SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [No fee required]
For the fiscal year ended January 3, 1998, 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. [ X ]
Revenues of the Issuer for the most recent fiscal year ended
January 3, 1998 were: $9,020,000.
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 16, 1998 was approximately $4,429,578. 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 16, 1998, the issuer had outstanding 2,944,758 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 15, 1998 (the "Proxy Statement") are incorporated
by reference into Part III of this Annual Report on Form 10-KSB.
<PAGE>
PART I
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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 1997 increased 4% from 1996 levels. The Company had net income
of $1,662,000 in 1997 as compared to net income of $1,927,000 during 1996.
During 1997, the Company increased total assets by $2.9 million and added $1.4
million to working capital. 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 a number of
risks and uncertainties, including, but not limited to, 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). Statements made herein are as of the date of the filing of this
Form 10-KSB with the Securities and Exchange Commission, and should not be
relied upon as of any subsequent date. The Company expressly disclaims any
obligation to update information presented herein, except as required by law.
Products and Markets
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Products manufactured by the Company are sold primarily to original
equipment manufacturers (OEMs) serving the oil exploration, military, computing,
telecommunications, and industrial markets. Approximately 94% of the Company's
net revenues in 1997 were derived from products designed and manufactured to
meet a particular customer's specifications. The remaining 6% of net revenues in
1997 were derived from standard products designed by the Company's engineering
staff.
During 1997, approximately 64% of the Company's revenues were derived
from commercial and industrial private sector programs as compared to
approximately 76% in 1996. Sales to the military and government sector increased
by approximately $1.2 million to a total of $3.2 million during 1997.
<PAGE>
From 1987, when the Company was certified under MIL-Standard-1772,
through 1994, sales of military and government products increased. 1995 was the
first year that the Company experienced a decline in the sale of military and
government products. Sales to the military and government sector increased again
in both 1996 and 1997. The Company continues to pursue business in the military
market and is actively seeking to expand its customer base in this area.*
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 manufacturing criteria than
commercial products and have in the past commanded significantly higher prices.
However, there is growing trend in military procurement to buy to the "best
commercial standards" or "commercial off the shelf" (COTS) criteria, which may
have a negative impact on margins in future military business. The Company
intends to continue its efforts to remain competitive in the military market. *
While domestic defense and military related spending programs have been
reduced over the past several years, there remains a large global market for
these products and systems. U. S. defense contractors are supplying these
products to "allied" nations who continue to build their defense capabilities.
The Company expects to continue to be an active participant in this market.*
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 the past three years.
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. This has held true for the past three
years with the custom product percentage of total revenues increasing from 88%
in 1995 to 94% in both 1996 and 1997.
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 has subsequently introduced three
additional design versions of the Laser Diode Driver. The Company expects the
market for these products to grow as new communications technologies develop.*
The Company continues to support these products in addition to its established
digital delay line products.
<PAGE>
Hybrid Circuit Technology
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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.
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 proprietary design.
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, integration is
improving and the advantages of hybrid technology have been eroding away.
Despite this erosion, not all applications have proven adaptable to integrated
circuit technology; therefore; the Company believes that hybrid technology is an
attractive 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, there continues to be a 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
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Custom products accounted for approximately 94% of the Company's sales
in 1997. 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 many 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.
<PAGE>
Standard products accounted for approximately 6% of the Company's sales
in 1997. 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.
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--seismic data acquisition and geophysical measurement equipment.
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Military--communications, guidance systems, control circuitry and avionics.
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Satellite Systems--power monitoring and control circuits.
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Industrial Electronic Systems--measurement and diagnostics on rotating machinery
- -----------------------------
Opto-Electronics--sub-miniature temperature controls, laser diode drivers for
- ----------------
data transmission.
Automatic Test Equipment--integrated circuit test systems.
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Marketing
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The Company markets its products in the United States through its own
sales staff and through independent sales representatives. At January 3, 1998,
the Company's direct sales staff consisted of four employees operating from the
Company's principal office in Carson City. In addition, at such date the Company
had five independent sales representatives located throughout the United States
and one independent representative located in Israel. The Company also has
distributors in France, Germany, Japan and Sweden.
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 supports the sales
effort. In addition, senior members of management of the Company are directly
involved in the marketing and sales activities of the Company.
<PAGE>
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
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During 1997, the Company's five largest customers accounted for 81% of
the Company's net revenues. Those customers were Chesapeake Sciences Corporation
(53%), TRW, Inc. (15%), Eaton Corporation (6%), Litton Applied Technology, Inc.
(4%) and Boeing Co.(McDonnell Douglas) (3%). The Company currently anticipates a
continuing business relationship with all of these customers in the future. * A
large portion (60%) of the Company's backlog of orders for 1998 and beyond 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 revenues and earnings. 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. See
"Factors Affecting Future Results", in Part II, Item 6 hereof.
Manufacturing
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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.
Occasionally in the past, the Company has experienced isolated technical
manufacturing problems that have resulted in a material negative impact on
quarterly results, such as the bonding problem encountered on the "ANDVT"
program in the first quarter of 1993. While the Company has taken steps to
improve its manufacturing processes and equipment, any future manufacturing
problems on major customer programs could have a material adverse effect on
operating results.
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 non-conductive 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
525(degree) Celsius to 935(degree) Celsius. Each printing must be fired before
the next one is started.
<PAGE>
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 re-tested 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 controls.
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.,
Cal-Chip Electronics, 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. Nevertheless, any major disruption in the delivery of
raw materials from these suppliers would have a material adverse impact on the
Company's future operations.
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. However, there can be no assurance that any future
government regulation would not have a material impact on the Company's
operations or financial condition.
<PAGE>
Engineering and Development
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The growth in sales volume over the past three years has been in custom
hybrid products which require intensive engineering effort from the design phase
through final release to production. As a result, the amount of effort committed
to research and new standard product development has been minimal over the past
three years. During 1997, the Company was able to increase its efforts in
standard product development as a result of adding additional personnel.
During 1997 and 1996, the Company spent $769,000 and $650,000,
respectively, on its total engineering efforts. Of these amounts, it is
estimated that approximately $115,000 and $65,000 were spent on new product
research and development in 1997 and 1996, respectively.
The Company's last new standard product introduced was the High Speed
Laser Diode Driver, in the spring of 1995. Sales of this product have been
minimal to date, which the Company attributes to the high unit cost of the
device as originally designed. As a result , the Company has re-designed and
released in 1997, a "cost reduced" version of the Laser Diode Driver, which it
hopes will be more suitable for volume commercial applications.* In addition,
two additional Laser Diode Drivers models were introduced in 1997 to cover
expanded power and frequency ranges.
Competition
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Because of the variety of applications in the markets it serves, and a
military market that has been diminishing in size, the Company faces significant
competition from a variety of sources. Many 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. The Company
believes that 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. In past years certain of these manufacturers have left the custom hybrid
arena to specialize in defined markets such as medical or memory hybrids. These
changes have created additional opportunities for the Company. 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 but has expanded over the last few years.
<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 in past years. The improvement in revenues
and earnings for the past three years has helped strengthen the Company's
stability factor.
Trademarks, Patents and Licenses
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The Company, at this time, has one registered patent (No. 5,521,933) on
its Backmatched Laser Diode Driver, which will expire in 2013. As other new
products are developed, the Company intends to pursue trademarks or patents as
appropriate. The Company currently has no trademarks or licenses material to the
conduct of its business.
Employees
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As of January 3, 1998, the Company employed a total of 98 full-time
employees, of whom 77 were in manufacturing, 4 were in marketing and sales, 15
were in engineering and development and 2 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
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During 1997, the Company derived approximately 36% of its total
revenues from government-funded 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
completed prior to termination, together with a reasonable profit on such work.
During 1997, the Company experienced no such termination for government
convenience.
ITEM 2. DESCRIPTION OF PROPERTY.
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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 2005, with an
option to extend for an additional five years. The facility is currently
operating at approximately 60 to 65% 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. *
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
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During October 1997 a complaint of Discrimination under Nevada Revised
Statutes 613.330 was filed against the Company with the Nevada Equal Rights
Commission by a former employee. The complaint claims sexual harassment and
retaliatory termination and seeks unspecified monetary relief. The Company
denies this allegation and has filed its complete response to the charge with
the Equal Rights Commission. At the current time, the Nevada Equal Rights
Commission has taken no action with respect to either the charge of
discrimination or the Company's response thereto. It is not possible at this
early stage of the proceedings to predict the probability of a favorable or
unfavorable resolution of this complaint. It is the opinion of management that
an unfavorable resolution would not have a material adverse impact on the future
operations or financial stability of the Company.
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 January 3, 1998.
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 47, 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
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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.
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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%.
<PAGE>
This Management's Discussion and Analysis 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 a number of risks and uncertainties, including the
risk factors set forth in "Factors Affecting Future Results" below and elsewhere
in this Report. 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). Statements made herein are as of the date of
filing of this Form 10-KSB with the Securities and Exchange Commission, and
should not be relied upon as of any subsequent date. The Company expressly
disclaims any obligation to update information presented herein, except as
required by law.
Results of Operations
- ---------------------
Net revenues in 1997 were $9,020,000, a 4% increase from 1996 net
revenues of $8,641,000. The increase in net revenues is attributable to
increased shipments to new and existing customers during 1997. Sales to
Chesapeake Sciences Corp. ("Chesapeake"), the Company's largest customer,
decreased by approximately $900,000 from the prior year and represented 53% of
the Company's net revenues in 1997 as compared to 62% in 1996. During 1997,
approximately 64% of the Company's net revenues were derived from sales of
products for commercial and industrial uses (as compared to 76% in 1996) and
approximately 36% were derived from sales for military or government
applications (as compared to 24% in 1996). The increase in sales to the
government and military sector is primarily the result of adding new customers
from this market sector.
Cost of sales was $5,740,000, or 64% of net revenues in 1997, as
compared to $5,599,000, or 65% of net revenues in 1996. The increase in dollar
amount is the result of the higher volume of products shipped in 1997. The
decrease in cost of sales as a percentage of net revenues is the result of a
decrease in total material costs and increased revenues, partially offset by
increases in direct labor and manufacturing overhead costs.
Engineering and development expenses were $769,000 in 1997, or 9% of
net revenues, as compared to $650,000, or 8% of net revenues, in 1996. The
increase in these expenses in 1997 was the result of increased staffing levels
required to support new customer programs and to increase efforts on research
and development.
Selling, general and administrative expenses were $826,000, or 9% of
net revenues, in 1997, as compared to $675,000, or 8% of net revenues, in 1996.
This increase in dollar amount is attributable to increased compensation costs
resulting from additions to personnel, together with increases in sales
commission expense, travel expenses, recruitment and training expenses, data
processing expense and investor relations expenses. Revenues generated from
Chesapeake are not subject to sales commission expense.
Interest income was $41,000 for 1997, as compared to $13,000 in 1996,
reflecting higher balances in the Company's money market account during 1997.
The Company had interest expense of $8,000 in 1997 as compared to $3,000
interest expense in 1996. The interest expense incurred in 1997 results from
capital lease obligations utilized to finance new production equipment.
<PAGE>
In 1997, the Company recorded an income tax expense of $55,000 to cover
potential alternative minimum tax liabilities, as compared to a deferred tax
benefit of $200,000 for 1996. The 1996 deferred tax benefit relates to the
operating loss and credit carryforwards at December 28, 1996 that the Company
expects to realize in future periods.
Information and Data Processing Systems ("Year 2000")
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The Company relies on an internal computer network for much of its
day-to day operating and financial information. 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 which have eliminated any anticipated potential
problems with the year 2000.
In addition, the Company believes that its major customers, suppliers
and financial institutions 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. 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.
Recent Accounting Pronouncements
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In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income". The Statement established new rules for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. Management of the Company does not
believe this statement will have a material impact on the financial statements
of the Company.
Also in 1997, the Financial Accounting Standards Board issued Statement No.
131. "Disclosures about Segments of an Enterprise and Related Information",
which supersedes FASB Statement No. 14. The new rules will change the way that
public companies report information about operating segments in their annual
financial statements. This Statement is effective for fiscal years beginning
after December 15, 1997. Management of the Company does not believe this
statement will have a material impact on the financial statements of the
Company, as they operate exclusively in the hybrid microcircuit industry as one
segment, as defined by the Statement.
Factors Affecting Future Results
- --------------------------------
There are a number of factors that could significantly affect the
future results of operations of the Company, including, but not limited to, the
following.
<PAGE>
Currently, the Company is very dependent on a single large customer,
Chesapeake Sciences Corp. Chesapeake, which accounted for 53% of the Company's
1997 net revenues, accounts for $4,614,000, or 60%, of the 1997 ending backlog.
The loss of business from Chesapeake, cancellation of orders by Chesapeake or
major rescheduling of delivery dates to Chesapeake would have a material adverse
effect on the Company's business. In 1996, Chesapeake accounted for 62% of
revenues. The Company experienced a minor rescheduling of orders from Chesapeake
during the first quarter of 1997, which reduced revenues and earnings during
that period. However, this rescheduling did not have a significant impact on
annual operating results. Any future rescheduling of significant magnitude would
have a significant adverse effect on operating results.
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.
During 1997, the Company realized 36% of its net revenues from
government or military funded sources, an increase from 24% in 1996. 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 dependent on the custom product market for a
substantial majority of its revenue. Custom products accounted for 94% of total
revenues in both 1997 and 1996. This market is generally more volatile than the
standard product market, requiring longer product lead time and greater
investment in product design and manufacturing in advance of shipment and
payment. In addition, the high concentration in the custom market requires
significant investment in inventories, which could be at financial risk in the
event of a major customer cancellation. 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. Any failure of the Company to
remain competitive in the custom product market would have a material adverse
effect on the Company's results of operations and financial condition.
The current healthy state of the economy has created one of the
tightest labor markets in years. The Company's ability to meet increasing demand
and to develop new products that contribute to sales growth is dependent upon
the attraction and retention of qualified employees, for whom there is strong
demand. Any failure of the Company to attract and retain qualified personnel
could have a material adverse effect on the Company's results of operations and
financial condition.
The Company is dependent on certain key suppliers of raw materials. See
"Manufacturing" in Part I, Item 1 hereof. Any major disruption in production
capability by these suppliers would have an adverse impact on the Company's
future operations.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
During 1997, total assets increased by $2,856,000 and the net effect of
changes in current assets and current liabilities resulted in a net working
capital increase of $1,444,000.
The Company had $1,190,000 in cash and cash equivalents at January 3,
1998, as compared to $1,427,000 at the 1996 fiscal year end. This decrease is
the net result of the expenditure of $363,000 for the purchase of equipment,
partially offset by $23,000 generated from operating activities, and proceeds
from financing activities of $102,000.
Accounts receivable increased significantly during 1997. Accounts
receivable were $2,514,000 at January 3, 1998, as compared to $1,126,000 at the
1996 fiscal year end. This large increase is the result of the high level of
sales for the fourth quarter and particularly during December. At January 3,
1998, accounts in excess of 60 days totaled 15% of total receivables, as
compared to 21% at December 28, 1996. This was the result of a delayed payment
from the Company's largest customer at year-end.
Such item has subsequently been collected.
Inventories increased significantly to $2,581,000 at January 3, 1998,
as compared to $1,269,000 at the 1996 fiscal year-end. The increase is the
result of a significant increase in the level of product shipments planned for
December 1997 through the second quarter of 1998. Raw material and
work-in-process increased by $982,000 and $515,000 respectively, while finished
goods decreased by $185,000.
Property, plant and equipment, net of accumulated depreciation,
increased by $385,000 during 1997 as a result of additions to machinery and
equipment during the year of $520,000 offset by fiscal 1997 depreciation of
$135,000.
Accounts payable were $1,308,000 at January 3, 1998 as compared to
$268,000 at 1996 fiscal year end. This increase is attributable to increased
inventory levels combined with a slower vendor payment cycle during the fourth
quarter.
Accrued employee compensation and benefits remained constant from the
prior fiscal year end. Although the number of employees increased significantly
during 1997, the timing of payroll accruals at year-end resulted in a lower
year-end payroll accrual. At January 3, 1998, $200,000 had been accrued for the
employee profit sharing plan as compared to $175,000 at December 28, 1996.
Customer prepayments were $28,000 at January 3, 1998, as compared to
$172,000 at December 28, 1996. This decrease is the result of product shipments
during the year against the prepaid customer orders.
Accrued warranty, commissions and other accrued liabilities were
$207,000 at January 3, 1998, as compared to $169,000 at December 28, 1996. This
increase is primarily attributable to a higher level of accrued sales
commissions at 1997 year-end.
<PAGE>
In December 1997, the Company signed a Promissory Note with SierraWest
Bank in the amount of $145,000 for the purpose of buying additional production
equipment. This note bears an annual interest rate of 9.50% and has a term of
three years. This note is secured by the related equipment. The Company also has
capital lease obligations with SierraWest Bank totaling $206,000, which are
secured by the related equipment. The current portion of this indebtedness is
$127,000 at January 3, 1998. The remaining portion, $224,000, is classified as
long-term debt.
The Company recognized federal income tax expense during 1997 of
$55,000, primarily to satisfy alternative minimum tax liability. The Company has
remaining net operating loss carryforwards for Federal income tax purposes at
January 3, 1998 of approximately $2.5 million. These carryforwards will expire
between 2004 and 2008.
At January 3, 1998, the Company had long-term debt of $224,000
outstanding under its Promissory Note and capital lease obligations as described
above. Further, as of October 14, 1997, the Company renewed its line of credit
with SierraWest Bank. At that time, the line of credit was increased by $300,000
to a total of $400,000. This line of credit is for a term of one year, expiring
in October 1998, and bears interest at the prime rate plus 1.50%. At January 3,
1998, the Company was in compliance with all of the covenants of the loan
agreement and no amounts were outstanding. This line of credit is collateralized
by substantially all of the Company's assets. Management believes that cash
generated from operations during 1998, together with its line of credit, will
provide sufficient cash to meet operating needs without additional financing
activity through 1998. * 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 at January 3, 1998
increased by approximately 18% from the prior fiscal year end. Backlog at
January 3, 1998 was $7,676,000 as compared to $6,474,000 at December 28, 1996.
The increase in backlog is the result of strong customer orders during 1997,
which were in excess of $10 million. Approximately $7.3 million of this backlog
is scheduled for shipment during 1998. Chesapeake Sciences accounts for 60% of
the year-end backlog. Based on projections from Chesapeake, the Company
currently anticipates a continuing level of shipments to Chesapeake throughout
the ensuing year and that additional orders will be placed during 1998.*
However, 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 or revenue
projections as of any particular date may not be a reliable indicator of actual
future sales.
The investment in expanding our sales force during 1997 is already
paying dividends. We are adding new customers and have experienced an increased
level of new inquiries and opportunities.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
--------------------
The financial statements of the Company (including the notes thereto)
at January 3, 1998 and December 28, 1996 and for the years then ended, and the
report of independent auditors thereon, are included herein on pages F- 3
through F-19 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 "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 "Election of Directors
- - Section 16(a) Beneficial Ownership Reporting Compliance" 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 headings "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.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Not applicable.
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 January 3,
1998.
<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, January 3, 1998
and December 28, 1996 . . . . . . . . . . . . . . . . . F-3
Statement of Income for the Years ended
January 3, 1998 and December 28, 1996 . . . . . . . . . . . F-4
Statement of Shareholders' Equity (Deficit) for the
Years ended January 3, 1998 and December 28, 1996 . . . . . . F-5
Statement of Cash Flows for the Years Ended
January 3, 1998 and December 28, 1996 . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . F-7
Report of Independent Auditors . . . . . . . . . . . . . . F-19
Consent of Independent Auditors . . . . . . . . . . . . . . F-20
F-1
<PAGE>
HYTEK MICROSYSTEMS, INC.
Selected Quarterly Financial Data (unaudited)
(In thousands, except per share data)
<TABLE>
---------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------
FISCAL 1997 FISCAL 1996
------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan.3 Sept.27 Jun.28 Mar.29 Dec.28 Sept.28 Jun.29 Mar.30
----- ------- ------ ------ ------ ------- ------ ------
Net revenues $ 3,205 $ 2,047 $ 2,181 $ 1,587 $ 1,881 $ 2,095 $ 2,628 $ 2,037
Gross profit $ 1,476 $ 659 $ 701 $ 444 $ 872 $ 688 $ 836 $ 645
Net income $ 950 $ 281 $ 335 $ 95 $ 686 $ 368 $ 518 $ 354
Net income per share -
basic $ 0.32 $ 0.09 $ 0.12 $ 0.03 $ 0.24 $ 0.12 $ 0.18 $ 0.12
Net income per share -
diluted $ 0.31 $ 0.09 $ 0.11 $ 0.03 $ 0.22 $ 0.12 $ 0.17 $ 0.11
Market price range per share
High $ 2.38 $ 2.44 $ 1.75 $ 2.69 $ 2.63 $ 2.81 $ 3.19 $ 3.19
Low $ 1.88 $ 1.63 $ 1.19 $ 1.63 $ 1.44 $ 1.25 $ 2.31 $ 1.75
- ------------------------------------------------------------------------------------------------------------------------------------
</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 16, 1998, there were approximately 208 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 SierraWest
Bank, the Company is prohibited from paying cash dividends at this time.
F-2
<PAGE>
<TABLE>
Hytek Microsystems, Inc.
Balance Sheet
January 3, 1998 and December 28, 1996
<S> <C> <C>
1997 1996
---- ----
Assets
Current assets:
Cash and cash equivalents $ 1,189,519 $ 1,426,716
Trade accounts receivable, net of allowance for doubtful
accounts of $50,000 in 1997 and 1996 2,513,668 1,125,817
Inventories 2,581,389 1,268,881
Prepaid expenses and deposits 50,035 42,503
-------------- --------------
Total current assets 6,334,611 3,863,917
Deferred income taxes 200,000 200,000
Plant and equipment, at cost, less accumulated depreciation
and amortization 755,845 370,362
-------------- --------------
Total assets $ 7,290,456 $4,434,279
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 1,308,335 $ 268,462
Accrued employee compensation and benefits 349,725 349,498
Accrued warranty, commissions, and other 206,569 169,376
Customer deposits 28,464 172,080
Current portion of long-term debt 43,951 -
Current obligations under capital leases 82,752 33,990
-------------- --------------
Total current liabilities 2,019,796 993,406
Long-term debt, less current portion 101,049 -
Long-term obligations under capital leases 123,041 67,979
Commitments (Note 10)
Shareholders' equity:
Common stock, no par value:
Authorized shares - 7,500,000
Issued and outstanding shares - 2,941,424 at
January 3,1998 and 2,933,091 at December 28,1996 4,974,676 4,962,677
Retained earnings (accumulated deficit) 71,894 (1,589,783)
-------------- --------------
Total shareholders' equity 5,046,570 3,372,894
-------------- --------------
Total liabilities and shareholders' equity $ 7,290,456 $ 4,434,279
============== ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
Hytek Microsystems, Inc.
Statement of Income
Years ended January 3, 1998 and December 28, 1996
<S> <C> <C>
1997 1996
------------ ------------
Net sales $ 9,019,977 $8,640,890
Cost of sales 5,740,404 5,599,417
Engineering and development 769,277 649,608
Selling, general and administrative expenses 825,972 675,305
------------ ------------
7,335,653 6,924,330
------------ ------------
Operating income 1,684,324 1,716,560
Interest income, net 32,353 10,085
------------ ------------
Income before provision (benefit) for income taxes 1,716,677 1,726,645
Income tax provision (benefit) 55,000 (200,000)
------------ ------------
Net income $ 1,661,677 $1,926,645
============ ============
Basic earnings per share $ 0.56 $ 0.66
============ ============
Diluted earnings per share $ 0.54 $ 0.62
============ ============
Shares used in calculating basic earnings per share 2,941,241 2,906,205
============ ============
Shares used in calculating diluted earnings per share 3,086,743 3,086,825
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
Hytek Microsystems, Inc.
Statement of Shareholders' Equity (Deficit)
Years ended January 3, 1998 and December 28, 1996
Common Stock
--------------------
Retained
Earnings
(Accumulated
Shares Amount Deficit) Total
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 30, 1995 2,811,425 $ 4,913,806 $ (3,516,428) $ 1,397,378
Net income - - 1,926,645 1,926,645
Issuance of stock 121,666 48,871 - 48,871
--------- ----------- ------------- -----------
Balance at December 28, 1996 2,933,091 4,962,677 (1,589,783) 3,372,894
Net income - - 1,661,677 1,661,677
Issuance of stock 8,333 11,999 - 11,999
--------- ----------- ------------- -----------
Balance at January 3, 1998 2,941,424 $ 4,974,676 $ 71,894 $ 5,046,570
========= =========== ============= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
Hytek Microsystems, Inc.
Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years ended January 3, 1998 and December 28, 1996
1997 1996
-------- --------
<S> <C> <C>
Operating activities
Net income $1,661,677 $1,926,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 90,714 55,840
Amortization 44,535 2,413
Deferred income taxes - (200,000)
Changes in operating assets and liabilities:
Trade accounts receivable, net (1,387,851) 54,030
Inventories (1,312,508) (29,096)
Prepaid expenses and deposits (7,532) (10,918)
Accounts payable 1,039,873 (405,069)
Accrued employee compensation and benefits 227 158,231
Accrued warranty, commissions, and other 37,193 (35,371)
Customer deposits (143,616) (6,584)
--------------- ------------
Net cash provided by operating activities 22,712 1,510,121
Investing activities
Purchases of equipment (362,505) (225,271)
Financing activities
Proceeds from borrowings on line of credit - 50,000
Principal payments on line of credit - (50,000)
Proceeds from borrowings on long-term debt 145,000 -
Principal payments on capital lease obligations (54,403) -
Proceeds from issuance of common stock 11,999 48,871
--------------- ------------
Net cash provided by financing activities 102,596 48,871
--------------- ------------
Net increase (decrease) in cash and cash equivalents (237,197) 1,333,721
Cash and cash equivalents at beginning of year 1,426,716 92,995
--------------- ------------
Cash and cash equivalents at end of year $ 1,189,519 $ 1,426,716
=============== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements
Years ended January 3, 1998 and December 28, 1996
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 its products 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 year's financial statements to conform
with the 1997 presentation. The Company operates under a 52/53 week fiscal year,
with year end being the Saturday nearest December 31st. The year ended January
3, 1998 was a 53-week year, whereas the year ended December 28, 1996 was a
52-week year.
Concentration of Credit 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.
In 1997, the Company had sales to Chesapeake Sciences and TRW that accounted for
53% and 15%, respectively, of net sales. In 1996, the Company had sales to
Chesapeake Sciences and TRW that accounted for 62% and 12%, respectively, of net
sales. 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.
F-7
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market funds with original
maturities of less than ninety days. The fair value of the Company's financial
instruments approximated their carrying value at January 3, 1998 and December
28, 1996. The Company maintains the majority of its cash and cash equivalents in
one financial institution.
During 1997 and 1996, the Company entered into non-cash investing activities
whereby machinery and equipment acquisitions were capitalized under capital
leases in the amount of $158,226 and $101,969, respectively. During 1997 and
1996, the Company paid income taxes of $55,000 and $0, respectively.
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 January 3, 1998 and December 28, 1996 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.
Revenue Recognition
Sales are recorded by the Company upon shipment of the product, net of estimated
provisions for warranty and estimated returns.
F-8
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for its employee stock option plans. Under APB 25, if the exercise price of the
Company's employee stock options equals or exceeds the fair value of the
underlying stock on the date of grant as determined by the Company's Board of
Directors, no compensation expense is recognized (see Notes 6 and 7).
Income Taxes
Deferred tax assets and liabilities are determined based on the 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, deferred tax assets
and liabilities are separated into current and non-current amounts based on the
classification of the related assets and liabilities for financial reporting
purposes.
Research and Development Costs
Research and development costs are charged to operations as incurred, and are
included in engineering and development expenses on the accompanying statement
of income. During the years ended January 3, 1998 and December 28, 1996, such
costs amounted to approximately $115,000 and $65,000, respectively.
Product Warranty Costs
The Company has provided a liability for estimated future product warranty costs
based upon historical experience and anticipated warranty costs.
Advertising Costs
The Company expenses the costs of all advertising campaigns and promotions as
they are incurred. Total advertising expense for the years ended January 3, 1998
and December 28, 1996 amounted to approximately $27,000 and $43,000,
respectively, and is included in selling, general and administrative expenses on
the accompanying statement of income.
F-9
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
New Accounting Pronouncements
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. The 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, and
retroactively applied its provisions to reported 1996 amounts.
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income". The Statement established new rules for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. Management of the Company does not
believe this statement will have a material impact on the financial statements
of the Company.
Also in 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
supersedes FASB Statement No. 14. The new rules will change the way that public
companies report information about operating segments in their annual financial
statements. This Statement is effective for fiscal years beginning after
December 15, 1997. Management of the Company does not believe this statement
will have a material impact on the financial statements of the Company, as they
operate exclusively in the hybrid microcircuit industry as one segment, as
defined by the Statement.
2. Inventories
Inventories consist of the following:
1997 1996
----------- -----------
Finished goods $ 32,057 $ 217,270
Work-in-process 1,287,720 772,462
Raw materials 1,261,612 279,149
----------- -----------
$ 2,581,389 $1,268,881
=========== ===========
F-10
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
3. Plant and Equipment
Plant and equipment consists of the following:
1997 1996
-------------- ------------
Leasehold improvements $ 514,775 $ 441,219
Machinery and equipment 2,868,654 2,428,780
Furniture and fixtures 18,274 10,972
-------------- -----------
3,401,703 2,880,971
Less accumulated depreciation and amortization (2,645,858) (2,510,609)
-------------- ----------
$ 755,845 $ 370,362
============== ============
4. Income Taxes
The significant components of the Company's deferred tax assets are as follows:
1997 1996
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 834,534 $1,432,610
Credit carryforwards 264,786 210,572
Other 155,441 180,575
------------ ------------
Total deferred tax assets 1,254,761 1,823,757
Valuation allowance 1,054,761 1,623,757
------------ ------------
Net deferred tax assets $ 200,000 $ 200,000
============ ============
The valuation allowance as of December 28, 1996 was approximately $1,624,000,
resulting in a net decrease in the allowance of approximately $569,000 for the
year ended January 3, 1998.
The provision (benefit) for income taxes differs from the provision amount
computed by applying the statutory federal tax rate to income before taxes due
to the following:
1997 1996
------------ ------------
Computed expected tax $ 584,000 $ 587,000
Nondeductible expenses 6,000 10,000
Benefit of operating loss carryforward (590,000) (597,000)
Other 55,000 -
Valuation allowance adjustment - (200,000)
------------ ------------
============ ============
$ 55,000 $(200,000)
============ ============
F-11
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
4. Income Taxes (continued)
The valuation allowance adjustment arose as a result of the Company's profitable
results of operations in 1997 and 1996.
As of January 3, 1998, the Company had a net operating loss and tax credit
carryforwards for Federal income tax purposes of approximately $2.5 million and
$265,000, respectively. These carryforwards 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.
5. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
1997 1996
--------- -----------
Numerator:
Net income $ 1,661,677 $ 1,926,645
Denominator:
Denominator for basic earnings per share -
weighted average shares 2,941,241 2,906,205
Effect of dilutive securities:
Employee stock options 145,502 180,620
--------- -----------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions
3,086,743 3,086,825
========= ===========
Basic earnings per share $ .56 $ .66
========= ===========
Diluted earnings per share $ .54 $ .62
========= ===========
Options to purchase 125,000 shares of common stock at prices ranging from $2.13
to $3.07 per share were outstanding during 1997, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
F-12
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
6. Stock Option Plans
1991 and 1981 Stock Option Plans
In February 1997, 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
376,175 shares of common stock. The 1991 Plan expires in May 2001 and 92,842
shares were available for future grant as of January 3, 1998. The Company had a
1981 Incentive Stock Option Plan (the "1981 Plan") that expired in August 1991
and there were outstanding options to purchase 95,000 shares under this Plan at
January 3, 1998. Outstanding stock options under the two plans are exercisable
cumulatively in annual increments that range between one-third and one-fourth
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 certain 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.
A summary of the Company's 1981 and 1991 Plans' stock option activity and
related information for the years ended January 3, 1998 (fiscal 1997), and
December 28, 1996 are as follows:
1997 1996
------------------------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------------------------------------------------
Outstanding-beginning of year 233,334 $ 1.30 270,000 $ .53
Granted 50,000 1.88 90,000 2.68
Exercised (8,333) 1.44 (106,666) .43
Canceled (16,667) 1.44 (20,000) 1.91
---------------------------------------------------
Outstanding-end of year 258,334 $ 1.40 233,334 $ 1.30
===================================================
Exercisable at end of year 148,334 $ .70 136,667 $ .45
Weighted-average fair value of
options granted during the year $ 1.88 $ 2.68
F-13
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
6. Stock Option Plans (continued)
Exercise prices for options outstanding under the two Plans as of January 3,
1998 ranged from $.38 to $3.07. The weighted-average remaining contractual life
of those options is 3.8 years. A summary of the outstanding and exercisable
options at January 3, 1998, segregated by exercise price ranges, is as follows:
Options Outstanding Exercisable Options
- --------------------------------------------------------------------------------
Weighted-Average Weighted-
Weighted- Remaining Average
Exercise Price Average Contractual Exercise
Range Number Exercise Price Life (in years) Number Price
- --------------------------------------------------------------------------------
$.38 - $.41 128,334 $.39 3.7 128,334 $.38
$1.63 $2.13 50,000 1.88 4.5 - -
$2.38 - $3.07 80,000 2.72 3.5 20,000 2.72
======= =======
258,334 $1.40 3.8 148,334 $.70
======= =======
1991 Directors' Stock Option Plan
Under the 1991 Directors' Stock Option Plan (the "Directors' Plan"), 200,000
shares of the Company's common stock had been reserved for issuance as of
January 3, 1998, of which options to purchase 80,000 shares at per share
exercise prices that range from $0.1875 to $2.281 had been granted (60,000
shares had been granted as of December 28, 1996). During 1997, options to
purchase 15,000 shares were exercised at an exercise price of $.19. The
Directors Plan provides for the automatic grant of an option to purchase 15,000
shares upon first becoming an outside director (a "First Option"). In September
1997, the Directors' Plan was amended (subject to shareholder approval) whereby
non-employee directors who serve on the Board of Directors of the Company for
five years or more receive an automatic grant of 5,000 shares (a "Subsequent
Option") on the last business day of each fiscal year at an exercise prices
equaling the fair value of the Company's stock on such date. At January 3, 1998,
options to purchase an aggregate of 20,000 shares were granted to four
individuals under this amendment. First Options granted under the Directors'
Plan become exercisable cumulatively on the first, second and third
anniversaries of the grant date. Subsequent Options become fully exercisable on
the first anniversary of the grant date. The Directors' Plan expires February
2001.
F-14
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
6. Stock Option Plans (continued)
A summary of the Company's Directors' Plan stock option activity and related
information for the years ended January 3, 1998 (fiscal 1997), and December 28,
1996 are as follows:
1997 1996
---------------------------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
---------------------------------------------------
Outstanding-beginning of year 45,000 $ .19 60,000 $ .19
Granted 20,000 2.28 - -
Exercised - (15,000) .19
---------- --------------------------- ----------
Outstanding-end of year 65,000 $ .83 45,000 $ .19
========== =========================== ==========
Exercisable at end of year 45,000 $ .19 45,000 $ .19
Exercise prices per share for options outstanding as of January 3, 1998 ranged
from $ .19 to $2.28. The weighted-average remaining contractual life of those
options is 4.5 years. A summary of the outstanding and exercisable directors'
options at January 3, 1998, segregated by exercise price ranges, is as follows:
Options Outstanding Exercisable Options
- --------------------------------------------------------------------------------
Weighted-Average
Weighted- Remaining Weighted-
Exercise Price Average Contractual Average
Range Number Exercise Price Life (in years) Number Exercise Price
- --------------------------------------------------------------------------------
$.19 45,000 $.19 2.1 45,000 $.19
$2.28 20,000 2.28 10.0 - -
======= =======
65,000 $.83 4.5 45,000 $.19
======= =======
7. Stock-Based Compensation
The Company has three stock-based compensation plans: The 1991 Stock Option
Plan, The 1981 Incentive Stock Option Plan, and the 1991 Directors' Stock Option
Plan, all of which are described in Note 6 above.
F-15
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
7. Stock-Based Compensation (continued)
Pro forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997
and 1996, respectively: risk-free interest rates of 5.6% and 6.2%, dividend
yields of 0% and 0%; volatility factors of the expected market price of the
Company's common stock of .889 and .952, and a weighted-average expected life of
the options of 4.6 and 4.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The effect of
applying SFAS 123's fair value method to the Company's stock-based awards
results in pro forma information as follows:
1997 1996
------------------ ----------------------
Net income as reported $ 1,661,677 $ 1,926,645
================== ======================
Pro forma net income $ 1,640,060 $ 1,916,331
================== ======================
Earnings per share as reported:
Basic $ .56 $ .66
================== ======================
Diluted $ .54 $ .62
================== ======================
Pro forma earnings per share:
Basic $ .56 $ .66
================== ======================
Diluted $ .53 $ .62
================== ======================
F-16
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
7. Stock-Based Compensation (continued)
Because SFAS 123 is applicable only to options granted subsequent to December
15, 1994, its pro forma effect will not be fully reflected until fiscal 2000.
8. 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 years ended January 3, 1998 and December 28, 1996, the Board
authorized $200,000 and $175,000, respectively, in profit sharing distributions
to employees, which amount is included in accrued employee compensation and
benefits in the accompanying balance sheet.
9. Long-Term Debt
In October 1997, the Company renewed an existing revolving business loan
agreement (the "Loan Agreement") with a bank under which it may borrow up to
$400,000 at the bank's prime rate plus 1.5% (aggregating 10% at January 3,
1998). Interest is payable monthly up to the maturity date, October 14, 1998, at
which time all unpaid principal and interest become due. The Loan Agreement is
collateralized by substantially all of the Company's assets. The Loan Agreement
imposes certain limitations on the payment of dividends and incurrence of
additional indebtedness. At January 3, 1998, the Company had no outstanding
borrowings under this Loan Agreement.
In December 1997, the Company entered into a $145,000 promissory note (the
"Note") with the same bank for the purpose of acquiring equipment. Interest on
the Note accrues at a rate of 9.5%. Interest and principal are payable in
monthly installments of $4,654, with a final payment due in December 2000. The
Note is collateralized by substantially all of the Company's assets. The Note
imposes certain limitations on the payment of dividends and incurrence of
additional indebtedness. At January 3, 1998, the Company had an outstanding
balance of $145,000 under this Note.
F-17
<PAGE>
Hytek Microsystems, Inc.
Notes to Financial Statements (continued)
9. Long-Term Debt (continued)
Following are the scheduled principal reductions of the Note by fiscal year of
the Company:
1998 $ 43,951
1999 48,314
2000 52,735
===================
$ 145,000
===================
10. 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 Company also leases certain equipment
under noncancelable lease arrangements that are accounted for as capital leases.
Plant and equipment includes assets under capital leases amounting to $220,958
(net of accumulated amortization of $39,237) and $101,969 (net of accumulated
amortization of $0) at January 3, 1998 and December 28, 1996, respectively.
These capital leases are secured by the related equipment.
The aggregate future minimum lease payments under noncancelable capital and
operating leases are as follows at January 3, 1998:
Capital Operating
Leases Leases
---------------------------------------
1998 $ 100,119 $ 172,000
1999 93,207 173,000
2000 40,601 89,000
---------------------------------------
Total minimum payments 233,927 $ 434,000
==============
Less amount representing interest (28,134)
-------------
Present value of minimum lease payments 205,793
Less current obligations (82,752)
=============
Long-term obligations $ 123,041
=============
The Company's net rental expense charged to operations amounted to approximately
$281,000 and $252,000 in 1997 and 1996, respectively.
F-18
<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. as of
January 3, 1998 and December 28, 1996, and the related statements of income,
shareholder equity (deficit), 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
January 3, 1998 and December 28, 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Reno, Nevada /s/ Ernst & Young LLP
January 30, 1998
F-19
<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, 33-42836 and 333-27899) 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 January 30, 1998
with respect to the financial statements of Hytek Microsystems, Inc.
/s/Ernst & Young LLP
Reno, Nevada
March 23, 1998
F-20
<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 20, 1998
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 attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual 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 20, 1998
- -------------------- 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 16, 1998
- -------------------
Robert Boschert
/s/ Edward W. Moose Director March 16, 1998
- -------------------
Edward W. Moose
/s/ Edward Y. Tang Director March 16, 1998
- ------------------
Edward Y. Tang
/s/ Shou-Chen Yih Director March 16, 1998
- -----------------
Shou-Chen Yih
S-2
<PAGE>
HYTEK MICROSYSTEMS, INC.
Annual Report on Form 10-KSB
for the fiscal year ended January 3, 1998
EXHIBIT INDEX
(The Registrant will furnish to any shareholder who so requests a copy of this
Annual Report on Form 10-KSB, 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.)
Exhibit
Number Exhibit Description
- ------- --------------------------------------------------------------
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, 3.2 and 3.3.
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 (13) (*) 1991 Stock Option Plan, as amended February 7, 1997
(subject to shareholder approval).
10.3b (9) (*) Form of Agreement used under the 1991 Stock
Option Plan.
X-1 (Footnotes at end of index)
<PAGE>
Exhibit
Number Exhibit Description
- ------- --------------------------------------------------------------
10.4a (7) (*) 1991 Directors' Stock Option Plan and form of
Agreement thereunder.
10.4b (14) (*) 1991 Directors' Stock Option Plan as amended
September 11,1997 (subject to shareholder approval).
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 (14) Line of Credit Agreement dated October 14,
1997 between HytekMicrosystems, Inc. and
SierraWest Bank.
13.1 President's Letter to Shareholders dated
April 6, 1998, which together with
this Form 10-KSB comprises the Registrant's
1997 Annual Report to Shareholders.
21.1 The Registrant has no subsidiaries.
23.1 Consent of Independent Auditors
(see page F- 20).
24.1 Power of Attorney (see page S-1).
27.1 Financial Data Schedule.
Footnotes:
- ----------
(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.
(3) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-K for the year ended December 29, 1990.
X-2
<PAGE>
(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.
(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.
(12) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-KSB for the year ended December 30, 1995.
(13) Incorporated by reference to Exhibit filed with the Annual
Report on Form 10-KSB for the year ended December 28, 1996.
(14) Incorporated by reference to Exhibit filed with the Quarterly
Report On Form 10-QSB for the quarter ended September 27,
1997.
(*) 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.
X-3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Balance Sheet at January 3, 1998 and
Statement of Income at January 3, 1998.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 1,189,519
<SECURITIES> 0
<RECEIVABLES> 2,563,668
<ALLOWANCES> 50,000
<INVENTORY> 2,581,389
<CURRENT-ASSETS> 6,334,611
<PP&E> 3,401,703
<DEPRECIATION> 2,645,858
<TOTAL-ASSETS> 7,290,456
<CURRENT-LIABILITIES> 2,019,769
<BONDS> 224,090
0
0
<COMMON> 4,974,676
<OTHER-SE> 71,894
<TOTAL-LIABILITY-AND-EQUITY> 7,290,456
<SALES> 9,012,716
<TOTAL-REVENUES> 9,019,977
<CGS> 5,740,404
<TOTAL-COSTS> 7,335,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,181
<INCOME-PRETAX> 1,716,677
<INCOME-TAX> 55,000
<INCOME-CONTINUING> 1,661,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,661,677
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.54
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