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 March 1, 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 March 1, 2008, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
MARCH 1, 2008
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three months
ended March 1, 2008 and February 24, 2007
Condensed Balance Sheets as of March 1, 2008 and November
30, 2007
Condensed Statements of Cash Flows for the three months
ended March 1, 2008 and February 24, 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)
For three months ended
3/01/08 2/24/07
----------- -----------
NET SALES $ 4,185 $ 4,251
COST AND EXPENSES:
Cost of goods sold (2,913) (2,947)
Research and development (94) (100)
Selling, general & administrative expenses (780) (726)
----------- -----------
Total cost and expenses (3,787) (3,773)
OPERATING INCOME BEFORE INTEREST 398 478
AND INCOME TAXES
Interest income 69 46
----------- -----------
INCOME BEFORE TAXES 467 524
Provision for taxes (177) (199)
----------- -----------
NET INCOME $ 290 $ 325
=========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.11 $ 0.13
DIVIDENDS PER SHARE $ 0.10 $ 0.10
WEIGHTED AVERAGE NUMBER OF SHARES, Basic and diluted 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 3/01/08 11/30/07
------- --------
Cash and cash equivalents $ 4,774 $ 4,394
Short term investments 1,521 2,021
Receivables, net of allowance for doubtful accounts of 2,370 2,415
$89 on March 1, 2008 and $89 on November 30, 2007
Inventories:
Raw materials 1,579 1,588
Work-in process 2,476 2,455
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Total Inventories 4,055 4,043
Prepaid expenses and other current assets 32 69
Deferred income tax 659 659
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Total current assets 13,411 13,601
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 6,182 6,119
Furniture and fixtures 590 584
-------- --------
Total property, plant, and equipment 8,146 8,077
Less accumulated depreciation (6,908) (6,843)
-------- --------
Net property, plant, and equipment 1,238 1,234
-------- --------
Total assets $ 14,649 $ 14,835
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 682 $ 608
Accrued compensation 308 544
Other accrued liabilities 135 194
Deferred revenue 268 323
Income taxes payable 293 235
-------- --------
Total current liabilities 1,686 1,904
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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 March 1, 2008 and
November 30, 2007
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 12,904 12,872
-------- --------
Total shareholders' equity 12,847 12,815
-------- --------
Total liabilities and shareholders' equity $ 14,649 $ 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)
For three months ended
3/01/08 2/24/07
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 290 $ 325
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 65 66
Changes in current assets and liabilities:
Accounts receivable 45 (660)
Inventories (12) 308
Prepaid expenses and other current assets 37 32
Deferred revenue (55) 51
Accounts payable 74 (78)
Accrued compensation (236) (183)
Other accrued liabilities (59) (16)
Income taxes payable 58 198
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Net cash provided by operating activities 207 43
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CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments 500 (92)
Additions to property, plant and equipment (69) (15)
------- -------
Net cash provided by (used in) investing activities 431 (107)
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CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (258) (258)
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Net cash used in financing activities (258) (258)
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Net change in cash and cash equivalents 380 (322)
Cash and Cash Equivalents at beginning of period 4,394 2,558
------- -------
Cash and Cash Equivalents at end of period $ 4,774 $ 2,236
======= =======
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 123 $ 0
======= =======
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 March 1, 2008, the cash flows for
the three months ended March 1, 2008 and February 24, 2007, and the results of
operations for the three months ended March 1, 2008 and February 24, 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 March 1, 2008 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 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.
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
March 1, 2008 and February 24, 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
3/01/2008 2/24/2007
--------- ---------
NET SALES 100.0% 100.0%
COST AND EXPENSES:
Cost of goods sold 69.6% 69.3%
Research and development 2.3% 2.4%
Selling, general & administrative expenses 18.6% 17.1%
----- -----
Total cost and expenses 90.5% 88.8%
OPERATING INCOME BEFORE INTEREST 9.5% 11.2%
AND INCOME TAXES
Interest income 1.6% 1.0%
INCOME BEFORE TAXES 11.1% 12.3%
Provision for taxes 4.2% 4.7%
NET INCOME 6.9% 7.6%
Sales for the first quarter ended March 1, 2008 totaled $4,185,000. Sales for
the first quarter decreased 1.6% or $66,000 below sales for the same period of
2007. Sales were 15% in the commercial market, 62% in the military market, and
23% in the space market compared to 22% in the commercial market, 57% in the
military market, and 21% in the space market for the same period of 2007.
Cost of goods sold for the first quarter 2008 versus 2007 totaled 69.6 and 69.3%
of net sales. Cost of goods sold dollars decreased $34,000 in the first quarter
of 2008, compared to 2007.
Research and development cost decreased $6,000 for the first quarter of 2008
compared to the same period of 2007.
Selling, general and administrative expenses for the first quarter of 2008
totaled 18.6%, compared to 17.1% for the same period in 2007. Selling, general
and administrative expenses increased $54,000 in the first quarter of 2008,
compared to 2007.
7
Interest income increased $23,000 for the first quarter of 2008 compared to the
same period in 2007. The increase is attributable to improved yields on the
company's short term investments and an increase in short term investments of
$500,000.
Provisions for taxes decreased $22,000 for the first quarter of 2008 compared to
the same period in 2007 with lower net income. The estimated effective tax rate
was 38% for both periods.
Net income in the first quarter of 2008 totaled $290,000, compared to $325,000
for the comparable period in 2007. Net income per share totaled $.11 and $.13
for the comparable three months of 2008 and 2007, respectively
Total assets decreased $186,000 to $14,649,000 as of March 1, 2008 from
$14,835,000 as of November 30, 2007.
Cash and short-term investments as of March 1, 2008 totaled $6,295,000 compared
to $6,415,000 on November 30, 2007, a decrease of $120,000.
Account receivables totaled $2,370,000 as of March 1, 2008 from $2,415,000 as of
November 30, 2007, a decrease of $45,000.
Inventories totaled $4,055,000 at the end of the first quarter 2008 compared to
$4,043,000 on November 30, 2007, an increase of $12,000. Raw materials
inventories including supplies decreased $9,000 since November 30, 2007, while
work-in process inventories increased $21,000.
Current liabilities totaled $1,686,000 on March 1, 2008 representing a decrease
of $218,000 from November 30, 2008 with a decrease in accrued compensation of
$236,000 related to the payment of a cash bonus to all employees.
Shareholders' equity increased $32,000 in the first three months of 2008 with a
net income of $290,000 offset by the dividend payment of $258,000. Earnings per
share for the three month period totaled $.11 per share.
Liquidity and Capital Resources
Cash and short-term investments as of March 1, 2008 totaled $6,295,000 compared
to $6,415,000 on November 30, 2007, a decrease of $120,000. The decrease in cash
and short-term investments is attributable to $207,000 net cash provided by
operations, offset by the payment of a cash dividend of $258,000 and the
investment of $69,000 in equipment.
Cash flows from operating activities for the quarter ending March 1, 2008 were
$207,000 compared to $43,000 for the quarter ending February 24, 2007.
A special cash dividend of $258,000 was paid on February 8, 2008 to all
shareholders of record on January 25, 2007.
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 first quarter of 2008 totaled $4,618,000 compared to
$4,000,000 for the comparable period of 2007.
Backlog totaled $8,351,000 on March 1, 2008 compared to $9,278,000 as of
February 24, 2007. The decrease is primarily attributable to lower orders on
industrial semiconductor assemblies and solid state power controllers. The
majority of the backlog is shippable in the next twelve (12) months.
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
8
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 $1,400,000 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 March 1, 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
9
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 will continue to serve in such
positions until the Company's next Annual Shareholder
Meeting scheduled for 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.
April 14, 2008 /s/ Mark King
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Date Mark King
Chief Executive Officer
April 14, 2008 /s/ Patrick Cefalu
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Date Patrick Cefalu
Chief Financial Officer
10