<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, 1998.
( ) 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
---------------------------- ------------------------
(State of other jurisdiction (I.R.S. Employer
of Incorporation or organization) Identification No.)
641 East Lake St. Suite 244, Wayzata, MN 55391
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Codes)
(612) 473-4102
- --------------------------------------------------------------------------------
(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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PAGE 1
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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, 1998, there were 2,345,262 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, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 4-8
Item 2 - Management's Discussion and 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
PAGE 3
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS ASSETS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPT 30 DEC 31
1998 1997
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 288,609 $ 714,169
Accounts receivable, net 5,144,588 5,008,689
Inventories:
Finished goods 571,503 1,457,330
Work in process 1,555,439 1,262,361
Raw materials 8,517,278 6,522,775
------------ ------------
Total inventories $ 10,644,220 $ 9,242,466
Prepaid expenses and other 755,401 897,388
------------ ------------
Total current assets $ 16,832,818 $ 15,862,712
------------ ------------
PLANT, Property, and Equipment (at Cost)
Land and Building/leaseholds $ 3,886,609 $ 3,901,461
Manufacturing equipment 5,322,976 4,444,401
Office and other equipment 2,074,270 2,805,557
------------ ------------
$ 11,283,855 $ 11,151,419
Less accumulated depreciation and
amortization (4,531,467) (3,851,810)
------------ ------------
$ 6,752,388 $ 7,299,609
------------ ------------
Other Assets
Goodwill and other intangible assets 739,882 905,359
Deferred tax asset 570,000 570,000
Other assets 57,250 57,250
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Total Other Assets $ 1,367,132 1,532,609
------------ ------------
Total Assets $ 24,952,338 $ 24,694,930
============ ============
</TABLE>
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS LIABILITIES
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEPT 30 DEC 31
1998 1997
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 991,101 $ 1,038,397
Line of Credit 500,000 500,000
Accounts payable 2,818,361 3,013,131
Accrued payrolls and commissions 587,761 1,082,293
Other 859,516 558,666
------------ ------------
Total Current Liabilities $ 5,756,739 $ 6,192,487
------------ ------------
Long-Term Debt
Notes Payable (net of current
maturities shown above) $ 10,618,304 $ 10,388,620
------------ ------------
Redeemable Stock $ 0 $ 300,000
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; 2,345262 and 2,312,262 shares
issued and outstanding, net of redeemable shares
reported above, at September 30, 1998 and
December 31, 1997, respectively 23,454 23,124
Additional paid-in capital 12,108,224 11,910,554
Accumulated deficit (3,804,383) (4,369,855)
------------ ------------
Total Shareholders' Equity $ 8,577,295 $ 7,813,823
------------ ------------
Total Liabilities, Redeemable Stock and
Shareholders' Equity $ 24,952,338 $ 24,694,930
============ ============
</TABLE>
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPT 30 DEC 31
1998 1997
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
Sales $ 9,625,049 $ 8,693,449
Cost of Sales 7,889,933 7,128,714
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Gross Profit $ 1,735,116 $ 1,564,735
Selling, General and Admin. 1,119,751 1,071,529
Engineering/Reseach & Development 125,939 69,677
Misc. (Income) Expense, net 19,409 (29,168)
Interest Expense 258,824 236,459
------------ ------------
Net Income Before Tax Provision $ 211,193 $ 216,238
Tax Provision 84,474 75,683
------------ ------------
Net Income $ 126,719 $ 140,555
============ ============
Income (Loss) per Share of Common Stock
Net income per Share of Common Stock $ 0.05 $ 0.06
============ ============
Weighted Average Number of Shares
Outstanding 2,345,262 2,362,263
============ ============
</TABLE>
PAGE 6
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPT 30 DEC 31
1998 1997
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
Sales $ 29,699,618 $ 26,297,471
Cost of Sales 24,435,261 21,556,931
------------ ------------
Gross Profit $ 5,264,357 $ 4,740,540
Selling, General and Admin. 3,303,076 3,130,090
Engineering/Reseach & Development 309,450 275,630
Misc. (Income) Expense, net 6,091 (21,898)
Interest Expense 712,987 680,394
------------ ------------
Net Income Before Tax Provision $ 932,753 $ 676,324
Tax Provision 371,764 235,761
------------ ------------
Net Income $ 560,989 $ 440,563
============ ============
Income per Share of Common Stock
Net income per share of Common Stock $ 0.24 $ 0.19
============ ============
Weighted Average Number of Shares
Outstanding 2,345,262 2,362,263
============ ============
</TABLE>
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<PAGE>
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPT 30 SEPT 30
1998 1997
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 560,989 $ 440,563
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 679,657 817,072
Changes in Operating Assets and Liabilities:
Accounts receivable (135,899) (949,170)
Inventories (1,401,754) (1,922,922)
Prepaid expenses 141,987 (36,941)
Other assets 165,477 246,794
Accounts payable (194,770) 928,436
Accrued payrolls (494,532) 26,240
Other accruals 300,850 228,011
------------ ------------
Net cash used by operating activity (377,995) (221,917)
Cash Flows from Investing Activities:
Acquistion of equipment (132,436) (741,472)
Redemption of Stock/other 0 0
Payment of Preferred Stock Dividend 0 (14,946)
------------ ------------
Net cash used by investing activity (132,436) (756,418)
Cash Flows from Financing Activities:
Net borrowing of Long Term debt 660,000 600,000
Payments of long term debt (622,425) (580,787)
Change in current debt 47,296 3,506
------------ ------------
Net cash provided by financing activities 84,871 22,719
------------ ------------
Net (Decrease) in Cash (425,560) (955,616)
Cash at Beginning of Period 714,169 1,235,127
------------ ------------
Cash at End of Period $ 288,609 $ 279,511
============ ============
</TABLE>
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, 1998
For the quarter ended September 30, 1998, the Company had revenues of
$9,625,049 compared to revenues of $8,693,449 for the quarter ended September
30, 1997. The increase in revenues resulted primarily from the additional
revenues generated from internal growth. The net income for the three months
ended September 30, 1998 was $126,719 or $.05 per share, compared to a net
income of $140,555 or $.06 per share, for the three months ended September 30,
1997. The net income for the quarter ended September 30, 1998 was primarily
impacted by increased gross profit from the increased revenue offset by
increased expenses related to engineering and developement costs of the new
autosync monitor.
For the nine month period ended September 30, 1998, the Company had revenue of
$29,699,618 compared to revenue of $26,297,471 for the nine months ended
September 30, 1997. The net income for the nine months ended September 30, 1998
was $560,989 of $.24 per share compared to a net income of 440,563 or $.19 per
share, for the six months ended September 30, 1997.
Company's 90 day order backlog was $8,207,000 as of September 30, 1998, compared
to $8,159,000 at the beginning of the quarter. Based on the current
conditions, the Company anticipates revenue levels in the fourth quarter of 1998
to be slightly higher than the third quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's working capital increased to $11,076,079 during the third quarter
of 1998, compared to $9,670,225 as of December 31, 1997. The Company believes
that its financial stability will continue to improve during 1998 and would
expect that its operating cash flow and available credit faculities will be
sufficient to fund the expected growth in the near term.
PAGE 9
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PART II - OTHER INFORMATION
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K.
None
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PAGE 10
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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, 1998 NORTECH SYSTEMS INCORPORATED
-----------------
By: Quentin E. Finkelson
-----------------------------
Quentin E. Finkelson
Its President and Chief
Executive Officer
By: Garry M. Anderly
----------------------------
Garry M. Anderly
Principal Financial
Officer and Principal
Accounting Officer
PAGE 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 288,609
<SECURITIES> 0
<RECEIVABLES> 5,259,735
<ALLOWANCES> 115,147
<INVENTORY> 10,644,220
<CURRENT-ASSETS> 16,832,818
<PP&E> 11,283,855
<DEPRECIATION> 4,531,467
<TOTAL-ASSETS> 24,952,338
<CURRENT-LIABILITIES> 5,756,739
<BONDS> 0
0
250,000
<COMMON> 23,454
<OTHER-SE> 8,303,841
<TOTAL-LIABILITY-AND-EQUITY> 24,952,338
<SALES> 9,625,049
<TOTAL-REVENUES> 9,625,049
<CGS> 7,889,933
<TOTAL-COSTS> 7,889,933
<OTHER-EXPENSES> 1,265,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,824
<INCOME-PRETAX> 211,193
<INCOME-TAX> 84,474
<INCOME-CONTINUING> 126,719
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,719
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
