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 July 4, 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 July 31, 1998, the issuer had outstanding 3,039,758 shares of Common
Stock, no par value.
1
<PAGE>
HYTEK MICROSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED JULY 4, 1998
INDEX
Page
Number
------
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheet at July 4, 1998 (unaudited) and
January 3, 1998 . . . . . . . . . . . . . . 3
Statement of Income (unaudited) for the Quarters and Six
Months ended July 4, 1998 and June 28, 1997 . . . . . 4
Statement of Cash Flows (unaudited) for the Quarters and Six
Months ended July 4, 1998 and June 28, 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 4. Submission of Matters to a Vote of Security Holders . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 14
2
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PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
HYTEK MICROSYSTEMS, INC.
BALANCE SHEET
July 4, 1998 January 3, 1998
Assets (Unaudited)
------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,971,955 $1,189,519
Trade accounts receivable - net of
allowance for doubtful accounts
of $50,000 at 7/4/98 and 1/3/98 2,110,876 2,513,668
Inventories 1,983,202 2,581,389
Prepaid expenses and deposits 80,271 50,035
--------- ---------
Total current assets 7,146,304 6,334,611
Deferred income taxes 200,000 200,000
Plant and equipment, at cost, less
accumulated depreciation and amortization 820,306 755,845
------- -------
Total assets $8,166,610 $7,290,456
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $539,713 $1,308,335
Accrued employee compensation and benefits 333,091 349,725
Accrued warranty, commissions and other 167,541 206,569
Customer deposits 28,464 28,464
Current portion of long-term debt 48,333 43,951
Current obligations under capital leases 70,823 82,752
-------- ----------
Total current liabilities 1,187,965 2,019,796
Long-term debt, less current portion 72,000 101,049
Long-term obligations under capital lease 91,478 123,041
Shareholders' equity:
Common Stock, no par value: 7,500,000 shares
authorized, 3,019,758 shares and 2,941,424
shares issued and outstanding at 7/4/98
and 1/3/98, respectively 4,998,893 4,974,676
Retained earnings 1,816,274 71,894
--------- ---------
Total shareholders' equity 6,815,167 5,046,570
--------- ---------
Total liabilities and shareholders' equity $8,166,610 $7,290,456
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF INCOME
(Unaudited)
Quarters and six months ended July 4, 1998 and June 28, 1997
<TABLE>
Quarter ended Six months ended
------------- ----------------
7/4/98 6/28/97 7/4/98 6/28/97
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net revenues $3,689,794 $2,181,844 $7,277,087 $3,768,639
Costs and expenses:
Cost of sales 2,364,362 1,480,574 4,545,085 2,624,847
Engineering and development 239,082 183,848 463,541 358,409
Selling, general and
administrative 250,059 174,348 521,986 332,400
--------- --------- --------- ---------
Total costs and expenses 2,853,503 1,838,770 5,530,612 3,315,656
--------- --------- --------- ---------
Operating income 836,291 343,074 1,746,475 452,983
Interest income 15,612 7,744 27,529 19,756
Interest expense 5,225 871 9,824 2,847
------ ----- --------- -------
Income before provision
for income taxes 846,678 349,947 1,764,180 469,892
Provision for income taxes 19,800 15,000 19,800 40,000
------- ------- --------- -------
Net income $826,878 $334,947 $1,744,380 $429,892
========= ========= ========== =========
Basic earnings per share $0.28 $0.11 $0.59 $0.15
Diluted earnings share $0.26 $0.11 $0.55 $0.14
Shares used in calculating basic
earnings per share 2,992,480 2,941,424 2,968,860 2,941,424
Shares used in calculating diluted
earnings per share 3,176,803 3,075,538 3,152,407 3,083,361
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF CASH FLOWS
(unaudited)
Quarters and Six Months Ended July 4, 1998 and June 28, 1997
Increase (decrease) in cash and cash equivalents
Quarter Ended Six Months Ended
----------------------------------- -------------------------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $826,878 $334,947 $1,744,380 $429,892
Adjustments to reconcile net income to
cash flow provided by (used in) operations:
Depreciation and amortization 48,883 31,516 101,955 61,400
Accounts receivable 318,160 70,587 402,792 (310,216)
Inventories 150,040 428,168 598,187 37,879
Prepaid expenses and deposits (2,974) (6,992) (30,236) (12,617)
Accounts payable 199,983 (328,675) (768,622) 13,772
Accrued employee compensation and benefits 35,939 77,344 (16,634) (171,663)
Accrued warranty, commissions and other (23,201) 1,516 (39,028) (31,709)
Customer pre-payments 0 (57,932) - (107,295)
---------- -------- ---------- ---------
Net cash provided by (used in) operating 1,553,708 550,479 1,992,794 (90,557)
activities
Cash flows from investing activities:
Purchases of equipment (73,361) (98,386) (166,416) (126,610)
-------- -------- --------- ---------
Net cash used in investing activities (73,361) (98,386) (166,416) (126,610)
Cash flows from financing activities:
Principal payments on long-term debt (12,584) - (24,667) -
Payment of capital lease obligations (21,183) (5,665) (43,492) (19,828)
Proceeds from exercise of stock options 17,050 - 24,217 12,000
--------- ------- -------- --------
Net cash used in financing activities (16,717) (5,665) (43,942) (7,828)
Net increase (decrease) in cash and cash equivalents 1,463,630 446,428 1,782,436 (224,995)
Cash and cash equivalents at beginning of period 1,508,325 755,293 1,189,519 1,426,716
--------- ------- --------- ---------
Cash and cash equivalents at end of period $2,971,955 $1,201,721 $2,971,955 $1,201,721
========== ========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
HYTEK MICROSYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JULY 4, 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 July 4, 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
July 4, 1998 for this lease were:
1998 $81,210
1999 164,856
2000 169,800
2001 to 2005 828,678
-------
$1,244,544
----------
3. Inventories are stated at the lower of cost (determined using the
first-in, first-method) or market. Inventories consisted of:
7-4-98 1-3-98
Raw Material $912,407 $1,261,612
Work-In-Process 1,001,897 1,287,720
Finished Goods 68,898 32,057
--------- ----------
$1,983,202 $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.
6
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Item 2. Management's Discussion and Analysis or
Plan of Operation
For the purposes of the following discussion, dollar amounts have been
rounded to the nearest $1,000 and all percentages have been rounded to the
nearest 1%.
This interim report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
various factors, including the risk factors set forth below. The Company has
attempted to identify forward-looking statements by placing an asterisk
immediately following the sentence or phrase containing the forward-looking
statement(s).
Results of Operations
- ---------------------
Net revenues for the second quarter ended July 4, 1998 increased 69% from
net revenues for the quarter ended June 28, 1997. Net revenues for the quarter
ended July 4, 1998 were $3,690,000 as compared to $2,182,000 for the quarter
ended June 28, 1997. Net revenues for the six months ended July 4, 1998
increased 93% from net revenues for the six months ended June 28, 1997. Net
revenues for the two six-month periods were $7,277,000 and $3,769,000,
respectively.
The increase in revenues in both the quarter and six-month periods of 1998,
as opposed to 1997, is primarily a result of higher unit volume of shipments to
Chesapeake Sciences Corp., the Company's largest customer.
The Company's backlog of customer orders was $8,490,000 at July 4, 1998 as
compared to $6,052,000 at June 28, 1997, and $7,676,000 at January 3, 1998.
Approximately $4,885,000, or 57% of the total backlog, relates to orders from
Chesapeake Sciences Corp. Because customers may place orders for delivery at
various times throughout the year, and due to the possibility of customer
changes in delivery schedules or cancellation of orders with little or no
penalty, the Company's backlog as of any particular date may not be indicative
of actual future sales.*
Cost of sales was $2,364,000, or 64% of net revenues, for the quarter ended
July 4, 1998, as compared to $1,481,000, or 68% of net revenues, for the quarter
ended June 28, 1997. Cost of sales for the six months ended July 4, 1998 was
$4,545,000, or 62% of net revenues, as compared to $2,625,000, or 70% of net
revenues, for the six months ended June 28, 1997. This decrease in cost of sales
as a percentage of net revenues is primarily a result of spreading fixed costs
over a much larger revenue base, combined with manufacturing efficiencies gained
from higher volume production.
Engineering and development expenses were $239,000, or 6% of net revenues,
for the quarter ended July 4, 1998, as compared to $184,000, or 8% of net
revenues for the quarter ended June 28, 1998. Engineering and development
expenses for the six months ended July 4, 1998 were $464,000, or 6% of net
7
<PAGE>
revenues, as compared to $358,000, or 10% of net revenues, for the six
months ended June 28, 1997. This increase in the dollar amount of engineering
and development expenses for the quarter and six-month periods is the result of
increased staffing and compensation levels required to satisfy customer delivery
and technical requirements. The Company is expanding its technology resources to
provide better service to existing customers and be in a stronger position to
capture new business opportunities.
Selling, general and administrative expenses increased to $250,000, or 7%
of net revenues, for the quarter ended July 4, 1998, as compared to $174,000, or
8% of net revenues, for the quarter ended June 28, 1997. Selling, general and
administrative expenses for the six months ended July 4, 1998 were $522,000, or
7% of net revenues, as compared to $332,000, or 9% of net revenues, for the six
months ended June 28, 1997. The increase in selling, general and administrative
expense for the quarter and six-month period is attributable to the expansion of
our sales and marketing efforts and the overall growth of the Company.
Compensation, sales commissions, travel expenses and general operating costs
have all increased.
The Company had an operating profit of $836,000 for the quarter ended July
4, 1998, as compared to operating profit of $343,000 for the quarter ended June
28, 1997. The Company had an operating profit of $1,746,000 for the six months
ended July 4, 1998, as compared to an operating profit of $453,000 for the six
months ended June 28, 1997. The increase in quarterly and six-month profit was
primarily attributable to increased sales volume.
Net interest income was $10,000 for the quarter and $18,000 for the six
months ended July 4, 1998 as compared to $7,000 and $17,000 for each of the
comparable prior year periods.
Income tax expense of $20,000 was recognized in the quarter and six months
ended July 4, 1998 as a result of the alternative minimum tax. Income tax
expense in the prior year quarter and six- month period was $15,000 and $40,000,
respectively. 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.
Liquidity and Capital Resources
- -------------------------------
The Company had $2,972,000 in cash and cash equivalents at July 4, 1998, as
compared to $1,190,000 at January 3, 1998. This increase of $1,782,000 from year
end is comprised of $1,993,000 generated from operating activities (primarily
net income), $166,000 used for the purchase of capital equipment and $44,000
used in financing activities.
Accounts receivable were $2,111,000 at July 4, 1998, as compared to
$2,514,000 at January 3, 1998. This decrease is primarily attributable to an
improved payment cycle time by the Company's largest customer.
Inventories were $1,983,000 at July 4, 1998, as compared to $2,581,000 at
January 3, 1998. This decrease is attributable to improvements in the scheduling
of raw material procurement and reductions in the production cycle time on the
Company's largest program.
8
<PAGE>
Accounts payable were $540,000 at July 4, 1998 as compared to $1,308,000 at
January 3, 1998. This change is attributable raw material scheduling combined
with a faster vendor payment cycle.
Accrued employee compensation and benefits were $333,000 at July 4, 1998,
as compared to $350,000 at January 3, 1998. This decrease is primarily the
result of variances in amounts currently accrued for employee profit sharing and
the timing differences in payroll periods.
Accrued warranty, commissions and other accrued liabilities were $168,000
at July 4, 1998, as compared to $207,000 at January 3, 1998. This reduction is
the net effect of normal ongoing accruals for sales commission expense, legal
and audit fees and shareholder related expenses, combined with the payment
during the first six months of 1998 of expenses accrued in 1997.
At July 4, 1998, the Company had Promissory Note and capital lease
obligations, for the purpose of financing production equipment, with SierraWest
Bank, in the amount of $283,000. The current portion of this indebtedness is
$119,000 at July 4, 1998, with the remaining portion of $164,000 classified as
long-term debt. These obligations bear annual interest rates of 9.5% to 10.75%.
The Company also has a line of credit for $400,000 with SierraWest Bank,
which expires in October 1998 and bears interest at the prime rate plus 1.5%. At
July 4, 1998, the Company was in compliance with all of the covenants of this
loan agreement and no amounts were outstanding.
Future Outlook
- --------------
The first six months of fiscal 1998 has shown significant growth over the
results from the prior year period. New customer orders and increased activity
from existing customers are the driving forces behind these improved results.
The Company's investment in expanding both our sales and technical capabilities
and resources is beginning to pay off. Our expanded presence in the marketplace
is generating new potential customers in markets previously not served by the
Company. We will continue to expand our capability, as prudent opportunities
arise, so that we are solidly positioned to continue our recent pattern of
growth in both revenues and earnings.*
With our six-month results, current backlog and customer delivery
requirements, 1998 looks to be a very strong year for both revenue and
earnings.* Current projections indicate that 1998 will yield significant
improvement over the prior year.* In addition, and in spite of fluctuations and
uncertainties in the global oil markets, our geophysical exploration customers
advise us that they currently have a positive outlook for continuing business
over the next two years.*
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 that have eliminated any anticipated potential
problems with the year 2000.
9
<PAGE>
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.*
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.* However, since the Company desires to expand its
technological base and production capacity, investments in resources, requiring
additional 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 Company's backlog of unfilled orders increased during the six months
ended July 4, 1998. Orders from Chesapeake Sciences Corp. continue to represent
the largest portion of the Company's current backlog. Any cancellation or
delayed delivery of orders by, or disruption of operations at, Chesapeake
Sciences Corporation or any other major customer would have a material adverse
impact on the Company's future operating results.
The foregoing discussion contains statements that are forward-looking.
Actual results could differ materially. The primary factors that could cause a
material difference in actual results include customer cancellation or
rescheduling of orders, problems affecting delivery of vendor-supplied raw
materials and components or the inability to attract qualified personnel
sufficient to meet customer requirements. The Company disclaims any
responsibility to update the forward-looking statements contained herein, except
as may be required by law.
10
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The Annual Meeting of Shareholders of the Company was held on
May 15, 1998 (the "Meeting").
(b) The following directors were elected at the Meeting:
Shou-Chen Yih
Charles S. Byrne
Robert Boschert
Edward W. Moose
Edward Y. Tang
(c) The results of the vote on each matter submitted to the
shareholders at the Meeting were as follows:
Election of Directors: For Withheld
--- --------
Shou-Chen Yih 2,526,693 2,800
--------- -----
Charles S. Byrne 2,526,693 2,800
--------- -----
Robert Boschert 2,526,693 2,800
--------- -----
Edward W. Moose 2,526,693 2,800
--------- -----
Edward Y. Tang 2,526,693 2,800
--------- -----
Approval of Amendment to 1991 Directors Stock Option Plan:
For 2,394,188
---------
Against 132,855
---------
Abstained 2,450
---------
Broker Non-Votes 0
---------
Ratification of the selection of Ernst & Young to serve
as auditors for fiscal 1998:
For - 2,528,193
---------
Against - 800
---------
Abstained - 500
---------
Broker Non-Votes - 0
---------
(d) Not applicable.
The foregoing matters are described in more detail in the issuer's
definitive proxy statement dated April 6, 1998 relating to the Annual Meeting of
Shareholders held on May 15, 1998.
11
<PAGE>
Item 5. Other Information
-----------------
On July 27, 1998, the Company's Common Stock was re-listed for trading
on the Nasdaq Small Cap Market under the symbol "HTEK".
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended
July 4, 1998.
12
<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: August 3, 1998 By: /s/ Sally B. Chapman
--------------------
Sally B. Chapman
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
HYTEK MICROSYSTEMS, INC.
Quarterly Report on Form 10-QSB
for the Quarter ended July 4, 1998
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------ -------------------
27.1 Financial Data Schedule.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BALANCE SHEET AT JULY 4, 1998, STATEMENT OF INCOME AT JULY 4, 1998
</LEGEND>
<CIK> 0000715593
<NAME> HYTEK MICROSYSTEMS, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> JUL-04-1998
<EXCHANGE-RATE> 1.00
<CASH> 2,971,955
<SECURITIES> 0
<RECEIVABLES> 2,160,876
<ALLOWANCES> 50,000
<INVENTORY> 1,983,202
<CURRENT-ASSETS> 7,146,304
<PP&E> 3,565,951
<DEPRECIATION> 2,745,645
<TOTAL-ASSETS> 8,166,610
<CURRENT-LIABILITIES> 1,187,965
<BONDS> 163,478
0
0
<COMMON> 4,998,893
<OTHER-SE> 1,816,274
<TOTAL-LIABILITY-AND-EQUITY> 8,166,610
<SALES> 7,274,830
<TOTAL-REVENUES> 7,277,087
<CGS> 4,545,085
<TOTAL-COSTS> 5,530,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,824
<INCOME-PRETAX> 1,764,180
<INCOME-TAX> 19,800
<INCOME-CONTINUING> 1,744,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,744,380
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.55
</TABLE>
