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 August 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 No
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At August 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.
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
AUGUST 28, 2004
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three months and nine months
ended August 28, 2004 and August 30, 2003
Condensed Balance Sheets as of August 28, 2004 and November 30, 2003
Condensed Statements of Cash Flows for the nine months ended August 28,
2004 and August 30, 2003
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
(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
08/28/04 08/30/03 08/28/04 08/30/03
----------- ----------- ----------- -----------
NET SALES $ 4,242 $ 3,372 $ 11,411 $ 9,242
COST AND EXPENSES:
Cost of goods sold (2,937) (2,338) (7,720) (6,528)
Research and development (127) (33) (231) (225)
Selling, general & administrative expenses (685) (611) (1,971) (2,016)
----------- ----------- ----------- -----------
Total cost and expenses 3,749 2,982 9,922 8,769
OPERATING INCOME BEFORE INTEREST 493 390 1,489 473
AND INCOME TAXES
Interest income 9 22 19 55
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 502 $ 412 $ 1,508 $ 528
Provision for taxes (191) (156) (573) (200)
----------- ----------- ----------- -----------
NET INCOME $ 311 $ 256 $ 935 $ 328
=========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.12 $ 0.08 $ 0.36 $ 0.11
DIVIDENDS PER SHARE $ -- -- $ 0.05 $ 0.10
WEIGHTED AVERAGE OF SHARES, Basic and diluted 2,578,315 3,066,169 2,578,315 3,066,169
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 8/28/04 11/30/03
--------- ---------
Cash and cash equivalents $ 1,487 $ 2,337
Short term investments 1,906 812
Receivables, net of allowance for doubtful accounts of $122 on 2,197 1,877
August 28, 2004 and $89 on November 30, 2003 Inventories:
Raw materials 1,241 692
Work-in process 1,196 1,097
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Total Inventories 2,437 1,789
Prepaid expenses and other current assets 85 71
Deferred income tax 386 386
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Total current assets 8,498 7,272
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 797 797
Machinery and equipment 5,151 5,027
Furniture and fixtures 479 489
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Total property, plant, and equipment 7,005 6,891
Less accumulated depreciation (6,035) (5,889)
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Net property, plant and equipment 970 1,002
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Total assets $ 9,468 $ 8,274
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 547 $ 308
Accrued compensation 270 239
Accrued professional fees 33 23
Other accrued liabilities 412 249
Income taxes payable 55 110
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Total current liabilities 1,317 929
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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 August 28, 2004 and
November 30, 2003
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 8,139 7,333
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Total shareholders' equity 8,082 7,276
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Total liabilities and shareholders' equity $ 9,468 $ 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)
8/28/04 8/30/03
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 935 $ 328
Adjustments to reconcile net income to:
Cash from operating activities:
Depreciation and amortization 164 151
Changes in current assets and liabilities:
Accounts receivable (320) 124
Inventories (648) 222
Prepaid expenses and other current assets (14) (17)
Income taxes, prepaid and deferred (55) 5
Accounts payable 239 (82)
Payroll and withholdings 31 (48)
Accrued liabilities 173 24
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Net cash provided by operating activities $ 505 $ 707
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in investments $(1,094) $ 1,124
Additions to property, plant and equipment (115)
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(132)
Net cash (used in) provided by investing activities (1,226) 1,009
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock -- (1,471)
Cash dividend (129) (312)
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Net cash used in financing activities (129) (1,783)
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Net change in cash and cash equivalents (850) (67)
Cash and cash equivalents at beginning of period 2,337 1,296
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Cash and cash equivalents at end of period $ 1,487 $ 1,229
======= =======
Supplemental cash flow disclosure
Cash paid for income taxes $ 633 $ 194
======= =======
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 August 28, 2004 , the
results of operations for the three months and nine months ended August 28, 2004
and August 30, 2003, and the cash flows for nine months ended August 28, 2004
and August 30, 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 August 28, 2004 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 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 nine months ended
August 28, 2004 and August 30, 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.
6
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.
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
8/28/2004 8/30/2003 8/28/2004 8/30/2003
--------- --------- --------- ---------
NET SALES 100.00% 100.00% 100.00% 100.00%
COST AND EXPENSES
Cost of goods sold 69.24% 69.33% 67.66% 70.63%
Research and development 2.99% 0.98% 2.02% 2.44%
Selling, general & administrative 16.15% 18.12% 17.27% 21.81%
--------- --------- --------- ---------
Total cost and expenses 88.38% 88.43% 86.95% 94.88%
OPERATING INCOME BEFORE INTEREST 11.62% 11.57% 13.05% 5.12%
AND INCOME TAXES
Interest income 0.21% 0.65% 0.17% 0.59%
--------- --------- --------- ---------
INCOME BEFORE TAXES 11.83% 12.22% 13.22% 5.71%
Provision for taxes 4.50% 4.63% 5.02% 2.16%
--------- --------- --------- ---------
NET INCOME 7.33% 7.59% 8.20% 3.55%
Sales for the third quarter and first nine months ended August 28, 2004 totaled
$4,242,000 and $11,411,000, respectively. Sales for the third quarter increased
25.8% or $870,000 above sales for the same period of 2003, while sales for the
first nine months of 2004 increased 23.5% or $2,169,000 above the first nine
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 nine months of 2004 compared
to 2003 increased 24% in the commercial market, 19% in the military market, and
38% in the space market.
Cost of goods sold for the third quarter 2004 versus 2003 totaled 69.3% and
69.3% of net sales, respectively, while cost of goods sold for the nine months
of the comparable period totaled 67.7% and 70.6%, respectively. The cost of
goods sold decrease of 2.9% is attributable to higher sales volume, changes in
product mix, and yield improvements on certain products.
Selling, general and administrative expenses for the third quarter and first
nine months of 2004 totaled 16.2% and 17.2%, respectively, compared to 18.1% and
21.8% for the same period in 2003. In actual dollars expensed, selling, general
and administrative expenses increased $74,000 in the third quarter of 2004,
compared to 2003, and decreased $45,000 for the first nine months of 2004,
versus 2003, attributable to lower general and administrative salaries.
Net income in the third quarter and year to date 2004 totaled $311,000 and
$935,000, respectively, compared to $256,000 and $328,000 for the comparable
periods in 2003. Net income per share totaled $.36 and $.11 for the comparable
nine months of 2004 and 2003, respectively. The increase in net income is
associated with higher sales, lower cost as a % of sales, and continued control
of overhead and general and administrative expenses.
New orders for the third quarter and year-to-date 2004 totaled $5,158,000 and
$15,456,000, respectively, compared to $2,752,000 and $8,346,000 for the
comparable periods of 2003.
8
Backlog totaled $7,809,000 on August 28, 2004 compared to $4,203,000 as of
August 30, 2003 and $5,594,000 on November 30, 2003.
Total assets increased $1,194,000 to $9,468,000 as of August 28, 2004 from
$8,274,000 as of November 30, 2003 with an increase in cash and short-term
investments of $244,000, inventory increase of $648,000, accounts receivable
increase of $320,000, increase in prepaid expense of $14,000, and a decrease in
net property, plant, and equipment of $32,000.
Accounts receivable, net totaled $2,197,000 as of August 28, 2004 and represents
an increase of $320,000 since November 30, 2003, due to increased sales.
Inventories totaled $2,437,000 at the end of the third quarter 2004 compared to
$1,789,000 on November 30, 2003, an increase of $648,000. Raw materials
inventories increased $549,000 since November 30, 2003, while work-in-process
inventories increased $99,000. The increase in raw materials is attributable to
the purchase and receipt of long lead-time material which was funded by the
customer, and an increase of piece parts to support the higher sales volume.
Current liabilities totaled $1,316,000 on August 28, 2004 representing an
increase of $387,000 from November 30, 2003; primarily associated with an
increase in accounts payable of $239,000 due to increased materials purchases to
support the higher sales volume, an increase of $31,000 in accrued payroll, a
reduction of $55,000 in provision for income taxes, an increase in other accrued
liabilities of $163,000 based on higher reserves associated with advance
payments from customers, and an increase of $10,000 accrued professional fees.
Shareholders' equity increased $807,000 in the first nine months of 2004.
Earnings per share for the nine month period totaled $.36 per share.
Liquidity and Capital Resources
-------------------------------
Cash and short-term investments as of August 28, 2004 totaled $3,393,000
compared to $3,149,000 on November 30, 2003, an increase of $244,000.
As of August 28, 2004 cash flows from operating activities were $505,000
compared to $707,000 as of August 30, 2003.
Capital expenditures through the third quarter of 2004 totaled $132,000 compared
to $115,000 as of August 30,2003. 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 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 and management personnel requirements. The Company has not borrowed
against the line of credit to date.
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 third quarter and year-to-date 2004 totaled $5,158,000 and
$15,456,000, respectively, compared to $2,752,000 and $8,346,000 for the
comparable periods of 2003. The Company's major new orders received in the third
quarter of 2004 were for custom design assemblies and microcircuits for
industrial applications, custom and new products for military and space
applications and standard optoelectronics products sold through distribution
channels. Orders in the fourth quarter are not expected to keep pace with orders
in the prior three (3) quarters.
Backlog totaled $7,809,000 on August 28, 2004 compared to $4,203,000 as of
August 30, 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 17% in the commercial market, 54% in
the military market, and 29% 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 August 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 Connie Wood, Presiedent and CEO
(Principal Executive Officer) Pursuant to Section 302 of the
Sarbanes- Oxley Act of 2002
31.2 Certification of Patrick Cefalu, CFO (Principal Financial
Officer) Pursuant to Section 302 of the Sarbanes- Oxley Act of
2002
32.1 Certification of Connie Wood, President and CEO
(Principal Executive Officer), Pursuant to 18 U.S.C. Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Patrick Cefalu, CFO (Principal Financial
Officer), Pursuant to 18 U.S.C. Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on 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.
October 11 , 2004 /s/ Connie Wood
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Date Connie Wood
Chief Executive Officer
October 11 , 2004 /s/ Patrick Cefalu
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Date Patrick Cefalu
Chief Financial Officer
11