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 August 25, 2007
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
------------------------- -------------------------
On August 25, 2007, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
August 25, 2007
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months and nine months ended August 25, 2007 and
August 26, 2006
Condensed Balance Sheets as of August 25, 2007 and
November 30, 2006
Condensed Statements of Cash Flows for the nine
months ended August 25, 2007 and August 26, 2006
Notes to Condensed 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)
For three months ended Year-to-date
08/25/07 08/26/06 08/25/07 08/26/006
----------- ----------- ----------- -----------
NET SALES ........................................ $ 4,536 $ 4,552 $ 13,234 $ 13,085
COST AND EXPENSES:
Cost of goods sold ........................... (3,038) (3,056) (8,996) (8,686)
Research and development ..................... (36) (148) (226) (378)
Selling, general & administrative expenses ... (775) (760) (2,359) (2,290)
----------- ----------- ----------- -----------
Total cost and expenses (3,849) (3,964) (11,581) (11,354)
----------- ----------- ----------- -----------
OPERATING INCOME BEFORE INTEREST ................. 687 588 1,653 1,731
AND INCOME TAXES
Interest income .............................. 44 38 138 108
----------- ----------- ----------- -----------
INCOME BEFORE TAXES .............................. $ 731 $ 626 $ 1,791 $ 1,839
Provision for taxes .......................... (278) (238) (681) (699)
----------- ----------- ----------- -----------
NET INCOME ....................................... $ 453 $ 388 $ 1,110 $ 1,140
=========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED .......... $ 0.18 $ 0.15 $ 0.43 $ 0.44
DIVIDENDS PER SHARE .............................. $ 0.00 $ 0.00 $ 0.10 $ 0.15
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 8/25/07 11/30/06
------- --------
Cash and cash equivalents $ 2,855 $ 2,558
Short term investments 2,839 2,025
Receivables, net of allowance for doubtful accounts of $89 on 2,141 2,048
August 25, 2007 and $89 on November 30, 2006
Inventories:
Raw materials 1,751 1,924
Work-in process 2,454 2,596
----- -----
Total inventories 4,205 4,520
Prepaid expenses and other current assets 84 77
Deferred income tax 625 625
-------- --------
Total current assets 12,749 11,853
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 6,093 5,925
Furniture and fixtures 573 507
-------- --------
Total property, plant, and equipment 8,040 7,806
Less accumulated depreciation (6,779) (6,591)
-------- --------
Net property, plant, and equipment 1,261 1,215
-------- --------
Total assets $ 14,010 $ 13,068
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 566 $ 582
Accrued compensation 450 494
Other accrued liabilities 215 188
Deferred revenue 218 243
Income taxes payable 176 28
-------- --------
Total current liabilities 1,625 1,535
-------- --------
DEFERRED INCOME TAXES 79 79
SHAREHOLDERS' EQUITY
Common stock, ($.10 par value), authorized 10,000,000 shares, 308 308
3,078,315 issued 2,578,315 outstanding at August 25, 2007 and
November 30, 2006
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 12,363 11,511
-------- --------
Total shareholders' equity 12,306 11,454
-------- --------
Total liabilities and shareholders' equity $ 14,010 $ 13,068
======== ========
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)
Nine months ended
08/25/07 08/26/06
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 1,110 $ 1,140
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization ........................... 198 192
Gain on sale of equipment ............................... (1) --
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable .............. (93) 516
Decrease (increase) inventories ......................... 315 (815)
Increase in prepaid expenses and other current assets ... (7) (33)
Decrease in accounts payable ............................ (16) (218)
Decrease in accrued compensation ........................ (44) (261)
Increase (decrease) in income taxes, payable and deferred 148 (70)
Increase (decrease) in other accrued liabilities and
deferred revenues ....................................... 2 (95)
------- -------
Net cash provided by operating activities ............... 1,612 356
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short term investments ....................... (814) (409)
Proceeds from disposal of equipment ...................... 7 --
Additions to property, plant and equipment ............... (250) (205)
------- -------
Net cash used in investing activities .................... (1,057) (614)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend
Net cash used in financing activities ................. (258) (387)
------- -------
(258) (387)
------- -------
Net change in cash and cash equivalents ............... 297 (645)
Cash and cash equivalents at beginning of period .................. 2,558 1,722
------- -------
Cash and cash equivalents at end of period ........................ $ 2,855 $ 1,077
======= =======
Supplemental Cash Flow Disclosure:
Cash paid for income taxes ............................... $ 532 $ 815
======= =======
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 CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1
In the opinion of management, the unaudited condensed financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of August 25, 2007, the
cash flows for the nine months ended August 25, 2007 and August 26, 2006, and
the results of operations for the three months and nine months ended August 25,
2007 and August 26, 2006. Unaudited financial statements are prepared on a basis
substantially consistent with those audited for the year ended November 30,
2006. 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, 2005, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.15 per share dividend to all shareholders of record
on February 3, 2006. The dividend was paid to shareholders on February 10, 2006.
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.
Note 4
On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock
Option Plan (the "Stock Plan"). As of August 25, 2007 there were 500,000 options
available to be granted. No options have been granted to date.
Note 5
On June 1, 2006 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 tangible net worth of
$6,250,000 plus 75% of future net income, and maintain 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 nine months ended
August 25, 2007 and August 26, 2006, the Company had no dilutive potential
common stock.
Note 7
6
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.
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
8/25/07 8/26/06 8/25/07 8/26/06
------- ------- ------- -------
NET SALES ............................... 100.0% 100.0% 100.0% 100.0%
COST AND EXPENSES:
Cost of Goods Sold .................. 67.0% 67.1% 68.0% 66.4%
Research and development ............ 0.8% 3.3% 1.7% 2.9%
Selling, general & administrative ... 17.1% 16.7% 17.8% 17.5%
----- ----- ----- -----
Total cost and expenses... 84.9% 87.1% 87.5% 86.8%
OPERATING INCOME BEFORE INTEREST ........ 15.1% 12.9% 12.5% 13.2%
AND INCOME TAXES
Interest income ..................... 1.0% 0.8% 1.0% 0.8%
INCOME BEFORE TAXES ..................... 16.1% 13.7% 13.5% 14.0%
Provision for taxes ................. 6.1% 5.2% 5.1% 5.3%
NET INCOME .............................. 10.0% 8.5% 8.4% 8.7%
Sales for the third quarter and nine months ended August 25, 2007 totaled
$4,536,000 and $13,234,000, respectively. Sales for the third quarter decreased
0.4% or $16,000 below sales for the same period of 2006, while sales for the
first nine months of 2007 increased 1.1% or $149,000 above the first nine months
of 2006. Sales decreased 3% in the commercial market, decreased 4% in the
military market, and increased 7% in the space market for the nine months ending
August 25, 2007.
Cost of goods sold for the third quarter 2007 versus 2006 totaled 67.0% and
67.1% of net sales, respectively, while cost of goods sold for the nine months
of the comparable period totaled 68.0% and 66.4%, respectively, an increase of
1.6%.
Selling, general and administrative expenses for the third quarter and first
nine months of 2007 totaled 17.1% and 17.8% of net sales, respectively, compared
to 16.7% and 17.5% for the same period in 2006. In actual dollars expensed,
selling, general and administrative expenses increased $15,000 in the third
quarter of 2007, compared to 2006, and increased $69,000 for the first nine
months of 2007, versus 2006, attributable to higher commissions on increased
sales.
7
Net income for the third quarter and year to date 2007 totaled $453,000 and
$1,110,000, respectively, compared to $388,000 and $1,140,000 for the comparable
periods in 2006. Net income per share totaled $.43 and $.44 for the comparable
nine months of 2007 and 2006, respectively.
Total assets increased $942,000 to $14,010,000 as of August 25, 2007 from
$13,068,000 as of November 30, 2006 with a increase in cash of $297,000, short
term investment increase of $814,000, raw material decrease of $173,000,
work-in- process decrease of $142,000, accounts receivable increase of $93,000,
increase in prepaid expense of $7,000, and an increase in net property, plant,
and equipment of $46,000.
Accounts receivable, net totaled $2,141,000 as of August 25, 2007 and represents
an increase of $93,000 since November 30, 2006.
Inventories totaled $4,205,000 at the end of the third quarter 2007 compared to
$4,520,000 on November 30, 2006, a decrease of $315,000. Raw materials
inventories decreased $173,000 since November 30, 2006, while work-in-process
inventories decreased $142,000. The decrease in raw materials and
work-in-process is attributable to the shipment of the space level products with
high dollar radiation tolerant devices.
Liabilities totaled $1,704,000 on August 25, 2007 representing an increase of
$90,000 from November 30, 2006; primarily associated with a decrease in accounts
payable of $16,000, a decrease of $44,000 in accrued compensation, an increase
of $148,000 in provision for income taxes, a decrease in deferred revenue of
$25,000, and an increase of $27,000 in other accrued liabilities.
Shareholders' equity increased $852,000 in the first nine months of 2007.
Earnings per share for the nine month period totaled $.43 per share.
Liquidity and Capital Resources
Cash and short-term investments as of August 25, 2007 totaled $5,694,000
compared to $4,583,000 on November 30, 2006, an increase of $1,111,000. Cash
flow from operations was $1,612,000 and proceeds for the disposal of equipment
of $7,000 for the first nine months offset by a cash dividend of $258,000,
$250,000 invested in equipment, and $814,000 invested in short term investments.
For the nine months ended August 25, 2007 cash flows from operating activities
were $1,612,000 compared to $356,000 for the nine months ended August 26, 2006.
Inventory decreased $315,000 for the first nine months of 2007 compared to an
increase of $815,000 for the first nine months of 2006 resulting in the increase
in cash flow for operations from 2006.
Capital expenditures through the third quarter of 2007 totaled $250,000 compared
to $205,000 as of August 26, 2006. These purchases were financed internally with
the Company's cash, and included office, production and test equipment.
A special cash dividend of $258,000 was paid on February 9, 2007 to all
shareholders of record.
On June 1, 2006 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
$6,250,000 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 third quarter and year-to-date 2007 totaled $4,037,000 and
$12,936,000, respectively, compared to $3,677,000 and $12,040,000 for the
comparable periods of 2006 or an increase of 10.0% and 7.0% respectively. The
increase in new orders is primarily attributable to increased orders for space
level optocouplers offset by a decrease in the industrial semiconductor
assemblies.
Backlog totaled $9,236,000 on August 25, 2007 compared to $8,295,000 as of
August 26, 2006 and $9,791,000 on November 30, 2006. 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 17% in the commercial
market, 67% in the military market, and 17% in the space market compared to 12%
in the commercial market, 54% in the military market, and 34% in the space
market for the same period of 2006.
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.
8
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 be successful, 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 $1,340,000 of the Company's backlog is
dependent on these semiconductors.
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 August 25, 2007 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.
9
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.
(b) Reports on Form 8-K
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.
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.
October 9, 2007 /s/ Mark King
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Date Mark King
Chief Executive Officer
October 9, 2007 /s/ Patrick Cefalu
--------------- ------------------
Date Patrick Cefalu
Chief Financial Officer