Troubled Hytek reports slim profit

Hytek Microsystems Inc.

earned $60,000 in the quarter ended March 29, but the Carson City manufacturer still isn't out of the woods.

The company's auditors continue to worry about its ability to stay in business after several years of losses, and Hytek executives said the company faces some big challenges this year.

Hytek makes micro-electronic circuits used everywhere from military applications to medical instruments.

Its two biggest customers, the company said in a filing with the Securities and Exchange Commission a few weeks ago, are Medtronic A/S and Chesapeake Science Corp.

At the start of this year, Hytek employed 87.

The company said its first-quarter results essentially breaking even as revenues rose to $2.5 million, about 4 percent over year-earlier figures met the plan of its management.

"Although we are not satisfied, we are beginning to see incremental improvements in many aspects of our business," said John Cole, Hytek's president and chief executive officer.

A bigger question, however, is whether the company can overcome the aftermath of the past three years when it lost a total of $3.6 million.

In the filing with the SEC, Hytek said it's out of compliance with the terms of a loan with Bank of the West.

The bank hasn't called the loan, Hytek said, but a balloon payment of $165,000 is due this month in any case.

The company's auditors, meanwhile, raised a flag about the company's ability to stay in business.

Hytek said it thinks it can remain in operation at least through this year by boosting revenues and margins while trimming operating costs.

Revenues, executives said, are likely to run about the same as last year.

And Cole said last week that the company continues to "invest modestly" in newbusiness initiatives directed toward longer-term results.

But, the company acknowledged in its SEC filing that the company's stability may worry some of its customers.

Another worry arose in recent weeks when one of Hytek's biggest customers said that a part using Hytek parts was failing too often.

Hytek doesn't think the problem is the result of its chips.

Yet another headache came in February, when the Business Software Alliance started asking whether Hytek is using software without the proper licenses.

The company said it's auditing its system to make sure it complies.

The company's income of $60,000 in the first quarter of this year compared with a loss of $167,000 in the comparable period a year ago.

One factor contributing to the turnaround was an additional $119,000 that Hytek earned from the sale of scrap material from its manufacturing operations.