<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 June 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
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(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
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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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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 July 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 JUNE 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 SIX MONTHS ENDED
JUNE 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
ASSETS 1998 1997
(UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 109,131 $ 714,169
Accounts receivable, net 5,255,009 5,008,689
Inventories:
Finished goods 649,226 1,457,330
Work in process 1,292,902 1,262,361
Raw materials 8,819,879 6,522,775
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Total inventories $ 10,762,007 $ 9,242,466
Prepaid expenses and other 927,666 897,388
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Total current assets $ 17,053,813 $ 15,862,712
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PLANT, Property, and Equipment (at Cost)
Land and Building/leaseholds $ 3,883,296 $ 3,901,461
Manufacturing equipment 5,330,285 4,444,401
Office and other equipment 2,060,392 2,805,557
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$ 11,273,973 $ 11,151,419
Less accumulated depreciation and
amortization (4,292,940) (3,851,810)
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$ 6,981,033 $ 7,299,609
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Other Assets
Goodwill and other intangible assets 756,713 905,359
Deferred tax asset 570,000 570,000
Other assets 57,250 57,250
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Total Other Assets $ 1,383,963 1,532,609
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Total Assets $ 25,418,809 $ 24,694,930
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</TABLE>
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS LIABILITIES
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 and DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) (AUDITED)
----------- -------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 1,062,558 $ 1,038,397
Line of credit 500,000 500,000
Accounts payable 2,960,570 3,013,131
Accrued payrolls and commissions 920,815 1,082,293
Other 620,651 558,666
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Total Current Liabilities $ 6,064,594 $ 6,192,487
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Long-Term Debt
Notes Payable (net of current
maturities shown above) $10,903,636 $10,388,620
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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; 2,312,262 and 2,312,262 shares
issued and outstanding, net of redeemable shares
reported above, at June 30, 1998
December 31, 1997, respectively 23,454 23,124
Additional paid-in capital 12,108,224 11,910,554
Accumulated deficit (3,931,099) (4,369,855)
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Total Shareholders' Equity $ 8,450,579 $ 7,813,823
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Total Liabilities, Redeemable Stock &
Shareholders' Equity $25,418,809 $24,694,930
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</TABLE>
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1998 1997
(UNAUDITED) (UNAUDITED)
---------- ----------
<S> <C> <C>
Sales $9,582,777 $9,039,176
Cost of Sales 7,803,952 7,383,860
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Gross Profit $1,778,825 $1,655,316
Selling, General and Admin. 1,138,807 1,043,756
Engineering/Reseach & Development 115,418 93,458
Misc. (Income) Expense, net 7,527 (1,493)
Interest Expense 204,231 260,264
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Net Income Before Tax Provision $ 312,842 $ 259,331
Tax Provision 125,002 92,079
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Net Income $ 187,840 $ 167,252
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Income (Loss) per Share of Common Stock
Net income per Share of Common Stock $ 0.08 $ 0.07
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Weighted Average Number of Shares
Outstanding 2,345,262 2,362,263
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</TABLE>
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<PAGE>
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Sales $20,074,569 $17,604,022
Cost of Sales 16,545,328 14,428,217
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Gross Profit $ 3,529,241 $ 3,175,805
Selling, General and Admin. 2,183,325 2,058,561
Engineering/Reseach & Development 183,511 205,953
Misc. (Income) Expense, net (13,318) 7,270
Interest Expense 454,163 443,935
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Net Income Before Tax Provision $ 721,560 $ 460,086
Tax Provision 287,290 160,079
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Net Income $ 434,270 $ 300,007
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Income per Share of Common Stock
Net income per share of Common Stock $ 0.19 $ 0.13
----------- -----------
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Weighted Average Number of Shares
Outstanding 2,345,262 2,362,263
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</TABLE>
PAGE 7
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1998 1997
(UNAUDITED) (UNAUDITED)
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 434,270 $ 300,007
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 441,130 535,575
Changes in Operating Assets and Liabilities:
Accounts receivable (246,320) (1,372,451)
Inventories (1,519,541) (637,457)
Prepaid expenses (30,278) 79,951
Other assets 148,646 227,000
Accounts payable (52,561) 475,034
Accrued payrolls (161,478) 2,073
Other accruals 61,985 (52,017)
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Net cash used by operating activity (924,147) (442,285)
Cash Flows from Investing Activities:
Acquisition of equipment (122,554) (480,786)
Other activities 0 0
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Net cash used by investing activity (122,554) (480,786)
Cash Flows from Financing Activities:
Net borrowing of Long Term debt 830,283 500,000
Payments of long term debt (375,774) (373,289)
Change in current debt (12,846) 28,034
----------- ------------
Net cash provided by financing
activities 441,663 154,745
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Net (Decrease) in Cash (605,038) (768,326)
Cash at Beginning of Period 714,169 1,235,127
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Cash at End of Period $ 109,131 $ 466,801
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</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 JUNE 30, 1998
For the quarter ended June 30, 1998, the Company had revenues of $9,582,777
compared to revenues of $9,039,176 for the quarter ended June 30, 1997. The
increase in revenues resulted primarily from the additional revenues generated
from internal growth. The net income for the three months ended June 30, 1998
was $187,840 or $.08 per share, compared to a net income of $167,252 or $.07 per
share, for the three months ended June 30, 1997. The net income for the quarter
ended June 30, 1998 was primarily impacted by increased gross profit from the
increased revenue.
For the six month period ended June 30, 1998, the Company had revenue of
$20,074,569 compared to revenue of $17,604,022 for the six months ended June 30,
1997. The net income for the six months ended June 30, 1998 was $434,270 of
$.19 per share compared to a net income of 300,007 or $.13 per share, for the
six months ended June 30, 1997.
Company's 90 day order backlog was $8,159,000 as of June 30, 1998, compared to
$7,900,000 at the beginning of the quarter. Based on the current conditions,
the Company anticipates revenue levels in the third quarter of 1998 to be
slightly higher than the second quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's working capital increased to $10,989,219 during the second 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: AUGUST 6, 1998 NORTECH SYSTEMS INCORPORATED
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BY: QUENTIN E. FINKELSON
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Quentin E. Finkelson
Its President and Chief
Executive Officer
BY: GARRY M. ANDERLY
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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> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 109,131
<SECURITIES> 0
<RECEIVABLES> 5,358,156
<ALLOWANCES> 103,147
<INVENTORY> 10,762,007
<CURRENT-ASSETS> 17,053,813
<PP&E> 11,273,973
<DEPRECIATION> 4,292,940
<TOTAL-ASSETS> 25,418,809
<CURRENT-LIABILITIES> 6,064,594
<BONDS> 0
0
250,000
<COMMON> 23,454
<OTHER-SE> 8,177,125
<TOTAL-LIABILITY-AND-EQUITY> 25,418,809
<SALES> 9,582,777
<TOTAL-REVENUES> 9,582,777
<CGS> 7,803,952
<TOTAL-COSTS> 7,803,952
<OTHER-EXPENSES> 1,261,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,231
<INCOME-PRETAX> 312,842
<INCOME-TAX> 125,002
<INCOME-CONTINUING> 187,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 187,840
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
