Twelve Months Ended
                                         November 30, 2022         November 30, 2021

Net Sales                                            100.0 %                   100.0 %

Cost of goods sold                                    55.7 %                    55.7 %
Research and Development                               7.9 %                     6.4 %
Selling, General, and Administrative                  27.8 %                    23.7 %
Cost & Expenses                                       91.4 %                    85.8 %

Operating Income                                       8.6 %                    14.2 %

Other income (expense), net                            4.0 %                    (0.5 )%

Income before Income Taxes                            12.6 %                    13.7 %

Provision for taxes                                    2.6 %                     2.5 %

Net Income                                            10.0 %                    11.2 %

The Company designs, manufactures and distributes various types of microelectronic circuits including solid state relays and power controllers, optoelectronic components, and sensor and display components and assemblies. The Company's products are used as components and assemblies in a broad range of military, space, medical and industrial systems, including aircraft instrumentation and navigation systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200o C) products.

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

The Company's core technology 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.





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Company sales totaled $27,785,000 resulting in an increase of $493,000 from 2021. The majority of the increase in sales were due to an increase in shipments of various custom products compared to 2021.

At November 30, 2022, the Company had a backlog of unfilled orders totaling approximately $32,686,000 compared to approximately $32,635,000 at November 30, 2021.

New orders for 2022 totaled $27,961,000 compared to $31,387,000 for 2021.

Approximately $6,624,000 of the new orders received in 2022 were delivered to customers in 2022, along with approximately $21,161,000 of the Company's 2021 backlog of orders at November 30, 2021 resulting in revenue of $27,785,000.

The backlog represents a good mix of the company's products and technologies with 9% in the commercial market, 16% in the medical market, 64% in the military market, and 11% in the space market on November 30, 2022.





                           2022 Current Backlog by Major Market
                         Military       Space      Medical       Commercial        Total

Domestic Direct $ 14,385 $ 3,071 $ 5,322 $ 2,065 $ 24,843 Domestic Distribution 6,201 530

            -              278        7,009
International                 206          47            -              581          834
                        $  20,792     $ 3,648     $  5,322     $      2,924     $ 32,686




  2022 Current Backlog by Product Line
Microelectronics             $  10,665
Optoelectronics                  5,417
Sensors and Displays            16,604
                             $  32,686

Cost of goods sold, as a percentage of net sales, was 55.7% in 2022 and 2021. In actual dollars, cost of sales increased $262,000 which was $15,473,000 in 2022 versus $15,211,000 in 2021.

In 2022, the Company's investment in technology through research and development, which was expensed, totaled approximately $2,191,000 ($1,739,000 in 2021). The Company's research and development expenditures were directed primarily toward standard proprietary microelectronic products, including industrial power controllers and DC-DC converters, fiber optic transceivers, high voltage optocouplers and continued product development and improvement associated with the Company's space level and other high reliability products.

In addition to the Company's investment in research and development, various customers paid the Company approximately $1,620,000 in non-recurring engineering revenue with $1,348,000 recorded within cost of goods sold associated with the development of custom products for specific applications.

Selling, general, and administrative expenses totaled 27.8% of net sales in 2022 compared to 23.7% in 2021. In dollars expensed, selling, general and administrative expenses totaled $7,734,000 in 2022 as compared to $6,456,000 in 2021, an increase or $1,278,000. The majority of the increase was an increase in property tax on the new building and increase in consulting fees.

Other income (expense) and net interest income for fiscal 2022 totaled $1,112,000 compared to $(152,000) for fiscal 2021.The major increase in other income was $920,000 in employee retention credits during the first quarter of 2021, which the Company recognized as other income and recorded in other receivables for the refund claimed in the third quarter of 2022.

Income before taxes for fiscal 2022 was approximately $3,499,000, or 12.6% of net sales, compared to $3,734,000, or 13.7% of net sales in fiscal 2021.

Provisions for income tax for fiscal 2022 totaled $712,000 compared $676,000 for fiscal 2021. The Company's effective income tax rate was 20.3% for the year ended November 30, 2022 and 18.1% for the year ended November 30, 2021.





  12

Net income totaled approximately $2,787,000 or $1.08 per share in 2022 versus 2021 net income of $3,058,000 or $1.19 per share.

Impact of COVID-19 on our Business

In March 2020 the World Health Organization declared the spread of the COVID-19 virus a pandemic. The Company continues to monitor our supply chain and orders from customers for COVID-19 pandemic related changes. We are continuing to serve our customers while taking precautions to provide a safe work environment for our employees and customers. We have been staggering some shifts and otherwise adjusting work schedules to maximize our capacity while adhering to recommended precautions. We have established and implemented a work from home provision where possible.

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

Liquidity and Capital Resources

The Company obtained a commercial real estate construction loan for the construction of a new 76,000 square foot manufacturing center on the 9.2 acres of land in Garland, Texas that the Company has purchased. On March 26, 2021, the Company (acting as borrower) entered into a Construction Loan Agreement (the "loan agreement") with Frost Bank ("Frost") (acting as lender). The Construction Loan Agreement provides for a construction loan, in amounts not to exceed a total principal balance of $16,160,000 with an interest rate of (3.40%) per annum.

On March 26, 2021, the Company renewed the Revolving Loan Agreement with Frost through the "Sixth Amendment to Loan Agreement." (See Exhibit 10.13). The Revolving Loan Agreement provides for revolving credit loans, in amounts not to exceed a total principal balance of $6,000,000 with a rate equal to prime rate with a floor of 3.25%. The Revolving Loan Agreement was originally entered into on January 23, 2013, between the "Company" as borrower and Frost as lender.

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

Principal and interest shall be due and payable monthly in an amounts determined by Lender required to fully amortize the outstanding principal balance of this Note over a period of twenty-five (25) years, payable on the twenty-sixth (26th) day of each and every calendar month, beginning April 26, 2023, and continuing regularly thereafter until March 26, 2031, when the entire amount hereof, principal and accrued interest then remaining unpaid, shall be then due and payable; interest being calculated on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

The interest rate of (3.40%) per annum includes an Interest-Only Period. Interest only shall be due and payable monthly as it accrues on the twenty-sixth (26th) day of each and every calendar month, beginning April 26, 2021, and continuing regularly and monthly thereafter until March 26, 2023; interest being calculated on the unpaid principal each day principal is outstanding and all payments made credited to any collection costs and late charges, to the discharge of the interest accrued and to the reduction of the principal, in such order as Lender shall determine.

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

Revolving Credit Loans. Subject to the terms of the Revolving Loan Agreement, Frost will lend to the Company, on a revolving basis, amounts not to exceed a total principal balance of $6,000,000, minus amounts available and amounts previously disbursed under outstanding revolving letters of credit. Subject to certain terms and conditions, the Company may borrow, repay and reborrow under the Loan Agreement. The loan has a maturity date of April 23, 2023. The loan shall be secured by a Security Agreement dated as of January 23, 2013, and is given by Borrower in favor of Lender with collateral of all personal property.

The interest on the outstanding and unpaid principal balance shall be computed at a per annum rate equal to the lesser of (a) a rate equal to the Prime Rate per annum; provided, however, in no event shall the resulting rate be less than three and one-quarter percent (3.25%).

In addition, the Company continues on-going investigations for the use of cumulative cash for business expansion and improvements, such as operational improvements and new product expansion.





  13

Cash and cash equivalents totaled $15,375,000 as of November 30, 2022 compared to $15,252,000 on November 30, 2021, an increase of $123,000. The increase in cash and cash equivalents is attributable to $2,204,000 cash provided by operations, $11,390,000 proceeds from the construction loan, offset by the payment of a cash dividend of $258,000, $563,000 in cash for additional manufacturing equipment and $12,650,000 for construction in process on the new facility.

In addition to cash on hand, the Company also has the ability to borrow under a loan agreement as discussed in Note 5 to the condensed financial statements.

The Company is working with a local contractor on the design and building of the new facility estimated at a cost of $18,353,000. The Company groundbreaking for the new manufacturing facility was June 17, 2021. As of November 30, 2022, the Company has $18,280,000 in construction in process on the new facility and has $14,938,000 in notes payable on the construction loan, outstanding draw request of $44,000 in account payables and has used $2,515,000 of the Company's cash. In addition, the Company has unamortized loan fees on the construction loan in the amount of $179,000.

Per the loan covenant, the Company must maintain a ratio of Free Cash Flow to Debt Service of not less than 1.20 to 1.00. As of November 30, 2022, the Company is in compliance.

Company management believes it will meet its 2023 capital requirements through the use of cash derived from operations for the year and/or usage of the Company's cash and cash equivalents. There were no significant outstanding commitments for equipment purchases or improvements at November 30, 2022.

The Company has no significant off-balance sheet arrangements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances. Note 2 to the Financial Statements in the Annual Report on Form 10-K for the year ended November 30, 2022, describes the significant accounting policies and methods used in the preparation of the Financial Statements. liabilities. Actual results could differ from these estimates.

The core principle of revenue recognition under accounting principles generally accepted in the Unites States of America (GAAP) is that the Company should recognizerevenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company's revenue on the majority of its customer contracts are recognized at a point in time, generally upon shipment of products. The application of GAAP related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, the determination of whether revenues related to our revenue contracts should be recognized over time or at a point in time, as these determinations impact the timing and amount of our reported revenues and net income. Other significant judgments include the estimation of the point in the manufacturing process at which we are entitled to receive payment, as well as the progress of the job order to completion to determine the amount of consideration earned for contractual revenue recognized over time.

The allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than our historical experience, our estimates of the recoverability of amounts due us could be adversely affected.

Inventory purchases and commitments are based upon future demand. If there is a sudden and significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of changing customer requirements, we may be required to increase our inventory allowances and our gross margin could be adversely affected.

The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. If we were to determine we would not be able to realize all or part of the deferred tax asset in the future, an adjustment to the deferred tax asset would be necessary which would reduce our net income for that period.





  14

Depreciable and useful lives estimated for property and equipment are based on initial expectations of the period of time these assets will provide benefit. Changes in circumstances related to a change in our business or other factors could result in these assets becoming impaired, which could adversely affect the value of these assets.

New Accounting Pronouncements

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

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