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 Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the Quarter Ended May 29, 2004
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)
(972) 272-3571
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Registrant's Telephone Number, including Area Code
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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At May 29, 2004 there were 3,078,315 shares issued and 2,578,315 shares of
registrant's common stock outstanding. The aggregate market value of Common
Stock could not be determined since there is no established public trading
market for the Company's Common Stock.
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
MAY 29, 2004
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months and six months ended May 29, 2004 and May 31,
2003
Condensed Balance Sheets as of May 29, 2004 and
November 30, 2003
Condensed Statements of Cash Flows for the six months
ended May 29, 2004 and May 31, 2003
Notes to Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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
(b) Reports on Form 8-K
SIGNATURES
2
PART I - FINANCIAL INFORMATION
MICROPAC INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)
ITEM 1 - FINANCIAL STATEMENTS
Three months ended Year-to-date
05/29/04 05/31/03 05/29/04 05/31/03
----------- ----------- ----------- -----------
NET SALES $ 3,659 $ 2,783 $ 7,169 $ 5,870
COST AND EXPENSES:
Cost of Goods Sold (2,387) (2,017) (4,783) (4,190)
Research and development (104) (192)
(61) (105)
Selling, general & administrative expenses (644) (669) (1,286) (1,405)
----------- ----------- ----------- -----------
Total cost and expenses 3,092 2,791 6,173 5,786
OPERATING INCOME (LOSS) BEFORE INTEREST 567 (8) 996 83
AND INCOME TAXES
Interest income 7 16 10 33
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 574 $ 8 $ 1,006 $ 116
Provision for taxes (218) (3) (382) (44)
----------- ----------- ----------- -----------
NET INCOME $ 356 $ 5 $ 624 $ 72
=========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ .14 $ .00 $ .24 $ .02
DIVIDENDS PER SHARE $ 0 $ 0 $ .05 $ 10
WEIGHTED AVERAGE OF SHARES, Basic and diluted 2,578,315 3,127,151 2,578,315 3,127,151
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)
(Unaudited)
ASSETS
CURRENT ASSETS 5/29/04 11/30/03
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Cash and cash equivalents $ 825 $ 2,337
Short term investments 2,404 812
Receivables, net of allowance for doubtful accounts of $122 2,276 1,877
on May 29, 2004 and $89 on November 30, 2003
Inventories:
Raw materials 975 692
Work-in process 1,121 1,097
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Total Inventories 2,096 1,789
Prepaid expenses and other current assets 95 71
Deferred income tax 386 386
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Total current assets 8,082 7,272
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 797
Machinery and equipment 5,081 5,027
Furniture and fixtures 479 489
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Total property, plant, and equipment 6,934 6,891
Less accumulated depreciation (5,979) (5,889)
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Net property, plant and equipment 955 1,002
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Total assets $ 9,037 $ 8,274
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 515 $ 308
Accrued compensation 205 239
Accrued professional fees 19 23
Other accrued liabilities 368 249
Income taxes payable 90 110
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Total current liabilities 1,197 929
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DEFERRED INCOME TAXES 69 69
SHAREHOLDERS' EQUITY
Common stock, ($.10 par value), authorized 10,000,000 shares, 308 308
3,078,315 issued 2,578,315 outstanding at May 29, 2004 and
November 30, 2003
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 7,828 7,333
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Total shareholders' equity 7,771 7,276
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Total liabilities and shareholders'equity $ 9,037 $ 8,274
======= =======
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
05/29/04 05/31/03
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 624 $ 72
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization $ 108 $ 132
Changes in current assets and liabilities:
Accounts receivable $ (399) $ 190
Inventories
(307) 154
Prepaid expenses and other current assets
(24) 46
Income taxes, prepaid and deferred (20) (135)
Accounts payable
207 (157)
Payroll and withholdings
(34) (49)
Accrued liabilities
115 (123)
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Net cash provided by operating activities $ 270 $ 130
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments $ (1592) $ 602
Additions to property, plant and equipment
(61) (137)
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Net cash provided by (used in) investing activities $ (1653) $ 465
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend $ (129) $ (312)
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Net cash used in financing activities $ (129) $ (312)
Net change in cash and cash equivalents $(1,512) $ 283
Cash and Cash Equivalents at beginning of period $ 2,337 $ 1,296
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Cash and Cash Equivalents at end of period $ 825 $ 1,579
======= =======
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 405 $ 178
======= =======
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 consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of May 29, 2004 and the
cash flows and the results of operations for months ended May 29, 2004 and May
31, 2003. Unaudited financial statements are prepared on a basis substantially
consistent with those audited for the year ended November 30, 2003. The results
of operations for the interim periods presented may not be indicative of total
results for the full year. 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 January 28, 2003, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.10 per share dividend to all shareholders of record
on February 10, 2003. The dividend payment was paid to shareholders on February
28, 2003.
On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved
the payment of a special dividend of $0.05 per share for shareholders of record
as of January 30, 2004. This dividend was paid to the Company's shareholders on
February 13, 2004.
Note 4
On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock
Option Plan (the "Stock Plan"). As of February 28, 2004 there were 500,000
options available to be granted. No options have been granted to date.
Note 5
During fiscal 2003, 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
and management personnel requirements. The Company has not borrowed against the
line of credit to date.
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 six months ended
May 29, 2004 and May 31, 2003, the Company had no dilutive potential common
stock.
Note 7
Effective May 1, 2004, the Company and Ms. Wood, Chief Executive Officer and
President of the Company entered into a three (3) year employment agreement at a
base salary of $180,000 per annum.
Effective February 1, 2004, the Company and Mr. King, Chief Operating Officer
and Vice President of the Company entered into a two (2) year employment
agreement at a base salary of $150,000 per annum.
Effective February 1, 2004, the Company and Mr. Cefalu, Chief Financial Officer
and Vice President of the Company entered into a two (2) year employment
agreement at a base salary of $82,000 per annum.
6
Note 8
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.
Note 9
Effective May 13, 2002, the Company's Board of Directors approved the formation
of an audit committee composed of the four (4) members of the Board. It is
possible that three members of the audit committee, Messrs. Hempel, Wood and
Murphey, may resign from the committee if future Securities and Exchange
Commission rules establish a criteria that such individuals are not independent
due to their relationships with the Company.
7
MICROPAC INDUSTRIES, INC.
(Unaudited)
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three months ended Year to Date
5/29/04 5/31/03 5/29/04 5/31/03
------ ------ ------ ------
NET SALES 100.0% 100.0% 100.0% 100.0%
COST AND EXPENSES
Cost of sales 65.2% 72.5% 66.7% 71.4%
Research and development 1.7% 3.8% 1.5% 3.3%
Selling, general and administrative 17.6% 24.0% 17.9% 23.9%
------ ------ ------ ------
Total cost and expenses 84.5% 100.3% 86.1% 98.6%
OPERATING INCOME BEFORE INTEREST 15.5% -.3% 13.9% 1.4%
AND INCOME TAXES
Interest income .2% .6% .1% .6%
------ ------ ------ ------
INCOME BEFORE TAXES 15.7% .3% 14.0% 2.0%
Provision for taxes 6.0% .1% 5.3% .7%
------ ------ ------ ------
NET INCOME 9.7% .2% 8.7% 1.3%
Sales for the second quarter and six months ended May 29, 2004 totaled
$3,659,000 and $7,169,000, respectively. Sales for the second quarter increased
31.4% or $876,000 above sales for the same period of 2003, while sales for the
first six months of 2004 increased 22.1% or $1,299,000 above the first six
months of 2003. The increase in sales is primarily attributable to improved
business conditions in the company's major market segments, combined with the
introduction of new products. Sales for the first 6 months of 2004 compared to
2003 increased 23% in the commercial market, 22% in the military market, and 18%
in the space market.
Cost of sales for the second quarters 2004 versus 2003 totaled 65.2% and 72.5%
of net sales, respectively, while cost of sales for the first six months of the
comparable period totaled 66.7% and 71.4%, respectively. The cost of material
decreased 5% of sales from 2003 associated with changes in product mix, and
yield improvements on certain products.
Selling, general and administrative expenses for the second quarter and first
six months of 2004 totaled 17.6% and 17.9%, respectively, compared to 24.0% and
23.9% for the same period in 2003. In actual dollars expensed, selling, general
and administrative expenses decreased $25,000 in the second quarter of 2004,
compared to 2003, and decreased $119,000 for the first six months of 2004,
versus 2003, attributable to lower general and administrative salaries.
Net income in the second quarter and year to date 2004 totaled $356,000 and
$624,000, respectively, compared to $5,000 and $72,000 for the comparable
periods in 2003. Net income per share totaled $.24 and $.02 for the comparable
six months of 2004 and 2003, respectively. The increase in net income is
associated with higher sales, lower cost of material as a % of sales, and
continued control of overhead and general and administrative expenses.
New orders for the second quarter and year-to-date 2004 totaled $5,358,000 and
$10,299,000, respectively, compared to $3,780,000 and $5,594,000 for the
comparable periods of 2003.
Backlog totaled $6,910,000 on May 29, 2004 compared to $4,832,000 as of May 31,
2003 and $5,594,000 on November 30, 2003.
Total assets increased $763,000 to $9,037,000 as of May 29, 2004 from $8,274,000
as of November 30, 2003 with an increase in cash and short-term investments of
$80,000, inventory increase of $307,000, accounts receivable increase of
$399,000, increase in prepaid expense of $24,000, and a decrease in net
property, plant, and equipment of $47,000.
8
Accounts receivable, net totaled $2,276,000 as of May 29, 2004 and represents an
increase of $399,000 since November 30, 2003, due to increased sales.
Inventories totaled $2,096,000 at the end of the second quarter 2004 compared to
$1,789,000 on November 30, 2003, an increase of $307,000. Raw materials
inventories increased $283,000 since November 30, 2003, while work-in-process
inventories decreased $24,000. The increase in raw materials is attributable to
the purchase and receipt of long lead-time material for $189,000 which was
funded by the customer, and an increase of piece parts to support the higher
sales volume.
Current liabilities totaled $1,197,000 on May 29, 2004 representing an increase
of $268,000 from November 30, 2003; primarily associated with an increase in
accounts payable of $207,000 due to increased materials purchases to support the
higher sales volume, a decrease of $34,000 in accrued payroll, a reduction of
$20,000 in provision for income taxes, an increase in other accrued liabilities
of $119,000 based on higher reserves associated with advance payments from
customers, and a decrease of $4,000 accrued professional fees.
Shareholders' equity increased $495,000 in the first six months of 2004.
Earnings per share for the six month period totaled $.24 per share.
Liquidity and Capital Resources
-------------------------------
Cash and short-term investments as of May 29, 2004 totaled $3,229,000 compared
to $3,149,000 on November 30, 2003, an increase of $80,000.
As of May 29, 2004 cash flows from operating activities were $271,000 compared
to $130,000 as of May 31, 2003.
Capital expenditures through the second quarter of 2004 totaled $61,000. These
purchases were financed internally with the Company's cash.
A special cash dividend of $129,000 was paid on February 13, 2004 to all
shareholders of record.
During fiscal 2003 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 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 2004 totaled $5,358,000 and
$10,299,000, respectively, compared to $3,780,000 and $5,594,000 for the
comparable periods of 2003. New orders included reorders for certain custom
products, orders from new customers for custom design products, initial customer
non recurring engineering funding releases on a multi-year contract, and
increased orders for some of the Company's standard products sold through
distribution channels.
Backlog totaled $6,910,000 on May 29, 2004 compared to $4,832,000 as of May 31,
2003 and $5,594,000 on November 30, 2003. The majority of the backlog is
shippable in the next twelve (12) months and represents a good mix of the
company's products and technologies with 22% in the commercial market, 56% in
the military market, and 21% in the space market.
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
disclaims any responsibility to update the forward-looking statements contained
herein, except as may be required by law.
9
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As of May 29, 2004, the Company carried out an evaluation,
under the supervision and with participation of the Company's
management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company required to be included in
the Company's quarterly SEC filings.
(b) Changes in internal controls.
Not applicable.
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) Form 8-K
At a Board of Directors meeting held on May 11, 2004,
the Board of Directors unanimously elected Mr.
Nicholas Nadolsky as a Member and Chairman of the
Board, to serve in such positions until the next
annual meeting of shareholders or until his earlier
death, resignation or removal from office. There is
no employment agreement between Mr. Nadolsky and the
Company. Since 1980, the Company has leased a 4800
square foot building from Mr. Nadolsky, at a current
annual rental of $39,600.
10
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 12, 2004
Date /s/ Connie Wood
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Connie Wood
Chief Executive Officer
July 12, 2004
Date /s/ Patrick Cefalu
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Patrick Cefalu
Chief Financial Officer
11