UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

 

NORTECH SYSTEMS INCORPORATED

 

Commission file number 0-13257

 

State of Incorporation: Minnesota

IRS Employer Identification No. 41-1681094

Executive Offices: 1120 Wayzata Blvd E., Suite 201, Wayzata, MN 55391

Telephone number: (952) 345-2277

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, Par Value $.01 Per Share

 

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 of file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes o No ý.

 

Shares of common stock outstanding at April 14, 2003: 2,479,990 shares of $.01 per share par value

 

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

 

 

FORM 10-Q

Quarter Ended March 31, 2003

 

INDEX

 

PART I - FINANCIAL INFORMATION
	Item 1				-		Financial Statements
									Consolidated Balance Sheets
									Consolidated Statements of Income
									Consolidated Statements of Comprehensive Income
									Consolidated Statements of Cash Flow
									Notes to Condensed Consolidated Financial Statements
	Item 2			-				Management’s Discussion and Analysis of Financial Condition And Results of Operations
	Item 3		-					Quantitative and Qualitative Disclosures About Market Risk
	Item 4	-						Controls and Procedures
PART II – OTHER INFORMATION
	Item 6	-				Exhibits and Reports on Form 8-K
SIGNATURES
	Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Certification of the Chief Executive Officer and Chief Financial Officer

 

2

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

ASSETS		MARCH 31 2003			DECEMBER 31 2002
		(UNAUDITED)			(AUDITED)
Current Assets
Cash and Cash Equivalents		$	383,031		$	448,751
Accounts Receivable, Less Allowance for Uncollectible Accounts		6,916,333			7,616,093
Inventories:
Finished Goods		2,568,679			2,172,379
Work In Process		1,850,657			1,859,000
Raw Materials		8,526,053			8,288,938
Total Inventories		12,945,389			12,320,317
Prepaid Expenses		386,781			369,252
Income Taxes Receivable		413,518			483,971
Deferred Tax Assets		969,000			959,000
Total Current Assets		22,014,052			22,197,384
Property and Equipment
Land		151,800			151,800
Building and Leasehold Improvements		4,668,467			4,671,905
Manufacturing Equipment		5,651,723			5,466,567
Office and Other Equipment		2,682,892			2,743,707
Total Property and Equipment		13,154,882			13,033,979
Accumulated Depreciation		(7,356,687		)	(7,084,565		)
Net Property and Equipment		5,798,195			5,949,414
Other Assets
Deposits		11,012			11,012
Non-Compete, Net of Accumulated Amortization		1,240,184			1,335,584
Goodwill		76,006			76,006
Deferred Tax Assets		53,000			33,000
Total Other Assets		1,380,202			1,455,602
Total Assets		$	29,192,449		$	29,602,400

 

See accompanying Notes to Consolidated Financial Statements

 

3

 

LIABILITIES AND SHAREHOLDERS’ EQUITY		MARCH 31 2003			DECEMBER 31 2002
		(UNAUDITED)			(AUDITED)
Current Liabilities
Current Maturities of Notes and Capital Lease Payable		$	1,335,553		$	1,642,179
Checks Written in Excess of Cash		300,000			300,000
Accounts Payable		3,405,203			3,298,474
Accrued Payroll and Commissions		1,414,917			2,119,566
Accrued Health and Dental Claims		273,791			277,864
Other Accrued Liabilities		418,704			243,243
Net Current Liabilities from Discontinued Operations		50,000			50,000
Total Current Liabilities		7,198,168			7,931,326
Long-Term Liabilities
Notes and Capital Lease Payable (Net of Current Maturities)		8,509,313			8,580,944
Total Long-Term Liabilities		8,509,313			8,580,944
Total Liabilities		15,707,481			16,512,270
Shareholders’ Equity
Preferred Stock, $1 par value; 1,000,000 Shares Authorized; 250,000 Shares Issued and Outstanding		250,000			250,000
Common Stock - $0.01 par value; 9,000,000 Shares Authorized: 2,473,650 and 2,441,946 Shares Issued and Outstanding at March 31, 2003 and December 31, 2002, Respectively		24,736			24,419
Additional Paid-In Capital		13,173,340			12,873,657
Accumulated Other Comprehensive Income		(26,686		)	—
Retained Earnings (Accumulated Deficit)		63,578			(57,946		)
Total Shareholders’ Equity		13,484,968			13,090,130
Total Liabilities & Shareholders’ Equity		$	29,192,449		$	29,602,400

 

See accompanying Notes to Consolidated Financial Statements

 

4

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED

 

		MARCH 31 2003			MARCH 31 2002
		(Unaudited)			(Unaudited)
Net Sales		$	13,770,288		$	15,362,896
Cost of Goods Sold		12,120,788			12,583,431
Gross Profit		1,649,500			2,779,465
Operating Expenses:
Selling Expenses		673,833			714,066
General and Administrative Expenses		706,552			939,535
Total Operating Expenses		1,380,385			1,653,601
Income From Operations		269,115			1,125,864
Other Income (Expense)
Interest Income		713			1,414
Miscellaneous Income (Expense)		17,725			(12,822		)
Interest Expense		(89,028		)	(92,537		)
Total Other (Expense)		(70,591		)	(103,945		)
Income From Operations Before
Income Taxes		198,524			1,021,919
Income Tax Expense		77,000			403,000
Net Income		$	121,524		$	618,919
Earnings Per Share:
Basic		$	0.05		$	0.26
Average Number of Common Shares Outstanding Used for Basic Earnings Per Share		2,456,389			2,370,970
Diluted		$	0.05		$	0.25
Average Number of Common Share Outstanding Plus Dilutive Common Stock Options		2,511,007			2,492,045

 

See accompanying Notes to Consolidated Financial Statements

 

5

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED

 

		MARCH 31 2003			MARCH 31 2002
		(Unaudited)			(Unaudited)
Net Income		$	121,524		$	618,919
Other Comprehensive Loss:
Cumulative Translation Adjustment		(26,686		)	—
Comprehensive Income		$	94,836		$	618,919

 

6

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED

 

		MARCH 31 2003			MARCH 31 2002
		(Unaudited)			(Unaudited)
Cash Flows From Operating Activities
Net Income		$	121,524		$	618,919
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		369,869			298,303
Deferred Taxes		(30,000		)	11,000
Changes in Current Operating Items:
Accounts Receivable		697,983			(193,093		)
Accrued Income Taxes and Income Taxes Receivable		70,453			(197,318		)
Inventories		(625,072		)	474,070
Prepaid Expenses		(18,019		)	49,794
Accounts Payable		107,426			225,174
Accrued Payroll and Commissions		(704,368		)	(190,983		)
Other Accrued Liabilities		173,199			(142,160		)
Net Cash Provided by Operating Activities		162,995			953,706
Cash Flows from Investing Activities:
Acquisition of Equipment		(136,731		)	(102,261		)
Net Cash Used by Investing Activities		(136,731		)	(102,261		)
Cash Flows from Financing Activities:
Net Change in Line of Credit		61,844			(1,862,852		)
Proceeds From Notes Payable		—			4,850,000
Payments on Notes and Capital Lease Payable		(140,101		)	(3,683,591		)
Issuance of Stock		—			30,424
Net Cash Used by Financing Activities		(78,257		)	(666,019		)
Effect of Exhange Rate Changes on Cash		(13,727		)	—
Net Increase (Decrease) in Cash and Cash Equivalents		(65,720		)	185,426
Cash and Cash Equivalents - Beginning		448,751			181,730
Cash and Cash Equivalents - Ending		$	383,031		$	367,156

 

See accompanying Notes to Consolidated Financial Statements

 

7

 

 

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.  However, as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.  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, 2003 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, 2002 included in the Company’s Annual Report Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission.

 

Certain reclassifications have been made to the financial statements for the periods presented from amounts previously reported to conform to classifications currently adopted. Such reclassifications had no effect on previously reported shareholders equity or net income.

 

NOTE 2.  PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Manufacturing Assembly Solutions of Monterrey, Inc.  All significant intercompany accounts and transactions have been eliminated.

 

NOTE 3.  ACCOUNTING PRONOUNCMENTS

 

In November 2002, the FASB issued Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57 and 107 and a Rescission of FASB Interpretation No. 34”.  This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued.  The Company adopted the disclosure provisions of FABS Interpretation No. 45 as of December 31, 2002.  FASB Interpretation No. 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligations undertaken.  The initial recognition and measurement provision of the Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.  In 2003, the Company adopted the initial recognition and initial measurement provisions of FASB Interpretation No. 45.  The Company does not provide guarantees.  As a result, this interpretation has not impacted our financial statements.

 

In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  This Statement requires companies to recognize costs associated with exit or disposal activities when such costs are incurred rather than at the date of a commitment to

 

8

 

an exit or disposal plan. Previous accounting guidance was provided by the Emerging Issues Task Force (“EITF”) pursuant to Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”).  Statement No. 146 replaces EITF 94-3.  The Company adopted this Statement on December 31, 2002 and will apply it prospectively based on future exit or disposal activity.

 

NOTE 4. LONG TERM DEBT

 

As described in the December 31, 2002 financial statements, repayment of SAE Assembly, LLC (SAE) debt will be made through semi-annual installments ending June 2004.  Each installment on the note will be satisfied with the issue of 31,704 shares of Nortech stock.  Should the average market price of the stock fail to reach or exceed $7.00 during a four-week period of time during each semi-annual period, the Company shall at the buyer’s discretion repurchase such shares within 30 days at a price of $7.00.  The 31,704 shares required under the first installment were transferred to SAE on December 27, 2002, but were not considered outstanding at December 31, 2002 for purposes of calculating earnings per share, as the four-week period of time had not expired.  During first quarter 2003, the market price of the Company’s stock met the $7.00 four-week requirement, at which time the shares issued to SAE became outstanding.  Satisfaction of this obligation through issuance of stock resulted in a non-cash transaction of $300,000 during the three months ended March 31, 2003.

 

9

 

NOTE 5.  STOCK OPTIONS

 

As allowed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” the Company has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation cost is recognized in the Company’s net income for options granted with exercise prices that are equal to the market values of the underlying common stock on the dates of grant.  Had compensation cost for the stock options been based on the estimated fair values at grant dates, the Company’s pro forma net income and net income per share for the first quarters of 2003 and 2002 would have been as follows:

 

		For the Three-Months Ended March 31,
		2003			2002
Net income, as reported		$	121,524		$	618,919
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(6,639		)	(17,132		)
Proforma net income		$	114,885		$	601,787
Earnings per share:
Basic - as reported		$	0.05		$	0.26
Basic - pro forma		$	0.05		$	0.25
Diluted - as reported		$	0.05		$	0.25
Diluted - pro forma		$	0.05		$	0.24

 

There were no stock options granted during the three-month periods ended March 31, 2003 or 2002.

 

10

 

NOTE 6. NET INCOME PER COMMON SHARE

 

The following is a reconciliation of the numerators and the denominators of the basic and diluted per common share computations.

 

		For the Three Months Ended March 31,
		2003			2002
Basic Earnings Per Common Share
Net Income		$	121,524		$	618,919
Weighted average common share outstanding		2,456,389			2,370,970
Basic earnings per common share *		$	0.05		$	0.26
Diluted Earnings Per Common Share
Net Income		$	121,524		$	618,919
Weighted average common shares outstanding		2,410,890			2,361,192
Stock options		106,592			95,896
Weighted average common shares for diluted earnings per common share		2,517,482			2,457,088
Diluted earnings per common share		$	0.05		$	0.25

 

For each of the three months ended March 31, 2003 and 2002, there were no antidilutive shares.  Thus, no antidilutive shares were excluded from the computation of diluted earnings per share.

 

NOTE 7. FOREIGN CURRENCY TRANSLATION

 

Local currency is considered the functional currency for the operation outside the United States.  Assets and liabilities are translated at year-end exchange rates.  Income and expense items are translated at average rates of exchange prevailing during the year.  Cumulative translation adjustments, if significant, are recorded as a component of accumulated other comprehensive income in stockholders’ equity.

 

11

 

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

 

(1.)  Results of Operations for Quarter Ended March 31, 2003

 

Net Sales:

The Company had net sales of $13,770,288 compared to net sales of $15,362,896 for the quarters ended March 31, 2003 and 2002, respectively.  The decrease in net sales is due to order delays from major customer that reflects the general economic softness and the war in Iraq.  This weakness primarily affected the Company’s commercial wire harness and cable business, which is particularly vulnerable in the short run to customer push-outs and order delays.

 

Gross Profit:

The Company had gross profit of $1,649,500 or 12.0% compared to gross profit of $2,779,465 or 18.1% for the quarters ended March 31, 2003 and 2002, respectively.  The decrease reflects the reduced volume of business as stated above and the Company has elected to keep its infrastructure intact which affects the margin of the company in the short run.

 

Selling Expenses:

The Company’s selling expenses were $673,833 for quarter ended March 31, 2003 compared to $714,066 for the quarter ended March 31, 2002.  Reduced selling expense was due to lower revenue levels.

 

General and Administrative Expense:

The Company’s general and administrative expenses were $706,552 for quarter ended March 31, 2003 compared to $939,535 for the quarter ended March 31, 2002.  Reduction of expenses was due to lower head-count and reduced employee benefit expenses.

 

Other Income and Expense:

Other income and expense was $70,590 for quarter ended March 31, 2003 compared to $103,945 for the quarter ended March 31, 2002. The reduced expense relates to lower interest costs due to more favorable lending rates and miscellaneous income from the sale of tooling.

 

Net Income:

Net income for the three months ended March 31, 2003 was $121,524 or $0.05 per share compared to a net income of $618,919 or $0.26 per share for the three months ended March 31, 2002.

 

Income Tax:

Income tax expense for the three months ended March 31, 2003 was $77,000, compared to income expense of $403,000 for the three months ended March 31, 2002.

 

Backlog:

The Company’s 90-day order backlog was approximately $10,600,000 as of March 31, 2003, compared with approximately $10,400,000 at the beginning of the quarter.  Based on the current conditions, the Company anticipates revenue levels in the second quarter of 2003 to be slightly higher than first quarter of 2003.

 

12

 

(2.)  Liquidity and Capital Resources

 

The Company’s working capital increased to $14,815,884 at the close of first quarter 2003, compared to $14,266,058 as of December 31, 2002.  The Company believes that its financial liquidity will improve during 2003 and expects that its operating cash flow and available credit facilities will be sufficient to fund the expected growth in the next twelve months.

 

(3.)  Critical Accounting Policies

 

The Company believes its most critical accounting estimates relate to inventory reserves, long-lived and intangible asset impairment, deferred tax balances, and self-insured health claim reserves.

 

Inventory Reserves:

Inventory reserves are maintained for the estimated value of the inventory that may have a lower value than stated or in excess of production needs.  These values are estimates and may differ from actual results.  The Company has an evaluation process that is used to assess the value of the inventory that is slow moving, excess or obsolete.  This process is reviewed on a quarterly basis.

 

Long-Lived and Intangible Asset Impairment:

The Company evaluates long-lived assets and intangible assets with definite lives for impairment, as well as the related amortization periods, to determine whether adjustments to these amounts or useful lives are required based on current events and circumstances.  The evaluation is based on the Company’s projection of the undiscounted future operating cash flows of the underlying assets.  To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to equal estimated fair value.

 

The test for impairment requires the Company to make several estimates about fair value, most of which are based on projected future cash flows.  The estimates associated with the asset impairment tests are considered critical due to the judgments required in determining fair value amounts, including projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss.

 

Income taxes:

Management’s estimate of the tax rates utilized in the calculation of the deferred tax balances is based on historical taxable income and expected future taxable income and corresponding rates.  Further, management’s consideration of a valuation allowance for deferred tax assets is based upon estimates of taxable income in future periods.  These are estimates and may differ from actual results.

 

Self-Insured Health Claim Reserves:

Management estimates its reserve for employee health claims based on health claims incurred, historical lag times and an analysis of claims activity during the period, while taking into consideration insurance limits and coverage.

 

Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the

 

13

 

Company’s consolidated financial statements provide a meaningful and fair perspective of the Company.  This is not to suggest that other general risk factors, such as changes in worldwide economic conditions, fluctuations in foreign currency exchange rates, changes in materials costs, performance of acquired businesses and others, could not adversely impact the Company’s consolidated financial position, results of operations and cash flows in future periods.

 

(4.)  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 effect 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes in market risk from what was reported on Form 10-K for the year ended December 31, 2002.

 

14

 

ITEM 4. CONTROLS AND PROCEDURES.

 

(a)          Evaluation of disclosure controls and procedures:  The Company’s chief executive officer and chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective and designed to ensure that material information relating to the Company and the Company’s consolidated subsidiary would be made known to them by others within those entities.

 

(b)         Changes in internal controls:  There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date.

 

15

 

PART II - OTHER INFORMATION

 

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

 

(a)            Exhibits.

 

99.1               Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

 

99.2               Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

 

(b)           Reports on Form 8-K

None

 

16

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Nortech Systems, Inc. and Subsidiary
Date: May 13, 2003		By	/s/ Michael J. Degen
		Michael J. Degen
		President and Chief Executive Officer
Date: May 13, 2003		By	/s/ Garry M. Anderly
		Garry M. Anderly
		Principal Financial
		Officer and Principal Accounting Officer

 

17

 

Quarterly Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Michael J. Degen, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)              designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)             evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)              presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee or registrant’s board of directors (or persons performing the equivalent function):

 

a)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

b)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

18

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Date: May 13, 2003	/s/	Michael J. Degen
		Michael J. Degen
		President and Chief Executive Officer

 

19

 

Quarterly Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Garry M. Anderly, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

d)             designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

e)              evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

f)                presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee or registrant’s board of directors (or persons performing the equivalent function):

 

c)              all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and Quarterly Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

d)             any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

20

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

Date: May 13, 2003		/s/	Garry M. Anderly
			Garry M. Anderly
			Principal Financial
			Accounting Officer

 

21