10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended May 25, 2019

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 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

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, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer    x	Smaller reporting company x

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

On July 8, 2019 there were 2,578,315 shares of Common Stock, $0.10 par value outstanding.

MICROPAC INDUSTRIES, INC.

FORM 10-Q

May 25, 2019

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4 - CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

ITEM 1A - RISK FACTORS

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

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

ITEM 4 - MINE SAFETY DISCLOSURE

ITEM 5 - OTHER INFORMATION

ITEM 6 - EXHIBITS

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICROPAC INDUSTRIES, INC.

CONDENSED BALANCE SHEETS

(Dollars in thousands)

ASSETS

CURRENT ASSETS	05/25/19			11/30/18
	(Unaudited)
Cash and cash equivalents	$	11,864		$	10,483
Short-term investments		2,073			2,058
Receivables, net of allowance for doubtful accounts of $0 at May 25, 2019 and November 30, 2018		2,309			3,772
Contract Assets		416			—
Inventories:
Raw materials and supplies		4,113			4,593
Work-in process		2,595			1,985
Total inventories		6,708			6,578
Prepaid income tax		257			407
Prepaid expenses and other assets		389			511
Total current assets		24,016			23,809
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land		1,518			1,518
Buildings		498			498
Facility improvements		1,109			1,109
Furniture and fixtures		954			953
Construction in process equipment		607			607
Machinery and equipment		8,907			8,841
Total property, plant, and equipment		13,593			13,526
Less accumulated depreciation		(9,930	)		(9,746	)
Net property, plant, and equipment		3,663			3,780
Deferred income taxes, net		42			57
Total assets	$	27,721		$	27,646
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	842		$	707
Accrued compensation		734			747
Deferred revenue		474			1,238
Property taxes		48			88
Other accrued liabilities		26			123
Total current liabilities		2,124			2,903
Commitments
SHAREHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares, 3,078,315 issued and 2,578,315 outstanding at May 25, 2019 and November 30, 2018		308			308
Additional paid-in capital		885			885
Treasury stock, 500,000 shares, at cost		(1,250	)		(1,250	)
Retained earnings		25,654			24,800
Total shareholders’ equity		25,597			24,743
Total liabilities and shareholders’ equity	$	27,721		$	27,646

See accompanying notes to financial statements.

1 

MICROPAC INDUSTRIES, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands except share data)

(Unaudited)

	Three months ended						Six months ended
		05/25/19			05/26/18			05/25/19			05/26/18
NET SALES	$	6,908		$	4,989		$	10,714		$	8,841
COST AND EXPENSES:
Cost of goods sold		(3,748	)		(2,989	)		(6,096	)		(5,339	)
Research and development		(441	)		(353	)		(832	)		(650	)
Selling, general & administrative expenses		(1,289	)		(1,312	)		(2,605	)		(2,447	)
Total cost and expenses		(5,478	)		(4,654	)		(9,533	)		(8,436	)
OPERATING INCOME		1,430			335			1,181			405
Other income		—			4			—			4
Interest income, net		25			18			48			30
INCOME BEFORE TAXES	$	1,455		$	357		$	1,229		$	439
Provision for taxes		204			(145	)		172			(51	)
NET INCOME	$	1,251		$	502		$	1,057		$	490
NET INCOME PER SHARE, BASIC AND DILUTED	$	0.49		$	0.19		$	0.41		$	0.19
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.

2 

MICROPAC INDUSTRIES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six months ended
		5/25/19			5/26/18
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,057		$	490
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation		184			154
Deferred tax		—			78
Changes in certain current assets and liabilities
Accounts receivable		1,463			1,263
Inventories		(279	)		(884	)
Contract asset		(173	)		—
Prepaid expense and other current assets		122			(164	)
Prepaid income taxes		150			(129	)
Deferred revenue		(764	)		(321	)
Accounts payable		112			136
Accrued compensation		(13	)		(165	)
Other accrued liabilities		(138	)		(111	)
Net cash provided by operating activities		1,721			347
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short term investments		2,061			2,033
Purchase of short term investments		(2,076	)		(2,048	)
Additions to property, plant and equipment		(67	)		(165	)
Net cash used in investing activities		(82	)		(180	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend		(258	)		(258	)
Net cash used in financing activities		(258	)		(258	)
Net change in cash and cash equivalents		1,381			(91	)
Cash and cash equivalents at beginning of period		10,483			9,388
Cash and cash equivalents at end of period	$	11,864		$	9,297
Supplemental Cash Flow Disclosure:
Cash paid for income taxes	$	22		$	—
Supplemental Non-Cash Investing Activity:
Accrued additions to equipment	$	—		$	74

See accompanying notes to financial statements.

3 

MICROPAC INDUSTRIES, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE PERIODS ENDED MAY 25, 2019 AND MAY 26, 2018

(Dollars in thousands)

(Unaudited)

	Common		Additional		Treasury			Retained
	Stock		paid-in-capital		Stock			Earnings			Total
BALANCE, November 30, 2017	$	308	$	885	$	(1,250	)	$	23,617		$	23,560
Dividend		—		—		—			(258	)		(258	)
Net loss		—		—		—			490			490
BALANCE, May 26, 2018	$	308	$	885	$	(1,250	)	$	23,849		$	23,792
BALANCE, November 30, 2018	$	308	$	885	$	(1,250	)	$	24,800		$	24,743
Impact of change in accounting policy		—		—		—			55			55
Dividend		—		—		—			(258	)		(258	)
Net loss		—		—		—			1,057			1,057
BALANCE, May 25, 2019	$	308	$	885	$	(1,250	)	$	25,654		$	25,597

See accompanying notes to financial statements.

4 

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, solid state relays, power controllers, and optoelectronic 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 9100C. 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 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 business of 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 445 shareholders on May 25, 2019.

In the opinion of management, the unaudited financial statements include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position as of May 25, 2019, the results of operations for the three and six months ended May 25, 2019 and May 26, 2018, and the cash flows for the six months ended May 25, 2019 and May 26, 2018 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, 2018. 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, 2018 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto.

Note 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

The core principle of the guidance in Topic 606 is that an entity 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.

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

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

5 

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 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 contracts and/or purchase orders associated with manufacture of products with customers. 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 sale of products. 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. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company accounting policy treats shipping and handling activities as a fulfillment cost.

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.

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

The Company 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.

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.

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, ASU No. 2014-09 will require the Company to recognize revenue using an over-time recognition model as opposed to recognizing revenue at the time of shipment. The Company recognizes this revenue at work in process cost 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 customer. 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 obligation is determined and revenue recognized upon terms and conditions of the contract from the customer.

Effective as of the beginning of the first quarter of fiscal 2019, we adopted ASU No. 2014-09 using the modified retrospective method and recognized a cumulative effect adjustment to retained earnings based on any open contracts at that time for which revenue recognition has changed from a point-in-time recognition model to an over-time recognition model. While the impact to net sales and net income was not material to our results of operations, the future impact of ASU No. 2014-09 is dependent on the mix and nature of specific customer contracts.

Upon adoption, we recognized an increase in retained earnings of $55,000. The details of the adjustment to retained earnings upon adoption as well as the effects of the balance sheet are as follows:

	Balance at		Balance at
Assets	November 30, 2018	Adjustment due to Topic 606	December 1, 2018
Contract assets	$0	$242	$242
Work in process	$1,985	($173)	$1,812
Deferred income tax net	$57	($15)	$42
Shareholder equity
Retained Earnings	$24,800	$55	$24,855

The following table summarize the effects of the new standard on selected unaudited line items within the Company’s Condensed Statement of Operations for three and six months ended May 25, 2019.

6 

Three months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$6,909	$6,776	($133)
Cost of goods sold	($3,748)	($3,671)	$77
Income before taxes	$1,455	$1,400	($55)
Income tax	($204)	(199)	$5
Net Income	$1,251	$1,201	($50)

Six months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$10,714	$10,298	($416)
Cost of goods sold	($6,096)	($5,799)	$297
Income before taxes	$1,229	$1,110	($119)
Income tax	$172	$155	($17)
Net Income	$1,057	$955	($102)

Disaggregation of Revenue

The following table summarizes the Company’s net sales by product line.

		5/25/2019		5/26/2018
Microcircuits	$	3,557	$	1,943
Optoeletronics		3,018		2,690
Sensors and Displays		4,139		4,208
	$	10,714	$	8,841
Timing of revenue recognition
Recognized at a point in time	$	10,298	$	8,841
Recognized over time		416		0
Total Revenue	$	10,714	$	8,841

Deferred Revenue represents advance payments from customers and will be recognized as revenue when the performance obligations are met per the terms of the contract.

Contract costs

The Company does not have 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

Short-Term Investments

The Company has $2,073,000 in short-term investments at May 25, 2019. 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. All short-term investments are securities which the Company has the ability and intent to hold to maturity and mature within one year.

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.

7 

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 May 25, 2019.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into United States tax law, which among other provisions lowered the corporate tax rate to 21%.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 118 to provide guidance for companies that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts under ASC 740. In accordance with SAB 118, a company must reflect the income tax effect of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, the company must record a provisional estimate in the financial statements.

ASC 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the twelve months ended November 30, 2018, we revalued all deferred tax assets and liabilities at the newly enacted Federal corporate US income tax rate.  This revaluation as of enactment resulted in a non-cash provisional estimate of $77,000 to income tax expense and a corresponding reduction in the net deferred tax asset.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost, and depreciation is provided using the straight-line method at rates based upon the following estimated useful lives (in years) of the assets:

Buildings....................................................................................................................................................15

Facility improvements......................................................................................................................... 8-15

Machinery and equipment................................................................................................................. 5-10

Furniture and fixtures ...........................................................................................................................5-8

The Company assesses long-lived assets for impairment 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.

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.

Note 3 NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). Under the new standard, lessees will be required to recognize lease assets and liabilities for all leases, with certain exceptions, on their balance sheets. Public business entities are required to adopt the standard for reporting periods beginning after December 15, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Note 4 FAIR VALUE MEASUREMENT

The Company had no financial assets or liabilities measured at fair value on a recurring basis as of May 25, 2019 and November 30, 2018.  The fair value of financial instruments such as cash and cash equivalents, short term investments, accounts receivable, and accounts payable approximate their carrying amount based on the short maturity of these instruments.  There were no nonfinancial assets measured at fair value on a nonrecurring basis at May 25, 2019 and November 30, 2018.

8 

Note 5 COMMITMENTS

On April 23, 2018, the Company renewed the Loan Agreement with a Texas banking institution. The Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000. The Loan Agreement also contains financial covenants to maintain at all times including (i) minimum working capital of not less than $4,000,000, (ii) a ratio of senior funded debt, minus the Company’s balance sheet cash on hand to the extent in excess of $2,000,000 to EBITDA of not more than 3.0 to 1.0, and (iii) a ratio of free cash flow to debt service of not less than 1.2 to 1.0. The Company has not, to date, drawn any amounts under the revolving line of credit and is currently in compliance with the financial covenants.

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 three months ended May 25, 2019 and February 24, 2018, the Company had no dilutive potential common stock instruments.

Note 7 SHAREHOLDERS’ EQUITY

On December 12, 2017, 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, 2018. The dividend was paid to shareholders on February 8, 2018.

On December 11, 2018, 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 9, 2019. The dividend was paid to shareholders on February 8, 2019.

9 

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, solid state relays, power controllers, and optoelectronic 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 9100C. 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 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.

Results of Operations

	Three months ended					Six months ended
		5/25/2019		5/26/2018			5/25/2019		5/26/2018
NET SALES		100.0	%	100.0	%		100.0	%	100.0	%
COST AND EXPENSES:
Cost of Goods Sold		54.3	%	59.9	%		56.9	%	60.4	%
Research and development		6.4	%	7.1	%		7.8	%	7.3	%
Selling, general & administrative expenses		18.7	%	26.3	%		24.3	%	27.7	%
Total cost and expenses		79.4	%	93.3	%		89.0	%	95.4	%
OPERATING INCOME BEFORE INTEREST		20.6	%	6.7	%		11.0	%	4.6	%
AND INCOME TAXES
Interest and other income		0.4	%	0.4	%		0.5	%	0.4	%
INCOME BEFORE TAXES		21.0	%	7.1	%		11.5	%	5.0	%
Provision (benefit) for taxes		2.9	%	(3.0	%)		1.6	%	(0.5	%)
NET INCOME		18.1	%	10.1	%		9.9	%	5.5	%

Sales for the three and six month periods ended May 25, 2019 totaled $6,908,000 and $10,714,000, respectively. Sales for the second quarter increased $1,919,000 above sales for the same period of 2018, while sales for the first six months of 2019 increased $1,873,000 above the first six months of 2018. The increase is related to the overall increase in sales related to the Company’s solid state relays to various customers. Sales were 26% in the commercial market, 57% in the military market, and 17% in the space market for the six months ended May 25, 2019 compared to 16% in the commercial market, 61% in the military market, and 23% in the space market for the six months ended May 26, 2018.

Three customers accounted for 14%, 13% and 11% of the Company’s sales for the three months ended May 25, 2019 and two customers accounted for 15% and 10% of the Company’s sales for the six months ended May 25, 2019, while two customers accounted for 13% of the Company’s sales for the three months ended May 26,

10 

2018, and three customers accounted for 13%, 12% and 10% of the Company’s sales for the six months ended May 26, 2018.

Cost of goods sold for the second quarters of 2019 and 2018 totaled 54.3% and 59.9% of net sales, respectively, while cost of goods sold for the six months ended May 25, 2019 and May 26, 2018 totaled 56.9% and 60.4% of net sales, respectively. In actual dollars, cost of goods sold increased $759,000 in the second quarter of 2019 compared to the same period of 2018. Year to date cost of goods sold increased $757,000 for the first six months of 2019 as compared to the same period in 2018. The majority of the increase is associated with the increase in overall sales and an improvement in overall gross margin due to product mix.

Research and development expense increased $88,000 for the second quarter of 2019 versus 2018 and increased $182,000 for the first six months of 2019 compared to the same period of 2018. 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 second quarter and first six months of 2019 totaled 18.7% and 24.3% respectively of net sales compared to 26.3% and 27.7% for the same periods in 2018. In actual dollars, selling, general and administrative expense decreased $23,000 for the second quarter and increased $158,000 for the first six months of 2019 compared to the same periods in 2018. The majority of the increase for the first six months resulted from an increase in expense associated with the implementation of a new enterprise resource planning system during the first quarter of 2019.

Provisions for taxes increased $349,000 for the second quarter of 2019 and $223,000 for the first six months of 2019 compared to the same period in 2018. The estimated effective tax rate (benefit) was 14% for 2019 and (12%) for 2018. The tax benefit for 2018 was associated with the enactment of the Tax Act on December 22, 2017. ASC 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the three months ended February 24, 2018, we revalued all deferred tax assets and liabilities at the newly enacted Federal corporate US income tax rate.  This revaluation as of enactment resulted in a non-cash provisional estimate of $77,000 to income tax expense and a corresponding reduction in the net deferred tax asset. In addition the Company filed amended 2014 and 2015 federal tax returns associated with research and development credits which resulted in a tax benefit for the three and six months ended May 26, 2018. The research and development credit on the amended returns was $233,000.

Net income increased $750,000 for the second quarter of 2019 versus 2018 and increased $567,000 for the first six months of 2019 compared to the same period of 2018. The increase was associated with the increase in sales and higher gross margins.

Liquidity and Capital Resources

Cash and cash equivalents totaled $11,864,000 as of May 25, 2019 compared to $10,483,000 on November 30, 2018, a increase of $1,381,000. The increase in cash and cash equivalents is primarily attributable to a a cash flow from operations of $1,721,000 offset payment of a cash dividend of $258,000, and the investment of $67,000 in equipment.

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.

Outlook

New orders for year-to-date 2019 totaled $12,386,000 compared to $9,085,000 for 2018. The increase resulted from overall higher orders the Company’s standards solid state relays.

Backlog totaled $18,903,000 on May 25, 2019 compared to $13,109,000 as of May 26, 2018 and $17,132,000 on November 30, 2018. The backlog represents a good mix of the company’s products and technologies with 15% in the commercial market, 74% in the military market, and 11% in the space market compared to 20% in the commercial market, 65% in the military market, and 15% in the space market on May 26, 2018.

The Company cannot assure that the results of operations for the interim period presented are indicative of total results for the entire year due to fluctuations in customer delivery schedules, or other factors over which the Company has no control.

Cautionary Statement

This Form 10-Q contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. Investors are warned

11 

that forward-looking statements involve risks and unknown factors including, but not limited to, customer cancellation or rescheduling of orders, problems affecting delivery of vendor-supplied raw materials and components, unanticipated manufacturing problems and availability of direct labor resources.

The Company disclaims any responsibility to update the forward-looking statements contained herein, except as may be required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

The Chief Executive Officer and Chief Financial Officer of the Company evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of May 25, 2019 and, based on this evaluation, concluded that the Company’s disclosure controls and procedures are functioning in an effective manner to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

(b) Changes in internal controls.

There has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting during the three month period ended May 25, 2019.

12 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A RISK FACTORS

Information about risk factors for the three months ended May 25, 2019 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, 2018.

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 135, 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.

July 9, 2019	/s/ Mark King
Date	Mark King
	Chief Executive Officer

July 9, 2019	/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: July 9, 2019	/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: July 9, 2019	/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 May 25, 2019 (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: July 9, 2019	/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 May 25, 2019 (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: July 9, 2019	/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

Document and Entity Information - shares	6 Months Ended
	May 25, 2019	Jul. 08, 2019
Document And Entity Information
Entity Registrant Name	MICROPAC INDUSTRIES INC
Entity Central Index Key	0000065759
Document Type	10-Q
Document Period End Date	May 25, 2019
Amendment Flag	false
Current Fiscal Year End Date	--05-29
Is Entity's Reporting Status Current?	No
Is Entity Emerging Growth Company?	false
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Common Stock, Shares Outstanding		2,578,315
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019

XML

Balance Sheets (Unaudited) - USD ($) $ in Thousands	May 25, 2019	Nov. 30, 2018
Current Assets
Cash and cash equivalents	$ 11,864	$ 10,483
Short-term investments	2,073	2,058
Receivables, net of allowance for doubtful accounts of $0 at May 25, 2019 and November 30, 2018	2,309	3,772
Contract Assets	416
Inventories:
Raw materials and supplies	4,113	4,593
Work-in process	2,595	1,985
Total inventories	6,708	6,578
Prepaid income tax	257	407
Prepaid expenses and other assets	389	511
Total current assets	24,016	23,809
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land	1,518	1,518
Buildings	498	498
Facility improvements	1,109	1,109
Furniture and fixtures	954	953
Construction in process equipment	607	607
Machinery and equipment	8,907	8,841
Total property, plant, and equipment	13,593	13,526
Less accumulated depreciation	(9,930)	(9,746)
Net property, plant, and equipment	3,663	3,780
Deferred income taxes, net	42	57
Total assets	27,721	27,646
CURRENT LIABILITIES:
Accounts payable	842	707
Accrued compensation	734	747
Deferred revenue	474	1,238
Property taxes	48	88
Other accrued liabilities	26	123
Total current liabilities	2,124	2,903
SHAREHOLDERS’ EQUITY
Common stock, $.10 par value, authorized 10,000,000 shares, 3,078,315 issued and 2,578,315 outstanding at May 25, 2019 and November 30, 2018	308	308
Additional paid-in capital	885	885
Treasury stock, 500,000 shares, at cost	(1,250)	(1,250)
Retained earnings	25,654	24,800
Total shareholders’ equity	25,597	24,743
Total liabilities and shareholders’ equity	$ 27,721	$ 27,646

XML

Balance Sheets (Parenthetical) - USD ($) $ in Thousands	May 25, 2019	Nov. 30, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 0	$ 0
Common Stock, par value	$ 0.1	$ 0.1
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
Treasury stock, shares	500,000	500,000

XML

Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	May 25, 2019	May 26, 2018	May 25, 2019	May 26, 2018
Income Statement [Abstract]
NET SALES	$ 6,908	$ 4,989	$ 10,714	$ 8,841
COST AND EXPENSES:
Cost of goods sold	(3,748)	(2,989)	(6,096)	(5,339)
Research and development	(441)	(353)	(832)	(650)
Selling, general & administrative expenses	(1,289)	(1,312)	(2,605)	(2,447)
Total cost and expenses	(5,478)	(4,654)	(9,533)	(8,436)
OPERATING INCOME	1,430	335	1,181	405
Other income		4		4
Interest income, net	25	18	48	30
INCOME BEFORE TAXES	1,455	357	1,229	439
Provision for taxes	204	(145)	172	(51)
NET INCOME	$ 1,251	$ 502	$ 1,057	$ 490
NET INCOME PER SHARE, BASIC AND DILUTED	$ 0.49	$ 0.19	$ 0.41	$ 0.19
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

Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	May 25, 2019	May 26, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 1,057	$ 490
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	184	154
Deferred tax		78
Changes in certain current assets and liabilities
Accounts receivable	1,463	1,263
Inventories	(279)	(884)
Contract asset	(173)
Prepaid expense and other current assets	122	(164)
Prepaid income taxes	150	(129)
Deferred revenue	(764)	(321)
Accounts payable	112	136
Accrued compensation	(13)	(165)
Other accrued liabilities	(138)	(111)
Net cash provided by operating activities	1,721	347
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short term investments	2,061	2,033
Purchase of short term investments	(2,076)	(2,048)
Additions to property, plant and equipment	(67)	(165)
Net cash used in investing activities	(82)	(180)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividend	(258)	(258)
Net cash used in financing activities	(258)	(258)
Net change in cash and cash equivalents	1,381	(91)
Cash and cash equivalents at beginning of period	10,483	9,388
Cash and cash equivalents at end of period	11,864	9,297
Supplemental Cash Flow Disclosure:
Cash paid for income taxes	$ 22
Supplemental Non-Cash Investing Activity:
Accrued additions to equipment		$ 74

XML

Shareholders Equity (Unaudited) - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Treasury Stock	Retained Earnings / Accumulated Deficit	Total
Beginning Balance at Nov. 30, 2017	$ 308	$ 885	$ (1,250)	$ 23,617	$ 23,560
Dividend				(258)	(258)
Net Loss				490	490
Ending Balance at May. 26, 2018	308	885	(1,250)	23,849	23,792
Beginning Balance at Nov. 30, 2018	308	885	(1,250)	24,800	24,743
Impact of Change in Accounting Policy				55	55
Dividend				(258)	(258)
Net Loss				1,057	1,057
Ending Balance at May. 25, 2019	$ 308	$ 885	$ (1,250)	$ 25,654	$ 25,597

XML

1. BASIS OF PRESENTATION

6 Months Ended

May 25, 2019

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, solid state relays, power controllers, and optoelectronic 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 9100C. 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 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 business of 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 445 shareholders on May 25, 2019.

In the opinion of management, the unaudited financial statements include all adjustments (consisting of only normal, recurring adjustments) necessary to present fairly the financial position as of May 25, 2019, the results of operations for the three and six months ended May 25, 2019 and May 26, 2018, and the cash flows for the six months ended May 25, 2019 and May 26, 2018 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, 2018. 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, 2018 Form 10-K filed with the SEC, including the audited financial statements and the accompanying notes thereto.

XML

2. SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

May 25, 2019

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

Note 2 SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

The core principle of the guidance in Topic 606 is that an entity 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.

To achieve that core principle, the Company applied 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 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 contracts and/or purchase orders associated with manufacture of products with customers. 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 sale of products. 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. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company accounting policy treats shipping and handling activities as a fulfillment cost.

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.

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

The Company 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.

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.

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, ASU No. 2014-09 will require the Company to recognize revenue using an over-time recognition model as opposed to recognizing revenue at the time of shipment. The Company recognizes this revenue at work in process cost 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 customer. 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 obligation is determined and revenue recognized upon terms and conditions of the contract from the customer.

Effective as of the beginning of the first quarter of fiscal 2019, we adopted ASU No. 2014-09 using the modified retrospective method and recognized a cumulative effect adjustment to retained earnings based on any open contracts at that time for which revenue recognition has changed from a point-in-time recognition model to an over-time recognition model. While the impact to net sales and net income was not material to our results of operations, the future impact of ASU No. 2014-09 is dependent on the mix and nature of specific customer contracts.

Upon adoption, we recognized an increase in retained earnings of $55,000. The details of the adjustment to retained earnings upon adoption as well as the effects of the balance sheet are as follows:

	Balance at		Balance at
Assets	November 30, 2018	Adjustment due to Topic 606	December 1, 2018
Contract assets	$0	$242	$242
Work in process	$1,985	($173)	$1,812
Deferred income tax net	$57	($15)	$42
Shareholder equity
Retained Earnings	$24,800	$55	$24,855

The following table summarize the effects of the new standard on selected unaudited line items within the Company’s Condensed Statement of Operations for three and six months ended May 25, 2019.

Three months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$6,909	$6,776	($133)
Cost of goods sold	($3,748)	($3,671)	$77
Income before taxes	$1,455	$1,400	($55)
Income tax	($204)	(199)	$5
Net Income	$1,251	$1,201	($50)

Six months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$10,714	$10,298	($416)
Cost of goods sold	($6,096)	($5,799)	$297
Income before taxes	$1,229	$1,110	($119)
Income tax	$172	$155	($17)
Net Income	$1,057	$955	($102)

Disaggregation of Revenue

The following table summarizes the Company’s net sales by product line.

		5/25/2019		5/26/2018
Microcircuits	$	3,557	$	1,943
Optoeletronics		3,018		2,690
Sensors and Displays		4,139		4,208
	$	10,714	$	8,841
Timing of revenue recognition
Recognized at a point in time	$	10,298	$	8,841
Recognized over time		416		0
Total Revenue	$	10,714	$	8,841

Deferred Revenue represents advance payments from customers and will be recognized as revenue when the performance obligations are met per the terms of the contract.

Contract costs

The Company does not have 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

Short-Term Investments

The Company has $2,073,000 in short-term investments at May 25, 2019. 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. All short-term investments are securities which the Company has the ability and intent to hold to maturity and mature within one year.

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 May 25, 2019.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into United States tax law, which among other provisions lowered the corporate tax rate to 21%.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 118 to provide guidance for companies that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts under ASC 740. In accordance with SAB 118, a company must reflect the income tax effect of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, the company must record a provisional estimate in the financial statements.

ASC 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the twelve months ended November 30, 2018, we revalued all deferred tax assets and liabilities at the newly enacted Federal corporate US income tax rate.  This revaluation as of enactment resulted in a non-cash provisional estimate of $77,000 to income tax expense and a corresponding reduction in the net deferred tax asset.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost, and depreciation is provided using the straight-line method at rates based upon the following estimated useful lives (in years) of the assets:

Buildings....................................................................................................................................................15

Facility improvements......................................................................................................................... 8-15

Machinery and equipment................................................................................................................. 5-10

Furniture and fixtures ...........................................................................................................................5-8

The Company assesses long-lived assets for impairment 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.

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.

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3. NEW ACCOUNTING PRONOUNCEMENTS

6 Months Ended

May 25, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NEW ACCOUNTING PRONOUNCEMENTS

Note 3 NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). Under the new standard, lessees will be required to recognize lease assets and liabilities for all leases, with certain exceptions, on their balance sheets. Public business entities are required to adopt the standard for reporting periods beginning after December 15, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

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4. FAIR VALUE MEASUREMENT

6 Months Ended

May 25, 2019

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 May 25, 2019 and November 30, 2018.  The fair value of financial instruments such as cash and cash equivalents, short term investments, accounts receivable, and accounts payable approximate their carrying amount based on the short maturity of these instruments.  There were no nonfinancial assets measured at fair value on a nonrecurring basis at May 25, 2019 and November 30, 2018.

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5. COMMITMENTS

6 Months Ended

May 25, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

Note 5 COMMITMENTS

On April 23, 2018, the Company renewed the Loan Agreement with a Texas banking institution. The Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000. The Loan Agreement also contains financial covenants to maintain at all times including (i) minimum working capital of not less than $4,000,000, (ii) a ratio of senior funded debt, minus the Company’s balance sheet cash on hand to the extent in excess of $2,000,000 to EBITDA of not more than 3.0 to 1.0, and (iii) a ratio of free cash flow to debt service of not less than 1.2 to 1.0. The Company has not, to date, drawn any amounts under the revolving line of credit and is currently in compliance with the financial covenants.

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6. EARNINGS PER COMMON SHARE

6 Months Ended

May 25, 2019

Earnings Per Share [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 three months ended May 25, 2019 and February 24, 2018, the Company had no dilutive potential common stock instruments.

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7. SHAREHOLDERS' EQUITY

6 Months Ended

May 25, 2019

Dividends, Common Stock [Abstract]

SHAREHOLDERS' EQUITY

Note 7 SHAREHOLDERS’ EQUITY

On December 12, 2017, 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, 2018. The dividend was paid to shareholders on February 8, 2018.

On December 11, 2018, 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 9, 2019. The dividend was paid to shareholders on February 8, 2019.

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2. SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

May 25, 2019

Accounting Policies [Abstract]

Revenue Recognition

Revenue Recognition

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The ASU replaces most existing revenue recognition guidance in the United States. The standard permits the use of either the full retrospective or modified retrospective transition method.

Based on a review of its customer contracts, the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. 

The core principle of the guidance in Topic 606 is that an entity 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.

To achieve that core principle, the Company applied 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 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 contracts and/or purchase orders associated with manufacture of products with customers. 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 sale of products. 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. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company accounting policy treats shipping and handling activities as a fulfillment cost.

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.

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

The Company 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.

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.

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, ASU No. 2014-09 will require the Company to recognize revenue using an over-time recognition model as opposed to recognizing revenue at the time of shipment. The Company recognizes this revenue at work in process cost 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 customer. 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 obligation is determined and revenue recognized upon terms and conditions of the contract from the customer.

Effective as of the beginning of the first quarter of fiscal 2019, we adopted ASU No. 2014-09 using the modified retrospective method and recognized a cumulative effect adjustment to retained earnings based on any open contracts at that time for which revenue recognition has changed from a point-in-time recognition model to an over-time recognition model. While the impact to net sales and net income was not material to our results of operations, the future impact of ASU No. 2014-09 is dependent on the mix and nature of specific customer contracts.

Upon adoption, we recognized an increase in retained earnings of $55,000. The details of the adjustment to retained earnings upon adoption as well as the effects of the balance sheet are as follows:

	Balance at		Balance at
Assets	November 30, 2018	Adjustment due to Topic 606	December 1, 2018
Contract assets	$0	$242	$242
Work in process	$1,985	($173)	$1,812
Deferred income tax net	$57	($15)	$42
Shareholder equity
Retained Earnings	$24,800	$55	$24,855

The following table summarize the effects of the new standard on selected unaudited line items within the Company’s Condensed Statement of Operations for three and six months ended May 25, 2019.

Three months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$6,909	$6,776	($133)
Cost of goods sold	($3,748)	($3,671)	$77
Income before taxes	$1,455	$1,400	($55)
Income tax	($204)	(199)	$5
Net Income	$1,251	$1,201	($50)

Six months ended May 25, 2019

	As Reported	Balance without adoption of Topic 606	Effect of change
Net sales	$10,714	$10,298	($416)
Cost of goods sold	($6,096)	($5,799)	$297
Income before taxes	$1,229	$1,110	($119)
Income tax	$172	$155	($17)
Net Income	$1,057	$955	($102)

Disaggregation of Revenue

The following table summarizes the Company’s net sales by product line.

		5/25/2019		5/26/2018
Microcircuits	$	3,557	$	1,943
Optoeletronics		3,018		2,690
Sensors and Displays		4,139		4,208
	$	10,714	$	8,841
Timing of revenue recognition
Recognized at a point in time	$	10,298	$	8,841
Recognized over time		416		0
Total Revenue	$	10,714	$	8,841

Deferred Revenue represents advance payments from customers and will be recognized as revenue when the performance obligations are met per the terms of the contract.

Contract costs

The Company does not have 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

Short-Term Investments

Short-Term Investments

The Company has $2,073,000 in short-term investments at May 25, 2019. 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. All short-term investments are securities which the Company has the ability and intent to hold to maturity and mature within one year.

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 May 25, 2019.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into United States tax law, which among other provisions lowered the corporate tax rate to 21%.

In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 118 to provide guidance for companies that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts under ASC 740. In accordance with SAB 118, a company must reflect the income tax effect of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, the company must record a provisional estimate in the financial statements.

ASC 740 requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the twelve months ended November 30, 2018, we revalued all deferred tax assets and liabilities at the newly enacted Federal corporate US income tax rate.  This revaluation as of enactment resulted in a non-cash provisional estimate of $77,000 to income tax expense and a corresponding reduction in the net deferred tax asset.

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

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.

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.

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2. SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

May 25, 2019

Accounting Policies [Abstract]

Adjustment to retained earnings

<p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt; text-align: justify"></p> <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="white-space: nowrap; vertical-align: top; width: 25%; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; vertical-align: top; width: 19%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b>Balance at</b></font></td> <td style="white-space: nowrap; vertical-align: bottom; width: 30%; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; vertical-align: top; width: 26%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b>Balance at</b></font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b>Assets</b></font></td> <td style="white-space: nowrap; vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>November 30, 2018</u></b></font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>Adjustment due to Topic 606</u></b></font></td> <td style="white-space: nowrap; vertical-align: top; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>December 1, 2018</u></b></font></td></tr> <tr> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"><font style="font: 9pt Arial, Helvetica, Sans-Serif">   Contract assets</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$0 </font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$242 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$242 </font></td></tr> <tr> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"><font style="font: 9pt Arial, Helvetica, Sans-Serif">   Work in process</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,985 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($173)</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,812 </font></td></tr> <tr> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Deferred income tax net</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$57 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($15)</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$42 </font></td></tr> <tr> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b>Shareholder equity</b></font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"> </td></tr> <tr> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: justify"><font style="font: 9pt Arial, Helvetica, Sans-Serif">   Retained Earnings</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$24,800 </font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$55 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$24,855 </font></td></tr> </table> <p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt"> </p>

Effects of new standard on Condensed Statement of Operations - 3 months

<p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt; text-align: center"><b><u>Three months ended May 25, 2019</u></b></p> <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; width: 23%; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; width: 21%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>As Reported</u></b></font></td> <td style="white-space: nowrap; width: 36%; padding-right: 5.4pt; padding-left: 5.4pt"> <p style="font: 9pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><b><u>Balance without adoption of</u></b></p> <p style="font: 9pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><b><u>Topic 606</u></b></p></td> <td style="white-space: nowrap; width: 20%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>Effect of change</u></b></font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Net sales</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$6,909 </font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$6,776 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($133)</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Cost of goods sold</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($3,748)</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($3,671)</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$77</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Income before taxes</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,455</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,400</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($55)</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Income tax</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($204)</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">(199)</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$5</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Net Income </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,251</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,201</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($50) </font></td></tr> </table> <p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt"><b> </b></p>

Effects of new standard on Condensed Statement of Operations - 6 months

<p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt; text-align: center"><b><u>Six months ended May 25, 2019</u></b></p> <table cellspacing="0" cellpadding="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="vertical-align: bottom"> <td style="white-space: nowrap; width: 23%; padding-right: 5.4pt; padding-left: 5.4pt"> </td> <td style="white-space: nowrap; width: 21%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>As Reported</u></b></font></td> <td style="white-space: nowrap; width: 36%; padding-right: 5.4pt; padding-left: 5.4pt"> <p style="font: 9pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><b><u>Balance without adoption of</u></b></p> <p style="font: 9pt Arial, Helvetica, Sans-Serif; margin: 0; text-align: center"><b><u>Topic 606</u></b></p></td> <td style="white-space: nowrap; width: 20%; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif"><b><u>Effect of change</u></b></font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Net sales</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$10,714 </font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$10,298 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($416)</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Cost of goods sold</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($6,096)</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($5,799)</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$297 </font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Income before taxes</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,229</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,110</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($119)</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Income tax</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$172 </font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$155 </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($17)</font></td></tr> <tr> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt"><font style="font: 9pt Arial, Helvetica, Sans-Serif">Net Income </font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$1,057</font></td> <td style="white-space: nowrap; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">$955</font></td> <td style="white-space: nowrap; vertical-align: bottom; padding-right: 5.4pt; padding-left: 5.4pt; text-align: center"><font style="font: 9pt Arial, Helvetica, Sans-Serif">($102) </font></td></tr> </table> <p style="font: 9pt/107% Arial, Helvetica, Sans-Serif; margin: 0 0 8pt"><b> </b></p>

Disaggregation of Revenue

		5/25/2019		5/26/2018
Microcircuits	$	3,557	$	1,943
Optoeletronics		3,018		2,690
Sensors and Displays		4,139		4,208
	$	10,714	$	8,841
Timing of revenue recognition
Recognized at a point in time	$	10,298	$	8,841
Recognized over time		416		0
Total Revenue	$	10,714	$	8,841

Property and equipment schedule of useful lives

Buildings....................................................................................................................................................15

Facility improvements......................................................................................................................... 8-15

Machinery and equipment................................................................................................................. 5-10

Furniture and fixtures ...........................................................................................................................5-8

XML

2. SIGNIFICANT ACCOUNTING POLICIES (Details - Property Lives)	6 Months Ended
	May 25, 2019
Buildings [Member] | Minimum [Member]
Estimated useful lives	15 years
Buildings [Member] | Maximum [Member]
Estimated useful lives	15 years
Facility Improvements [Member] | Minimum [Member]
Estimated useful lives	8 years
Facility Improvements [Member] | Maximum [Member]
Estimated useful lives	15 years
Machinery and Equipment [Member] | Minimum [Member]
Estimated useful lives	5 years
Machinery and Equipment [Member] | Maximum [Member]
Estimated useful lives	10 years
Furniture and Fixtures [Member] | Minimum [Member]
Estimated useful lives	5 years
Furniture and Fixtures [Member] | Maximum [Member]
Estimated useful lives	8 years

XML

2. SIGNIFICANT ACCOUNTING POLICIES (Details - Adoption) - USD ($) $ in Thousands	May 25, 2019	Dec. 01, 2018	Nov. 30, 2018
Assets
Work in process	$ 2,595		$ 1,985
Deferred income tax net	42		57
Shareholder equity
Retained Earnings	$ 25,654		24,800
Before Adoption [Member]
Assets
Contract assets			0
Work in process			1,985
Deferred income tax net			57
Shareholder equity
Retained Earnings			24,800
Topic 606 [Member]
Assets
Contract assets			242
Work in process			(173)
Deferred income tax net			(15)
Shareholder equity
Retained Earnings			$ 55
After Adoption [Member]
Assets
Contract assets		$ 242
Work in process		1,812
Deferred income tax net		42
Shareholder equity
Retained Earnings		$ 24,855

XML

2. SIGNIFICANT ACCOUNTING POLICIES (Details - Affect 3 and 6 Months) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	May 25, 2019	May 25, 2019
Net Sales	$ 6,909	$ 10,714
Costs of goods sold	(3,748)	(6,096)
Income before taxes	1,455	1,229
Income tax	(204)	172
New income	1,251	1,057
No Adoption [Member]
Net Sales	6,776	10,298
Costs of goods sold	(3,671)	(5,799)
Income before taxes	1,400	1,110
Income tax	(199)	155
New income	1,201	955
Effective Change [Member]
Net Sales	(133)	(416)
Costs of goods sold	77	297
Income before taxes	(55)	(119)
Income tax	5	(17)
New income	$ (50)	$ (102)

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2. SIGNIFICANT ACCOUNTING POLICIES (Details - Disaggregation of Revenue) - USD ($) $ in Thousands	May 25, 2019	May 26, 2018
Accounting Policies [Abstract]
Microcircuits	$ 3,557	$ 1,943
Optoeletronics	3,018	2,690
Sensors and Displays	4,139	4,208
Total Sales	10,714	8,841
Recognized at a point in time	10,298	8,841
Recognized over time	416	0
Total Revenue	$ 10,714	$ 8,841

XML

2. SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands	12 Months Ended
	Nov. 30, 2018	May 25, 2019
Accounting Policies [Abstract]
Short term investments maturity date more than 90 days	$ 2,058	$ 2,073
Revalued deferred tax assets and liabilities	$ 77,000

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5. COMMITMENTS (Details Narrative) $ in Thousands	May 25, 2019 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Credit line maximum	$ 6,000,000
Line of credit balance	$ 0

XML

6. EARNINGS PER COMMON SHARE (Details Narrative) - shares	3 Months Ended	6 Months Ended
	Feb. 24, 2018	May 25, 2019
Earnings Per Share [Abstract]
Antidilutive shares excluded from EPS calculation	0	0

XML

7. SHAREHOLDERS' EQUITY (Details Narrative) - $ / shares	3 Months Ended			6 Months Ended
	May 25, 2019	May 26, 2018	Feb. 24, 2018	May 25, 2019	May 26, 2018
Equity [Abstract]
Date of declaration			Dec. 11, 2018	Dec. 12, 2017
Dividend per share			$ 0.10	$ 0.10	$ 0.10
Record date			Jan. 09, 2019	Jan. 10, 2018
Dividend paid date			Feb. 08, 2019	Feb. 08, 2018