Annual Statements Open main menu

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

Prepared by MERRILL CORPORATION www.edgaradvantage.com QuickLinks -- Click here to rapidly navigate through this document


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, 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
(State of other jurisdiction of
Incorporation or organization)
  41-1681094
(I.R.S. Employer
Identification No.)
 
641 East Lake St. Suite 244, Wayzata, MN
(Address of principal executive offices)
 
 
 
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 April 30, 2000, there were 2,353,959 shares of the Company's $.01 per share par value common stock outstanding.

(The remainder of this page was intentionally left blank.)

2


NORTECH SYSTEMS INCORPORATED

FORM 10-Q

QUARTER ENDED MARCH 31, 2000

INDEX

 
  PAGE
PART I—FINANCIAL INFORMATION    
 
Item 1—Financial Statements
 
 
 
4-7
 
Item 2—Management's Discussion and Analysis of Financial Condition
 
 
 
8
Notes to Consolidated Financial Statements   8
Results of Operations   8
Discontinued Operations   8
Liquidity and Capital Resources   8
Update on Year 2000 Status   9
 
PART II—OTHER INFORMATION
 
 
 
 
 
Item 2—Exhibits and Reports on Form 8-K
 
 
 
10
 
SIGNATURES
 
 
 
11

3


NORTECH SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS

FOR THE PERIODS ENDED
MARCH 31, 2000 AND DECEMBER 31, 1999

 
  March
2000

  December 31
1999

 
 
  (Unaudited)

  (Audited)

 
ASSETS  
Current Assets              
Cash and cash equivalents   $ 346,414   $ 453,500  
Accounts receivable, net     6,993,529     5,427,441  
Inventories:              
Finished goods     1,632,255     729,718  
Work in process     1,433,243     1,404,018  
Raw materials     6,383,398     6,591,681  
   
 
 
Total inventories   $ 9,448,896   $ 8,725,417  
Prepaid expenses and other     2,075,816     2,063,156  
Net Current Assets of Discontinued Operations     0     0  
   
 
 
Total current assets   $ 18,864,655   $ 16,669,514  
   
 
 
PLANT, Property, and Equipment (at Cost)              
Land and Building/leaseholds   $ 4,355,582   $ 4,017,681  
Manufacturing equipment     5,378,299     4,334,820  
Office and other equipment     1,393,361     2,094,049  
   
 
 
    $ 11,127,242   $ 10,446,550  
Less accumulated depreciation and amortization     (4,254,635 )   (4,004,666 )
   
 
 
Net Property and Equipment for Continuing Operations   $ 6,872,607   $ 6,441,884  
   
 
 
Net Property and Equipment for Discontinued Operations     0     0  
   
 
 
Other Assets              
Goodwill and other intangible assets     98,141     116,022  
Deferred tax asset     300,000     300,000  
Other assets     31,000     0  
   
 
 
Total Other Assets from Continuing Operations   $ 429,141     416,022  
   
 
 
Total Other Assets from Discontinued Operations     24,631     76,296  
   
 
 
Total Assets   $ 26,191,034   $ 23,603,716  
   
 
 

See notes to consolidated financials statements

4


 
  March 31
2000

  December 31
1999

 
 
  (Unaudited)

  (Audited)

 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current Liabilities:              
Current maturities of long-term debt   $ 652,443   $ 860,079  
Accounts payable     5,191,754     4,101,981  
Accrued payrolls and commissions     1,390,133     870,775  
Other     1,019,415     793,933  
Net Current Liabilities from Discontinued Operations     570,020     351,557  
   
 
 
Total Current Liabilities   $ 8,823,765   $ 6,978,325  
   
 
 
Long-Term Debt              
Notes Payable (net of current maturities shown above)   $ 10,575,076   $ 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; 2,353,959 and 2,351,907 shares issued and outstanding     23,540     23,519  
Additional paid-in capital     12,136,088     12,132,615  
Accumulated deficit     (5,617,435 )   (6,027,654 )
   
 
 
Total Shareholders' Equity   $ 6,792,193   $ 6,378,480  
   
 
 
Total Liabilities & Shareholders' Equity   $ 26,191,034   $ 23,603,716  
   
 
 

See notes to consolidated financials statements

5


NORTECH SYSTEMS INCORPORATED

STATEMENTS OF INCOME (LOSS)

FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND MARCH 31, 1999

 
  March 31
2000

  March 31
1999

 
 
  (Unaudited)

  (Unaudited)

 
Sales   $ 12,568,981   $ 9,467,339  
Cost of Sales     10,355,960     7,767,200  
   
 
 
Gross Profit   $ 2,213,021   $ 1,700,139  
Selling, General and Admin.     1,322,899     1,121,571  
Interest Income     (6,119 )   (6,246 )
Misc. (Income) Expense, net     (55,281 )   (22,801 )
Interest Expense     295,302     205,000  
   
 
 
Net Income From Continuing Operations Before Income Tax   $ 656,220   $ 402,615  
Income Tax-Continuing Operations     246,000     153,911  
   
 
 
Net Income-Continuing Operations   $ 410,220   $ 248,704  
   
 
 
Discontinued Operations, Net of Income Taxes              
Net Income/(Loss)From Operations     0     0  
Estimated (Loss)on Sale of Operations     0     0  
   
 
 
Total Discontinued Operations, Net of Income Taxes   $ 0   $ 0  
   
 
 
Net Income(Loss)     410,220     248,704  
   
 
 
Income/(Loss) per Share of Common Stock              
From Continuing Operations   $ 0.17   $ 0.11  
From Discontinued Operations   $ 0.00   $ 0.00  
   
 
 
Total Income/(Loss) per Share of Common Stock   $ 0.17   $ 0.11  
   
 
 
Weighted Average Number of Shares Outstanding     2,352,933     2,351,377  
   
 
 

See notes to consolidated financials statements

6


NORTECH SYSTEMS INCORPORATED

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND MARCH 31, 1999

 
  March 31
2000

  March 31
1999

 
 
  (Unaudited)

  (Unaudited)

 
Cash Flows from Operating Activities              
Net Income   $ 410,220   $ 248,704  
Adjustments to reconcile net income to net cash used by operating activities:              
Depreciation and amortization     249,969     199,352  
Deferred Taxes              
Change in Accruals of Discontinued Operations     270,128        
Changes in Operating Assets and Liabilities:              
Accounts receivable     (1,566,088 )   (294,968 )
Inventories     (723,479 )   (402,178 )
Prepaid expenses     (12,660 )   48,581  
Other assets     (13,119 )   21,625  
Accounts payable     1,089,773     (467,645 )
Accrued Payrolls & Commisions     519,358     499,597  
Other accruals     225,482     326,406  
   
 
 
Net cash used by operating activity     449,584     179,474  
Cash Flows from Investing Activities:              
Acquistion of equipment     (680,692 )   (134,694 )
Proceeds from sale of Assets     0     0  
Issue of Common Stock     3,493        
   
 
 
Net cash used by investing activity     (677,199 )   (134,694 )
Cash Flows from Financing Activities:              
Net borrowing of Long Term debt     1,050,874     0  
Payments of long term debt     (945,739 )   (164,012 )
Change in current debt     15,394     (94,165 )
   
 
 
Net cash provided by financing activities     120,529     (258,177 )
   
 
 
Net Increase/(Decrease) in Cash     (107,086 )   (213,397 )
Cash at Beginning of Period     453,500     415,446  
   
 
 
Cash at End of Period   $ 346,414   $ 202,049  
   
 
 

See notes to consolidated financials statements

7



Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.


NOTES 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, 1999.

(2) RESULTS OF OPERATIONS FOR PERIOD ENDED MARCH 31, 2000

    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 March 31, 2000, the Company had revenues of $12,568,981 compared to revenues of $9,467,339 for the quarter ended March 31, 1999. The increase in revenues resulted primarily from the additional revenues generated from internal growth. The net income for the three months ended March 31, 2000 was $410,220 or $.17 per share, compared to a net income of $248,704 or $.11 per share, for the three months ended March 31, 1999. The net income for the quarter ended March 31, 2000 was primarily impacted by increased gross profit from the increased revenue offset by increased selling and general and administrative expenses.

    Company's 90 day order backlog was $9,535,000 as of March 31, 2000, compared to $9,705,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the second quarter of 2000 to be about the same as the first 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.

Liquidity and Capital Resources.

    The Company's working capital increased to $10,040,890 during the first quarter of 2000, compared to $9,691,189 as of December 31, 1999. The 1999 working capital included setting up of reserves for discontinued operations. 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.

8



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.

9



PART II—OTHER INFORMATION


Item 2.  Exhibits and Reports on Form 8-K.

    None

(The remainder of this page was intentionally left blank.)

10



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, 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

11



QuickLinks

PART II—OTHER INFORMATION
SIGNATURES