<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities exchange
Act of 1934
For the quarterly period ended September 30, 1996.
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from ___________ to ___________.
Commission File Number 0-13257.
NORTECH SYSTEMS INCORPORATED
-----------------------------
(Exact name of registrant as specified in its chapter)
MINNESOTA 41-1681094
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
641 East Lake Street - Suite 234 - Wayzata, MN 55391
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(Address of principal executive offices) (Zip Codes)
(612) 473-4102
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
- -------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 per share per value.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the securities Exchange Act of 1934 during
the preceding 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
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APPLICABLE ONLY TO CORPORATE REGISTRANTS;
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable data.
As of October 31, 1996, there were 2,362,263 shares of the Company's $.01 per
share par value common stock outstanding.
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NORTECH SYSTEMS INCORPORATED
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements ....................................... 4-8
Item 2 - Management's Discussion, Analysis of Financial Condition
and Results of Operations ............................. 9
PART II - OTHER INFORMATION
Item 2 - Exhibits and Reports on Form 8-K ........................... 10
SIGNATURES ................................................................ 11
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
SEPT. 30 DECEMBER 31
ASSETS 1996 1995
(UNAUDITED) (AUDITED)
------------- ------------
Current Assets
Cash and cash equivalents $ 589,937 $ 924,590
Accounts receivable, net 2,816,629 1,856,219
Inventories:
Finished goods 140,514 205,879
Work in process 1,694,446 1,676,949
Raw materials 3,142,126 1,972,384
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Total inventories $ 4,977,086 $ 3,855,212
Prepaid expenses and other 532,478 561,701
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Total current assets $ 8,916,130 $ 7,197,722
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PLANT, Property, and Equipment (at Cost)
Land and Building/leaseholds $ 2,129,647 $ 2,005,859
Manufacturing equipment 2,908,700 2,389,201
Office and other equipment 1,677,886 1,701,640
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$ 6,716,233 $ 6,096,700
Less accumulated depreciation and
amortization (2,663,651) (2,256,862)
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$ 4,052,582 $ 3,839,838
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Other Assets
Goodwill and other intangible assets 826,660 998,254
Deferred tax asset 1,130,000 1,130,000
Other assets 57,250 57,250
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Total Other Assets $ 2,013,910 2,185,504
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Total Assets $ 14,982,622 $ 13,223,064
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPT. 30 DECEMBER 31
1996 1995
(UNAUDITED) (AUDITED)
----------- ------------
Current Liabilities:
Current maturities of long-term debt $ 200,984 $ 283,100
Line of credit 0 0
Accounts payable 1,286,653 1,054,880
Accured payrolls and commissions 615,201 407,016
Other 387,711 173,217
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Total Current Liabilities $2,490,549 $ 1,918,213
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Long-Term Debt
Notes Payable (net of current
maturities shown above) $4,813,556 $ 3,768,685
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Redeemable Stock $ 968,400 $ 1,500,000
Shareholders' Equity:
preferred stock, $1 par value;
1,000,000 shares authorized; 250,000
shares issued and outstanding $ 250,000 250,000
common stock - $.01 par value; 9,000,000
shares authorized; 2,200,863 and 2,194,305 shares
issued and outstanding, net of redeemable shares
reported above,at September 30, 1996 and
December 31, 1995, Respectively 22,009 22,009
additional paid-in capital 11,242,672 11,242,672
accumulated deficit (4,804,564) (5,478,515)
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Total Shareholders' Equity $6,710,117 $ 6,036,166
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Total Liabilities, Redeemable Stock and
Shareholders' Equity $14,982,622 $ 13,223,064
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
SEPT 30 SEPT 30
1996 1995
(UNAUDITED) (UNAUDITED)
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SALES $ 6,143,457 $ 5,449,175
Cost of Sales 5,047,285 4,482,206
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Gross Profit $ 1,096,172 $ 966,969
Selling, General and Admin. 672,247 530,032
Engineering/Reseach & Development 88,188 52,679
Misc. (Income) Expense, net (10,894) (27,609)
Interest Expense 88,463 92,797
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Net Income Before Tax Provision $ 258,168 $ 319,070
Tax Provision 54,542 106,482
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Net Income $ 203,626 $ 212,588
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Income (Loss) per Share of Common Stock
Net income per Share of Common Stock $ 0.09 $ 0.09
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Weighted Average Number of Shares
Outstanding 2,362,263 2,384,431
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
SEPT 30 SEPT 30
1996 1995
(UNAUDITED) (UNAUDITED)
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SALES $ 18,341,346 $ 13,449,338
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Cost of Sales 15,024,544 10,843,664
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Gross Profit $ 3,316,802 $ 2,605,674
Selling, General and Admin. 1,895,551 1,515,357
Engineering/Reseach & Development 280,771 125,139
Misc. (Income) Expense, net (7,283) (83,699)
Interest Expense 251,649 141,852
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Net Income Before Tax Provision $ 896,114 $ 907,025
Tax Provision 215,710 206,387
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Net Income $ 680,404 $ 700,638
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Income per Share of Common Stock
Net income per share of Common Stock $ 0.29 $ 0.30
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Weighted Average Number of Shares
Outstanding 2,362,263 2,333,506
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
SEPT 30 SEPT 30
1996 1995
(UNAUDITED) (UNAUDITED)
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Cash Flows from Operating Activities
Net Income $ 680,404 $ 700,638
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 406,789 247,170
Changes in Operating Assets and Liabilities:
Accounts receivable (960,410) (1,554,367)
Inventories (1,121,874) (2,353,587)
Prepaid expenses 29,223 78,525
Other assets 171,594 (849,940)
Accounts payable 231,773 941,222
Accured payrolls 208,185 115,233
Other accruals 214,494 221,506
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Net cash used by operating act. (139,822) (2,453,600)
Cash Flows from Investing Activities:
Acquistion of equipment (619,533) (2,472,728)
Acquistion of Comp. assets 0 0
Net Proceeds Under Line of Credit 0 500,000
Proceeds from Sale of Stock 0 1,201,531
Redemption of Stock/other (531,600) 0
Payment of Pref. Stock Dividend 0 (14,181)
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Net cash used by investing act. (1,151,133) (785,378)
Cash Flows from Financing Activities:
Net borrowing of Long Term debt 1,125,000 3,120,000
Payments of long term debt (80,128) (122,882)
Change in current debt (88,570) 186,030
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Net cash provided by financing
activities 956,302 3,183,148
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Net (Decrease) in Cash (334,653) (55,830)
Cash at Beginning of Period 924,590 841,702
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Cash at End of Period $ 589,937 $ 785,872
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Page 8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR PERIOD ENDED SEPTEMBER 30, 1996
For the quarter ended September 30, 1996, the Company had revenues of
$6,143,458 compared to revenues of $5,449,175 for the quarter ended September
30, 1995. The increase in revenues resulted primarily from the additional
revenues generated by the recently acquired Aerospace Division. The Company
previously completed this acquisition in August, 1995. The net income for the
three months ended September 30, 1996 was $203,626 or $.09 per share, compared
to a net income of $212,588 or $.09 per share, for the three months ended
September 30, 1995.
For the nine month period ended September 30, 1996, the Company had revenue of
$18,341,346 compared to revenue of $13,449,338 for the nine months ended
September 30, 1995. The net income for the nine months ended September 30, 1996
was $680,404 or $ .29 per share compared to a net income of $700,638 or $.30 per
share, for the nine months ended September 30, 1995. The 1996 net income
reflects an income after recording a tax expense of $159,500 compared to tax
expense of $206,387 recorded in 1995 and continuing to expend funds on
Company-sponsored research and development of large-screen, high resolution
video monitors for the Imaging Division.
The Company's 90 day order backlog was $6,147,564 as of September 30, 1996,
compared to $5,972,900 at the beginning of the quarter. Based on the current
conditions, the Company anticipates revenue levels in the fourth quarter of 1996
to be about the same as the third quarter of 1996 from the current operations.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's working capital increased to $6,425,582 during the third quarter
of 1996, compared to $5,279,509 as of December 31, 1995. The Company believes
that its financial stability will continue to improve during 1996 and would
expect that its operating cash flow and available credit facilities will be
sufficient to fund the expected growth from the current operations in the near
term.
ACQUISITION
On November 4, 1996 the company completed the acquisition of the assets of
Zercom Corporation, a division of Communication System, Inc.
EQUITY
During April 1996, 88,600 shares of the Company's common stock was placed back
to the Company under the terms of the final agreement in the acquisition of
Monitor Technology Corporation. Under the terms of this agreement, the stock
had a repurchase price of $6.00 per share.
Page 9
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PART II - OTHER INFORMATION
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 1996 NORTECH SYSTEMS INCORPORATED
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By: /s/Quentin E. Finkelson
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Quentin E. Finkelson
President & Chief Executive Officer
By: /s/Garry M. Anderly
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Garry M. Anderly
Principal Financial & Accounting Officer
Page 11
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