $307,000.
Liabilities totaled $1,622,000 on May 31, 2008 representing a decrease of
$398,000 from November 30, 2007; primarily associated with an increase in
accounts payable of $78,000, a decrease of $158,000 in accrued payroll, a
decrease of $62,000 in provision for income taxes, a decrease in deferred
revenue of $236,000, and a decrease of $20,000 in other accrued liabilities.
Shareholders' equity increased $358,000 in the first six months of 2008.
Earnings per share for the six month period totaled $.24 per share.
Liquidity and Capital Resources
Cash and short-term investments as of May 31, 2008 totaled $6,271,000 compared
to $6,415,000 on November 30, 2007, a decrease of $144,000. Cash flow from
operations was $249,000 for the first six months offset by a cash dividend of
$258,000, $144,000 invested in automated production and test equipment, and a
source of cash of $1,517,000 from short term investments.
On June 1, 2008 the Company renewed an uncollateralized $3,000,000 line of
credit agreement with a bank. The interest rate is equal to the prime rate less
1/4%. The line of credit requires that the Company maintain certain financial
ratios. The financial covenants require the Company to maintain a quick ratio of
at least 1:1, maintain a tangible net worth of $10,000,000 plus 75% of future
net income, and maintain a total liabilities to tangible net worth of less than
1.25:1. The Company is in compliance with these covenants. The Company has not,
to date, used any of the available line of credit.
The Company expects to generate adequate amounts of cash from the sale of
products and services and the collection thereof to meet its liquidity needs.
Outlook
New orders for the second quarter and year-to-date 2008 totaled $4,891,000 and
$9,733,000, respectively, compared to $4,260,000 and $8,370,000 for the
comparable periods of 2007 or an increase of 14.8% and 16.3% respectively.
Backlog totaled $11,871,000 on May 31, 2008 compared to $9,733,000 as of May 26,
2007 and $7,918,000 on November 30, 2007. The majority of the backlog is
expected to be shipped in the next twelve (12) months and represents a good mix
of the company's products and technologies with 8% in the commercial market, 47%
in the military market, and 45% in the space market compared to 11% in the
commercial market, 64% in the military market, and 25% in the space market for
the same period of 2007. The major increase was in the space market for solid
state relays and solid state power controllers products with new orders totaling
$3,100,000.
The Company cannot assure that the results of operations for the interim period
presented are indicative of total results for the entire year due to
fluctuations in customer delivery schedules, or other factors over which the
Company has no control.
Cautionary Statement
This Form 10-QSB contains forward-looking statements that are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Actual results could differ materially. Investors are warned that
forward-looking statements involve risks and unknown factors including, but not
limited to, customer cancellation or rescheduling of orders, problems affecting
delivery of vendor-supplied raw materials and components, unanticipated
manufacturing problems and availability of direct labor resources.
Such risks and uncertainties include, but are not limited to historical
volatility and cyclicality of the semiconductor and semiconductor capital
equipment markets that are subject to significant and often rapid increases and
decreases in demand. In addition, the Company produces silicon phototransistors
and light emitting diode die for use in certain military, standard and custom
products. Fabrication efforts sometimes may not result in successful results,
limiting the availability of these components. Competitors offer commercial
level alternatives and our customers may purchase our competitors' products if
the Company is not able to manufacture the products using these technologies to
meet the customer demands. Approximately $1,700,000 of the Company's backlog is
dependent on these semiconductors.
8
The Company disclaims any responsibility to update the forward-looking
statements contained herein, except as may be required by law.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Chief Executive Officer and Chief Financial Officer of the Company
evaluated the Company's disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) as of May 31, 2008 and, based on this
evaluation, concluded that the Company's disclosure controls and
procedures are functioning in an effective manner to ensure that the
information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the SEC's
rules and forms. .
(b) Changes in internal controls.
There has been no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company is not involved in any material current or pending
legal proceedings.
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
31.2 Certification of Chief Accounting Officer pursuant to
Section 302 of the Sarbanes- Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
32.2 Certification of Chief Accounting Officer pursuant to
18 U. S. C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
9
(b) Reports on Form 8-K
On December 19, 2007, the Board of Directors of Micropac
Industries, Inc. approved the payment of a $.10 per share
dividend to all shareholders of record on January 25, 2008.
The dividend payment was paid to shareholders on February 8,
2008.
On January 23, 2008, Mr. Nadolsky announced his plan not to
run for re-election as a Director and Chairman of the Board of
Micropac Industries, Inc. (the "Company") due to health
reasons. Mr. Nadolsky continued to serve in such positions
until the Company's Annual Shareholder Meeting held on March
7, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned duly authorized.
MICROPAC INDUSTRIES, INC.
July 15, 2008 /s/ Mark King
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Date Mark King
Chief Executive Officer
July 15, 2008 /s/ Patrick Cefalu
------------- ------------------
Date Patrick Cefalu
Chief Financial Officer
10