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 30, 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
---------------- ----------------
On August 30, 2008, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
August 30, 2008
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months and nine months ended August 30, 2008 and
August 25,
2007
Condensed Balance Sheets as of August 30, 2008 and
November 30, 2007 Condensed Statements of Cash Flows
for the nine months ended August 30, 2008 and August
25, 2007 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 Year-to-date
ended
08/30/08 08/25/07 08/30/08 08/25/007
---------- ----------- ----------- -----------
NET SALES $ 5,321 $ 4,536 $ 14,103 $ 13,234
COST AND EXPENSES:
Cost of goods sold (3,396) (3,038) (9,498) (8,996)
Research and development (110) (36) (327) (226)
Selling, general & administrative expenses (872) (775) (2,466) (2,359)
---------- ----------- ----------- -----------
Total cost and expenses (4,378) (3,849) (12,291) (11,581)
---------- ----------- ----------- -----------
OPERATING INCOME BEFORE INTEREST
AND INCOME TAXES 943 687 1,812 1,653
Interest income 35 44 129 138
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 978 $ 731 $ 1,941 $ 1,791
Provision for taxes (330) (278) (677) (681)
----------- ----------- ----------- -----------
NET INCOME $ 648 $ 453 $ 1,264 $ 1,110
========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.25 $ 0.18 $ 0.49 $ 0.43
DIVIDENDS PER SHARE $ 0.00 $ 0.00 $ 0.10 $ 0.10
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 8/30/08 11/30/07
-------- --------
Cash and cash equivalents $ 5,312 $ 4,394
Short term investments 400 2,021
Receivables, net of allowance for doubtful accounts of $89 on 3,139 2,415
August 30, 2008 and $89 on November 30, 2007
Inventories:
Raw materials 2,439 1,588
Work-in process 2,313 2,455
-------- --------
Total inventories 4,752 4,043
Prepaid expenses and other current assets 97 69
Deferred income tax 659 659
-------- --------
Total current assets 14,359 13,601
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 6,422 6,119
Furniture and fixtures 596 584
-------- --------
Total property, plant, and equipment 8,392 8,077
Less accumulated depreciation (7,007) (6,843)
-------- --------
Net property, plant, and equipment 1,385 1,234
-------- --------
Total assets $ 15,744 $ 14,835
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 822 $ 608
Accrued compensation 503 544
Other accrued liabilities 191 194
Deferred revenue 147 323
Income taxes payable 142 235
-------- --------
Total current liabilities 1,805 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 August 30, 2008 and
November 30, 2007
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 13,880 12,872
-------- --------
Total shareholders' equity 13,823 12,815
-------- --------
Total liabilities and shareholders' equity $ 15,744 $ 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)
Nine months ended
08/30/08 08/25/07
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,264 $ 1,110
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization 190 198
Gain on sale of equipment (2) (1)
Changes in current assets and liabilities:
Increase in accounts receivable (724) (93)
(Increase) decrease inventories (709) 315
Increase in prepaid expenses and other current assets (28) (7)
Increase (decrease) in accounts payable 214 (16)
Decrease in accrued compensation (41) (44)
(Decrease) increase in income taxes, payable and deferred (93) 148
(Decrease) increase in other accrued liabilities and
deferred revenues (179) 2
------- -------
Net cash provided by (used in) operating activities (108) 1,612
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short term investments 1,621 (814)
Proceeds from disposal of equipment 9 7
Additions to property, plant and equipment (346) (250)
------- -------
Net cash provided by (used in) investing activities 1,284 (1,057)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (258) (258)
------- -------
Net cash used in financing activities (258) (258)
------- -------
Net change in cash and cash equivalents 918 297
Cash and cash equivalents at beginning of period 4,394 2,558
------- -------
Cash and cash equivalents at end of period $ 5,312 $ 2,855
======= =======
Supplemental Cash Flow Disclosure:
Cash paid for income taxes $ 805 $ 532
======= =======
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 30, 2008, the
cash flows for the nine months ended August 30, 2008 and August 25, 2007, and
the results of operations for the three months and nine months ended August 30,
2008 and August 25, 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 August 30, 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 tangible net worth of
$10,000,000 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.
6
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 and
nine months ended August 30, 2008 and August 25, 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.
7
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
8/30/2008 8/25/2007 8/30/2008 8/25/2007
--------- --------- --------- ---------
NET SALES 100.0% 100.0% 100.0% 100.0%
COST AND EXPENSES:
Cost of Goods Sold 63.8% 67.0% 67.3% 68.0%
Research and development 2.1% 0.8% 2.3% 1.7%
Selling, general & administrative expenses 16.4% 17.1% 17.5% 17.8%
----- ----- ----- -----
Total cost and expenses 82.3% 84.9% 87.1% 87.5%
OPERATING INCOME BEFORE INTEREST
AND INCOME TAXES 17.7% 15.1% 12.9% 12.5%
Interest income .7% 1.0% .9% 1.0%
INCOME BEFORE TAXES 18.4% 16.1% 13.8% 13.5%
Provision for taxes 6.2% 6.1% 4.8% 5.1%
NET INCOME 12.2% 10.0% 9.0% 8.4%
Sales for the third quarter and nine months ended August 30, 2008 totaled
$5,321,000 and $14,103,000, respectively. Sales for the third quarter increased
17.3% or $785,000 above sales for the same period of 2007, while sales for the
first nine months of 2008 increased 6.6% or $869,000 above the first nine months
of 2007. The sales increase was associated with higher sales of space level
optocouplers and solid state power controllers. Sales were 16% in the commercial
market, 62% in the military market, and 22% in the space market for the nine
months ending August 30, 2008.
Cost of goods sold for the third quarter 2008 versus 2007 totaled 63.8% and
67.0% of net sales, respectively, while cost of goods sold for the nine months
of the comparable period totaled 67.3% and 68.0%, respectively, an increase of
0.7%. While sales increased 17.3%, cost of goods sold only increased 11.8%. In
actual dollars, cost of goods sold increased $358,000. Material and labor cost
increased with the higher sales, however overhead cost remained stable for the
third quarter of 2008.
Selling, general and administrative expenses for the third quarter and first
nine months of 2008 totaled 16.4% and 17.5% of net sales, respectively, compared
to 17.1% and 17.8% for the same period in 2007. In actual dollars expensed,
selling, general and administrative expenses increased $97,000 in the third
quarter of 2008, compared to 2007, and increased $107,000 for the first nine
months of 2008, versus 2007.
8
Net income for the third quarter and year to date 2008 totaled $648,000 and
$1,264,000, respectively, compared to $453,000 and $1,110,000 for the comparable
periods in 2007. Net income increased with a higher level of sales and stable
overhead cost. Net income per share totaled $.49 and $.43 for the comparable
nine months of 2008 and 2007, respectively.
Total assets increased $909,000 to $15,744,000 as of August 30, 2008 from
$14,835,000 as of November 30, 2007 with an increase in cash of $918,000, short
term investment decrease of $1,621,000, raw material increase of $851,000,
work-in- process decrease of $142,000, accounts receivable increase of $724,000,
increase in prepaid expense of $28,000, and an increase in net property, plant,
and equipment of $151,000.
Accounts receivable, net totaled $3,139,000 as of August 30, 2008 and represents
an increase of $724,000 since November 30, 2007 with the increase in sales in
the 3rd quarter of 2008.
Inventories totaled $4,752,000 at the end of the third quarter 2008 compared to
$4,043,000 on November 30, 2007, an increase of $709,000. Raw materials
inventories increased $851,000 since November 30, 2007, while work-in-process
inventories decreased $142,000. The majority of the increase in inventories is
associated with the purchase of space level die for current customer
requirements on the backlog.
Liabilities totaled $1,921,000 on August 30, 2008 representing a decrease of
$99,000 from November 30, 2007; primarily associated with an increase in
accounts payable of $214,000, a decrease of $41,000 in accrued compensation, a
decrease of $93,000 in provision for income taxes, a decrease in deferred
revenue of $176,000, and a decrease of $3,000 in other accrued liabilities.
Shareholders' equity increased $1,008,000 in the first nine months of 2008.
Earnings per share for the nine month period totaled $.49 per share.
Liquidity and Capital Resources
Cash and short-term investments as of August 30, 2008 totaled $5,712,000
compared to $6,415,000 on November 30, 2007, a decrease of $703,000. Cash used
from operations was $108,000 and proceeds from the sale of equipment of $9,000
for the first nine months offset by a cash dividend of $258,000, and $346,000
invested in equipment, and $1,621,000 in cash from short term investments.
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.
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 2008 totaled $6,084,000 and
$17,954,000, respectively, compared to $4,037,000 and $12,936,000 for the
comparable periods of 2007 or an increase of 51.0% and 39.0% respectively. The
increase in new orders is primarily attributable to increased orders for space
level solid state relays and solid state power controllers.
Backlog totaled $11,755,000 on August 30, 2008 compared to $9,235,000 as of
August 25, 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 6% in the commercial market,
50% in the military market, and 44% in the space market.
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.
9
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.
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 $1,874,000
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 30, 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.
10
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 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.
October 14, 2008 /s/ Mark King
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Date Mark King
Chief Executive Officer
October 14, 2008 /s/ Patrick Cefalu
---------------- -----------------------
Date Patrick Cefalu
Chief Financial Officer
11