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 February 26, 2005
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
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No
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On February 26, 2005, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
FEBRUARY 26, 2005
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three months
ended February 26, 2005 and February 28, 2004
Condensed Balance Sheets as of February 26, 2005 and
November 30, 2004
Condensed Statements of Cash Flows for the three months
ended February 26, 2005 and February 28, 2004
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)
Statement of Income
For three months ended
2/26/05 2/28/04
----------- -----------
NET SALES $ 4,313 3,510
COST AND EXPENSES:
Cost of Goods Sold (2,651) (2,396)
Research and development (116) (43)
Selling, general & administrative expenses (758) (642)
----------- -----------
Total cost and expenses (3,525) (3,081)
OPERATING INCOME BEFORE INTEREST 788 429
AND INCOME TAXES
Interest income 15 3
----------- -----------
INCOME BEFORE TAXES 803 432
Provision for taxes (305) (164)
----------- -----------
NET INCOME $ 498 268
=========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.19 0.10
DIVIDENDS PER SHARE $ 0.12 0.05
WEIGHTED AVERAGE NUMBER OF SHARES, Basic
and diluted 2,578,315 2,578,315
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 SHEET
(Dollars in thousands)
(Unaudited)
ASSETS
CURRENT ASSETS 2/26/05 11/30/04
---------- ----------
Cash and cash equivalents $ 1,943 1,239
Short term investments 1,912 2,507
Receivables, net of allowance for doubtful accounts of $122 on 2,601 2,326
February 26, 2005 and $121 on November 30, 2004
Inventories:
Raw materials 1,361 1,354
Work-in process 1,378 1,346
---------- ----------
Total Inventories 2,739 2,700
Prepaid expenses and other current assets 55 90
Deferred income tax 528 528
---------- ----------
Total current assets 9,778 9,390
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 5,266 5,200
Furniture and fixtures 481 479
---------- ----------
Total property, plant, and equipment 7,121 7,053
Less accumulated depreciation (6,148) (6,091)
---------- ----------
Net property, plant, and equipment 973 962
Total assets $ 10,751 10,352
========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 592 387
Accrued compensation 217 488
Other accrued liabilities 99 140
Deferred revenue 545 404
Income taxes payable 482 306
---------- ----------
Total current liabilities 1,935 1,725
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DEFERRED INCOME TAXES 72 72
SHAREHOLDERS' EQUITY
Common stock, ($.10 par value), authorized 10,000,000 shares, 308 308
3,078,315 issued 2,578,315 outstanding at February 26, 2005 and
November 30, 2004
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 8,801 8,612
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Total shareholders' equity 8,744 8,555
---------- ----------
Total liabilities and shareholders' equity $ 10,751 10,352
========== ==========
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)
2/26/05 2/28/04
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 498 268
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 57 54
Changes in current assets and liabilities:
Accounts receivable (275) (243)
Inventories (39) (160)
Prepaid expenses and other current assets 35 16
Deferred revenue 141 185
Accounts payable 205 249
Accrued compensation (271) (50)
Other accrued liabilities (41) (70)
Income taxes payable 176 117
--------- ---------
Net cash provided by operating activities 486 366
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments 595 (589)
Additions to property, plant and equipment (68) (9)
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Net cash (used in) provided by investing activities 527 (598)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (309) (129)
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Net cash (used in) financing activities (309) (129)
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Net change in cash and cash equivalents 704 (361)
Cash and Cash Equivalents at beginning of period 1,239 2,337
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Cash and Cash Equivalents at end of period 1,943 1,976
========= =========
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 125 47
========= =========
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 February 26, 2005 and
the cash flows and the results of operations for the three months ended February
26, 2005. Unaudited financial statements are prepared on a basis substantially
consistent with those audited for the year ended November 30, 2004. 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 29, 2004, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.12 per share dividend to all shareholders of record
on January 25, 2005. The dividend was paid to shareholders on February 8, 2005.
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 26, 2005 there were 500,000
options available to be granted. No options have been granted to date.
Note 5
During fiscal 2004 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 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
February 26, 2005 and February 28, 2004, the Company had no dilutive potential
common stock.
6
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.
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.
7
MICROPAC INDUSTRIES, INC.
(Unaudited)
ITEM 2 - MANAGEMENT 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
2/26/2005 2/28/2004
---------- ----------
NET SALES 100.00% 100.00%
COST AND EXPENSES
Cost of sales 61.50% 68.30%
Research and development 2.70% 1.20%
Selling, general and administrative 17.50% 18.30%
---------- ----------
Total cost and expenses 81.70% 87.80%
OPERATING INCOME BEFORE INTEREST 18.30% 12.20%
AND INCOME TAXES
Interest income 0.30% 0.10%
---------- ----------
INCOME BEFORE TAXES 18.60% 12.30%
Provision for taxes 7.10% 4.70%
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NET INCOME 11.50% 7.60%
Sales for the first quarter ended February 26, 2005 totaled $4,313,000. Sales
for the first quarter increased 22.8% or $803,000 above sales for the same
period of 2004, based on an improved shippable backlog. The increase in sales
was due to higher demand for certain industrial products sold to customers in
the semiconductor market, and increased requirements for some of the Company's
standard optoelectronic and solid state relay products for military/aerospace
and space programs.
Cost of sales for the first quarter 2005 versus 2004 totaled 61.5% and 68.3% of
net sales. Cost of sales dollars increased $255,000 in the first quarter of
2005, compared to 2004 due to increased volume, offset partially by lower
material cost associated with product mix changes and lower overhead expenses as
a percent of sales in the first quarter, as a result of stable indirect costs on
higher sales volume. It is reasonable to expect that the Company's overhead
expenses will increase during the balance of the year, based on plans for
additional staffing and product mix of the Company's backlog.
Selling, general and administrative expenses for the first quarter of 2005
totaled 17.5%, compared to 18.3% for the same period in 2004. Selling, general
and administrative expenses increased $116,000 in the first quarter of 2005,
compared to 2004 attributable to higher selling expense associated with the
increase in sales.
Net income in the first quarter of 2005 totaled $498,000, compared to $268,000
for the comparable period in 2004. Net income per share totaled $.19 and $.10
for the comparable three months of 2005 and 2004, respectively. The increase in
net income is attributable to higher sales and lower operating and general and
administrative costs as a percent of sales.
8
New orders for the first quarter of 2005 totaled $3,946,000 compared to
$4,941,000 for the comparable period of 2004. The decrease is attributable to
reduced requirements for custom, build to print microcircuits from an industrial
customer engaged in semiconductor equipment manufacturing. The decreased demand
for these products is part of an inventory reduction program by the customer
which is expected to continue into second half of 2005. A decrease in orders for
solid state relays and power controllers for the space markets, compared to the
first quarter of 2004, further contributed to the lower bookings in the current
quarter.
Backlog totaled $8,933,000 on February 26, 2005 compared to $5,229,000 as of
February 28, 2004. The majority of the backlog is shippable in the next twelve
(12) months.
Total assets increased $399,000 to $10,751,000 as of February 26, 2005 from
$10,352,000 as of November 30, 2004 with an increase in cash and short-term
investments of $109,000, accounts receivable increase of $275,000, an increase
in net property, plant, and equipment of $11,000 and a decrease in prepaid
expenses of $35,000.
Inventories totaled $2,739,000 at the end of the first quarter 2005 compared to
$2,700,000 on November 30, 2004, an increase of $39,000. Raw materials
inventories including supplies increased $7,000 since November 30, 2004, while
work-in-process inventories increased $32,000. The increase in inventory is
consistent with the current business level.
Current liabilities totaled $1,935,000 on February 26, 2005 representing an
increase of $210,000 from November 30, 2004; primarily associated with an
increase in accounts payable of $205,000 due to higher material purchases; an
increase of $176,000 in income taxes payable, a decrease in other accrued
liabilities of $41,000, an increase in deferred revenue of $141,000 for advance
payments from customers. Accrued compensation decreased $271,000 attributable to
vacation taken by employees during plant shutdown in December and the payment of
bonuses to the Company's employees
Shareholders' equity increased $189,000 in the first three months of 2005 with a
net income of $498,000 offset by the dividend payment of $309,000. Earnings per
share for the three month period totaled $.19 per share.
Liquidity and Capital Resources
Cash and short-term investments as of February 26, 2005 totaled $3,855,000
compared to $3,746,000 on November 30, 2004 an increase of $109,000. The
increase in cash and short-term investments is attributable to $486,000 net cash
provided by operations, offset by the payment of a cash dividend of $309,000 and
the investment of $68,000 in equipment.
Cash flows from operating activities for the quarter ending February 26, 2005
were $486,000 compared to $366,000 for the quarter ending February 28, 2004.
A special cash dividend of $309,000 was paid on February 8, 2005 to all
shareholders of record on January 30, 2005.
During fiscal 2004 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 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 totaled $3,946,000 compared to $4,941,000 for
the comparable period of 2004. The decrease in new orders in the first quarter
is attributable to lower funding releases on military and space programs
compared to the same period of 2004, and reduced requirements from a
semiconductor equipment manufacturing customer. Backlog totaled $8,933,000 on
February 26, 2005 compared to $5,229,000 as of February 28, 2004 and $9,292,000
on November 30, 2004 with a significant amount of the backlog expected to ship
in fiscal 2005. The backlog represents a good mix of all the Company's products
and technologies including standard and custom microelectronic and
optoelectronic components and assemblies, along with contract electronic
manufacturing services and includes a wide range of products sold to the
industrial, medical, military, aerospace and space markets. Approximately 66% of
the Company's backlog is for the military/aerospace market; 19% is for space
applications and 15% is for industrial and medical applications.
9
Based on the current backlog, sales in the second quarter are expected to
increase over first quarter 2005, and second quarter 2004. While new orders are
expected to increase in the second quarter, compared to the first quarter, we do
not expect to match the results of the second quarter of 2004, based on the
issues discussed above.
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.
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 utilizes silicon photo transistors
and light emitting diode components. Fabrication efforts sometimes may not
result in the 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 $1,900,000
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.
As of February 26, 2005, 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
10
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) Form 8-K
On December 29, 2004, the Board of Directors of Micropac Industries,
Inc. approved the payment of a $.12 per share dividend to all
shareholders of record on January 25, 2005. This dividend was paid to
shareholders on February 8, 2005.
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 12, 2005 /s/ Connie Wood
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Date Connie Wood
Chief Executive Officer
April 12, 2005 /s/ Patrick Cefalu
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Date Patrick Cefalu
Chief Financial Officer
11