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NORTECH SYSTEMS INC - Quarter Report: 2000 September (Form 10-Q)

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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, 2000.

 
/ /
 
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 of
Incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
641 East Lake St. Suite 244,
Wayzata, MN
 
 
 
55391
(Address of principal executive offices)   (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, 2000, there were 2,361,056 shares of the Company's $.01 per share par value common stock outstanding.

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2


NORTECH SYSTEMS INCORPORATED

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2000

INDEX

 
 
 
  Page
PART I—FINANCIAL INFORMATION    
  Item 1 Financial Statements   4-8
    Notes to Condensed Consolidated Financial Statements   9
  Item 2 Management's Discussion and Analysis of Financial Condition   10
    Results of Operations   10
    Liquidity and Capital Resources   10
    Update on Year 2000 Status   10
 
PART II—OTHER INFORMATION
 
 
 
 
  Item 6 Exhibits and Reports on Form 8-K   11
SIGNATURES   12

3


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2000 AND DECEMBER 30, 1999

 
  Sept. 30
2000

  December 31
1999

 
 
  (Unaudited)

  (Audited)

 
ASSETS  
Current Assets              
  Cash and cash equivalents   $ 214,844   $ 453,500  
  Accounts receivable, net     7,455,189     5,427,441  
  Inventories:              
    Finished goods     1,281,990     729,718  
    Work in process     1,734,932     1,404,018  
    Raw materials     7,681,542     6,591,681  
   
 
 
      Total inventories   $ 10,698,464   $ 8,725,417  
   
Prepaid expenses and other
 
 
 
 
 
166,290
 
 
 
 
 
102,156
 
 
  Deferred Tax Asset     1,176,000     1,961,000  
  Net Current Assets of Discontinued Operations     0     0  
   
 
 
      Total current assets   $ 19,710,787   $ 16,669,514  
   
 
 
PLANT, Property, and Equipment (at Cost)              
  Land and Building/leaseholds   $ 4,440,356   $ 4,017,681  
  Manufacturing equipment     5,178,402     4,334,820  
  Office and other equipment     1,497,189     2,094,049  
   
 
 
    $ 11,115,947   $ 10,446,550  
  Less accumulated depreciation and amortization     (4,793,838 )   (4,004,666 )
   
 
 
Net Property and Equipment for Continuing Operations   $ 6,322,109   $ 6,441,884  
   
 
 
Net Property and Equipment for Discontinued Operations     0     0  
   
 
 
Other Assets              
  Goodwill and other intangible assets     96,064     116,022  
  Deferred tax asset     300,000     300,000  
  Other assets     0     0  
   
 
 
Total Other Assets from Continuing Operations   $ 396,064     416,022  
   
 
 
Total Other Assets from Discontinued Operations     23,747     76,296  
   
 
 
      Total Assets   $ 26,452,707   $ 23,603,716  
       
 
 

See notes to consolidated financials statements

4


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2000 AND DECEMBER 31, 1999

 
  Sept. 30
2000

  December 31
1999

 
 
  (Unaudited)

  (Audited)

 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current Liabilities:              
  Current maturities of long-term debt   $ 678,006   $ 860,079  
  Accounts payable     4,739,000     4,101,981  
  Accrued payrolls and commissions     1,906,473     870,775  
  Other     1,144,060     793,933  
  Net Current Liabilities from Discontinued Operations     501,073     351,557  
   
 
 
      Total Current Liabilities   $ 8,968,612   $ 6,978,325  
   
 
 
Long-Term Debt              
  Notes Payable (net of current maturities shown above)   $ 9,675,257   $ 10,246,911  
   
 
 
 
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; 2,361,056 and 2,351,907 shares issued and outstanding.     23,610     23,519  
  Additional paid-in capital     12,158,036     12,132,615  
  Accumulated deficit     (4,622,808 )   (6,027,654 )
   
 
 
      Total Shareholders' Equity   $ 7,808,838   $ 6,378,480  
   
 
 
Total Liabilities & Shareholders' Equity   $ 26,452,707   $ 23,603,716  
       
 
 

See notes to consolidated financials statements

5


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999

 
  Sept. 30
2000

  Sept. 30
1999

 
 
  (Unaudited)

  (Unaudited)

 
Sales   $ 13,724,356   $ 9,333,900  
 
Cost of Sales
 
 
 
 
 
11,011,441
 
 
 
 
 
7,786,654
 
 
   
 
 
  Gross Profit   $ 2,712,915   $ 1,547,246  
 
Selling, General and Admin.
 
 
 
 
 
1,586,008
 
 
 
 
 
1,041,076
 
 
Interest Income     (4,921 )   (7,845 )
Misc. (Income) Expense, net     854     (48,058 )
Interest Expense     314,448     205,000  
   
 
 
 
Net Income From Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Before Income Tax   $ 816,526   $ 357,073  
  Income Tax—Continuing Operations     269,910     130,693  
   
 
 
Net Income—Continuing Operations   $ 546,616   $ 226,380  
   
 
 
Discontinued Operations, Net of Income Taxes              
  Net Income/(Loss)From Operations     0     46,671  
  Estimated (Loss)on Sale of Operations     0     (1,725,187 )
   
 
 
Total Discontinued Operations, Net of Income Taxes   $ 0   $ (1,678,516 )
   
 
 
Net Income(Loss)     546,616     (1,452,136 )
       
 
 
Income/(Loss) per Share of Common Stock              
  From Continuing Operations   $ 0.23   $ 0.10  
  From Discontinued Operations   $ 0.00   $ (0.71 )
   
 
 
Total Income/(Loss) per Share of Common Stock   $ 0.23   $ (0.61 )
       
 
 
Weighted Average Number of Shares Outstanding     2,361,056     2,351,377  
       
 
 

See notes to consolidated financials statements

6


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999

 
  Sept. 30
2000

  Sept. 30
1999

 
 
  (Unaudited)

  (Unaudited)

 
Sales   $ 39,492,921   $ 28,223,053  
 
Cost of Sales
 
 
 
 
 
32,205,760
 
 
 
 
 
23,341,625
 
 
   
 
 
  Gross Profit   $ 7,287,161   $ 4,881,428  
 
Selling, General and Admin.
 
 
 
 
 
4,239,135
 
 
 
 
 
3,149,104
 
 
Interest Income     (16,375 )   (20,945 )
Misc. (Income) Expense, net     (11,373 )   (62,856 )
Interest Expense     886,214     615,000  
   
 
 
 
Net Income From Continuing Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Before Income Tax   $ 2,189,560   $ 1,201,125  
  Income Tax—Continuing Operations     784,715     437,545  
   
 
 
Net Income—Continuing Operations   $ 1,404,845   $ 763,580  
   
 
 
Discontinued Operations, Net of Income Taxes              
  Net Income/(Loss)From Operations     0     (221,286 )
  Estimated (Loss)on Sale of Operations     0     (2,905,187 )
   
 
 
Total Discontinued Operations, Net of Income Taxes   $ 0   $ (3,126,473 )
   
 
 
Net Income(Loss)     1,404,845     (2,362,893 )
       
 
 
Income/(Loss) per Share of Common Stock              
  From Continuing Operations   $ 0.59   $ 0.33  
  From Discontinued Operations   $ 0.00   $ (1.33 )
   
 
 
Total Income/(Loss) per Share of Common Stock   $ 0.59   $ (1.00 )
       
 
 
Weighted Average Number of Shares Outstanding     2,355,106     2,351,377  
       
 
 

See notes to consolidated financials statements

7


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999

 
  Sept. 30
2000

  Sept. 30
1999

 
 
  (Unaudited)

  (Unaudited)

 
Cash Flows from Operating Activities              
  Net Income   $ 1,404,845   $ 763,580  
  Adjustments to reconcile net income to net cash used by
operating activities:
             
    Depreciation and amortization     789,172     682,251  
    Deferred Taxes     785,000        
    Loss on Sale of Discontinued operations     0     (2,905,187 )
Changes in Operating Assets and Liabilities:              
  Accounts receivable     (2,027,748 )   (775,691 )
  Inventories     (1,973,047 )   165,300  
  Prepaid expenses     (64,134 )   138,115  
  Other assets     19,958     43,629  
  Advances to discontinued operation     218,463     (511,157 )
  Accounts payable     637,019     (875,793 )
  Accrued Payrolls & Commisions     1,035,698     531,258  
  Other accruals     350,127     3,819,338  
   
 
 
      Net cash used by operating activity     1,175,353     1,075,643  
 
Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acquistion of equipment     (669,397 )   (607,954 )
  Proceeds from sale of Assets     0     0  
  Common stock proceeds     3,493     0  
   
 
 
      Net cash used by investing activity     (665,904 )   (607,954 )
 
Cash Flows from Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net borrowing of Long Term debt     3,000,873     75,000  
  Payments of long term debt     (3,754,928 )   (746,461 )
  Change in current debt     5,950     91,900  
   
 
 
      Net cash provided by financing activities     (748,105 )   (579,561 )
   
 
 
Net Increase/(Decrease) in Cash     (238,656 )   (111,872 )
 
Cash at Beginning of Period
 
 
 
 
 
453,500
 
 
 
 
 
375,528
 
 
   
 
 
Cash at End of Period   $ 214,844   $ 263,656  
       
 
 

See notes to consolidated financials statements

8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

    The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

    The operating results of the interim periods presented are not necessarily indicative of the results expected for the year ending December 31, 2000 or for any other interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1999 included in the Company's Annual Report Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission.

NOTE 2.  INVENTORIES

    Inventories consist of the following:

 
  09/30/00
  12/31/99
Raw Materials   7,681,542   6,591,681
Work-In-Process   1,734,932   1,404,018
Finished Goods   1,281,990   729,718
   
 
    10,698,464   8,725,417
     
 

NOTE 3.  STOCKHOLDERS' EQUITY

    During the third quarter, a director and an officer of the Company exercised options of 6,000 shares, and 1,196 shares were issued under the Company's gainsharing plan for the employees.

9



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(1.)  Results of Operations for Period Ended September 30,2000

Continuing Operations

    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 relates only to the continuing operations of contract manufacturing. See below, the details of discontinued operations.

    For the quarter ended September 30, 2000, the Company had revenues of $13,724,356 compared to revenues of $9,333,900 for the quarter ended September 30, 1999. The increase in revenues resulted primarily from the additional revenues generated from internal growth. The net income for the three months ended September 30, 2000 was $546,616 or $.23 per share, compared to a net income of $226,380 or $.10 per share, for the three months ended September 30, 1999. The net income for the quarter ended September 30, 2000 was primarily impacted by increased gross profit from the increased revenue offset by increased selling and general and administrative expenses.

    For the nine month period ended September 30, 2000, the Company had revenues of $39,492,921, compared to revenues of $28,223,053 for the same period ended September 30, 1999. The increased revenue resulted primarily from internal growth. The net income for the nine month period ended September 30, 2000, was $1,404,845 or $.59 per share, compared to net income of $763,580 or $.33 per share for the same period in 1999.

    Company's 90 day order backlog was $9,980,000 as of September 30, 2000, compared to $9,808,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the fourth quarter of 2000 to be consistent with third quarter of 2000.

Discontinued Operations

    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 February 2000, the fixed assets and inventory of the Display Products segment were sold to Computron Display Systems. Under the terms of the purchase agreement dated February 22, 2000, the Company sold these assets for $300,000, of which $50,000 will be held in escrow to cover future warranty expenses. These terms are materially consistent with estimates recorded by the Company for 1999.

(2.)  Liquidity and Capital Resources.

    The Company's working capital increased to $10,742,175 during the third quarter of 2000, compared to $10,691,893 as of June 30, 2000. The Company believes that its financial stability will continue to improve during 2000 and would expect that its operating cash flow and available credit faculties will be sufficient to fund the expected growth in the near term.

(3.)  Update on Year 2000 Status

    Nortech Systems Inc incurred no major Y2K related problems in 2000, and does not anticipate any in the future. The Company will continue to evaluate its systems to ensure that any potential issues can be quickly addressed.

10



PART II—OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.

    None

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11



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 1, 2000   NORTECH SYSTEMS INCORPORATED
 
 
 
 
 
By:
 
 
 
/s/
QUENTIN E. FINKELSON
Quentin E. Finkelson
Its President and Chief
Executive Officer
 
 
 
 
 
 
 
 
By:
 
 
 
 
 
/s/
GARRY M. ANDERLY
Garry M. Anderly
Principal Financial Officer and
Principal Accounting Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12



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INDEX
PART II—OTHER INFORMATION
SIGNATURES