<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 March 31, 1999.
( ) 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
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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 April 30, 1999, there were 2,351,377 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 MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 4-7
Item 2 - Management's Discussion and Analysis of Financial
Condition And Results of Operations 8-9
PART II - OTHER INFORMATION
Item 2 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS ASSETS
FOR THE PERIOD ENDED
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 1999 1998
(UNAUDITED) (AUDITED)
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<S> <C> <C>
Current Assets
Cash and cash equivalents $ 202,049 $ 415,446
Accounts receivable, net 5,676,312 5,381,344
Inventories:
Finished goods 870,432 1,737,483
Work in process 1,429,658 1,386,502
Raw materials 7,485,963 6,259,890
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Total inventories $ 9,786,053 $ 9,383,875
Prepaid expenses and other 972,241 1,020,822
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Total current assets $ 16,636,655 $ 16,201,487
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PLANT, Property, and Equipment (at Cost)
Land and Building/leaseholds $ 3,926,158 $ 3,919,873
Manufacturing equipment 5,399,102 4,577,838
Office and other equipment 2,359,979 3,052,834
----------- ------------
$ 11,685,239 $ 11,550,545
Less accumulated depreciation and
amortization (4,984,826) (4,785,474)
----------- ------------
$ 6,700,413 $ 6,765,071
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Other Assets
Goodwill and other intangible assets 1,208,129 1,229,754
Deferred tax asset 475,000 475,000
Other assets 57,250 57,250
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Total Other Assets $ 1,740,379 1,762,004
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Total Assets $ 25,077,447 $ 24,728,562
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</TABLE>
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NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS LIABILITIES
FOR THE PERIOD ENDED
MARCH 31, 1999 and DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
(UNAUDITED) (AUDITED)
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<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 716,769 $ 810,934
Line of Credit 0 0
Accounts payable 2,764,948 3,232,593
Accrued payrolls and commissions 1,182,136 682,539
Other 817,794 491,388
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Total Current Liabilities $ 5,481,647 $ 5,217,454
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Long-Term Debt
Notes Payable (net of current
maturities shown above) $ 10,982,527 $ 11,146,537
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Redeemable Stock $ 0 $ 0
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 December 31, 1998 and
December 31, 1997, respectively 23,514 23,514
Additional Paid-in Capital 12,131,045 12,131,045
Accumulated Deficit (3,791,286) (4,039,988)
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Total Shareholders' Equity $ 8,613,273 $ 8,364,571
----------- ------------
Total Liabilities, Redeemable Stock and
Shareholders' Equity $ 25,077,447 $ 24,728,562
----------- ------------
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</TABLE>
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1999 1998
(UNAUDITED) (UNAUDITED)
------------- --------------
<S> <C> <C>
Sales $ 10,539,316 $ 10,491,792
Cost of Sales 8,607,385 8,741,376
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Gross Profit $ 1,931,931 $ 1,750,416
Selling, General and Admin. 1,248,549 1,044,518
Engineering/Reseach & Development 82,218 68,093
Misc. (Income) Expense, net (15,441) (20,845)
Interest Expense 233,983 249,932
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Net Income Before Tax Provision $ 382,622 $ 408,718
Income Tax Expense (Benefit) 133,918 162,288
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Net Income $ 248,704 $ 246,430
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Income (Loss) per Share of Common Stock
Net income per Share of Common Stock $ 0.11 $ 0.11
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Weighted Average Number of Shares
Outstanding 2,351,377 2,345,262
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</TABLE>
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1999 1998
(UNAUDITED) (UNAUDITED)
------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 248,704 $ 246,430
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 199,352 205,162
Deferred Taxes
Escrow held on Sale of Assets
Gain on Sale of Assets
Changes in Operating Assets and Liabilities:
Accounts receivable (294,968) (520,859)
Inventories (402,178) (925,639)
Prepaid expenses 48,581 (50,386)
Other assets 21,625 115,149
Accounts payable (467,645) (73,448)
Accrued payrolls 499,597 (245,765)
Other accruals 326,406 126,416
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Net cash used by operating activity 179,474 (1,122,940)
Cash Flows from Investing Activities:
Acquistion of equipment (134,694) (52,517)
Proceeds from sale of Assets
Payment of Pref. Stock Dividend
----------- ------------
Net cash used by investing activity (134,694) (52,517)
Cash Flows from Financing Activities:
Net borrowing of Long Term debt 0 760,000
Payments of long term debt (164,012) (79,709)
Change in current debt (94,165) (92,416)
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Net cash provided by financing
activities (258,177) 587,875
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Net (Decrease) in Cash (213,397) (587,582)
Cash at Beginning of Period 415,446 714,169
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Cash at End of Period $ 202,049 $ 126,587
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR PERIOD ENDED MARCH 31, 1999
For the quarter ended March 31, 1999, the Company had revenues of $10,539,316
compared to revenues of $10,491,782 for the quarter ended March 31, 1998. The
increase in revenues resulted primarily from the additional revenues generated
from internal growth. The net income for the three months ended March 31, 1999
was $248,704 or $.11 per share, compared to a net income of $246,430 or $.11 per
share, for the three months ended March 31, 1998. The net income for the
quarter ended March 31, 1999 was primarily impacted by increased gross profit
from the increased revenue offset by increased expenses related to engineering
and development costs of the new autosync monitor.
Company's 90 day order backlog was $9,175,000 as of March 31, 1999, compared to
$9,210,000 at the beginning of the quarter. Based on the current conditions,
the Company anticipates revenue levels in the second quarter of 1999 to be about
the same as the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's working capital increased to $11,155,008 during the first quarter
of 1999, compared to $10,984,033 as of December 31, 1998. The Company believes
that its financial stability will continue to improve during 1999 and would
expect that its operating cash flow and available credit faculities will be
sufficient to fund the expected growth in the near term.
UPDATE ON YEAR 2000 STATUS
Nortech Systems, Inc recognizes the dangers of the "Year 2000 Problem". To
ensure a minimum negative impact on business operations, Nortech has established
a Y2K Initiative. The Y2K Initiative addresses the effect on the company, our
vendors and our customers. We have completed the inventory and evaluation
phase, and are nearing completion of the implementation phase. Testing is
nearly completed on most systems. Monitoring and evaluation will continue
throughout 1999 and into 2000 until we are sure all issues have been properly
resolved.
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SEGMENT REPORTING INFORMATION
Nortech Systems, Inc manufactures and sells a variety of products used in the
computer, medical, government and defense industries, primarily for the
commercial industrial market. The Company's principal businesses are based upon
the nature of the manufacturing operations of the respective location.
1. CONTRACT MANUFACTURING - Includes the manufacture of wire harnesses,
cable and electromechanical assemblies, printed circuit board
assemblies, and higher-level assemblies, all of which are manufactured
under contract specifications. These products are sold primarily to
the commercial and defense industries.
2. DISPLAY PRODUCTS - Includes the design, manufacture, and marketing of
high performance display monitors. The products are sold primarily to
the medical, industrial, and service industries.
3. MEDICAL MANAGEMENT - Provides service bureau and office management
services to physicians and clinics.
Each of these is a business segment, with its respective financial performance
detailed in this report.
<TABLE>
<CAPTION>
MARCH 31 MARCH 31
1999 1998
(UNAUDITED) (UNAUDITED)
------------------- ------------------
<S> <C> <C>
BUSINESS SEGMENT NET REVENUES
Contract Manufacturing $ 9,467,338 $ 9,229,349
Display Products 969,018 1,163,560
Medical Management 102,960 98,883
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Total $ 10,539,316 $ 10,491,792
BUSINESS SEGMENT PROFIT/(LOSS)
Contract Manufacturing $ 346,184 $ 271,640
Display Products (76,279) (3,880)
Medical Management (21,201) (21,330)
------- ------
Total $ 248,704 $ 246,430
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
(UNAUDITED) (AUDITED)
------------------- ------------------
<S> <C> <C>
BUSINESS SEGMENT ASSETS
Contract Manufacturing $ 20,778,329 $ 20,737,352
Display Products 4,108,653 3,846,402
Medical Management 190,465 144,808
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Total $ 25,077,447 $ 24,728,562
</TABLE>
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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: May 10, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 202,049
<SECURITIES> 0
<RECEIVABLES> 5,819,489
<ALLOWANCES> 143,177
<INVENTORY> 9,786,053
<CURRENT-ASSETS> 16,636,655
<PP&E> 11,685,239
<DEPRECIATION> 4,984,826
<TOTAL-ASSETS> 25,077,447
<CURRENT-LIABILITIES> 5,481,647
<BONDS> 0
0
250,000
<COMMON> 23,514
<OTHER-SE> 8,339,759
<TOTAL-LIABILITY-AND-EQUITY> 25,077,447
<SALES> 10,539,316
<TOTAL-REVENUES> 10,539,316
<CGS> 8,607,385
<TOTAL-COSTS> 8,607,385
<OTHER-EXPENSES> 1,315,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233,983
<INCOME-PRETAX> 382,622
<INCOME-TAX> 133,918
<INCOME-CONTINUING> 248,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,704
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
