U.S. Securities and Exchange Commission
Washington, D. C. 20549
Form 10-KSB/A
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended November 30, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ________ to ________
Commission file number 0-5109
MICROPAC INDUSTRIES, INC.
DELAWARE 75-1225149
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 E. WALNUT STREET 75040
GARLAND, TEXAS (Zip Code)
Issuer's telephone number (972) 272-3571
Securities to be registered under Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
Securities to be registered under Section 12 (g) of the Act:
COMMON STOCK $.10 par value
---------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
There is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Revenues for its most recent fiscal year: $11,468,000
The aggregate market value of the voting stock held by non-affiliates computed
by the average bid and asked prices of such stock, as of a specified date within
the past 60 days, is not determined due to non-activity on the market over the
last 5 years.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date was 3,627,151 as of November 30, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Business
INTRODUCTION
- ------------
Micropac Industries, Inc. (the "Company") manufactures and distributes various
types of hybrid microcircuits 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 and computers and medical devices.
The business was started in 1963 as a sole proprietorship. On March 3, 1969, the
Company was incorporated under the name of "Micropac Industries, Inc." in the
state of Delaware. Present control succeeded in 1974, and the stock is publicly
held by 601 shareholders on November 30, 1999.
PRODUCTS AND TECHNOLOGIES
- -------------------------
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.
Custom-designed components are estimated to account for approximately 50% of the
Company's sales for the fiscal years ended November 30, 1999 and 1998; standard
components are estimated to account for approximately 50% of the Company's sales
for the fiscal years ended November 30, 1999 and 1998.
In 1999, the Company's investment in technology, which was expensed, totaled
approximately $623,000 ($713,000 in 1998). The Company's research & development
expenditures were directed primarily toward long-term specific customer
requirements, some of which have future potential as Micropac proprietary
products, and product development and improvement associated with the Company's
space level and other high reliability programs.
SALES, MARKETING AND DISTRIBUTION
The Company's products are marketed throughout the United States and in Western
Europe, through a direct technical sales staff, independent representatives and
independent stocking distributors. Approximately 8% of the sales for fiscal year
1999 (10% in 1998) were to international customers. Sales to Western European
customers are made by independent representatives under the coordination of the
Company's office in Bremen, Germany.
CUSTOMERS
- ---------
The Company's major customers include contractors to the United States
government. Sales to these customers for Department of Defense (DOD) and
National Aeronautics and Space Administration (NASA) contracts accounted for
approximately 72% of the Company's fiscal net sales in 1999 compared to 80% in
1998.
During 1999, two customers accounted for more than 10% of the Company's sales.
These customers totaled 18.8% and 11.8% respectively of net sales for the year
ended November 30, 1999. No customers accounted for more than 10% of the
Company's net sales in 1998.
BACKLOG
- -------
At November 30, 1999, the Company had a backlog of unfilled orders totaling
approximately $4,360,000 compared to approximately $5,212,000 at November 30,
1998. The Company expects to complete and ship most of its November 30, 1999
backlog during fiscal 2000. The reduction of backlog of unfilled orders could
make it difficult for the Company to maintain the business level of the prior
year.
-2-
<PAGE>
EMPLOYEES
- ---------
At November 30, 1999, the Company had 118 full-time employees (compared to 128
at November 30, 1998), of which 25 were executive and managerial employees, 26
were engineers and quality-control personnel, 20 were clerical and
administrative employees, and 47 were production personnel. None of the
Company's employees were covered by collective bargaining agreements.
The Company is an Equal Opportunity Employer. It is the Company's policy to
recruit, hire, train and promote personnel in all job classifications, without
regard to race, religion, color, national origin, sex or age. Above and beyond
non-discrimination, we are committed to an Affirmative Action Program, dedicated
to the hiring, training, and advancement within the Company of minority group
members, women and handicapped individuals.
RISK FACTORS
- ------------
Pricing Pressures. Pricing pressures are being experienced by the Company from
some of its OEM customers. In some cases, the Company sells product under
agreements with OEMs that require the Company, at regular intervals, to review
the pricing structure for possible reduction in selling price for future orders.
This requires the Company to improve its productivity and to approach its
supplier chain requesting similar pricing reductions. If one or both of the
approaches by the Company does not succeed, product gross margins will decrease
affecting the Company's net earnings.
Limited Insurance Coverage. The Company operates manufacturing facilities in
Garland, Texas and Juarez, Mexico. These facilities use industrial machines and
chemicals that could provide risks of personal injury and/or property damage.
There is no assurance that accidents will not occur. If accidents do occur, the
Company could be exposed to substantial liability expenses. The Company
maintains worker's compensation insurance and general liability insurance for
protection of its employees and for protection of the Company's assets. In
addition to the basic policies mentioned, the Company maintains an umbrella
policy covering claims up to $10 million dollars. The Company's financial
position could be materially affected by claims not covered or exceeding
coverage currently carried by the Company.
Environmental Regulations. The Company is subject to governmental regulations
pertaining to the use, storage, handling and disposal of hazardous substances
used in connection with its manufacturing activities. Failure of the Company to
control all activities dealing with hazardous chemicals could subject the
Company to significant liabilities or could cause the Company to cease its
manufacturing activities.
Product Liability. The use of the Company's products in commercial or government
applications may subject the Company to product liability claims. Although the
Company has not experienced any product liability claims, the sale of any
product may provide risk of such claims. Product liability claims brought
against the Company could have a material adverse effect on the Company's
operating results and financial condition.
YEAR 2000 COMPLIANCE
- --------------------
The Year 2000 issue was addressed and no problems were experienced with the
Company's hardware or software. The Company has successfully updated its
commercial software to be Y2K compliant, reprogrammed internally generated
programs used for job cost and operations procedures and updated hardware as
needed. Testing of the software and hardware has been completed. It is estimated
that the Company's cost associated with Y2K compliance was approximately
$40,000. This amount includes personnel time, materials, hardware and software
upgrades. All vendors have been contacted in order to assure their capability of
furnishing raw materials and/or services to the Company in a timely manner. At
this time, 95% of the vendors have assured the Company they are Y2K compliant.
The Company has not experienced any difficulty from the telephone or utility
companies, or any of its major suppliers.
-3-
<PAGE>
COMPETITION
- -----------
The Company competes with two or more companies with respect to each of its
major products. Some of these competitors are larger and have greater capital
resources than the Company. Management believes the Company's competitive
position to be favorable; however, no assurance can be given that the Company
can compete successfully in the future.
SUPPLY CHAIN
- ------------
The parts and raw materials for the Company's products are generally available
from more than one source. Except for certain optoelectronic products, the
Company does not manufacture the basic parts or materials used in production of
its products. From time to time, the Company has experienced difficulty in
obtaining certain materials when needed. The Company's inability to secure
materials for any reason could have adverse effects on the Company's ability to
deliver products on a timely basis. The Company uses capacitors, active
semiconductor devices (primarily in chip form), hermetic packages, ceramic
substrates, resistor inks, conductor pastes, precious metals and other materials
in its manufacturing operations.
Item 2. Properties
- ------------------
The Company occupies approximately 36,000 square feet of manufacturing,
engineering and office space in Garland, Texas. The Company owns 31,200 square
feet of that space and leases an additional 4,800 square feet. The Company
considers its facilities adequate for its current level of operations.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Company's security holders through
the solicitation of proxies by the Company during the fourth quarter of the
fiscal year ended November 30, 1999.
-4-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------------
Matters
- -------
On November 30, 1999, there were approximately 601 shareholders of record of the
Company's common stock. No prices have been presented since there is no
established public trading market for the Company's common stock.
The Company has never paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future. The Company presently intends to
reinvest any earnings for use in the development of new products and
technologies for future growth and in order to remain competitive.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Liquidity and Capital Resources
- -------------------------------
The Company has an established line of credit with a banking institution in the
amount of $3,000,000 for operating activities. The Company expects to generate
adequate amounts of cash to meet its liquidity needs from the sale of products
and services and the collection thereof.
Accounts receivable net, increased by approximately $57,000 during 1999. Days
sales in receivables totaled approximately 50 days as of November 30, 1999
compared to 53 days at November 30, 1998.
The Company has approximately $2,933,000 invested in short-term (one year or
less) certificates of deposit at November 30, 1999 compared to $1,934,000 on
November 30, 1998.
Company management believes it will meet its 2000 capital requirements through
existing cash and short-term and long-term investments, internally generated
funds, and the renewal of the line of credit in 2000, if needed. There were no
significant outstanding commitments for equipment purchases or improvements at
November 30, 1999.
Results of Operations 1999 vs. 1998
- -----------------------------------
Sales in 1999 were approximately $11,468,000, a decrease of (0.8%) compared to
1998 sales. Sales were affected by the government's "commercial off the shelf"
initiative and lack of new government military and space orders.
Cost of sales, as a percentage of net sales, was 69.7% in 1999 compared to 68.4%
in 1998. The increase as a percentage of net sales is due to changes in product
mix for the comparable years. Expenses for research and development totaled $
623,000 in 1999 compared to $713,000 in 1998. Most of the research and
development expenses were concentrated on expanding it's line of the solid state
relays and power operational amplifiers and optocouplers to include radiation
hardened products, and improving manufacturing processes.
Selling, general, and administrative expenses decreased approximately ($43,000)
and totaled 19.9% of net sales in 1999 compared to 20.1% in 1998.
Earnings before taxes for fiscal 1999 were approximately $704,000 or 6.1% of net
sales, compared to $698,000 or 6.0% of net sales in fiscal 1998. Net earnings
were approximately $643,000 or $.18 per share, in 1999 versus 1998 net earnings
of $445,000 or $.12 per share. Net income increased in 1999 due to a decrease in
the tax provision as a result of a tax deduction taken for the value of a life
insurance policy which was transferred to a company officer during the year.
-5-
<PAGE>
The Company's backlog at the end of 1999 was approximately $4,360,000, compared
to approximately $5,212,000 at November 30, 1998. The backlog decreased due to
completion of certain major contracts received in prior years and lack of new
orders. The lack of new orders is attributed to reduced demand for some of the
Company's standard military products and high temperature industrial products.
The foregoing discussion 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.
Item 7. Financial Statements
- -----------------------------
The financial statements listed below appear on pages 10 through 17 of this
Report. The Company is not required to furnish the Supplementary Data required
by Item 302 of Regulation S-K.
Page No.
--------
9 Report of Independent Public Accountants
10 Balance Sheets as of
November 30, 1999 and 1998
11 Statements of Income for the years ended
November 30, 1999 and 1998
12 Statements of Shareholders' Equity for the years
ended November 30, 1999 and 1998
13 Statements of Cash Flows for the years ended
November 30, 1999 and 1998
14-17 Notes to Financial Statements for the years ended
November 30, 1999 and 1998
Item 8. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
None
-6-
<PAGE>
PART III
Item 9. Directors & Executive Officers of The Registrant
- --------------------------------------------------------
Information relating to the Company's Directors and executive officers is set
forth in the Company's definitive proxy statement relating to the Company's
Annual Meeting of Stockholders to be held on March 2, 2000. The information in
the proxy is set forth under the heading "Election of Directors and Information
as to Directors, Nominees and Executive Officers." The proxy statement will be
filed with the Securities and Exchange Commission on or about February 1, 2000
and such information is incorporated by reference.
Item 10. Executive Compensation
- -------------------------------
Information relating to executive compensation is set forth in the Company's
definitive proxy statement relating to the Company's Annual Meeting of
Stockholders to be held on March 2, 2000. The information in the proxy is set
forth under the heading "Executive Compensation". The proxy statement will be
filed with the Securities and Exchange Commission on or about February 1, 2000
and such information is incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners & Management
- ---------------------------------------------------------------------
Information relating to the ownership of certain beneficial owners and
management of the Company's Common Stock is set forth in the Company's
definitive proxy statement relating to the Company's Annual Meeting of
Stockholders to be held on March 2, 2000. The information in the proxy is set
forth under the heading "Securities Ownership of Certain Beneficial Owners and
Management". The proxy statement will be filed with the Securities and Exchange
Commission on or about February 1, 2000 and such information is incorporated by
reference.
Item 12. Certain Relationships and Related Transactions
- -------------------------------------------------------
Information relating to the business relationships and related transaction with
respect to the Company and certain Directors, executive officers, nominees for
election as Directors and beneficial owners of its securities is set forth in
the Company's definitive proxy statement relating to the Company's Annual
Meeting of Stockholders to be held on March 2, 2000. The proxy statement will be
filed with the Securities and Exchange Commission on or about February 1, 2000
and such information is incorporated by reference.
Item 13. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) The following financial statements of the Company are included in pages 10
through 17.
Report of Independent Public Accountants
Balance Sheets as of November 30, 1999 and 1998.
Statements of Income for the years ended November 30, 1999 and 1998.
Statements of Shareholders' Equity for the years ended November 30,
1999, 1998, 1997.
Statements of Cash Flows for the years ended November 30, 1999 and
1998.
Notes to Financial Statements for the years ended November 30, 1999 and
1998.
(b) The Company did not file any current reports on Form 8-K during the quarter
ended November 30, 1999.
-7-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MICROPAC INDUSTRIES, INC.
By: /S/ Nicholas Nadolsky
-----------------------------
Nicholas Nadolsky, CEO
and Chairman of the Board
(Principal Executive Officer)
By: /S/ Dave E. Hendon
-----------------------------
Dave Hendon, Controller and
Principal Accounting Officer
Dated: 01/18/2000
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 2, 2000.
/S/ Nicholas Nadolsky /S/ H. Kent Hearn
- -------------------------------- ----------------------------
Nicholas Nadolsky, Director H. Kent Hearn, Director
/S/ James K. Murphey
- -------------------------------- ----------------------------
James K. Murphey, Director
-8-
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Micropac Industries, Inc.:
We have audited the accompanying balance sheets of Micropac Industries, Inc. (a
Delaware corporation) as of November 30, 1999 and 1998, and the related
statements of income, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Micropac Industries, Inc. as of
November 30, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 23, 1999
-9-
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
-------------------------
BALANCE SHEETS
--------------
AS OF NOVEMBER 30, 1999 AND 1998
--------------------------------
(Dollars in thousands except share data)
ASSETS 1999 1998
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 502 $ 420
Short-term investments 2,933 1,934
Receivables, net of allowance for doubtful accounts
of $92 in 1999 and $104 in 1998 1,579 1,522
Inventories
Raw materials and supplies 1,246 1,851
Work-in-process 908 1,090
------- -------
Total inventories 2,154 2,941
Deferred income taxes 249 301
Prepaid income taxes 166 --
Prepaid expenses and other assets 57 19
------- -------
Total current assets 7,640 7,137
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 678 690
Machinery and equipment 4,493 4,434
Furniture and fixtures 340 349
------- -------
Total property, plant, and equipment 6,089 6,051
Less- Accumulated depreciation (4,945) (4,812)
------- -------
Net property, plant, and equipment 1,144 1,239
------- -------
Total assets $ 8,784 $ 8,376
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 365 $ 316
Accrued payroll 214 332
Accrued professional fees 75 54
Income taxes payable -- 185
Property taxes 88 93
Commissions payable 45 20
Other accrued liabilities 49 71
------- -------
Total current liabilities 836 1,071
------- -------
DEFERRED INCOME TAXES 43 43
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, authorized 10,000,000 shares,
3,627,151 outstanding at November 30, 1999 and 1998 363 363
Paid-in capital 885 885
Retained earnings 6,657 6,014
------- -------
Total shareholders' equity 7,905 7,262
------- -------
Total liabilities and shareholders' equity $ 8,784 $ 8,376
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
-------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
(Dollars in thousands except share data)
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 11,468 $ 11,556
COSTS AND EXPENSES:
Cost of sales 8,001 7,906
Research and development 623 713
Selling, general, and administrative expenses 2,284 2,327
Interest income (144) (88)
----------- -----------
Total costs and expenses 10,764 10,858
----------- -----------
INCOME BEFORE INCOME TAXES 704 698
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 9 300
Deferred 52 (47)
----------- -----------
Total provision for current and deferred taxes 61 253
----------- -----------
NET INCOME $ 643 $ 445
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ .18 $ .12
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES, basic and diluted 3,627,151 3,627,151
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-11-
<PAGE>
MICROPAC INDUSTRIES, INC.
-------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
(Dollars in thousands)
Common Paid-in Retained
Stock Capital Earnings Total
------ ------ ------ ------
BALANCE, November 30, 1997 $ 363 $ 885 $5,569 $6,817
Net income for 1998 -- -- 445 445
------
BALANCE, November 30, 1998 363 885 6,014 7,262
Net income for 1999 -- -- 643 643
------ ------ ------ ------
BALANCE, November 30, 1999 $ 363 $ 885 $6,657 $7,905
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
-12-
<PAGE>
<TABLE>
<CAPTION>
MICROPAC INDUSTRIES, INC.
-------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
(Dollars in thousands)
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 643 $ 445
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 241 148
Loss on disposal of equipment 15 --
Deferred tax provision 52 (47)
Changes in certain current assets and current liabilities-
(Increase) decrease in receivables, net (57) 890
Decrease (increase) in inventories 787 (177)
Increase in prepaid expenses and other assets (38) (12)
Increase in current year prepaid income taxes (166) --
Increase (decrease) in accounts payable 49 (491)
Decrease in accrued payroll (118) (10)
(Decrease) increase in income taxes payable (185) 75
Increase (decrease) in all other accrued liabilities 19 (53)
------- -------
Total adjustments 599 323
------- -------
Net cash provided by operating activities 1,242 768
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Changes in short-term investments (999) (391)
Additions to property, plant, and equipment, net (161) (63)
------- -------
Net cash used in investing activities (1,160) (454)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES -- --
------- -------
NET INCREASE IN CASH 82 314
------- -------
CASH AND CASH EQUIVALENTS, beginning of year 420 106
------- -------
CASH AND CASH EQUIVALENTS, end of year $ 502 $ 420
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ -- $ --
======= =======
Cash paid for income taxes, net of refunds received $ 362 $ 230
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-13-
<PAGE>
MICROPAC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Revenue Recognition
- -------------------
Revenues are recorded as deliveries are made based upon contract prices. Any
losses anticipated on fixed price contracts are provided for currently.
Short-Term Investments
- ----------------------
Short-term investments include certificates of deposits with original maturities
greater than 90 days. These investments are reported at historical cost which
approximates fair market value as of November 30, 1999 and 1998.
Inventories
- -----------
Inventories are stated at lower of cost or market value and include material,
labor and manufacturing overhead. All inventories are valued using the FIFO
(first-in, first-out) method of inventory valuation.
Income Taxes
- ------------
Deferred income taxes are recorded for temporary differences between financial
and tax reporting.
Property, Plant, and Equipment
- ------------------------------
Property, plant, and equipment are carried at cost, and depreciation is provided
using the straight-line method at rates based upon the following useful lives
(in years) of the assets:
Buildings.............................................................15
Facility improvements...............................................8-15
Furniture and fixtures...............................................5-8
Machinery and equipment.............................................5-10
Basic Earnings Per Share
- ------------------------
Basic Earnings per share are computed based upon the weighted average number of
shares outstanding during the year.
The Company was required to adopt Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128") - "Earnings Per Share" in fiscal 1998. SFAS No. 128
established standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
SFAS NO. 128 replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Adoption of this statement had no impact on the Company's fiscal 1999 or 1998
financial statements since the Company has no common stock equivalents.
-14-
<PAGE>
Use of Estimates
- ----------------
The preparation of financial statements in conformity with general accepted
accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain amounts have been reclassified to conform to current year presentation.
2. NOTES PAYABLE TO BANKS:
-----------------------
During fiscal 1999 the Company entered into a new line of credit agreement with
a bank which provides a $3 million line of credit. The interest rate is equal to
the prime rate less 1/4%, which at November 30, 1999, was 8.5%. The line of
credit expires September 6, 2000. As of November 30, 1999, there were no loans
outstanding under the line of credit agreement. During fiscal 1998 the Company
had a line of credit agreement with a bank which provided a $3 million line of
credit. The interest rate was equal to the prime rate less 1/4%, which at
November 30, 1998, was 7.75%. The line of credit expired September 6, 1999. As
of November 30, 1998, there were no loans outstanding under the line of credit
agreement.
3. RELATED PARTIES:
----------------
The Company leases a building from the Company's Chairman of the Board. A new
lease was signed on July 1, 1999 for a term of five (5) years and expiring on
June 30, 2004. The lease was renewed under similar terms and conditions as the
prior lease. Amounts paid under the old and new lease in 1999 were approximately
$35,000 and $34,000 in 1998.
4. LEASE COMMITMENTS:
------------------
Rent expense for the years ended November 30, 1999 and 1998, was approximately
$42,000 and $39,000 respectively.
Future minimum lease payments under non-cancelable operating leases for office
and manufacturing space with remaining terms in excess of one year are
approximately:
2000 $35,000
2001 35,000
2002 35,000
2003 35,000
2004 20,400
5. EMPLOYEE BENEFITS:
------------------
The Company sponsors an Employees' Profit Sharing Plan and Trust (the "Plan").
Pursuant to section 401(k) of the Internal Revenue Code, the Plan is available
to substantially all employees of the Company. Employee contributions to the
Plan are matched by the Company at amounts up to 6% of the participant's salary.
Contributions made by the Company were approximately $125,000 in 1999 and
$43,000 in 1998. Employees become vested at 20% after three years and 100% after
seven years. The Company matches 100% of the employee contribution in
anticipation that the employee will be with the Company the full seven years. If
the employee leaves the Company prior to being fully vested, the unvested
portion of the Company's contributions are forfeited and such forfeitures are
used to lower future Company contributions.
The Company does not offer other post retirement benefits to its employees.
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<PAGE>
<TABLE>
<CAPTION>
6. INCOME TAXES:
-------------
The Company accounts for its income taxes according to Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes."
The income tax provision consisted of the following for the years ended November
30:
1999 1998
--------- --------
<S> <C> <C> <C>
Current (Benefit) Provision-
Federal $(14,000) $238,000
State 23,000 62,000
--------- -------
9,000 300,000
Deferred Provision (Benefit)-
Federal 52,000 (47,000)
--------- --------
Total $61,000 $253,000
========= ========
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
1999 1998
--------- ---------
Tax at 34% statutory rate $239,000 $238,000
State income taxes, net of federal benefit 15,000 41,000
Non taxable life insurance benefit (212,000) -
Other 19,000 (26,000)
--------- --------
Income tax provision $ 61,000 $253,000
========= ========
The components and changes in deferred tax assets and liabilities were as
follows:
Deferred
(Provision)
November 30, 1999 Benefit November 30,1998
----------------- --------------- ----------------
Current Deferred Tax Assets-
Allowance for doubtful accounts $ 34,000 $ (5,000) $ 39,000
Inventory 148,000 (22,000) 170,000
Accrued liabilities and other 67,000 (25,000) 92,000
--------- ---------- ---------
Net current deferred tax $249,000 $(52,000) $301,000
======== ======== ========
Non-current Deferred Tax Liabilities-
Depreciation and other $ 43,000 $ 43,000
--------- ---------
Net noncurrent deferred tax $ 43,000 $ 43,000
========= =========
Deferred tax provision $(52,000)
========
</TABLE>
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<PAGE>
7. SIGNIFICANT CUSTOMER INFORMATION:
---------------------------------
The Company's primary line of business relates to the design, manufacture, and
sale of hybrid microcircuits and optoelectronic components and assemblies. Sales
result primarily from subcontracts with customers for ultimate production and
delivery to the United States government. Sales to primary contractors for
defense and space related contracts accounted for 72% of total sales in 1999 and
80% of total sales in 1998. Customer credit is granted and maintained for both
United States and European customers by the Corporate Accounting Department in
Garland, Texas. During 1999, the Company had two customers that accounted for
18.8% and 11.8% respectively of the Company's annual sales. The Company had no
customers that accounted for more than 10% of the Company's annual sales for
fiscal 1998.
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<PAGE>
DIRECTORS AND OFFICERS
----------------------
NOVEMBER 30, 1999
NICHOLAS NADOLSKY
Chief Executive Officer and
Chairman of the Board
HEINZ-WERNER HEMPEL
Chief Operating Officer
Hanseatishe Waren Handelsgesellschaft MBH & Co. KG, Bremen, Germany
H. KENT HEARN
Stockbroker
Milkie-Fergerson, Dallas, Tx.
JAMES K. MURPHEY
Corporate Attorney
Secore & Waller, L.L.P. Dallas, Tx.
CONNIE WOOD
President and Chief Operating Officer
LEGAL COUNSEL TRANSFER AGENT & REGISTRAR
SECORE & WALLER, L.L.P. SECURITIES TRANSFER CORP.
ONE GALLERIA TOWER, SUITE 2290 16910 DALLAS PARKWAY
13355 NOEL ROAD, L.B. 75 SUITE 100
DALLAS, TEXAS 75240-6657 DALLAS, TEXAS 75248
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