<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-KSB
(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 DECEMBER 30, 1995, or
[ ] 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 0-11880
HYTEK MICROSYSTEMS, INC.
(Name of small business issuer 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) (Zip Code)
Issuer's telephone number, including area code: (702) 883-0820
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
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 in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in 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 of the Issuer for the most recent fiscal year ended December 30, 1995
were: $5,409,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant (based on the average of the bid and asked prices reported on the
Over the Counter bulletin board of the National Association of Securities
Dealers, Inc.) on March 15, 1996 was approximately $4,422,884. 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.
As of March 18, 1996, the issuer had outstanding 2,868,091 shares of Common
Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 17, 1996 (the "Proxy Statement") are incorporated
by reference into Part III of this Annual Report on Form 10-KSB.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Hytek Microsystems, Inc. ("Hytek" or the "Company") designs,
manufactures, markets and sells custom and standard hybrid microcircuits.
These microcircuits utilize thick film technology and consist of conductive
and non-conductive inks that are bonded onto a substrate and interconnected
with various subminiature electronic components to form a hybrid
microcircuit. In addition to custom thick film hybrid microcircuits, the
Company also manufactures delay lines, thermo-electric cooler controllers and
laser diode driver standard products.
Net revenues in 1995 increased 30% from 1994 levels. The Company had a net
profit of $521,000 in 1995 as compared to a net profit of $2,000 during 1994.
During 1995, the Company had negative cash flow but experienced an overall
net increase in total assets and working capital position from the 1994
year-end. See "Management's Discussion and Analysis or Plan of Operation" in
Part II, Item 6 hereof.
Hytek was incorporated as a California corporation on January 4, 1974.
Unless the context otherwise requires, the terms "Hytek" and the "Company"
refer to Hytek Microsystems, Inc. See Note 1 of Notes to Financial
Statements.
This Annual Report on Form 10-KSB contains 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 the
risk factors set forth below and elsewhere in this Report. See "Management's
Discussion and Analysis or Plan of Operation--Factors Affecting Future
Results." 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).
PRODUCTS AND MARKETS
Products manufactured by the Company are sold primarily to original
equipment manufacturers (OEMs) serving the military, computing,
telecommunications, medical and industrial electronic systems, and automatic
test equipment markets. Approximately 88% of the Company's net revenues in
1995 were derived from products designed and manufactured to meet a
particular customer's specifications. The remaining 12% of net revenues in
1995 were accounted for by standard products designed by the Company's
engineering staff.
During 1995, approximately 70% of the Company's revenues were derived
from commercial and industrial private sector programs. This is a
significant change from the prior year when over 80% of revenues were derived
from government-related programs. Reductions in defense spending by the U.S.
Government has reduced the number of opportunities in the military and
government market and created heavy competition for the remaining business.
From 1987, when the Company was certified under MIL-Standard-1772,
through 1994, sales of military and government products have increased. 1995
has been the first year that the Company has experienced a decline in the
sale of military and government products. The Company has actively pursued
growth in the military market since 1987 and continued to do so during 1995.
Offshore producers with significantly lower costs have in the past been
precluded from participating in many U.S. military applications; however, it
is not certain that this preclusion will remain in effect in the future.
Military products are subject to much more stringent criteria than the
commercial product manufacturing and have in the past commanded significantly
higher prices. The Company intends to continue its efforts to remain
competitive in the military market. *
2
<PAGE>
Projections for overall future defense spending by the U.S. Government
are uncertain at this time. However, it is anticipated that the electronics
content of future defense spending will remain somewhat stable. * Recent
changes in federal procurement practices, such as Commercial Off The Shelf
(COTS) purchasing, may further increase the competition in the military and
government market. * While the Company believes that the outlook for
increased military business is uncertain, we intend to continue active
participation in the military market while simultaneously attempting to
develop additional custom and standard products for commercial markets. *
The development of new standard commercial products may help to offset the
potential negative effects of additional reductions in the military
electronics market that could be forthcoming in future years. * However,
there can be no assurance that new standard commercial products being
developed or to be developed by the Company will achieve market acceptance in
the commercial arena.
The commercial custom hybrid market has historically been an extremely
competitive, low margin arena. In many commercial applications, U.S.
manufacturers are competing against offshore producers that have
significantly lower costs. However, there are certain segments of this
market that require high reliability custom hybrid products. Such high
reliability products command higher prices and margins. It is in this
segment of the commercial market where the Company has been successful during
1995.
Historically, a substantial majority of the Company's revenues have been
derived from custom products that are manufactured to a customer's
specifications for a unique application. While the Company still derives a
large majority of its revenues from custom products, it has placed an
increased emphasis on the development of additional standard products.
Custom products require significant engineering and development resources to
bring each new hybrid into production. These products generally have a
shorter life cycle than standard products and fit only a single
customer-specific application. Although standard products may also require
significant one-time development effort, they usually have a much longer life
cycle and are designed for use in multiple applications by more than one
customer.
In February 1993, the Company announced a new standard commercial
product, the Thermo-Electric Cooler Controller (TECC), which has applications
in fiber optic communications and various "detector" product markets. During
1994, additional TECC devices were designed and introduced. These products
have received favorable response from the marketplace and have been shipped
to a wide variety of customers. Further, during 1995, the Company introduced
its High Speed Laser Diode Driver (HSLDD). The Company expects the market
for these products to grow as new communications technologies develop, and as
a result of recent federal de-regulation in the telecommunications industry.
* Hytek expects to continue its research and development and sales promotion
efforts in this area. *
HYBRID CIRCUIT TECHNOLOGY
Complex electrical circuits require the integration, in a single
package, of various resistors, transistors and other components. The
principal packaging technologies used in producing electrical circuits
include printed circuit boards, integrated circuits, thick film hybrid
circuits and thin film hybrid circuits. These technologies are not
interchangeable in all applications, and the extent to which they are
interchangeable depends on such requirements as size, performance,
reliability and cost.
3
<PAGE>
Thick film hybrid circuit technology is a subminiature electronic packaging
method. The term "thick film network" describes a method for screen printing
conductors, resistors and capacitors onto a ceramic substrate. This thick
film network becomes a hybrid circuit when components such as integrated
circuits, semiconductors, capacitors and inductors are added to the network
in order to form a functioning electrical circuit.
Theoretically, hybrid circuit packaging techniques can be employed in
virtually any electronic application, but they have various advantages and
disadvantages in any given application as compared with alternative
techniques. In general, the alternative techniques are printed circuit
designs, integrated circuits and thin film hybrid technology.
In those applications in which either hybrid circuits or printed circuit
boards can be used, hybrid circuits often offer the advantages of size
reduction, increased performance, reduced cost and proprietorship.
Hybrid circuit packaging techniques are generally chosen over integrated
circuit designs if the circuits are difficult to integrate, or if the higher
cost of an integrated circuit is not warranted. For example, circuit
applications requiring inductors, large capacitors or devices from several
semiconductor technologies cannot currently be integrated into a silicon
chip. However, as integrated circuit technology advances rapidly, currently
there are fewer such cases and the advantages of hybrid technology have been
eroding away. Despite this erosion, not all applications are adaptable to
integrated circuit technology; therefore; hybrid technology remains as a
stable alternative for certain applications.
While thin film hybrid technology allows for greater size reductions and
more compact circuits than does thick film hybrid technology, it is a more
expensive process and requires a much larger initial investment in process
equipment. As a result of these cost differences, the Company believes that
there will continue to be a significant market for hybrid circuits produced
with thick film technology.
All of the microcircuits currently produced by Hytek are manufactured
using thick film hybrid circuit packaging techniques, including thick film
screen print, firing and laser trimming, chip and wire assembly, and
automatic testing. The Company may, however, seek to develop additional
process technologies in the future that could enable the Company to offer
more sophisticated circuits than those currently provided by Hytek. *
PRODUCT APPLICATIONS
Custom products accounted for approximately 88% of the Company's sales
in 1995. These products serve a variety of applications in the oil
exploration, military, computing, telecommunications, and industrial markets.
In the production of custom products, the Company generally accepts full
responsibility for product design, having received blueprints and/or input
and output specifications from the potential customer. In most cases,
prototypes are developed and delivered to the customer, and are evaluated by
the customer, before a firm order for production quantities is placed. In
the case of a new custom product, a typical production cycle time from
initial customer contact to shipment of the product in commercial quantities
would be 20 to 30 weeks. The Company places a strong emphasis on developing
a working relationship between its own engineering staff and the engineering
staff of a potential customer during the product development phase.
Standard products accounted for approximately 12% of the Company's sales
in 1995. These products consist of delay lines, thermo-electric cooler
controllers and laser diode driver products produced for applications in the
military, computing, industrial electronic systems, telecommunications, and
automatic test equipment markets.
4
<PAGE>
Within the primary markets served by the Company' s customers, the
following are some applications in which the Company's custom and standard
products are currently being used:
OIL EXPLORATION -- geophysical measurement equipment.
MILITARY -- communications, guidance systems, delay lines, fuses, and
avionics.
COMPUTING -- delay lines, VLSI thick film packages, gate arrays, disk
drive controllers, dynamic memory and networking circuits for data
processing.
TELECOMMUNICATIONS -- video systems, fiber optical data transmission
networks, solid state relays, subscriber line interface circuits,
paging systems and custom logic arrays.
INDUSTRIAL ELECTRONIC SYSTEMS -- measurement and diagnostics on
rotating machinery.
AUTOMATIC TEST EQUIPMENT -- Integrated circuit test systems.
MARKETING
The Company markets its products in the United States through its own
sales staff and through independent sales representatives. At December 30,
1995, the Company's direct sales staff consisted of three employees operating
from the Company's principal office in Carson City. In addition, at such
date the Company had three independent sales representatives located
throughout the United States and one independent representative located in
Israel.
In addition to this marketing organization, the Company uses its
technical engineering staff to assist in its marketing effort. In this
marketing effort, the Company first seeks to identify product types with
component functions that can be well served utilizing hybrid circuit
packaging. The Company then identifies and contacts the manufacturers or
proposed manufacturers of the particular product types. The initial contact
is usually made by a sales representative for the geographic area. If the
proposed sale involves a custom product, the Company's in-house design and
engineering staff support the sales effort. In addition, at the present
time, senior members of management of the Company are directly involved in
the marketing and sales activities of the Company.
The Company has identified certain existing customers who it feels offer
greater potential for increased levels of future business. The Company
strives to maintain a higher level of contact and customer support for these
"key accounts".
The Company's Carson City, Nevada facility is MIL-Standard-1772
certified and qualified. This certification is a prerequisite to participate
in certain military contracts, and is subject to periodic audits by the U.S.
government. Loss of the MIL-Standard-1772 certification would have a material
adverse impact on the Company's business prospects and financial condition.
CUSTOMERS
During 1995, the Company's five largest customers accounted for 81% of
the Company's net revenues. Those customers were Chesapeake Sciences
Corporation (62%), TRW, Inc. (7%), Lockheed-Martin Corporation (6%), Texas
Instruments, Inc. (3%) and Litton Applied Technology, Inc. (3%). The Company
anticipates a continuing business relationship with all of these customers in
the future. * A large portion (72%) of the Company's backlog of orders for
1996 is attributable to Chesapeake Sciences Corporation. Any lengthy
disruption in the supply of materials for the Chesapeake Sciences program
would have a significant negative effect on
5
<PAGE>
revenues and earnings during that quarterly period. Any delay in scheduled
shipments to, or cancellation of orders by Chesapeake, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
MANUFACTURING
Each hybrid product produced by the Company passes through a number of
complex processes, each of which requires a high degree of skill and precision.
The hybrid manufacturing process begins with a blueprint, which, in the
case of a custom product, is produced by, or with the assistance of, the
customer. This blueprint is the basis for an engineering print that the
Company produces, which in turn serves to provide a set of artwork for each
product. The artwork consists of up to 20 photographic negatives, one for
each layer of imprint on the substrate described below. The artwork is then
photographically reduced and used to generate stainless steel screens, which
are used in the printing process.
The screens are used to print on substrates, which are generally
miniature ceramic wafers. Metallic conductive and nonconductive inks (thick
films) are printed on the substrates. Those films, when fired, will conduct
and resist the flow of electric current. The drying or firing process is
achieved using temperature-controlled furnaces, typically operating in the
range of 525DEG. Celsius to 935DEG. Celsius. Each printing must be fired
before the next one is started.
After printing, resistance values are adjusted by high precision laser
trimming. Laser cuts are made in the resistive films to alter the resistance
value, using computer-controlled laser equipment. During the trimming
process, the electrical characteristics are simultaneously retested against
specification before the substrate is passed to assembly.
In assembly, which is primarily a manual process, other electronic
components, such as integrated circuits, semiconductors, capacitors and
inductors, are added to the thick film substrate, thus resulting in a hybrid
circuit. Positioning is critical, and the work is primarily done under
microscopes. Wire bonding, using miniaturized wire, is also done under
microscopes. Wire bonding provides the electrical connection from the
attached components to the printed substrate. The hybrid circuit is then
packaged and hermetically sealed in metal, ceramic or plastic.
Much of the Company's test equipment is automated and computer
controlled, each unit being subjected to tests at various points in the
production process as well as to a final test by the quality assurance staff.
Product yield is dependent on environmental control as well as stringent
process and production control.
The primary materials from which the Company manufactures its hybrid
products are resistive materials (wire, alloys and inks), ceramic bases and
electronic components (primarily integrated circuits, capacitors and
inductors). The raw materials and components that Hytek purchases are
generally available from several sources. Some of the Company's major
suppliers include Aegis, Inc., Circuit Functions, Inc., E. I. DuPont,
Electro Science Laboratories, Semi-Films Inc., Harris Semiconductor, Inc. and
Micross Components, Inc.. Although the Company has at times experienced long
lead times with respect to deliveries from its vendors, the Company believes
that adequate alternative sources of supply are currently available for a
majority of the Company's materials requirements. The Company currently has
one "sole source" component utilized on its largest customer program
(Chesapeake Sciences). Any significant delay in shipments from, or
disruption of manufacturing capability by, this sole source supplier would
create a material adverse impact on the Company's revenues and results of
operations.
6
<PAGE>
Government regulations impose various environmental controls on the
chemicals used in electronics manufacturing. The Company employs various
safeguards to avoid the discharge of harmful materials into the environment
and believes that its activities conform to present state and federal
environmental regulations. However, there can be no assurance that the
Company will not in the future be exposed to increased costs relating to
required clean-up or compliance with ever-tightening regulations. * The
Company complies with new federal labeling regulations, which took effect in
May 1993, regarding the use of Ozone Depleting Chemicals (ODCs) as set forth
in the Clean Air Act of 1990. The new labeling requirements have had only a
minor cost impact on operations. At the present time, the Company is not
aware of any other proposed or pending government regulation that would have
a material impact on the operations or financial condition of the Company. *
RESEARCH AND DEVELOPMENT
During 1995, the Company completed the development of its High Speed
Laser Diode Driver (model HY-6110). The device was released to production
and introduced to the marketplace in the spring of 1995. Although sales of
this product were minimal during 1995, certain customers have ordered custom
configurations and "system integrations" of the product. The Company
believes this product has growth potential and that future revenue will
increase as the product is supported by larger amounts of advertising and
promotion. *
Further, during 1995, the Company began development efforts on a hybrid
D/C-to-D/C converter product. This is a joint development effort with a
nationally recognized manufacturer of converter and power supply products.
The initial product from this joint development effort will be targeted at
the military market. The initial circuit design for this product has been
completed. The Company expects to being prototype development in April 1996.
*
During 1995 and 1994, the Company spent $592,000 and $647,000,
respectively, on research and development efforts. The decrease in
expenditure in 1995 is primarily the result of changes in the mix of
personnel devoted to development efforts. All expenditures are expensed as
incurred.
COMPETITION
Because of the variety of applications in the markets it serves, and a
smaller military market, the Company faces significant competition from a
variety of sources. Most of the Company's competitors have substantially
greater financial, marketing, manufacturing, engineering and management
resources than the Company. However, the Company believes that its smaller
size, in some instances, provides for greater flexibility in meeting customer
requirements, and is not necessarily detrimental to the Company's competitive
position.
The Company believes that the hybrid circuit industry includes large
OEMs, such as IBM, TRW, Inc. and Western Electric, that manufacture
exclusively for their own use (so called "captive" manufacturers), and other
OEMs, such as Teledyne Industries, Inc. and Hughes Aircraft Co., that
manufacture for both their own use and for sale to others. Some of these
large "captive" and OEM hybrid manufacturers have curtailed or reduced their
internal hybrid operations and begun to procure their hybrid requirements
from outside sources. This has led to increased opportunities for the
entire hybrid circuit industry.
In addition, there exists a large number of independent hybrid circuit
manufacturers, such as the Company, that manufacture exclusively for sale to
others. Further, over 30 of the known independent manufacturers are
certified to MIL-Standard-1772, as is the Company. The Company's current
share of the overall hybrid circuit market is small.
7
<PAGE>
In those applications where hybrid circuits and integrated circuits are
interchangeable, hybrid circuit manufacturers often compete with major
integrated circuit manufacturers.
The primary factors of competition in the markets served by the Company
are product reliability, timely delivery, price, performance and stability of
the manufacturer. The Company believes that it generally competes favorably
with respect to all of these factors; however, stability, has been a concern
to certain of the Company's customers during past years. The improvement in
revenues and earnings for the past two years should help to strengthen the
stability factor. *
TRADEMARKS, PATENTS AND LICENSES
The Company, at this time, has no registered trademarks or patents on
its current products. However, on March 7, 1995, the Company filed an
application for a patent on the circuitry developed for its High Speed Laser
Diode Driver. In September 1995, the Company was notified by the U. S.
Department of Commerce Patent Office that all claims made in the application
regarding this device had been allowed. The Company is proceeding with the
patent registration process. As other new products are developed, the Company
will pursue trademarks or patents as appropriate. The Company has no
licenses material to the conduct of its business.
EMPLOYEES
As of December 30, 1995, the Company employed a total of 63 full-time
employees, of whom 48 were in manufacturing, three were in marketing and
sales, ten were in research and development and two were in administration.
The Company's success depends in part on its ability to attract and retain
skilled personnel, for whom there is strong demand. None of the Company's
employees are covered under a collective bargaining agreement, and the
Company has not experienced any labor strike or related work stoppage.
GOVERNMENT CONTRACTS
During 1995, the Company derived approximately 30% of its total revenues
from government contracts and subcontracts. Such contracts and subcontracts
generally contain provisions allowing termination for the convenience of the
government. In the event of such termination, the Company would generally be
entitled to receive a termination settlement consisting of (i) the contract
price for completed items accepted by the government or prime contractor and
(ii) the Company's costs incurred in the performance of work terminated prior
to completion, together with a reasonable profit on such work. During 1995,
the Company experienced no such termination for government convenience.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently leases a total of approximately 23,800 square feet
of manufacturing, engineering and support facilities in a single building in
Carson City, Nevada. The current lease term runs through June 2000. The
facility is currently operating at approximately 35% to 40% of capacity. The
Company believes that this facility has sufficient additional manufacturing
capacity to significantly increase production levels with only minor
increases in manufacturing overhead costs. *
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the fiscal year ended December 30, 1995.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the executive officer of the Company who is not
also a director of the Company is set forth below:
Jon B. Presnell, age 45, was promoted to the position of Vice-President
and General Manager of Custom Products for the Company in October 1993. Mr.
Presnell has been an employee of the Company since 1980, and served as
General Manager of the Carson City facility from May 1987 through December
1988. From January 1989 until October 1993, Mr. Presnell served as Director
of Sales and Marketing of the Company. Prior to joining Hytek, Mr. Presnell
was employed as an Electrical Engineer for Texas Instruments, Inc.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference to the table on page F-2 of this Form 10-KSB
entitled "Selected Quarterly Financial Data (unaudited)" and the text
following such table.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
For purposes of this discussion, all dollar amounts have been rounded
to the nearest $1,000 and all percentages have been rounded to the nearest 1%.
This Annual Report on Form 10-KSB 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 the risk factors set forth below and elsewhere in this Report. See
"Management's Discussion and Analysis or Plan of Operation--Factors Affecting
Future Results." 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).
9
<PAGE>
Results of Operations
Net revenues in 1995 were $5,409,000, a 30% increase from 1994 net
revenues of $4,162,000. The increase in net revenues is attributable to the
large, high-volume shipments to Chesapeake Sciences Corporation
("Chesapeake") during 1995. Sales to Chesapeake represented 62% of the
Company's net revenues in 1995.
During 1995, approximately 70% of the Company's net revenues were
derived from sales of products for commercial and industrial uses and 30%
were derived from sales for military or government applications.
Cost of sales increased to $3,784,000, or 70% of net revenues in 1995,
as compared to $3,045,000, or 73% of net revenues in 1994. The increase in
dollar amount is the result of the higher volume of products shipped in 1995.
The decrease in cost of sales as a percentage of net revenues is primarily
the result of spreading fixed costs over a larger revenue base, partially
offset by an increase in the cost of direct materials to 35% of net revenues
in 1995 as compared to 34% of net revenues in 1994.
Research and development expenses were $592,000 in 1995, or 11% of net
revenues, as compared to $647,000, or 16% of net revenues, in 1994. The
decrease in these expenses in 1995 is the result of changes in the mix of
employee resources devoted to development projects. The Company intends to
continue its investment in the development of new standard products in the
future, as resources permit, in an effort to reduce its current dependency on
custom products.* The Company believes that standard products may ultimately
provide a more stable revenue stream over their life cycle and will utilize
fewer engineering resources, after initial development, than will custom
products.*
Selling, general and administrative expenses were $513,000, or 9% of net
revenues, in 1995, as compared to $469,000, or 11% of net revenues, in 1994.
This increase in dollar amount is attributable to increased compensation
costs resulting from additional employees, together with increases in legal
expenses, bad debt reserves and shareholder-related expenses, partially
offset by reductions in sales commission expense. Revenues generated from
Chesapeake are not subject to sales commission expense. The decrease in
selling, general and administrative expense as a percentage of net revenues
results from spreading these expenses over a higher revenue base.
The Company's operating income was $520,000 for 1995, as compared to
virtually break-even in 1994. This change from the prior year is the
combined result of factors discussed above.
Interest income was $3,000 for 1995, as compared to $2,000 in 1994,
reflecting higher average balances in the Company's money market account
during portions of 1995. The Company had interest expense of $2,000 in 1995
as compared to no interest expense in 1994. The interest expense incurred in
1995 resulted from a short-term capital lease on equipment.
The Company has no liability for income taxes for 1995 as a result of
utilizing net operating loss carry-forwards from prior years.
The Company accounts for deferred income taxes under the method
prescribed by Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". Under this statement, deferred tax
liabilities and assets are determined based on differences between financial
reporting and tax bases of assets and liabilities.
10
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
There are several factors that could significantly affect the future
results of operations of the Company.
Currently, the Company is very dependent on a single large customer,
Chesapeake. Chesapeake accounts for $5,733,000, or 72%, of the 1995 ending
backlog. The loss of business from Chesapeake, cancellation of orders by By
Chesapeake or rescheduling of delivery dates to Chesapeake would have a
material adverse effect on the Companys business. A disruption in
Chesapeake's operations, or their loss of financial stability, would have a
major adverse impact on the Company's future operations. Further, the
products for Chesapeake are ultimately utilized in undersea geophysical oil
exploration. Consequently, any major changes, either positive or negative,
in the nature of the world-wide oil market, or significant changes in the
demand for oil, could have a major impact on the Company's future business
with Chesapeake Sciences.
During 1995, the Company realized 30% of its net revenues from
government or military funded sources. A significant portion of this
business is dependent on the Company maintaining its MIL-STD-1772
certification and qualification. While the Company fully expects to maintain
this certification and qualification (*), the loss of same would have a
material adverse impact on the Company's ability to capture this type of
business. In addition, the potential for additional decreases in defense
spending exists and could adversely affect future operations.
The Company is currently very dependent on the custom product market for
a majority of its revenue. This market is generally more volatile than the
standard product market. Further, the custom product market is considerably
more competitive than the market for the Company's standard products. The
Company must maintain a cost-effective structure and operation to remain
competitive in the custom product market.
The Company is dependent on certain key suppliers of raw materials and
for one high volume component, deals with a sole source supplier. Any major
disruption in production capability by these suppliers would have an adverse
impact on the Company's future operations.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, total assets increased by $1,189,000 and the net effect of
changes in current assets and current liabilities resulted in a net working
capital increase of $523,000.
The Company had $93,000 in cash and cash equivalents at December 30,
1995, as compared to $384,000 at the 1994 fiscal year end. This decrease is
primarily the result of increased levels of accounts receivable and
inventories associated with the Chesapeake Sciences program.
Accounts receivable were $1,180,000 at December 30, 1995, as compared to
$465,000 at the 1994 fiscal year end. The increase is attributable to the
overall growth in sales during 1995 combined with a high level of sales
during December 1995. At December 30, 1995, accounts in excess of 60 days
were less than 1% of total receivables as compared to 2% of total receivables
at the 1994 fiscal year end.
Inventories increased to $1,240,000 at December 30, 1995 as compared to
$502,000 at the 1994 fiscal year end. Inventories expanded significantly
during 1995 as the result of significantly higher levels of production for
the Chesapeake Sciences program and customer initiated schedule changes on
another large program resulting in "stockpiling" of material for that program.
11
<PAGE>
Property, plant and equipment, net of accumulated depreciation,
increased by $31,000 during 1995 as the result of additions to machinery and
equipment during the year of $67,000 offset by fiscal 1995 depreciation of
$36,000.
Accounts payable were $674,000 at December 30, 1995 as compared to
$286,000 at 1994 fiscal year end. This increase is attributable to increased
raw material purchases required to support higher levels of production.
Accrued employee compensation and benefits increased by $82,000 from
fiscal year end 1994 to fiscal year end 1995. This increase is attributable
to an increase in the number of employees during 1995 and the initiation, by
the Company's Board of Directors, during 1995, of an employee profit sharing
plan. At December 30, 1995, $75,000 had been accrued for the employee profit
sharing plan.
Accrued warranty reserve was constant at $75,000 at both December 30,
1995 and December 31, 1994.
Customer prepayments were $179,000 at December 30, 1995 as compared to
$17,000 at December 31, 1994. This increase is the result of payment
received from a major customer who initiated delays in their delivery
schedule and asked that the Company "stockpile" materials for future delivery.
Commissions and other accrued liabilities were $130,000 at December 30,
1995 as compared to $121,000 at December 31, 1994. This increase is
attributable to normal ongoing accruals, partially offset by reductions in
accrued sales commissions.
There are no income taxes payable at December 30, 1995 as the Company
utilized a portion of its net operating loss carryforward to offset the
income taxes computed on 1995 earnings. The Company has remaining net
operating loss carryforwards for Federal income tax purposes at December 30,
1995 of approximately $5.8 million. These carryforwards will expire between
2004 and 2008.
At December 30, 1995, the Company had no long-term debt outstanding.
However, as of December 11, 1995, the Company has established a line of
credit for $100,000 with Sierra Bank of Nevada. This line of credit is for a
term of one year and bears interest at the prime rate plus 2.5%. At
December 30, 1995, the Company was in compliance with all of the covenants of
the loan agreement. This line of credit is collateralized with the Company's
accounts receivable and inventories. Management believes that ongoing
operations during 1996 will provide sufficient cash to meet operating needs
without additional financing activity. * However, should the Company need
to pursue additional debt or equity financing in the future, there is no
certainty that such financing could be obtained or that the terms on which it
might be obtained would be favorable.
FUTURE OUTLOOK
The Company's backlog of unfilled customer orders has increased
significantly. Backlog at December 30, 1995 was $7,912,000 as compared to
$2,816,000 at December 31, 1994. This increase in backlog is primarily due to
the large orders received from Chesapeake Sciences during 1995.
Based on current backlog, the Company currently anticipates that
revenues for the ensuing fiscal year will exceed those for fiscal 1995. *
However, there can be no assurance that existing orders will not be cancelled.
12
<PAGE>
In addition, because customers may place orders for delivery at various
times throughout the year, and because of the possibility of customer changes
in delivery schedules or cancellation of orders, the Company's backlog as of
any particular date may not be a reliable indicator of actual future sales.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company (including the notes thereto) at
December 30, 1995 and December 31, 1994 and for the years then ended, and the
report of independent auditors thereon, are included herein on pages F- 3
through F-16 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information regarding directors of the Company is to be set forth under
the heading titled "Election of Directors - Nominees for Director" in the
Company's Proxy Statement and is hereby incorporated herein by reference.
Information regarding the executive officer of the Company who is not
also a director of the Company is included in Part I of this Form 10-KSB
under the heading "Executive Officers of the Company" and is hereby
incorporated herein by reference.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is to be set forth under the heading titled "Election of
Directors - Compliance with Section 16(a) of the Exchange Act" in the
Company's Proxy Statement and is hereby incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information regarding the Company's remuneration of its executive
officers and directors is to be set forth under the heading "Election of
Directors-Executive Compensation", "Election of Directors-Directors'
Compensation" and "Election of Directors--Directors' Option Plan" in the
Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding the security ownership of certain beneficial
owners and management is to be set forth under the heading "Election of
Directors - Security Ownership" in the Company's Proxy Statement, which
information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
13
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The exhibit index at page X-1, which follows the signature
pages, is hereby incorporated by reference into this Item 13 (a).
(b) REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the
fourth quarter of the Company's fiscal year ended December
30, 1995.
<PAGE>
HYTEK MICROSYSTEMS, INC.
INDEX TO SELECTED QUARTERLY FINANCIAL DATA AND FINANCIAL STATEMENTS
REFERENCE PAGE
IN FORM 10-KSB
--------------
Selected Quarterly Financial Data (unaudited) . . . . . . . . F-2
Balance Sheet, December 30, 1995
and December 31, 1994 . . . . . . . . . . . . . . . F-3
Statement of Operations for the Years Ended
December 30, 1995 and December 31, 1994 . . . . . . . . F-4
Statement of Changes in Shareholders' Equity
for the Years Ended December 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . F-5
Statement of Cash Flows for the Years Ended
December 30, 1995 and December 31, 1994 . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . F-7
Report of Independent Auditors . . . . . . . . . . . . . F-15
Consent of Independent Auditors . . . . . . . . . . . . . F-16
F-1
<PAGE>
HYTEK MICROSYSTEMS, INC.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1994
------------------------------------- -----------------------------------------
Dec. 30 Sept. 30 Jul. 1 Apr. 1 Dec. 31 Oct. 1 Jul. 2 Apr. 2
-------- --------- ------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 1,880 $ 1,309 $ 1,380 $ 840 $ 1,083 $ 956 $ 1,006 $ 1,117
Gross profit $ 562 $ 436 $ 455 $ 172 $ 279 $ 186 $ 296 $ 356
Net income (loss) $ 284 $ 167 $ 176 $ (106) $ (12) $ (72) $ 34 $ 52
Net income (loss) per share $ 0.09 $ 0.06 $ 0.06 $ (0.04) $ 0.00 $ (0.03) $ 0.01 $ 0.02
Market price range
per share High $ 3.25 $ 3.13 $ 0.69 $ 0.19 $ 0.19 $ 0.25 $ 0.31 $ 0.31
Low $ 1.50 $ 0.38 $ 0.06 $ 0.06 $ 0.06 $ 0.09 $ 0.13 $ 0.25
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Since January 1992, the Company's Common Stock has been traded in the
over-the-counter market but has not been quoted on the National Association
of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System. Since
March 26, 1992, Hytek's Common Stock has been quoted on the OTC Bulletin
Board. The range of prices reported above indicates the high and low bid
quotations as provided by the National Quotation Bureau, Inc. Such
quotations reflect inter-dealer prices, without retail markups, mark-downs or
commissions and may not represent actual transactions.
As of March 18, 1996, there were approximately 244 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Commom Stock and has no
intentions of paying cash dividends in the foreseeable future.
Per the terms of its loan agreement with Sierra Bank of Nevada, the Company
is prohibited from paying cash dividends at this time.
F-2
<PAGE>
HYTEK MICROSYSTEMS, INC.
BALANCE SHEET
December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
ASSETS 12/30/95 12/31/94
---------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 92,995 $ 383,555
Accounts receivable - net of allowance for doubtful
accounts of $20,000 in 1995 and $6,741 in 1994 1,179,847 465,279
Inventories 1,239,785 501,840
Prepaid expenses and deposits 31,585 30,198
---------------- ----------------
Total current assets 2,544,212 1,380,872
Property, plant and equipment, at cost
less accumulated depreciation 101,375 70,230
Other assets 0 5,958
---------------- ----------------
$ 2,645,587 $ 1,457,060
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilites:
Accounts payable $ 673,531 $ 285,857
Accrued employee compensation and benefits 191,267 109,074
Accrued warranty 75,000 75,000
Customer pre-payments 178,664 16,919
Commissions and other accrued liabilities 129,747 121,404
---------------- ----------------
Total current liabilities 1,248,209 608,254
Commitments - -
Shareholders' equity:
Common stock, no par value; authorized - 7,500,000
shares; issued and outstanding - 2,811,425 in 1995
and 2,751,425 in 1994 4,913,806 4,886,275
Accumulated deficit (3,516,428) (4,037,469)
---------------- ----------------
Total shareholders' equity 1,397,378 848,806
---------------- ----------------
$ 2,645,587 $ 1,457,060
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
Net revenues $ 5,409,072 $ 4,161,588
Costs and expenses:
Cost of sales 3,783,726 3,044,741
Research and development 592,395 647,433
Selling, general and
administrative 513,258 469,257
--------------- ---------------
Total costs and expenses 4,889,379 4,161,431
--------------- ---------------
Operating income 519,693 157
Interest income 3,198 1,809
Interest expense 1,850 -
--------------- ---------------
Income before provision
for income taxes 521,041 1,966
Provision for income taxes - -
--------------- ---------------
Net income $ 521,041 $ 1,966
--------------- ---------------
--------------- ---------------
Net income per common
and dilutive common
equivalent share $ .18 $ .00
--------------- ---------------
--------------- ---------------
Common and common equivalent
shares used in per share
calculations 2,910,503 2,751,425
</TABLE>
See accompanying notes.
F-4
<PAGE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
Common Stock
----------------------------- Total
(Accumulated Shareholders'
Shares Amount Deficit) Equity
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Balances, January 1, 1994 2,751,425 $ 4,886,275 $ (4,039,435) $ 846,840
Net income 1,966 1,966
----------- ------------ ------------ ------------
Balances, December 31, 1994 2,751,425 4,886,275 (4,037,469) 848,806
Common Stock issued upon exercise
of stock oiptions 60,000 27,531 - 27,531
Net income - - 521,041 521,041
----------- ------------ ------------ ------------
Balances, December 30, 1995 2,811,425 $ 4,913,806 $ (3,516,428) $ 1,397,378
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income: $ 521,041 $ 1,966
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 36,063 66,803
Other assets 5,958 11,712
Accounts receivable, net (714,568) (26,124)
Inventories (737,945) 318,665
Prepaid expenses and other current assets (1,387) 16,979
Accounts payable 387,674 (131,339)
Accrued employee compensation and benefits 82,193 (18,774)
Accrued liabilities and customer prepayments 170,088 (58,800)
------------- ----------
Total adjustments (771,924) 179,122
------------- ----------
Net cash provided by (used in) operating activities (250,883) 181,088
Cash flows from investing activities:
Cash purchases of equipment (67,208) (12,925)
------------- ----------
Net cash used in investing activities (67,208) (12,925)
Cash flows from financing activities:
Proceeds from exercise of stock options 27,531 -
------------- ----------
Net cash provided by financing activities 27,531 -
------------- ----------
Net increase (decrease) in cash and cash equivalents (290,560) 168,163
Cash and cash equivalents at beginning of period 383,555 215,392
------------- ----------
Cash and cash equivalents at end of period $ 92,995 $ 383,555
------------- ----------
------------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements
Years ended December 30, 1995 and December 31, 1994
1.ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The principal business of Hytek Microsystems, Inc. (the "Company") is the
engineering, manufacturing and sale of hybrid microcircuits. Products
manufactured by the Company are sold primarily to original equipment
manufacturers (OEMs) serving the computer, telecommunications, military,
medical, industrial electronic system and automatic test equipment markets. The
Company markets through its own sales staff and through independent sales
representatives.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's management
to make estimates and assumptions that affect the amounts reported therein.
Actual results could vary from such estimates. In addition, certain
reclassifications have been made to prior years' financial statements to conform
with the 1995 presentation. The Company uses a 52/53 week fiscal year ending on
the last Saturday in December. The years ended December 30, 1995, and December
31, 1994 were 52 week years.
CONCENTRATION OF RISK
The Company performs ongoing credit evaluations of its customers' financial
condition, and generally requires no collateral from its customers. Non-
performance by these parties would result in losses up to the recorded amount of
the related receivables. Management does not anticipate significant non-
performance, and believes the Company has adequately provided for uncollectible
receivables in the Company's allowance for doubtful accounts.
The Company has sales to certain customers which represent more than 10% of the
Company's net revenues. In 1995, the Company had sales to Chesapeake Sciences
which aggregated 62% of net revenues. The products sold to Chesapeake Sciences
are used in the eventual production of off-shore geophysical oil exploration
equipment. Any volatility in the oil market could affect the operating results
of the Company. In 1994, the Company had sales to E-Systems which aggregated
41% of net revenues.
F-7
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
1.ACCOUNTING POLICIES (CONTINUED)
The Company currently buys all of its resistor networks, an important
component of its products, including those for sale to Chesapeake Sciences,
from one supplier. Although there are a limited number of manufacturers of
the particular resister, management believes that other suppliers could
provide similar networks. A change in suppliers, however, could cause a
delay in manufacturing and a possible loss of sales, which would adversely
affect operating results.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid debt instruments with
insignificant interest rate risk and with maturities of less than ninety days.
INVENTORIES
Inventories are stated at the lower of cost (determined using the first-in,
first-out method), or market. Due to its nature, certain of the Company's
inventory at December 30, 1995 and December 31, 1994 is subject to technological
change and potential obsolescence. Management does not anticipate these amounts
to be material, and believes that they have adequately provided for any losses
that may result.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation is provided on a straight-
line basis over the estimated useful lives of the assets, generally three to
five years. Leasehold improvements are amortized over the term of the lease or
their estimated useful lives, whichever is shorter.
EARNINGS PER SHARE OF COMMON STOCK
Net income per share of common stock is computed by dividing the net income
by the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding during the period. The weighted average shares
used to compute net income per share is approximately 2,910,000 and 2,751,000
in 1995 and 1994, respectively. Fully diluted per share amounts are the same
as primary per share amounts for the periods presented.
F-8
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, which requires that the
liability method be used. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the temporary differences are expected to
reverse. Additionally, SFAS No. 109 requires deferred tax liabilities and
assets be separated into current and non-current amounts based on the
classification of the related assets and liabilities for financial reporting
purposes.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price or fair
value of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which is effective for the Company in 1996.
SFAS No. 123 allows companies the option of measuring and recognizing
compensation cost under the provisions of APB No. 25, or alternatively, by
measuring and recognizing stock-based compensation using a fair value based
methodology. Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. The Company anticipates
that it will continue the use of the intrinsic value method for accounting for
stock-based compensation, and accordingly, the adoption of SFAS No. 123 is not
expected to have a significant effect on the Company's financial condition or
results of operations.
F-9
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
2. INVENTORIES
Inventories consist of the following:
1995 1994
-----------------------
Finished goods $ 21,100 $ 30,203
Work-in-process 547,590 172,934
Raw materials 671,095 298,703
-----------------------
$1,239,785 $ 501,840
-----------------------
-----------------------
3. PLANT AND EQUIPMENT
Plant and equipment consists of the following:
1995 1994
-----------------------
Leasehold improvements 425,604 425,604
Machinery and equipment 2,105,467 2,070,993
Furniture and fixtures 10,972 10,972
Construction in progress 11,686 -
-----------------------
2,553,729 2,507,569
-----------------------
Less accumulated depreciation and
amortization (2,452,354) (2,437,339)
-----------------------
$ 101,375 $ 70,230
-----------------------
-----------------------
Construction in progress at December 30, 1995 relates to uninstalled machinery
and equipment.
F-10
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
as of December 30, 1995 are as follows:
Deferred tax assets:
Net operating loss carryforwards $1,993,000
Other 186,000
-----------
Total deferred tax assets 2,179,000
Valuation allowance (2,179,000)
-----------
Net deferred tax assets $ -
-----------
-----------
The valuation allowance as of December 31, 1994 was approximately $2,292,000
resulting in a net decrease in the allowance of approximately $113,000 for
the year ended December 30, 1995.
The provision for income taxes differs from the amount computed by applying
the statutory federal tax rate to income before taxes due to the following:
1995 1994
----------------------
Computed expected tax $177,000 $ 1,000
Nondeductible expenses 2,000 18,000
Benefit of operating loss
carryforward (179,000) (19,000)
----------------------
$ - $ -
----------------------
----------------------
As of December 30, 1995, the Company had a net operating loss carryforward for
Federal income tax purposes of approximately $5.8 million. This carryforward
will expire between 2004 and 2008. Future utilization of the Company's net
operating losses may be subject to an annual limitation in amount if there is a
greater than fifty percent change in ownership, as defined in Section 382 of the
Internal Revenue Code of 1986, as amended.
F-11
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
5. COMMITMENTS
The Company leases its administrative and production facility and also leases
certain operating equipment under noncancelable operating lease arrangements
with terms in excess of one year. The aggregate future minimum annual rental
commitment as of December 30, 1995 under these non-cancelable lease
arrangements are as follows:
1996 $166,000
1997 171,000
1998 172,000
1999 173,000
2000 89,000
----------
$771,000
----------
----------
The Company's net rental expense charged to operations amounted to
approximately $199,000 and $183,000 in 1995 and 1994, respectively.
F-12
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
6. STOCK OPTION PLANS
In February 1995, the Board of Directors of the Company (the "Board"), with
the consent of its shareholders, authorized an increase to the number of
shares reserved for issuance under the 1991 Stock Option Plan (the "1991
Plan") to 276,175 shares of common stock. The 1991 Plan expires May 2001 and
96,175 shares were available for future grant as of December 30, 1995. The
Company had a 1981 Incentive Stock Option Plan (the "1981 Plan") that expired
in August 1991 and there were 140,000 options outstanding under this Plan at
December 30, 1995. Outstanding stock options under the two plans are
exercisable cumulatively in annual increments of one-third each year
beginning one year after the grant date. Options granted under the 1991 Plan
and the 1981 Plan have terms of five years. However, in February 1995, the
Board extended the term of options under the 1981 Plan by five years,
deferring expiration until 2000. The exercise price of these extended
options was in excess of the fair market value of the Company's common stock
at the date of extension. The following table shows the activity under the
two plans:
NUMBER OF EXERCISE
SHARES PRICE PER SHARE
------------------------------
Options:
Outstanding at beginning of year 300,000 $0.19 - $0.53
Granted 185,000 $0.38 - $1.44
Exercised (60,000) $0.3 - $0.53
Expired - -
Canceled (155,000) $0.38 - $0.41
---------
Outstanding at end of year 270,000
---------
---------
Exercisable at December 30, 1995 221,666 $0.19 - $0.53
---------
---------
Under the 1991 Directors' Stock Option Plan (the "Directors' Plan"), 100,000
shares of the Company's common stock had been reserved for issuance as of
December 30, 1995, of which options to purchase 60,000 shares at an exercise
price of $0.1875 had been granted. None of the 60,000 exercisable options
had been exercised as of December 30, 1995. Options granted under the
Directors' Plan become exercisable cumulatively on the first, second and
third anniversaries of the grant date. The Directors' Plan expires February
2001.
F-13
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
The Company also has a Key Employee Stock Purchase Plan (the "Purchase Plan")
under which key employees may be offered rights to purchase common stock at
100% of the fair market value of such stock on the offering date. As of
December 30, 1995, 100,000 shares of the Company's common stock have been
reserved for issuance under the Purchase Plan. Under the Purchase Plan, the
shares must vest at a rate of 33% per year. Upon termination of employment
of the shareholder, unvested shares are subject to repurchase by the Company
at the original purchase price. No current employees have purchased stock
under the Purchase Plan. As of December 30, 1995, all shares previously sold
under the Purchase Plan to key employees had been repurchased by the Company,
leaving 100,000 shares available for future purchase. The Purchase Plan
expires May 1996.
7. PROFIT SHARING PLAN
In February 1995 the Company's Board adopted the 1995 Profit Sharing Plan
(the "Profit Sharing Plan") which is available to all eligible full-time
employees of the Company, except executive officers of the Company, as
defined. Under the Profit Sharing Plan, the Company will distribute to
employees between 10% and 15% of the Company's pre-tax income, as defined.
The distribution percentage is at the discretion of the Company's Board. The
Plan, which terminates by its own terms in December 2005, may be terminated
or amended at any time by the Board. During the year ended December 30, 1995,
the Board authorized $75,000 in profit sharing distributions to employees,
which amount is included in accrued employee compensation in the accompanying
balance sheet.
8. BUSINESS LOAN AGREEMENT
In December 1995 the Company entered into a revolving business loan agreement
(the "Loan Agreement") with a bank under which it may borrow up to $100,000
at the bank's prime rate plus 2.5% (aggregating 11% at December 30, 1995).
Interest accrued shall be due and payable monthly up to the maturity date,
December 5, 1996, at which time all unpaid principal and interest become due.
The Loan Agreement is collateralized by all of the Company's accounts
receivable and inventory. Under the Loan Agreement, the Company is required
to maintain a minimum net worth level, as defined. The Loan Agreement also
imposes certain limitations on the payment of dividends and incurrence of
additional indebtedness. At December 30, 1995, the Company had no
outstanding borrowings under this Loan Agreement.
F-14
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Hytek Microsystems, Inc.
We have audited the accompanying balance sheet of Hytek Microsystems, Inc. at
December 30, 1995 and December 31, 1994, and the related statements of
operations, 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 generally accepted auditing
standards. 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 Hytek Microsystems, Inc. at
December 30, 1995 and December 31, 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Reno, Nevada
February 23, 1996
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HYTEK MICROSYSTEMS, INC.
By: /s/ Charles S. Byrne
________________________
Charles S. Byrne
President and Chief
Executive Officer
Date: March 25, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles S. Byrne and Shou-Chen Yih, or
either of them, his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-KSB, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof.
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
__________________________ ___________________________ _______________
/s/ Charles S. Byrne President and Chief March 25, 1996
__________________________ Executive Officer
Charles S. Byrne (Principal Executive
Officer), Chief Financial
Officer (Principal Financial
and Accounting Officer)
and Director
S-1
<PAGE>
SIGNATURE TITLE DATE
__________________________ ___________________________ _______________
/s/ Robert Boschert Director March 7, 1996
__________________________
Robert Boschert
/s/ Edward W. Moose Director March 7, 1996
__________________________
Edward W. Moose
/s/ Edward Y. Tang Director March 8, 1996
__________________________
Edward Y. Tang
/s/ Shou-Chen Yih Director March 11, 1996
__________________________
Shou-Chen Yih
S-2
<PAGE>
HYTEK MICROSYSTEMS, INC.
Annual Report on Form 10-KSB
for the fiscal year ended December 30, 1995
EXHIBIT INDEX
(The Registrant will furnish to any shareholder who so requests a copy of this
Annual Report on Form 10-KSB, as amended, including a copy of any Exhibit listed
below, provided that the Registrant may require payment of a reasonable fee not
to exceed its expense in furnishing any such Exhibit.)
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Description Number
- -------- ---------------------------------------------- ---------
<S> <C> <C>
3.1 (1) Amended and Restated Articles of Incorporation --
filed on February 10, 1983.
3.2 (2) Certificate of Amendment of Articles of Incorp- --
oration filed June 28, 1988.
3.3 (10) Amended and Restated Bylaws, as amended --
through July 27, 1992.
4.1 Reference Exhibits 3.1 and 3.2. --
9.1 (4) Shareholders' Agreement dated as of --
April 9, 1990.
10.1a (9) (*) Incentive Stock Option Plan, as amended --
July 27, 1992.
10.1b (5) (*) Forms of Incentive Stock Option Agreement and --
Non-statutory Stock Option Agreement used under
Incentive Stock Option Plan.
10.2 (11) (*) Form of Amendment to Option Agreements of --
Charles S. Byrne, Jay L. Kimball and Jonathan B.
Presnell.
10.3a (11) (*) 1991 Stock Option Plan, as amended --
February 10, 1995.
</TABLE>
X-1 (Footnotes at end of index)
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Description Number
- -------- ---------------------------------------------- ---------
<S> <C> <C>
10.3b (9)(*) Form of Agreement used under the 1991 --
Stock Option Plan.
10.4 (7)(*) 1991 Director's Stock Option Plan and form of --
Agreement thereunder.
10.5a (3)(*) Key Employee Stock Purchase Plan. --
10.5b (5) (*) Form of Stock Purchase Agreement used under --
the Key Employee Stock Purchase Plan.
10.6 (7) (*) Form of Indemnification Agreement entered into --
by the Registrant with each of its directors and
executive officers.
10. 7 (6) Proprietary Information Agreement dated --
as of March 25, 1992, between James M. Phalan
and the Registrant.
10.8 Line of Credit Agreement between Hytek
Microsystems, Inc. and Sierra Bank of Nevada. **
13.1 President's Letter to Shareholders dated
April 8, 1996, which together with
this Form 10-KSB comprises the Registrant's
1995 Annual Report to Shareholders.
21.1 The Registrant has no subsidiaries. --
23.1 Consent of Independent Auditors F-16
(see page F- 16).
24.1 Power of Attorney (see page S-1). S-1
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to Exhibit filed with the
Registration Statement on Form S-1 (File No. 2-82140).
(2) Incorporated by reference to Exhibit filed with the
Quarterly Report on Form 10-Q for the quarter ended July 2,
1988.
X-2 (Footnotes at end of of index)
<PAGE>
(3) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 29, 1990.
(4) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 30, 1989.
(5) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 31, 1986.
(6) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 28, 1991.
(7) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 31, 1988.
(8) Incorporated by reference to Exhibit filed with the Current
Report on Form 8-K dated December 22, 1989.
(9) Incorporated by reference to Exhibit filed with the Quarterly
Report on Form 10-Q for the quarter ended September 26,
1992.
(10) Incorporated by reference to the Exhibit filed with the Quarterly
Report on Form 10-Q for the quarter ended
June 27, 1992.
(11) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-KSB for the year ended December 31, 1994.
(*) Management contract or compensatory plan or arrangement in which any
director or executive officer named in the Registrant's Annual
Report on Form 10-KSB or Proxy Statement
has participated or participates.
** To be filed by amendment.
X-3
<PAGE>
April 8, 1996
TO THE SHAREHOLDERS OF HYTEK MICROSYSTEMS, INC.:
1995 was a year of significant improvement for the Company. There have
been more opportunities in the marketplace and the Company has had greater
success in converting these opportunities into additional orders. Customer
orders received during 1995 exceeded $10,000,000.
Revenues in 1995 were $5,409,000, an increase of 30% over 1994 revenues of
$4,162,000. In 1995, the Company reported net income of $521,000 as compared to
net income of $2,000 in 1994. During 1995, sales under military or government
funding decreased to approximately 30% of revenues, from 80% of revenues in
1994. The Company's single largest commercial customer, Chesapeake Sciences
Corporation, accounted for 62% of 1995 revenues.
As a result of the significant growth during 1995, the Company experienced
negative cash flow of approximately $291,000, primarily due to increases in
accounts receivable and inventories. However, during the year, total assets
increased by $1,189,000 and working capital increased by $523,000.
Again, as in the past several years, custom products accounted for the vast
majority (88%) of Company revenues for 1995. Development efforts have continued
on new standard products with the High Speed Laser Diode Driver introduced to
the market in the spring of 1995. Further efforts have continued on the
development of additional laser diode applications. The Company will continue
efforts to expand its presence in the custom product market while maintaining
the support and production of its existing standard products.
The financial markets have recognized the Company's achievements in 1995
with both the value of Hytek Common Stock, and the stock's trading volumes,
increasing during the year. The Company begins the 1996 fiscal year with a
substantial backlog and an ongoing commitment to continue our growth through
meeting our customer's needs with quality products and service.
Yours sincerely,
Charles S. Byrne
President and Chief Executive Officer
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Prospectuses constituting a
part of the Registration Statements on Form S-8 (File Nos. 2-90789, 33-7452, 33-
28848, 33-61717, and 33-42836) pertaining to the Incentive Stock Option Plan,
the Key Employee Stock Purchase Plan, the 1991 Stock Option Plan and the 1991
Directors' Stock Option Plan, of our report dated February 23, 1996 with respect
to the financial statements of Hytek Microsystems, Inc.
/s/ Ernst & Young LLP
Reno, Nevada
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AT 12/30/95 AND STATEMENT OF OPERATIONS AT 12/30/95 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 92,995
<SECURITIES> 0
<RECEIVABLES> 1,199,847
<ALLOWANCES> 20,000
<INVENTORY> 1,239,785
<CURRENT-ASSETS> 2,544,212
<PP&E> 2,553,729
<DEPRECIATION> 2,452,354
<TOTAL-ASSETS> 2,645,587
<CURRENT-LIABILITIES> 1,248,209
<BONDS> 0
0
0
<COMMON> 1,397,378<F1>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,645,587
<SALES> 5,400,592
<TOTAL-REVENUES> 5,409,072
<CGS> 3,783,726
<TOTAL-COSTS> 4,889,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,850
<INCOME-PRETAX> 521,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 521,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521,041
<EPS-PRIMARY> 0.185
<EPS-DILUTED> 0.179
<FN>
<F1>
Common Stock as reported above is net of $3,516,428 accumulated deficit.
</FN>
</TABLE>
