SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

ý  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2001.

 

o  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.)
1120 Wayzata Blvd East Suite 201, Wayzata, MN 55391
(Address of principal executive offices) (Zip Code)
(952) 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 ý    NO o

 

 

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, 2001, there were 2,361,192 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, 2001

 

INDEX

 

PART I  -  FINANCIAL INFORMATION

Item 1 - Financial Statements Notes to Condensed Consolidated Financial Statements

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

PART II  -  OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

SIGNATURES

 

 

NORTECH SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2001 AND DECEMBER 30, 2000

 

		SEPTEMBER 30			DECEMBER 31
ASSETS		2001			2000
		(UNAUDITED)			(AUDITED)
Current Assets
Cash and cash equivalents		$	150,135		$	527,998
Accounts receivable, net of allowance		8,370,403			8,580,791
Inventories:
Finished goods		1,824,592			1,298,626
Work in process		1,993,004			1,848,025
Raw materials		9,803,726			8,448,484
Prepaid expenses and other		354,415			47,462
Deferred tax asset		1,359,000			1,422,000
Total Current Assets		$	23,855,275		$	22,173,386
Property and Equipment
Land and building/leaseholds		$	4,544,933		$	4,386,421
Manufacturing equipment		4,974,208			4,594,607
Office and other equipment		2,414,042			2,325,189
Total		$	11,933,183		$	11,306,217
Accumulated depreciation		(5,902,407		)	(4,987,805		)
Net Property and Equipment		$	6,030,776		$	6,318,412
Other Assets
Goodwill and other intangible assets		77,034			99,750
Deferred tax asset		112,000			31,000
Other assets from discontinued operations		21,179			30,401
Total Other Assets		$	210,213		$	161,151
Total Assets		$	30,096,264		$	28,652,949

 

See accompanying notes to consolidated financial statements

 

 

NORTECH SYSTEMS INCORPORATED

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2001 AND DECEMBER 30, 2000

 

		SEPTEMBER 30			DECEMBER 31
LIABILITIES AND SHAREHOLDERS' EQUITY		2001			2000
		(UNAUDITED)			(AUDITED)
Current Liabilities
Current maturities of notes and capital lease payable		$	3,079,050		$	3,333,401
Accounts payable		5,444,884			5,743,836
Accrued payrolls and commissions		2,088,080			1,668,748
Accrued income taxes		127,330			182,330
Other liabilities		1,143,029			1,200,296
Net current liabilities from discontinued operations		376,316			411,236
Total Current Liabilities		$	12,258,689		$	12,539,847
Long-Term Debt
Notes and capital lease payable (net of current maturities)		$8,231,610			$  7,665,536
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; 2,361,192 and 2,361,055 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively		23,612			23,611
Additional paid-in capital		12,159,004			12,158,036
Accumulated deficit		(2,826,651		)	(3,984,081		)
Total Shareholders' Equity		$	9,605,965		$	8,447,566
Total Liabilities & Shareholders' Equity		$	30,096,264		$	28,652,949

 

See accompanying notes to consolidated financial statements

 

 

NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000

 

		SEPTEMBER 30			SEPTEMBER 30
		2001			2000
		(Unaudited)			(Unaudited)
Sales		$	13,706,447		$	13,724,356
Cost of Sales		11,380,106			11,011,441
Gross Profit		$	2,326,341		$	2,712,915
Selling, General and Administrative Expenses		$	1,471,102		$	1,586,008
Interest Expense		158,931			314,448
Miscellaneous (Income) Expense		118,059			(4,067		)
Net Income Before Income Tax		$	578,249		$	816,526
Income Tax Expense		217,000			269,910
Net Income		$	361,249		$	546,616
Basic Income per Share of Common Stock		$	0.15		$	0.23
Diluted Income per Share of Common Stock		$	0.15		$	0.22
Weighted Average Common Shares:
Basic		2,361,192			2,361,056
Diluted		2,450,438			2,517,393

 

See accompanying notes to consolidated financial statements

 

 

NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000

 

		SEPTEMBER 30			SEPTEMBER 30
		2001			2000
		(Unaudited)			(Unaudited)
Sales		$	41,173,806		$	39,492,921
Cost of Sales		34,154,867			32,205,760
Gross Profit		$	7,018,939		$	7,287,161
Selling, General and Administrative Expenses		$	4,413,368		$	4,239,135
Interest Expense		587,764			886,214
Miscellaneous (Income) Expense		165,411			(27,748		)
Net Income Before Income Tax		$	1,852,396		$	2,189,560
Income Tax Expense		695,000			784,715
Net Income		$	1,157,396		$	1,404,845
Basic Income per Share of Common Stock		$	0.49		$	0.59
Diluted Income per Share of Common Stock		$	0.47		$	0.58
Weighted Average Common Shares:
Basic		2,361,158			2,355,106
Diluted		2,470,907			2,424,884

 

See accompanying notes to consolidated financial statements

 

 

NORTECH SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000

 

		SEPTEMBER 30			SEPTEMBER 30
		2001			2000
		(UNAUDITED)			(UNAUDITED)
Cash Flows from Operating Activities
Net income from continuing operations		$	1,157,396		$	1,404,845
Adjustments to reconcile net income from
continuing operations to net cash provided
(used) by continuing operations
Depreciation and amortization		937,318			789,172
Deferred taxes		(18,000		)	785,000
Changes in Operating Assets and Liabilities:
Accounts receivable		210,388			(2,027,748		)
Inventories		(2,026,187		)	(1,973,047		)
Prepaid expenses		(306,953		)	(64,134		)
Other assets		-			19,958
Accounts payable		(298,952		)	637,019
Accrued payrolls & commissions		419,332			1,035,698
Accrued income taxes		(55,000		)	-
Other liabilities		(57,267		)	350,127
Net Cash Provided (Used) by Continuing Operations		$	(37,925	)	$	956,890
Net Cash Provided (Used) by Discontinued Operations		(25,698		)	218,463
Net Cash Provided (Used) by Operating Activities		$	(63,623	)	$	1,175,353
Cash Flows from Investing Activities:
Acquisition of equipment		(626,966		)	(669,397		)
Net Cash Used by Investing Activities		$	(626,966	)	$	(669,397	)
Cash Flows from Financing Activities:
Proceeds from notes payables		$	7,600,261		$	3,000,873
Payments on notes and capital lease payable		(7,288,503		)	(3,748,978		)
Issuance of common stock		968			3,493
Net Cash Provided (Used) by Financing Activities		$	312,725		$	(744,612	)
Net Decrease in Cash and Cash Equivalents		$	(377,864	)	$	(238,656	)
Cash and Cash Equivalents - Beginning		527,998			453,500
Cash and Cash Equivalents - Ending		$	150,135		$	214,844

 

See accompanying notes to consolidated financial statements

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1.  BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 2001 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, 2000 included in the Company’s Annual Report Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission.

 

NOTE 2.  NEW ACCOUNTING PRONOUNCMENTS

 

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.141 “Business Combinations”, which is required for all business combinations initiated after June 30, 2001. The standard eliminates the use of the pooling-of-interest method and improves the accounting and reporting for business combinations. The Company does not expect that the new standard will have a material effect on the results of operations or cash flows.

 

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.142 (SFAS 142) "Goodwill and Other Intangible Assets".  The statement addresses accounting and reporting for (i) intangible assets at acquisition and (ii) for intangible assets and goodwill subsequent to their acquisition. As it relates to the Company's goodwill and intangible assets in existence at June 30, 2001, the statement requires that management reassess the useful lives and amortization period of such assets. For those with an indefinite useful life, periodic amortization is to be discontinued and an annual impairment test, beginning January 1, 2002, is to be established. The Company's Management does not feel as if this pronouncement will have material impact on its statement of financial condition or cash flows at the effective date and is currently assessing the impact that the pronouncement may have on its results of operations in fiscal 2002 and thereafter.

 

In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Impairment or Disposal of Long-Lived Assets” (SFAS 144), which is applicable to financial statements issued for fiscal years beginning after December 15, 2001.  The provisions of this statement provide a single accounting model for impairment of long-lived assets.  The Company is in the process of determining the impact, if any, of adopting SFAS 144.

 

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

 

(1.) Results of Operations for Quarter and Period Ended September 30, 2001

The Company had revenues of $13,706,447 compared to revenues of $13,724,356 for the quarters ended September 30, 2001 and 2000, respectively.  The decrease in revenues resulted primarily from order delays and postponements from several large customers.  The net income for the three months ended September 30, 2001 was $361,249 or $.15 per share, compared to a net income of $546,616 or $.23 per share, for the three months ended September 30, 2000.  The unfavorable variance in net income for the quarter ended September 30, 2001 compared to the prior year quarter was the result of realizing lower margins on reduced revenue levels as well as changes in the mix of products manufactured.

 

The Company had revenues of $41,173,806, compared to revenues of $39,492,921, for the nine-month periods ended September 30, 2001 and 2000, respectively.  The increased revenues result primarily from additional revenues generated from internal customer sales growth.  The net income for the nine- month period ended September 30, 2001, was $1,157,396 or $.49 per share, compared to net income of $1,404,845 or $.59 per share for the same period in 2000. The year to date results reflects the effect of the product mix change from high margin product to low margin product due to the downturn in the economy.  To offset the effect in future quarters, the Company has taken aggressive cost-reduction measures across the corporation, including consolidation of plant operations and reassessment of personnel needs.

 

The Company's 90 day order backlog was $11,500,000 as of September 30, 2001, compared with $10,750,000 at the beginning of the quarter.  Based on the current conditions, the Company anticipates revenue levels in the fourth quarter of 2001 to be higher than third quarter of 2001.

 

(2.) Liquidity and Capital Resources.

The Company's working capital increased to $11,596,586 at the close of third quarter 2001, compared to $9,633,539 as of December 31, 2000.  The Company believes that its financial stability will continue to improve during 2001 and would expect that its operating cash flow and available credit faculties will be sufficient to fund the expected growth in the near term.

 

Forward-Looking Statements

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.  Such statements generally will be accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “possible,” “potential,” “predict,” “project,” or other similar words that convey the uncertainty of future events or outcomes.  Although Nortech Systems, Inc. believes these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate.  Forward-looking statements involve a number of risks and uncertainties.  Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation:

 

•      Volatility in the marketplace which may affect market supply and demand the Company’s products;

•      Increased competition;

•      Changes in the reliability and efficiency of the Company’s operating facilities or those of third parties;

•      Risks related to availability of labor;

•      General economic, financial and business conditions that could the Company’s financial condition and results of operations.

 

 

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by the Company.  Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements.  All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the forgoing cautionary statements.  The Company undertakes no obligations to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.

 

 

PART II  - OTHER INFORMATION

 

Item 6.  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:  November 6, 2001		NORTECH SYSTEMS INCORPORATED
	By:	/s/ Quentin E. Finkelson
		Quentin E. Finkelson
		President and Chief
		Executive Officer
	By:	/s/ Garry M. Anderly
		Garry M. Anderly
		Principal Financial
		Officer and Principal
		Accounting Officer