UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1999
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 April 30, 1999, the issuer had outstanding 3,064,758 shares of Common
Stock, no par value.
<PAGE>
HYTEK MICROSYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED APRIL 3, 1999
INDEX
Page
Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Balance Sheet at April 3, 1999 (unaudited) and
January 2, 1999 . . . . . . . . . . . . . . . . . 3
Statement of Income (unaudited) for the Quarters ended
April 3, 1999 and April 4, 1998 . . . . . . . . . . . 4
Statement of Cash Flows (unaudited) for the Quarters ended
April 3, 1999 and April 4, 1998 . . . . . . . . . . . 5
Notes to Interim Financial Statements (unaudited) . . . . . . 6
Item 2. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . . .7
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
PART 1. - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
HYTEK MICROSYSTEMS, INC.
BALANCE SHEET
April 3, 1999 January 2, 1999
Assets (Unaudited)
- ------ -------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,069,874 $ 2,637,182
Trade accounts receivable - net of
allowance for doubtful accounts
of $50,000 at 4/3/99 and 1/2/99 1,749,049 1,918,265
Inventories 2,696,505 2,481,707
Prepaid expenses and deposits 107,683 38,932
-------------- --------------
Total current assets 6,623,111 7,076,086
Deferred income taxes 200,000 200,000
Plant and equipment, at cost, less
accumulated depreciation and amortization 909,924 999,027
-------------- --------------
Total assets $ 7,733,035 $ 8,275,113
============== ==============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 235,438 $ 312,430
Accrued employee compensation and benefits 209,858 404,284
Accrued warranty, commissions and other 172,021 193,509
Customer deposits - -
Current portion of long-term debt 49,470 48,313
Current obligations under capital leases 55,037 53,850
-------------- --------------
Total current liabilities 721,824 1,012,386
Long-term debt, less current portion 39,926 52,736
Long-term obligations under capital lease 24,496 38,709
Shareholders' equity:
Common Stock, no par value: 7,500,000 shares
authorized, 3,064,758 shares and 3,039,758
shares issued and outstanding at 4/3/99
and 1/2/99, respectively 5,016,468 5,007,093
Retained earnings 1,930,321 2,164,189
-------------- --------------
Total shareholders' equity 6,946,789 7,171,282
-------------- --------------
Total liabilities and shareholders equity $ 7,733,035 $ 8,275,113
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF INCOME
(Unaudited)
Quarters ended April 3, 1999 and April 4, 1998
4/3/99 4/4/98
----------------- -----------------
<S> <C> <C>
Net revenues $ 1,717,128 $ 3,587,294
Costs and expenses:
Cost of sales 1,423,723 2,180,723
Engineering and development 243,460 224,460
Selling, general and
administrative 285,711 271,927
----------------- -----------------
Total costs and expenses 1,952,894 2,677,110
----------------- -----------------
Operating income (loss) (235,766) 910,184
Interest income 21,001 11,917
Interest expense 4,238 4,599
----------------- -----------------
Income (loss) before provision
for income taxes (219,003) 917,502
Provision for income taxes (14,865) --
----------------- -----------------
Net income (loss) $ (233,868) $ 917,502
================= =================
Basic earnings (loss) per share $ (0.08) $ 0.31
Diluted earnings (loss) per share $ (0.08) $ 0.29
Shares used in calculating
basic earnings per share 3,050,036 2,945,239
Shares used in calculating
diluted earnings per share 3,050,036 3,126,924
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
HYTEK MICROSYSTEMS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Quarters Ended April 3, 1999 and April 4, 1998
Increase (decrease) in cash and cash equivalents
4/3/99 4/4/98
-------------- ---------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (233,868) $ 917,502
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 91,221 53,072
Accounts receivable, net 169,216 84,632
Inventories (214,798) 448,147
Prepaid expenses and deposits (68,751) (27,262)
Accounts payable (76,992) (968,605)
Accrued employee compensation and benefits (194,426) (52,573)
Accrued warranty, commissions and other (21,488) (15,827)
-------------- ---------------
Net cash provided by (used in) operating activities (549,886) 439,086
Cash flows from investing activities:
Cash purchases of equipment (2,118) (93,055)
-------------- ---------------
Net cash used in investing activities (2,118) (93,055)
Cash flows from financing activities:
Principal payments on capital lease obligations (13,026) (22,309)
Principal payments on long-term debt (11,653) (12,083)
Proceeds from exercise of stock options 9,375 7,167
Short-term borrowings - -
-------------- ---------------
Net cash used in financing activities (15,304) (27,225)
Net increase (decrease) in cash and cash equivalents (567,308) 318,806
Cash and cash equivalents at beginning of period 2,637,182 1,189,519
-------------- ---------------
Cash and cash equivalents at end of period $ 2,069,874 $ 1,508,325
============== ===============
</TABLE>
See accompanying notes.
<PAGE>
HYTEK MICROSYSTEMS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
APRIL 3, 1999
(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 2, 1999, 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 April 3, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending January 1, 2000. The Company operates on a
52/53 week fiscal year, which approximates the calendar year.
2. The Company leases its main Carson City facility pursuant to a
continuing lease expiring in 2005. It also leases a small amount of office space
pursuant to a lease expiring in March 2000. The aggregate future minimum rental
commitments as of April 3, 1999 for these leases were:
1999 $136,091
2000 173,747
2001 - 2005 828,678
----------
$1,138,516
3. Inventories are stated at the lower of cost (determined using the
first-in, first-out method) or market. Inventories consisted of:
4-3-99 1-2-99
---------- ----------
Raw Material $1,329,564 $1,285,543
Work-In-Process 1,034,097 1,031,896
Finished Goods 332,844 164,268
---------- ----------
$2,696,505 $2,481,707
---------- ----------
4. Plant and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful life of the assets, generally
three to eight years.
5. In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share". This Statement established standards for computing
and presenting earnings per share (EPS) and applies to entities that are
publicly held. This Statement simplifies the standards for computing EPS
presently contained in Accounting Principles Board Opinion No. 15, "Earnings Per
Share". This Statement replaces the presentation of primary and fully diluted
EPS under APB No. 15 with the presentation of basic and diluted EPS. The Company
adopted the provisions of this Statement during the year ended January 3, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 Quarterly 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 under "Future
Outlook" and elsewhere in this section. The Company has attempted to identify
forward-looking statements by placing an asterisk immediately following the
sentence or phrase containing the forward-looking statement(s). All statements
made herein are made as of the date of filing of this Form 10-QSB. The Company
disclaims any duty to update such statements after the date of filing of this
Form 10-QSB, except as required by law.
RESULTS OF OPERATIONS
Net revenues for the quarter ended April 3, 1999 were $1,717,000,
representing a 52% decrease from net revenues of $3,587,000 for the quarter
ended April 4, 1998. This large reduction in net revenues is the result of a
customer requested "hold" placed on shipments by the Company to its largest
customer, Chesapeake Sciences Corp., in mid-February. This "hold" results from
the combined effect of low crude oil prices and a current abundant supply of
oil, which has curtailed the current demand for additional marine geophysical
exploration hardware. Net revenues from shipments to Chesapeake Sciences Corp.
amounted to $408,000 (24% of net revenues) for the first quarter of 1999, as
compared to $2.2 million (64% of net revenues) during the first quarter of 1998.
Cost of sales was $1,424,000 or 83% of net revenues, for the quarter ended
April 3, 1999 as compared to $2,181,000, or 61% of net revenues, for the quarter
ended April 4, 1998. This large increase in cost of sales as a percentage of net
revenues is the result of spreading fixed costs over a much smaller revenue
base.
Engineering and development expenses were $243,000, or 14% of net revenues,
for the quarter ended April 3, 1999, as compared to $224,000, or 6% of net
revenues, for the quarter ended April 4, 1998. Increased engineering and
development expenditures are a direct result of higher employee compensation
costs attributable to increases in professional engineering staff.
Selling, general and administrative expenses were $286,000, or 17% of net
revenues, for the quarter ended April 3, 1999, as compared to $272,000, or 8% of
net revenues, in the quarter ended April 4, 1998. This increase in dollar amount
is primarily the result of increases in compensation costs due to higher
staffing levels, partially offset by decreases in commission, travel and data
processing expenses.
<PAGE>
As a result of the significant and unanticipated reduction in revenue, the
Company had an operating loss of $236,000 for the quarter ended April 3, 1999 as
compared to operating profit of $910,000 for the quarter ended April 4, 1998.
Net interest income was $17,000 for the quarter ended April 3, 1999 as
compared to $7,000 for the quarter ended April 4, 1998, as a result of increased
cash balances in interest- bearing accounts.
Income tax expense of $15,000 was recognized for the quarter ended April 3,
1999 as compared to no income tax expense for the prior year period. The Company
has remaining future tax credit carryforwards for federal income tax purposes at
January 2, 1999 of approximately $134,000. These carryforwards will not expire.
The Company's backlog of deliverable customer orders was $3,756,000 at
April 3, 1999, as compared to $7,841,000 at April 4, 1998, and $9,390,000 at
January 2, 1999. This large reduction in deliverable backlog from prior year-end
results from the "indefinite hold" placed on delivery by Chesapeake on
approximately $4,800,000 of orders. 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, the Company's
backlog as of any particular date may not be indicative of actual future sales.
As a result of the hold on delivery of Chesapeake orders, the Company has
reduced its direct production and production support work force by 32 employees.
In addition, executive, technical and administrative staff compensation has been
temporarily reduced and capital equipment expenditures curtailed. The Company's
technical engineering staff is critical to our efforts to attract and support
new business opportunities therefore there have been no personnel reductions in
this area.
INFORMATION AND DATA PROCESSING SYSTEMS (YEAR 2000)
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 were represented by the supplier to have
eliminated any anticipated potential problems with the Year 2000.
Further, the Company has over 40 individual computer work-stations attached
to the network, all of which have been individually tested and found to be Year
2000 compliant. The Company has also initiated a survey of its major material
suppliers regarding their state of preparation and action to avert Year 2000
problems. As of the date of this filing, approximately 61% of these suppliers
have responded to this survey and all respondents are anticipating timely Year
2000 compliance. The Company is making additional contact with non-respondents
at this time. The Company anticipates that its supplier survey will be complete
by June 30, 1999.
<PAGE>
The cost of the Company's preparations for Year 2000 computer readiness
have been minimal thus far and as of this filing are estimated to be
approximately $25,000. All costs have been funded through operating cash flow.
Future costs are not expected to be material at this time.
In addition, the Company believes that its major customers and financial
institutions have taken, or are in process of taking, actions sufficient to
protect the Company from adverse effects of the Year 2000 in their own internal
systems.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. In the event that the Company
and its third parties do not complete all additional Year 2000 efforts in a
timely manner, or that its remediation efforts do not resolve the anticipated
problems, disruptions in the Company's day-to-day operations may occur. In
addition, disruptions in the economy in general resulting from Year 2000 issues
could also materially adversely affect the Company. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
At the present time, the Company does not have a formal contingency plan in
the event it does not successfully complete all phases of its Year 2000 efforts.
The Company plans to evaluate the status of its progress in June 1999 and
determine if such a plan is necessary.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased to $2,070,000 at April 3, 1999, from
$2,637,000 at January 2, 1999. This decrease is the combined result of $550,000
used in operating activities, $2,000 used to purchase capital equipment and
$15,000 used in financing activities.
Accounts receivable were $1,749,000 at April 3, 1999, as compared to
$1,918,000 at January 2, 1999. This decrease is primarily attributable to
reduced sales during the current quarter, partially offset by reduced
collections. At April 3, 1999, approximately $1,043,000, or 58% of total
receivables, were in excess of 60 days, virtually all of which relates to
Chesapeake Sciences Corp. As of May 10, 1999, Chesapeake has paid $681,000 of
this amount and the remaining balance is anticipated in the near future.*
Inventories were $2,697,000 at April 3 1999, as compared to $2,482,000 at
January 2, 1999. This increase is the result of a small increase in raw
materials combined with a larger amount of Chesapeake product that was completed
and held in finished goods. The Chesapeake inventory carries the risk of a
potential future write-down. (See Note 3. Of Notes to Interim Financial
Statements on page 6.)
Prepaid expenses and deposits were $108,000 at April 3, 1999 as compared to
$39,000 at January 2, 1999. This increase reflects normal ongoing business
transactions.
<PAGE>
Accounts payable were $235,000 at April 3, 1999, as compared to $312,000 at
January 2, 1999, reflecting an overall reduced level of procurement activity.
Accrued employee compensation and benefits were $210,000 at April 3, 1999
as compared to $404,000 at January 2, 1999. This reduction is the combined
result of payment, during the first quarter, of the 1998 accrued employee profit
sharing earned in fiscal 1998, together with changes in the timing of payroll
accruals at quarter end and the personnel reductions made in late February.
Accrued warranty, commissions and other expenses were $172,000 at April 3,
1999 as compared to $194,000 at January 2, 1999. This reduction is the net
effect of normal ongoing accruals combined with the payment during the first
quarter of 1999 of sales commissions and audit fees that had been accrued during
1998.
At April 3, 1999, the Company had Promissory Note and capital lease
obligations, for the purpose of financing production equipment, with SierraWest
Bank, in the amount of $169,000. The current portion of this indebtedness is
$105,000 at April 3, 1999, with the remaining portion of $64,000 classified as
long-term debt. These obligations bear annual interest at rates of 9.5% to
10.75%.
The Company also has a line of credit for $1,000,000 with SierraWest Bank,
which expires in May 2000 and bears interest at the prime rate. At April 3, 1999
and January 2, 1999, the Company was in compliance with all of the covenants of
this loan agreement and no amounts were outstanding.
FUTURE OUTLOOK
The Company, historically, has been very dependent on a single large
customer, Chesapeake Sciences Corp., that accounted for 64% of the Company's
1998 net revenues. As recently announced, and as a result of current low market
prices for crude oil combined with a market "glut" on the crude oil supply side,
Chesapeake has placed their current orders with the Company, valued at
approximately $4.8 million, on an indefinite "hold status". Although no orders
have been cancelled at this point, it cannot be determined at this time when or
if shipments to Chesapeake will resume. The Company currently does not
anticipate any further shipments to Chesapeake for the remainder of 1999.* The
oil exploration market has a history of cyclical activity. While the Company
believes that this market will eventually recover, there are no firm predictions
as to the timing of any recovery, or any guarantees that such a recovery will
take place. This recent change will have a large negative impact on revenues and
operating results for fiscal 1999.
At April 3, 1999, the Company's backlog of shippable customer orders for
the remainder of 1999 was approximately $2,900,000. The Company needs to book
another $1.5 to $2.5 million in new business to achieve its previous 1999
revenue estimate of $6 to $7 million. At the present time, however, there is no
assurance that such new business can or will be captured in time to have an
impact on 1999 operating results. Further changes or delays in existing delivery
<PAGE>
schedules could also have a negative impact on the Company's operating results.*
The Company currently believes that results of operations and its existing line
of credit will provide sufficient cash to meet operating needs over the next
twelve months.*
Since 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, the Company's backlog at any particular date may not
be a reliable indicator of actual future sales.
In addition to the negative impact of the current Chesapeake "hold status",
the Company has approximately $1,500,000 in raw material, work-in-process and
finished goods inventory for the Chesapeake program. While the Company has
certain rights to recover costs in the event of outright termination of these
orders, there is currently no assurance that all inventory costs can or would be
recovered. The potential for a write-down of inventory value exists in the event
of the future termination of these orders.
Further, the Company anticipates that gross margins will be reduced in 1999
from prior year levels as a result of spreading fixed costs over a smaller
revenue base.
The Company is currently attempting to expand its outside Sales
Representative force as an additional means to attract additional new business.*
As these individuals are compensated strictly on a commission basis on shipment
of orders, there is no "up-front" expense involved in expanding in this area.
The foregoing discussion contains forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Actual results could differ materially. Investors are warned
that forward-looking statements involve risks and uncertainties including, but
not limited to, customer cancellation or rescheduling of orders, problems
affecting delivery of raw materials and components, unanticipated technical and
manufacturing problems and availability of direct labor resources. The Company
disclaims any responsibility to update the forward-looking statements contained
herein, except as may be required by law.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended
April 3, 1999.
<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: May 7, 1999 By: /s/ Sally B. Chapman
-------------------------
Sally B. Chapman
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
HYTEK MICROSYSTEMS, INC.
Quarterly Report on Form 10-QSB
for the Quarter ended April 3, 1999
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------ -------------------
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Balance Sheet at April 3, 1999, Statement of Income at April 3, 1999. Other
SE is retained earnings. Interest Expense is net interest income.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 2,069,874
<SECURITIES> 0
<RECEIVABLES> 1,749,049
<ALLOWANCES> 50,000
<INVENTORY> 2,696,505
<CURRENT-ASSETS> 6,623,111
<PP&E> 3,918,242
<DEPRECIATION> 3,008,318
<TOTAL-ASSETS> 7,733,035
<CURRENT-LIABILITIES> 721,824
<BONDS> 64,422
<COMMON> 5,016,468
0
0
<OTHER-SE> 1,930,321
<TOTAL-LIABILITY-AND-EQUITY> 7,733,035
<SALES> 1,716,226
<TOTAL-REVENUES> 1,717,128
<CGS> 1,423,723
<TOTAL-COSTS> 1,952,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16,763)
<INCOME-PRETAX> (219,003)
<INCOME-TAX> 14,865
<INCOME-CONTINUING> (233,868)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (233,868)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
