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~~February 2624, ~~2023~~ 2024

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

Commission File Number 0-5109

MICROPAC INDUSTRIES, INC.

Delaware		75-1225149
(State of Incorporation)		(IRS Employer Identification No.)

905 E. Walnut, Garland, Texas		75040
(Address of Principal Executive Office)		(Zip Code)

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

Securities Registered Pursuant to Section 12(g) of the Act: common stock, par value $0.10.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o¨

Indicate by check mark whether the registrant has submitted electronically 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 x No o¨

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	o	Emerging growth company o
Accelerated filer	o	Smaller reporting company x
Non-accelerated filer	o

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. o¨

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

On ~~October~~April 109, ~~2023,~~2024 there were 2,578,315 shares of Common Stock, $0.10 par value, outstanding.

MICROPAC INDUSTRIES, INC.

FORM 10-Q

~~August~~February 2624, ~~2023~~2024

INDEX

PART I - FINANCIAL INFORMATION
	ITEM 1 - FINANCIAL STATEMENTS		3	3
		Condensed Balance Sheets as of August 26, 2023 (unaudited) and November 30, 2022		3
		Condensed Balance Sheets as of February 24, 2024 (unaudited) and November 30, 2023	3
		Condensed Statements of Operations for the three and nine months ended August 26, 2023 and August 27, 2022 (unaudited)		4
		Condensed Statements of Operations for the three months ended February 24, 2024 and February 25, 2023 (unaudited)	4
		Condensed Statements of Cash Flows for the nine months ended August 26, 2023 and August 27, 2022 (unaudited)		5
		Condensed Statements of Cash Flows for the three months ended February 24, 2024 and February 25, 2023 (unaudited)	5
		Statements of Shareholders’ Equity for the three and nine months ended August 26, 2023 and August 27, 2022 (unaudited)		6
		Statements of Shareholders’ Equity for the three months ended February 24, 2024 and February 25, 2023 (unaudited)	6
		Notes to Condensed Financial Statements (unaudited)	7	7
	ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13	14
	ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		16	17
	ITEM 4 - CONTROLS AND PROCEDURES		16	17
PART II - OTHER INFORMATION
	ITEM 1 - LEGAL PROCEEDINGS		16	17
	ITEM 1A - RISK FACTORS			17
	ITEM 1A -RISK FACTORS		16
	ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		16	17
	ITEM 3 - DEFAULTS UPON SENIOR SECURITIES		16	17
	ITEM 4 - MINE SAFETY DISCLOSURE		16	17
	ITEM 5 - OTHER INFORMATION		16	17
	ITEM 6 - EXHIBITS		16	18
SIGNATURES			17	18

PART I - FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

MICROPAC INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands)

CURRENT ASSETS	~~August~~February 2624, ~~2023~~2024			November 30, ~~2022~~2023
	(Unaudited)
Cash and cash equivalents	$	119,~~449~~869		$	1510,~~375~~299
Receivables, net of allowance for doubtful accounts of $0 at August 26, 2023 and November 30 2022		3,288			3,644
Receivables, net of allowance for credit losses of $0 at February 24, 2024 and November 30 2023		4,673			8,021
Other receivables		1,010			920
Other receivable		120			139
Contract assets		~~623~~501			~~408~~307
Inventories:
Raw materials and supplies		78,~~198~~607			67,~~715~~367
Work in process		45,~~921~~893			34,~~573~~113
Total inventories		1214,~~119~~500			1011,~~288~~480
Prepaid expenses and other assets		~~408~~280			~~564~~487
Total current assets		2829,~~897~~943			3130,~~199~~733
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		1,518			1,518
Buildings		21,013			~~498~~21,013
Facility improvements		1,126			1,126
Furniture and fixtures		2,~~065~~068			12,~~036~~068
Construction in process		153			19,415
Construction in process equipment		206			181
Machinery and equipment		10,~~173~~189			910,~~952~~175
Total property, plant, and equipment		36,~~048~~120			3336,~~545~~081
Less accumulated depreciation		(1112,~~707~~247	)		(11,~~082~~982	)
Net property, plant, and equipment		2423,~~341~~873			2224,~~463~~099
Operating lease right to use asset		-			14
Deferred income taxes, net		475			475
Deferred income taxes, net		102			86
Total assets	$	54,291		$	55,307
Total assets	$	53,340		$	53,762
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,~~225~~900		$	1,~~173~~491
Accrued compensation		~~926~~861			~~1,086~~958
Deferred revenue		~~560~~455			~~1,192~~618
Property taxes payable		521			560
Property taxes		125			746
Income tax payable		12			149
Income tax		51			444
Short term debt		429			224
Current portion of long term debt		436			432
Other accrued liabilities		2425			4734
Total current liabilities		3,~~697~~853			4,~~431~~723
Long Term Debt, net of debt issuance costs		15,417			14,535
Long term debt, net of debt issuance costs and current portion		15,212			15,316
Total liabilities		19,~~114~~065			1820,~~966~~039
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 26, 2023 November 30, 2022		308			308
Common stock, $.10 par value, authorized 10,000,000 shares, 3,078,315 issued and 2,578,315 outstanding at February 24, 2024 and November 30 2023		308			308
Additional paid-in-capital		~~944~~1,022			~~885~~983
Treasury stock, 500,000 shares, at cost		(1,250	)		(1,250	)
Retained earnings		3435,~~224~~146			3435,~~853~~227
Total shareholders’ equity		3435,226			3435,~~796~~268
Total liabilities and shareholders’ equity	$	5354,~~340~~291		$	5355,~~762~~307

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands except share data)

(Unaudited)

	Three months ended						~~Nine Months Ended~~
	August 26, 2023			August 27, 2022			August 26, 2023			August 27, 2022
	February 24, 2024			February 25, 2023
NET SALES	$	6,~~458~~118		$	6,~~940~~190		$	~~20,091~~		$	~~20,194~~
COST AND EXPENSES:
Cost of goods sold		(43,~~576~~504	)		(3,~~667~~939	)		~~(13,098~~	)		~~(11,188~~	)
Research and development		(~~454~~494	)		(~~568~~652	)		~~(1,731~~	)		~~(1,534~~	)
Selling, general & administrative expenses		(2,017	)		(2,231	)		(5,833	)		(5,849	)
Selling, general and administrative expenses		(1,912	)		(1,806	)
Total cost and expenses		(75,~~047~~910	)		(~~6466~~6,397	)		~~(20,662~~	)		~~(18,571~~	)
OPERATING INCOME (LOSS)		~~(589~~208	)		~~474~~(207	)		~~(571~~	)		~~1,623~~
Interest and other income, net		44			966			218			967
Interest expense		(142	)		-
INCOME (LOSS) BEFORE TAXES		(545	)		1,440			(353	)		2,590
Other income, net		147			139
(Provision) benefit for taxes		15			(335	)		(18	)		(530	)
INCOME (LOSS) BEFORE TAXES		213			(68	)
NET INCOME (LOSS)	$	(530	)	$	1,105		$	(371	)	$	2,060
(Provision) benefit for taxes		(36	)		12
NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED	$	(0.21	)	$	0.43		$	(0.14	)	$	0.80
NET INCOME (LOSS)	$	177		$	(56	)
DIVIDENDS PER SHARE	$	-0.10		$	-0.10		$	~~0.10~~		$	~~0.10~~
WEIGHTED AVERAGE OF SHARES, basic and diluted		2,578,315			2,578,315			2,578,315			2,578,315
NET INCOME (LOSS) PER SHARE, BASIC	$	0.07		$	(0.02	)
WEIGHTED AVERAGE OF SHARES, BASIC		2,578,315			2,578,315
NET INCOME (LOSS) PER SHARE, DILUTED	$	0.07		$	(0.02	)
WEIGHTED AVERAGE OF SHARES, DILUTED		2,609,509			2,578,315

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Nine months ended
	Three months ended
CASH FLOWS FROM OPERATING ACTIVITIES:	~~August~~February 2624, ~~2023~~2024			~~August~~February 2725, ~~2022~~2023
Net income (loss)	$	~~(371~~177	)	$	~~2,060~~(56	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		~~650~~265			~~297~~103
Stock-based compensation		5939			-
Amortization of debt issuance cost		383			-28
Deferred tax expense (benefit)		(16	)		4
Amortization of right-of-use assets		-			14
Amortization of right of use assets		14			40
Changes in certain current assets and liabilities:
Decrease in accounts receivable		~~265~~3,368			~~443~~834
Increase in contract assets		(~~215~~194	)		(~~309~~314	)
Increase in inventories		(13,~~831~~020	)		(~~884~~1,051	)
Increase (decrease) in prepaid expenses		157			(387	)
Decrease (increase) in prepaid expenses and other assets		207			(29	)
Decrease in deferred revenue		(~~632~~162	)		(~~103~~546	)
Increase in accounts payable		29408			~~328~~372
Decrease in accrued compensation		(~~159~~96	)		(~~189~~244	)
(Decrease) increase in income taxes payable		(138	)		224
Decrease in income taxes payable		(394	)		(124	)
Decrease in lease liabilities		~~(14~~-	)		(4014	)
(Decrease) increase in all other accrued liabilities		(47	)		65
Decrease in property tax liabilities		(625	)		(131	)
Net cash (used in) provided by operating activities		(2,211	)		1,549
Decrease in all other accrued liabilities		(5	)		(335	)
Net cash used in operating activities		(29	)		(1,493	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(2,506	)		(11,931	)
Additions to property, plant, and equipment		(40	)		(480	)
Net cash used in investing activities		(~~2,506~~40	)		(~~11,931~~480	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend		(258	)		(258	)
Proceeds from long term debt		1,222			10,990
Proceeds on long term debt		-			100
Payment on long term debt		(173	)		-
Payments on long term debt		(103	)		-
Net cash provided by financing activities		791			10,732
Net cash used in financing activities		(361	)		(158	)
Net increase (decrease) in cash and cash equivalents		(3,926	)		350
Net increase in cash and cash equivalents		(430	)		(2,131	)
Cash and cash equivalents at beginning of period		1510,~~375~~299			15,~~252~~375
Cash and cash equivalents at end of period	$	119,~~449~~869		$	1513,~~602~~244
Supplemental Cash Flow Disclosure:
Cash paid for income taxes	$	~~177~~430		$	~~302~~118
Cash paid for interest	$	~~405~~138		$	~~373~~130
Supplemental Non-Cash Flow Disclosure:
Changes in accrued property, plant, and equipment	$	22		$	~~402~~75

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE QUARTERS ENDED ~~AUGUST~~FEBRUARY 2624, ~~2023~~2024 AND ~~AUGUST~~ ~~27,~~FEBRUARY ~~2022~~25, 2023

(Dollars in thousands)

(Unaudited)

	Common		Additional		Treasury			Retained
	Stock		paid-in-capital		Stock			Earnings			Total
BALANCE, November 30, 2021	$	308	$	885	($	1,250	)	$	32,324		$	32,267
BALANCE, November 30, 2022	$	308	$	885	$	(1,250	)	$	34,853		$	34,796
Dividend		-		-		-			(258	)		(258	)
Net income		-		-		-			~~464~~(56	)		~~464~~(56	)
BALANCE, February 26, 2022	$	308	$	885	($	1,250	)	$	32,530		$	32,473
BALANCE, February 25, 2023	$	308	$	885	$	(1,250	)	$	34,539		$	34,482
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

	Common		Additional		Treasury			Retained
	Stock		paid-in-capital		Stock			Earnings			Total
BALANCE, November 30, 2022	$	308	$	885	($	1,250	)	$	34,853		$	34,796
BALANCE, November 30, 2023	$	308	$	983	$	(1,250	)	$	35,227		$	35,268
Stock-based compensation		-		39		-			-			39
Dividend		-		-		-			(258	)		(258	)
Net loss		-		-		-			(56	)		(56	)
Net income		-		-		-			177			177
BALANCE, February 26, 2023	$	308	$	885	($	1,250	)	$	34,539		$	34,482
BALANCE, February 24, 2024	$	308	$	1,022	$	(1,250	)	$	35,146		$	35,226
Stock-based compensation				39		-			-			39
Net income		-		-		-			215			215
BALANCE, May 27, 2023	$	308	$	924	($	1,250	)	$	34,754		$	34,736
Stock-based compensation				20		-			-			20
Net loss		-		-		-			(530	)		(530	)
BALANCE, August 26, 2023	$	308	$	944	($	1,250	)	$	34,224		$	34,226

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 BASIS OF PRESENTATION

Business Description

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

The Company’s facilities are certified and qualified by the ~~Defense~~Defence 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~~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 ~~technologies~~technology ~~are~~is microelectronic and optoelectronic designs to include the packaging and interconnecting of multi-chip microelectronics modules. Other technologies include light emitting and light sensitive materials and products, including light -emitting diodes and silicon phototransistors, and electronic integration used in the Company’s optoelectronic components and assemblies.

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 434 shareholders on ~~August~~February 2624, ~~2023~~2024.

In the opinion of management, the unaudited financial ~~statements~~ statements include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position as of ~~August 26~~February 24, ~~2023~~2024, the results of operations ~~for the three~~ and ~~nine months ended August 26, 2023 and August 27, 2022 and the~~ cash flows for the three ~~and nine~~ months ended ~~August~~February 2624, ~~2023~~2024 and ~~August~~February 2725, ~~2022, including the statement of shareholders equity~~2023. Unaudited ~~financial~~ financial statements are prepared on a basis substantially consistent with those audited for the year ended November 30, ~~2022~~2023. Certain ~~information~~ information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting ~~principles~~ principles in the United States (GAAP) have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and ~~Exchange~~ 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, ~~2022~~2023 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 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 including solid state relays and power controllers, ~~optoelectronics~~optoelectronic components, sensor and ~~sensors~~display components and ~~displays~~assemblies. The Company’s products are used as components and assemblies in a broad range of military, space, medical and industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, and medical devices~~, and high-temperature (200o C) products~~.

The Company’s revenues are from purchase orders and/or contracts with customers associated with the 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.

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.

Schedule of net sales by product line
	8/26/2023		8/27/2022
	Net Sales by Product Line (Dollars in thousands)
Microcircuits	$	4,985	$	5,585
	Feb. 24, 2024		Feb. 25, 2023
Optoeletronics		5,432		6,056
Microelectronics	$	2,489	$	1,020
Sensors and Displays		9,674		8,553
Optoelectronics		1,500		1,857
	$	20,091	$	20,194
Sensors and Displays		2,129		3,313
	$	6,118	$	6,190
Timing of revenue recognition:
Transferred at a point in time	$	16,521	$	17,393
Recognized at a point in time	$	5,123	$	5,112
Transferred over time		3,570		2,801
Recognized over time		995		1,078
Total Revenue	$	206,~~091~~118	$	206,~~194~~190

The following table summarizes the Company’s net sales by major market.

2023 Third Quarter Sales by Major Market

Schedule of net sales by major market

2024 First Quarter Sales by Major Market (Dollars in thousands)
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	2,840	$	196	$	368	$	597	$	4,001
Domestic Distribution		1,224		147		-		377		1,748
International		97		103		-		169		369
	$	4,161	$	446	$	368	$	1,143	$	6,118

Schedule of net sales by major market
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	3,312	$	254	$	489	$	294	$	4,349
Domestic Distribution		1,444		81		7		313		1,845
International		139		20		-		105		264
	$	4,895	$	355	$	496	$	712	$	6,458

2022 Third Quarter Sales by Major Market

2023 First Quarter Sales by Major Market (Dollars in thousands)
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	1,310	$	52	$	950	$	1,306	$	3,618
Domestic Distribution		1,736		410		-		150		2,296
International		28		2		-		246		276
	$	3,074	$	464	$	950	$	1,702	$	6,190

	Military		Space		Medical		Commercial		Total
Domestic Direct	$	2,684	$	317	$	754	$	401	$	4,156
Domestic Distribution		2,101		278		-		156		2,535
International		20		104		-		125		249
	$	4,805	$	699	$	754	$	682	$	6,940

2023 Nine Months Sales by Major Market

	Military		Space		Medical		Commercial		Total
Domestic Direct	$	7,618	$	952	$	2,275	$	2,220	$	13,065
Domestic Distribution		4,318		910		-		737		5,965
International		238		185		-		638		1,061
	$	12,174	$	2,047	$	2,275	$	3,595	$	20,091

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

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


	Receivables, net, Contract Assets and Contract Liabilities (Dollars in thousands)

	February 24, 2024		November 30, 2023		December 1, 2022
Receivables, net	$	4,673	$	8,021	$	3,644
Contract assets	$	501	$	307	$	408
Deferred revenue	$	455	$	618	$	1,192

~~(Dollars~~There was $162,000 of revenue recognized in ~~thousands)~~fiscal year 2024 that was included in the deferred revenue liability balance at the beginning of the fiscal year.

Schedule of receivables, net, contract assets and contract liabilities
	August 26, 2023		November 30, 2022		December 1, 2021
Receivables, net	$	3,288	$	3,644	$	4,974
Contract assets	$	623	$	408	$	603
Deferred revenue	$	560	$	1,192	$	1,258

There was $642,260 of revenue recognized in fiscal year 2023 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 $14,000 for ~~the first nine months of~~ 2023 ~~and $40,000 for the first nine months of 2022~~. 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 lease expired in March 2023 and was not renewed.

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~~February 2624, ~~2023~~2024 or November 30, ~~2022~~2023.

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	15-39
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~~ projects ongoing during the year ended November 30, ~~2022~~2023 and the ~~nine~~three months ended ~~August~~February 2624, ~~2023,~~2024 ~~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. In March 2023, the new manufacturing facility was completed and placed in service.

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.

The following is a reconciliation of the number of shares used in the calculation of the basic and diluted earnings per share for the three and nine months ended August 26, 2023 and August 27, 2022:

Schedule of the basic and diluted earnings per share
	Three months ended				Nine Months Ended
	August 26, 2023		August 27, 2022		August 26, 2023		August 27, 2022
Weighted average of shares, basic		2,578,315		2,578,315		2,578,315		2,578,315
Restricted stock units		-		-		-		-
Weighted average of shares, diluted		2,578,315		2,578,315		2,578,315		2,578,315

Due to the current loss position, the Company has not included the 35,650 restricted stock units due to being anti-dilutive in nature.

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 115, ~~2023~~2022 for Smaller Reporting Companies, including interim periods within those fiscal years and requires a modified-retrospective approach to adoption. The Company ~~believes~~adopted ~~that adopting~~ ASU 2016-13 ~~will~~on ~~have~~December 1, 2023, and had no material impact on the financial statements and related disclosures.

Note 4 FAIR VALUE MEASUREMENT

The Company had no financial assets or liabilities ~~measured~~ measured at fair value on a recurring basis as of ~~August~~February 2624, ~~2023~~2024 or November 30, ~~2022~~2023. 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 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~~February 2624, ~~2023~~2024 and November 30, ~~2022~~2023.

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. 10

On May 16, 2023, the Company renewed the Revolving Loan Agreement with Frost through the “Sixth Amendment to Loan Agreement.” (See Exhibit 10.13). 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 ~~includes~~ 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. ~~There are no borrowings outstanding as of August 26, 2023.~~ The loan has a maturity date of April 23, 2025.

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 $1615,~~160~~780,000 against the construction loan as of ~~August~~February 2624, ~~2023~~2024.

Schedule of long-term debt
Debt August 26, 2023
Debt February 24, 2024
Notes payable	$	15,~~987~~780,000
Less unamortized debt issuance costs		~~141~~132,000
Net Debt		15,~~846~~648,000
Less—Current portion		~~429~~436,000
Total long-term debt	$	15,~~417~~212,000

Estimated maturities of our long-term debt over the next 5 years are as follows (in thousands):

Estimated maturities of long-term debt
	2023		2024		2025		2026		2027		Thereafter		Total
	2024 (remaining)		2025		2026		2027		2028		Thereafter		Total
Frost Bank	$	~~106~~326	$	~~433~~447	$	~~447~~463	$	~~463~~479	$	~~479~~495	$	1413,~~059~~572	$	15,~~987~~780

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~~year. Diluted earnings per share gives effect to all dilutive potential common shares. ~~For the three and nine months ended August 26, 2023, the Company has dilutive potential common stock instruments with the restricted stock units.~~

The following is a reconciliation of the number of shares used in the calculation of the basic and diluted earnings per share for the years ended Feb. 24, 2024 and Feb. 25, 2023.



	Three Months Ended
	Feb. 24, 2024		Feb. 25, 2023
Weighted average of shares, basic		2,578,315		2,578,315
Restricted stock units		31,194		-
Weighted average of shares, diluted		2,609,509		2,578,315

Note 7 SHAREHOLDERS’ EQUITY

On December 5, 2023, 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 10, 2024. The dividend was paid to shareholders on February 9, 2024.

On December 7, 2022, 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, 2023. The dividend was paid to shareholders on February 10, 2023.

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.

NOTE 8 STOCK-BASED COMPENSATION

We have issued restricted stock units ("RSUs") stock-based compensation awards as part of Micropac Industries Inc.’s 2023 Equity Incentive Plan. Our 2023 annual grant of RSUs occurred in the second quarter. The weighted -average grant-date fair value of each unit granted in 2023 was $13.13. All the RSUs granted in 2023 vest over a three-year period.

The following is a summary of our RSUs activity for ~~nine~~three months ended ~~August~~ 26February 24, 2024 ~~2023~~ and ~~August~~February 2725, ~~2022:~~2023.

Schedule of restricted stock units activity
	2023				2022
	2024				2023
(shares in thousands)	Number ~~of Shares~~		Weighted- ~~Average Grant Date Fair Value~~		Number ~~of Shares~~		Weighted- ~~Average Grant Date Fair Value~~
Unvested at beginning of period		-		-		-		-
	of		Average		of		Average
Granted		35.7	$	13.13		-		-
	Shares		Grant Date Fair Value		Shares		Grant Date Fair Value
Vested		-		-		-		-
Unvested at beginning of period		31.2	$	13.13		-		-
Granted		-		-		-		-
Vested		7.4	$	13.13		-		-
Cancelled		-		-		-		-
Unvested at end of the period		3523.78	$	13.13		-		-

The following table sets forth the stock-based compensation expense recorded in selling, general and administrative ("SG&A") expense (in thousands):

Schedule of stock-based compensation
	August 26, 2023 and August 27, 2022
	Three Months Ended
	Three Months Ended				Nine Months Ended
	February 24, 2024		February 25, 2023
	2023		2022		2023		2022
Stock-based compensation expense	$	39	$	-
Stock-based compensation expense	$	20.00		-	$	59.00		-

The following table sets forth the stock-based unvested compensation expense by year to be recognized (in thousands):

Schedule of stock-based unvested compensation expense	~~2023~~		~~2024~~		~~2025~~		~~Total~~
Stock-based unvested compensation expense		20		78		78		176
	2024		2025		Total
Stock-based unvested compensation expense	$	156	$	156	$	312

13Note 9 SUBSEQUENT EVENTS

The Company completed the sale of one manufacturing facility for $706,000 on March 28, 2024, which would result in an expected gain of $706,000.

MICROPAC INDUSTRIES, INC.

(Unaudited)

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

~~Micropac~~The ~~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 industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, and medical devices~~, and high-temperature (200o 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~~is microelectronic and optoelectronic designs to include the packaging and interconnecting of multi-chip microelectronics modules. Other technologies include light emitting and light sensitive materials and products, including light -emitting diodes and silicon phototransistors, and electronic integration used in the Company’s optoelectronic components and assemblies.

Critical Accounting Policies

The preparation of financial statements and related ~~disclosures~~ 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~~February 2624, ~~2023~~2024, describes the significant accounting policies and methods used in the preparation of the Financial Statements. liabilities. 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~~Company ~~for~~extends ~~doubtful~~credit ~~accounts~~to isits ~~based~~customers ~~on our~~in ~~assessment~~the normal course of ~~the~~business. ~~collectability~~Accounts ofreceivable ~~specific~~represent ~~customer~~unpaid ~~accounts~~balances ~~and~~due ~~the~~from ~~aging~~customers. ofThe ~~the~~Company ~~accounts~~maintains ~~receivable.~~an Ifallowance ~~there~~for iscredit alosses ~~deterioration~~for expected losses resulting from customers’ non-payment of abalances ~~major~~due. ~~customer~~The Company determination of allowance for uncollectable amounts is based on management’s judgements and assumptions, including internal information, prior loss experience, evaluation of customer credit ~~worthiness~~risk orand ~~actual~~future ~~defaults~~economic ~~are~~conditions ~~higher~~that ~~than~~will ~~our~~be used as adjustments to historical ~~experience,~~credit ~~our~~loss ~~estimates~~rates ofbecause the ~~recoverability~~information ofis ~~amounts~~reasonably ~~due~~available uswithout ~~could~~undue cost and effort. Receivables are written off after they are deemed to be ~~adversely~~uncollectable ~~affected~~after all reasonable means of collection has been exhausted.

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 assets13

14Depreciable 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~~
		8/26/2023			8/27/2022			8/26/2023		8/27/2022
	February 24, 2024			February 25,2023
NET SALES		100.0	%		100.0	%		~~100.0~~	%	~~100.0~~	%
COST AND EXPENSES:
Cost of Goods Sold		70.8	%		52.9	%		65.2	%	55.4	%
Cost of goods sold		57.3	%		63.6	%
Research and development		78.01	%		810.25	%		~~8.6~~	%	~~7.6~~	%
Selling, general & administrative expenses		31.2	%		32.1	%		29.0	%	29.0	%
Selling, general and administrative expenses		31.2	%		29.2	%
Total cost and expenses		~~109~~96.06	%		93103.23	%		~~102.8~~	%	~~92.0~~	%
OPERATING INCOME (LOSS)		(93.04	%)		6(3.83	)%		~~(2.8~~	%)	~~8.0~~	%
Interest and other income, net		0.7	%		13.9	%		1.0	%	4.8	%
Other income, net		0.1	%		2.2	%
INCOME (LOSS) BEFORE TAXES		~~(8.~~3.5	%)		20(1.71	)%		~~(1.8~~	%)	~~12.8~~	%
(Provision) benefit for taxes		(0.26	)%		(4.72	%)		(0	%)	~~(2.6~~	%)
NET INCOME (LOSS)		(8.1	%)		16.0	%		(1.8	%)	10.2	%
INCOME (LOSS)		2.9	%		(0.9	)%

Sales for the ~~three~~first ~~and~~quarter ~~nine~~ended ~~month~~February ~~periods~~24, ~~ended August 26~~2024, ~~2023~~ totaled $6,~~458~~118,000 ~~and $20,091,000, respectively~~. Sales for the ~~third~~first quarter decreased 1% or $~~482~~72,000 ~~from~~below ~~the same period of 2022 while~~ sales ~~for the first nine months~~ of ~~2023 decreased~~ $~~103~~6,190,000 ~~from~~for the first ~~nine~~quarter ~~months~~ of ~~2022. The majority of the decrease for the three months ended August 26,~~ 2023 ~~is related to timing of shipments of customer orders of standard solid state relays products~~. Sales were 18% in the commercial market, 11% in the medical market, 61% in the military market, and 10% in the space market for the nine months ended August 26, 2023 compared to 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.

~~Three~~Two customers accounted for 1318%, ~~11%,~~ and 1015% of the Company’s sales for the ~~three~~first ~~months~~quarter ~~ended~~of ~~August~~2024 ~~26, 2023,~~ and ~~two~~three customers accounted for 1218%, ~~and 10~~11% ~~for the nine months ended August 26~~, ~~2023,~~and ~~while one customer accounted for 18~~10% of the Company’s sales for the ~~three~~first ~~months~~quarter of ~~ended~~2023. ~~August~~One ~~27,~~customer ~~2022,~~is ~~and two~~a ~~customers~~distributor ~~accounted~~that ~~for~~sells ~~17%~~to ~~and~~multiple ~~10%~~customers ~~for~~in ~~the~~2024 ~~nine~~versus ~~months~~three ~~ended~~distributors ~~August~~in ~~27, 2022~~2023.

Cost of goods sold for the ~~third~~first ~~quarters~~quarter of ~~2023 and~~2024 ~~2022 totaled 70.8%~~ and ~~52.9% of net sales, respectively, while cost of goods sold for the nine months ended August 26,~~ 2023 ~~and August 27, 2022~~ totaled 6557.23% and 5563.46% of net sales, respectively. InCost ~~actual dollars, cost~~ of ~~goods~~sales ~~sold~~decreased ~~increased~~ $~~909~~435,000 inor ~~the~~11% ~~third quarter of 2023 compared to the same period of 2022. Year to date cost of goods sold increased $1,910,000~~ for the first ~~nine~~quarter ~~months~~ of ~~2023~~2024 as compared to the ~~same~~first ~~period~~quarter ~~in 2022~~of 2023. ~~Most~~In of2023, ~~the~~two ~~increase~~new incustom ~~cost~~products offor ~~goods~~separate ~~sold~~customers ~~was~~have anincurred ~~increase~~higher in material cost ~~on a custom product for a customer~~ during the engineering and first production builds resulting in lower gross margins. ~~The~~in ~~contract with~~ the ~~customer~~first onquarter ~~the custom~~of ~~product has been completed~~2023. ~~In addition, depreciation expense increased associated with the new facility being placed into service.~~

Research and development ~~expense~~cost decreased $~~114~~158,000 ~~for~~ ~~the third quarter of 2023 versus 2022 and increased $197,000~~ for the first quarter ~~nine months~~ of ~~2023~~2024 compared to the same period of ~~2022~~2023. The research and development expenditures were associated with the continued development of ~~several~~ power management products, ~~and~~sensor ~~fiber optic transceivers. The Company will continue to invest in research and development of these~~ products and ~~other~~process ~~new~~automation ~~opportunities~~improvements.

Selling, general and administrative ~~expense~~expenses for the ~~third quarter and~~ first ~~nine months~~ quarter of ~~2023~~2024 totaled 31.2% ~~and 29.0% respectively~~ of net sales, compared to ~~32.1% and~~ 29.02% for the same ~~periods~~period in ~~2022~~2023. ~~In actual dollars~~Selling, ~~selling,~~ general and administrative ~~expense~~expenses ~~decreased $214,000 for the third quarter and decreased~~increased $16106,000 ~~for~~in the first ~~nine~~quarter ~~months~~ of ~~2023~~2024 as compared to ~~the~~2023 ~~same~~with ~~periods~~an increase in ~~2022.~~commission ~~The~~expenses ~~majority~~and ofoutside ~~the decrease for the three months ended August 26, 2023 resulted from an decrease in~~ consultant ~~fees~~expense.

15Provisions for taxes increased $48,000 for the first quarter of 2024 compared to the same period in 2023. The estimated effective tax rate was 17% for the first quarter of 2024 and 2023.

~~Provisions~~The ~~for~~Company ~~taxes~~had ~~decreased~~a ~~$350,000~~net ~~for~~profit in the ~~third~~ first quarter of ~~2023~~2024 ~~and decreased~~ of $~~512~~177,000 ~~for~~compared ~~the~~to ~~first~~a ~~nine~~net ~~months~~loss of ~~2023~~$56,000 ~~compared~~in to the ~~same~~first ~~period~~quarter inof ~~2022~~2023.

Net income decreased $1,635,000 for the third quarter of 2023 versus 2022 and decreased $2,431,000 for the first nine months of 2023 compared to the same period of 2022.

Liquidity and Capital Resources

The Company used a combination of cash and a commercial real estate construction loan for the construction of a the 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. The Company used a combination of cash and the 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.

~~As of August 26, 2023, the Company has $15,987,000 in notes payable on the construction loan. In addition, the Company has unamortized loan fees on the construction loan in the amount of $141,000.~~14

InCash ~~addition~~and cash equivalents totaled $9,869,000 ~~the~~as ~~Company~~of ~~continues~~February 24, 2024 compared to $10,299,000 on~~-going~~ ~~investigations for~~November ~~the~~30, ~~use~~2023, a decrease of ~~cumulative~~$430,000. ~~cash~~The ~~for~~decrease ~~business~~in ~~expansion~~cash and ~~improvements~~cash equivalents is attributable to $29,000 ~~such~~cash asused ~~operational~~in ~~improvements~~operations, $103,000 payments on long term debt, payment of a cash dividend of $258,000, and ~~new~~$40,000 ~~product~~in ~~expansion~~cash for additional manufacturing equipment.

Cash and cash equivalents totaled $11,449,000 as of August 26, 2023 compared to $15,375,000 on November 30, 2022, an decrease of $3,926,000. The decrease in cash and cash equivalents is attributable to $2,249,000 cash used in operations, the payment of a cash dividend of $258,000, $223,000 in cash for additional manufacturing equipment and $2,283,000 for construction of the new facility offset by $1,087,000 net proceeds from the financing

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~~the ~~2023~~first quarter of 2024 totaled $295,~~349~~687,000 compared to $196,~~792~~361,000 for ~~2022~~the comparable period of 2023. ~~The~~Backlog ~~increase~~totaled ~~resulted~~$36,282,000 ~~from~~on ~~timing~~February 24, 2024, compared to $33,496,000 as of ~~new~~February ~~orders~~25, ~~for~~2023 and $836,~~432~~370,000 inon ~~space~~November ~~level~~30, ~~solid~~2022. ~~state~~Approximately ~~relays~~$32,488,000 of the current backlog is expected to ship during the remainder of 2024.

Backlog totaled $42,718,000 on August 26, 2023 compared to $36,421,000 as of August 27, 2022 and $32,686,000 on November 30, 2022 and represents a good mix of the company’s products and technologies.

2024 Current Backlog by Major Market (Dollars in thousands)
	Military		Space		Medical		Commercial		Total
Domestic Direct	$	17,247	$	134	$	1,141	$	1,374	$	19,896
Domestic Distribution		12,653		1,871		12		916	$	15,452
International		254		514		-		166	$	934
	$	30,154	$	2,519	$	1,153	$	2,456	$	36,282

2023 Current Backlog by Major Market
2024 Current Backlog by Product Line (Dollars in thousands)
	Military		Space		Medical		Commercial		Total
Microelectronics	$	20,270
Domestic Direct	$	19,962	$	841	$	2,259	$	1,364	$	24,426
Optoelectronics		5,342
Domestic Distribution		13,886		1,829		-		1,056		16,771
Sensors and Displays		10,670
International		372		706		-		443		1,521
	$	36,282
	$	34,220	$	3,376	$	2,259	$	2,863	$	42,718

2023 Current Backlog by Product Line
Microelectronics	$	22,195
Optoelectronics		5,745
Sensors and Displays		14,778
	$	42,718

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 26~~February 24, ~~2023~~2024 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~~ internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s ~~internal~~ internal control over financial reporting during the ~~nine~~ three-month period ended ~~August~~February 2624, ~~2023~~2024.

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~~February 2624, ~~2023~~2024 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, ~~2022~~2023.

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 10, 2023	/s/ Mark King
		/s/ Mark King
Date	Mark King
April 9, 2024
	Chief Executive Officer
Date		Mark King
October 10, 2023	/s/ Patrick Cefalu
		Chief Executive Officer
Date	Patrick Cefalu
		/s/ Patrick Cefalu
	Chief Financial Officer
April 9, 2024
Date		Patrick Cefalu
		Chief Financial Officer

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