NORTECH SYSTEMS INC - Quarter Report: 2000 September (Form 10-Q)
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.) |
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| 641 East Lake St. Suite 244, Wayzata, MN |
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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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NORTECH SYSTEMS INCORPORATED
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
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| 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 |
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| Item 6 | — | Exhibits and Reports on Form 8-K | 11 | ||
| SIGNATURES | 12 | ||||
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NORTECH SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 30, 1999
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Sept. 30 2000 |
December 31 1999 |
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(Unaudited) |
(Audited) |
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| 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 |
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166,290 |
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102,156 |
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| 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
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Sept. 30 2000 |
December 31 1999 |
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(Unaudited) |
(Audited) |
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| 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: |
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| 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
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Sept. 30 2000 |
Sept. 30 1999 |
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(Unaudited) |
(Unaudited) |
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| Sales | $ | 13,724,356 | $ | 9,333,900 | |||||
| Cost of Sales |
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11,011,441 |
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7,786,654 |
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| Gross Profit | $ | 2,712,915 | $ | 1,547,246 | |||||
| Selling, General and Admin. |
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1,586,008 |
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1,041,076 |
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| Interest Income | (4,921 | ) | (7,845 | ) | |||||
| Misc. (Income) Expense, net | 854 | (48,058 | ) | ||||||
| Interest Expense | 314,448 | 205,000 | |||||||
| Net Income From Continuing Operations |
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| 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
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NORTECH SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
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Sept. 30 2000 |
Sept. 30 1999 |
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(Unaudited) |
(Unaudited) |
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| Sales | $ | 39,492,921 | $ | 28,223,053 | |||||
| Cost of Sales |
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32,205,760 |
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23,341,625 |
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| Gross Profit | $ | 7,287,161 | $ | 4,881,428 | |||||
| Selling, General and Admin. |
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4,239,135 |
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3,149,104 |
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| 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 |
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| 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
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NORTECH SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
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Sept. 30 2000 |
Sept. 30 1999 |
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(Unaudited) |
(Unaudited) |
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| Cash Flows from Operating Activities | ||||||||||
| Net Income | $ | 1,404,845 | $ | 763,580 | ||||||
| Adjustments to reconcile net income to net cash used by operating activities: |
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| 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: |
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| 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: |
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| 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 |
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453,500 |
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375,528 |
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| Cash at End of Period | $ | 214,844 | $ | 263,656 | ||||||
See notes to consolidated financials statements
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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:
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09/30/00 |
12/31/99 |
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| 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.
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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.
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Item 6. Exhibits and Reports on Form 8-K.
None
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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 | |||
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By: |
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/s/ QUENTIN E. FINKELSON Quentin E. Finkelson Its President and Chief Executive Officer |
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By: |
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/s/ GARRY M. ANDERLY Garry M. Anderly Principal Financial Officer and Principal Accounting Officer |
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INDEXPART II—OTHER INFORMATION
SIGNATURES