MICROPAC INDUSTRIES, INC.
Twelve Months Ended
November 30, 2021 November 30, 2020
Net Sales 100.0 % 100.0 %
Cost of goods sold 55.7 % 61.4 %
Research and Development 6.4 % 6.4 %
Selling, General, and Administrative 23.6 % 24.9 %
Cost & Expenses 85.7 % 92.7 %
Operating Income 14.3 % 7.3 %
Other income and interest income net (0.6 )% 0.3 %
Income before Income Taxes 13.7 % 7.6 %
Provision for taxes 2.5 % 1.0 %
Net Income 11.2 % 6.6 %
The Company designs, manufactures and distributes various types of microelectronic circuits including solid state relays and power controllers, optoelectronic components, and sensor and display components and assemblies. The Company's products are used as components and assemblies in a broad range of military, space, medical and industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200o C) products.
The Company's facilities are certified and qualified by the
The Company's core technology is microelectronic and optoelectronic designs to include the packaging and interconnecting of multi-chip microelectronics modules. Other technologies include light emitting and light sensitive materials and products, including light emitting diodes and silicon phototransistors, and electronic integration used in the Company's optoelectronic components and assemblies.
Company sales totaled
At
11
New orders for 2021 totaled
Approximately
The backlog represents a good mix of the company's products and technologies
with 8% in the commercial market, 11% in the medical market, 73% in the military
market, and 8% in the space market on
2021 Current Backlog by Major Market
Military Space Medical Commercial Total
Domestic Direct
181 9,547
International 71 175 - 198 444
$ 23,955 $ 2,572 $ 3,430 $ 2,678 $ 32,635
2021 Current Backlog by Product Line
Microelectronics $ 9,528
Optoelectronics 7,170
Sensors and Displays 15,937
$ 32,635 Cost of goods sold, as a percentage of net sales, was 55.7% in 2021 compared to
61.4% in 2020 with higher margins from the increase in sales of solid state
relay microelectronic products. In actual dollars, cost of sales increased
In 2021, the Company's investment in technology through research and
development, which was expensed, totaled approximately
In addition to the Company's investment in research and development, various
customers paid the Company approximately
Selling, general, and administrative expenses totaled 23.6% of net sales in 2021
compared to 24.9% in 2020. In dollars expensed, selling, general and
administrative expenses totaled
Other income (expense) and net interest income for fiscal 2021 totaled
Income before taxes for fiscal 2021 was approximately
Provisions for income tax for fiscal 2021 totaled
Net income totaled approximately
Impact of COVID-19 on our Business
The spread of the COVID-19 virus during the first half of 2020 has caused an
economic downturn on a global scale, as well as significant volatility in the
financial markets. In
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for COVID-19 pandemic related changes. In this time of uncertainty because of the COVID-19 pandemic, we are continuing to serve our customers while taking precautions to provide a safe work environment for our employees and customers. We have been staggering some shifts and otherwise adjusting work schedules to maximize our capacity while adhering to recommended precautions such as social distancing. We have established and implemented a work from home provision where possible. We may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities.
We experienced multiple confirmed case of COVID-19 during 2021 and 2020, which
caused us to shut down our
To date, we have not experienced significant raw material shortages; however, supply-chain disruptions could potentially delay or prevent us from fulfilling customer orders.
The impact of the COVID-19 pandemic continues to unfold. The extent of the pandemic's effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, the contagiousness and severity of Coronavirus variants, including Delta and Omicron, and the resumption of widespread economic activity. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations.
Liquidity and Capital Resources
The Company obtained a commercial real estate construction loan for the
construction of a new 76,000 square foot manufacturing center on the 9.2 acres
of land in
On
Construction Loans. Subject to the terms of the Loan Agreement, Frost will lend
to the Company an aggregate amount not to exceed
Principal and interest shall be due and payable monthly in an amounts determined
by Lender required to fully amortize the outstanding principal balance of this
Note over a period of twenty-five (25) years, payable on the twenty-sixth (26th)
day of each and every calendar month, beginning
The interest rate of (3.40%) per annum including an Interest-Only Period.
Interest only shall be due and payable monthly as it accrues on the twenty-sixth
(26th) day of each and every calendar month, beginning
The loan shall be secured by a "Deed of Trust, Security Agreement - Financing
Statement" covering the 9.2 acre tract in
Revolving Credit Loans. Subject to the terms of the Revolving Loan Agreement,
Frost will lend to the Company, on a revolving basis, amounts not to exceed a
total principal balance of
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The interest on the outstanding and unpaid principal balance shall be computed at a per annum rate equal to the lesser of (a) a rate equal to the Prime Rate per annum; provided, however, in no event shall the resulting rate be less than three and one-quarter percent (3.25%).
On
Based upon updated guidance issued
The Company provided
The Company issued a dividend payment of
As of
The Company is working with a local contractor on the design and building of the
new facility estimated at a cost of
Per the loan covenant, the Company must maintain a ratio of Free Cash Flow to
Debt Service of not less than 1.20 to 1.00. As of
In addition, the Company continues on-going investigations for the use of cumulative cash for business expansion and improvements, such as operational improvements and new product expansion.
Company management believes it will meet its 2022 capital requirements through
the use of cash derived from operations for the year and/or usage of the
Company's cash and cash equivalents. There were no significant outstanding
commitments for equipment purchases or improvements at
The Company has no significant off-balance sheet arrangements.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in
The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognizerevenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company's revenue on the majority of its customer contracts are recognized at a point in time, generally upon shipment of products. The application of GAAP related to the measurement and recognition of
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revenue requires us to make judgments and estimates. Specifically, the determination of whether revenues related to our revenue contracts should be recognized over time or at a point in time, as these determinations impact the timing and amount of our reported revenues and net income. Other significant judgments include the estimation of the point in the manufacturing process at which we are entitled to receive payment, as well as the progress of the job order to completion to determine the amount of consideration earned for contractual revenue recognized over time.
The allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected.
Inventory purchases and commitments are based upon future demand. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of changing customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected.
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. If we were to determine we would not be able to realize all or part of the deferred tax asset in the future, an adjustment to the deferred tax asset would be necessary which would reduce our net income for that period.
Depreciable and useful lives estimated for property and equipment are based on initial expectations of the period of time these assets will provide benefit. Changes in circumstances related to a change in our business or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.
New Accounting Pronouncements
In
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