SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549

FORM 10-Q


(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended May 26,August 25, 2012
OR
o 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)
  
(972) 272-3571 
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 July 10,October 9, 2012 there were 2,578,315 shares of Common Stock, $.10 par value outstanding.
 

 
1
 
 

MICROPAC INDUSTRIES, INC.
 

 
 
FORM 10-Q
 

May 26,August 25, 2012

INDEX

PART I-FINANCIALI   -  FINANCIAL INFORMATION
  
 ITEM 1 -  FINANCIAL STATEMENTS
  
 Condensed Balance Sheets as of May 26,August 25, 2012 (unaudited) and November 30, 2011
 Condensed Statements of Operations for the three and sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011 (unaudited)
 Condensed Statements of Cash Flows for the sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011 (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-OTHERII   -  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

SIGNATURES



 
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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS


MICROPAC INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share data)

ASSETS
ASSETS      
CURRENT ASSETS 8/25/2012  11/30/2011 
  (Unaudited)    
       
Cash and cash equivalents $7,124  $8,488 
Short-term investment  2,003   2,000 
Accounts receivable  2,531   1,911 
Inventories:        
     Raw materials  3,039   2,803 
     Workin process  2,939   2,475 
Total inventories  5,978   5,278 
         
Prepaid expenses and other current assets  331   145 
Prepaid income tax  341   474 
Deferred income tax  590   720 
                         Total current assets  18,898   19,016 
         
PROPERTY, PLANT AND EQUIPMENT, at cost:        
Land  80   80 
Buildings  498   498 
Facility improvements  1,059   1,059 
Machinery and equipment  7,911   7,526 
Furniture and fixtures  672   672 
Total property, plant, and equipment  10,220   9,835 
Less accumulated depreciation  (8,141)  (7,901)
                         Net property, plant, and equipment  2,079   1,934 
         
                         Total assets $20,977  $20,950 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable $863  $359 
Accrued compensation  450   570 
Other accrued liabilities  182   471 
Deferred revenue  5   175 
Income taxes payable  37   98 
Total current liabilities  1,537   1,673 
         
DEFERRED INCOME TAXES  394   420 
         
SHAREHOLDERS’ EQUITY        
Common stock, ($.10 par value), authorized 10,000,000
       shares, 3,078,315 issued and 2,578,315 outstanding at
  August 25, 2012 and November 30, 2011
  308   308 
Paid-in capital  885   885 
Treasury stock, 500,000 shares, at cost  (1,250)  (1,250)
Retained earnings  19,103   18,914 
         
                         Total shareholders’ equity  19,046   18,857 
         
                         Total liabilities and shareholders’ equity $20,977  $20,950 

CURRENT ASSETS 05/26/12  11/30/11 
  (Unaudited)    
       
Cash and cash equivalents
 $7,404  $8,488 
Short-term investment
  2,003   2,000 
Accounts receivable
  2,430   1,911 
Inventories:
        
Raw materials
  2,825   2,803 
Work-in process
  2,570   2,475 
Total inventories
  5,395   5,278 
Prepaid expenses and other current assets
  114   145 
Prepaid income tax
  432   474 
Deferred income tax
  720   720 
                             Total current assets
  18,498   19,016 
         
PROPERTY, PLANT AND EQUIPMENT, at cost:        
Land
  80   80 
Buildings
  498   498 
Facility improvements
  1,059   1,059 
Machinery and equipment
  7,610   7,526 
Furniture and fixtures
  672   672 
                      Total property, plant, and equipment
  9,919   9,835 
Less accumulated depreciation
  (8,067)  (7,901)
                                     Net property, plant, and equipment  1,852   1,934 
 
                                      Total assets
 $20,350  $20,950 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
CURRENT LIABILITIES:        
Accounts payable
 $391  $359 
Accrued compensation
  388   570 
Other accrued liabilities
  387   471 
Deferred revenue
  39   175 
Income taxes payable
  36   98 
                        Total current liabilities
  1,241   1,673 
         
DEFERRED INCOME TAXES  420   420 
         
SHAREHOLDERS’ EQUITY        
Common stock, ($.10 par value), authorized 10,000,000 shares,
   3,078,315 issued and 2,578,315 outstanding at May 26, 2012
           and November 30, 2011
  308   308 
Paid-in capital
  885   885 
       Treasury stock, 500,000 shares, at cost  (1,250)  (1,250)
Retained earnings
  18,746   18,914 
         
                                Total shareholders’ equity
  18,689   18,857 
         
                                        Total liabilities and shareholders’ equity $20,350  $20,950 


See accompanying notes to financial statements.


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


            
  Three months ended   Six months ended  Three months ended  Nine months ended 
 05/26/12  05/28/11  05/26/12  05/28/11  8/25/2012  8/27/2011  8/25/2012  8/27/2011 
                        
                        
NET SALES $4,098  $5,437  $7,812  $11,027  $4,632  $4,624  $12,444  $15,651 
                
COST AND EXPENSES:                                
                
Cost of goods sold  (3,054)  (3,529)  (5,659)  (6,931)  (2,952)  (3,083)  (8,611)  (10,014)
                
Research and development  (81)  (246)  (203)  (395)  (168)  (89)  (371)  (484)
                
Selling, general & administrative expenses  (947)  (978)  (1,815)  (1,958)  (976)  (937)  (2,791)  (2,895)
                
Total cost and expenses  (4,082)  (4,753)  (7,677)  (9,284)  (4,096)  (4,109)  (11,773)  (13,393)
                                
OPERATING INCOME BEFORE INTEREST,OTHER INCOME AND INCOME TAXES  16   684   135   1,743 
                
OPERATING INCOME BEFORE INTEREST,  536   515   671   2,258 
OTHER INCOME AND INCOME TAXES                
Interest and other income  3   7   6   7   21   7   27   14 
                
INCOME BEFORE TAXES $19  $691 8  $141  $1,750  $557  $522   698  $2,272 
                
Provision for taxes  (7)  (249)  (51)  (630)  (200)  (188)  (251)  (818)
                
NET INCOME $12  $442  $90  $1,120  $357  $334  $447  $1,454 
NET INCOME PER SHARE, BASIC AND DILUTED $-  $.17  $.03  $.43  $0.14  $0.13  $0.17  $0.56 
                
DIVIDENDS PER SHARE $-  $-  $.10  $.10  $-  $-  $0.10  $0.10 
                
WEIGHTED AVERAGE OF SHARES, Basic and diluted  2,578,315   2,578,315   2,578,315   2,578,315   2,578,315   2,578,315   2,578,315   2,578,315 






See accompanying notes to financial statements.



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


 Six months ended  Nine months ended 
 5/26/12  5/28/11  8/25/2012  8/27/2011 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income
 $90  $1,120  $447  $1,454 
Adjustments to reconcile net income to
                
net cash provided by (used in) operating activities:
                
Depreciation
  166   148   240   234 
Deferred tax expense  104   - 
Changes in certain current assets and liabilities
                
(Increase) decrease in accounts receivable
  (519)  933   (620)  512 
(Increase) decrease in inventories
  (117)  5 
Decrease in prepaid expense and other current assets
  73   8 
Increase in inventories  (700)  (179)
Increase in prepaid expense and other current assets  (53)  (104)
Decrease in deferred revenue
  (136)  (676)  (170)  (735)
Increase in accounts payable
  32   87   504   80 
Decrease in accrued compensation
  (182)  (241)  (120)  (195)
Decrease in other accrued liabilities
  (84)  (128)  (289)  (132)
Decrease in income taxes payable
  (62)  (64)
(Decrease) increase in income taxes payable  (61)  32 
                
Net cash provided by (used in) operating activities  (739)  1,192   (718)  967 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of short term investments  (3)  (1,000)  (3)  (1,000)
Additions to property, plant and equipment  (84)  (682)  (385)  (727)
                
Net cash used in investing activities
  (87)  (1,682)  (388)  (1,727)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Cash dividend  (258)  (258)  (258)  (258)
                
Net cash used in financing activities  (258)  (258)  (258)  (258)
                
Net change in cash and cash equivalents  (1,084)  (748)  (1,364)  (1,018)
                
Cash and cash equivalents at beginning of period  8,488   9,085   8,488   9,085 
                
Cash and cash equivalents at end of period $7,404  $8,337  $7,124  $8,067 
                
        
Supplemental Cash Flow Disclosure:                
                
Cash paid for income taxes  $  69  $  694  $75  $978 

See accompanying notes to financial statements.



 
5
 

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

Note 1 BASIS OF PRESENTATION

Business Description

Micropac Industries, Inc. (the “Company”), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power operational amplifiers, and optoelectronic components and assemblies.  The Company’s products are used as components in a broad range of military, space and industrial systems, including aircraft instrumentation and navigation systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200o C) products.  The Company’s products are either custom (being application specific circuits designed and manufactured to meet the particular requirements of a single customer) or standard, proprietary components such as catalog items.

The Company’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’s core technology is the packaging and interconnecting of miniature electronic components, utilizing thick film and thin film substrates, and 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’s optoelectronic components and assemblies.

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 May 26,August 25, 2012, the results of operations for the three months and sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011, and the cash flows for the sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011. Unaudited financial statements are prepared on a basis substantially consistent with those audited for the year ended November 30, 2011. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission.  However, management believes that the disclosures contained are adequate to make the information presented not misleading.

Note 2 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

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.

The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 605-10-S99, Revenue Recognition (ASC 605-10-S99). ASC 605-10-S99 requires that four basic criteria must be met before revenues can be recognized: (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 revenue when the products are shipped per the terms of the contract.


6

Short-Term Investments

The Company has $2,003,000 in short term investments at May 26,August 25, 2012. Short-term investments consist of certificates of deposit with original maturities greater than 90 days.  These investments are reported at historical cost, which approximates fair value. All highly liquid investments with original 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.
6

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 writes down obsolete and overstocked inventory 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.

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:
 
Buildings
15
Facility improvements
  8-15
Machinery and equipment
  5-10
Furniture and fixtures
5-8

The Company assesses long-lived assets for impairment under ASC 360-10-35, Property, Plant and Equipment – Subsequent Measurement.  When events or circumstances indicate that an asset may be impaired, an assessment is performed.  The estimated future undiscounted cash flows associated with the asset are compared to the asset’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 are expensed as incurred.

Note 3 FAIR VALUE MEASUREMENT

The Company had no financial assets and liabilities measured at fair value on a recurring basis as of May 26,August 25, 2012 and November 30, 2011.  The fair value of financial instruments such as cash and cash equivalents, short 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 May 26,August 25, 2012 and November 30, 2011.

Note 4 RELATED PARTIES

Mr. Eugene Robinson, a director and member of the Company’s audit committee, provides advisory services to the Company. Mr. Robinson was paid $1,800 in advisory services fees in the second quarter  ofboth 2012 and 2011.

Note 5 STOCK-BASED COMPENSATION

On March 1, 2001, the Company’s shareholders approved the 2001 Employee Stock Option Plan (the “Stock Plan”) with 500,000 options available to be granted.  No options have been granted to date.

7

Note 6 COMMITMENTS

On June 1, 2011, the Company renewed a $6,000,000 revolving line of credit agreement with a Texas banking institution for a term of two years.  The interest rate is equal to the prime rate. The line of credit requires that the Company maintain a quick ratio of at least 1:1, maintain a tangible net worth of $10,000,000 and maintain a total liabilities to tangible net worth of less than 1.25:1. The Company has not, to date, used any of the available line of credit. The Company is currently in compliance with suchall financial requirements.covenants.
 
7
Note 7 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 give effect to all dilutive potential common shares. For the three and sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011, the Company had no dilutive potential common stock.

Note 8 SHAREHOLDERS’ EQUITY

On December 16, 2010, 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 18, 2011.  The dividend was paid to the shareholders on February 10, 2011.

On December 12, 2011, 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 18, 2012.  The dividend was paid to the Company’s shareholders on February 14, 2012.

Note 9 SUBSEQUENT EVENTS

Management has evaluated subsequent events after the balance sheet date, through the issuance of the financial statements, for appropriate accounting and disclosure.



 
8
 

MICROPAC INDUSTRIES, INC.
(Unaudited)


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

Business

Micropac Industries, Inc. (the “Company”), a Delaware corporation, manufactures and distributes various types of hybrid microelectronic circuits, solid state relays, power operational amplifiers, and optoelectronic components and assemblies.  The Company’s products are used as components in a broad range of military, space and industrial systems, including aircraft instrumentation and navigation systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200o C) products.  The Company’s products are either custom (being application specific circuits designed and manufactured to meet the particular requirements of a single customer) or standard, proprietary components such as catalog items.

The Company’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’s core technology is the packaging and interconnect of miniature electronic components, utilizing thick film and thin film substrates, and 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’s optoelectronic components and assemblies.


Results of Operations


  Three months ended  Nine months ended 
  8/25/2012  8/27/2011  8/25/2012  8/27/2011 
NET SALES  100.00%  100.00%  100.00%  100.00%
                 
COST AND EXPENSES:                
    Cost of Goods Sold  63.7%  66.7%  69.2%  64.0%
    Research and development  3.6%  1.9%  3.0%  3.1%
    Selling, general & administrative expenses  21.1%  20.3%  22.4%  18.5%
                                    Total cost and expenses  88.4%  88.9%  94.6%  85.6%
                 
OPERATING INCOME BEFORE INTEREST  11.6%  11.1%  5.4%  14.4%
           AND INCOME TAXES                
                 
    Interest income  0.4%  0.2%  0.2%  0.1%
                 
INCOME BEFORE TAXES  12.0%  11.3%  5.6%  14.5%
                 
    Provision for taxes  4.3%  4.1%  2.0%  5.2%
                 
NET INCOME  7.7%  7.2%  3.6%  9.3%
  Three months ended  Six months ended 
  5/26/2012  5/28/2011  5/26/2012  5/28/2011 
NET SALES  100.0%  100.0%  100.0%  100.0%
                 
COST AND EXPENSES:                
    Cost of Goods Sold  74.5%  64.9%  72.5%  62.9%
    Research and development  2.0%  4.5%  2.6%  3.5%
    Selling, general & administrative expenses  23.1%  18.0%  23.2%  17.8%
                                    Total cost and expenses  99.6%  87.4%  98.3%  84.2%
                 
OPERATING INCOME BEFORE INTEREST  .4%  12.6%  1.7%  15.8%
           AND INCOME TAXES                
                 
    Interest income  .1%  .1%  .1%  .1%
                 
INCOME BEFORE TAXES  .5%  12.7%  1.8%  15.9%
                 
    Provision for taxes  .2%  4.6%  .6%  5.7%
                 
NET INCOME  .3%  8.1%  1.2%  10.2%

Sales for the three and sixnine month periods ended May 26,August 25, 2012 totaled $4,098,000$4,632,000 and $7,812,000,$12,444,000, respectively.  Sales for the secondthird quarter decreased 24.6% or $1,339,000 below sales forincreased $8,000compared to the same period of 2011, while sales for the first sixnine months of 2012 decreased 29.2%$3,207,000 or $3,215,00020.5% below the first sixnine months of 2011. Sales were 26%25% in the commercial market, 61%60% in the military market, and 13%15% in the space market for the six monthsninemonths ended May 26,August 25, 2012 compared to 22%21% in the commercial market, 42%46% in the military market, and 36%33% in the space market for the sixnine months ended May 28,August 25, 2011.

The major decrease in sales was in microcircuits space level products with a delay or decrease in new orders in the space industry and a delay in a new order for a custom military optoelectronics product. The Company received an addition to a purchase order for a custom military optoelectronics product and a new order for a standard solid state relay on a military program in May 2012 totaling approximately $2,600,000. The Company's management expects sales and operating income to increase in the second half of 2012 as compared to the first half of 2012, based on the current backlog and anticipated new orders in the second half of 2012.industry.
 
 
 
9
 

The Company's management expects sales and operating income during the fourth quarter to remain consistent with the third quarter resulting in a decrease in sales and profit for 2012 as compared to 2011. The current economic downturn and government funding is resulting in delayed or cancelled satellite programs resulting in lower new orders for space level solid state power controllers, lower sales and lower profits.

Two customers each accounted for 12%15% and 10% of the Company’s sales for the three months ended May 26, 2012 and one customerAugust 25, 2012and the same two customers accounted for 11% and 12% of the Company’s sales for the sixnine months ended May 26, 2012, while  oneAugust 25, 2012.One customer accounted for 23%18% and 11%10% of the Company’s sales for the three and sixnine months ended May 28,August 27, 2011, respectively.

Cost of goods sold for the secondthird quarters of 2012 and 2011 totaled 74.5%63.7% and 64.9%66.7% of net sales, respectively, while cost of goods sold for the sixnine months ended May 26,August 25, 2012 and May 28,August 27, 2011 totaled 72.5%69.2% and 62.9%64.0% of net sales, respectively.  The decrease in cost of goods sold as a percentage of sales for the 3 months ended August 25, 2012 compared to the same period of 2011 is associated with increased sales of custom displays and sensors with higher gross margins and the release of a customer warranty reserve offset by the cost to rework and replace the units. The increase in cost of goods sold as a percentage of sales for the nine months ended is attributable to changes in product mix and underabsorbed overhead cost. In actual dollars, cost of goods sold decreased $475,000$131,000 for the secondthird quarter and decreased $1,272,000$1,403,000 for the first sixnine months of 2012 as compared to the same periods in 2011.

Research and development expense decreased $165,000expenseincreased $79,000 for the secondthird quarter of 2012 versus 2011 and decreased $192,000$113,000 for the first sixnine months of 2012 compared to the same period of 2011. The research and development expenditures were associated with continued development of power management products. Theproducts and high voltage optocouplers to be sold to various existing or new customers.The decrease in research and development expense is a result of engineers supporting customer paid non-recurring engineering for the development of custom products for specific applications and supporting current manufacturing production orders requiring engineering support. In addition, the Company hadnine months ended August, 25, 2012 is associated with several engineers leave theleavingthe Company at the end of 2011 and first quarter of 2012. One engineer was replaced in the second quarter of 2012, while the other replacement hasengineers have not been delayed for several months.replaced.

Selling, general and administrative expense for the secondthird quarter and first sixnine months of 2012 totaled 23.1%21.1% and 23.2%22.4% of net sales, respectively, compared to 18.0%20.3% and 17.8%18.5% for the same periods in 2011. In actual dollars, selling, general and administrative expense decreased $31,000increased $39,000 for the secondthird quarter and decreased $143,000$104,000 for the first sixnine months of 2012 compared to the same periods in 2011. The majordollar decrease resulted from lower health insurance expense due to a change in health care providers, as well as decreased incentive compensation as a result of decreased sales and profits.

Provisions for taxes increased $12,000 for the third quarter and decreased $567,000 for the first nine months of 2012 compared to the same periods in 2011. The estimated effective tax rate was associated with a reduction in overall administrative cost with several administrative employees leaving the company36% for other opportunitiesall periods presented during 2012 and the Company assigning those job duties to other administrative associates. In addition, selling expense decreased with a reduction in commission expenses with the lower sales.2011.

Accounts receivable, net, totaled $2,430,000$2,531,000 as of May 26,August 25, 2012 and represents an increaseanincrease of $519,000$620,000 since November 30, 2011, due to slower collections with days sales outstanding of 5349 compared to 40 days at November 30, 2011. The Company expects to collect all accounts receivable due.

ProvisionsInventory increased $700,000 since November 30, 2011 associated with material purchased on new orders for taxes decreased $579,000 for the first six months of 2012 comparedmilitary solid state relays, a custom optoelectronic product to the same period inmilitary, and one new custom medical product.

Property, plant, and equipment investments totaled $385,000 since November 30, 2011. The estimated effective tax rate was 36% for both periods.Company invested in new automation equipment associatedwith die attach and wire bonding.

Accounts payable increased $504,000 since November 30, 2011 associated with an increase in orders and the purchase of associated material.


Liquidity and Capital Resources

Cash and cash equivalents and short term investments totaled $7,404,000$9,127,000 as of May 26,August 25, 2012 compared to $8,488,000$10,488,000 on November 30, 2011, a decrease of $1,084,000.$1,361,000.  The decrease in cash and cash equivalents is primarily attributable to $739,000$718,000 of cash used fromin operations, the payment of a cash dividend of $258,000, $3,000 invested in certificates of deposit and the investment of $84,000$385,000 in new production equipment.

On June 1, 2011, the Company renewed a $6,000,000 revolving line of credit agreement with a Texas banking institutionbank for a term of two years.  The interest rate is equal to the prime rate. The line of credit requires that the Company maintain certain financial ratios. The financial covenants require the Company to maintain a quick ratio of at least 1:1, maintain a tangible net worth of $10,000,000 and maintain a total liabilities to tangible net worth of less than 1.25:1. The Company has not, to date, used any of the available line of credit. 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

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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 the secondthird quarter and year-to-date 2012 totaled $6,934,000$6,374,000 and $11,109,000,$17,483,000, respectively, compared to $3,662,000$4,040,000 and $7,852,000$11,893,000 for the comparable periods of 2011.  The2011.The fluctuation resulted from an increase in new orders foron solid state relays and a custom optoelectronic product to the military. Management anticipates a continued upside inmilitary, and one new orders for the remainder of 2012.custom medical product.

Backlog totaled $9,606,000$11,354,000 on May 26,August 25, 2012 compared to $8,024,000 as of May 28, 2011 and $6,231,000 on November 30, 2011 and $7,494,000 as of August 25, 2011. The majority of the backlog is expected to be shipped in the next twelve (12) months and represents a goodwell-distributed mix of the company’s products and technologies with14%with 27% in the commercial market, 71%55% in the military market, and 15%18% in the space market compared to 26% in the commercial market, 48%51% in the military market, and 26%23% in the space market at May 28,August 27, 2011. The majority of the increase in the backlog is in solid state relays and a custom optoelectronic product ordered by the military.
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The Company's management expects sales and operating income during the fourth quarter to increaseremain consistent with the third quarter results resulting in the second half ofa decrease in sales and profit for 2012 as compared to the first half of 2012, based on the2011. The current backlogeconomic downturn and anticipatedgovernment funding is resulting in delayed or cancelled satellite programs resulting in lower new orders in the second half of 2012.for space level solid state power controllers, lower sales and lower profits.

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.

The Company produces silicon phototransistors and light emitting diode die for use in certain military, standard and custom products. Fabrication efforts sometimes may not result in successful results, limiting the availability of these components. Competitors offer commercial level alternatives and our customers may purchase our competitors’ products if the Company is not able to manufacture the products using these technologies to meet the customer demands.

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 Chief Executive Officer and Chief Financial Officer of the Company evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e)) as of May 26,August 25, 2012 and, based on this evaluation, concluded that the Company’s disclosure controls and procedures are functioning in an effective manner to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(b)  Changes in internal controls.

There has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting during the three month period ended May 26,August 25, 2012.


PART II - OTHER INFORMATION

ITEM 1.                      LEGAL PROCEEDINGS

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

ITEM 1A                    RISK FACTORS
Information about risk factors for the three months ended May 26, 2012 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, 2011.

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

                                    None
 
 
 
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ITEM 3.DEFAULTS UPON SENIOR SECURITIES

                    None

ITEM 4.                      MINE SAFETY DISCLOSURE

                     Not Applicable

ITEM 5.                      OTHER INFORMATION

                    None


ITEM 6.                      EXHIBITSPART II - OTHER INFORMATION

(a)          Exhibits

ITEM 1.
The Company is not involved in any material current or pending legal proceedings.
ITEM 1A
Information about risk factors for the three months ended August 25, 2012 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, 2011.
ITEM 2.
None
ITEM 3.
None
ITEM 4.
Not Applicable
ITEM 5.
None
ITEM 6.
(a)          Exhibits
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002.
32.2Certification of Chief Accounting Officer pursuant to 18 U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002.
101 Interactive data files pursuant to Rule 405 of Regulation S-T. 

SIGNATURES

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.

 
July 10,October 9, 2012/s/  Mark King
DateMark King
 Chief Executive Officer
  
  
July 10,
October 9, 2012
/s/ Patrick Cefalu
DatePatrick Cefalu 
 Chief Financial Officer 
 




 
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