<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from _________ to __________
Commission file number 0-11880
HYTEK MICROSYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
California 94-2234140
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Hot Springs Road, Carson City, Nevada 89706
(Address of principal executive offices)
Issuer's telephone number: (702) 883-0820
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 _____
As of October 31, 1996, the issuer had outstanding 2,933,091 shares of Common
Stock, no par value.
1
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HYTEK MICROSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 28, 1996
INDEX
Page
Number
------
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheet at September 28, 1996 (unaudited) and
December 30, 1995 . . . . . . . . . . . . . . . 3
Statement of Operations and Accumulated Deficit
(unaudited) for the Quarter and Nine Months ended
September 28, 1996 and September 30, 1995 . . . . . . . 4
Statement of Cash Flows (unaudited) for the Quarter and
Nine Months ended September 28, 1996 and
September 30, 1995 . . . . . . . . . . . . . . . 5
Notes to Interim Financial Statements (unaudited). . . . . 6
Item 2. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . 7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 12
Signatures. . . . . . . . . . . . . . . . . . . . . . 13
Exhibit Index. . . . . . . . . . . . . . . . . . . . . 14
2
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
HYTEK MICROSYSTEMS, INC.
BALANCE SHEET
September 28, 1996 December 30, 1995
ASSETS (Unaudited)
------------------- -----------------
Current assets:
Cash and cash equivalents $ 722,505 $ 92,995
Accounts receivable - net of
allowance for doubtful accounts
of $20,000 at 12/30/95 and
$50,000 at 9/28/96 1,481,814 1,179,847
Inventories 1,213,503 1,239,785
Prepaid expenses and deposits 34,617 31,585
------------------- -----------------
Total current assets 3,452,439 2,544,212
Property, plant and equipment, at cost,
less accumulated depreciation 224,739 101,375
------------------- -----------------
Total assets $ 3,677,178 $ 2,645,587
------------------- -----------------
------------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 278,803 $ 673,531
Accrued employee compensation and
benefits 293,028 191,267
Accrued warranty 75,000 75,000
Customer pre-payments 245,004 178,664
Commissions and other accrued
liabilities 97,957 129,747
------------------- -----------------
Total current liabilities 989,792 1,248,209
Shareholders' equity:
Common Stock, no par value:
7,500,000 shares authorized,
2,811,425 and 2,933,091 shares
issued and outstanding at
12/30/95 and 9/28/96, respectively 4,962,677 4,913,806
Accumulated deficit (2,275,291) (3,516,428)
------------------- -----------------
Total shareholders' equity 2,687,386 1,397,378
------------------- -----------------
$ 3,677,178 $ 2,645,587
------------------- -----------------
------------------- -----------------
See accompanying notes.
3
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HYTEK MICROSYSTEMS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
Quarters and Nine Months Ended September 28, 1996 and September 30, 1995
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- ----------------------------------
9/28/96 9/30/95 9/28/96 9/30/95
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenues $ 2,095,298 $ 1,309,447 $ 6,760,848 $ 3,530,145
Costs and expenses:
Cost of sales 1,406,819 873,581 4,591,491 2,467,580
Research and development 171,896 142,839 461,276 453,744
Selling, general and
administrative 152,935 125,552 470,474 371,682
---------------- ----------------- ---------------- ----------------
Total costs and expenses 1,731,650 1,141,972 5,523,241 3,293,006
---------------- ----------------- ---------------- ----------------
Operating income 363,648 167,475 1,237,607 237,139
Interest income 4,773 863 5,395 2,292
Interest expense - (740) (1,865) (1,665)
---------------- ----------------- ---------------- ----------------
Income before provision
for income taxes 368,421 167,598 1,241,137 237,766
Provision for income taxes - - - -
---------------- ----------------- ---------------- ----------------
Net income $ 368,421 $ 167,598 $ 1,241,137 $ 237,766
Accumulated deficit:
Beginning of period $ (2,643,711) $ (3,967,301) $ (3,516,428) $ (4,037,469)
---------------- ----------------- ---------------- ----------------
End of period $ (2,275,291) $ (3,799,703) $ (2,275,291) $ (3,799,703)
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
Net income per share $ .12 $ .06 $ .40 $ .08
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
Common and common equivalent
shares used in per share
calculations 3,088,247 3,023,692 3,081,405 2,939,597
</TABLE>
See accompanying notes.
4
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HYTEK MICROSYSTEMS, INC.
STATEMENT OF CASH FLOWS (unaudited)
Quarters and Nine Months Ended September 28, 1996 and September 30, 1995
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------------------------- --------------------------------------
September 28, 1996 September 30, 1995 September 28, 1996 September 30, 1995
------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 368,421 $ 167,598 $ 1,241,137 $ 237,766
Adjustments to reconcile net income to
cash flow provided by (used in) operations:
Depreciation and amortization 15,827 13,575 40,157 43,785
Accounts receivable (122,041) (161,740) (301,967) (280,634)
Inventories 241,408 (439,635) 26,282 (831,148)
Prepaid expenses and deposits 455 (11,986) (3,032) (12,643)
Other assets - - - 5,958
Accounts payable (328,942) 209,563 (394,728) 456,999
Accrued employee compensation and benefits 6,114 5,759 101,761 10,504
Commissions and other accrued liabilities (5,549) 9,729 (31,790) (21,353)
Customer deposits 9,286 178,664 66,340 161,754
------------------- ------------------- ------------------ -------------------
Net cash provided by (used in)
operating activities 184,979 (28,473) 744,160 (229,012)
Cash flows from investing activities:
Cash purchases of equipment (37,743) (14,583) (163,521) (52,289)
------------------- ------------------- ------------------ -------------------
Net cash (used in) investing activities (37,743) (14,583) (163,521) (52,289)
Cash flows from financing activities:
Proceeds from short-term borrowings - - 50,000 -
Repayment of short-term borrowings - - (50,000) -
Proceeds from exercise of stock options - 7,969 48,871 7,969
------------------- ------------------- ------------------ -------------------
Net cash provided by financing activities - 7,969 48,871 7,969
Net increase (decrease) in cash and cash
equivalents 147,236 (35,087) 629,510 (273,332)
Cash and cash equivalents at beginning
of period 575,269 145,310 92,995 383,555
------------------- ------------------- ------------------ -------------------
Cash and cash equivalents at end of period $ 722,505 $ 110,223 $ 722,505 $ 110,223
------------------- ------------------- ------------------ -------------------
------------------- ------------------- ------------------ -------------------
</TABLE>
See accompanying notes
5
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HYTEK MICROSYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
(Unaudited)
1. In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting of only normal recurring
adjustments) that are necessary in order to make the financial statements
contained herein not misleading. These financial statements, notes and analyses
should be read in conjunction with the financial statements for the fiscal year
ended December 30, 1995, and notes thereto, which are contained in the Company's
Annual Report on Form 10-KSB for such fiscal year. The results for the quarter
ended September 28, 1996 are not necessarily indicative of the results that may
be expected for the entire year ending December 28, 1996. The Company operates
on a 52/53 week fiscal year, which approximates the calendar year.
2. The Company leases its Carson City facility pursuant to a ten year
lease expiring in 2000. The aggregate future minimum rental commitments as of
September 28, 1996 for this lease were:
1996 $ 38,274
1997 156,918
1998 164,760
1999 172,998
2000 88,608
---------
$ 621,558
---------
3. Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market. At September 28, 1996, inventories
consisted of:
Raw Material $536,456
Work-In-Process 638,795
Finished Goods 38,252
----------
$1,213,503
----------
4. Plant and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful life of the assets, generally
three to eight years.
6
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Item 2. Management's Discussion and Analysis
or Plan of Operation
For the purposes of the following discussion, dollar amounts have
been rounded to the nearest $1,000 and all percentages have been
rounded to the nearest 1%.
This interim report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
various factors, including the factors set forth below and under "Future
Outlook" and elsewhere in this section. The Company has attempted to identify
forward-looking statements by placing an asterisk immediately following the
sentence or phrase containing the forward-looking statement(s).
RESULTS OF OPERATIONS
Net revenues for the quarter ended September 28, 1996 increased 60% from
net revenues for the quarter ended September 30, 1995. Net revenues for the
quarter ended September 28, 1996 were $2,095,000, as compared to $1,309,000 for
the quarter ended September 30, 1995. Net revenues for the nine months ended
September 28, 1996 increased 92% to $6,761,000 from net revenues for the nine
months ended September 30, 1995 of $3,530,000. A majority of this increase in
revenues for both the quarter and nine months ended September 28, 1996 is
attributable to product shipments to Chesapeake Sciences Corporation.
The Company's backlog of customer orders was $5,181,000 at September 28,
1996 as compared to $8,554,000 at September 30, 1995, and $7,912,000 at December
30, 1995. Approximately $2,400,000 of the total backlog at September 28, 1996
is currently scheduled for shipment during the fourth quarter of 1996, with the
balance scheduled to ship in 1997.* Approximately $1,440,000, or 28%, of the
total backlog relates to orders from the Company's largest customer, Chesapeake
Sciences Corporation, which accounted for approximately 53% and 68%,
respectively, of the Company's net revenues during the quarter and nine months
ended September 28, 1996. Because customers may place orders for delivery at
various times throughout the year, and due to the possibility of customer
changes in delivery schedules or cancellation of orders with little or no
penalty, the Company's backlog as of any particular
7
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date may not be indicative of actual future sales.* For example, Chesapeake
notified the Company in July, 1996 that it wanted to stretch out the delivery
schedule for products previously ordered from the Company. As a result,
approximately $500,000 of product scheduled for delivery in the third quarter
of 1996 has been rescheduled for delivery in the fourth quarter of 1996 and
the first part of 1997.
Cost of sales was $1,407,000, or 67% of net revenues, for the quarter ended
September 28, 1996, as compared to $874,000, or 67% of net revenues, for the
quarter ended September 30, 1995. Cost of sales for the nine months ended
September 28, 1996 was $4,591,000, or 68% of net revenues, as compared to
$2,468,000, or 70% of net revenues for the nine months ended September 30, 1995.
The increase in cost of sales for the quarter and nine month period on an
absolute dollar basis reflects the increased amounts of sales over the prior
year's quarter and nine month period. The decrease in cost of sales as a
percentage of net revenues for the nine month period is primarily a result of
the increase in net revenues, which spread fixed costs over a higher revenue
base.
Research and development expenses were $172,000, or 8% of net revenues, for
the quarter ended September 28, 1996, as compared to $143,000, or 11% of net
revenues, for the quarter ended September 30, 1995. Research and development
expenses for the nine months ended September 28, 1996 were $461,000, or 7% of
net revenues, as compared to $454,000, or 13% of net revenues, for the nine
months ended September 30, 1995. The increase in the dollar amount of research
and development expenses for the quarter and nine months ended September 28,
1996, as compared to the quarter and nine months ended September 30, 1995, is
primarily attributable to increased compensation costs resulting from hiring of
additional personnel required for engineering programs. The decrease in
research and development expenses as a percentage of net revenues is the result
of spreading these costs over a higher sales volume.
Selling, general and administrative expenses were $153,000, or 7% of net
revenues, for the quarter ended September 28, 1996, as compared to $126,000, or
10% of net revenues in the quarter ended September 30, 1995. Selling, general
and administrative expenses for the nine months ended September 28, 1996 were
$470,000, or 7% of net revenues, as compared to $372,000, or 11% of net
revenues, for the nine months ended September 30, 1995. The increase in the
dollar amount of selling, general and administrative expenditures for the
quarter and nine months ended September 28, 1996 is mainly attributable to
increased compensation costs resulting from changes in the mix of personnel,
increased advertising and
8
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sales promotion expenses and increased public-relations and shareholder
related expenses. The decrease in selling, general and administrative
expenses as a percentage of net revenues is the result of spreading these
costs over a higher sales volume.
The Company had an operating profit of $364,000 for the quarter ended
September 28, 1996, as compared to an operating profit of $167,000 for the
quarter ended September 30, 1995. The improvement in quarterly operating
results was primarily attributable to increased net revenues. The Company had
an operating profit of $1,238,000 for the nine months ended September 28, 1996,
as compared to an operating profit of $237,000 for the nine months ended
September 30, 1995. This change was primarily due to significantly increased
revenues and improved gross margin during the first nine months of 1996.
There was no provision for income taxes in the third quarter of 1996 as the
Company has net operating loss carryforwards for both Federal and California
income tax purposes. The net operating loss carryforwards will eliminate the
need for any significant provision for income taxes in the foreseeable future.*
The Company accounts for deferred income taxes under the method prescribed by
Financial Accounting Standards Board Statement No. 109, "Accounting for Income
Taxes".
LIQUIDITY AND CAPITAL RESOURCES
The Company had $723,000 in cash at September 28, 1996, as compared to
$93,000 at December 30, 1995. This increase of $630,000 from year end is
comprised of $744,000 provided by operating activities and $49,000 in proceeds
from the exercise of stock options, partially offset by $164,000 used for the
purchase of capital equipment . Cash generated by operating activities is
primarily attributable to net income, partially offset by increases in accounts
receivable and decreases in accounts payable.
Accounts receivable were $1,482,000 at September 28, 1996, as compared to
$1,180,000 at December 30, 1995. This increase is the result of an increase in
sales volume in the quarter ended September 28, 1996 as compared to the quarter
ended December 30, 1995.
Inventories were $1,214,000 at September 28, 1996, as compared to
$1,240,000 at December 30, 1995. Inventories have not increased from year end
in spite of higher levels of product shipments.
9
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Prepaid expenses and deposits were $35,000 at September 28, 1996 as
compared to $32,000 at December 30, 1995. This increase reflects normal ongoing
business transactions.
Accounts payable were $279,000 at September 28, 1996, as compared to
$674,000 at December 30, 1995. This decrease is primarily the result of
improved cash flow allowing more timely payments by the Company to its
suppliers.
Accrued employee compensation and benefits were $293,000 at September 28,
1996, as compared to $191,000 at December 30, 1995. This increase is partially
attributable to a slight increase in the number of employees during the year
combined with increased accruals for employee profit sharing resulting from
higher earnings.
Commissions and other accrued liabilities were $98,000 at September 28,
1996, as compared to $130,000 at December 30, 1995. This reduction is primarily
the result of a reduction in accrued liabilities due to payments made in 1996 of
certain expenses accrued in 1995.
Customer pre-payments increased to $245,000 at September 28, 1996 as
compared to $179,000 at December 30, 1995, as the Company continues to negotiate
for prepayments in situations requiring significant investment in inventories
combined with extended delivery schedules.
FUTURE OUTLOOK
Cash flow for the nine months ended September 28, 1996 has been positive
and the Company has increased its working capital during this period by
$1,167,000. This increase in working capital consists primarily of cash and
accounts receivable together with an overall reduction of current liabilities,
primarily accounts payable. The Company had no amount outstanding on its
$100,000 credit line with Sierra West Bank at September 28, 1996, and was in
compliance with all of the covenants of the loan agreement. The Company believes
that operations and its existing credit line will provide sufficient cash to
meet operating needs over the next twelve months.* However, since the Company
desires to expand its technological base and increase its offering of standard
products, investments in resources requiring new equity or debt financing may be
required.* In such case, there can be no assurance that such financing will be
available on terms acceptable to the Company or at all.
10
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While the Company's backlog of unfilled orders has decreased during the
nine months ended September 28, 1996, backlog has actually increased slightly
from the previous quarter. The Company continues to receive additional orders
from existing customers and has also added new customers during the past
quarter. Chesapeake Sciences still remains the largest single portion of the
Company's current backlog (28% as of September 28, 1996). In addition,
Chesapeake accounted for approximately 53% and 68%, respectively, of net
revenues for the quarter and nine months ended September 28, 1996. Therefore,
any further rescheduling or cancellations of orders from Chesapeake would have a
material adverse effect on the Company's future results of operations. The
Company still anticipates additional orders for the Chesapeake products and
expects that such orders will be placed during the fourth quarter of 1996.*
However, until such additional orders are shipped to Chesapeake, the risk exists
that current levels of revenue and earnings could decline in the future.*
11
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the
quarter ended September 28, 1996.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HYTEK MICROSYSTEMS, INC.
(Registrant)
Date: November 1, 1996 By: /s/ Charles S. Byrne
--------------------
Charles S. Byrne,
President, Chief
Executive Officer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
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HYTEK MICROSYSTEMS, INC.
Quarterly Report on Form 10-QSB
for the Quarter and Nine Months ended September 28, 1996
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
27.1 Financial Data Schedule.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM [IDENTIFY
SPECIFIC FINANCIAL STATEMENTS HERE] BALANCE SHEET AT 9/28/96 AND STATEMENT OF
OPERATIONS AT 9/28/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 722,505
<SECURITIES> 0
<RECEIVABLES> 1,531,814
<ALLOWANCES> 50,000
<INVENTORY> 1,213,503
<CURRENT-ASSETS> 3,452,439
<PP&E> 2,717,251
<DEPRECIATION> 2,492,512
<TOTAL-ASSETS> 3,677,178
<CURRENT-LIABILITIES> 989,792
<BONDS> 0
0
0
<COMMON> 2,687,386<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,677,178
<SALES> 6,755,120
<TOTAL-REVENUES> 6,760,848
<CGS> 4,591,491
<TOTAL-COSTS> 5,523,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,865
<INCOME-PRETAX> 1,241,137
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,241,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,241,137
<EPS-PRIMARY> 0.423
<EPS-DILUTED> 0.402
<FN>
<F1> Tag 21 Common Stock as reported above is net of $2,275,291 Accumulated
Deficit
</FN>
</TABLE>
