United States Securities and Exchange Commission
WASHINGTON, D.C.20549
FORM 10-K10-K/A
AMENDMENT NO. 1
(Mark One) |
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þ☑ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended November 30, 2015 |
2016 |
or |
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¨☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from ___________to ___________ |
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Commission file number 000-5109 |
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Micropac Industries, Inc. (Exact name of registrant as specified in charter) |
Delaware | | | | 75-1225149 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
| | | | |
905 E. Walnut Street, Garland, TX | | 75040 | | 972/272-3571 |
(Address of principal executive offices) | | (Zip Code) | | (Telephone No.) |
| | | | |
Securities Registered Pursuant to Section 12(b) of the Act: |
Title of each class | | Name of each exchange on which registered |
None | | N/A |
Securities Registered Pursuant to Section 12(g) of the Act: |
Common stock, par value $0.10 per share |
(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes¨☐ No þ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No þ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes.Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨☐ | Accelerated filer ¨☐ |
Non-accelerated filer ¨☐ | Smaller reporting company þ☑ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No þ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of May 30, 2015June 1, 2016 representing the last business day of the registrant’sregistrant's most recently completed second fiscal quarter, was approximately $5,360,000,$5,027,000, The number of shares of the registrant’sregistrant's common stock, $0.10 par value, outstanding as of February 15, 20169, 2017 was 2,578,315.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement to be filed with the Securities and Exchange Commission relating to the registrant’sregistrant's Annual Meeting of Shareholders, to be held March 11, 201610, 2017 is incorporated by reference in Part III to the extent described therein.
EXPLANATORY NOTE TO AMENDMENT NO. 1 ON FORM 10K/A
This is Amendment No. 1 to the Registrant's annual report on Form 10-K for the year ended November 30, 2016 which was originally filed with the Securities and Exchange Commission on February 9, 2017. This Amendment No. 1 is being filed to add a 5% beneficial owner and addresses to Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and to change two typographical errors.
As reported on 10-K
The Company occupies approximately 37,000 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 10. | Directors, Executive Officers and Corporate Governance |
Name | Age | Position with the Company | Director Since |
| | | |
Christine B. Dittrich | 64 | Director and | |
| | Member of Audit Committee | October 2016 |
Changes on 10-K/A
The Company occupies approximately 37,000 square feet of manufacturing, engineering and office space in Garland, Texas. The Company owns 32,200 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 10. | Directors, Executive Officers and Corporate Governance |
Name | Age | Position with the Company | Director Since |
| | | |
Christine B. Dittrich | 64 | Director and | |
| | Member of Audit Committee | October 2015 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table shows the number and percentage of shares of the Company's common stock beneficially owned (a) by each person known by the Company to own 5% or more of the outstanding common stock, (b) by each director and nominee, and (c) by all present officers and directors as a group, as of February 10, 2017.
Name and Address | Number of Shares | Percent |
of Beneficial Owner(1) | Beneficially Owned | of Class(1) |
| | |
Stanley Kesselman | 163,190 | 6.3% |
c/o Maxim Group | | |
405 Lexington Avenue, 2nd Floor | | |
New York, NY | | |
| (1) | Calculated on the basis of the 2,578,315 outstanding shares. There are no options, warrants, or convertible securities outstanding. The address of each other person listed is 905 East Walnut Street, Garland, Texas 75040. |
Except for these corrections, there have been no changes in any of the financial or other information contained in the report. For convenience, the entire Annual Report on Form 10-K, as amended, is being re-filed.
Table of Contents
| | Page |
Part I | |
| | |
Item 1. | Business | 3 |
Item 1A. | Risk Factors | 5 |
Item 1B. | Unresolved Staff Comments | 7 |
Item 2. | Properties | 8 |
Item 3. | Legal Proceedings | 8 |
Item 4. | Mine Safety Disclosure | 8 |
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Part II | |
| | |
Item 5. | Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 8 |
Item 6. | Selected Financial Data | 9 |
Item 7. | Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations | 9 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 12 |
Item 8. | Financial Statements and Supplementary Data | 12 |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 2122 |
Item 9A. | Controls and Procedures | 2122 |
Item 9B. | Other Information | 2223 |
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Part III | |
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Item 10. | Directors, Executive Officers and Corporate Governance | 2324 |
Item 11. | Executive Compensation | 2526 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 2627 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 2728 |
Item 14. | Principal Accounting Fees and Services | 2728 |
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Part IV | |
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Item 15. | Exhibits, Financial Statement Schedules | 28 |
| | 29 |
| Signatures | 2930 |
PART I
PART I
INTRODUCTION
Micropac Industries, Inc. (the “Company”"Company"), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power controllers, and optoelectronic components and assemblies. The Company’sCompany'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’sCompany's facilities are certified and qualified by the Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level), and MIL-PRF-19500 JANS (space level), and MIL-PRF-28750 (class K-space level)level and is certified to ISO 9001-2002.AS 9100. Micropac is a National Aeronautics and Space Administration (NASA) core supplier, and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has UL approval on our industrial power controllers.
The Company’sCompany's core technology is the packaging and interconnecting of multi-chip microelectronics modules. Other technologies include light emitting and light sensitive materials and products, including light emitting diodes and silicon phototransistors used in the Company’sCompany's optoelectronic components and assemblies.
The business of the Company was started in 1963 as a sole proprietorship. On March 3, 1969, the Company was incorporated under the name of “Micropac"Micropac Industries, Inc.”" in the state of Delaware. The stock was publicly held by 470456 shareholders on November 30, 2015.2016.
PRODUCTS AND TECHNOLOGIES
The Company’sCompany'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. Custom-designed components accounted for approximately 42%40% of the Company’sCompany's sales for the fiscal year ended November 30, 2015,2016, and were 44%42% for fiscal 2014.2015. Standard components accounted for approximately 58%60% of the Company’sCompany's sales for the fiscal year ended November 30, 2015,2016, and were 56%58% for fiscal 2014.2015.
The Company provides power management and controls, sensors and displays, and optocouplers products, components and assemblies and offers a wide range of products sold to the industrial, medical, military, aerospace and space markets.
The power management and controls technologies, including custom microcircuits, solid state relays, power operational amplifiers, and regulators accounted for 32%36% of the Company’sCompany's business in 20152016 compared to 30%32% in 2014.2015. Sensors and displays accounted for 33%35% of the Company’sCompany's business and the optocouplers product accounted for 35%29% of the Company’sCompany's business in 2015,2016, compared to 41%33% and 29%35% in 2014,2015, respectively.
The Company’sCompany's basic products and technologies include:
· | Custom design hybrid microelectronic circuits |
· | Solid state relays and power controllers |
· | Custom optoelectronic assemblies and components |
· | Power operational amplifiers |
· | Fiber optic components and assemblies |
· | High temperature (200º C) products |
· | Radiation tolerant electronics |
Micropac’sMicropac's products are primarily sold to original equipment manufacturers (OEM’s)(OEM's) who serve the following major markets:
· | Military/Aerospace – aircraft instrumentation, guidance and navigations systems, control circuitry, power supplies, laser positioning |
· | Space – control circuitry, power monitoring and sensing |
· | Industrial – power control equipment, robotics |
The Company has two provisional patents. The Company has no licenses, franchises or labor contracts. The Company’sCompany's trademark “Mii”"Mii" is registered with the U.S. Patent and Trademark Office.
Sales of our products internationally are subject to government regulations, including export control regulations of the U.S. Department of State and Department of Commerce. Violation of these regulations by the Company could result in monetary penalties and denial of export privileges. The Company is not aware of any violations of export control regulations or any other applicable government regulations.
Five of the Company’sCompany's principal product families require government approval. Further, a significant portion of our business is military and is dependent on maintaining our facility certifications to MIL-PRF-38534 MIL-PRF-19500 and MIL-PRF-28750.MIL-PRF-19500. In addition, several customers require the Company maintain ISO 9001-2002AS 9100 certifications. We expect to maintain these certifications and qualifications; however, the loss of any of these certifications would have a significant negative impact on our business.
Government regulations impose certain controls on chemicals used in electronics and semiconductor manufacturing. Micropac has obtained all the necessary environmental permits, and routinely monitors and reports the wastewater stream results to the local governing agency. Micropac is classified as a small generator of hazardous waste, and the annual cost of complying with the regulations is minimal.
In 2015,2016, the Company’sCompany's investment in technology through research and development, which was expensed, totaled approximately $1,707,000$1,152,000 ($1,856,0001,707,000 in 2014)2015). The Company’sCompany's research and development expenditures were directed primarily toward standard proprietary power management products, including industrial power controllers and DC-DC converters, fiber optic transceivers, high voltage optocouplers and continued product development and improvement associated with the Company’sCompany's space level and other high reliability products.
In addition to the Company’sCompany's investment in research and development, various customers paid the Company approximately $650,000$561,000 in non-recurring engineering revenue with costs$1,683,000 recorded within cost of goods sold associated with the development of custom products for specific applications.
The Company provides a one year warranty from the date of shipment to the original purchaser. The Company is obligated under this warranty to either replace or repair defective goods or refund the purchase price paid by the buyer.
CUSTOMERS
The Company’sCompany'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 23%26% of the sales for fiscal year 2015 (17%2016 (23% in 2014)2015) were to international customers. Sales to Western European customers are made by independent representatives under the coordination of the Company’sCompany's office in Bremen, Germany.
Sales through the Company’sCompany's distribution channels were $4,308,000 in 2016 compared to $6,535,000 in 2015, compared to $4,452,000 in 2014, or 33%25% and 23%33% of sales, respectively.
The Company’sCompany's major customers include contractors to the United States government. Sales to these customers for the Department of Defense (DOD) and NASA contracts accounted for approximately 57%56% of the Company’sCompany's revenues in 20152016 compared to 57% in 2014.2015.
The Company’sCompany's major customers are Lockheed Martin, Northrop Grumman, Rockwell, Goodrich, Raytheon, Boeing and L-3. OneTwo customers accounted for 18% and 11% of the Company's sales during 2016 and one customer accounted for 12% of the Company’s sales during 2015 and no customer accounted for 10% or more of the Company’sCompany's sales in 2014.2015.
BACKLOG
At November 30, 2015,2016, the Company had a backlog of unfilled orders totaling approximately $18,925,000$17,102,000 compared to approximately $21,175,000$18,925,000 at November 30, 2014.2015. The Company expects to complete and ship the majority of its November 30, 20152016 backlog during fiscal 2016.2017.
EMPLOYEES
At November 30, 2015,2016, the Company had 124121 full-time employees (compared to 116124 at November 30, 2014)2015), of which 2214 were executive and managerial employees, 3126 were engineers and quality-control personnel, 918 were clerical and administrative employees, and 6263 were production personnel. None of the Company’sCompany's employees are covered by collective bargaining agreements.
The Company is an equal opportunity employer. It is the Company’sCompany'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, veterans, and handicapped individuals.
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’sCompany's competitive position is favorable with regard to our product reliability and integrity, past performance, customer service and responsiveness, timely delivery and pricing; however, no assurance can be given that the Company can compete successfully in the future.
There are approximately 51 independent manufacturing companies who are certified to supply microcircuits to MIL-PRF-38534 or supply semiconductors to MIL-PRF-19500, in addition to OEM’s,OEM's, who manufacture hybrid microcircuits for their internal needs. Micropac may compete with all of these for hybrid microcircuit, power management and optoelectronics business. Some of the Company’sCompany's primary competitors are MS Kennedy, Avago, Isolink, and International Rectifier.
SUPPLY CHAIN
The parts and raw materials for the Company’sCompany'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’sCompany's inability to secure materials for any reason could have adverse effects on the Company’sCompany's ability to deliver products on a timely basis and could result in loss of customers or sales. However, the Company has not been materially affected by such shortages. 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. The Company’sCompany's delivery commitments to customers allow for adequate lead times for production of the products including lead time for order and receipt from the supply chain.
Some of the Company’sCompany's primary suppliers are NTK Technologies, Electrovac, Schott Glass,AG, Semi-Dice, Micross Components, Cobhanm Rad Solutions, and Materion Advanced Materials.
This annual report on Form 10-K 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 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’competitors' products if the Company is not able to manufacture the products using these technologies to meet the customer demands.
The Company disclaims any responsibility to update the forward-looking statements contained herein, except as may be required by law.
Majority shareholder ability to control the election of the Board of Directors
The Company’sCompany's majority shareholder, Mr. Heinz-Werner Hempel, established a partnership organized under the laws of Germany, which owns 1,952,577 shares or 75.7% of the outstanding voting shares. Mr. Hempel, through the partnership, has the ability to control the election of the Company’sCompany's Board of Directors and elect individuals who may be more sympathetic to such majority shareholder’sshareholder's desires and not necessarily sympathetic to the desires of minority shareholders as to the policies and directions of the Company. However, the ability to control the election of the Board of Directors does not modify the fiduciary duties of the Board of Directors to represent the interests of all shareholders.
Availability of public shares for purchase and sale
A small number of shares are available for public purchase and sale. As a result, the Company’sCompany's reported share price may be subject to extreme fluctuations due in part to the small number of shares traded at any time.
Pricing pressures from customers for reduction in selling prices
The Company continues to experience pricing pressures from some of its OEM customers. In some cases, the Company’sCompany's customers request the review of pricing for possible reduction in selling price on future orders. This requires the Company to improve its productivity and to request similar price reductions from its supplier chain. If one or both of the approaches by the Company does not succeed, the Company could be required to reduce the selling price on future orders, reducing the product gross margins and affecting the Company’sCompany's net earnings in order to receive future orders from the customer. However, the Company has no agreement that requires a reduction in the selling price on any current customer order. All contracts are firm fixed pricing.
Insurance coverage and exposure to substantial claims or liabilities
The Company operates manufacturing facilities in Garland, Texas and subcontracts portions of the Company’sCompany's manufacturing to a contract manufacturer in 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. The Company maintains worker’sworker's compensation insurance and general liability insurance for protection of its employees and for protection of the Company’sCompany's assets in Garland, Texas and for equipment and inventory located at the contract manufacturer in Juarez, Mexico. In addition to the basic policies mentioned, the Company maintains an umbrella insurance policy. The Company reviews all insurance coverage on an annual basis, and makes any necessary adjustments based on risk assessment and changes in its business. In the opinion of the Company’sCompany's management, and its insurance advisors, the Company is adequately insured; however, the Company’sCompany's financial position could be materially affected by claims not covered or exceeding coverage currently carried by the Company.
The Company is subject to numerous environmental regulations and changes in government policy
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.
The Company could be adversely affected by changes in laws and regulations made by U.S. and non U.S.non-U.S. governments and agencies dealing with foreign shipments. Changes in trade agreements or taxes on imports or exports could affect our operations or financial condition. Changes by regulatory agencies dealing with environmental issues could affect the cost of the Company’sCompany's products and make it hard for the Company to be competitive with larger companies.
Sales of our products internationally are subject to government regulations, including export control regulations of the U.S. Department of State and Department of Commerce. Violation of these regulations by the Company could result in monetary penalties and denial of export privileges. The Company is not aware of any violations of export control regulations or any other applicable government regulations.
The Company is subject to the Foreign Corrupt Practices Act (the “FCPA”"FCPA"), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Any violation of the FCPA or similar laws and regulations could result in significant expenses, divert management attention, have a material adverse effect on our business, our financial condition and our results of operations and otherwise have a negative impact on the Company and its reputation.
Product liability claims
The use of the Company’sCompany'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’sCompany's operating results and financial condition.
Component shortages from suppliers could affect ability to manufacture products or delay shipments to customers
The Company relies on suppliers to deliver quality raw materials in a timely and cost effective manner. Most of the materials and components are generally available from multiple sources; however, from time to time vendors do not deliver the product as needed due to manufacturing problems or a decision to discontinue that product. Such interruption of supply or price increases could have a material adverse effect on the Company’sCompany's operations; however, the Company is not currently impacted by materialsmaterial shortages.
The ability to develop new products and technologies used in the military, space or aerospace markets
The Company’sCompany's base products and technologies generally have long life cycles. The Company’sCompany's products are primarily used in military, space or aerospace applications, which also have long life cycles. There can be no assurance that the Company will be able to define, develop and market new products and technologies on a timely and cost effective basis. Failure to respond to our customers’customers' requirements and to our competitors’competitors' progress in technological changes could have a material adverse effect on the Company’sCompany's business.
General economic downturn
The Company cannot assure you that our business will not be adversely affected as a result of an industry or general economic downturn. If the Company’sCompany's supply chain is adversely affected by the current economic downturn, this could result in the Company’sCompany's inability to secure materials and could have adverse effects on the Company’sCompany's ability to deliver products on a timely basis.
The Company has potential warranty obligations
The Company provides a one year warranty from the date of shipment to the original purchaser. The Company is obligated under this warranty to either replace or repair defective goods or refund the purchase price paid by the buyer. An unexpected number of warranty claims could negatively impact the profitability of the Company.
The Company may default on its line of credit
The Company currently has an existing line of credit with a Texas banking institution. In connection therewith, thethe Company is obligated to maintain certain minimum financial requirements in order to receive advances therefrom. The Company is currently in compliance with such financial requirements, but there is no guarantee that the Company will remain in compliance. If the Company does not maintain compliance with each of the requirements, its ability to receive advances from the line of credit will be impaired.
The Company is heavily dependent on a few major customers
The Company’sCompany's major customers include contractors to the United States government. Sales to these customers for the Department of Defense (DOD) and NASA contracts accounted for approximately 57%56% of the Company’sCompany's revenues in 20152016 compared to 57% in 2014.2015. The Company’sCompany's major customers are Lockheed Martin, Northrop Grumman, Rockwell, Goodrich, Raytheon, Boeing and L-3. The Company’sCompany's top 10 customers accounted for 48% of the Company's sales during 2016 and 41% of the Company’sCompany's sales during 2015 and 47% of the Company’s sales during 2014.2015.
Item 1B. | Unresolved Staff Comments |
Not applicable.
The Company occupies approximately 37,000 square feet of manufacturing, engineering and office space in Garland, Texas. The Company owns 31,20032,200 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.
The Company also subcontracts some manufacturing to Inmobiliaria San Jose De Ciuddad Juarez S.A. DE C.V., a maquila contract manufacturer in Juarez, Mexico. The Company owns all equipment and inventory with temporary importation into Mexico under the maquila rules of Mexico. The Company does not lease or own any real property in Mexico.
The Company employs a sales team in Bremen, Germany who coordinates sales to Western European customers made by independent representatives. The sales manager maintains an office in a private residence. The Company does not lease or own any real property in Germany, or any other foreign country.
The Company is not involved in any material current or pending legal proceedings.
Item 4. | Mine Safety Disclosure |
None
PART II
Item 5. | Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information, Holders and Dividends
On February 15, 2016,9, 2017, there were 470456 shareholders of record of the Company’sCompany's common stock. The stock of the Company is closely held; and, therefore, certain shareholders have the ability to significantly influence decisions. The Company’sCompany's common stock is quoted on the OTC Bulletin Board under the symbol “MPAD.OB”"MPAD.OB". The following sets forth the high and low sell price for each quarter during the last two fiscal years:
| | | HIGH | | | LOW | |
Fiscal Year Ended November 30, 2016 | | | PRICE | | | PRICE | |
Fourth Quarter | | | $ | 8.50 | | | $ | 8.25 | |
Third Quarter | | | $ | 8.63 | | | $ | 8.02 | |
Second Quarter | | | $ | 9.40 | | | $ | 7.75 | |
First Quarter | | | $ | 9.90 | | | $ | 8.60 | |
| | | HIGH | LOW | | | | | | | | |
Fiscal Year Ended November 30, 2015 | | | PRICE | | | | | | | | |
Fourth Quarter | | | $10.25 | $8.75 | | $ | 10.25 | | | $ | 8.75 | |
Third Quarter | | | $10.25 | $8.61 | | $ | 10.25 | | | $ | 8.61 | |
Second Quarter | | | $10.50 | $8.55 | | $ | 10.50 | | | $ | 8.55 | |
First Quarter | | | $9.25 | $8.01 | | $ | 9.25 | | | $ | 8.01 | |
| | | | |
Fiscal Year Ended November 30, 2014 | | | | |
Fourth Quarter | | | $9.00 | $8.00 | |
Third Quarter | | | $9.20 | $8.35 | |
Second Quarter | | | $9.95 | $7.80 | |
First Quarter | | | $8.35 | $7.00 | |
During the three month period ended November 30, 2015,2016, approximately 10,00012,000 shares of the Company’sCompany's common stock were traded in the over-the-counter market at a price range of $10.25$8.50 to $8.75$8.25 per share. For the two year period ending November 30, 2015,2016, approximately 241,300170,600 shares of the Company’sCompany's common stock were traded in the over-the-counter market at prices ranging from a low of $7.00$7.75 to a high of $10.50. Due to this average monthly volume of approximatelyless than 10,000 shares of common stock being publicly bought and sold during this two year period, the Company does not believe this share trading volume results in prices which represent the market value of the Company’s
Company's common stock held by non-affiliates.
On December 17, 2013, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $0.10 per share for shareholders of record as of January 15, 2014. The dividend was paid to shareholders on February 12, 2014.
On December 16, 2014, the Board of Directors of Micropac Industries, Inc. approved the payment of a special dividend of $0.10 per share for shareholders of record as of January 12, 2015. The dividend was paid to shareholders on February 10, 2015.
On December 15, 2015, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 12, 2016. The dividend was paid to shareholders on February 11, 2016.
On December 13, 2016, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 10, 2017. The dividend was paid to shareholders on February 9, 2017.
Securities Issued under Equity Compensation Plan
None
Item 6. | Selected Financial Data |
Not applicable.
Item 7. | Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations |
| | Twelve Months Ended | | | Twelve Months Ended | |
| | 11/30/15 | | | 11/30/14 | | | 11/30/16 | | | 11/30/15 | |
| | | | | | | | | | | | |
Net Sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | | | | | | | | |
Cost of sales | | | 60.7 | % | | | 61.5 | % | | | 68.3 | % | | | 60.7 | % |
Research and Development | | | 8.5 | % | | | 9.7 | % | | | 6.6 | % | | | 8.5 | % |
Selling , General, and Administrative | | | 20.1 | % | | | 21.1 | % | | | 23.5 | % | | | 20.1 | % |
Cost & Expenses | | | 89.3 | % | | | 92.3 | % | | | 98.4 | % | | | 89.3 | % |
| | | | | | | | | | | | | | | | |
Operating Income | | | 10.7 | % | | | 7.7 | % | | | 1.6 | % | | | 10.7 | % |
| | | | | | | | | | | | | | | | |
Other income and interest income (expense) net | | | 0.2 | % | | | 0.2 | % | | | 0.3 | % | | | 0.2 | % |
| | | | | | | | | | | | | | | | |
Income before Income Taxes | | | 10.9 | % | | | 7.9 | % | | | 1.9 | % | | | 10.9 | % |
| | | | | | | | | | | | | | | | |
Provision for taxes | | | 3.4 | % | | | 2.5 | % | | | 0.6 | % | | | 3.4 | % |
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Net Income | | | 7.5 | % | | | 5.4 | % | | | 1.3 | % | | | 7.5 | % |
Micropac Industries, Inc. (the “Company”"Company"), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power controllers, and optoelectronic components and assemblies. The Company’sCompany'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’sCompany'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.
The Company’sCompany's facilities are certified and qualified by Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level), MIL-PRF-19500 JANS (space level), and MIL-PRF-28750 (class K-space level) and is certified to ISO 9001-2002. Micropac is a National Aeronautics and Space Administration (NASA) core supplier, and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has UL approval on the new industrial power controllers.
The Company’sCompany's core technology is the packaging and interconnecting of multi-chip microelectronics modules. Other technologies include light emitting and light sensitive materials and products, including light emitting diodes and silicon phototransistors used in the Company’sCompany's optoelectronic components and assemblies.
Company sales totaled $20,032,000$17,599,000 resulting in an increasea decrease of $920,000$2,433,000 from 2014.2015. The increasedecrease was associated with higher internationallower overall sales offset by lower saleson the Company standard optocoupler products and one standard solid state relay product associated with delays in orders from a customer for a custom sensor product.several customers.
At November 30, 2015,2016, the Company had a backlog of unfilled orders totaling approximately $18,925,000$17,102,000 compared to approximately $21,175,000$18,925,000 at November 30, 2014.2015. The Company expects to complete and ship the majority of its November 30, 20152016 backlog during fiscal 2016.2017.
New orders for fiscal year 20152016 totaled $17,775,000$15,752,000 compared to $27,774,000$17,775,000 for fiscal 2014.2015. Approximately $4,132,000$5,772,000 of the new orders received in 20152016 was delivered to customers in 2015,2016, along with approximately $15,893,000$11,803,000 of the Company’s $21,175,000Company's $18,925,000 backlog of orders at November 30, 20142015 resulting in revenue of $20,025,000.$17,575,000. In addition, the Company had freight revenue and a net reductionchange in customer returns allowances of $7,000$24,000 for total revenue of $20,032,000$17,599,000 in 2015.2016. The decline in new orders was due to several largelower orders from international customers for $9,500,000 received in November of 2014.standard products.
Cost of sales, as a percentage of net sales, was 68.3% in 2016 compared to 60.7% in 2015 compared to 61.5% in 2014.2015. Cost of goods sold as a percent of sales decreasedincreased in 20152016 compared to 2014 associated with costs incurred during 2014 related to higher material costs associated with a certain product that were not repeated in 2015 due to our re-designing the product.12% reduction in sales. In actual dollars, cost of sales decreased $140,000 for 2016 versus 2015. Material cost decreased 10% or $480,000 while labor and overhead cost increased $424,000 for 2015 versus 2014 due to the increase in sales from 2014.$340,000 with a $1,100,000 non-recurring cost overrun on a custom product.
In 2015,2016, the Company’sCompany's investment in technology through research and development, which was expensed, totaled approximately $1,707,000$1,152,000 ($1,856,0001,707,000 in 2014)2015). The Company’sCompany's research and development expenditures were directed primarily toward standard proprietary power management products, including industrial power controllers and DC-DC converters, fiber optic transceivers, high voltage optocouplers and continued product development and improvements associated with the Company’sCompany's space level and other high reliability programs. In addition to the Company's investment in research and development, various customers paid the Company approximately $561,000 in non-recurring engineering revenue with $1,683,000 recorded within cost of goods sold associated with the development of custom products for specific applications which included the $1,100,000 non-recurring cost overrun on a custom product.
Selling, general, and administrative expenses totaled 20.1%23.5% of net sales in 20152016 compared to 21.1%20.1% in 2014,2015, due primarily to the increase inlower net sales. In dollars expensed, selling, general and administrative expenses totaled $4,026,000$4,132,000 in 20152016 as compared to $4,036,000$4,026,000. Group health insurance cost increased $66,000 in 2014, a decrease of $10,000.2016.
Other income and net interest income (expense) for fiscal 20152016 totaled $52,000$56,000 compared to $37,000$51,000 for fiscal 2014.2015. The increase inmajority of the other income is related to higher reclamation of precious metals, such as gold and silver (from scrap and obsolete material).
Income before taxes for fiscal 20152016 was approximately $2,185,000,$345,000, or 10.9%1.9% of net sales, compared to $1,515,000,$2,184,000, or 7.9%10.9% of net sales in fiscal 2014.2015. The higherlower income was associated with an increasea decrease in revenue.revenue and cost overrun as described above.
Provisions for income tax for fiscal 20152016 totaled $690,000$110,000 compared to $490,000$690,000 for fiscal 2014.2015. The Company’sCompany's effective income tax rate was 32% for the year ended November 30, 20152016 and November 30, 2014.2015.
Net income totaled approximately $235,000 or $0.09 per share in 2016 versus 2015 net income of $1,494,000 or $0.58 per share in 2015 versus 2014 net income of $1,025,000 or $0.40 per share.
Liquidity and Capital Resources
On JanuaryApril 23, 2015,2016, the Company renewed the Loan Agreement with a Texas banking institution. The Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000, and specific advance loans for acquisitions with an aggregate amount not to exceed $7,500,000 in a single advance or in multiple advances. The revolving credit loan renews ever two years and the loan for acquisitions renews ever year. The Loan Agreement also contains financial covenants to maintainmaintain at all times including (i) minimum working capital of not less than $4,000,000, (ii) a ratio of senior funded debt, minus the Company’sCompany's balance sheet cash on hand to the extent in excess of $2,000,000 to EBITDA of not more than 3.0 to 1.0, and (iii) a ratio of free cash flow to debt service of not less than 1.2 to 1.0. The Company has not, to date, drawn any amounts under the loan agreement or the revolving line of credit loan expires on April 23, 2017 and is currently in compliance with the specific advance loan expires on April 23, 2016.financial covenants.
The Company generated $3,328,000 netused $2,133,000 of cash flow from operations in 20152016 compared to $1,481,000 in 2014.$3,328,000 of cash provided from operations 2015. The increasedecrease in net cash provided by operations is due to an increasea decrease in deferred revenue of $2,754,000 resulting$1,573,000 from shipment of product from advanced payments from one customer.customer in 2014 and 2015. The Company used $427,000$238,000 in cash for investment in additional manufacturing equipment in 20152016 compared to $493,000$427,000 in 2014.2015.
The Company issued a dividend payment of $0.10 per share to all shareholders of record for each of the last two years. The total dividend payment was $258,000 per year.
As of November 30, 2015,2016, the Company had $12,651,000$10,012,000 in cash and cash equivalents compared to $9,994,000$12,651,000 in cash and cash equivalents on November 30, 2014.2015. The Company held $2,004,000$2,014,000 in short term investments at November 30, 20152016 and $2,009,000$2,004,000 at November 30, 2014.2015.
The Company continues on-going investigations for the use of cumulative cash for business expansion and improvements, such as operational improvements, new product expansion, facility upgrades, and acquisition opportunities.
Company management believes it will meet its 20162017 capital requirements through the use of cash derived from operations for the year and/or usage of the Company’sCompany's cash and cash equivalents. There were no significant outstanding commitments for equipment purchases or improvements at November 30, 2015.2016.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements.
Critical Accounting Policies
InventoriesRevenue Recognition
Revenues are recorded as shipments are made based upon contract prices. Any losses anticipated on fixed price contracts are provided for currently. Sales are recorded net of sales returns, allowances and discounts.
Deferred Revenue represents prepayments from customers and will be recognized as revenue when the products are shipped per the terms of the contract.
On May 28, 2015, the FASB issued ASU No. 2015-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2015-09 will have on its consolidated financial statements and related disclosures. On July 9, 2016 the FASB agreed to defer the effective date to annual reporting periods beginning after December 15, 2017 and the interim periods within that year. The Company has not yet selected a transition methodnor has it determined the effect of the standard on its ongoing financial reporting.
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. The Company determines the need to write inventory down below its cost via an analysis based on the usage of inventory over a three year period and projected usage based on current backlog.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method the Company records deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax law or rates in the period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
Item 8. Financial Statements and Supplementary Data
Page No.
Item 8. | Financial Statements and Supplementary Data |
Page No.
| 13 | Report of Independent Registered Public Accounting Firm - Whitley Penn LLP |
14 | Report of Independent Registered Public Accounting Firm - KPMG LLP |
| |
| 1415 | Balance Sheets as of |
| | November 30, 20152016 and 20142015 |
| | |
| 1516 | Statements of Income for the years ended |
| | November 30, 20152016 and 20142015 |
| | |
| 1617 | Statements of Shareholders’Shareholders' Equity for the years |
| | ended November 30, 20152016 and 20142015 |
| | |
| 1718 | Statements of Cash Flows for the years ended |
| | November 30, 20152016 and 20142015 |
| | |
| 18-2119-23 | Notes to Financial Statements as of and for the years ended |
| | November 30, 20152016 and 20142015 |