UNITED STATES
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 October 3, 1998
OR
[ ] TRANSITION REPORT UNDER 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 30, 1998, the issuer had outstanding 3,039,758 shares of Common
Stock, no par value.
<PAGE>
HYTEK MICROSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED OCTOBER 3, 1998
INDEX
Page Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheet at October 3, 1998 (unaudited) and January 3, 1998 3
Statement of Income (unaudited) for the Quarters and Nine Months
ended October 3, 1998 and September 27, 1997 4
Statement of Cash Flows (unaudited) for the Quarters and Nine
Months ended October 3, 1998 and September 27, 1997 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
<PAGE>
<TABLE>
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements.
HYTEK MICROSYSTEMS, INC.
BALANCE SHEET
October 3, 1998 January 3, 1998
Assets (Unaudited)
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,605,848 $ 1,189,519
Trade accounts receivable - net of
allowance for doubtful accounts
of $50,000 at 10/3/98 and 1/3/98 2,627,163 2,513,668
Inventories 2,479,951 2,581,389
Prepaid expenses and deposits 92,454 50,035
------------ ------------
Total current assets 7,805,416 6,334,611
Deferred income taxes 200,000 200,000
Plant and equipment, at cost, less
accumulated depreciation and amortization 1,038,214 755,845
------------ ------------
Total assets $ 9,043,630 $ 7,290,456
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 886,550 $ 1,308,335
Accrued employee compensation and benefits 445,255 349,725
Accrued warranty, commissions and other 162,167 206,569
Customer deposits - 28,464
Current portion of long-term debt 48,333 43,951
Current obligations under capital leases 52,742 82,752
------------ ------------
Total current liabilities 1,595,047 2,019,796
Long-term debt, less current portion 64,812 101,049
Long-term obligations under capital lease 43,952 123,041
Shareholders' equity:
Common Stock, no par value: 7,500,000 shares
authorized, 3,039,758 shares and 2,941,424
shares issued and outstanding at
10/3/98 and 1/3/98, respectively 5,007,093 4,974,676
Retained earnings 2,332,726 71,894
------------ ------------
Total shareholders' equity 7,339,819 5,046,570
------------ ------------
Total liabilities and shareholders' equity $ 9,043,630 $ 7,290,456
============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF INCOME
(Unaudited)
Quarters and nine months ended October 3, 1998 and September 27, 1997
Quarter ended Nine months ended
---------------------- --------------------------
10/3/98 9/27/97 10/3/98 9/27/97
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 3,026,632 $ 2,046,791 $ 10,303,720 $ 5,815,430
Costs and expenses:
Cost of sales 1,932,950 1,387,254 6,478,035 4,012,101
Engineering and development 246,213 196,978 709,755 555,386
Selling, general and
administrative 335,777 180,118 857,762 512,519
----------- ----------- ------------ -----------
Total costs and expenses 2,514,940 1,764,350 8,045,552 5,080,006
----------- ----------- ------------ -----------
Operating income 511,692 282,441 2,258,168 735,424
Interest income 31,209 7,760 58,738 27,516
Interest expense (11,950) (1,307) (21,774) (4,154)
----------- ----------- ------------ -----------
Income before provision
for income taxes 530,951 288,894 2,295,132 758,786
Provision for income taxes (14,500) (7,500) (34,300) (47,500)
----------- ----------- ------------ -----------
Net income $ 516,451 $ 281,394 $ 2,260,832 $ 711,286
=========== =========== ============ ===========
Basic earnings per share $ 0.17 $ 0.10 $ 0.76 $ 0.24
=========== =========== ============ ===========
Diluted earnings per share $ 0.16 $ 0.09 $ 0.72 $ 0.23
=========== =========== ============ ===========
Shares used in calculating
basic earnings per share 3,034,647 2,941,424 2,989,900 2,941,424
=========== =========== ============ ===========
Shares used in calculating
diluted earnings per share 3,166,294 3,088,247 3,158,336 3,081,405
=========== =========== ============ ===========
See accompanying notes.
<PAGE>
</TABLE>
<TABLE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF CASH FLOWS (unaudited)
Quarters and Nine 1998 and September 27, 1997
Increase (decrease) in cash and cash equivalents
Quarter Ended Nine Months Ended
------------------------ -------------------------
Oct 3,1998 Sept 27, 1997 Oct 3, 1998 Sept 27, 1997
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 516,451 $ 281,394 $2,260,832 $ 711,286
Adjustments to reconcile net
income to cash flow provided by (used in)
operations:
Depreciation and amortization 75,735 33,488 177,690 94,888
Accounts receivable (516,287) (114,244) (113,495) (424,460)
Inventories (496,748) (126,049) 101,438 (88,170)
Prepaid expenses and deposits (12,183) (11,218) (42,419) (23,835)
Accounts payable 346,837 384,423 (421,785) 398,195
Accrued employee compensation and benefits 112,164 14,363 95,530 (157,300)
Accrued warranty, commissions and other (5,374) 12,527 (44,402) (19,182)
Customer deposits (28,464) (27,503) (28,464) (134,798)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating (7,869) 447,181 1,984,925 356,624
activities
Cash flows from investing activities:
Cash purchases of equipment (293,643) (22,550) (460,059) (149,160)
---------- ---------- ---------- ----------
Net cash used in investing activities (293,643) (22,550) (460,059) (149,160)
Cash flows from financing activities:
Principal payments on long-term debt (13,961) - (31,855) -
Payment of capital lease obligations (58,834) (8,497) (109,099) (28,325)
Proceeds from exercise of stock options 8,200 - 32,417 12,000
---------- ---------- ---------- ----------
Net cash provided by (used in) financing (64,595) (8,497) (108,537) (16,325)
activities
Net increase (decrease) in cash and cash equivalents (366,107) 416,134 1,416,329 191,139
Cash and cash equivalents at beginning of period 2,971,955 1,201,721 1,189,519 1,426,716
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $2,605,848 $1,617,855 $2,605,848 $1,617,855
========== ========== ========== ==========
See accompanying notes.
</TABLE>
<PAGE>
HYTEK MICROSYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
OCTOBER 3, 1998
(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 January 3, 1998, 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 October 3, 1998 are not necessarily indicative of the results that may be
expected for the entire year ending January 2, 1999. 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 continuing
lease expiring in 2005. The aggregate future minimum rental commitments as of
October 3, 1998 for this lease were:
1998 $ 40,605
1999 164,856
2000 169,800
2001 - 2005 828,678
-------
$1,203,939
3. Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market. Inventories consisted of:
10-3-98 1-3-98
Raw Material $1,249,641 $1,261,612
Work-In-Process 1,168,702 1,287,720
Finished Goods 66,608 32,057
---------- -----------
$2,479,951 $2,581,389
---------- ----------
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.
5. In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share". This Statement established standards for
computing and presenting earnings per share (EPS) and applies to entities that
are publicly held. This Statement simplifies the standards for computing EPS
presently contained in Accounting Principles Board Opinion No. 15, "Earnings Per
Share". This Statement replaces the presentation of primary and fully diluted
EPS under APB No. 15 with a presentation of basic and diluted EPS. The Company
adopted the provisions of this Statement during the year ended January 3, 1998.
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results 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). All statements
made herein are made as of the date of filing of this Form 10-QSB. The Company
disclaims any duty to update such statements after the date of filing of this
Form 10-QSB, except as required by law.
Results of Operations
Net revenues for the quarter ended October 3, 1998 increased by 48%
from net revenues for the quarter ended September 27, 1997. Net revenues for the
quarter ended October 3, 1998 were $3,027,000, as compared to $2,047,000 for the
quarter ended September 27, 1997. Net revenues for the nine months ended October
3, 1998 increased 77% to $10,304,000 from net revenues for the nine months ended
September 27, 1997 of $5,815,000. The increase in revenues during the quarter
and nine-month period results from an increase in units shipped due to a solid
backlog at the beginning of 1998 coupled with an increased level of customer
orders received during the nine-month period. Shipments of geophysical data
conversion modules to Chesapeake Sciences Corp. accounted for approximately $6.8
million of the current year nine-month revenues as compared to $2.8 million in
the prior year nine-month period.
The Company's backlog of customer orders was $8,525,000 at October 3,
1998 as compared to $10,554,000 at September 27, 1997, and $7,676,000 at January
3, 1998. Approximately $7,700,000 of the total backlog at October 3, 1998 is
currently scheduled for shipment during the next twelve months.* Approximately
53% of the total backlog relates to orders from Chesapeake Sciences Corp., the
Company's largest customer. Because customers may place orders for delivery at
various times throughout the year, and due to the possibility of customer
changes in delivery schedules (which have been experienced in the past), or
cancellation of orders with little or no penalty, the Company's backlog as of
any particular date may not be indicative of actual future sales.*
Cost of sales was $1,933,000, or 64% of net revenues, for the quarter
ended October 3, 1998, as compared to $1,387,000, or 68% of net revenues, for
the quarter ended September 27, 1997. Cost of sales for the nine months ended
October 3, 1998 was $6,478,000, or 63% of net revenues, as compared to
$4,012,000, or 69% of net revenues, for the nine months ended September 27,
1997. The decrease in cost of sales as a percentage of net revenues results
primarily from the spreading of fixed costs over a significantly higher revenue
base.
<PAGE>
Engineering and development expenses were $246,000, or 8% of net
revenues, for the quarter ended October 3, 1998, as compared to $197,000, or 10%
of net revenues, for the quarter ended September 27, 1997. Engineering and
development expenses for the nine months ended October 3, 1998 were $710,000, or
7% of net revenues, as compared to $555,000, or 10% of net revenues, for the
nine months ended September 27, 1997. The increase in the dollar amount of
engineering and development expenses for the quarter and nine months ended
October 3, 1998, as compared to the quarter and nine months ended September 27,
1997, is primarily attributable to increased compensation costs resulting from
hiring of additional personnel required for additional engineering-intensive
programs.
Selling, general and administrative expenses were $336,000, or 11% of
net revenues, for the quarter ended October 3, 1998, as compared to $180,000, or
9% of net revenues in the quarter ended September 27, 1997. Selling, general and
administrative expenses for the nine months ended October 3, 1998 were $858,000,
or 8% of net revenues, as compared to $513,000, or 9% of net revenues, for the
nine months ended September 28, 1997. The increase in the dollar amount of
selling, general and administrative expenditures for the quarter and nine months
ended October 3, 1998 is attributable to increased costs of compensation as a
result of additional staffing and base compensation adjustments, coupled with
increases in commission expense, travel expense, legal costs and professional
fees.
The Company had an operating profit of $512,000 for the quarter ended
October 3, 1998, as compared to an operating profit of $282,000 for the quarter
ended September 27, 1997. The increase in quarterly operating results is the
result of higher sales and improved gross margin, partially offset by increases
in engineering and development expense and selling, general and administrative
expenses described above. As a result of a 77% increase in revenues, the Company
had an operating profit of $2,258,000 for the nine months ended October 3, 1998,
as compared to an operating profit of $735,000 for the nine months ended
September 27, 1997.
Net interest income increased to $37,000 for the nine months ended
October 3, 1998 as compared to $23,000 for the prior year nine-month period as a
result of larger average monthly cash balances in interest-bearing accounts.
Income tax expense of $15,000 and $34,000 was recognized in the
quarter and nine months ended October 3, 1998, respectively, as a result of the
alternative minimum tax. Income tax expense in the prior year periods was $8,000
and $48,000, respectively. The Company has remaining net operating loss
carryforwards for federal income tax purposes at January 3, 1998 of
approximately $2.3 million. These carryforwards are expected to be fully
utilized at the end of the current fiscal year.*
Liquidity and Capital Resources
The Company had $2,606,000 in cash and cash equivalents at October 3,
1998, as compared to $1,190,000 at January 3, 1998. This increase of $1,416,000
from year end is comprised of $1,985,000 provided by operating activities
(primarily generated from net income) partially offset by $460,000 used for the
purchase of capital equipment and $109,000 used in financing activities
(repayment of long-term debt and capital lease obligations).
<PAGE>
Accounts receivable were $2,627,000 at October 3, 1998, as compared to
$2,514,000 at January 3, 1998. This increase primarily results from fluctuations
in customer payment cycles.
Inventories were $2,480,000 at October 3, 1998, as compared to
$2,581,000 at January 3, 1998. Inventory levels had been increased significantly
at the beginning of the year in anticipation of a higher level of product
shipments during 1998.
Prepaid expenses and deposits were $92,000 at October 3, 1998 as
compared to $50,000 at January 3, 1998. This increase reflects normal ongoing
business transactions that are affected by fiscal month ending dates.
Property, plant and equipment, net, increased to $1,038,000 at October
3, 1998, as compared to $756,000 at 1997 fiscal year end, due to the Company's
purchase of new production equipment.
Accounts payable were $887,000 at October 3, 1998, as compared to
$1,308,000 at January 3, 1998. This decrease is primarily the result of improved
cash flow allowing for more timely payments to suppliers.
Accrued employee compensation and benefits were $445,000 at October 3,
1998, as compared to $350,000 at January 3, 1998. This increase is the result of
an approximately 25% increase in overall employment since the beginning of the
current year, combined with increased amounts accrued for employee profit
sharing.
Accrued warranty, commissions and other accrued liabilities were
$162,000 at October 3, 1998, as compared to $207,000 at January 3, 1998. This
reduction reflects normal recurring accruals and transactions.
Customer deposits decreased to zero at October 3, 1998 as compared to
$28,000 at January 3, 1998, as the result of the delivery of pre-paid products
to customers.
At October 3, 1998, the Company had both short-term and long-term
obligations under loan and capital lease agreements with SierraWest Bank in an
aggregate of $210,000. This is a reduction from $351,000 outstanding at January
3, 1998, as a result of the repayment of long-term debt and lease obligations.
The Company uses these loan and lease agreements to finance certain purchases of
capital equipment.
At October 3, 1998 the Company also maintained a $400,000 revolving
line of credit with SierraWest Bank. At such date the Company was in compliance
with all covenants of the loan agreement and no amounts were outstanding. On
October 23, 1998, the Company renegotiated the credit line with SierraWest for
an additional eighteen-month period, increasing the amount available under the
line of credit to $1,000,000 at an interest rate equal to the prime rate.
<PAGE>
Future Outlook
The Company's backlog of unfilled customer orders totaled $8,525,000 at
October 3, 1998 as compared to $7,676,000 at January 3, 1998 and $10,554,000
at September 27, 1997. Approximately $7,700,000 of the total backlog is
currently scheduled for shipment over the next twelve months.* However, due to
the possibility of customer changes in delivery schedules (which have been
experienced in the past) or cancellation of orders with little or no penalty,
the Company's backlog as of any particular date may not be indicative of
actual future sales.
Chesapeake Sciences, which accounted for 66% of the Company's net
revenues in the first nine months of 1998, accounts for approximately 53% of the
current backlog. While Chesapeake historically has contributed to the Company's
growth, it also has the greatest potential for causing major fluctuations in the
Company's revenue and earnings due to the current uncertainties and instability
in the global oil exploration market. Subsequent to October 3, 1998, Chesapeake
has rescheduled certain deliveries from the fourth quarter of the current year
into the first half of 1999. This rescheduling is projected to reduce levels of
revenues and earnings during the fourth quarter of the current year. The
Company's latest projections indicate that revenues and earning for the fourth
quarter of 1998 will be significantly below the prior year fourth quarter
levels. Current low prices of crude oil "futures", and uncertainty regarding
future world-wide oil production volumes, could result in further re-scheduling
or cancellation of current orders by Chesapeake. Either such action would have a
material negative impact on future operating results.
There is a more positive outlook in other markets served by the
Company. Our expanded sales efforts have created potential new opportunities in
the military-aerospace market and opened the door to potential participation in
the medical device and instrumentation markets.
The Company relies on an internal computer network for much of its day-to day
operating and financial information. This system does not interface with
customer or supplier systems outside the Company. The software for this network
is a commercial `off-the-shelf' package provided and maintained by a reputable
supplier. As of the date of this filing, the supplier has installed at the
Company software revisions that it claims eliminate any anticipated potential
problems with the year 2000. The Company has an employee who is responsible for
its year 2000 compliance efforts and testing the Company's internal systems. The
testing of internal systems is approximately 80% complete at the time of this
filing and is estimated to be completed by December 31, 1998.* Thus far, the
cost to the Company for preparation for year 2000 computer readiness, all funded
through operating cash flows, has not been significant. Future costs are not
anticipated to be material at this time.*
In addition, the Company has been informally advised by many of its
major customers, suppliers and financial institutions ("third parties"), that
they have, or are in process, of taking actions sufficient to protect the
Company from adverse effects of the year 2000 in their own internal systems.*
The Company intends to obtain written representations from its "third party"
affiliates and estimates that this effort will be completed by June 30, 1999.*
While the Company believes its efforts are adequate to address its "year 2000"
concerns, there can be no guarantee that "year 2000" issues will not have a
material effect on future Company operations.*
<PAGE>
Management of the Company believes it has an effective program in place
to resolve the "year 2000" issue in a timely manner. In the event that the
Company and its third parties do not complete all additional "year 2000" efforts
in a timely manner, or that its remediation efforts do not resolve the
anticipated problems, disruptions in the Company's day-to-day operations may
occur. In addition, disruptions in the economy in general resulting from "year
2000" issues could also materially adversely affect the Company. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
At the present time the Company does not have a formal contingency plan
in the event it does not complete all phases of its year 2000 efforts. The
Company plans to evaluate the status of its progress in June 1999 and determine
if such a plan is necessary.
Management believes that ongoing operations during the remainder of
1998, together with its line of credit, will provide sufficient cash to meet
normal operating needs without additional financing activities through the
remainder of the current fiscal year and into the first half of fiscal 1999.*
However, since the Company desires to expand its technological base and
production capacity, additional financing from new equity or debt financing may
be necessary.* In such case, there can be no assurance that such financing will
be available on terms acceptable to the Company or at all.
The foregoing discussion contains forward-looking statements that are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially. Investors are warned
that forward-looking statements involve risks and unknown factors including, but
not limited to, customer cancellation or rescheduling of orders, problems
affecting delivery of vendor-supplied raw materials and components,
unanticipated manufacturing problems, availability of direct labor resources and
unanticipated year 2000 problems. The Company disclaims any responsibility to
update the forward-looking statements contained herein, except as may be
required by law.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment dated October 23, 1998, to Line of
Credit Agreement dated December 13, 1996
between the Registrant and SierraWest Bank.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the
quarter ended October 3, 1998.
<PAGE>
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 12, 1998 By: /s/ Sally B. Chapman
--------------------
Sally B. Chapman
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
HYTEK MICROSYSTEMS, INC.
Quarterly Report on Form 10-QSB
for the Quarter and Nine Months ended October 3, 1998
EXHIBIT INDEX
Exhibit
Number Exhibit Description
10.1 Amendment, dated October 23, 1998, to Line
of Credit Agreement dated December 13, 1996
Between Registrant and SierraWest Bank.
27.1 Financial Data Schedule.
<PAGE>
Exibit 10.1
10-23-98 PROMISSORY NOTE
Loan No 404022113
PROMISSORY NOTE EXHIBIT 10.1
Principal Loan Date Maturity Loan No. Call Collateral Acct. Officer Initials
- - --------- --------- -------- --------- ---- ---------- ----- ------ --------
$1,000,000 10-23-1998 05-15-2000 404022113 10 09 551876 111
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: HYTEK MICROSYSTEMS, INC. (TIN: 94-2234140) Lender: SierraWest Bank
400 HOT SPRINGS RD. Reno Main Office
CARSON CITY, NV 89706-1609 P. O. BOX 10925
RENO, NV 89510
================================================================================
Principal Amount: $1,000,000.00 Initial Rate: 8.000%
Date of Note:October 23, 1998
PROMISE TO PAY. HYTEK MlCROSYSTEMS, INC, ("Borrower") promises to pay to
SierraWest Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million & 00/100 Dollars ($1,000,000.00) or
so much as may be outstanding, together with interest on the unpaid outstanding
principal balance of each advance. Interest shall be calculated from the date of
each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on May 15, 2000. In addition, Borrower will pay
regular monthly payments of accrued unpaid interest beginning November 24 1998,
and all subsequent interest payments are due on the same day of each month after
that. The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Prime Rate as
published in the WESTERN EDITION OF THE WALL STREET JOURNAL (the "Index"). The
Index is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur more
often than each day. The Index currently is 8.000% per annum. The interest rate
to be applied to the unpaid principal balance of this Note will be at a rate of
0.000 percentage points over the Index, resulting in an initial rate of 8.000%
per annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $15.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and than Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable Iaw, increase the variable interest rate on this Note to 6.500
percentage points over the Index; The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Nevada. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Washoe County, the State of Nevada (Initial Here ). This Note shall be
governed by and construed in accordance with the laws of the State of Nevada.
<PAGE>
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: CHARLES S. BYRNE,
PRESIDENT/CEO. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer printouts. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (e) Lender in good faith
deems itself insecure under this Note or any other agreement between Lender and
Borrower.
ZERO BALANCE REQUIREMENT. Notwithstanding any other provision in this Note
including the provisions regarding advances and payments, Borrower shall
maintain an outstanding balance of $0 during a period of thirty (30) consecutive
days during each one-year.
GENERAL PROVlSIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any Iength of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
HYTEK MICROSYSTEMS, INC.
By: /S/ Charles S. Byrne
-------------------------------
CHARLES S. BYRNE, PRESIDENT/CEO
Variable Rate. Line of Credit.
LASER PRO, Reg. U.S. Pat.& T.M.Off., Ver. 3.24(c)1997 CFI ProServices, Inc.
All rights reserved. [NV-D20 HYTEK1.LN C1.OVL]Line of Credit.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Balance Sheet at 10-3-98, Statement of Income at 10-3-98.
Other SE is retained earnings.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 2,605,848
<SECURITIES> 0
<RECEIVABLES> 2,667,163
<ALLOWANCES> 50,000
<INVENTORY> 2,479,951
<CURRENT-ASSETS> 7,805,416
<PP&E> 3,861,762
<DEPRECIATION> 2,823,547
<TOTAL-ASSETS> 9,043,630
<CURRENT-LIABILITIES> 1,595,047
<BONDS> 107,764
0
0
<COMMON> 5,007,093
<OTHER-SE> 2,332,726
<TOTAL-LIABILITY-AND-EQUITY> 9,043,630
<SALES> 10,300,766
<TOTAL-REVENUES> 10,303,720
<CGS> 6,478,035
<TOTAL-COSTS> 8,045,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,774
<INCOME-PRETAX> 2,295,132
<INCOME-TAX> 34,300
<INCOME-CONTINUING> 2,260,832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,260,832
<EPS-PRIMARY> .76
<EPS-DILUTED> .72
</TABLE>
