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 28, 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)
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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At February 28, 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.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
FEBRUARY 28, 2004
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months ended February 28, 2004 and March 1, 2003
Condensed Balance Sheets as of February 28, 2004 and
November 30, 2003 Condensed Statements of Cash Flows
for the three months ended February 28, 2004 and
March 1, 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
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
2/28/04 3/01/03
----------- -----------
NET SALES $ 3,510 $ 3,086
COST AND EXPENSES:
Cost of Goods Sold (2,396) (2,173)
Research and development (43) (86)
Selling, general & administrative expenses (642) (734)
----------- -----------
Total cost and expenses $ (3,081) $ (2,993)
OPERATING INCOME BEFORE INTEREST 429 93
AND INCOME TAXES
Interest income 3 17
----------- -----------
INCOME BEFORE TAXES $ 432 $ 110
Provision for taxes (164) (41)
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NET INCOME $ 268 $ 69
=========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.10 $ 0.02
DIVIDENDS PER SHARE $ 0.05 $ 0.10
WEIGHTED AVERAGE NUMBER OF SHARES, Basic
and diluted 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 SHEET
(Dollars in thousands)
(Unaudited)
ASSETS
CURRENT ASSETS 2/28/04 11/30/03
---------- ----------
Cash and cash equivalents $ 1,976 $ 2,337
Short term investments 1,401 812
Receivables, net of allowance for doubtful accounts of $122 on 2,120 1,877
February 28, 2004 and $89 on November 30, 2003
Inventories:
Raw materials 874 692
Work-in process 1,075 1,097
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Total Inventories 1,949 1,789
Prepaid expenses and other current assets 55 71
Deferred income tax 386 386
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Total current assets $ 7,887 $ 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 5,029 5,027
Furniture and fixtures 479 489
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Total property, plant, and equipment $ 6,882 $ 6,891
Less accumulated depreciation (5,925) (5,889)
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Net property, plant, and equipment 957 1,002
Total assets $ 8,844 $ 8,274
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 557 $ 308
Accrued compensation 189 239
Accrued professional fees -- 23
Other accrued liabilities 387 249
Income taxes payable 227 110
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Total current liabilities 1,360 929
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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 February 28, 2004
and November 30, 2003
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 7,472 7,333
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Total shareholders' equity $ 7,415 $ 7,276
---------- ----------
Total liabilities and shareholders' equity $ 8,844 $ 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)
2/28/04 3/01/03
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 268 $ 68
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 54 56
Changes in current assets and liabilities:
Accounts receivable (243) 143
Inventories (160) 130
Prepaid expenses and other current assets 16 29
Accounts payable 249 (77)
Accrued Compensation (50) (40)
Accrued liabilities 115 (156)
Income taxes payable 117 7
--------- ---------
Net cash provided by operating activities $ 366 $ 160
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments $ (589) $ (203)
Additions to property, plant and equipment (9) (40)
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Net cash used in investing activities (598) (243)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (129) (313)
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Net cash used in financing activities (129) (313)
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Net change in cash and cash equivalents (361) (396)
Cash and Cash Equivalents at beginning of period 2,337 1,296
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Cash and Cash Equivalents at end of period $ 1,976 $ 900
========= =========
Supplemental Cash Flow Disclosure
Cash Paid For Income Taxes $ 47 $ 21
========= =========
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 28, 2004 and
the cash flows and the results of operations for the three months ended February
28, 2004 and March 1, 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 three months ended
February 28, 2004 and March 1, 2003, the Company had no dilutive potential
common stock.
Note 7
Effective May 1, 2002, the Company and Ms. Wood, Chief Executive Officer and
President of the Company entered into a two (2) year employment agreement at a
base salary of $156,000 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
Per the employment agreements, all officers received a salary increase effective
February 17, 2004. Ms. Wood's base salary was increased to $161,500, Mr. King's
base salary was increased to $155,250, and Mr. Cefalu's base salary was
increased to $85,500.
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
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
2/28/2004 3/01/2003
--------- ---------
NET SALES 100.00% 100.00%
COST AND EXPENSES
Cost of sales 68.30% 70.40%
Research and development 1.20% 2.80%
Selling, general and administrative 18.30% 23.80%
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Total cost and expenses 87.80% 97.00%
OPERATING INCOME BEFORE INTEREST 12.20% 3.00%
AND INCOME TAXES
Interest income 0.10% 0.60%
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INCOME BEFORE TAXES 12.30% 3.50%
Provision for taxes 4.70% 1.30%
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NET INCOME 7.60% 2.20%
Sales for the first quarter ended February 28, 2004 totaled $3,510,000. Sales
for the first quarter increased 13.7% or $424,000 above sales for the same
period of 2003. The increase in sales was due to higher demand for certain
industrial products sold to customers in the semiconductor market, and solid
state relay products.
Cost of sales for the first quarters 2004 versus 2003 totaled 68.3% and 70.4% of
net sales. Cost of sales dollars increased $233,000 in the first quarter of
2004, compared to 2003. The decrease in cost of goods sold as a percentage of
sales resulted from lower material cost associated with improved yields and
lower overhead expenses during the first quarter, as a result of continued cost
controls.
Selling, general and administrative expenses for the first quarter of 2004
totaled 18.3%, compared to 23.8% for the same period in 2003. In actual dollars
expensed, selling, general and administrative expenses decreased $92,000 in the
first quarter of 2004, compared to 2003 attributable to lower general and
administrative salaries.
Net income in the first quarter of 2004 totaled $268,000, compared to $69,000
for the comparable period in 2003. Net income per share totaled $.10 and $.02
for the comparable three months of 2004 and 2003, respectively. The increase in
net income is attributable to higher sales and lower operating and general and
administrative costs.
8
New orders for the first quarter of 2004 totaled $4,941,000 compared to
$1,884,000 for the comparable period of 2003.
Backlog totaled $5,229,000 on February 28, 2004 compared to $3,869,000 as of
March 1, 2003. The majority of the backlog is shippable in the next twelve (12)
months.
Total assets increased $570,000 to $8,844,000 as of February 28, 2004 from
$8,274,000 as of November 30, 2003 with an increase in cash and short-term
investments of $228,000, inventory increase of $161,000, accounts receivable
increase of $243,000 and a decrease in net property, plant, and equipment of
$45,000.
Cash and short term investments totaled $3,337,000 an increase of $228,000.
Accounts receivable, net totaled $2,120,000 as of February 28, 2004 representing
an increase of $243,000 since November 30, 2003, due to the higher sales level.
Inventories totaled $1,950,000 at the end of the first quarter 2004 compared to
$1,789,000 on November 30, 2003, an increase of $161,000. Raw materials
inventories increased $182,000 since November 30, 2003, while work-in-process
inventories decreased $22,000. The increase in inventory is consistent with the
current business level.
Current liabilities totaled $1,360,000 on February 28, 2004 representing an
increase of $431,000 from November 30, 2003; primarily associated with an
increase in accounts payable of $249,000 due to higher material purchases; an
increase of $117,000 in income taxes payable, an increase in other accrued
liabilities of $138,000 based on reserves for advance payments from customers.
Accrued compensation decreased $50,000 attributable to vacation taken by
employees during plant shutdown in December, and accrued fees decreased $23,000
with the final payment for audit services.
Shareholders' equity increased $139,000 in the first three months of 2004.
Earnings per share for the three month period totaled $.10 per share.
Liquidity and Capital Resources
-------------------------------
Cash and short-term investments as of February 28, 2004 totaled $3,337,000
compared to $3,149,000 on November 30, 2003 an increase of $228,000. The
increase in cash and short-term investments is attributable to $367,000 net cash
provided by operations, offset by the payment of a cash dividend of $129,000 and
the retirement of $10,000 in equipment.
As of February 28, 2004 cash flows from operating activities were $367,000
compared to $160,000 as of March 1, 2003.
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 first quarter totaled $4,941,000 compared to $1,814,000 for
the comparable period of 2003. The increase in new orders in the first quarter
is attributable to funding releases on military and space programs, and stronger
demand from our Customers in the semiconductor, medical and harsh environment
(high-temp) markets. Backlog totaled $5,229,000 on February 28, 2004 compared to
$3,869,000 as of March 1, 2003 and $3,799,000 on November 30, 2003 with a
significant amount of the backlog expected to ship in fiscal 2004. The backlog
represents a good mix of all the Company's products and technologies.
Based on the current backlog, we expect sales in the second quarter to be
slightly over first quarter sales, and substantially more than the second
quarter of 2003.
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
9
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.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As of February 28, 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 U. S. C.
section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley act of 2002.
(b) Form 8-K
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.
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.
April 12, 2004 /s/ Connie Wood
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Date Connie Wood
Chief Executive Officer
April 12, 2004 /s/ Patrick Cefalu
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Date Patrick Cefalu
Chief Financial Officer
11