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 29, 1998
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 November 30, 1997 and August 29, 1998, there were 3,627,151 shares of
registrant's common stock outstanding. On these dates, 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.
<PAGE>
MICROPAC INDUSTRIES, INC.
FORM 10-QSB
August 29, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Statements of Income for the three
months and six months ended August 29, 1998 and
August 30, 1997
Condensed Balance Sheets
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statement
Statement of Income Statement of Income
for three months ended Year-to-date
8/29/98 8/30/97 8/29/98 8/30/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales, Net of Returns & Allowances $ 2,874,529 $ 3,785,685 $ 8,978,433 $ 10,996,408
Cost of Goods Sold (2,187,333) (2,714,718) (6,762,542) (8,006,612)
------------ ------------ ------------ ------------
Gross Margin 687,196 1,069,967 2,215,891 2,989,796
Selling, General & Administrative Expense (551,802) (630,530) (1,717,783) (1,942,713)
------------ ------------ ------------ ------------
Pre-Tax Income 135,394 439,437 498,108 1,047,083
Provision for Income Taxes (47,400) (149,407) (174,349) (356,008)
------------ ------------ ------------ ------------
Net Income $ 87,994 $ 290,030 $ 323,759 $ 691,075
============ ============ ============ ============
Net Income Per Share $ .02 $ .08 $ .09 $ .19
Dividends per Share -- -- -- --
Weighted Average Number of Shares 3,627,151 3,627,151 3,627,151 3,627,151
</TABLE>
These statements reflect all adjustments which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
BALANCE SHEET
(Unaudited)
ASSETS
CURRENT ASSETS 8/29/98 11/30/97 8/30/97 11/30/96
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash $ 273,225 $ 106,200 $ 423,707 $ 0
Investments less than one year 1,796,359 1,542,919 1,137,727 304,250
Receivables, net of allowance for doubtful accounts of 1,586,432 2,412,443 2,100,070 2,372,387
$57,088 on August 29, `98 and $88,264 on August 30, `97
Inventories:
Raw materials 1,858,774 1,559,788 1,394,229 2,135,951
Work-in process 1,122,147 1,147,572 1,200,180 1,634,940
Prepaid expenses and other current assets 90,802 63,371 (9,636) 35,735
Deferred income tax 301,951 301,951 325,951 325,951
------- ------- ------- -------
Total current assets 7,029,689 7,134,245 6,572,230 6,809,215
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 80,000 80,000 80,000 80,000
Buildings 497,924 497,924 497,924 497,924
Facility improvements 692,487 694,705 709,068 694,705
Machinery and equipment 4,463,840 4,335,347 4,284,362 4,178,198
Furniture and fixtures 392,994 379,667 347,033 319,122
------- ------- ------- -------
Total property, plant, and equipment 6,127,244 5,987,643 5,918,387 5,769,949
Less accumulated depreciation (4,851,282) (4,663,958) (4,678,563) (4,514,106)
------------ ------------ ----------- ---------
Net property, plant and equipment 1,275,963 1,323,686 1,239,824 1,255,843
--------- --------- --------- ---------
Total assets $8,305,652 $8,457,930 $7,812,054 8,065,058
========== ========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $391,719 $806,795 $404,654 $1,261,553
Accrued payroll 372,667 343,500 354,260 286,528
Accrued professional fees 71,330 64,552 64,173 71,712
Other accrued liabilities 82,059 226,166 166,313 174,631
Income taxes payable 157,337 110,137 81,127 220,179
------- ------- ------ -------
Total current liabilities 1,075,113 1,551,150 1,070,528 2,014,603
DEFERRED INCOME TAXES 89,948 89,948 150,948 150,948
SHAREHOLDERS' EQUITY
Common stock ($.10 par value) 10,000,000 362,715 362,715 362,715 362,715
authorized, 3,627,151 outstanding)
Paid-in capital 885,540 885,540 885,540 885,540
Retained earnings 5,892,336 5,568,577 5,342,323 4,651,252
--------- --------- --------- ---------
Total shareholders' equity 7,140,591 6,816,832 6,590,578 5,899,507
--------- --------- --------- ---------
Total liabilities and shareholders' equity $8,305,652 $8,457,930 $7,812,054 $8,065,058
========== ========== ========== ==========
</TABLE>
These statements reflect all adjustments which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES: 8/29/98 8/30/97
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<S> <C> <C>
Net Income $ 323,759 $ 691,072
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization 187,324 164,457
Changes in current assets and liabilities:
Accounts receivable 826,011 272,317
Inventories (273,560) 1,176,481
Prepaid expenses & other current assets (27,431) 45,371
Income taxes 47,201 (139,051)
Accounts payable (415,076) (856,900)
Payroll & withholdings 29,167 67,732
Accrued liabilities (137,329) (15,857)
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Net cash from operating activities 560,066 1,405,622
=========== ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (139,601) (148,438)
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Net cash from investing activities (139,601) (148,438)
Net increase (decrease) in cash 420,465 1,257,184
Cash at beginning of period 1,649,119 304,250
----------- -----------
Cash at end of period $ 2,069,584 $ 1,561,434
=========== ===========
</TABLE>
These statements reflect all adjustments which, in the opinion of management,
are necessary for fair statement of the results for the interim period.
<PAGE>
MICROPAC INDUSTRIES, INC.
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Sales for the third quarter and year to date 1998 totaled $2,874,529 and
$8,978,433 respectively and represent decreases of ($911,156) compared to
the third quarter of 1997 and ($2,017,975) compared to the first nine
months of fiscal 1997. Sales were down for the comparable quarters and year
to date due to order reschedules from a major customer, brought about by
the turndown of the Asian economy, and due to reduced requirements for some
of the Company's standard products.
2. Cost of sales for the third quarter totaled 76.1% of net sales compared to
71.7 % for the same quarter in 1997. Cost of sales increased for the
quarter primarily due to increased manufacturing overheads as a percentage
of net sales. Year to date 1998 cost of sales total 75.3% of net sales
compared to 72.8% for the first nine months of 1997. Changes in product mix
combined with reduced sales for the current periods caused the increase in
cost of sales expenses as a percentage of net sales for the comparable
periods of 1997. Manufacturing overhead expenses are being addressed
through personnel reductions and controls of other indirect fixed expenses.
3. Selling, general and administrative expenses for the comparable quarters of
1998 and 1997 totaled approximately 19.2% and 16.6% respectively. The
increased percentage for the third quarter is attributed to decreased sales
for the comparable quarters of 1998 versus 1997. Actual dollars expensed
for the quarter were approximately ($79,000) less in 1998 versus 1997. The
reduction for the quarter is related to interest income generated from
company investments and a reduction in travel expenses for corporate
personnel. Year-to-date 1998, SG&A totaled 19.1% of revenues compared to
17.7% for the same nine month period of 1997. Selling, general and
administrative dollars expensed for the comparable periods were ($152,000)
less in 1998 versus 1997. Interest income and lower travel expense resulted
in the lower cost for the comparable periods.
4. Income per share for the third quarter and year-to-date 1998 was
approximately $.02 and $.08 per share respectively, compared to $.09 and
$.19 per share for the same periods in 1997. Reduced sales for the
comparable periods, combined with constant manufacturing overhead expenses
were the primary factors in reduced profits for the third quarter and
year-to-date.
5. Third quarter and year to date new orders totaled $1,450,000 and $8,404,000
compared to $3,585,000 and $9,595,000 for the same respective periods of
1997. Lack of new orders for the quarter and year to date are attributed to
reduced requirements from one of the Company's major customers which has
been impacted by the Asian economy and due to reduced bookings for some of
the Company's standard products. The Government's "Commercial Off The
Shelf" program may be affecting some of the military bookings, but the
Company continues to believe that there is a need for the high reliability
testing required for many of the products the Company supplies.
6. Backlog total on August 29, 1998 was approximately $6,486,000 compared to
$6,349,000 for the quarter ended August 29, 1997. The backlog reflects a
higher percentage of space, aerospace and military products compared to the
prior year. Shipments of a significant amount of the backlog are estimated
to be made within the next twelve (12) months.
7. Raw material inventories increased approximately $299,000 from November 30,
1997 due to: (1) product being brought in the first quarter 1998 to support
shipments to a primary customer which has since detained shipments due to
the Asian economy, and (2) product being brought in for a major contract
which has a long cycle time and is not shippable until November or
December. Work in process has decreased approximately ($25,000) since
November 30, 1997.
8. Net accounts receivable has decreased ($826,000) since November 30, 1997.
The reduction is due to decreased sales. Day's sales for the third quarter
of 1998 average approximately 48 days.
<PAGE>
9. Assets, year to date, decreased approximately ($152,000) since fiscal year
ended November 30, 1997. The majority of the decrease was in current
assets. Accounts receivable decreased approximately ($826,000) while
inventories and cash and cash equivalents increased $274, 000 and $420,000
respectively.
Liabilities, year to date through period nine have decreased approximately
($476,000). The reduction was due primarily to reductions of accounts
payable and accrued liabilities. A strong positive cash flow allowed for
the reduction of accounts payable and accrued liabilities and the
strengthening of the Company's financial ratios.
Shareholders' equity through period nine 1998 total $7,141,000 and
represents an increase of approximately $324,000 for the first nine months
1998.
10. Cash and cash equivalents have increased for the nine month period to
$2,070,000 compared to $1,649,000 as of November 30, 1997. The Company's
financial position remains strong enabling the Company to finance on-going
operating costs as well as new product development activities for growth
through its own cash reserves.
11. Year 2000 compliance is scheduled to be completed by March 1, 1999. The
re-programming of internally generated programs has been completed.
External software packages for accounting have been updated while the
updated software for payroll has been acquired and will be installed
October 1998. Testing has been done on all software issues except for
payroll which has not been installed at this time. Hardware issues are
being addressed by purchasing new PC's or updating the existing PC's with
the necessary hardware updates. Currently the Company is approximately 70%
complete on hardware issues. All hardware issues including file server
update should be completed by January 31, 1999. The Company is requesting
its major suppliers provide the status of their compliance to the year 2000
problem and determine the effect it might have on their ability to provide
on going service and products.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material current or pending legal
proceedings, other than ordinary routine litigation incidental to its
business.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 4. OTHER INFORMATION
None
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
None
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.
10-5-98 /s/ Nicholas Nadolsky
Date -------------------------------
Nicholas Nadolsky
Chairman of the Board/CEO
10-05-98 /s/ Dave Hendon
Date --------------------------------
Dave Hendon
Controller
