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 August 26, 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
--------------------------------- -------------------------------
On August 26, 2006, 2,578,315 shares of Common Stock, $.10 par value were
outstanding.
1
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
August 26, 2006
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Operations for the three
months and nine months ended August 26, 2006 and
August 27, 2005 3
Condensed Balance Sheets as of August 26, 2006 and
November 30, 2005 4
Condensed Statements of Cash Flows for the nine
months ended August 26, 2006 and August 27, 2005 5
Notes to Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
ITEM 3- CONTROLS AND PROCEDURES 9
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 9
ITEM 2 - CHANGES IN SECURITIES 9
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5 - OTHER INFORMATION 9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 10
(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 10
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 Year-to-date
08/26/06 08/27/05 08/26/06 08/27/05
----------- ----------- ----------- -----------
NET SALES $ 4,552 $ 4,828 $ 13,085 $ 13,831
COST AND EXPENSES:
Cost of goods sold (3,056) (3,063) (8,686) (8,419)
Research and development (148) (101) (378) (392)
Selling, general & administrative expenses (760) (768) (2,290) (2,340)
----------- ----------- ----------- -----------
Total cost and expenses (3,964) (3,932) (11,354) (11,151)
----------- ----------- ----------- -----------
OPERATING INCOME BEFORE INTEREST 588 896 1,731 2,680
AND INCOME TAXES
Interest income 38 20 108 54
----------- ----------- ----------- -----------
INCOME BEFORE TAXES $ 626 $ 916 $ 1,839 $ 2,734
Provision for taxes (238) (348) (699) (1,039)
----------- ----------- ----------- -----------
NET INCOME $ 388 $ 568 $ 1,140 $ 1,695
=========== =========== =========== ===========
NET INCOME PER SHARE, BASIC AND DILUTED $ 0.15 $ 0.22 $ 0.44 $ 0.66
DIVIDENDS PER SHARE $ 0.00 $ 0.00 $ 0.15 $ 0.12
WEIGHTED AVERAGE OF SHARES, Basic and diluted 2,578,315 2,578,315 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 8/26/06 11/30/05
----------- -----------
Cash and cash equivalents $ 1,077 $ 1,722
Short term investments 2,936 2,527
Receivables, net of allowance for doubtful accounts of $89 on 2,541 3,057
August 26, 2006 and November 30, 2005
Inventories:
Raw materials 2,247 1,825
Work-in process 2,111 1,718
----------- -----------
Total inventories 4,358 3,543
----------- -----------
Prepaid expenses and other current assets 109 76
Deferred income tax 614 614
----------- -----------
Total current assets 11,635 11,539
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 796
Machinery and equipment 5,893 5,689
Furniture and fixtures 488 487
----------- -----------
Total property, plant, and equipment 7,755 7,550
Less accumulated depreciation (6,530) (6,338)
----------- -----------
Net property, plant, and equipment 1,225 1,212
----------- -----------
Total assets $ 12,860 $ 12,751
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 550 $ 768
Accrued compensation 429 690
Other accrued liabilities 199 151
Deferred revenue 356 499
Income taxes payable 77 147
----------- -----------
Total current liabilities 1,611 2,255
----------- -----------
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 August 26, 2006
and November 30, 2005
Paid-in capital 885 885
Treasury stock, 500,000 shares, at cost (1,250) (1,250)
Retained earnings 11,232 10,479
----------- -----------
Total shareholders' equity 11,175 10,422
----------- -----------
Total liabilities and shareholders' equity $ 12,860 $ 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)
Nine months ended
08/26/06 08/27/05
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,140 $ 1,695
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization
192 181
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable 516 (380)
Increase in inventories (815) (680)
Increase in prepaid expenses and other current assets (33) (20)
Decrease in income taxes, payable and deferred (70) (221)
(Decrease) increase in accounts payable (218) 138
Decrease in accrued compensation (261) (114)
(Decrease) increase in other accrued liabilities and
deferred revenues (95) 96
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Net cash provided by operating activities 356 695
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short term investments (409) (125)
Additions to property, plant and equipment (205) (457)
-------- --------
Net cash used in investing activities (614) (582)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend (387) (310)
-------- --------
Net cash used in financing activities (387) (310)
-------- --------
Net change in cash and cash equivalents (645) (197)
Cash and cash equivalents at beginning of period 1,722 1,239
-------- --------
Cash and cash equivalents at end of period $ 1,077 $ 1,042
======== ========
Supplemental Cash Flow Disclosure:
Cash paid for income taxes $ 815 $ 1,260
======== ========
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 consolidated financial statements
include all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position as of August 26, 2006, the
cash flows for the nine months ended August 26, 2006 and August 27, 2005, and
the results of operations for the three months and nine months ended August 26,
2006 and August 27, 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 August 26, 2006 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 and
nine months ended August 26, 2006 and August 27, 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 Year to Date
8/26/2006 8/27/2005 8/26/2006 8/27/2005
--------- --------- --------- ---------
NET SALES 100.00% 100.00% 100.00% 100.00%
COST AND EXPENSES:
Cost of Goods Sold 67.10% 63.50% 66.40% 60.90%
Research and development 3.30% 2.10% 2.90% 2.80%
Selling, general & administrative expenses 16.70% 15.90% 17.50% 16.90%
--------- --------- --------- ---------
Total cost and expenses 87.10% 81.50% 86.80% 80.60%
OPERATING INCOME BEFORE INTEREST 12.90% 18.50% 13.20% 19.40%
AND INCOME TAXES
Interest income 0.80% 0.50% 0.80% 0.40%
INCOME BEFORE TAXES 13.70% 19.00% 14.00% 19.80%
Provision for taxes 5.20% 7.20% 5.30% 7.50%
NET INCOME 8.50% 11.80% 8.70% 12.30%
Sales for the third quarter and nine months ended August 26, 2006 totaled
$4,552,000 and $13,085,000, respectively. Sales for the third quarter decreased
5.7% or $276,000 below sales for the same period of 2005, while sales for the
first nine months of 2006 decreased 5.4% or $746,000 below the first nine months
of 2005. Sales decreased 51% in the commercial market, increased 1% in the
military market, and increased 27% in the space market for the nine months
ending August 26, 2006. The decrease in sales is primarily attributable to
decreased sales to one major semiconductor customer on custom optoelectronic
assemblies, offset by a increase in sale of standard products to distributors
and an increase in the industrial product line.
Cost of goods sold for the third quarter 2006 versus 2005 totaled 67.10% and
63.50% of net sales, respectively, while cost of goods sold for the nine months
of the comparable period totaled 66.40% and 60.90%, respectively. The cost of
goods sold increase as a percentage of net sales of 5.50% is attributable to
lower sales volume, changes in product mix, combined with stable fixed cost. As
a percent of sales, overhead cost increased 5.3%, while labor and material cost
were stable.
Selling, general and administrative expenses for the third quarter and first
nine months of 2006 totaled 16.70% and 17.50% of net sales, respectively,
compared to 15.90% and 16.90% for the same period in 2005. In actual dollars
expensed, selling, general and administrative expenses decreased $8,000 in the
third quarter of 2006, compared to 2005, and decreased $50,000 for the first
nine months of 2006, versus 2005.
7
Net income for the third quarter and year to date 2006 totaled $388,000 and
$1,140,000, respectively, compared to $568,000 and $1,695,000 for the comparable
periods in 2005. Net income per share totaled $.44 and $.66 for the comparable
nine months of 2006 and 2005, respectively. The decrease in net income is
associated with decreased sales to one major semiconductor customer on custom
optoelectronic assemblies.
Total assets increased $109,000 to $12,860,000 as of August 26, 2006 from
$12,751,000 as of November 30, 2005 with a decrease in cash and short-term
investments of $236,000, raw material increase of $422,000, work in process
increase of $393,000, accounts receivable decrease of $516,000, increase in
prepaid expense of $33,000, and an increase in net property, plant, and
equipment of $13,000.
Accounts receivable, net totaled $2,541,000 as of August 26, 2006 and represents
a decrease of $516,000 since November 30, 2005, due to lower sales.
Inventories totaled $4,358,000 at the end of the third quarter 2006 compared to
$3,543,000 on November 30, 2005, an increase of $815,000. Raw materials
inventories increased $422,000 since November 30, 2005, while work-in-process
inventories increased $393,000. The increase in raw materials and
work-in-process is attributable to the purchase and receipt of long lead-time
space level material. The value of these radiation tolerant parts is $561,000 in
raw materials and $245,000 in work in process with a backlog value of
$2,306,000.
Liabilities totaled $1,685,000 on August 26, 2006 representing a decrease of
$644,000 from November 30, 2005; primarily associated with an decrease in
accounts payable of $218,000, a decrease of $261,000 in accrued compensation, a
reduction of $70,000 in provision for income taxes, a decrease in deferred
revenue of $143,000, and a increase of $48,000 in other accrued liabilities.
Shareholders' equity increased $753,000 in the first nine months of 2006.
Earnings per share for the nine month period totaled $.44 per share.
Liquidity and Capital Resources
Cash and short-term investments as of August 26, 2006 totaled $4,013,000
compared to $4,249,000 on November 30, 2005, a decrease of $236,000. Cash flow
from operations was $356,000 for the first nine months offset by a cash dividend
of $387,000 and $205,000 invested in automated production and test equipment.
For the nine months ended August 26, 2006 cash flows from operating activities
were $356,000 compared to $695,000 for the nine months ended August 27, 2005.
Capital expenditures through the third quarter of 2006 totaled $205,000 compared
to $457,000 as of August 27, 2005. These purchases were financed internally with
the Company's cash, and included production and test equipment.
A special cash dividend of $387,000 was paid on February 3, 2006 to all
shareholders of record.
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 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 third quarter and year-to-date 2006 totaled $3,677,000 and
$12,040,000, respectively, compared to $5,527,000 and $14,676,000 for the
comparable periods of 2005 or a decrease of 33.5% and 18.0% respectively. The
decrease in new orders is primarily attributable to the $1,826,000 decreased
orders from one major semiconductor customer on custom optoelectronic
assemblies.
Backlog totaled $8,295,000 on August 26, 2006 compared to $10,044,000 as of
August 27, 2005 and $9,319,000 on November 30, 2005. The majority of the backlog
is expected to be shipped in the next twelve (12) months and represents a good
mix of the company's products and technologies with 12% in the commercial
market, 54% in the military market, and 34% in the space market compared to 11%
in the commercial market, 57% in the military market, and 32% in the space
market for the same period of 2005.
8
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 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 $1,278,000 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 August 26, 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
9
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
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.
October 06, 2006 /s/ Mark King
---------------- -----------------------
Date Mark King
Chief Executive Officer
October 06, 2006 /s/ Patrick Cefalu
---------------- -----------------------
Date Patrick Cefalu
Chief Financial Officer
10