SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549D.C. 20549

FORM 10-Q


(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 29, 2015February 27, 2016
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-5109

MICROPAC INDUSTRIES, INC.

Delaware
75-1225149
(State of Incorporation)(IRS Employer Identification No.)
905 E. Walnut, Garland, Texas
75040
(Address of Principal Executive Office)(Zip Code)

Registrant’s Telephone Number, including Area Code (972) 272-3571

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 x No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
Accelerated filer o
Non-accelerated filero
Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
On October 12, 2015April 11, 2016 there were 2,578,315 shares of Common Stock, $0.10 par value outstanding.
 
1

MICROPAC INDUSTRIES, INC.

FORM 10-Q

August 29, 2015February 27, 2016

INDEX

PART I -FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Balance Sheets as of August 29, 2015February 27, 2016 (unaudited) and November 30, 20142015
Condensed Statements of Operations for the three and nine months ended August 29,February 27, 2016 and February 28, 2015 and August 30, 2014 (unaudited)
Condensed Statements of Cash Flows for the ninethree months ended August 29,February 27, 2016 and February 28, 2015 and August 30, 2014 (unaudited)
Notes to Condensed Financial Statements (unaudited)
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4 - CONTROLS AND PROCEDURES
PART II-OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 1A -RISK FACTORS
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
ITEM 4 - MINE SAFETY DISCLOSURE
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS
SIGNATURES
 
 
2


PART I - FINANCIAL INFORMATION

ITEM 1 - 1.    FINANCIAL STATEMENTS

MICROPAC INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands)


  08/29/15  11/30/14 
  (Unaudited)    
ASSETS      
       
CURRENT ASSETS      
Cash and cash equivalents $12,503  $9,994 
Short-term investments  2,003   2,009 
Receivables, net of allowance for doubtful accounts of $0 at August 29, 2015  and November 30, 2014  2,361   2,332 
Inventories:        
Raw materials and supplies  4,326   3,137 
Work-in process  2,726   2,343 
    Total inventories
  7,052   5,480 
Deferred income taxes  594   610 
Prepaid income tax  -   210 
Prepaid expenses and other assets  186   215 
    Total current assets
  24,699   20,850 
         
PROPERTY, PLANT AND EQUIPMENT, at cost:        
Land  80   80 
Buildings  498   498 
Facility improvements  1,109   1,109 
Machinery and equipment  8,359   8,262 
Construction in process equipment  341   265 
Furniture and fixtures  715   715 
    Total property, plant, and equipment
  11,102   10,929 
Less accumulated depreciation  (8,851)  (8,777)
    Net property, plant, and equipment
    2,251   2,152 
         
    Total assets
 $26,950  $23,002 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable $433  $575 
Accrued compensation  584   598 
Deferred revenue  3,212   101 
Other accrued liabilities  148   161 
Income taxes payable  87   - 
    Total current liabilities
  4,464   1,435 
         
DEFERRED INCOME TAXES  422   368 
         
SHAREHOLDERS’ EQUITY        
Common stock, ($0.10 par value), authorized 10,000,000 shares,  308   308 
3,078,315 issued and 2,578,315 outstanding at        
August 29, 2015 and November 30, 2014        
Additional paid-in capital  885   885 
Treasury stock, 500,000 shares, at cost  (1,250)  (1,250)
Retained earnings  22,121   21,256 
         
    Total shareholders’ equity
  22,064   21,199 
         
    Total liabilities and shareholders’ equity
 $26,950  $23,002 
ASSETS

CURRENT ASSETS 
02/27/16
  
11/30/15
 
  (Unaudited)    
       
       
Cash and cash equivalents $12,090  $12,651 
Short-term investments  2,006   2,004 
        Receivables, net of allowance for doubtful accounts of
        $0 at February 27, 2016  and November 30, 2015
  2,365   2,360 
Inventories:        
Raw materials and supplies  3,889   4,255 
Work-in process  2,874   2,613 
                             Total inventories  6,763   
6,868
 
Deferred income taxes  693   693 
Prepaid expenses and other assets  143   161 
                             Total current assets  24,060   24,737 
         
PROPERTY, PLANT AND EQUIPMENT, at cost:        
Land  80   80 
Buildings  498   498 
Facility improvements  1,109   1,109 
Furniture and fixtures  719   719 
Construction in process equipment  349   347 
Machinery and equipment  8,430   8,432 
                      Total property, plant, and equipment  11,185   11,185 
Less accumulated depreciation  (9,003)  (8,929)
                                     Net property, plant, and equipment  2,182   2,256 
 
                                      Total assets
 $26,242  $26,993 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable $452  $404 
Accrued compensation  410   666 
Deferred revenue  2,720   2,855 
Property Taxes  23   90 
Income taxes payable  1   109 
Other accrued liabilities  93   74 
                        Total current liabilities  3,699   4,198 
         
DEFERRED INCOME TAXES  360   360 
         
SHAREHOLDERS' EQUITY        
Common stock, ($.10 par value), authorized 10,000,000
            shares, 3,078,315 issued and 2,578,315 outstanding at
            February 27, 2016 and November 30, 2015
  308   308 
Additional paid-in capital  885   885 
       Treasury stock, 500,000 shares, at cost  (1,250)  (1,250)
Retained earnings  22,240   22,492 
         
                                Total shareholders' equity  22,183   22,435 
         
                                        Total liabilities and shareholders' equity $26,242  $26,993 
         

See accompanying notes to financial statements.

 
3
 

MICROPAC INDUSTRIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)


  Three months ended  Nine months ended 
  08/29/15  08/30/14  08/29/15  08/30/14 
             
NET SALES $5,268  $5,150  $15,319  $15,171 
                 
COST AND EXPENSES:                
Cost of goods sold  (3,232)  (3,390)  (9,248)  (9,373)
Research and development  (351)  (515)  (1,336)  (1,368)
Selling, general & administrative expenses  (1,013)  (983)  (3,070)  (3,089)
                 
    Total cost and expenses
  (4,596)  (4,888)  (13,654)  (13,830)
                 
OPERATING INCOME BEFORE INTEREST AND  TAXES  672   262   1,665   1,341 
                 
Other income  8   -   20   - 
Interest (expense) income, net  (3)  14   (7)  8 
                 
INCOME BEFORE TAXES $677  $276  $1,678  $1,349 
                 
Provision for taxes  (223)  (100)  (555)  (486)
                 
NET INCOME $454  $176  $1,123  $863 
                 
NET INCOME PER SHARE, BASIC AND DILUTED $0.18  $0.07  $0.44  $0.33 
                 
DIVIDENDS PER SHARE $-  $-  $0.10  $0.10 
                 
WEIGHTED AVERAGE OF SHARES, basic and diluted  2,578,315   2,578,315   2,578,315   2,578,315 

  
Three months ended
 
  
02/27/16
  
02/28/15
 
       
       
NET SALES $4,205  $4,786 
         
COST AND EXPENSES:        
         
    Cost of goods sold  (2,894)  (2,850)
         
    Research and development  (307)  (568)
         
    Selling, general & administrative expenses  (1,003)  (1,040)
         
                                    Total cost and expenses  (4,204)  (4,458)
         
OPERATING INCOME  1   328 
         
Other income  7   2 
Expense, net  -   (2)
         
INCOME BEFORE TAXES  8   328 
         
    Provision for taxes  (3)  (118)
         
NET INCOME $5  $210 
NET INCOME PER SHARE, BASIC AND DILUTED $0.00  $0.08 
         
DIVIDENDS PER SHARE $0.10  $0.10 
         
WEIGHTED AVERAGE OF SHARES, basic and diluted  2,578,315   2,578,315 



See accompanying notes to financial statements.



4


MICROPAC INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)


  
Three months ended
 
  
2/27/16
  
2/28/15
 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $5  $210 
Adjustments to reconcile net income to        
 net cash provided by (used in) operating activities:
        
  Depreciation and amortization  74   77 
  Deferred taxes  -   19 
         Changes in certain current assets and liabilities:        
     Accounts receivable  (5)  (1,003)
     Inventories  105   151 
                   Prepaid expenses and other current assets  18   72 
     Accounts payable  48   (53)
     Accrued compensation  (256)  (175)
     Deferred revenue  (135)  3,159 
     Other accrued liabilities  (48)  (7)
     Income taxes payable  (108)  55 
         
                                 Net cash provided by (used in) operating activities  (302)  2,505 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
        Sale of short term investments  2,004   2,009 
        Purchase of short term investments  (2,006)  (2,001)
        Additions to property, plant and equipment  1   (37)
         
                         Net cash used in investing activities  (1)  (29)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
         Cash dividend  (258)  (258)
         
                                  Net cash used in financing activities  (258)  (258)
         
Net change in cash and cash equivalents  (561)  2,218 
         
Cash and cash equivalents at beginning of period  12,651   9,994 
         
Cash and cash equivalents at end of period $12,090  $12,212 
         
  Nine months ended 
  8/29/15  8/30/14 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $1,123  $863 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  231   238 
Deferred tax expense  70   127 
Changes in certain current assets and liabilities        
(Increase) decrease in accounts receivable  (29)  438 
(Increase) decrease in inventories  (1,572)  705 
Decrease (increase) in prepaid expense and other current assets  29   (249)
Decrease in prepaid income taxes  210   - 
Increase (decrease) in deferred revenue  3,111   (453)
Decrease in accounts payable  (121)  (128)
Decrease in accrued compensation  (14)  (72)
Decrease in other accrued liabilities  (13)  (10)
Increase (decrease) in income taxes payable  87   (33)
         
       Net cash provided by operating activities
  3,112   1,426 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Proceeds from maturity of short-term investments  4,011   4,011 
Purchase of short-term investments  (4,005)  (4,013)
Additions to property, plant and equipment  (351)  (223)
         
       Net cash used in investing activities
  (345)  (225)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Cash dividend  (258)  (258)
         
       Net cash used in financing activities
  (258)  (258)
         
Net change in cash and cash equivalents  2,509   943 
         
Cash and cash equivalents at beginning of period  9,994   9,263 
         
Cash and cash equivalents at end of period $12,503  $10,206 
         
Supplemental Cash Flow Disclosure:        
Cash paid for income taxes $363  $596 
         
Supplemental Non-Cash Investing Activity:        
Accrued additions to equipment $(21) $- 
Supplemental Cash Flow Disclosure:
Cash paid for income taxes$110$-




See accompanying notes to financial statements.




5
 

MICROPAC INDUSTRIES, INC.iNC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)


Note 1 BASIS OF PRESENTATION

Business Description

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.

In the opinion of management, the unaudited financial statements include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position as of August 29, 2015,February 27, 2016, the results of operations for the three months ended February 27, 2016 and nine months ended August 29,February 28, 2015, and August 30, 2014, and the cash flows for the ninethree months ended August 29, 2015February 27, 2016 and August 30, 2014.February 28, 2015. Unaudited financial statements are prepared on a basis substantially consistent with those audited for the year ended November 30, 2014.2015. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission. However, management believes thatThe Company's fiscal year ends on the disclosures contained are adequate to makelast day of November. The quarterly results end on the information presented not misleading.last Saturday of the quarter.

Note 2 SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with U.S. generally 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 sales and expenses during the reporting period.  Actual results could differ from those estimates.

Revenue Recognition

Sales 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.

The Company recognizes sales in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 605-10-S99, Revenue Recognitionwhen (ASC 605-10-S99). ASC 605-10-S99 requires that four basic criteria must be met before sales can be recognized:are met: (1) persuasive evidence of an arrangement exists; (2) shipment has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured.

Deferred revenue represents prepayments from customers and will be recognized as sales when the products are shipped per the terms of the contract.


Short-Term Investments

The Company has $2,003,000$2,006,000 in short term investments at August 29, 2015.February 27, 2016. Short-term investments consist of certificates of deposits with initial maturities greater than 90 days.  These investments are reported at historical cost, which approximates fair value. All highly liquid investments with initial maturities of 90 days or less are classified as cash equivalents.  All short-term investments are securities which the Company has the ability and intent to hold to maturity and mature within one year.

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.

6

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.

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 estimated useful lives (in years) of the assets:

Buildings15
Facility improvements8-15
Machinery and equipment5-10
Furniture and fixtures5-8

The Company assesses long-lived assets for impairment under ASC 360-10-35, Property, Plant and Equipment – Subsequent Measurement.  Whenwhen events or circumstances indicate that an asset may be impaired, an assessment is performed.impaired. The estimated future undiscounted cash flows associated with the asset are compared to the asset’sasset's net book value to determine if a write down to market value less cost to sell is required.

Repairs and maintenance are expensed as incurred. Improvements which extend the useful life of property, plant, and equipment are capitalized.

Research and Development Costs

Costs for the design and development of new products and processes are expensed as incurred.

Note 3 NEW ACCOUNTING PRONOUNCEMENTPRONOUNCEMENTS

On May 28, 2014, the FASB issued ASU No. 2014-09, 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 2014-09 will have on its consolidated financial statements and related disclosures. On July 9, 2015 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 method nor has it determined the effect of the standard on its ongoing financial reporting.

Note 4 FAIR VALUE MEASUREMENT

The Company had no financial assets or liabilities measured at fair value on a recurring basis as of August 29, 2015February 27, 2016 and November 30, 2014.2015.  The fair value of financial instruments such as cash and cash equivalents, short-termshort term investments, accounts receivable, and accounts payable approximate their carrying amount based on the short maturity of these instruments.  There were no nonfinancial assets measured at fair value on a nonrecurring basis at August 29, 2015February 27, 2016 and November 30, 2014.2015.

Note 5 COMMITMENTS

On January 23, 2015, 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 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 and is currently in compliance with the financial covenants.

7

Note 6 EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are computed based upon the weighted average number of shares outstanding during the respective periods. Diluted earnings per share gives effect to all dilutive potential common shares. For the three months ended February 27, 2016 and nine months ended August 29,February 28, 2015, and August 30, 2014, the Company had no dilutive potential common stock.
7

Note 7 SHAREHOLDERS’SHAREHOLDERS' EQUITY

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 the 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  the shareholders on February 10, 2015.

On December 15, 2015, 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, 2016.  The dividend was paid to shareholders on February 11, 2016.




 

8
 

MICROPAC INDUSTRIES, INC.
(Unaudited)


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

Micropac Industries, Inc. (the “Company”"Company"), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power controllers,management products, 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 NASA core supplier, and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has UL approval on the new isolated solid state industrial power controllers.

The Company’sCompany's core technology is the packaging and interconnecting of miniature electronic components, utilizing thick film substrates, forming microelectronics circuits. 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.assemblies

Results of Operations
  
Three months ended
 
  
2/27/2016
  
2/28/2015
 
NET SALES  100.0%  100.0%
         
COST AND EXPENSES:        
    Cost of Goods Sold  68.9%  59.5%
    Research and development  7.3%  11.9%
    Selling, general & administrative expenses  
23.8
%
  
21.7
%
                                    Total cost and expenses  100.0%  93.1%
         
OPERATING INCOME  0.0%  6.9%
         
    Other income  0.2%  - 
         
INCOME BEFORE TAXES  0.2%  6.9%
         
    Provision for taxes  0.1%  2.5%
         
NET INCOME  0.1%  4.4%

  Three months ended  Nine months ended 
  8/29/2015  8/30/2014  8/29/2015  8/30/2014 
             
NET SALES  100.0%  100.0%  100.0%  100.0%
                 
COST AND EXPENSES:                
Cost of Goods Sold  61.3%  65.8%  60.4%  61.8%
Research and development  6.7%  10.0%  8.7%  9.0%
Selling, general & administrative expenses  19.2%  19.1%  20.0%  20.4%
    Total cost and expenses
  87.2%  94.9%  89.1%  91.2%
                 
OPERATING INCOME BEFORE INTEREST AND INCOME TAXES  12.8%  5.1%  10.9%  8.8%
                 
Interest and other income  0.1%  0.3%  0.1%  0.1%
                 
INCOME BEFORE TAXES  12.9%  5.4%  11.0%  8.9%
                 
Provision for taxes  4.3%  2.0%  3.6%  3.2%
                 
NET INCOME  8.6%  3.4%  7.4%  5.7%

Sales for the three and nine month periodsfirst quarter ended August 29, 2015February 27, 2016 totaled $5,268,000 and $15,319,000, respectively.$4,205,000. Sales for the thirdfirst quarter increased 2.3%decreased 12.1% or $118,000 above sales for the same period of 2014, while$581,000 below sales for the first nine monthsquarter  of 2015 increased 1% or $148,000 above the first nine months of 2014.with a decrease in various standard optocouplers products. Sales were 15%18% in the commercial market, 59% in the military market, and 26% in the space market for the nine months ended August 29, 2015 compared to 24% in the commercial market, 61%67% in the military market, and 15% in the space market for the nine months ended August 30, 2014.
9

Two customers accounted for 18% and 11% each of the Company’s sales for the three months ended August 29, 2015 and two customers accounted for 17% and 13% each of the Company’s sales for the nine months ended August 29, 2015, while two customers accounted for 11% and 10% of the Company’s sales for the three months ended August 30, 2014, and no customers accounted for 10% or more of the Company’s sales for the nine months ended August 30, 2014.

Cost of goods sold for the third quarters of 2015 and 2014 totaled 61.3% and 65.8% of net sales, respectively, while cost of goods sold for the nine months ended August 29, 2015 and August 30, 2014 totaled 60.4% and 61.8% of net sales, respectively. Cost of goods sold as a percent of sales decreased in the thirdfirst quarter of 20152016 compared to 2014 associated with changes in product mix and costs incurred during the third quarter of 2014 related to lower yields on light emitting diode die produced in the Company’s front end manufacturing area that were not repeated in the third quarter of 2015. In actual dollars, cost of goods sold decreased $158,000 in the third quarter of 2015 compared to the same period of 2014. Year to date cost of goods sold decreased $125,000 for the first nine months of 2015 as compared to the same periods in 2014.

Research and development expense decreased $164,000 for the third quarter of 2015 versus 2014 and decreased $32,000 for the first nine months of 2015 compared to the same period of 2014. The research and development expenditures were associated with continued development of several power management products, fiber optic transceivers and high voltage optocouplers. The Company will continue to invest in development of these products and other new opportunities.

Selling, general and administrative expense for the third quarter and first nine months of 2015 totaled 19.2% and 20.0% respectively of net sales compared to 19.1% and 20.4% for the same periods in 2014. In actual dollars, selling, general and administrative expense increased $30,000 for the third quarter and decreased $19,000 for the first nine months of 2015 compared to the same periods in 2014.

Provisions for taxes increased $69,000 for the first nine months of 2015 compared to the same period in 2014. The estimated effective tax rate was 33% for 2015 and 36% for 2014.

Net income increased $278,000 for the third quarter of 2015 versus 2014 and increased $260,000 for the first nine months of 2015 compared to the same period of 2014.

Liquidity and Capital Resources

Cash and cash equivalents totaled $12,503,000 as of August 29, 2015 compared to $9,994,000 on November 30, 2014, an increase of $2,509,000.  The increase in cash and cash equivalents is primarily attributable to $3,112,000 cash provided from operations including advanced payments from customers of $3,111,000 for the purchase of long lead time materials, offset by a payment of a cash dividend of $258,000, and the investment of $351,000 in equipment.

The Company expects to continue to generate adequate amounts of cash to meet its liquidity needs from the sale of products and services and the collection thereof for at least the next twelve months.

Outlook

New orders for year-to-date 2015 totaled $12,535,000 compared to $13,514,000 for 2014.  The decrease resulted from lower orders on various space level products.

Backlog totaled $18,391,000 on August 29, 2015 compared to $10,877,000 as of August 30, 2014 and $21,175,000 on November 30, 2014. The backlog represents a good mix of the company’s products and technologies with 22%15% in the commercial market, 39% in the military market, and 39% in the space market compared to 6% in the commercial market, 81%72% in the military market, and 13% in the space market for the same period of 2015.

Two customers accounted for 11% and 10% of the Company's sales for the first quarter of 2016 while one customer accounted for 17% of the Company's sales for the first quarter of 2015.
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Cost of goods sold for the first quarter of 2016 and 2015 totaled 68.9% and 59.5% of net sales, respectively.  Cost of goods sold increased $44,000 in the first quarter of 2016 as compared to 2015 due to product mix and the decrease in various standard optocoupler product sales.

Research and development cost decreased $261,000 for the first quarter of 2016 compared to the same period of 2015. The research and development expenditures were associated with the continued development of power management products, high voltage optocouplers and process automation improvements.

Selling, general and administrative expenses for the first quarter of 2016 totaled 23.8% of net sales, compared to 21.7% for the same period in 2015. Selling, general and administrative expenses decreased $37,000 in the first quarter of 2016 as compared to 2015.

Provisions for taxes decreased $116,000 for the first quarter of 2016 compared to the same period in 2015. The estimated effective tax rate was 32% for the first quarter of 2016 and 36% for the same period of 2015.

Net income for the first quarter of 2016 was $5,000, a decrease of $205,000 from the first quarter of 2015.

Liquidity and Capital Resources

Cash and cash equivalents totaled $12,090,000 as of February 27, 2016 compared to $12,651,000 on AugustNovember 30, 2014.2015, a decrease of $561,000.  The decrease in cash and cash equivalents is attributable to $286,000 cash used in operations, a payment of a cash dividend of $258,000, net payments for short-term investment of $2,000 and the investment of $14,000 in equipment.

In addition to cash on hand, the Company also has the ability to borrow under a loan agreement as discussed in note 5 to the condensed financial statements.

Outlook

New orders for the first quarter of 2016 totaled $2,837,000 compared to $6,642,000 for the comparable period of 2015. Backlog totaled $17,558,000 on February 27, 2016 compared to $22,949,000 as of February 28, 2015 and $18,925,000 on November 30, 2015. The majority of the backlog is expected to be completed and shipped in the next twelve months.

The Company cannot assure that the results of operations for the interim period presented are indicative of total results for the entire year due to fluctuations in customer delivery schedules, or other factors over which the Company has no control.

Cautionary Statement

This Form 10-Q 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.

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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. Approximately $1,600,000$1,800,000 of the Company’sCompany's backlog is dependent on these semiconductors.

The Company disclaims any responsibility to update the forward-looking statements contained herein, except as may be required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures.

The Company’s Chief Executive Officer and Chief Financial Officer (the Certifying Officers) are responsible for establishing and maintaining disclosure controls and procedures forof the Company. The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this report was prepared. The Certifying Officers haveCompany evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e) (the Rules) under the Securities Exchange Act of 1934 (or Exchange Act)) and determined thatRule 13a-15) as of August 29, 2015,February 27, 2016 and, based on this evaluation, concluded that the Company's disclosure controls and procedures are notfunctioning in an effective duemanner to ensure that the continuing material weaknesses describedinformation required to be disclosed by the Company in Management’s Annual Report on Internal Control Over Financial Reporting asthe reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in our Annual Report on  Form 10-K at November 30, 2014.the SEC's rules and forms.
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(b)Changes in internal controls.

During the first, second and third quarters of 2015, our management was actively engagedThere has been no change in the implementation of remediation efforts to address the material weaknesses that were identified in our Annual Report on Form 10-K for Fiscal 2014. These remediation efforts were designed both to address the identified material weaknesses and to enhance our overall financial reporting control environment. The plan to remediate those material weaknesses was described in detail in our Annual Report on Form 10-K for Fiscal 2014 and our efforts to implement that plan are summarized below:

·  The Company has hired an additional qualified staff accountant with a masters in accounting.

·  We have implemented personnel resource plans, as well as training, designed to ensure that we have sufficient personnel with knowledge, experience, and training in the application of GAAP commensurate with our financial reporting requirements.

·  The Company has re-designed and strengthened our tax accounting process using internal resources and external training.

·  We developed enhanced controls and user checklists to be used during monthly, quarterly, and year end close processes.
The Accounting Manager and CFO performed additional closing procedures in the first, second and third quarters of 2015. As a result, we believe that there are no material inaccuracies or omissions of material fact and, to the best of our knowledge, believe that the condensed financial statements of the Company at and for the three months and nine months ended August 29, 2015, fairly present in all material respects, the Company’s financial condition and results of operations in conformity with U.S. GAAP.
There have not been any other changes inCompany's internal control over financial reporting in the three months ended August 29, 2015 that havehas materially affected, or areis reasonably likely to materially affect, ourthe Company's internal control over financial reporting.reporting during the three month period ended February 27, 2016.



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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
ITEM 1.LEGAL PROCEEDINGS

The Company is not involved in any material current or pending legal proceedings.

ITEM 1A RISK FACTORS
ITEM 1ARISK FACTORS

Information about risk factors for the three months and nine months ended August 29, 2015February 27, 2016 does not differ materially from that set forth in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended November 30, 2014.2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.                 MINE SAFETY DISCLOSURE

Not Applicable

ITEM 5.                OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a) Exhibits

31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- OxleySarbanes-Oxley Act of 2002
31.2Certification of Chief Accounting Officer pursuant to Section 302 of the  Sarbanes- OxleySarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 20022002.
32.2Certification of Chief Accounting Officer pursuant to 18 U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 20022002.
  
101Interactive data files pursuant to Rule 405 of Regulation S-T.



 

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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.


April 12, 2016
October 13, 2015
/s/ Mark King
DateMark King
Chief Executive Officer
October 13, 2015
April 12, 2016
/s/ Patrick Cefalu
DatePatrick Cefalu
Chief Financial Officer


 
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