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 February 25, 2006
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
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On February 25, 2006, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
FEBRUARY 25, 2006
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months ended February 25, 2006 and February 26, 2005
Condensed Balance Sheets as of February 25, 2006 and
November 30, 2005 Condensed Statements of Cash Flows
for the three months ended February 25, 2006 and
February 26, 2005 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
2/25/06 2/26/05
----------- -----------
NET SALES $ 4,407 $ 4,313
COST AND EXPENSES:
Cost of goods sold (2,996) (2,651)
Research and development (80) (116)
Selling, general & administrative expenses (763) (758)
----------- -----------
Total cost and expenses (3,839) (3,525)
OPERATING INCOME BEFORE INTEREST 568 788
AND INCOME TAXES
Interest income 34 15
----------- -----------
INCOME BEFORE TAXES 602 803
Provision for taxes (229) (305)
----------- -----------
NET INCOME $ 373 $ 498
=========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.14 $ 0.19
DIVIDENDS PER SHARE $ 0.15 $ 0.12
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)
(Unaudited)
ASSETS
CURRENT ASSETS 2/25/06 11/30/05
-------- --------
Cash and cash equivalents $ 657 $ 1,722
Short term investments 3,333 2,527
Receivables, net of allowance for doubtful accounts of $89 on 2,926 3,057
February 25, 2006 and $89 on November 30, 2005
Inventories:
Raw materials 2,000 1,825
Work-in process 1,697 1,718
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Total Inventories 3,697 3,543
Prepaid expenses and other current assets 55 76
Deferred income tax 614 614
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Total current assets 11,282 11,539
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 5,741 5,689
Furniture and fixtures 488 487
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Total property, plant, and equipment 7,603 7,550
Less accumulated depreciation (6,404) (6,338)
-------- --------
Net property, plant, and equipment 1,199 1,212
Total assets $ 12,481 $ 12,751
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 605 $ 768
Accrued compensation 294 690
Other accrued liabilities 144 151
Deferred revenue 581 499
Income taxes payable 376 147
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Total current liabilities 2,000 2,255
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DEFERRED INCOME TAXES 74 74
SHAREHOLDERS' EQUITY
Common stock, ($.10 par value), authorized 10,000,000 shares, 308 308
3,078,315 issued 2,578,315 outstanding at February 25, 2006
and November 30, 2005
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 10,464 10,479
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Total shareholders' equity 10,407 10,422
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Total liabilities and shareholders' equity $ 12,481 $ 12,751
======== ========
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
2/25/06 2/26/05
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 373 $ 498
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 65 57
Changes in current assets and liabilities:
Accounts receivable 131 (275)
Inventories (154) (39)
Prepaid expenses and other current assets 21 35
Deferred revenue 82 141
Accounts payable (163) 205
Accrued compensation (396) (271)
Other accrued liabilities (7) (41)
Income taxes payable 229 176
--------- ---------
Net cash provided by operating activities 181 486
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments (806) 595
Additions to property, plant and equipment (52) (68)
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Net cash used in provided by investing activities (858) 527
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (388) (309)
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Net cash used in financing activities (388) (309)
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Net change in cash and cash equivalents (1,065) 704
Cash and Cash Equivalents at beginning of period 1,722 1,239
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Cash and Cash Equivalents at end of period $ 657 $ 1,943
========= =========
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 0 $ 125
========= =========
See accompanying notes to financial statements.
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 25, 2006, the
cash flows for the three months ended February 25, 2006 and February 26, 2005,
and the results of operations for the three months ended February 25, 2006 and
February 26, 2005. Unaudited financial statements are prepared on a basis
substantially consistent with those audited for the year ended November 30,
2005. 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 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.
Note 4
On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock
Option Plan (the "Stock Plan"). As of February 25, 2006 there were 500,000
options available to be granted. No options have been granted to date.
Note 5
On June 1, 2005 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 25, 2006 and February 26, 2005, 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
2/25/2006 2/26/2005
--------- ---------
NET SALES 100.0% 100.0%
COST AND EXPENSES:
Cost of goods sold 68.0% 61.5%
Research and development 1.8% 2.7%
Selling, general & administrative expenses 17.3% 17.5%
--------- ---------
Total cost and expenses 87.1% 81.7%
OPERATING INCOME BEFORE INTEREST 12.9% 18.3%
AND INCOME TAXES
Interest income 0.8% 0.3%
INCOME BEFORE TAXES 13.7% 18.6%
Provision for taxes 5.2% 7.1%
NET INCOME 8.5% 11.5%
Sales for the first quarter ended February 25, 2006 totaled $4,407,000. Sales
for the first quarter increased 2.2% or $94,000 above sales for the same period
of 2005. Sales for the first quarter of 2006 compared to 2005 decreased 51% in
the commercial market, increased 43% in the military market, and increased 19%
in the space market. International sales increased 34%. Sales were 19% in the
commercial market, 61% in the military market, and 20% in the space market
compared to 40% in the commercial market, 43% in the military market, and 17% in
the space market for the same period of 2005. First quarter 2006 sales decreased
$880,000 in the commercial market with the completion of significant contracts
for custom optoelectronics assemblies and microcircuits supplied to
semiconductor equipment manufacturers, while sales through the Company's
distribution channels to the military market increased $200,000 in 2006 compared
to 2005. In addition, sales increased approximately $600,000 in the military
market for custom optoelectronic assemblies.
Cost of goods sold for the first quarter 2006 versus 2005 totaled 68.0% and
61.5% of net sales. Cost of goods sold dollars increased $345,000 in the first
quarter of 2006, compared to 2005 due to product mix changes and higher overhead
expenses based on additional engineering and technical staffing begun in the
second half of 2005.
7
Selling, general and administrative expenses for the first quarter of 2006
totaled 17.3%, compared to 17.5% for the same period in 2005. Selling, general
and administrative expenses increased $5,000 in the first quarter of 2006,
compared to 2005.
Net income in the first quarter of 2006 totaled $373,000, compared to $498,000
for the comparable period in 2005. Net income per share totaled $.14 and $.19
for the comparable three months of 2006 and 2005, respectively. The decrease in
net income is attributable to higher cost of goods sold due to product mix
changes and additional engineering and technical staffing begun in the second
half of 2005.
Total assets decreased $270,000 to $12,481,000 as of February 25, 2006 from
$12,751,000 as of November 30, 2005 with a decrease in cash and short-term
investments of $259,000, accounts receivable decrease of $131,000, a decrease in
net property, plant, and equipment of $13,000 and a decrease in prepaid expenses
of $21,000.
Inventories totaled $3,679,000 at the end of the first quarter 2006 compared to
$3,543,000 on November 30, 2005, an increase of $154,000. Raw materials
inventories including supplies increased $175,000 since November 30, 2005, while
work-in process inventories decreased $21,000. The increase in inventory is
consistent with the current business level.
Current liabilities totaled $2,000,000 on February 25, 2006 representing a
decrease of $255,000 from November 30, 2005; primarily associated with a
decrease in accounts payable of $163,000, an increase of $229,000 in income
taxes payable, a decrease in other accrued liabilities of $7,000, an increase in
deferred revenue of $82,000 for advance payments from customers. Accrued
compensation decreased $396,000 with the payment of bonuses to the Company's
employees.
Shareholders' equity decreased $15,000 in the first three months of 2006 with a
net income of $373,000 offset by the dividend payment of $388,000. Earnings per
share for the three month period totaled $.14 per share.
Liquidity and Capital Resources
Cash and short-term investments as of February 25, 2006 totaled $3,990,000
compared to $4,249,000 on November 30, 2005, a decrease of $259,000. The
decrease in cash and short-term investments is attributable to $181,000 net cash
provided by operations, offset by the payment of a cash dividend of $388,000 and
the investment of $52,000 in equipment.
Cash flows from operating activities for the quarter ending February 25, 2006
were $181,000 compared to $486,000 for the quarter ending February 26, 2005.
A special cash dividend of $388,000 was paid on February 10, 2006 to all
shareholders of record on February 3, 2006.
During fiscal 2005 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 2006 totaled $4,110,000 compared to
$3,946,000 for the comparable period of 2005. The Company's major new orders
received in the first quarter of 2006 were for custom standard solid state
relays and solid state power controller products for military and space
applications and standard optoelectronics products sold through distribution
channels.
Backlog totaled $9,045,000 on February 25, 2006 compared to $8,933,000 as of
February 26, 2005. The majority of the backlog is shippable in the next twelve
(12) months. The Company's backlog is 11% in the commercial market, 54% in the
military market, and 35% 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.
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 $1,740,000 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 25, 2006 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.
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.
9
(b) Reports on Form 8-K
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
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 7, 2006 /s/ Mark King
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Date Mark King
Chief Executive Officer
April 7, 2006 /s/ Patrick Cefalu
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Date Patrick Cefalu
Chief Financial Officer
10