March 31, 2005
Mail Stop 03-06
Connie Wood
President and Chief Executive Officer
Micropac Industries, Inc.
905 E. Walnut Street
Garland, Texas 75040
Re: Micropac Industries, Inc.
Annual Report on Form 10-KSB for
Fiscal Year Ended November 30, 2004
Filed January 31, 2005
File No. 0-05109
Dear Ms. Wood:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for Fiscal Year Ended November 30, 2004
Cover Page
1. Please revise to provide an aggregate market value of the
voting
and non-voting common equity held by non-affiliates, as of a
specified date within 60 days of the filing date of the annual
report. Also, where you choose to incorporate by reference any
information required by Form 10-KSB, such as Part III information
from your proxy or information statement, please identify the
document and clearly describe it for identification purposes.
Item 1. Business
2. We note your reference to "major products" in your
"Competition"
disclosure. Revise your filing to describe in more detail the
principal products that you offer and the markets in which you
sell
your products. To the extent that any of your product lines
account
for a significant portion of your sales, quantify the percentage
of
your sales attributable to the product or product line.
3. Please revise your Business disclosure to provide a more
complete
description of the development of your business during the year.
For
instance, the disclosure in Management`s Discussion and Analysis
indicates that you attributed part of a 22% increase in sales in
2004
to the introduction of new products.
4. Please expand your disclosure to discuss the following:
* Patents, trademarks, licenses, franchises, concession, royalty
agreements, or labor contracts, including their duration.
* The effect of existing or probable govermental regulations on
your
business. For example, discuss whether you are subject to export
restrictions on sensitive technology, and if so, describe their
impact on your business. Furthermore, discuss whether you need
any
government approval of your principal products.
* The amount of your research and development spending that was
borne
directly by customers.
* The costs and effects of compliance with environmental laws.
Also,
briefly describe the hazardous substances used in connection with
your manufacturing activities.
Refer to Item 101(b) of Regulation S-K.
Sales, Marketing and Distribution
5. Please revise to identify the customer and contract
manufacturer
in China who accounted for 22% and 41% of your international sales
in
fiscal 2004. Also revise your Management`s Discussion and
Analysis
to identify these customers, as well as the other two customers
who
accounted for 8% and 10% of your sales in 2004, and 11% and 7% of
your 2003 sales. In addition, discuss the material terms of the
agreements with these customers and tell us why you have not filed
any of these agreements as exhibits.
Risk Factors
6. Please add a risk factor that highlights the control of certain
shareholders.
7. Please revise the titles to highlight the risk.
Pricing Pressures
8. We note your disclosure that you make sales to original
equipment
manufacturers under agreements with these customers. Please
expand
the appropriate section to discuss the material terms of the
agreements. Also, please supplementally confirm that you have
filed
all material contracts as exhibits, as required by Item 601(b)(10)
of
Regulation S-B. Alternatively, amend your filing to include those
contracts as exhibits.
Limited Insurance Coverage
9. Please expand the appropriate section to discuss your
insurance,
such as the amount of your coverage.
Component Shortages or Obsolescence
10. Please expand the appropriate section to discuss material
shortages, such as the length and frequency or such shortages.
Competition
11. We note your disclosure that you compete with "two or more
companies with respect to each of [your] major products." Please
expand the appropriate section to identify the "major products" in
which you compete, and identify your major competitors. Also
describe
your competitive business conditions, your competitive position in
your industries, and the methods of competition. Refer to Item
101(b)(4) of Regulation S-B.
Supply Chain
12. Please expand the appropriate section to indicate whether you
have entered into agreements with your suppliers and if so,
describe
all material terms of these agreements, for example, their scope,
duration, termination provisions, and any intellectual property
indemnification provisions. Furthermore, discuss the importance
of
these agreements to your business, including the extent to which
your
business depends on such agreements. Finally, revise to describe
the
extent to which you have experienced shortages in materials from
your
suppliers, and quantify the impact any shortage has had on your
business in the past, if material. In this regard, we note your
disclosure that "from time to time [you] have experienced
difficulty
in obtaining certain materials when needed."
Item 2. Properties
13. We note your disclosure in "Sales, Marketing and Distribution"
that you maintain an office in Bremen, Germany. We further note
your
risk factor disclosure that you operate a manufacturing facility
in
Juarez, Mexico. Please revise your disclosure to describe the
condition of the properties in Germany and Mexico, and if you do
not
own the properties or there are mortgages or liens on the
properties,
describe the limitations on ownership. Refer to Item 102 of
Regulation S-B.
Part II
Item 5. Market for the Registrant`s Common Equity and Related
Stockholder Matters
14. Revise to indicate that your common stock is traded on the
Over-
the-Counter Bulletin Board (OTCBB). Provide the ticker symbol and
the information required by Item 201(a)(1)(ii) and 201(d) of
Regulation S-B.
Item 6. Management`s Discussion & Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
15. Revise to describe the material terms of the $3 million line
of
credit, such as the interest rate, term, restrictive or financial
covenants and penalty provisions. Also, file the agreement as an
exhibit to the annual report.
Results of Operations
16. Please quantify the factors related to the increase in sales.
17. Please discuss why the backlog increased from 2003 to 2004.
Part III
Item 9. Directors & Executive Officers of the Registrant
Election of Directors
18. Please revise your annual report to provide disclosure under
Item
401(a) and (b) of Regulation S-B with respect to executive
officers
and significant employees. For instance, we note the disclosure
required by these items was not provided with respect to Patrick
Cefalu, your Chief Financial Officer, and Mark King, your Chief
Operating Officer.
19. Please revise your annual report to provide the disclosure
concerning your audit committee financial expert pursuant to Item
401(e) of Regulation S-B.
20. Please revise your annual report to provide disclosure
concerning
your code of ethics required by Item 406 of Regulation S-B.
Item 10. Executive Compensation
Management Remuneration and Transactions
21. We note the introduction to the summary compensation table
indicates that only cash compensation is listed in the table.
Supplementally confirm that you did not pay any non-cash
compensation
during the 2004 fiscal year. Alternatively, amend your annual
report
to include all non-cash compensation.
22. Please revise the table to clarify that the figures in the
"All
other compensation" column represents payments made for attendance
at
board and committee meetings. Also clarify the heading of the
last
column in the table, currently labeled "compensation," and include
a
footnote that explains the amounts in the column for each employee
listed.
23. Please confirm that Patrick Cefalu does not meet the
definition
of "named executive officer" for whom disclosure of fiscal 2004
compensation would be required. Refer to Item 402(a)(2) of
Regulation S-B and the instructions to that item.
24. Please amend your annual report to file the employment
agreement
with Ms. Wood, the employee stock option plan, and the salary
reduction plan as exhibits to the annual report. Refer to Item
601(b)(10) of Regulation S-B.
Item 11. Security Ownership of Certain Beneficial Owners &
Management
25. Please amend your annual report to revise the table to include
the security holdings of Mark King and any other named executive
officers. Refer to Item 403(b) of Regulation S-B.
26. We note your disclosure concerning the ancillary agreement
with
Mr. Heinz-Werner Hempel. Please discuss the material terms of the
agreement. Also, file this agreement as an exhibit to the annual
report.
Item 12. Certain Relationships and Related Transactions - Page 71
27. Please file the agreement between the company and Nicholas
Nadolsky.
28. Please discuss the factors considered in determining the fair
value of $2.68.
Item 14. Controls and Procedures
29. We note your disclosure that your principal executive officer
and
principal financial officer have evaluated your disclosure
controls
and procedures as of October 30, 2004. Please amend your filing
to
disclose management`s conclusion regarding the effectiveness of
your
disclosure controls and procedures as of the end of the period
covered by the annual report. Refer to Item 307 of Regulation S-K
and Part III.F of Management`s Reports on Internal Control Over
Financial Reporting and Certification of Disclosure in Exchange
Act
Periodic Reports, Release No. 33-8238, available on our website at
www.sec.gov/rules/final/33-8238.htm.
30. We note that your "Chief Executive Officer and Chief Financial
Officer concluded that the Company`s disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company required to be included in the
Company`s periodic SEC filings." The language that is currently
included after the word "effective" in your disclosure appears to
be
superfluous, since the meaning of "disclosure controls and
procedures" is established by Rule 13a-15(e) of the Exchange Act.
Please revise your disclosure to remove this superfluous language.
However, if you do not wish to eliminate this language, please
revise
so that the language that appears after the word "effective" is
substantially similar in all material respects to the language
that
appears in the entire two-sentence definition of "disclosure
controls
and procedures" set forth in Rule 13a-15(e).
31. Please revise to indicate whether there was any change to your
internal control over financial reporting that has materially
affected, or that is reasonably likely to materially affect, your
internal control over financial reporting, consistent with the
language used in amended Item 308(c) of Regulation S-B.
32. Please include these disclosures under Item 8A in your
amendment.
Signatures
33. The annual report does not appear to be signed. Please amend
your filing or alternatively supplementally provide us with the
version of the signature page submitted for filing that
demonstrates
Ms. Wood and Mr. Cefalu signed the report on behalf of the
registrant
and that the directors signed in their capacities as directors.
Report of Independent Registered Public Accounting Firm
34. Please request the auditors to revise their opinion to include
the correct date. We note that the year is 200.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition
35. We note that you accrue for product returns and warranties
when
products are returned by the customer. This accounting policy does
not appear to comply with SFAS 48 for returns and SFAS 5 for
warranties. Please revise to comply with U.S. GAAP, or tell us why
your current accounting is in accordance with U.S. GAAP.
Exhibits 31.1, 31.2, 32.1, and 32.2
36. It does not appear that the certifications filed as Exhibits
31.1, 31.2, 32.1 and 32.2 were signed. Please amend your filing
in
its entirety to provide the required certifications, or
alternatively
supplementally provide us with the version of the exhibits
submitted
for filing that demonstrates the officers signed the
certifications.
Definitive Proxy Statement filed January 31, 2005
37. We note that you have forward incorporated the information
required by Part III of Form 10-KSB to a proxy statement.
Although
the document to which you refer was filed on EDGAR as a definitive
information statement on Schedule 14C, the document refers to
itself
as a proxy statement, rather than an information statement.
Further,
you indicate that you are soliciting proxies from shareholders,
but
your filing does not include a form of proxy as required by Rule
14a-
6 of the Exchange Act. Please ensure that in future filings,
where
you are soliciting proxies of shareholders, you file the document
as
a proxy statement and include a form of proxy.
* * *
As appropriate, please amend your documents and respond to
these comments within 10 business days or tell us when you will
provide us with a response. You may wish to provide us with
marked
copies of the amendments to expedite our review. Please furnish a
cover letter with your amendments that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR. Please understand that we may have
additional comments after reviewing your amendments and responses
to
our comments.
You may contact Tom Dyer at (202) 824-5564 or Kate Tillan,
Reviewing Accountant, at (202) 942-2861 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Mary Beth Breslin at (202) 942-2914 or the
undersigned
at (202) 942-1927 with any other questions.
Sincerely,
Thomas A. Jones
Senior Attorney
Connie Wood
Micropac Industries, Inc.
March 31, 2005
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