SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 QSB
Quarterly Report Pursuant to Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the Quarter Ended February 24, 2007
For the Transition Period from_________ to _________
Commission File Number 0-5109
MICROPAC INDUSTRIES, INC.
Delaware 75-1225149
------------------------ ---------------------------------
(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
------------------
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 February 24, 2007, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
FEBRUARY 24, 2007
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three months ended
February 24, 2007 and February 25, 2006
Condensed Balance Sheets as of February 24, 2007 and November 30,
2006
Condensed Statements of Cash Flows for the three months ended
February 24, 2007 and February 25, 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 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
2/24/07 2/25/06
------- -------
NET SALES $ 4,251 $ 4,407
COST AND EXPENSES:
Cost of goods sold (2,947) (2,996)
Research and development (100) (80)
Selling, general & administrative expenses (726) (763)
----------- -----------
Total cost and expenses (3,773) (3,839)
OPERATING INCOME BEFORE INTEREST 478 568
AND INCOME TAXES
Interest income 46 34
----------- -----------
INCOME BEFORE TAXES 524 602
Provision for taxes (199) (229)
----------- -----------
NET INCOME $ 325 $ 373
=========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.13 $ 0.14
DIVIDENDS PER SHARE $ 0.10 $ 0.15
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 2/24/07 11/30/06
------- --------
Cash and cash equivalents $ 2,236 $ 2,558
Short term investments 2,116 2,025
Receivables, net of allowance for doubtful accounts of 2,708 2,048
$89 on February 24, 2007 and $89 on November 30, 2006
Inventories:
Raw materials 1,760 1,924
Work-in process 2,452 2,596
-------- --------
Total Inventories 4,212 4,520
Prepaid expenses and other current assets 45 77
Deferred income tax 625 625
-------- --------
Total current assets 11,942 11,853
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 5,940 5,925
Furniture and fixtures 507 507
-------- --------
Total property, plant, and equipment 7,821 7,806
Less accumulated depreciation (6,657) (6,591)
-------- --------
Net property, plant, and equipment 1,164 1,215
-------- --------
equipment
Total assets $ 13,106 $ 13,068
======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 504 $ 582
Accrued compensation 311 494
Other accrued liabilities 172 188
Deferred revenue 294 243
Income taxes payable 226 28
-------- --------
Total current liabilities 1,507 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 February 24, 2007
and November 30, 2006
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 11,577 11,511
-------- --------
Total shareholders' equity 11,520 11,454
-------- --------
Total liabilities and shareholders'equity $ 13,106 $ 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)
For three months ended
2/24/07 2/25/06
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 325 $ 373
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 66 65
Changes in current assets and liabilities:
Accounts receivable (660) 131
Inventories 308 (154)
Prepaid expenses and other current assets 32 21
Deferred revenue 51 82
Accounts payable (78) (163)
Accrued compensation (183) (396)
Other accrued liabilities (16) (7)
Income taxes payable 198 229
------- -------
Net cash provided by operating activities 43 181
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments (92) (806)
Additions to property, plant and equipment (15) 52)
------- -------
Net cash used in investing activities (107) (858)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (258) (388)
------- -------
Net cash used in financing activities (258) (388)
------- -------
Net change in cash and cash equivalents (322) (1,065)
Cash and Cash Equivalents at beginning of period 2,558 1,722
------- -------
Cash and Cash Equivalents at end of period $ 2,236 $ 657
======= =======
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 0 $ 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 February 24, 2007, the cash flows
for the three months ended February 24, 2007 and February 25, 2006, and the
results of operations for the three months ended February 24, 2007 and February
25, 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 February 24, 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. 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 three months ended
February 24, 2007 and February 25, 2006, 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
2/24/2007 2/25/2006
--------- ---------
NET SALES 100.0% 100.0%
COST AND EXPENSES:
Cost of goods sold 69.3% 68.0%
Research and development 2.4% 1.8%
Selling, general & administrative 17.1% 17.3%
expenses ----- -----
Total cost and expenses 88.8% 87.1%
OPERATING INCOME BEFORE INTEREST 11.2% 12.9%
AND INCOME TAXES
Interest income 1.0% 0.8%
INCOME BEFORE TAXES 12.3% 13.7%
Provision for taxes 4.7% 5.2%
NET INCOME 7.6% 8.5%
Sales for the first quarter ended February 24, 2007 totaled $4,251,000. Sales
for the first quarter decreased 3.5% or $156,000 below sales for the same period
of 2006. Sales were 22% in the commercial market, 57% in the military market,
and 21% in the space market compared to 19% in the commercial market, 61% in the
military market, and 20% in the space market for the same period of 2006.
Cost of goods sold for the first quarter 2007 versus 2006 totaled 69.3% and
68.0% of net sales. Cost of goods sold dollars decreased $49,000 in the first
quarter of 2007, compared to 2006. The increase in cost of goods sold as a
percentage of sales is associated with higher material cost for the space level
solid state power controllers. For the comparable period in 2006 material cost
increased 4.3% while labor and overhead cost decreased 3.0%.
Research and development cost increased $20,000 for the first quarter of 2007
compared to the same period of 2006. The increase was in the investment of the
development a low and high voltage solid state power controller and a new
optoelectonic product for the medical industry.
Selling, general and administrative expenses for the first quarter of 2007
totaled 17.1%, compared to 17.3% for the same period in 2006. Selling, general
and administrative expenses decreased $37,000 in the first quarter of 2007,
compared to 2006. The majority of the decrease was associated with the reduction
of one regional sales manager in the second quarter of 2006.
7
Interest income increased $12,000 for the first quarter of 2007 compared to the
same period in 2006. The increase is improved yields on the company's short term
investments.
Provisions for taxes decreased $30,000 for the first quarter of 2007 compared to
the same period in 2006 with lower net income. The estimated effective tax rate
was 38% for both periods.
Net income in the first quarter of 2007 totaled $325,000, compared to $373,000
for the comparable period in 2006. Net income per share totaled $.13 and $.14
for the comparable three months of 2007 and 2006, respectively.
Total assets increased $38,000 to $13,106,000 as of February 24, 2007 from
$13,068,000 as of November 30, 2006.
Account receivables totaled $2,708,000 as of February 24, 2007 from $2,048,000
as of November 30, 2006, an increase of $660,000. The increase in accounts
receivables is associated with higher sales in the last five weeks of the first
quarter of 2007 comparable to the same period ending November 30, 2006. Sales in
the last five weeks of the first quarter totaled $2,551,000 compared to
$1,941,000 for the last five weeks of 2006. The accounts receivable balance is
consistent with the average collection of 45 days.
Inventories totaled $4,212,000 at the end of the first quarter 2007 compared to
$4,520,000 on November 30, 2006, a decrease of $308,000. Raw materials
inventories including supplies decreased $164,000 since November 30, 2006, while
work-in process inventories decreased $144,000. The decrease in inventory is
consistent with the current business level.
Current liabilities totaled $1,507,000 on February 24, 2007 representing a
decrease of $28,000 from November 30, 2006.
Shareholders' equity increased $66,000 in the first three months of 2007 with a
net income of $325,000 offset by the dividend payment of $258,000. Earnings per
share for the three month period totaled $.13 per share.
Liquidity and Capital Resources
Cash and short-term investments as of February 24, 2007 totaled $4,352,000
compared to $4,583,000 on November 30, 2006, a decrease of $231,000. The
decrease in cash and short-term investments is attributable to $43,000 net cash
provided by operations, offset by the payment of a cash dividend of $258,000 and
the investment of $15,000 in equipment.
Cash flows from operating activities for the quarter ending February 24, 2007
were $43,000 compared to $181,000 for the quarter ending February 25, 2006.
A special cash dividend of $258,000 was paid on February 9, 2007 to all
shareholders of record on January 26, 2006.
During fiscal 2006 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 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.
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 2007 totaled $4,000,000 compared to
$4,110,000 for the comparable period of 2006.
Backlog totaled $9,278,000 on February 24, 2007 compared to $9,045,000 as of
February 25, 2006. 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
delivery of vendor-supplied raw materials and components, unanticipated
manufacturing problems and availability of direct labor resources.
8
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 $1,753,000 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 February 24, 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.
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.
9
32.2 Certification of Chief Accounting Officer pursuant to 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.
April 10, 2007 /s/ Mark King
Date Mark King
Chief Executive Officer
April 10, 2007 /s/ Patrick Cefalu
Date Patrick Cefalu
Chief Financial Officer