Edgar Filing: MICROPAC INDUSTRIES INC

U. S. Securities and Exchange Commission
Washington, D. C. 20549
First Amended
Form 10-KSB/A
Dated August 22, 2005

(Mark One)

(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 (Fee Required)

For the fiscal year ended November 30, 2004

( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)

For the transition period from ________ to ________
Commission file number 0-5109

MICROPAC INDUSTRIES, INC.

DELAWARE 75-1225149
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

905 E. WALNUT STREET 75040
GARLAND, TEXAS (Zip Code)

Issuer's telephone number (972) 272-3571

Securities to be registered under Section 12 (b) of the Act:

Title of each class Name of each exchange on which registered

-------------------------- --------------------------

Securities to be registered under Section 12 (g) of the Act:

COMMON STOCK $.10 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Revenues for its most recent fiscal year: $15,356,000

Based on approximately 22,544 shares publicly traded during November 2004, the
aggregate market value of the common stock held by non-affiliates of the
registrant (based on the average of the bid and asked prices reported on the
Over-the-Counter ("OTC") Bulletin Board system on November 30, 2004 was
approximately $2,660,000. Due to the low reported trading volume of the Company
shares, the Company disclaims any representation that this amount represents the
market value of the Company's common stock. For purposes of such calculation,
shares of Common Stock held by each executive officer and director and by each
person who owns more than 5% of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date was 2,578,315 as of November 30, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement dated January 28, 2005
for the Annual Meeting of Shareholders to be held on March 4, 2005 (the "Proxy
Statement") are incorporated by reference into Part III of this Form 10-KSB.

EXPLANATORY NOTE

Micropac Industries, Inc. (the "Company") is filing this Amendment No. 1 to its
Annual Report on Form 10-KSB for the year ended November 30, 2004 (which was
filed with the Securities and Exchange Commission on January 31, 2005) to expand
disclosures, add items that were incorporated by reference, and add exhibits. No
changes have been made to the Company's consolidated balance sheets and
statements of operations, stockholders' equity and cash flows.

For convenience and ease of reference, we are filing the amended 2004 Annual
Report in its entirety. This Amendment No. 1 does not reflect events occurring
after the original filing of the 2004 Annual Report.

PART I

Item 1. Description of Business
-------------------------------

INTRODUCTION
------------

Micropac Industries, Inc. (the "Company"), a Delaware corporation, manufactures
and distributes various types of hybrid microelectronic circuits, solid state
relays, power operational amplifiers, and optoelectronic components and
assemblies. The Company's products are used as components in a broad range of
military, space and industrial systems, including aircraft instrumentation and
navigation systems, power supplies, electronic controls, computers, medical
devices, and high-temperature (200o C) products.

The Company's facilities are certified and qualified by Defense Supply Center
Columbus (DSCC) to MIL-PRF-38534 (class K-space level); MIL-PRF-19500 JANS
(space level), MIL-PRF-28750 (class K space level) and is certified to ISO
9001-2002. Micropac is a NASA core supplier, and is certified to
AS9100-Aerospace Industry standard for supplier certification.

The business 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 559 shareholders on November
30, 2004.

PRODUCTS AND TECHNOLOGIES

The Company's products are either custom (being application specific circuits
designed and manufactured to meet the particular requirements of a single
customer) or standard, proprietary components such as catalog items.
Custom-designed components are estimated to account for approximately 50% of the
Company's sales for the fiscal year ended November 30, 2004, and 52% in fiscal
2003; standard components are estimated to account for approximately 50% of the
Company's sales for the fiscal year ended November 30, 2004, and 48% for fiscal
2003.

Micropac Industries, Inc. provides microelectronic and optoelectronic components
and assemblies along with contract electronic manufacturing services and offers
a wide range of products sold to the industrial, medical, military, aerospace
and space markets.

The Company's core technology is the packaging and interconnect of miniature
electronic components, utilizing thick film and thin film substrates, forming
microelectronics circuits. Other technologies include light emitting and light
sensitive materials and products, including light emitting diodes and silicon
phototransistors used in the Company's optoelectronic components, and
assemblies. The Company's basic products and technologies include:
Custom design hybrid microelectronic circuits
Solid state relays and power controllers
Custom optoelectronic assemblies and components
Optocouplers
Light-emitting diodes
Hall-Effect devices
Displays
Power operational amplifiers
Fiber optic components and assemblies
High temperature (200(0) C) products

Micropac's products are primarily sold to original equipment manufacturer's
(OEM) who serve the following major markets:

Military/Aerospace - aircraft instrumentation, guidance and navigations
systems, control circuitry, power supplies, laser positioning
Space - control circuitry, power monitoring and sensing
Industrial - power control equipment, robotics

Medical

The Company has no patents, licenses, franchises, concessions, royalty
agreements or labor contracts. The Company's trademark "MII" is registered with
the U.S. Patent and Trademark Office.

Sales of our products internationally are subject to government regulations,
including export control regulations of the U.S. Department of State and
Department of Commerce. Violation of these regulations by the company could
result in monetary penalties and denial of export privileges. We are not aware
of any violations of export control regulations.

The Company is not currently impacted by export restrictions on sensitive
technology. Five (5) of the Company's principal product families require
government approval. Further, a significant portion of our business is military
and is dependent on maintaining our facility certifications to MIL-PRF-38534,
MIL-PRF-19500 and MIL-PRF-28750. We expect to maintain these certifications and
qualifications; however, the loss of any of these ceritifications would have a
significant impact on our business.

Government regulations impose certain controls on chemicals used in electronics
and semiconductor manufacturing. Micropac has obtained all the necessary
environmental permits, and routinely monitors and reports the wastewater stream
results to the local governing agency. Micropac is classified as a small
generator of hazardous waste, and the annual cost of complying with the
regulations is minimal.

In 2004, the Company's investment in technology through research and
development, which was expensed, totaled approximately $438,000 ($303,000 in
2003). The Company's research and development expenditures were directed
primarily toward long-term specific customer requirements, some of which have
future potential as Micropac proprietary products, and product development and
improvement associated with the Company's space level and other high reliability
programs.

The Company introduced new Solid State Power controllers as the next generation
of solid state relays with enhanced ruggedness and voltage and current carrying
capabilities. Micropac's SSPCs feature both an instantaneous over current trip
as well as I^2T which compares power used over time. These devices range from
28VDC to 400VDC and from 5A to 40Amps. The SSPC Product Family is fully capable
of being Class K screened per MIL-PRF 38534 and come in a Rad Tolerant version.
Micropac strives to provide the greatest power density per package volume and
strives to meet the stringent efficiency requirements of customers in today's
market.

In addition to the Company's investment in research and development, various
customers paid the Company approximately $1,500,000 in non-recurring engineering
costs associated with the development of custom products for specific
applications.

The Company provides a one year warranty from the date of shipment to the
original purchaser. The Company is obligated under this warranty to either
replace or repair defective goods or refund the purchase price paid by the
buyer.

CUSTOMERS
---------

The Company's products are marketed throughout the United States and in Western
Europe, through a direct technical sales staff, independent representatives and
independent stocking distributors. Approximately 25% of the sales for fiscal
year 2004 (17% in 2003) were to international customers. Sales to Western
European customers are made by independent representatives under the
coordination of the Company's office in Bremen, Germany. One major industrial
customer has opened an operation in China and during 2004 moved a major part of
their domestic operations to China. This customer, Advanced Energy Industries,
Inc., accounted for 22% of international sales, and their contract manufacturer
in China, Celestica, accounted for 41% of international sales. During 2004,
these two customers accounted for 9% and 10% of the Company's total sales
compared to 12% and 7% for the year ended November 30, 2003. Advanced Energy has
been a major customer since 1996 and averaged 18% of the Company's sales during
this 10 year period from a high of 20% to a low of 14%. The Company has a
document of understanding with Advanced Energy which is reviewed on an annual
basis unless terminated by either party per the terms of the agreement. The
Company is required to maintain a formal cost reduction program and any material
or labor cost savings shall be shared equally between the Company and Advanced
Energy. The cost savings are reflected in pricing reductions to the customer.

The Company's major customers include contractors to the United States
government with fixed price contracts. Sales to these customers for Department
of Defense (DOD) and National Aeronautics and Space Administration (NASA)
contracts accounted for approximately 64% of the Company's fiscal net sales in
2004 compared to 62% in 2003.

The Company's major customers are Lockheed Martin, Northrop Grumman, Boeing,
Raytheon, BAE, Honeywell, Rockwell Int'l, Newport, Advanced Energy, and St.
Jude.

BACKLOG
-------

At November 30, 2004, the Company had a backlog of unfilled orders totaling
approximately $9,292,000 compared to approximately $3,799,000 at November 30,
2003. The Company expects to complete and ship most of its November 30, 2004
backlog during fiscal 2005.

EMPLOYEES
---------

At November 30, 2004, the Company had 121 full-time employees (compared to 112
at November 30, 2003), of which 28 were executive and managerial employees, 24
were engineers and quality-control personnel, 20 were clerical and
administrative employees, and 49 were production personnel. None of the
Company's employees were covered by collective bargaining agreements.

The Company is an Equal Opportunity Employer. It is the Company's policy to
recruit, hire, train and promote personnel in all job classifications, without
regard to race, religion, color, national origin, sex or age. Above and beyond
non-discrimination, we are committed to an Affirmative Action Program, dedicated
to the hiring, training, and advancement within the Company of minority group
members, women and handicapped individuals.

COMPETITION
-----------

The Company competes with two or more companies with respect to each of its
major products, including custom hybrid microcircuits, solid state relays and
power controllers, optocouplers, light-emitting diodes, light sensitive silicon
phototransistors and diodes, hall-effect devices, displays, power operational
amplifier, custom optoelectronic components and assemblies. These products and
technologies are sold into various markets, including military/aerospace, space,
industrial and medical. Some of these competitors are larger and have greater
capital resources than the Company. Management believes the Company's
competitive position is favorable with regard to our product reliability and
integrity, past performance, customer service and responsiveness, timely
delivery and pricing; however, no assurance can be given that the Company can
compete successfully in the future.

The hybrid microcircuits product line, including custom microcircuits, solid
state relays, power operational amplifiers and regulators accounted for 53% of
the Company's business in 2004, and the Optoelectronics product line accounted
for 47% of the Company's business in 2004.

There are approximately 46 independent hybrid microcircuit manufacturing
companies who are certified to supply microcircuits to MIL-PRF-38534, in
addition to OEM's, who manufacture hybrid microcircuits for their internal
needs. Micropac may compete with all of these for hybrid microcircuit business.
Some of the Company's primary competitors are Teledyne Industries, Inc., M.S.
Kennedy, Aeroflex, Agilent, and Optek.

SUPPLY CHAIN
------------

The parts and raw materials for the Company's products are generally available
from more than one source. Except for certain optoelectronic products, the
Company does not manufacture the basic parts or materials used in production of
its products. From time to time, the Company has experienced difficulty in
obtaining certain materials when needed. The Company's inability to secure
materials for any reason could have adverse effects on the Company's ability to
deliver products on a timely basis. The Company uses capacitors, active
semiconductor devices (primarily in chip form), hermetic packages, ceramic
substrates, resistor inks, conductor pastes, precious metals and other materials
in its manufacturing operations. However, the Company has not been materially
affected by such shortages. The Company's delivery commitments to customers
allow for adequate lead times for production of the products including lead time
for order and receipt from the supply chain.

Some of the Company's primary suppliers are International Rectifier, Sussex
Semiconductors, Semi-Dice, Accumet Eng. Corp, NTK Technologies, Electrovac, and
Aborn Electronics.

CAUTIONARY STATEMENTS - RISK FACTORS
------------------------------------

This Form 10-KSB contains forward-looking statements that are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Actual results could differ materially. Investors are warned that
forward-looking statements involve risks and unknown factors including, but not
limited to, 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.

Such risks and uncertainties include, but are not limited to historical
volatility and cyclicality of the semiconductor and semiconductor capital
equipment markets that are subject to significant and often rapid increases and
decreases in demand. In addition, the Company produces silicon phototransistors
and light emitting diode die for use in certain military, standard and custom
products. Fabrication efforts sometimes may not result in successful results,
limiting the availability of these components. Competitors offer commercial
level alternatives and our customers may purchase our competitors' products if
the Company is not able to manufacture the products using these technologies to
meet the customer demands.

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

Majority shareholder ability to control the election of the Board of Directors

The majority shareholder has the ability to control the election of the
Company's Board of Directors and elect individuals who may be more sympathetic
to such majority shareholders' desires and not necessarily sympathetic to the
desires of minority shareholders as to the policies and directions of the
Company. However, the ability to control the election of the Board of Directors
does not modify the fiduciary duties of the Board of Directors to represent the
interests of all shareholders

Pricing pressures from customers for reduction in selling prices

The Company continues to experience pricing pressures from some of its original
equipment manufacturer (OEM) customers. In some cases, the Company's customers
request the review of pricing for possible reduction in selling price on future
orders. This requires the Company to improve its productivity and to request
similar price reductions from its supplier chain. If one or both of the
approaches by the Company does not succeed, the Company could be required to
reduce the selling price on future orders reducing the product gross margins and
affecting the Company's net earnings in order to receive future orders from the
customer. However, the Company has no agreement that requires a reduction in the
selling price on any current customer order. All contracts are firm fixed
pricing.

Insurance coverage and exposure to substantial claims or liabilities

The Company operates manufacturing facilities in Garland, Texas and subcontracts
some manufacturing to a contract manufacturer in Juarez, Mexico. These
facilities use industrial machines and chemicals that could provide risks of
personal injury and/or property damage. There is no assurance that accidents
will not occur. If accidents do occur, the Company could be exposed to
substantial liability. The Company has no liability for the Mexico operations.
The Company maintains worker's compensation insurance and general liability
insurance for protection of its employees and for protection of the Company's
assets in Garland, Texas. In addition to the basic policies mentioned, the
Company maintains an umbrella policy. The Company reviews all insurance coverage
on an annual basis, and makes any necessary adjustments based on risk assessment
and changes in its business. In the opinion of the Company's management, and
its' insurance advisors, the Company is adequately insured; however, the
Company's financial position could be materially affected by claims not covered
or exceeding coverage currently carried by the Company.

The Company is subject to numerous environmental regulations or changes in
government Policy

The Company is subject to governmental regulations pertaining to the use,
storage, handling and disposal of hazardous substances used in connection with
its manufacturing activities. Failure of the Company to control all activities
dealing with hazardous chemicals could subject the Company to significant
liabilities or could cause the Company to cease its manufacturing activities.

The Company could be adversely affected by changes in laws and regulations made
by U.S. and non U.S. governments and agencies dealing with foreign shipments.
Changes by regulatory agencies dealing with environmental issues could affect
the cost of the Company's products and make it hard for a small company to be
competitive with larger companies.

Product liability claims

The use of the Company's products in commercial or government applications may
subject the Company to product liability claims. Although the Company has not
experienced any product liability claims, the sale of any product may provide
risk of such claims. Product liability claims brought against the Company could
have a material adverse effect on the Company's operating results and financial
condition.

Component shortages or obsolescence from suppliers could affect ability to
manufacture or delay shipments of products

The Company relies on suppliers to deliver quality raw materials in a timely and
cost effective manner. Most of the materials and components are generally
available from multiple sources; however, from time to time vendors do not
deliver the product as needed due to manufacturing problems or possibly a
decision not to furnish that product in the future. Such interruption of supply
or price increases could have a material adverse effect on the Company's
operation; however, the Company is not currently materially impacted by
materials shortages.

The ability to develop new products and technologies used in the military, space
or aerospace markets

The Company's base products and technologies generally have long life cycles.
The Company's products are primarily used in military, space or aerospace
applications, which also have long life cycles. There can be no assurance that
the Company will be able to define, develop and market new products and
technologies on a timely and cost effective basis. Failure to respond to
customer's requirements and to competitors' progress in technological changes
could have a material adverse effect on the Company's business.

Item 2. Properties
------------------

The Company occupies approximately 36,000 square feet of manufacturing,
engineering and office space in Garland, Texas. The Company owns 31,200 square
feet of that space and leases an additional 4,800 square feet. The Company
considers its facilities adequate for its current level of operations.

The Company also subcontracts some manufacturing to Inmobiliaria San Jose De
Ciuddad Juarez S.A. DE C.V, a maquila contract manufacturer in Juarez, Mexico.
The Company owns all equipment and inventory with temporary importation into
Mexico under the maquila rules of Mexico. The Company does not lease or own any
real property in Mexico.

The Company employs an International Sales Manager in Bremen, Germany who
coordinates sales to Western European customers made by independent
representatives. The sales manager maintains an office in her private residence.
The Company does not lease or own any real property in Germany, or any other
foreign country.

Item 3. Legal Proceedings
-------------------------

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

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

No matters were submitted to vote of the Company's security holders through the
solicitation of proxies by the Company during the fourth quarter of the fiscal
year ended November 30, 2004.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

On November 30, 2004, there were approximately 559 shareholders of record of the
Company's common stock. The stock of the Company is closely held; and,
therefore, the majority shareholder has the ability to significantly influence
decisions. Our common stock is quoted on the OTC Bulletin Board under the symbol
"MPAD.OB". The following sets forth the high and low bid prices for each quarter
during the last two fiscal years:

High Low

Fiscal Year Ended November, 30, 2004
Fourth Quarter $4.20 $3.50
Third Quarter $4.50 $3.25
Second Quarter $3.75 $2.05
First Quarter $2.50 $1.77

Fiscal Year Ended November 30, 2003
Fourth Quarter $1.90 $1.54
Third Quarter $1.62 $1.47
Second Quarter $1.66 $1.45
First Quarter $1.90 $1.57

During the three (3) month period ending on November 30, 2004, approximately
84,780 shares of the Company's common stock was reportedly traded in the
over-the-counter market at a reported price range of $3.75 to $4.20 per share.
For the two (2) year period ending November 30, 2004, approximately 727,090
shares of the Company's common stock was reportedly traded in the
over-the-counter market at prices ranging from a low of $1.47 to a high of
$4.50. Due to this average monthly volume of approximately 30,295 shares of
common stock being publicly bought and sold during this two year period, the
Company does not believe this share trading volume represents the market value
of the Company's common stock held by non-affiliates.

Our stock prices quoted on the OTC Bulletin Board represent over-the-counter
market quotations and reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

On December 29, 2004, the Board of Directors of Micropac Industries, Inc.
approved the payment of a $.12 per share dividend to all shareholders of record
on January 25, 2005. The dividend payment will be paid to shareholders on or
about February 8, 2005.

On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved
the payment of a special dividend of $.05 per share to all shareholders of
record on January 30, 2004. The dividend payment was paid to shareholders on
February 13, 2004.

On August 27, 2003, the Company purchased 548,836 shares of the Company's common
stock pursuant to the terms of an agreement dated February 5, 2001, between the
Company and Nicholas Nadolsky, former Chairman of the Board and Chief Executive
Officer ("Agreement"). The Agreement obligated the Company to purchase any
shares of the Company's common stock owned by Mr. Nadolsky at the fair market
value thereof (but in no event less than the book value of such shares) in the
event of his death, permanent disability or termination of employment. Mr.
Nadolsky's employment terminated on May 1, 2003. By letter dated August 15,
2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the
Company's common stock he owned pursuant to the requirements of the above
agreement and agreed that the fair value of each share of his common stock was
$2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880. These
shares were subsequently retired.

In determining the purchase price to be offered for Mr. Nadolsky's shares, the
Board of Directors considered numerous factors, including the Company's balance
sheets, the small number of shares publicly bought and sold in the
over-the-counter market, the number of shares owed by Mr. Nadolsky and a
valuation opinion from an independent third party.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------

Liquidity and Capital Resources
-------------------------------

The Company currently has an existing line of credit with a Texas banking
institution. The line of credit agreement provides the Company with up to
$3,000,000 for normal operation of the Company. The interest rate on any
borrowings against this credit agreement is equal to the prime rate less 1/4%.
The line of credit requires the Company to maintain certain financial ratios,
including quick ratio of at least 1:1, maintain a tangible net worth of
$6,250,000 plus 75% of future net income, and maintain a total
liabilities-to-tangible-net-worth of less that 1.25:1. The Company is in
compliance with these covenants. The Company has not, to date, used any of the
available line of credit. The Company expects to continue to generate adequate
amounts of cash to meet its liquidity needs from the sale of products and
services and the collection thereof.

The Company realized $908,000 net in cash flows from operations in 2004. Cash
influx came primarily from the combination of net income totaling $1,408,000;
recovery of depreciation totaling $222,000, increase of accrued compensation of
$249,000, increase in other accrued liabilities of $272,000, increase in
accounts payable of $79,000, and an increase in tax liabilities of $196,000.
Cash was used to increase inventory $911,000, accounts receivables increased by
$449,000, deferred tax benefit increased $139,000 and an increase in prepaid
expense of $19,000. Inventories increased due to the purchase of long lead items
for shipments within the first half of 2005. Day's sales in accounts receivables
totaled approximately 53.0 days as of November 30, 2004, compared to 52.0 days
at November 30, 2003.

The Company used $182,000 in cash for investment in additional manufacturing
equipment, computers and facility improvements in 2004 compared to $181,000 in
2003.

As of November 30, 2004, the Company had $1,239,000 in cash and cash equivalents
and $2,507,000 in short term investments compared to $2,337,000 in cash and cash
equivalents and $812,000 in short term investments on November 30, 2003.

On December 29, 2004, the Board of Directors of Micropac Industries, Inc.
approved the payment of a special dividend $.12 per share dividend to all
shareholders of record on January 25, 2005. The dividend payment will be paid to
shareholders on or about February 8, 2005. The Company may not continue to pay
any dividends.

Company management believes it will meet its 2005 capital requirements through
the use of cash derived from operations for the year and/or usage of the
Company's short-term investments. There were no significant outstanding
commitments for equipment purchases or improvements at November 30, 2004.

Results of Operations 2004 vs. 2003
-----------------------------------

Three Months Ended Twelve Months Ended
11/30/04 11/30/03 11/30/04 11/30/03

Net Sales 100.0% 100.0% 100.0% 100.0%

Cost of sales 57.1% 67.6% 65.0% 69.8%
R & D 5.3% 2.4% 2.9% 2.4%
S, G, & A 18.7% 17.4% 17.6% 20.7%
Total Cost & Exp 81.1% 87.4% 85.5% 92.9%

Operating Income 18.9% 12.6% 14.5% 7.1%

Interest Income 0.3% 0.3% 0.2% 0.4%

Income Before Income Taxes 19.2% 12.3% 14.7% 7.5%

Provision for taxes 7.2% 3.8% 5.6% 2.6%

Net Income 12.0% 8.5% 9.1% 4.9%

Sales in 2004 were approximately $15,356,000, an increase of 22.9% or $2,866,000
compared to 2003 sales. Approximately 44% of the increase in sales is primarily
attributable to improved business conditions in the company's major market
segments, combined with the introduction of new products, which accounted for
approximately 56% of the increase.

New orders for fiscal year 2004 totaled $20,946,000 compared to $11,191,000 for
fiscal 2003. The increase in new orders is attributable to increased funding on
certain military programs, combined with higher demand for some of the Company's
standard products sold through distribution channels, and increased penetration
in the medical and industrial markets. Approximately $11,732,000 of the new
orders received in 2004 was delivered to customers in 2004, along with
approximately $3,624,000 of the Company's $3,799,000 ending backlog on November
30, 2003.

The Company's backlog as of November 30, 2004, was approximately $9,292,000,
compared to approximately $3,799,000 on November 30, 2003. The increase in the
Company's backlog is attributable to strong bookings of new orders in the last
half of the year for deliveries in 2005.

Custom-designed components are estimated to account for approximately 50% of the
Company's sales for the fiscal year ended November 30, 2004, and 52% in fiscal
2003; standard components are estimated to account for approximately 50% of the
Company's sales for the fiscal year ended November 30, 2004, and 48% for fiscal
2003.

Approximately 25% of the sales for fiscal year 2004 (17% in 2003) were to
international customers. Sales to Western European customers are made by
independent representatives under the coordination of the Company's office in
Bremen, Germany. One major industrial customer has opened an operation in China
and during 2004 moved a major part of their domestic operations to China. This
customer, Advanced Energy Industries, Inc., accounted for 22% of international
sales, and their contract manufacturer in China, Celestica, accounted for 41% of
international sales.

During 2004, two customers accounted for 9% and 10% of the Company's sales
compared to 12% and 7% for the year ended November 30, 2003. The customers are
Advanced Energy Industries, Inc. and their contract manufacturer in China,
Celestica. Advanced Energy has been a major customer since 1996 and averaged 18%
of the Company's sales during this 10 year period from a high of 20% to a low of
14%.

Sales for 2004 compared to 2003 increased 16% in the commercial market, 22% in
the military market, and 50% in the space market.

Cost of sales, as a percentage of net sales, was 65.0% in 2004 compared to 69.8%
in 2003. The cost of goods sold decrease of 4.8% is attributable to stable
operating expense on higher sales volume; changes in product mix, and yield
improvements on certain products. In actual dollars cost of sales increased
$1,253,000 for 2004, versus 2003. Cost of sales decreased $84,000 in the fourth
quarter of 2004, compared to the same period of 2003.

Expenses for research and development totaled $438,000 in 2004 compared to
$303,000 in 2003. Most of the research and development expenses were
concentrated on expanding the Company's line of solid state power controllers,
high-temperature couplers, detectors, hall-effect devices; and enhancing
manufacturing processes to improve the Company's competitive position. Selling,
general, and administrative expenses totaled 17.6% of net sales in 2004,
compared to 20.7% in 2003, based on higher sales. In dollars expensed, selling,
general and administrative expenses totaled $2,709,000 in 2004 compared to
$2,581,000 in 2003, an increase of $128,000, attributable to higher commissions
on increased sales and increased selling expense.

Interest income for fiscal 2004 totaled $32,000 compared to $50,000 for fiscal
2003. The decrease is related to lower interest rates on the Company's
investments.

Income before taxes for fiscal 2004 was approximately $2,265,000 or 14.7% of net
sales, compared to $933,000 or 7.5% of net sales in fiscal 2003. Net income
after taxes totaled approximately $1,408,000 or $.55 per share in 2004 versus
2003 net income of $611,000 or $.21 per share. Net income after taxes in 2004
increased $797,000 compared to 2003.

New Accounting Standards
------------------------

None

Item 7. Financial Statements
-----------------------------

The financial statements listed below appear on pages 16 through 25 of this
Report. The Company is not required to furnish the Supplementary Data required
by Item 302 of Regulation S-K.

Page No.
--------

16 Report of Independent Registered Public Accounting Firm

17 Balance Sheets as of November 30, 2004 and 2003

18 Statements of Income for the years ended November 30, 2004 and
2003

19 Statements of Shareholders' Equity for the years ended
November 30, 2004 and 2003

20 Statements of Cash Flows for the years ended November 30, 2004
and 2003

21-25 Notes to Financial Statements for the years ended November 30,
2004 and 2003

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------------------

None

Item 8A. 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
Rules 13a-15 (e) as of November 30, 2004 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. There has been no change in the
Company's internal control over financial reporting during the Company's fiscal
year ended November 30, 2004 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.

PART III

In accordance with General Instruction G(3) of Form 10-K, the information
required by this Part III is incorporated by reference to Micropac Industries,
Inc.'s definitive proxy statement relating to its 2005 Annual Meeting of
Stockholders, as set forth below. The 2005 Proxy Statement will be filed with
the Securities and Exchange Commission on or about January 15, 2005.

Item 9. Directors & Executive Officers of The Registrant

The information set forth in the 2005 Proxy Statement under the headings
"Election of Directors", and "Principal Stockholders and Stockholdings of
Management", is incorporated herein by reference.

Position(s) With
Name Age the Company Director Since
---- --- ----------- --------------

H. Kent Hearn 68 Director and Member of Audit
Committee February 1983

Heinz-Werner Hempel 76 Director and Member of Audit
Committee February 1997

James K. Murphey 62 Director and Member of Audit
Committee March 1990

Nicholas Nadolsky 71 Director and Member of Audit
Committee May 2004

Connie Wood 65 Director, CEO, President and
Member of Audit Committee May 2002

Patrick Cefalu 47 CFO, Vice President

Mark King 50 COO, Vice President

Mr. Hearn is currently employed as a stockbroker by Milkie/Ferguson Investments,
Inc. Mr. Hearn was formerly employed by Harris Securities, Dallas, Texas.

Mr. Hempel is the Chief Operating Officer of Hanseatische Waren-Gesellschaft MBH
& Co, KG, Bremen Germany.

Mr. Murphey is an attorney and member of the law firm Glast, Phillips & Murray,
P.C. in Dallas, Texas. Glast, Phillips & Murray, P.C. serves as legal counsel to
the company. Prior to 2001, Mr. Murphey was a member of the law firm of Secore &
Waller, L.L.P. in Dallas, Texas.

Mr. Nadolsky served as the Company's Chief Executive Officer and Chairman of the
Board until his medical leave of absence beginning May 2002. Mr. Nadolsky
retired from the Company in May 2003.

Ms. Wood is the Chief Executive Officer and President of the Company. Ms. Wood
was elected as Chief Executive Officer in May 2002. Prior to May 2002, Ms. Wood
was President and Chief Operating Officer of the Company.

Mr. Cefalu is the Chief Financial Officer and Vice President of the Company. Mr.
Cefalu joined the Company in July of 2001 and was elected as Chief Financial
Officer in February of 2002. Prior to July 2002, Mr. Cefalu held numerous senior
financial positions at Lucent Technologies.

Mr. King is the Chief Operating Officer and Vice President of the Company. Mr.
King joined the company in November of 2002 as the Chief Operating Officer.
Prior to November 2002, Mr. King was President and Chief Operating Officer of
Lucas Benning Power Electronics.

The Company has adopted a Code of Ethics for Principal Executive Officers and
Senior Financial Officers, pursuant to the Sarbanes-Oxley Act of 2002. The Code
of Ethics is published on the Company's web site, www.micropac.com on the
Investor page.

The Board of Directors does not have nominating or compensation committee or
committees performing similar functions. The Board of Directors formed an audit
committee on May 13, 2002. The members of the Audit Committee are the members of
the Board of Directors.

The Board of Directors has discussed with management and the independent
auditors the quality and adequacy of the Company's internal controls. The
Directors have considered and reviewed with the independent auditors their audit
plans, the scope of the audit, and the identification of audit risks.

The Board of Directors has reviewed the Company's audited financial statements
for the fiscal year ended November 30, 2004, and discussed them with management
and the Company's independent auditors. Management has the responsibility for
the preparation and integrity of the Company's financial statements and the
independent auditors have the responsibility for the examination of those
statements. Based on this and discussions with management and the independent
auditors, the Board of Directors has recommended that the Company's audited
financial statements be included in its Annual Report on Form 10-KSB for the
fiscal year ended November 30, 2004, for filing with the Securities and Exchange
Commission. It is not the duty of the Directors to plan or conduct audits, to
determine that the Company's financial statements are complete and accurate and
are in accordance with accounting principles generally accepted in the United
States. Those responsibilities belong to management and the Company's
independent auditors. In giving its recommendations, the Directors considered
(a) management's representation that such financial statements have been
prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States, and (b) the report of the
Company's independent auditors with respect to such financial statements.

The Board of Directors has received and reviewed written disclosures and a
letter from the independent accountants required by the Independence Standards
Board Standard No. 1, entitled "Independence Discussions with Audit Committee,"
as amended to date, and has discussed with the independent accountants their
independence from management.

The Board of Directors held eight (8) board meetings during the year ended
November 2004. Directors receive a fee of $500.00 for each meeting. Ms. Wood,
Mr. Hearn and Mr. Murphey attended all of the meetings. Mr. Hempel attended two
of the meetings. Mr. Nadolsky attended five of the meetings.

The Audit Committee held four (4) meetings during the year ended November 30,
2004. Members of the Audit Committee received a fee of $500.00 for each meeting.
Ms. Wood, Mr. Hearn and Mr. Murphey attended all of the meetings. Mr. Hempel and
Mr. Nadolsky attended two of the meetings.

With the exception of Mr. Hearn, members of the Audit Committee are not
considered as independent members under applicable United States statutes.

The Board of Directors has evaluated the credentials of Nicholas Nadolsky, and
has determined that Mr. Nadolsky is an "audit committee financial expert" within
the meaning of 401(e) of Regulation S-B.

The Board does not have a nominating committee due to the Company's small size.
The Board does not provide a process for security holders to send communications
to the Board of Directors due to the infrequent nature of such communications.

Item 10. Executive Compensation
--------------------------------

The information set forth in the 2005 Proxy Statement under the heading
"Management Remuneration and Transactions", is incorporated herein by reference.

The following table shows as of November 30, 2004, all cash compensation paid
to, or accrued and vested for the account of Ms. Connie Wood, President and
Chief Executive Officer, and Mr. Mark King, Vice President and Chief Operating
Officer. Ms. Wood and Mr. King received no non-cash compensation during 2004.

The company does not have any equity compensation plans.

Annual Compensation

Name and Annual Other All Other
Principal Position Year Salary Bonus Annual Compensation Compensation
(1) (2)

Connie Wood, 2004 $172,394.28 $10,000 $6,000 $27,194.25
President and 2003 $156,000.00 $10,000 $3,500 $18,490.51
Chief Executive 2002 $153,461.66 -0- -0- $12,839.70
Officer (3)

Mark King, 2004 $155,333.82 $2,000 -0- $10,225.38
Vice President and 2003 $150,000.00 -0- -0- $6,467.79
Chief Operating Officer (4)

(1) Reflects fees for Board meetings and Audit Committee meetings
(2) Reflects amounts contributed by Micropac Industries, Inc., under
Micropac's 401(k) profit sharing plan; unused vacation pay; and
reimbursement for medical expenses under Micropac's Family Medical
Reimbursement Plan.
--------------------------------------------------------------------------------

(3) Effective May 1, 2002, the Company and Connie Wood entered into a two
(2) year employment agreement at an annual salary of $156,000. The
employment agreement was amended effective May 1, 2004 to increase
Mrs. Wood's salary to $180,000 and to extend the term for a period of
three years from said date.
(4) Effective February 1, 2004, Mark King and Patrick Cefalu entered into
a two (2) year employment agreement.

Amounts included in other annual compensations relating to director and audit
committee fees

The Board of Directors held eight (8) board meetings during the year ended
November 2004. Directors receive a fee of $500.00 for each meeting. Ms. Wood
received fees of $4,000 which amount is included in the "Other Annual
Compensation" column.

The Audit Committee held four (4) meetings during the year ended November 30,
2004. Members of the Audit Committee received a fee of $500.00 for each meeting.
Ms. Wood received Audit Committee fees of $2,000 which amount is included in the
"Other Annual Compensation" column.

Amounts included in all other compensation relating to employee benefit plans

The Company maintains a Family Medical Reimbursement Plan for the benefit of its
executive officers and their dependents. The Plan is funded through a group
insurance policy issued by an independent carrier and provides for reimbursement
of 100% of all bona fide medical and dental expenses that are not covered by
other medical insurance plans. During the fiscal year ended November 30, 2004,
Ms. Wood received $7,104.58 and Mr. King received $1,804.57, which amounts are
included in the "All Other Compensation" column shown in the preceding
remuneration table.

In July 1984, the Company adopted a Salary Reduction Plan pursuant to Section
401(k) of the Internal Revenue Code. The Plan's benefits are available to all
Company employees who are at least 18 years of age and have completed at least
six months of service to the Company as of the beginning of a Plan year. Plan
participants may elect to defer up to 15% of their total compensation as their
contributions, subject to the maximum allowed by the Internal Revenue code
401(k), and the Company matches their contributions up to a maximum of 6% of
their total compensation. A participant's benefits vest to the extent of 20%
after two years of eligible service and become fully vested at the end of six
years.

During the fiscal year ended November 30, 2004, the Company made contributions
to the Plan for Ms. Wood in the amount of $10,772.37 and for Mr. King in the
amount of $8,421.31, which amounts are included in the "All Other Compensation"
column shown in the preceding remuneration table.

Ms. Wood's employment agreement provides that she may elect to carry over any
unused vacation time to subsequent periods or elect to be paid for such unused
vacation time. In 2004, Ms. Wood elected to be paid for all prior unused
vacation time in the amount of $9,317.30, which is included in the "All Other
Compensation" column shown in the preceding remuneration table.

On January 15, 2001, the Board of Directors adopted the Micropac Industries,
Inc. 2001 Employee Stock Option Plan. To date, no options have been granted
under the Plan.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information set forth in the 2005 Proxy Statement under the heading
"Principal Stockholders and Stockholdings of Management" is incorporated herein
by reference.

The following table shows the number and percentage of shares of the Company's
common stock beneficially owned (a) by each person known by the Company to own
5% or more of the outstanding common stock, (b) by each director and nominee,
and (c) by all present officers and directors as a group.

Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned of Class(1)

Heinz-Werner Hempel (2)(3) 1,952,577 75.7%
Hanseatische Waren-Gesellschaft
MBH & Co., KG
Am Wall 127
28195 Bremen 1 Germany

H. Kent Hearn (3) 3,500 Less than .2
1409 Briar Hollow
Garland, Texas 75043

James K. Murphey (3) -0- -
2290 One Galleria Tower
13355 Noel Road, L.B.75
Dallas, Texas 75240

Nicholas Nadolsky (3) -0- -
1322 Briar Hollow
Garland, Texas 75043

Connie Wood (3) 6,000 Less than .2%
106 Cedarview
Rockwall, Texas 75087

Mark King -0- -
2905 Wyndham Lane
Richardson, Texas 75082

Patrick Cefalu -0- -
8706 Arborside
Rowlett, Texas 75089

All officers and directors 1,962,077 76.1%
as a group (7 Persons)
-----------------------

(1) Calculated on the basis of the 2,578,315 outstanding shares. There are no
options, warrants, or convertible securities outstanding.

(2) The Company and Mr. Heinz-Werner Hempel are parties to an Ancillary
Agreement entered into in March 1987. The Ancillary Agreement primarily
obligates the Company to register Mr. Hempel's stock and allows Mr. Hempel
to participate in any sale of stock by the Company.

(3) A director of the Company. Each incumbent director has been nominated for
re-election at the Annual Meeting.

Item 12. Certain Relationships and Related Transactions
--------------------------------------------------------

The information set forth in the 2005 Proxy Statement under the heading
"Management Remuneration and Transactions is incorporated herein by reference.

On August 27, 2003, the Company purchased 548,836 shares of the Company's common
stock pursuant to the terms of an agreement dated January 15, 2001, between the
Company and Mr. Nicholas Nadolsky, former Chairman of the Board and Chief
Executive Officer ("Agreement"). The Agreement obligated the Company to purchase
any shares of the Company's common stock owned by Mr. Nadolsky at the fair
market value thereof (but in no event less than the book value of such shares)
in the event of his death, permanent disability or termination of employment.
Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated August 15,
2003, Mr. Nadolsky requested that the Company purchase the 548,836 shares of the
Company's common stock he owned pursuant to the requirements of the above
agreement and agreed that the book value of each share of his common stock was
$2.68. The Company paid Mr. Nadolsky a total purchase price of $1,470,880.48.
These shares were subsequently retired. In determining the purchase price to be
offered for Mr. Nadolsky's shares, the Board of Directors considered numerous
factors, including the Company's balance sheets, the small number of shares
publicly bought and sold in the over-the-counter market, the number of shares
owed by Mr. Nadolsky and a valuation opinion from an independent third party.

Since 1980, the Company has leased a 4,800 square-foot building from Mr.
Nadolsky which is used primarily for manufacturing. The lease originally
provided for a monthly rental of $1,900 (an amount based upon a January 1984,
independent appraisal of the building's value) and was to have expired on
January 1, 1987. Since 1987, the Company has extended the term of this lease
from time to time. The last renewal of the lease was on July 1, 1999 for a five
(5) year period. The rental paid to Mr. Nadolsky pursuant to this lease was
$39,000 for the fiscal year ended November 30, 2004. In April 2004, the lease
was renewed for three (3) years at the same rental rate provided for in the
original lease subject to increase based upon increases in the Consumer Price
Index.

Item 13. Principal Accountant Fees and Services
------------------------------------------------

The information set forth in the 2005 Proxy Statement under the heading
"Independent Public Accountants" and "Audit Fees" is incorporated herein by
reference.

KPMG LLP was selected as the independent accountants in 2002 and has been
responsible for the Company's financial audit for the fiscal years ended
November 30, 2002 through November 30, 2004.

Management anticipates that a representative from KPMG LLP will be present at
the Annual Meeting and will be given the opportunity to make a statement if he
or she desires to do so. It is also anticipated that such representative will be
available to respond to appropriate questions from stockholders.

KPMG LLP fee for professional services for the audit of the Company's financial
statements for 2004 and the review of the interim financial statements included
in the Quarterly Reports is $78,000.

In addition to the audit fees, KPMG LLP fee for tax advisory and 2004 tax return
preparation services will be $24,500.

Item 14. Exhibits and Reports on Form 8-K
------------------------------------------

(a) Exhibits

10.1 Document of Understanding between Advanced Energy Industries and
affiliates.

10.2 Promissory Note

10.3 Employment Agreement Of Chief Executive Officer

10.4 Employment Agreement of Chief Financial Officer

10.5 Employment Agreement of Chief Operating Officer

10.6 Code of Conduct for Officers For Principal Executive Officers and
Senior Financial Officers

10.7 Shareholder Agreement

10.8 Ancillary Agreement dated March 13, 1997, by and between the
Company, the Hempels and the Proxy Holders (1)

10.9 Micropac Industries, Inc. 2001 Employee Stock Option Plan (2)

31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes- Oxley Act of 2003

31.2 Certification of Chief Accounting Officer pursuant to Section 302
of the Sarbanes- Oxley Act of 2003

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley act of 2003.

32.2 Certification of Chief Accounting Officer pursuant to U. S. C.
section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley act of 2003.

(1) Incorporated by reference to the Registrant's Report on Form
10-KSB for the year ended November 30, 1987 (File No. 0-5109),
filed February 12, 1988.

(2) Incorporated by reference to the Registrant's Form S-8 (File No.
333-67560), filed August 16, 2001.

(b) Form 8K -

On December 29, 2004, the Board of Directors of Micropac
Industries, Inc. approved the payment of a $.12 per share
dividend to all shareholders of record on January 25, 2005. The
dividend payment will be paid to shareholders on or about
February 8, 2005.

On January 8, 2004, the Board of Directors of Micropac
Industries, Inc. approved the payment of a special dividend of
$.05 per share to all shareholders of record on January 30, 2004.
The dividend payment was paid to shareholders on February 13,
2004.

At a Board of Directors meeting held on May 11, 2004, the Board
of Directors unanimously elected Mr. Nicholas Nadolsky as a
Member and Chairman of the Board, to serve in such positions
until the next annual meeting of shareholders or until his
earlier death, resignation or removal from office. There is no
employment agreement between Mr. Nadolsky and the Company. Since
1980, the Company has leased a 4800 square foot building from Mr.
Nadolsky, at a current annual rental of $39,600.

The Company submitted a FORM 8-K to the United States Securities
and Exchange Commission on August 27, 2003. The following
disclosure was included in the FORM 8-K:

any shares of the Company's common stock owned by Mr. Nadolsky at
the fair market value thereof (but in no event less than the book
value of such shares) in the event of his death, permanent
disability or termination of employment. Mr. Nadolsky's
employment terminated on May 1, 2003.

By letter dated August 15, 2003, Mr. Nadolsky requested that the
Company purchase the 548,836 shares of the Company's common stock
he owned pursuant to the requirements of the above agreement and
agreed that the fair value of each share of his common stock was
$2.68. The Company paid Mr. Nadolsky a total purchase price of
$1,470,880.48.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

MICROPAC INDUSTRIES, INC.

By: /s/ Connie Wood
---------------------------------------
Connie Wood, President
and Chief Executive Officer
(Principal Executive Officer)

By: /s/ Patrick Cefalu
---------------------------------------
Patrick Cefalu, CFO and
Principal Accounting Officer

Dated: 01/31/2005

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on 01/31/2005

/s/ Connie Wood /s/ H. Kent Hearn
----------------------------- -----------------------------
Connie Wood, Director H. Kent Hearn, Director

/s/ James K. Murphey
----------------------------- -----------------------------
James K. Murphey, Director Heinz-Werner Hempel, Director

-----------------------------
Nicholas Nadolsky, Director

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Micropac Industries, Inc.:

We have audited the accompanying balance sheets of Micropac Industries, Inc. as
of November 30, 2004 and 2003, and the related statements of income,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Micropac Industries, Inc. as of
November 30, 2004 and 2003, and the results of its operations and its cash flows
for the years then ended in conformity with U.S. generally accepted accounting
principles.

KPMG LLP

Dallas, Texas,
January 20, 2005

MICROPAC INDUSTRIES, INC.
BALANCE SHEETS
AS OF NOVEMBER 30, 2004 AND 2003
(Dollars in thousands except share data)

ASSETS 2004 2003
-------- --------

CURRENT ASSETS:
Cash and cash equivalents $ 1,239 $ 2,337
Short-term investments 2,507 812
Receivables, net of allowance for doubtful accounts
of $121 for 2004 and $89 for 2003 2,326 1,877
Inventories
Raw materials and supplies 1,354 692
Work-in-process 1,346 1,097
-------- --------
Total inventories 2,700 1,789

Deferred income taxes 528 386
Prepaid expenses and other assets 90 71
-------- --------
Total current assets 9,390 7,272

PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 80 80
Buildings 498 498
Facility improvements 796 797
Machinery and equipment 5,200 5,027
Furniture and fixtures 479 489
-------- --------
Total property, plant, and equipment 7,053 6,891
Less- accumulated depreciation (6,091) (5,889)
-------- --------
Net property, plant, and equipment 962 1,002
-------- --------

Total assets $ 10,352 $ 8,274
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable $ 387 $ 308
Accrued compensation 488 239
Accrued professional fees 11 23
Income taxes payable 306 110
Property taxes 66 65
Commissions payable 46 48
Deferred revenue 404 115
Other accrued liabilities 17 21
-------- --------
Total current liabilities 1,725 929

DEFERRED INCOME TAXES 72 69
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value, authorized 10,000,000 shares
3,078,315 issued 2,578,315 outstanding at November 30, 2004
and November 30, 2003 308 308
Paid-in capital 885 885
Treasury stock, at cost, 500,000 shares (1,250) (1,250)
Retained earnings 8,612 7,333
-------- --------
Total shareholders' equity 8,555 7,276
-------- --------

Total liabilities and shareholders' equity $ 10,352 $ 8,274
======== ========

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30,
2004 AND 2003 (Dollars in
thousands except share data)

2004 2003
----------- -----------

NET SALES $ 15,356 $ 12,490

COSTS AND EXPENSES:
Cost of sales 9,976 8,723
Research and development 438 303
Selling, general, and administrative expenses 2,709 2,581
----------- -----------

Total costs and expenses 13,123 11,607

OPERATING INCOME BEFORE INTEREST AND INCOME TAXES 2,233 883

Interest income 32 50
----------- -----------
INCOME BEFORE INCOME TAXES 2,265 933

PROVISION (BENEFIT) FOR INCOME TAXES:
Current 996 387
Deferred (139) (65)
----------- -----------

Total provision for current and deferred taxes 857 322
----------- -----------

NET INCOME $ 1,408 $ 611
=========== ===========

BASIC AND DILUTED EARNINGS PER SHARE $ .55 $ .21
=========== ===========

WEIGHTED AVERAGE NUMBER OF SHARES, basic and diluted 2,578,315 2,944,206
=========== ===========

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2004 AND 2003
(Dollars in thousands)

Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
-------- -------- -------- -------- --------

BALANCE, November 30, 2002 $ 363 $ 885 $ (1,250) $ 8,450 $ 8,448

Common stock repurchase (55) -- -- (1,416) (1,471)
Dividend (312) (312)
Net income -- -- -- 611 611
-------- -------- -------- -------- --------

BALANCE, November 30, 2003 308 885 (1,250) 7,333 7,276
-------- -------- -------- -------- --------

Dividend -- -- -- (129) (129)
Net income -- -- -- 1,408 1,408
-------- -------- -------- -------- --------

BALANCE, November 30, 2004 $ 308 $ 885 $ (1,250) $ 8,612 $ 8,555
======== ======== ======== ======== ========

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2004 AND 2003
(Dollars in thousands)

2004 2003
-------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,408 $ 611
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 222 230
Deferred tax benefit (139) (65)
Changes in certain current assets and liabilities-
Increase in receivables, net (449) (76)
(Increase) decrease in inventories (911) 511
Increase in prepaid expenses and other assets (19) (15)
Increase (decrease) in accounts payable 79 (193)
Increase (decrease) in accrued compensation 249 (17)
Increase in income taxes payable 196 1
Increase (decrease) in all other accrued liabilities 272 (10)
-------- --------

Net cash provided by operating activities 908 977

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Investments (1,695) (1,400)
Sale of Investments -- 3,428
Additions to property, plant, and equipment (182) (181)
-------- --------
Net cash (used in) provided by investing activities (1,877) 1,847

CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock repurchase -- (1,471)
Dividends paid (129) (312)
-------- --------

Net cash used in financing activities (129) (1,783)
-------- --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,098) 1,041

CASH AND CASH EQUIVALENTS, beginning of year 2,337 1,296
-------- --------

CASH AND CASH EQUIVALENTS, end of year $ 1,239 $ 2,337
======== ========

SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes, net of refunds received $ 803 $ 386
======== ========

See accompanying notes to financial statements.

MICROPAC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004 AND 2003

1. BUSINESS DESCRIPTION:
--------------------
Micropac Industries, Inc. (the "Company"), a Delaware corporation, manufactures
and distributes various types of hybrid microelectronic circuits, solid state
relays, power operational amplifiers, and optoelectronic components and
assemblies. The Company's products are used as components in a broad range of
military, space and industrial systems, including aircraft instrumentation and
navigation systems, power supplies, electronic controls, computers, medical
devices, and high-temperature (200o C) products.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------

Revenue Recognition
-------------------

Revenues are recorded as deliveries are made based upon contract prices. Any
losses anticipated on fixed price contracts are provided for currently. Sales
are recorded net of sales returns, allowances and discounts.

Short-Term Investments
----------------------

Short-term investments include certificates of deposits with maturities greater
than 90 days. These investments are reported at historical cost, which
approximates fair market value as of November 30, 2004 and 2003. 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 positive intent to hold to maturity. All held-to maturity securities
mature within one year.

Inventories
-----------

Inventories are stated at lower of cost or market 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 provides an
allowance for obsolete and overstocked inventory.

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.

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 under Financial Accounting
Standards board Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. 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 or discounted cash flow value is required. The Company adopted SFAS
144 on December 1, 2003. The adoption of SFAS 144 did not affect the Company's
financial statements.

Repairs and maintenance are charged against income when incurred. Improvements,
which extend the useful life of property, plant, and equipment are capitalized.

Research and Development Costs
------------------------------

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

Comprehensive Income
--------------------

Comprehensive income includes net income and other comprehensive income which is
generally comprised of changes in the fair value of available-for-sale
marketable securities, foreign currency translation adjustments and adjustments
to recognise additional minimum pension liabilities. For each period presented
in the accompanying statement of income, comprehensive income and net income are
the same amount.

Basic and Diluted Earnings Per Share
------------------------------------

Basic and diluted earnings per share are computed based upon the weighted
average number of shares outstanding during the year. Diluted earnings per share
gives effect to all dilutive potential common shares. During 2004 and 2003, the
Company had no dilutive potential common stock.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

3. NOTES PAYABLE TO BANKS:
----------------------

4. RELATED PARTIES:
---------------

The Company leases a building from the Company's Chairman of the Board. A lease
was signed on July 1, 1999, for a term of five (5) years and renewed in April
2004 for three (3) years under similar terms and conditions as the prior lease.
Amounts paid under the lease agreement approximated $39,000 in 2004 and 2003.

Glast, Phillips & Murray, P.C. serves as the Company's legal counsel. Mr. James
K. Murphey, a director and member of the Company's audit committee, is a member
of Glast, Phillips & Murray, P.C.

Effective May 13, 2003, the Company's Board of Directors approved the formation
of an audit committee composed of the five (5) members of the Board. It is
possible that the members of the audit committee may resign from the committee
if future Securities and Exchange Commission rules establish a criteria that
such individuals are not independent due to their relationships with the
Company. The Board of Directors held eight (8) board meetings during the year
ended November 30, 2004. Directors receive a fee of $500.00 for each meeting.
The Audit Committee held four (4) meetings during the year ended November 30,
2004. Members of the Audit Committee received a fee of $500.00 for each meeting.

On August 27, 2003, the Company purchased 548,836 shares of the Company's common
stock pursuant to the terms of an agreement dated February 5, 2001, between the
Company and Mr. Nadolsky ("Agreement"). The Agreement obligated the Company to
purchase any shares of the Company's common stock owned by Mr. Nadolsky at the
fair market value thereof (but in no event less than the book value of such
shares) in the event of his death, permanent disability or termination of
employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated
August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836
shares of the Company's common stock he owned pursuant to the requirements of
the above agreement and agreed that the approximate fair value of each share of
his common stock was $2.68. The Company paid Mr. Nadolsky a total purchase price
of $1,470,880. These shares were subsequently retired.

5. PRODUCT WARRANTIES:
------------------

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Currently, the only applicable item of
FIN 45 relates to the impact of paragraph 14, which refers to product
warranties.

Because we do not have extended warranties, our exposure is limited to product
returns for defective products. In general, we warrant that the products, when
delivered, will be free from defects in material workmanship under normal use
and service. Our obligations are limited to replacing, repairing or giving
credit for, at our option, any products that are returned within one year after
the date of shipment.

The Company reserves for potential warranty expense based on historical warranty
experience claims. While management considers our process to be adequate to
effectively quantify its exposure to warranty claims based on historical
performance, changes in warranty claims on a specific or cumulative basis may
require management to adjust its reserve for potential warranty costs.

Warranty expense to repair or replace products in 2004, 2003, and 2002 was
$33,600, $28,100 and $31,800 respectively.

6. LEASE COMMITMENTS:
-----------------

Rent expenses for the years ended November 30, 2004 and 2003, was approximately
$45,000 and $42,000 respectively per year. The Company's future minimum lease
payments under non-cancellable operating leases (including the related party
lease described in note 4) for office and manufacturing space with remaining
terms in excess of one year are approximately:

2005 $ 40,000
2006 $ 40,000
2007 $ 20,000
---------
Total $ 100,000

7. EMPLOYEE BENEFITS:
-----------------

The Company sponsors an Employees' Profit Sharing Plan and Trust (the "Plan").
Pursuant to section 401(k) of the Internal Revenue Code, the Plan is available
to substantially all employees of the Company. Employee contributions to the
Plan are matched by the Company at amounts up to 6% of the participant's salary.
Contributions made by the Company were approximately $131,000 in 2004 and
$138,000 in 2003. Employees become vested in Company contributions at 20% after
two years, 40% after three years, 60% after four years, 80% after five years and
100% after six years. If the employee leaves the Company prior to being fully
vested, the unvested portion of the Company's contributions are forfeited and
such forfeitures are used to lower future Company contributions. The Company
does not offer other post retirement benefits to its employees at this time.

8. NEW ACCOUNTING STANDARDS:
------------------------
None

9. INCOME TAXES:
------------

The income tax provision consisted of the following for the years ended November
30:

2004 2003
--------- ---------
Current Provision
Federal $ 854,000 $ 319,000
State 142,000 68,000
--------- ---------
996,000 387,000
Deferred Benefit
Federal (139,000) (65,000)
--------- ---------

Total $ 857,000 $ 322,000
========= =========

The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:

2004 2003
--------- ---------
Tax at 34% statutory rate $ 770,000 $ 317,000
State income taxes, net of federal benefit 82,000 45,000
Adjustment to prior year estimates 5,000 (40,000)
--------- ---------

Income tax provision $ 857,000 $ 322,000
========= =========

The components and changes in deferred tax assets and liabilities were as
follows:

November 30, 2004 November 30, 2003
----------------- -----------------

Current Deferred Taxes -
Allowance for doubtful accounts $ 45,000 $ 33,000
Inventory 280,000 267,000
Accrued liabilities and other 203,000 86,000
----------------- -----------------
Net current deferred tax asset $ 528,000 $ 386,000
----------------- -----------------

Non-current Deferred Taxes Liability
Depreciation and other $ 72,000 $ 69,000
----------------- -----------------

Net deferred taxes $ 456,000 $ 317,000
================= =================

10. SIGNIFICANT CUSTOMER INFORMATION:
--------------------------------

The Company's primary line of business relates to the design, manufacture, and
sale of hybrid microcircuits and optoelectronic components and assemblies. Sales
result primarily from subcontracts with customers for ultimate production and
delivery to the United States government. Sales to primary contractors for
defense and space related contracts accounted for 64% of total sales in 2004 and
62% of total sales in 2003. During 2004, two customers accounted for 9% and 10%
of the Company's sales compared to 12% and 7% for the year ended November 30,
2003.

11. SHAREHOLDERS' EQUITY:
--------------------

On November 30, 2004, there were approximately 559 shareholders of record of the
Company's common stock. The stock of the Company is closely held; and,
therefore, certain shareholders/board members have the ability to significantly
influence decisions.

On January 8, 2004, the Board of Directors of Micropac Industries, Inc. approved
the payment of a special dividend of $0.05 per share for shareholders of record
as of January 30, 2004. This dividend was paid to the Company's shareholders on
February 13, 2004.

On August 27, 2003, the Company purchased 548,836 shares of the Company's common
stock pursuant to the terms of an agreement dated February 5, 2001, between the
Company and Mr. Nadolsky ("Agreement"). The Agreement obligated the Company to
purchase any shares of the Company's common stock owned by Mr. Nadolsky at the
fair market value thereof (but in no event less than the book value of such
shares) in the event of his death, permanent disability or termination of
employment. Mr. Nadolsky's employment terminated on May 1, 2003. By letter dated
August 15, 2003, Mr. Nadolsky requested that the Company purchase the 548,836
shares of the Company's common stock he owned pursuant to the requirements of
the above agreement and agreed that the fair value of each share of his common
stock was $2.68. The Company paid Mr. Nadolsky a total purchase price of
$1,470,880. These shares were subsequently retired.

On March 1, 2001, the Company's shareholders approved the 2001 Employee Stock
Option Plan (the "Stock Plan"). As of November 30, 2004, there were 500,000
options available to be granted; however, no options had been granted at
year-end.

12. SUBSEQUENT EVENTS:
-----------------

DIRECTORS AND OFFICERS
----------------------
NOVEMBER 30, 2004

NICHOLAS NADOLSKY
Chairman of the Board
Micropac Industries, Inc

CONNIE WOOD
Chief Executive Officer
Micropac Industries, Inc.

HEINZ-WERNER HEMPEL
Chief Operating Officer
Hanseatishe Waren Handelsgesellschaft MBH & Co. KG, Bremen, Germany

H. KENT HEARN
Stockbroker
Milkie-Ferguson, Dallas, Tx.

JAMES K. MURPHEY
Corporate Attorney
Glast, Phillips and Murray, Dallas, Tx.

PATRICK CEFALU
Chief Financial Officer
Micropac Industries, Inc.

MARK KING
Chief Operating Officer
Micropac Industries, Inc.

LEGAL COUNSEL TRANSFER AGENT & REGISTRAR
Glast, Phillips and Murray Securities Transfer
Dallas, Tx Frisco, Texas