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Previous: NUVEEN TAX EXEMPT UNIT TRUST STATE SERIES 94, 24F-2NT, 1999-11-15 |
Next: WINTHROP GROWTH INVESTORS I LP, 10QSB, 1999-11-15 |
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, 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 (State of other jurisdiction of Incorporation or organization) |
41-1681094 (I.R.S. Employer Identification No.) |
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| 641 EAST LAKE ST. SUITE 244, WAYZATA, MN (Address of principal executive offices) |
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55391 (Zip Code) |
(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 / /
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, 1999, there were 2,351,377 shares of the Company's $.01 per share par value common stock outstanding.
(The remainder of this page was intentionally left blank.)
NORTECH SYSTEMS INCORPORATED
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
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| PART I - |
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FINANCIAL INFORMATION |
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Item 1 - |
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Financial Statements |
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4-8 |
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Item 2 - |
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Management's Discussion and Analysis of Financial Condition |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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Results of Operations |
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Discontinued Operations |
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Segment Reporting Information |
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10-11 |
| PART II - |
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OTHER INFORMATION |
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Item 2 - |
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Exhibits and Reports on Form 8-K |
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| SIGNATURES |
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NORTECH SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS ASSETS
FOR THE PERIOD NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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Sept. 30 1999 (Unaudited) |
December 31 1998 (Audited) |
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| Assets | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 263,656 | $ | 375,528 | |||
| Accounts receivable, net | 5,423,067 | 4,647,376 | |||||
| Inventories: | |||||||
| Finished goods | 272,002 | 1,737,483 | |||||
| Work in process | 1,038,954 | 1,386,502 | |||||
| Raw materials | 6,329,113 | 4,681,384 | |||||
| Total inventories | $ | 7,640,069 | $ | 7,805,369 | |||
| Prepaid expenses and other | 803,613 | 941,728 | |||||
| Net Current Assets of Discontinued Operations | 2,000,728 | 2,431,486 | |||||
| Total current assets | $ | 16,131,133 | $ | 16,201,487 | |||
| PLANT, Property, and Equipment (at Cost) | |||||||
| Land and Building/leaseholds | $ | 3,937,086 | $ | 3,903,236 | |||
| Manufacturing equipment | 4,712,265 | 3,923,015 | |||||
| Office and other equipment | 2,218,330 | 2,433,476 | |||||
| $ | 10,867,681 | $ | 10,259,727 | ||||
| Less accumulated depreciation and amortization | (4,651,088 | ) | (3,968,837 | ) | |||
| Net Property and Equipment for Continuing Operations | $ | 6,216,593 | $ | 6,290,890 | |||
| Net Property and Equipment for Discontinued Operations | 373,004 | 474,181 | |||||
| Other Assets | |||||||
| Goodwill and other intangible assets | 126,831 | 144,210 | |||||
| Deferred tax asset | 475,000 | 475,000 | |||||
| Other assets | 31,000 | 57,250 | |||||
| Total Other Assets from Continuing Operations | $ | 632,831 | 676,460 | ||||
| Total Other Assets from Discontinued Operations | 1,011,165 | 1,085,544 | |||||
| Total Assets | $ | 24,364,726 | $ | 24,728,562 | |||
See notes to consolidated financials statements
NORTECH SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS LIABILITIES
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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Sept. 30 1999 (Unaudited) |
December 31 1998 (Audited) |
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| Liabilities and Shareholders' Equity | |||||||
| Current Liabilities: | |||||||
| Current maturities of long-term debt | $ | 902,834 | $ | 810,934 | |||
| Accounts payable | 2,356,800 | 3,232,593 | |||||
| Accrued payrolls and commissions | 1,213,797 | 682,539 | |||||
| Other | 4,077,711 | 491,388 | |||||
| Total Current Liabilities | $ | 8,551,142 | $ | 5,217,454 | |||
| Long-Term Debt | |||||||
| Notes Payable (net of current maturities shown above) | $ | 10,370,693 | $ | 11,146,537 | |||
| 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; 2,351,377 and 2,312,262 shares issued and outstanding | 23,514 | 23,514 | |||||
| Additional paid-in capital | 12,131,045 | 12,131,045 | |||||
| Accumulated deficit | (6,961,668 | ) | (4,039,988 | ) | |||
| Total Shareholders' Equity | $ | 5,442,891 | $ | 8,364,571 | |||
| Total Liabilities & Shareholders' Equity | $ | 24,364,726 | $ | 24,728,562 | |||
See notes to consolidated financials statements
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
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Sept. 30 1999 (Unaudited) |
Sept. 30 1998 (Unaudited) |
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| Sales | $ | 9,333,901 | $ | 8,322,743 | |||
| Cost of Sales | 7,786,654 | 6,889,561 | |||||
| Gross Profit | $ | 1,547,247 | $ | 1,433,182 | |||
| Selling, General and Admin. | 1,017,290 | 880,216 | |||||
| Engineering/Reseach & Development | 0 | 0 | |||||
| Misc. (Income) Expense, net | (35,920 | ) | 334 | ||||
| Interest Expense | 145,799 | 183,894 | |||||
| Net Income From Continuing Operations Before Income Tax |
$ | 420,078 | $ | 368,738 | |||
| Income Tax-Continuing Operations | 147,027 | 141,007 | |||||
| Net Income-Continuing Operations | $ | 273,051 | $ | 227,731 | |||
| Discontinued Operations, Net of Income Taxes | |||||||
| Net Income/(Loss )From Operations | 0 | (101,012 | ) | ||||
| Estimated (Loss )on Sale of Operations | (1,725,187 | ) | 0 | ||||
| Total Discontinued Operations, Net of Income Taxes | $ | (1,725,187 | ) | $ | (101,012 | ) | |
| Net Income(Loss) | (1,452,136 | ) | 126,719 | ||||
| Income/(Loss) per Share of Common Stock | |||||||
| From Continuing Operations | $ | 0.11 | $ | 0.09 | |||
| From Discontinued Operations | $ | (0.72 | ) | $ | (0.04 | ) | |
| Total Income/(Loss) per Share of Common Stock | $ | (0.61 | ) | $ | 0.05 | ||
| Weighted Average Number of Shares Outstanding | 2,351,377 | 2,345,262 | |||||
See notes to consolidated financials statements
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
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Sept. 30 1999 (Unaudited) |
Sept. 30 1998 (Unaudited) |
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| Sales | $ | 28,223,053 | $ | 25,926,372 | |||
| Cost of Sales | 23,341,626 | 21,617,404 | |||||
| Gross Profit | $ | 4,881,428 | $ | 4,308,968 | |||
| Selling, General and Admin. | 3,075,903 | 2,619,700 | |||||
| Engineering/Reseach & Development | 0 | 0 | |||||
| Misc. (Income) Expense, net | (23,536 | ) | (2,974 | ) | |||
| Interest Expense | 438,919 | 492,126 | |||||
| Net Income From Continuing Operations Before Income Tax |
$ | 1,390,142 | $ | 1,200,116 | |||
| Income Tax-Continuing Operations | 486,549 | 470,212 | |||||
| Net Income-Continuing Operations | $ | 903,593 | $ | 729,904 | |||
| Discontinued Operations, Net of Income Taxes | |||||||
| Net Income/(Loss) From Operations | (361,299 | ) | (168,915 | ) | |||
| Estimated (Loss )on Sale of Operations | (2,905,187 | ) | 0 | ||||
| Total Discontinued Operations, Net of Income Taxes | $ | (3,266,486 | ) | $ | (168,915 | ) | |
| Net Income (Loss) | $ | (2,362,893 | ) | $ | 560,989 | ||
| Income/(Loss) per Share of Common Stock | |||||||
| From Continuing Operations | 0.38 | 0.31 | |||||
| From Discontinued Operations | -1.38 | -0.07 | |||||
| Total Income/(Loss) per Share of Common Stock | $ | -1.00 | $ | 0.24 | |||
| Weighted Average Number of Shares Outstanding | 2,351,377 | 2,345,262 | |||||
See notes to consolidated financials statements
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
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Sept. 30 1999 (Unaudited) |
Sept. 30 1998 (Unaudited) |
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| Cash Flows from Operating Activities | |||||||
| Net Income | $ | 903,593 | $ | 729,903 | |||
| Adjustments to reconcile net income to net cash used by operating activities: | |||||||
| Depreciation and amortization | 682,251 | 568,962 | |||||
| Deferred Taxes | |||||||
| Loss on Sale of Discontinued operations | (2,905,187 | ) | |||||
| Changes in Operating Assets and Liabilities: | |||||||
| Accounts receivable | (775,691 | ) | (218,530 | ) | |||
| Inventories | 165,300 | (984,820 | ) | ||||
| Prepaid expenses | 138,115 | 150,574 | |||||
| Other assets | 43,629 | 6,114 | |||||
| Advances to discontinued operation | (651,170 | ) | (1,096,026 | ) | |||
| Accounts payable | (875,793 | ) | (47,297 | ) | |||
| Accrued payrolls | 531,258 | 39,295 | |||||
| Other accruals | 3,819,338 | 335,953 | |||||
| Net cash used by operating activity | 1,075,643 | (515,872 | ) | ||||
| Cash Flows from Investing Activities: | |||||||
| Acquistion of equipment | (607,954 | ) | (86,111 | ) | |||
| Proceeds from sale of Assets | 0 | 0 | |||||
| Payment of Pref. Stock Dividend | 0 | 5,250 | |||||
| Net cash used by investing activity | (607,954 | ) | (80,861 | ) | |||
| Cash Flows from Financing Activities: | |||||||
| Net borrowing of Long Term debt | 75,000 | 627,014 | |||||
| Payments of long term debt | (746,461 | ) | (545,782 | ) | |||
| Change in current debt | 91,900 | (151,693 | ) | ||||
| Net cash provided by financing activities | (579,561 | ) | (70,461 | ) | |||
| Net Increase/(Decrease) in Cash | (111,872 | ) | (667,194 | ) | |||
| Cash at Beginning of Period | 375,528 | 913,862 | |||||
| Cash at End of Period | $ | 263,656 | $ | 246,668 | |||
See notes to consolidated financials statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations for Period Ended September 30, 1999
Note to Consolidated Financial Statements
(1) BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial statements for the respective periods. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 1998.
Effective June 30, 1999, the Company made a decision to sell Imaging Technology Division (Display Product Segment) and Nortech Medical Services (Medical Management Segment). The following management discussion related only to the continuing operation of contract manufacturing. See below, the details of discontinued operations.
For the quarter ended September 30, 1999, the Company had revenues of $9,333,901 compared to revenues of $8,322,743 for the quarter ended September 30, 1998. The increase in revenues resulted primarily from the additional revenues generated from internal growth. The net income for the three months ended September 30, 1999 was $273,051 or $.11 per share, compared to a net income of $227,731 or $.09 per share, for the three months ended September 30, 1998. The net income for the quarter ended June 30, 1999 was primarily impacted by increased gross profit from the increased revenue offset by increased selling expenses.
Company's 90 day order backlog was $8,730,000 as of September 30, 1999, compared to $8,590,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the fourth quarter of 1999 to be about the same as the third quarter of 1999.
(2) DISCONTINUED OPERATION On June 30, 1999, The Company, decided to sell the Imaging Technologies operation (Display Product Segments) and Nortech Medical Services (Medical Management Segment). As of July 30, The Company has interested buyers that want to sign confidentiality agreements with The Company. Although it is difficult to predict, the Company expects to complete the sales in the fourth quarter of 1999. Display Products and Medical Management are reported as discontinued operations, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business.
During the third quarter of 1999, after talks with several potential buyers, it became apparent that Imaging division does not command the sale price we were anticipating in the second quarter. Therefore, we have increased our estimated loss on sale of discontinued operations. The third quarter loss for discontinued operation was $1,725,187.
The estimated loss recorded year to date during 1999 on the sale of the discontinued operation, was $4,469,518, which included a reduction in asset value of $2,950,000 and a reduction for anticipated closing costs and operating losses until disposal, of $1,519,518. The loss was reported net of an income tax benefit of $1,564,331, for an after-tax loss of $2,905,187.
(3) 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.
Nortech Systems Incorporated
Business Segment Information
for The Nine Months Ended
September 30, 1999 and September 30, 1998
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Sept. 30 1999 (Unaudited) |
Sept. 30 1998 (Unaudited) |
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| Business Segment Net Revenues | |||||||
| Contract Manufacturing | $ | 28,223,053 | $ | 25,926,372 | |||
| Display | 1,763,414 | 3,458,450 | |||||
| Medical | 319,082 | 314,797 | |||||
| Total | $ | 30,305,549 | $ | 29,699,619 | |||
| Business Segment Profit/(Loss) |
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| Contract Manufacturing | $ | 903,593 | $ | 729,904 | |||
| Display | (3,090,859 | ) | (96,882 | ) | |||
| Medical Management | (175,627 | ) | (72,033 | ) | |||
| Total |
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(2,362,893 |
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$ |
560,989 |
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Sept. 30 1999 (Unaudited) |
December 31, 1998 (Audited) |
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| Business Segment Assets | ||||||
| Contract Manufacturing | $ | 20,979,828 | $ | 20,737,352 | ||
| Display | 3,214,927 | 3,846,402 | ||||
| Medical Management | 169,971 | 144,808 | ||||
| Total |
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24,364,726 |
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24,728,562 |
Liquidity and Capital Resources.
The Company's working capital decreased to $7,579,991 during the third quarter of 1999, compared to $9,080,589 as of December 31, 1998. The main reason for the decrease, was the recording of the loss from discontinued operations. The Company believes that its financial stability will continue to improve during 1999 and would expect that its operating cash flow and available credit faculties will be sufficient to fund the expected growth in the near term.
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.
Item 2. Exhibits and Reports on Form 8-K.
None
(The remainder of this page was intentionally left blank.)
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, 1999 | NORTECH SYSTEMS INCORPORATED | ||
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By: |
/s/ QUENTIN E. FINKELSON Quentin E. Finkelson Its President and Chief Executive Officer |
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By: |
/s/ GARRY M. ANDERLY Garry M. Anderly Principal Financial Officer and Principal Accounting Officer |
NORTECH SYSTEMS INCORPORATED FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999
INDEX
NORTECH SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS FOR THE PERIOD NINE MONTHS ENDED SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
NORTECH SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS LIABILITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
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