10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 27, 2022

OR

☐ 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 or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
905 E. Walnut, Garland, Texas	75040
(Address of Principal Executive Offices)	(Zip Code)

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

Securities Registered Pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 par value per share	MPAD	NONE

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of large accelerated filer,” accelerated filer,” smaller reporting company,” and emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Emerging growth company ☐
Accelerated filer ☐ Non-accelerated filer ☒	Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On October 11, 2022, there were 2,578,315 shares of Common Stock, $0.10 par value, outstanding.

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MICROPAC INDUSTRIES, INC.

FORM 10-Q

August 27, 2022

INDEX

2 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICROPAC INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands)

	August 27, 2022			November 30, 2021
		(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	15,602		$	15,252
Receivables, net of allowance for doubtful accounts of $0 at August 27, 2022 and November 30, 2021		3,610			4,974
Other receivables		920			—
Contract assets		912			603
Inventories:
Raw materials and supplies		5,928			5,738
Work in process		3,641			2,946
Total inventories		9,569			8,684
Prepaid expenses and other assets		729			341
Total current assets		31,342			29,854
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		1,518			1,518
Buildings		498			498
Facility improvements		1,126			1,126
Furniture and fixtures		1,036			1,025
Construction in process		18,616			8,019
Machinery and equipment		9,844			9,390
Total property, plant, and equipment		32,638			21,576
Less accumulated depreciation		(10,985	)		(10,739	)
Net property, plant, and equipment		21,653			10,837
Operating lease right to use asset		27			67
Total assets	$	53,022		$	40,758
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,472		$	1,963
Accrued compensation		1,106			1,295
Deferred revenue		1,155			1,258
Property taxes payable		383			318
Income tax payable		403			180
Operating lease liabilities, current portion		27			53
Other accrued liabilities		28			25
Total current liabilities		4,574			5,092
Operating lease liabilities, less current portion		—			14
Long Term Debt, net of debt issuance costs		14,359			3,369
Deferred income taxes, net		20			16
Total liabilities		18,953			8,491
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares, 3,078,315 issued and 2,578,315 outstanding at August 27, 2022 November 30, 2021		308			308
Additional paid-in-capital		885			885
Treasury stock, 500,000 shares, at cost		(1,250	)		(1,250	)
Retained earnings		34,126			32,324
Total shareholders’ equity		34,069			32,267
Total liabilities and shareholders’ equity	$	53,022		$	40,758

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						Nine months ended
	August 27, 2022			August 28, 2021			August 27, 2022			August 28, 2021
NET SALES	$	6,940		$	8,180		$	20,194		$	19,865
COST AND EXPENSES:
Cost of goods sold		(3,667	)		(4,407	)		(11,188	)		(11,237	)
Research and development		(568	)		(510	)		(1,534	)		(1,253	)
Selling, general & administrative expenses		(2,231	)		(1,649	)		(5,849	)		(4,628	)
Total cost and expenses		(6,466	)		(6,566	)		(18,571	)		(17,118	)
OPERATING INCOME		474			1,614			1,623			2,747
Other income (expense), net		966			(210	)		967			(190	)
INCOME BEFORE TAXES		1,440			1,404			2,590			2,557
Provision for taxes		335			316			530			477
NET INCOME	$	1,105		$	1,088		$	2,060		$	2,080
NET INCOME PER SHARE, BASIC AND DILUTED	$	0.43		$	0.42		$	0.80		$	0.81
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

See accompanying notes to financial statements.

4 

MICROPAC INDUSTRIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine months ended
	August  27, 2022			August  28, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,060		$	2,080
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		297			290
Loss on disposal of equipment		—			232
Deferred tax expense		4			8
Amortization of right-of-use assets		40			37
Changes in certain current assets and liabilities:
Decrease (increase) in accounts receivable		443			(648	)
Increase in contract assets		(309	)		(314	)
Decrease (increase) in inventories		(884	)		251
Increase (decrease) in prepaid expenses		(387	)		75
Increase in prepaid income taxes		—			223
(Decrease) increase in deferred revenue		(103	)		32
Increase in accounts payable		328			664
(Decrease) increase in accrued compensation		(189	)		107
Increase in income taxes payable		224			202
Decrease in lease liabilities		(40	)		(37	)
Increase in all other accrued liabilities		65			105
Net cash provided by operating activities		1,549			3,307
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(11,931	)		(3,363	)
Net cash used in investing activities		(11,931	)		(3,363	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend		(258	)		(258	)
Proceeds from long term debt		10,990			71
Net cash provided by (used in) financing activities		10,732			(187	)
Net increase (decrease) in cash and cash equivalents		350			(243	)
Cash and cash equivalents at beginning of period		15,252			14,619
Cash and cash equivalents at end of period	$	15,602		$	14,376
Supplemental Cash Flow Disclosure:
Cash paid for income taxes	$	302		$	247
Supplemental Non-Cash Flow Disclosure:
Changes in accrued property, plant, and equipment	$	402		$	624

See accompanying notes to financial statements.

5 

MICROPAC INDUSTRIES, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE QUARTERS ENDED AUGUST 27, 2022 AND AUGUST 28, 2021

(Dollars in thousands)

(Unaudited)

	Common		Additional		Treasury			Retained
	Stock		paid-in-capital		Stock			Earnings			Total
BALANCE, November 30, 2020	$	308	$	885	($	1,250	)	$	29,524		$	29,467
Dividend		—		—		—			(258	)		(258	)
Net loss		—		—		—			(301	)		(301	)
BALANCE, February 27, 2021	$	308	$	885	($	1,250	)	$	28,965		$	28,908
Net income		—		—		—			1,293			1,293
BALANCE, May 29, 2021	$	308	$	885	($	1,250	)	$	30,258		$	30,201
Net income		—		—		—			1,088			1,088
BALANCE, August 28, 2021	$	308	$	885	($	1,250	)	$	31,346		$	31,289
		Common	Additional			Treasury			Retained
		Stock	paid-in-capital			Stock			Earnings			Total
BALANCE, November 30, 2021	$	308	$	885	($	1,250	)	$	32,324		$	32,267
Dividend		—		—		—			(258	)		(258	)
Net income		—		—		—			464			464
BALANCE, February 26, 2022	$	308	$	885	($	1,250	)	$	32,530		$	32,473
Net income		—		—		—			491			491
BALANCE, May 28, 2022	$	308	$	885	($	1,250	)	$	33,021		$	32,964
Net income		—		—		—			1,105			1,105
BALANCE, August 27, 2022	$	308	$	885	($	1,250	)	$	34,126		$	34,069

See accompanying notes to financial statements.

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MICROPAC INDUSTRIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 BASIS OF PRESENTATION

Business Description

Micropac Industries, Inc. (the “Company”), a Delaware corporation, 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 commercial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200^o C) products.

The Company’s facilities are certified and qualified by the Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level) and MIL-PRF-19500 JANS (space level) and are certified to ISO 9001:2015 and AS 9100D. Micropac is a National Aeronautics and Space Administration (NASA) core supplier and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has Underwriters Laboratories (UL) approval on our industrial power controllers.

The Company’s core technologies are 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.

The Company was started in 1963 as a sole proprietorship. On March 3, 1969, the Company was incorporated under the name of “Micropac Industries, Inc.” in the state of Delaware. The stock was publicly held by 436 shareholders on August 27, 2022.

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 27, 2022, the results of operations for the three and nine months ended August 27, 2022 and August 28, 2021 and the cash flows for the nine months ended August 27, 2022 and August 28, 2021, including the statement of shareholders equity. Unaudited financial statements are prepared on a basis substantially consistent with those audited for the year ended November 30, 2021. 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. The Company’s fiscal year ends on the last day of November. The quarterly results end on the last Saturday of the quarter.

It is suggested that these financial statements be read in conjunction with the November 30, 2021 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto.

Note 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognize revenue 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 is recognized at a point in time, generally upon shipment of products.

To achieve that core principle, the Company applies the following steps:

1. Identify the contract(s) with a customer.

The Company designs, manufactures and distributes various types of microelectronic circuits, optoelectronics, and sensors and displays. 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 (200^o C) products.

7 

The Company’s revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

2. Identify the performance obligations in the contract.

The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.

3. Determine the transaction price.

The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.

4. Allocate the transaction price to the performance obligations in the contract.

The Company’s transaction price is the fixed price per unit per each delivery upon shipment.

5. Recognize revenue when (or as) the Company satisfies a performance obligation.

This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred, which is generally upon shipment.

For certain contracts under which the Company produces products with no alternative use and for which the Company has an enforceable right to payment during the production cycle, the Company recognizes revenue for the cost incurred of work in process plus a margin at the end of each period and records a contract asset (unbilled receivable). The majority of these products are shipped weekly and monthly to the customers and the contracts require us to manage and limit the level of work in process to meet the scheduled delivery dates.

In addition, the Company may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, and performance obligations are determined and we recognize revenue at the point in time in which each performance obligation is fully satisfied.

Disaggregation of Revenue

The following table summarizes the Company’s Net Sales by Product Line.

	8/27/2022		8/28/2021
Microcircuits	$	5,585	$	5,132
Optoeletronics		6,056		5,144
Sensors and Displays		8,553		9,589
Total Revenue	$	20,194	$	19,865
Timing of revenue recognition
Transferred at a point in time	$	17,393	$	19,039
Transferred over time		2,801		826
Total Revenue	$	20,194	$	19,865

8 

The following table summarizes the Company’s Net Sales by Major Market.

2022 Third Quarter Sales by Major Market
	Military		Space		Medical		Commercial			Total
Domestic Direct	$	2,684	$	317	$	754	$	401	$	4,156
Domestic Distribution		2,101		278		0		156		2,535
International		20		104		0		125		249
	$	4,805	$	699	$	754	$	682	$	6,940
2021 Third Quarter Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	3,052	$	971	$	1,069	$	149	$	5,241
Domestic Distribution		2,427		139		0		152		2,718
International		25		120		0		76		221
	$	5,504	$	1,230	$	1,069	$	377	$	8,180
2022 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	8,322	$	1,116	$	2,138	$	935	$	12,511
Domestic Distribution		5,485		996		—		629		7,110
International		91		254		—		228		573
	$	13,898	$	2,366	$	2,138	$	1,792	$	20,194
2021 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	7,063	$	2,141	$	2,777	$	437	$	12,418
Domestic Distribution		5,762		675		—		449		6,886
International		152		255		—		154		561
	$	12,977	$	3,071	$	2,777	$	1,040	$	19,865

Receivables, net, Contract Assets and Contract Liabilities

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (deferred revenue) on the Condensed Balance Sheets. 

Receivables, net, contract assets and contract liabilities were as follows:

Receivables, net, Contract Assets and Contract Liabilities

(Dollars in thousands)

	August 27, 2022		November 30, 2021		December 1, 2020
Receivables, net	$	3,610	$	4,974	$	2,639
Contract assets	$	912	$	603	$	512
Deferred revenue	$	1,155	$	1,258	$	111

There was $103,000 of revenue recognized in fiscal year 2022 that was included in the deferred revenue liability balance at the beginning of the fiscal year.

Contract costs

The Company does not have material incremental costs to obtain a contract in the form of sales commissions or bonuses. The Company incurs other immaterial costs to obtain and fulfill a contract; however, the Company has elected the practical expedient under ASC 340-40-24-4 to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less.

Leases

In the first quarter of 2020, the Company entered into a three (3) year lease extension on the property that has been leased on a year to year basis. As a result, we recognized $165,000 for operating lease liabilities and right-of-use assets in accordance with ASC 842. The Company had an operating lease expense of $40,000 for the first nine months of 2022 and $37,000 for the first nine months of 2021. The Company used an estimated incremental borrowing rate of 3.25% representative of the rate of interest that the company would have to pay to borrow on the Company’s line of credit. The remaining lease term is six months.

9 

The Undiscounted Future Minimum Lease Payments consist of the following at:

		8/27/2022
2022	$	14,000
2023		14,000
Total lease payments		28,000
Interest		1,000
Present value of lease liabilities	$	27,000

Short-Term Investments

The Company had no short-term investments at August 27, 2022 or November 30, 2021. Short-term investments consist of certificates of deposits with maturities greater than 90 days. These investments are reported at historical cost, which approximates fair value. All highly liquid investments with maturities of 90 days or less are classified as cash equivalents.

Inventories

Inventories are stated at lower of cost or net realizable 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 to the lower of cost or net realizable value via an analysis based on the usage of inventory over a three year period and projected usage based on current backlog.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method the Company records deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax law or rates in the period that includes the enactment date.

The Company records a liability for an unrecognized tax benefit for a tax position that is not “more-likely-than-not” to be sustained.  The Company did not record any liability for uncertain tax positions as of August 27, 2022 or November 30, 2021.

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	30
Facility improvements	.........................................................................................................................................................	8	15
Machinery and equipment	.........................................................................................................................................................	5	10
Furniture and fixtures	.........................................................................................................................................................	5	8

The Company assesses long-lived assets for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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.

Construction in progress relates to multiple capital projects ongoing during the year ended November 30, 2021 and the nine months ended August 27, 2022, including the construction of the new manufacturing facility. Construction in progress also includes interest and fees on debt that are directly related to the financing of the Company’s capital projects.

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

Research and Development Costs

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

Basic and Diluted Earnings Per Share

10 

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 August 27, 2022 and August 28, 2021, the Company had no dilutive potential common stock instruments.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 3 NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The ASU requires the use of an “expected loss” model for instruments measured at amortized cost, in which companies will be required to estimate the lifetime expected credit loss and record an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial asset. The new guidance is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years and requires a modified-retrospective approach to adoption. The Company believes that adopting ASU 2016-13 will have no material impact on the financial statements and related disclosures.

Note 4 FAIR VALUE MEASUREMENT

The Company had no financial assets or liabilities measured at fair value on a recurring basis as of August 27, 2022 or November 30, 2021.  The fair value of financial instruments such as cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying amount based on the short maturity of these instruments.

The Company measures its long-term debt at fair value, which approximates book value as the long-term debt bears market rates of interest

There were no nonfinancial assets measured at fair value on a nonrecurring basis August 27, 2022 and November 30, 2021.

Note 5 COMMITMENTS

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 Garland, Texas that the Company has purchased. On March 26, 2021, the Company (acting as borrower) entered into a Construction Loan Agreement (the “loan agreement”) with Frost Bank (“Frost”) (acting as lender). The Construction Loan Agreement provides for a construction loan, in amounts not to exceed a total principal balance of $16,160,000 with an interest rate of (3.40%) per annum.

On March 26, 2021, the Company renewed the Revolving Loan Agreement with Frost through the “Sixth Amendment to Loan Agreement.”. The Revolving Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000 with a rate equal to prime rate with a floor of 3.25%. The Revolving Loan Agreement was originally entered into on January 23, 2013, between the Company as borrower and Frost as lender.  

Construction Loans.  Subject to the terms of the Loan Agreement, Frost will lend to the Company an aggregate amount not to exceed $16,160,000.

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 April 26, 2023, and continuing regularly thereafter until March 26, 2031, when the entire amount hereof, principal and accrued interest then remaining unpaid, shall be then due and payable; interest being calculated on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

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 April 26, 2021, and continuing regularly and monthly thereafter until March 26, 2023; interest being calculated on the

11 

unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

The loan shall be secured by a “Deed of Trust, Security Agreement – Financing Statement” covering the 9.2 acre tract in Garland, Texas and the improvements made on it.

Revolving Credit Loans.  Subject to the terms of the, Loan Agreement, Frost will lend to the Company, on a revolving basis, amounts not to exceed a total principal balance of $6,000,000, minus amounts available and amounts previously disbursed under outstanding Frost letters of credit. Subject to certain terms and conditions, the Company may borrow, repay and reborrow under the Loan Agreement. The loan has a maturity date of April 23, 2023.

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%).

The Company has borrowed $14,538,000 against the construction loan as of August 27, 2022.

Debt		August 27, 2022
Notes payable	$	14,538,000
Less unamortized debt issuance costs		179,000
Net Debt		14,359,000
Less—Current portion		—
Total long-term debt	$	14,359,000

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 nine months ended August 27, 2022 and August 28, 2021, the Company had no dilutive potential common stock instruments.

Note 7 SHAREHOLDERS’ EQUITY

On December 7, 2021, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 11, 2022. The dividend was paid to shareholders on February 10, 2022.

On December 8, 2020, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 6, 2021. The dividend was paid to shareholders on February 12, 2021.

Note 8 EMPLOYEE RETENTION CREDIT UNDER THE CARES ACT

The CARES Act, passed by Congress on March 27, 2020, contained the employee retention credit (ERC), a refundable payroll tax credit to employers that have experienced hardship in their operations due to COVID-19. The CARES Act was amended and extended on December 27, 2020 by the Consolidated Appropriations Act, 2021 (the “CAA”) and in March 2021, the Internal Revenue Code was amended by the American Rescue Plan Act of 2021 to provide new employee retention credit provisions designed to promote employee retention and hiring.

This ERC is a fully refundable tax credit for employers equal to 70 percent of qualified wages that eligible employers pay their employees. This ERC applies to qualified wages paid after December 2020 and before January 1, 2022.

As a result, the Company has determined that it qualified for a $920,299 in employee retention credits during the first quarter of 2021, which the Company recognized as other income and recorded in other receivables for the refund claimed in the third quarter of 2022. The ERC impact was included in the Company’s fiscal year 2021 tax return.

12 

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, 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 and industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200^o C) products.

The Company’s facilities are certified and qualified by the Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level) and MIL-PRF-19500 JANS (space level) and are certified to ISO 9001:2008 and AS 9100D. Micropac is a National Aeronautics and Space Administration (NASA) core supplier, and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has Underwriters Laboratories (UL) approval on our industrial power controllers.

The Company’s core technology are 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.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances. Note 2 to the Financial Statements in the Quarterly Report Form 10-Q for the quarter ended August 27, 2022, describes the significant accounting policies and methods used in the preparation of the Financial Statements. Actual results could differ from these estimates.

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognize revenue 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 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 in order 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.

13 

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

Results of Operations

	Three months ended					Nine months ended
		8/27/2022		8/28/2021			8/27/2022		8/28/2021
NET SALES		100.0	%	100.0	%		100.0	%	100.0	%
COST AND EXPENSES:
Cost of Goods Sold		52.9	%	53.9	%		55.4	%	56.6	%
Research and development		8.2	%	6.2	%		7.6	%	6.3	%
Selling, general & administrative expenses		32.1	%	20.2	%		29.0	%	23.3	%
Total cost and expenses		93.2	%	80.3	%		92.0	%	86.2	%
OPERATING INCOME BEFORE INTEREST AND INCOME TAXES		6.8	%	19.7	%		8.0	%	13.8	%
Interest and other income		13.9	%	(2.6	%)		4.8	%	(0.9	%)
INCOME BEFORE TAXES		20.7	%	17.2	%		12.8	%	12.9	%
Provision for taxes		4.7	%	3.9	%		2.6	%	2.4	%
NET INCOME		16.0	%	13.3	%		10.2	%	10.5	%

Sales for the three and nine month periods ended August 27, 2022 totaled $6,940,000 and $20,194,000, respectively. Sales for the third quarter decreased $1,240,000 from the same period of 2021 while sales for the first nine months of 2022 increased $329,000 from the first nine months of 2021. The majority of the decrease for the three months ended August 27, 2022 is related to timing of shipments of customer orders of custom sensor products. Sales were 9% in the commercial market, 10% in the medical market, 69% in the military market, and 12% in the space market for the nine months ended August 27, 2022 compared to 5% in the commercial market, 14% in the medical market, 66% in the military market, and 15% in the space market for the nine months ended August 28, 2021.

One customer accounted for 18% of the Company’s sales for the three months ended August 27, 2022, and two customers accounted for 17% and 10% for the nine months ended August 27, 2022, while one customer accounted for 21% and 20% of the Company’s sales for the three months and nine months ended August 28, 2021.

Cost of goods sold for the third quarters of 2022 and 2021 totaled 52.9% and 53.9% of net sales, respectively, while cost of goods sold for the nine months ended August 27, 2022 and August 28, 2021 totaled 55.4% and 56.6% of net sales, respectively. In actual dollars, cost of goods sold decreased $740,000 in the third quarter of 2022 compared to the same period of 2021. Year to date cost of goods sold decreased $49,000 for the first nine months of 2022 as compared to the same period in 2021.

Research and development expense increased $58,000 for the third quarter of 2022 versus 2021 and increased $281,000 for the first nine months of 2022 compared to the same period of 2021. 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 research and development of these products and other new opportunities.

Selling, general and administrative expense for the third quarter and first nine months of 2022 totaled 32.1% and 29.0% respectively of net sales compared to 20.2% and 23.3% for the same periods in 2021. In actual dollars, selling, general and administrative expense increased $582,000 for the third quarter and increased $1,221,000 for the first nine months of 2022 compared to the same periods in 2021. The majority of the

14 

increase for the first nine months resulted from an increase in commission expense in 2022, property tax on the new building and consultant fees.

Provisions for taxes increased $19,000 for the third quarter of 2022 and increased $53,000 for the first nine months of 2022 compared to the same period in 2021. The estimated effective tax rate was 20% for 2022 and 18% for 2021.

Net income increased $17,000 for the third quarter of 2022 versus 2021 and decreased $20,000 for the first nine months of 2022 compared to the same period of 2021.

Liquidity and Capital Resources

The Company will use a combination of cash and 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 Garland, Texas the Company purchased. On March 26, 2021, the Company (acting as borrower) entered into a Construction Loan Agreement with Frost Bank (“Frost”), (acting as lender). The Construction Loan Agreement provides for a construction loan as discussed in Note 5 to the condensed financial statements.

As of August 27, 2022, the Company has $18,616,000 in construction in process on the new facility and has $14,538,000 in notes payable on the construction loan, outstanding draw request of $128,000 in account payables and has used $2,515,000 of the Company’s cash. In addition, the Company has unamortized loan fees on the construction loan in the amount of $179,000.

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.

Cash and cash equivalents totaled $15,602,000 as of August 27, 2022 compared to $15,252,000 on November 30, 2021, an increase of $350,000. The increase in cash and cash equivalents is attributable to $1,549,000 cash provided by operations, $10,990,000 proceeds from the construction loan, offset by the payment of a cash dividend of $258,000, $504,000 in cash for additional manufacturing equipment and $11,427,000 for construction in process on the new facility.

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.

The Company has no significant off-balance sheet arrangements.

Outlook

New orders for year-to-date 2021 totaled $19,792,000 compared to $23,568,000 for 2022. The increase resulted from timing of new orders for several custom products.

Backlog totaled $36,421,000 on August 27, 2022 compared to $29,943,000 as of August 28, 2021 and $32,635,000 on November 30, 2021 and represents a good mix of the company’s products and technologies.

2022 Current Backlog by Major Market
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	15,351	$	2,595	$	6,381	$	1,853	$	26,180
Domestic Distribution		8,113		703		—		448		9,264
International		277		120		—		580		977
	$	23,741	$	3,418	$	6,381	$	2,881	$	36,421

2022 Current Backlog by Product Line
Microelectronics	$	12,449
Optoelectronics		5,658
Sensors and Displays		18,314
	$	36,421

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.

15 

Impact of COVID-19 on our Business

In March 2020 the World Health Organization declared the spread of the COVID-19 virus a pandemic.

The Company continues to monitor our supply chain and orders from customers for COVID-19 pandemic related changes. 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. We have established and implemented a work from home provision where possible.

To date, we have not experienced significant raw material shortages; however, supply-chain disruptions could potentially delay or prevent us from fulfilling customer orders.

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: our expectations regarding the potential impacts on our operations of the COVID-19 pandemic; our expectations regarding the potential impacts on our supply chain and on our customers of the COVID-19 pandemic; overall changes in governmental spending for military and space programs; 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 does not intend 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 Rule 13a-15) as of August 27, 2022 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 August 27, 2022.

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 and nine months ended August 27, 2022 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, 2021

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

16 

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a)        Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification 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.
32.2	Certification 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.

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.

October 11, 2022	/s/ Mark King
Date	Mark King
	Chief Executive Officer

October 11, 2022	/s/ Patrick Cefalu
Date	Patrick Cefalu
	Chief Financial Officer

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark King, certify that:

1. I have reviewed this quarterly report of Micropac Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 11, 2022	/s/ Mark King
	Mark King
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Patrick S. Cefalu, certify that:

1. I have reviewed this quarterly report of Micropac Industries, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: October 11, 2022	/s/ Patrick Cefalu
	Patrick S. Cefalu
	Executive Vice President
	and Chief Financial Officer
	(Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Micropac Industries, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

1. The Quarterly Report on Form 10-Q for the period ended August 27, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 11, 2022	/s/ Mark King
	Mark King
	Chief Executive Officer
	(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Micropac Industries, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

1. The Quarterly Report on Form 10-Q for the period ended August 27, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 11, 2022	/s/ Patrick Cefalu
	Patrick S. Cefalu
	Executive Vice President
	and Chief Financial Officer
	(Principal Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	9 Months Ended
	Aug. 27, 2022	Oct. 11, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Aug. 27, 2022
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2022
Current Fiscal Year End Date	--11-30
Entity File Number	0-5109
Entity Registrant Name	MICROPAC INDUSTRIES, INC.
Entity Central Index Key	0000065759
Entity Tax Identification Number	75-1225149
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	905 E. Walnut
Entity Address, City or Town	Garland
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75040
City Area Code	(972)
Local Phone Number	272-3571
Title of 12(b) Security	Common Stock, $0.10 par value per share
Trading Symbol	MPAD
Security Exchange Name	NONE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		2,578,315

XML

CONDENSED BALANCE SHEETS - USD ($)	Aug. 27, 2022	Nov. 30, 2021
CURRENT ASSETS
Cash and cash equivalents	$ 15,602,000	$ 15,252,000
Receivables, net of allowance for doubtful accounts of $0 at August 27, 2022 and November 30, 2021	3,610,000	4,974,000
Other receivables	920,000
Contract assets	912,000	603,000
Inventories:
Raw materials and supplies	5,928,000	5,738,000
Work in process	3,641,000	2,946,000
Total inventories	9,569,000	8,684,000
Prepaid expenses and other assets	729,000	341,000
Total current assets	31,342,000	29,854,000
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land	1,518,000	1,518,000
Buildings	498,000	498,000
Facility improvements	1,126,000	1,126,000
Furniture and fixtures	1,036,000	1,025,000
Construction in process	18,616,000	8,019,000
Machinery and equipment	9,844,000	9,390,000
Total property, plant, and equipment	32,638,000	21,576,000
Less accumulated depreciation	(10,985,000)	(10,739,000)
Net property, plant, and equipment	21,653,000	10,837,000
Operating lease right to use asset	27,000	67,000
Total assets	53,022,000	40,758,000
CURRENT LIABILITIES:
Accounts payable	1,472,000	1,963,000
Accrued compensation	1,106,000	1,295,000
Deferred revenue	1,155,000	1,258,000
Property taxes payable	383,000	318,000
Income tax payable	403,000	180,000
Operating lease liabilities, current portion	27,000	53,000
Other accrued liabilities	28,000	25,000
Total current liabilities	4,574,000	5,092,000
Operating lease liabilities, less current portion		14,000
Long Term Debt, net of debt issuance costs	14,359,000	3,369,000
Deferred income taxes, net	20,000	16,000
Total liabilities	18,953,000	8,491,000
SHAREHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares, 3,078,315 issued and 2,578,315 outstanding at August 27, 2022 November 30, 2021	308,000	308,000
Additional paid-in-capital	885,000	885,000
Treasury stock, 500,000 shares, at cost	(1,250,000)	(1,250,000)
Retained earnings	34,126,000	32,324,000
Total shareholders’ equity	34,069,000	32,267,000
Total liabilities and shareholders’ equity	$ 53,022,000	$ 40,758,000

XML

CONDENSED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Aug. 27, 2022	Nov. 30, 2021
Statement of Financial Position [Abstract]
Accounts Receivable, Allowance for Credit Loss, Current	$ 0	$ 0
Common Stock, Par or Stated Value Per Share	$ 0.10	$ 0.10
Common Stock, Shares Authorized	10,000,000	10,000,000
Common Stock, Shares, Issued	3,078,315	3,078,315
Common Stock, Shares, Outstanding	2,578,315	2,578,315

XML

CONDENSED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Aug. 27, 2022	Aug. 28, 2021	Aug. 27, 2022	Aug. 28, 2021
Income Statement [Abstract]
NET SALES	$ 6,940	$ 8,180	$ 20,194	$ 19,865
COST AND EXPENSES:
Cost of goods sold	(3,667)	(4,407)	(11,188)	(11,237)
Research and development	(568)	(510)	(1,534)	(1,253)
Selling, general & administrative expenses	(2,231)	(1,649)	(5,849)	(4,628)
Total cost and expenses	(6,466)	(6,566)	(18,571)	(17,118)
OPERATING INCOME	474	1,614	1,623	2,747
Other income (expense), net	966	(210)	967	(190)
INCOME BEFORE TAXES	1,440	1,404	2,590	2,557
Provision for taxes	335	316	530	477
NET INCOME	$ 1,105	$ 1,088	$ 2,060	$ 2,080
NET INCOME PER SHARE, BASIC AND DILUTED	$ 0.43	$ 0.42	$ 0.80	$ 0.81
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

XML

CONDENSED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Aug. 27, 2022	Aug. 28, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 2,060	$ 2,080
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	297	290
Loss on disposal of equipment	0	232
Deferred tax expense	4	8
Amortization of right-of-use assets	40	37
Changes in certain current assets and liabilities:
Decrease (increase) in accounts receivable	443	(648)
Increase in contract assets	(309)	(314)
Decrease (increase) in inventories	(884)	251
Increase (decrease) in prepaid expenses	(387)	75
Increase in prepaid income taxes		223
(Decrease) increase in deferred revenue	(103)	32
Increase in accounts payable	328	664
(Decrease) increase in accrued compensation	(189)	107
Increase in income taxes payable	224	202
Decrease in lease liabilities	(40)	(37)
Increase in all other accrued liabilities	65	105
Net cash provided by operating activities	1,549	3,307
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(11,931)	(3,363)
Net cash used in investing activities	(11,931)	(3,363)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend	(258)	(258)
Proceeds from long term debt	10,990	71
Net cash provided by (used in) financing activities	10,732	(187)
Net increase (decrease) in cash and cash equivalents	350	(243)
Cash and cash equivalents at beginning of period	15,252	14,619
Cash and cash equivalents at end of period	15,602	14,376
Supplemental Cash Flow Disclosure:
Cash paid for income taxes	302	247
Supplemental Non-Cash Flow Disclosure:
Changes in accrued property, plant, and equipment	$ 402	$ 624

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STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Total
Beginning balance, value at Nov. 30, 2020	$ 308	$ 885	$ 1,250	$ 29,524	$ 29,467
Dividend	0	0	0	(258)	(258)
Net income	0	0	0	(301)	(301)
Ending balance, value at Feb. 27, 2021	308	885	1,250	28,965	28,908
Beginning balance, value at Nov. 30, 2020	308	885	1,250	29,524	29,467
Net income					2,080
Ending balance, value at Aug. 28, 2021	308	885	1,250	31,346	31,289
Beginning balance, value at Feb. 27, 2021	308	885	1,250	28,965	28,908
Net income	0	0	0	1,293	1,293
Ending balance, value at May. 29, 2021	308	885	1,250	30,258	30,201
Net income	0	0	0	1,088	1,088
Ending balance, value at Aug. 28, 2021	308	885	1,250	31,346	31,289
Beginning balance, value at Nov. 30, 2021	308	885	1,250	32,324	32,267
Dividend	0	0	0	(258)	(258)
Net income	0	0	0	464	464
Ending balance, value at Feb. 26, 2022	308	885	1,250	32,530	32,473
Beginning balance, value at Nov. 30, 2021	308	885	1,250	32,324	32,267
Net income					2,060
Ending balance, value at Aug. 27, 2022	308	885	1,250	34,126	34,069
Beginning balance, value at Feb. 26, 2022	308	885	1,250	32,530	32,473
Net income	0	0	0	491	491
Ending balance, value at May. 28, 2022	308	885	1,250	33,021	32,964
Net income	0	0	0	1,105	1,105
Ending balance, value at Aug. 27, 2022	$ 308	$ 885	$ 1,250	$ 34,126	$ 34,069

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BASIS OF PRESENTATION

9 Months Ended

Aug. 27, 2022

Accounting Policies [Abstract]

BASIS OF PRESENTATION

Note 1 BASIS OF PRESENTATION

Business Description

Micropac Industries, Inc. (the “Company”), a Delaware corporation, 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 commercial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200^o C) products.

The Company’s facilities are certified and qualified by the Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level) and MIL-PRF-19500 JANS (space level) and are certified to ISO 9001:2015 and AS 9100D. Micropac is a National Aeronautics and Space Administration (NASA) core supplier and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has Underwriters Laboratories (UL) approval on our industrial power controllers.

The Company’s core technologies are 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.

The Company was started in 1963 as a sole proprietorship. On March 3, 1969, the Company was incorporated under the name of “Micropac Industries, Inc.” in the state of Delaware. The stock was publicly held by 436 shareholders on August 27, 2022.

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 27, 2022, the results of operations for the three and nine months ended August 27, 2022 and August 28, 2021 and the cash flows for the nine months ended August 27, 2022 and August 28, 2021, including the statement of shareholders equity. Unaudited financial statements are prepared on a basis substantially consistent with those audited for the year ended November 30, 2021. 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. The Company’s fiscal year ends on the last day of November. The quarterly results end on the last Saturday of the quarter.

It is suggested that these financial statements be read in conjunction with the November 30, 2021 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto.

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SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Aug. 27, 2022

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

Note 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognize revenue 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 is recognized at a point in time, generally upon shipment of products.

To achieve that core principle, the Company applies the following steps:

1. Identify the contract(s) with a customer.

The Company designs, manufactures and distributes various types of microelectronic circuits, optoelectronics, and sensors and displays. 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 (200^o C) products.

The Company’s revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

2. Identify the performance obligations in the contract.

The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.

3. Determine the transaction price.

The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.

4. Allocate the transaction price to the performance obligations in the contract.

The Company’s transaction price is the fixed price per unit per each delivery upon shipment.

5. Recognize revenue when (or as) the Company satisfies a performance obligation.

This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred, which is generally upon shipment.

For certain contracts under which the Company produces products with no alternative use and for which the Company has an enforceable right to payment during the production cycle, the Company recognizes revenue for the cost incurred of work in process plus a margin at the end of each period and records a contract asset (unbilled receivable). The majority of these products are shipped weekly and monthly to the customers and the contracts require us to manage and limit the level of work in process to meet the scheduled delivery dates.

In addition, the Company may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, and performance obligations are determined and we recognize revenue at the point in time in which each performance obligation is fully satisfied.

Disaggregation of Revenue

The following table summarizes the Company’s Net Sales by Product Line.

	8/27/2022		8/28/2021
Microcircuits	$	5,585	$	5,132
Optoeletronics		6,056		5,144
Sensors and Displays		8,553		9,589
Total Revenue	$	20,194	$	19,865
Timing of revenue recognition
Transferred at a point in time	$	17,393	$	19,039
Transferred over time		2,801		826
Total Revenue	$	20,194	$	19,865

The following table summarizes the Company’s Net Sales by Major Market.

2022 Third Quarter Sales by Major Market
	Military		Space		Medical		Commercial			Total
Domestic Direct	$	2,684	$	317	$	754	$	401	$	4,156
Domestic Distribution		2,101		278		0		156		2,535
International		20		104		0		125		249
	$	4,805	$	699	$	754	$	682	$	6,940
2021 Third Quarter Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	3,052	$	971	$	1,069	$	149	$	5,241
Domestic Distribution		2,427		139		0		152		2,718
International		25		120		0		76		221
	$	5,504	$	1,230	$	1,069	$	377	$	8,180
2022 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	8,322	$	1,116	$	2,138	$	935	$	12,511
Domestic Distribution		5,485		996		—		629		7,110
International		91		254		—		228		573
	$	13,898	$	2,366	$	2,138	$	1,792	$	20,194
2021 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	7,063	$	2,141	$	2,777	$	437	$	12,418
Domestic Distribution		5,762		675		—		449		6,886
International		152		255		—		154		561
	$	12,977	$	3,071	$	2,777	$	1,040	$	19,865

Receivables, net, Contract Assets and Contract Liabilities

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (deferred revenue) on the Condensed Balance Sheets. 

Receivables, net, contract assets and contract liabilities were as follows:

Receivables, net, Contract Assets and Contract Liabilities

(Dollars in thousands)

	August 27, 2022		November 30, 2021		December 1, 2020
Receivables, net	$	3,610	$	4,974	$	2,639
Contract assets	$	912	$	603	$	512
Deferred revenue	$	1,155	$	1,258	$	111

There was $103,000 of revenue recognized in fiscal year 2022 that was included in the deferred revenue liability balance at the beginning of the fiscal year.

Contract costs

The Company does not have material incremental costs to obtain a contract in the form of sales commissions or bonuses. The Company incurs other immaterial costs to obtain and fulfill a contract; however, the Company has elected the practical expedient under ASC 340-40-24-4 to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less.

Leases

In the first quarter of 2020, the Company entered into a three (3) year lease extension on the property that has been leased on a year to year basis. As a result, we recognized $165,000 for operating lease liabilities and right-of-use assets in accordance with ASC 842. The Company had an operating lease expense of $40,000 for the first nine months of 2022 and $37,000 for the first nine months of 2021. The Company used an estimated incremental borrowing rate of 3.25% representative of the rate of interest that the company would have to pay to borrow on the Company’s line of credit. The remaining lease term is six months.

The Undiscounted Future Minimum Lease Payments consist of the following at:

		8/27/2022
2022	$	14,000
2023		14,000
Total lease payments		28,000
Interest		1,000
Present value of lease liabilities	$	27,000

Short-Term Investments

The Company had no short-term investments at August 27, 2022 or November 30, 2021. Short-term investments consist of certificates of deposits with maturities greater than 90 days. These investments are reported at historical cost, which approximates fair value. All highly liquid investments with maturities of 90 days or less are classified as cash equivalents.

Inventories

Inventories are stated at lower of cost or net realizable 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 to the lower of cost or net realizable value via an analysis based on the usage of inventory over a three year period and projected usage based on current backlog.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method the Company records deferred income taxes for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax law or rates in the period that includes the enactment date.

The Company records a liability for an unrecognized tax benefit for a tax position that is not “more-likely-than-not” to be sustained.  The Company did not record any liability for uncertain tax positions as of August 27, 2022 or November 30, 2021.

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	30
Facility improvements	.........................................................................................................................................................	8	15
Machinery and equipment	.........................................................................................................................................................	5	10
Furniture and fixtures	.........................................................................................................................................................	5	8

The Company assesses long-lived assets for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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.

Construction in progress relates to multiple capital projects ongoing during the year ended November 30, 2021 and the nine months ended August 27, 2022, including the construction of the new manufacturing facility. Construction in progress also includes interest and fees on debt that are directly related to the financing of the Company’s capital projects.

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

Research and Development Costs

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

Basic and Diluted Earnings Per 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 August 27, 2022 and August 28, 2021, the Company had no dilutive potential common stock instruments.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

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NEW ACCOUNTING PRONOUNCEMENTS

9 Months Ended

Aug. 27, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NEW ACCOUNTING PRONOUNCEMENTS

Note 3 NEW ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. The ASU requires the use of an “expected loss” model for instruments measured at amortized cost, in which companies will be required to estimate the lifetime expected credit loss and record an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial asset. The new guidance is effective for fiscal years beginning after December 15, 2022 for Smaller Reporting Companies, including interim periods within those fiscal years and requires a modified-retrospective approach to adoption. The Company believes that adopting ASU 2016-13 will have no material impact on the financial statements and related disclosures.

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FAIR VALUE MEASUREMENT

9 Months Ended

Aug. 27, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

Note 4 FAIR VALUE MEASUREMENT

The Company had no financial assets or liabilities measured at fair value on a recurring basis as of August 27, 2022 or November 30, 2021.  The fair value of financial instruments such as cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying amount based on the short maturity of these instruments.

The Company measures its long-term debt at fair value, which approximates book value as the long-term debt bears market rates of interest

There were no nonfinancial assets measured at fair value on a nonrecurring basis August 27, 2022 and November 30, 2021.

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COMMITMENTS

9 Months Ended

Aug. 27, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

Note 5 COMMITMENTS

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 Garland, Texas that the Company has purchased. On March 26, 2021, the Company (acting as borrower) entered into a Construction Loan Agreement (the “loan agreement”) with Frost Bank (“Frost”) (acting as lender). The Construction Loan Agreement provides for a construction loan, in amounts not to exceed a total principal balance of $16,160,000 with an interest rate of (3.40%) per annum.

On March 26, 2021, the Company renewed the Revolving Loan Agreement with Frost through the “Sixth Amendment to Loan Agreement.”. The Revolving Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000 with a rate equal to prime rate with a floor of 3.25%. The Revolving Loan Agreement was originally entered into on January 23, 2013, between the Company as borrower and Frost as lender.  

Construction Loans.  Subject to the terms of the Loan Agreement, Frost will lend to the Company an aggregate amount not to exceed $16,160,000.

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 April 26, 2023, and continuing regularly thereafter until March 26, 2031, when the entire amount hereof, principal and accrued interest then remaining unpaid, shall be then due and payable; interest being calculated on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

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 April 26, 2021, and continuing regularly and monthly thereafter until March 26, 2023; interest being calculated on the

unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

The loan shall be secured by a “Deed of Trust, Security Agreement – Financing Statement” covering the 9.2 acre tract in Garland, Texas and the improvements made on it.

Revolving Credit Loans.  Subject to the terms of the, Loan Agreement, Frost will lend to the Company, on a revolving basis, amounts not to exceed a total principal balance of $6,000,000, minus amounts available and amounts previously disbursed under outstanding Frost letters of credit. Subject to certain terms and conditions, the Company may borrow, repay and reborrow under the Loan Agreement. The loan has a maturity date of April 23, 2023.

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%).

The Company has borrowed $14,538,000 against the construction loan as of August 27, 2022.

Debt		August 27, 2022
Notes payable	$	14,538,000
Less unamortized debt issuance costs		179,000
Net Debt		14,359,000
Less—Current portion		—
Total long-term debt	$	14,359,000

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EARNINGS PER COMMON SHARE

9 Months Ended

Aug. 27, 2022

Accounting Policies [Abstract]

EARNINGS PER COMMON SHARE

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 nine months ended August 27, 2022 and August 28, 2021, the Company had no dilutive potential common stock instruments.

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SHAREHOLDERS’ EQUITY

9 Months Ended

Aug. 27, 2022

Equity [Abstract]

SHAREHOLDERS’ EQUITY

Note 7 SHAREHOLDERS’ EQUITY

On December 7, 2021, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 11, 2022. The dividend was paid to shareholders on February 10, 2022.

On December 8, 2020, the Board of Directors of Micropac Industries, Inc. approved the payment of a $0.10 per share special dividend to all shareholders of record as of January 6, 2021. The dividend was paid to shareholders on February 12, 2021.

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EMPLOYEE RETENTION CREDIT UNDER THE CARES ACT

9 Months Ended

Aug. 27, 2022

Employee Retention Credit Under Cares Act

EMPLOYEE RETENTION CREDIT UNDER THE CARES ACT

Note 8 EMPLOYEE RETENTION CREDIT UNDER THE CARES ACT

The CARES Act, passed by Congress on March 27, 2020, contained the employee retention credit (ERC), a refundable payroll tax credit to employers that have experienced hardship in their operations due to COVID-19. The CARES Act was amended and extended on December 27, 2020 by the Consolidated Appropriations Act, 2021 (the “CAA”) and in March 2021, the Internal Revenue Code was amended by the American Rescue Plan Act of 2021 to provide new employee retention credit provisions designed to promote employee retention and hiring.

This ERC is a fully refundable tax credit for employers equal to 70 percent of qualified wages that eligible employers pay their employees. This ERC applies to qualified wages paid after December 2020 and before January 1, 2022.

As a result, the Company has determined that it qualified for a $920,299 in employee retention credits during the first quarter of 2021, which the Company recognized as other income and recorded in other receivables for the refund claimed in the third quarter of 2022. The ERC impact was included in the Company’s fiscal year 2021 tax return.

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, 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 and industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200^o C) products.

The Company’s facilities are certified and qualified by the Defense Logistics Agency (DLA) to MIL-PRF-38534 (class K-space level) and MIL-PRF-19500 JANS (space level) and are certified to ISO 9001:2008 and AS 9100D. Micropac is a National Aeronautics and Space Administration (NASA) core supplier, and is registered to AS9100-Aerospace Industry standard for supplier certification. The Company has Underwriters Laboratories (UL) approval on our industrial power controllers.

The Company’s core technology are 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.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances. Note 2 to the Financial Statements in the Quarterly Report Form 10-Q for the quarter ended August 27, 2022, describes the significant accounting policies and methods used in the preparation of the Financial Statements. Actual results could differ from these estimates.

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognize revenue 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 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 in order 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

Results of Operations

	Three months ended					Nine months ended
		8/27/2022		8/28/2021			8/27/2022		8/28/2021
NET SALES		100.0	%	100.0	%		100.0	%	100.0	%
COST AND EXPENSES:
Cost of Goods Sold		52.9	%	53.9	%		55.4	%	56.6	%
Research and development		8.2	%	6.2	%		7.6	%	6.3	%
Selling, general & administrative expenses		32.1	%	20.2	%		29.0	%	23.3	%
Total cost and expenses		93.2	%	80.3	%		92.0	%	86.2	%
OPERATING INCOME BEFORE INTEREST AND INCOME TAXES		6.8	%	19.7	%		8.0	%	13.8	%
Interest and other income		13.9	%	(2.6	%)		4.8	%	(0.9	%)
INCOME BEFORE TAXES		20.7	%	17.2	%		12.8	%	12.9	%
Provision for taxes		4.7	%	3.9	%		2.6	%	2.4	%
NET INCOME		16.0	%	13.3	%		10.2	%	10.5	%

Sales for the three and nine month periods ended August 27, 2022 totaled $6,940,000 and $20,194,000, respectively. Sales for the third quarter decreased $1,240,000 from the same period of 2021 while sales for the first nine months of 2022 increased $329,000 from the first nine months of 2021. The majority of the decrease for the three months ended August 27, 2022 is related to timing of shipments of customer orders of custom sensor products. Sales were 9% in the commercial market, 10% in the medical market, 69% in the military market, and 12% in the space market for the nine months ended August 27, 2022 compared to 5% in the commercial market, 14% in the medical market, 66% in the military market, and 15% in the space market for the nine months ended August 28, 2021.

One customer accounted for 18% of the Company’s sales for the three months ended August 27, 2022, and two customers accounted for 17% and 10% for the nine months ended August 27, 2022, while one customer accounted for 21% and 20% of the Company’s sales for the three months and nine months ended August 28, 2021.

Cost of goods sold for the third quarters of 2022 and 2021 totaled 52.9% and 53.9% of net sales, respectively, while cost of goods sold for the nine months ended August 27, 2022 and August 28, 2021 totaled 55.4% and 56.6% of net sales, respectively. In actual dollars, cost of goods sold decreased $740,000 in the third quarter of 2022 compared to the same period of 2021. Year to date cost of goods sold decreased $49,000 for the first nine months of 2022 as compared to the same period in 2021.

Research and development expense increased $58,000 for the third quarter of 2022 versus 2021 and increased $281,000 for the first nine months of 2022 compared to the same period of 2021. 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 research and development of these products and other new opportunities.

Selling, general and administrative expense for the third quarter and first nine months of 2022 totaled 32.1% and 29.0% respectively of net sales compared to 20.2% and 23.3% for the same periods in 2021. In actual dollars, selling, general and administrative expense increased $582,000 for the third quarter and increased $1,221,000 for the first nine months of 2022 compared to the same periods in 2021. The majority of the

increase for the first nine months resulted from an increase in commission expense in 2022, property tax on the new building and consultant fees.

Provisions for taxes increased $19,000 for the third quarter of 2022 and increased $53,000 for the first nine months of 2022 compared to the same period in 2021. The estimated effective tax rate was 20% for 2022 and 18% for 2021.

Net income increased $17,000 for the third quarter of 2022 versus 2021 and decreased $20,000 for the first nine months of 2022 compared to the same period of 2021.

Liquidity and Capital Resources

The Company will use a combination of cash and 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 Garland, Texas the Company purchased. On March 26, 2021, the Company (acting as borrower) entered into a Construction Loan Agreement with Frost Bank (“Frost”), (acting as lender). The Construction Loan Agreement provides for a construction loan as discussed in Note 5 to the condensed financial statements.

As of August 27, 2022, the Company has $18,616,000 in construction in process on the new facility and has $14,538,000 in notes payable on the construction loan, outstanding draw request of $128,000 in account payables and has used $2,515,000 of the Company’s cash. In addition, the Company has unamortized loan fees on the construction loan in the amount of $179,000.

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.

Cash and cash equivalents totaled $15,602,000 as of August 27, 2022 compared to $15,252,000 on November 30, 2021, an increase of $350,000. The increase in cash and cash equivalents is attributable to $1,549,000 cash provided by operations, $10,990,000 proceeds from the construction loan, offset by the payment of a cash dividend of $258,000, $504,000 in cash for additional manufacturing equipment and $11,427,000 for construction in process on the new facility.

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.

The Company has no significant off-balance sheet arrangements.

Outlook

New orders for year-to-date 2021 totaled $19,792,000 compared to $23,568,000 for 2022. The increase resulted from timing of new orders for several custom products.

Backlog totaled $36,421,000 on August 27, 2022 compared to $29,943,000 as of August 28, 2021 and $32,635,000 on November 30, 2021 and represents a good mix of the company’s products and technologies.

2022 Current Backlog by Major Market
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	15,351	$	2,595	$	6,381	$	1,853	$	26,180
Domestic Distribution		8,113		703		—		448		9,264
International		277		120		—		580		977
	$	23,741	$	3,418	$	6,381	$	2,881	$	36,421

2022 Current Backlog by Product Line
Microelectronics	$	12,449
Optoelectronics		5,658
Sensors and Displays		18,314
	$	36,421

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.

Impact of COVID-19 on our Business

In March 2020 the World Health Organization declared the spread of the COVID-19 virus a pandemic.

The Company continues to monitor our supply chain and orders from customers for COVID-19 pandemic related changes. 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. We have established and implemented a work from home provision where possible.

To date, we have not experienced significant raw material shortages; however, supply-chain disruptions could potentially delay or prevent us from fulfilling customer orders.

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: our expectations regarding the potential impacts on our operations of the COVID-19 pandemic; our expectations regarding the potential impacts on our supply chain and on our customers of the COVID-19 pandemic; overall changes in governmental spending for military and space programs; 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 does not intend 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 Rule 13a-15) as of August 27, 2022 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 August 27, 2022.

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 and nine months ended August 27, 2022 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, 2021

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURE

Not Applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a)        Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification 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.
32.2	Certification 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.

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.

October 11, 2022	/s/ Mark King
Date	Mark King
	Chief Executive Officer

October 11, 2022	/s/ Patrick Cefalu
Date	Patrick Cefalu
	Chief Financial Officer

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Aug. 27, 2022

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognize revenue 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 is recognized at a point in time, generally upon shipment of products.

To achieve that core principle, the Company applies the following steps:

1. Identify the contract(s) with a customer.

The Company designs, manufactures and distributes various types of microelectronic circuits, optoelectronics, and sensors and displays. 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 (200^o C) products.

The Company’s revenues are from purchase orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

2. Identify the performance obligations in the contract.

The majority of the Company’s purchase orders or contracts with customers contain a single performance obligation, the shipment of products.

3. Determine the transaction price.

The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on the terms of the contract or purchase order with the customer. To the extent our actual costs vary from the fixed price that was negotiated, we will generate more or less profit or could incur a loss.

4. Allocate the transaction price to the performance obligations in the contract.

The Company’s transaction price is the fixed price per unit per each delivery upon shipment.

5. Recognize revenue when (or as) the Company satisfies a performance obligation.

This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders for products to be delivered over multiple dates that may extend across reporting periods. The Company accounting policy treats shipping and handling activities as a fulfillment cost. The Company invoices for each delivery upon shipment and recognizes revenues at the fixed price for each distinct product delivered when transfer of control has occurred, which is generally upon shipment.

For certain contracts under which the Company produces products with no alternative use and for which the Company has an enforceable right to payment during the production cycle, the Company recognizes revenue for the cost incurred of work in process plus a margin at the end of each period and records a contract asset (unbilled receivable). The majority of these products are shipped weekly and monthly to the customers and the contracts require us to manage and limit the level of work in process to meet the scheduled delivery dates.

In addition, the Company may have a contract or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed, and performance obligations are determined and we recognize revenue at the point in time in which each performance obligation is fully satisfied.

Disaggregation of Revenue

Disaggregation of Revenue

The following table summarizes the Company’s Net Sales by Product Line.

	8/27/2022		8/28/2021
Microcircuits	$	5,585	$	5,132
Optoeletronics		6,056		5,144
Sensors and Displays		8,553		9,589
Total Revenue	$	20,194	$	19,865
Timing of revenue recognition
Transferred at a point in time	$	17,393	$	19,039
Transferred over time		2,801		826
Total Revenue	$	20,194	$	19,865

The following table summarizes the Company’s Net Sales by Major Market.

2022 Third Quarter Sales by Major Market
	Military		Space		Medical		Commercial			Total
Domestic Direct	$	2,684	$	317	$	754	$	401	$	4,156
Domestic Distribution		2,101		278		0		156		2,535
International		20		104		0		125		249
	$	4,805	$	699	$	754	$	682	$	6,940
2021 Third Quarter Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	3,052	$	971	$	1,069	$	149	$	5,241
Domestic Distribution		2,427		139		0		152		2,718
International		25		120		0		76		221
	$	5,504	$	1,230	$	1,069	$	377	$	8,180
2022 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	8,322	$	1,116	$	2,138	$	935	$	12,511
Domestic Distribution		5,485		996		—		629		7,110
International		91		254		—		228		573
	$	13,898	$	2,366	$	2,138	$	1,792	$	20,194
2021 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	7,063	$	2,141	$	2,777	$	437	$	12,418
Domestic Distribution		5,762		675		—		449		6,886
International		152		255		—		154		561
	$	12,977	$	3,071	$	2,777	$	1,040	$	19,865

Receivables, net, Contract Assets and Contract Liabilities

Receivables, net, Contract Assets and Contract Liabilities

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (deferred revenue) on the Condensed Balance Sheets. 

Receivables, net, contract assets and contract liabilities were as follows:

Receivables, net, Contract Assets and Contract Liabilities

(Dollars in thousands)

	August 27, 2022		November 30, 2021		December 1, 2020
Receivables, net	$	3,610	$	4,974	$	2,639
Contract assets	$	912	$	603	$	512
Deferred revenue	$	1,155	$	1,258	$	111

There was $103,000 of revenue recognized in fiscal year 2022 that was included in the deferred revenue liability balance at the beginning of the fiscal year.

Contract costs

Contract costs

The Company does not have material incremental costs to obtain a contract in the form of sales commissions or bonuses. The Company incurs other immaterial costs to obtain and fulfill a contract; however, the Company has elected the practical expedient under ASC 340-40-24-4 to recognize all incremental costs to obtain a contract as an expense when incurred if the amortization period is one year or less.

Leases

Leases

In the first quarter of 2020, the Company entered into a three (3) year lease extension on the property that has been leased on a year to year basis. As a result, we recognized $165,000 for operating lease liabilities and right-of-use assets in accordance with ASC 842. The Company had an operating lease expense of $40,000 for the first nine months of 2022 and $37,000 for the first nine months of 2021. The Company used an estimated incremental borrowing rate of 3.25% representative of the rate of interest that the company would have to pay to borrow on the Company’s line of credit. The remaining lease term is six months.

The Undiscounted Future Minimum Lease Payments consist of the following at:

		8/27/2022
2022	$	14,000
2023		14,000
Total lease payments		28,000
Interest		1,000
Present value of lease liabilities	$	27,000

Short-Term Investments

Short-Term Investments

The Company had no short-term investments at August 27, 2022 or November 30, 2021. Short-term investments consist of certificates of deposits with maturities greater than 90 days. These investments are reported at historical cost, which approximates fair value. All highly liquid investments with maturities of 90 days or less are classified as cash equivalents.

Inventories

Inventories

Inventories are stated at lower of cost or net realizable 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 to the lower of cost or net realizable value via an analysis based on the usage of inventory over a three year period and projected usage based on current backlog.

Income Taxes

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.

The Company records a liability for an unrecognized tax benefit for a tax position that is not “more-likely-than-not” to be sustained.  The Company did not record any liability for uncertain tax positions as of August 27, 2022 or November 30, 2021.

Property, Plant, and Equipment

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	30
Facility improvements	.........................................................................................................................................................	8	15
Machinery and equipment	.........................................................................................................................................................	5	10
Furniture and fixtures	.........................................................................................................................................................	5	8

The Company assesses long-lived assets for impairment in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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.

Construction in progress relates to multiple capital projects ongoing during the year ended November 30, 2021 and the nine months ended August 27, 2022, including the construction of the new manufacturing facility. Construction in progress also includes interest and fees on debt that are directly related to the financing of the Company’s capital projects.

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

Research and Development Costs

Research and Development Costs

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

Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per 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 August 27, 2022 and August 28, 2021, the Company had no dilutive potential common stock instruments.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

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SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Aug. 27, 2022

Accounting Policies [Abstract]

Net Sales by Product Line (Detail)

	8/27/2022		8/28/2021
Microcircuits	$	5,585	$	5,132
Optoeletronics		6,056		5,144
Sensors and Displays		8,553		9,589
Total Revenue	$	20,194	$	19,865
Timing of revenue recognition
Transferred at a point in time	$	17,393	$	19,039
Transferred over time		2,801		826
Total Revenue	$	20,194	$	19,865

Net Sales by Major Market

The following table summarizes the Company’s Net Sales by Major Market.

2022 Third Quarter Sales by Major Market
	Military		Space		Medical		Commercial			Total
Domestic Direct	$	2,684	$	317	$	754	$	401	$	4,156
Domestic Distribution		2,101		278		0		156		2,535
International		20		104		0		125		249
	$	4,805	$	699	$	754	$	682	$	6,940
2021 Third Quarter Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	3,052	$	971	$	1,069	$	149	$	5,241
Domestic Distribution		2,427		139		0		152		2,718
International		25		120		0		76		221
	$	5,504	$	1,230	$	1,069	$	377	$	8,180
2022 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	8,322	$	1,116	$	2,138	$	935	$	12,511
Domestic Distribution		5,485		996		—		629		7,110
International		91		254		—		228		573
	$	13,898	$	2,366	$	2,138	$	1,792	$	20,194
2021 Nine Months Sales by Major Market
		Military		Space		Medical		Commercial		Total
Domestic Direct	$	7,063	$	2,141	$	2,777	$	437	$	12,418
Domestic Distribution		5,762		675		—		449		6,886
International		152		255		—		154		561
	$	12,977	$	3,071	$	2,777	$	1,040	$	19,865

Receivables, net, Contract Assets and Contract Liabilities

	August 27, 2022		November 30, 2021		December 1, 2020
Receivables, net	$	3,610	$	4,974	$	2,639
Contract assets	$	912	$	603	$	512
Deferred revenue	$	1,155	$	1,258	$	111

Undiscounted Future Minimum Lease Payments

		8/27/2022
2022	$	14,000
2023		14,000
Total lease payments		28,000
Interest		1,000
Present value of lease liabilities	$	27,000

Schedule of Property Plant and Equipment Useful Lives

Buildings	.........................................................................................................................................................	15	30
Facility improvements	.........................................................................................................................................................	8	15
Machinery and equipment	.........................................................................................................................................................	5	10
Furniture and fixtures	.........................................................................................................................................................	5	8

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COMMITMENTS (Tables)

9 Months Ended

Aug. 27, 2022

Commitments and Contingencies Disclosure [Abstract]

Debt Disclosure

Debt		August 27, 2022
Notes payable	$	14,538,000
Less unamortized debt issuance costs		179,000
Net Debt		14,359,000
Less—Current portion		—
Total long-term debt	$	14,359,000

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Net Sales by Product Line (Detail) - USD ($) $ in Thousands	Aug. 27, 2022	Aug. 28, 2021
Net Sales By Product Line
Microcircuits	$ 5,585	$ 5,132
Optoeletronics	6,056	5,144
Sensors and Displays	8,553	9,589
Total Revenue	20,194	19,865
Timing of revenue recognition
Transferred at a point in time	17,393	19,039
Transferred over time	2,801	826
Total Revenue	$ 20,194	$ 19,865

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Net Sales by Major Market (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Aug. 27, 2022	Aug. 28, 2021	Aug. 27, 2022	Aug. 28, 2021
Domestic Direct	$ 4,156	$ 5,241	$ 12,511	$ 12,418
Domestic Distribution	2,535	2,718	7,110	6,886
International	249	221	573	561
	6,940	8,180	20,194	19,865
Military [Member]
Domestic Direct	2,684	3,052	8,322	7,063
Domestic Distribution	2,101	2,427	5,485	5,762
International	20	25	91	152
	4,805	5,504	13,898	12,977
Space [Member]
Domestic Direct	317	971	1,116	2,141
Domestic Distribution	278	139	996	675
International	104	120	254	255
	699	1,230	2,366	3,071
Medical [Member]
Domestic Direct	754	1,069	2,138	2,777
Domestic Distribution	0	0	0	0
International	0	0	0	0
	754	1,069	2,138	2,777
Commercial [Member]
Domestic Direct	401	149	935	437
Domestic Distribution	156	152	629	449
International	125	76	228	154
	$ 682	$ 377	$ 1,792	$ 1,040

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Receivables, net, Contract Assets and Contract Liabilities (Details) - USD ($) $ in Thousands	Aug. 27, 2022	Nov. 30, 2021	Dec. 01, 2020
Accounting Policies [Abstract]
Receivables, net	$ 3,610	$ 4,974	$ 2,639
Contract assets	912	603	512
Deferred revenue	$ 1,155	$ 1,258	$ 111

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Undiscounted Future Minimum Lease Payments (Details)	Aug. 27, 2022 USD ($)
Accounting Policies [Abstract]
2022	$ 14,000
2023	14,000
Total lease payments	28,000
Interest	1,000
Present value of lease liabilities	$ 27,000

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Schedule of Property Plant and Equipment Useful Lives (Details)	9 Months Ended
	Aug. 27, 2022
Minimum [Member] | Building [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	15 years
Minimum [Member] | Facility Improvements [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	8 years
Minimum [Member] | Machinery Equipment [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	5 years
Minimum [Member] | Furniture Fixtures [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	5 years
Maximum [Member] | Building [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	30 years
Maximum [Member] | Facility Improvements [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	15 years
Maximum [Member] | Machinery Equipment [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	10 years
Maximum [Member] | Furniture Fixtures [Member]
Property, Plant and Equipment [Line Items]
Furniture and fixtures	8 years

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SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Aug. 27, 2022	Aug. 28, 2021	Aug. 28, 2022	Aug. 27, 2022	Aug. 28, 2021
Accounting Policies [Abstract]
Deferred Revenue, Additions				$ 103,000
Operating Lease, Right-of-Use Asset	$ 165,000			$ 165,000
Operating Lease, Expense			$ 40,000		$ 37,000
Long-Term Debt, Percentage Bearing Fixed Interest, Percentage Rate	325.00%			325.00%
[custom:RemainderLeaseTerm]				six months
[custom:DilutivePotentialCommonStockInstruments]	$ 0	$ 0

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FAIR VALUE MEASUREMENT (Details Narrative) - USD ($)	Aug. 27, 2022	Nov. 30, 2021
Fair Value Disclosures [Abstract]
[custom:FairValueFinancialAssetsLiabilitiesRecurringBasis-0]	$ 0	$ 0
[custom:FairValueNonFinancialAssetsNonRecurringBasis-0]	$ 0	$ 0

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Debt Disclosure (Details) - USD ($)	Aug. 27, 2022	Nov. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Notes payable	$ 14,538,000
Less unamortized debt issuance costs	179,000
Net Debt	14,359,000
Less—Current portion	0
Total long-term debt	$ 14,359,000	$ 3,369,000

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COMMITMENTS (Details Narrative) - USD ($)	Aug. 27, 2022	Mar. 26, 2021
[custom:MaximumInterestRate-0]		340.00%
[custom:MinimumInterestRate-0]		3.25
Construction Loan		$ 16,160,000
[custom:ConstructionLoanInterestRate-0]	340.00%
Long-Term Line of Credit	$ 6,000,000
Notes Payable	$ 14,538,000
Revolving Loan [Member]
Line of Credit Facility, Maximum Borrowing Capacity		6,000,000
Construction Loan Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 16,160,000

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SHAREHOLDERS’ EQUITY (Details Narrative) - $ / shares	3 Months Ended		9 Months Ended
	Aug. 27, 2022	Aug. 28, 2021	Aug. 27, 2022	Aug. 28, 2021
Accumulated Other Comprehensive Income (Loss) [Line Items]
Common Stock, Dividends, Per Share, Cash Paid			$ 0.10	$ 0.10
Dividend [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Dividends Payable, Date Declared			Dec. 07, 2021	Dec. 08, 2020
Common Stock, Dividends, Per Share, Cash Paid			$ 0.10	$ 0.10
Dividends Payable, Date of Record			Jan. 11, 2022	Jan. 06, 2021
Dividends Payable, Date to be Paid			Feb. 10, 2022	Feb. 12, 2021

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EMPLOYEE RETENTION CREDIT UNDER THE CARES ACT (Details Narrative)	Aug. 27, 2022 USD ($)
Employee Retention Credit Under Cares Act
[custom:OtherReceivablesNetCurrentERCRelated-0]	$ 920,299