NORTECH SYSTEMS INC — Interim / Quarterly Report 1997

Aug 13, 1997

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 June 30, 1997. ( ) 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 or other jurisdiction of (I.R.S. Employer Identification Number) Incorporation or organization) 641 East Lake Street - Suite 244 - Wayzata, MN 55391 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Codes) (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 --- --- Page 1 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 July 31, 1997, there were 2,362,263 shares of the Company's $.01 per share par value common stock outstanding. (The remainder of this page was intentionally left blank.) Page 2 NORTECH SYSTEMS INCORPORATED FORM 10-Q QUARTER ENDED JUNE 30, 1997 INDEX PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements. . . . . . . . . . . . . . . . . . . . . 4-8 Item 2 - Management's Discussion, Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 9 PART II - OTHER INFORMATION Item 2 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 10 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Page 3 NORTECH SYSTEMS INCORPORATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 JUNE 30 DECEMBER 31 ASSETS 1997 1996 (UNAUDITED) (AUDITED) ----------- ----------- Current Assets Cash and cash equivalents $ 466,801 $ 1,235,127 Accounts receivable, net 5,068,214 3,695,763 Inventories: Finished goods 1,153,906 1,265,588 Work in process 1,767,247 1,837,247 Raw materials 4,445,804 3,626,665 ----------- ----------- Total inventories $ 7,366,957 $ 6,729,500 Prepaid expenses and other 548,870 628,821 ----------- ----------- Total current assets $ 13,450,842 $ 12,289,211 ----------- ----------- PLANT, Property, and Equipment (at Cost) Land and Building/leaseholds $ 3,781,825 $ 3,695,455 Manufacturing equipment 5,370,769 4,588,955 Office and other equipment 2,074,599 2,461,997 ----------- ----------- $ 11,227,193 $ 10,746,407 Less accumulated depreciation and amortization (3,411,277) (2,875,702) ----------- ----------- $ 7,815,916 $ 7,870,705 ----------- ----------- Other Assets Goodwill and other intangible assets 798,463 1,025,463 Deferred tax asset 910,000 910,000 Other assets 57,250 57,250 ----------- ----------- Total Other Assets $ 1,765,713 1,992,713 ----------- ----------- Total Assets $ 23,032,471 $ 22,152,629 ----------- ----------- ----------- ----------- NORTECH SYSTEMS INCORPORATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30 DECEMBER 31 1997 1996 (UNAUDITED) (AUDITED) ----------- ----------- Current Liabilities: Current maturities of long-term debt $ 759,375 $ 731,080 Line of credit 500,000 500,000 Accounts payable 2,071,360 1,596,326 Accured payrolls and commissions 675,376 673,303 Other 237,954 289,971 ----------- ----------- Total Current Liabilities $ 4,244,065 $ 3,790,680 ----------- ----------- Long-Term Debt Notes Payable (net of current maturities shown above) $ 11,037,468 $ 10,910,757 ----------- ----------- Redeemable Stock $ 300,000 $ 300,000 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; 2,312,262 and 2,312,262 shares issued and outstanding, net of redeemable shares reported above, at June 30, 1997 and December 31, 1996, Respectively 23,124 23,124 additional paid-in capital 11,910,554 11,910,554 accumulated deficit (4,732,740) (5,032,486) ----------- ----------- Total Shareholders' Equity $ 7,450,938 $ 7,151,192 ----------- ----------- Total Liabilities, Redeemable Stock and Shareholders' Equity $ 23,032,471 $ 22,152,629 ----------- ----------- ----------- ----------- NORTECH SYSTEMS INCORPORATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 JUNE 30 JUNE 30 1997 1996 (UNAUDITED) (UNAUDITED) ----------- ----------- Sales $ 9,039,176 $ 6,622,903 Cost of Sales 7,383,860 5,408,628 ----------- ----------- Gross Profit $ 1,655,316 $ 1,214,275 Selling, General and Admin. 1,043,756 630,196 Engineering/Reseach & Development 93,458 119,217 Misc. (Income) Expense, net (1,493) 3,669 Interest Expense 260,264 76,441 ----------- ----------- Net Income Before Tax Provision $ 259,331 $ 384,752 Tax Provision 92,079 96,200 ----------- ----------- Net Income $ 167,252 $ 288,552 ----------- ----------- ----------- ----------- Income (Loss) per Share of Common Stock Net income per Share of Common Stock $ 0.07 $ 0.12 ----------- ----------- ----------- ----------- Weighted Average Number of Shares Outstanding 2,362,263 2,362,263 ----------- ----------- ----------- ----------- NORTECH SYSTEMS INCORPORATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 JUNE 30 JUNE 30 1997 1996 (UNAUDITED) (UNAUDITED) ----------- ----------- Sales $ 17,604,022 $ 12,197,889 Cost of Sales 14,428,217 9,977,259 ----------- ----------- Gross Profit $ 3,175,805 $ 2,220,630 Selling, General and Admin. 2,058,561 1,223,304 Engineering/Reseach & Development 205,953 192,583 Misc. (Income) Expense, net 7,270 3,611 Interest Expense 443,935 163,186 ----------- ----------- Net Income Before Tax Provision $ 460,086 $ 637,946 Tax Provision 160,079 159,500 ----------- ----------- Net Income $ 300,007 $ 478,446 ----------- ----------- ----------- ----------- Income per Share of Common Stock Net income per share of Common Stock $ 0.13 $ 0.20 ----------- ----------- ----------- ----------- Weighted Average Number of Shares Outstanding 2,362,263 2,362,263 ----------- ----------- ----------- ----------- NORTECH SYSTEMS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 JUNE 30 JUNE 30 1997 1996 (UNAUDITED) (UNAUDITED) ----------- ----------- Cash Flows from Operating Activities Net Income $ 300,007 $ 478,446 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 535,575 257,536 Changes in Operating Assets and Liabilities: Accounts receivable (1,372,451) (1,174,911) Inventories (637,457) (845,611) Prepaid expenses 79,951 (137,219) Other assets 227,000 18,762 Accounts payable 475,034 664,351 Accured payrolls 2,073 265,784 Other accruals (52,017) 10,289 ----------- ----------- Net cash used by operating act. (442,285) (462,573) Cash Flows from Investing Activities: Acquistion of equipment (480,786) (291,428) Redemption of Stock/other 0 (531,600) Payment of Pref. Stock Dividend 0 0 ----------- ----------- Net cash used by investing act. (480,786) (823,028) Cash Flows from Financing Activities: Net borrowing of Long Term debt 500,000 925,000 Payments of long term debt (373,289) (52,781) Change in current debt 28,034 (30,319) ----------- ----------- Net cash provided by financing activities 154,745 841,900 ----------- ----------- Net (Decrease) in Cash (768,326) (443,701) Cash at Beginning of Period 1,235,127 924,590 ----------- ----------- Cash at End of Period $ 466,801 $ 480,889 ----------- ----------- ----------- ----------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS FOR PERIOD ENDED JUNE 30, 1996 For the quarter ended June 30, 1996, the Company had revenues of $9,039,176 compared to revenues of $6,622,903 for the quarter ended June 30, 1996. The increase in revenues resulted primarily from the additional revenues generated by the recently acquired Zercom Division. The Company previously completed this acquisition in November,1996. The net income for the three months ended June 30, 1997 was $167,252 or $.07 per share, compared to a net income of $288,552 or $.12 per share, for the three months ended June 30, 1996. The net income for the quarter ended June 30, 1997 was primarily impacted by the continuing expending funds on Company-sponsored research and development of large-screen, high resolution video monitors for the Imaging Division, lower Revenue and Profit in the Cable & Harness Business. For the six month period ended June 30, 1997, the Company had revenue of $17,604,022 compared to revenue of $12,197,889 for the six months ended June 30, 1996. The net income for the six months ended June 30, 1997 was $300,007 of $.13 per share compared to a net income of $478,446 or $.20 per share, for the six months ended June 30, 1996. The 1997 net income reflects an income after recording a tax expense of $160,079 or 35% compared to tax expense of $159,500 or 25% recorded in 1996. The Company's 90 day order backlog was $6,995,000 as of June 30, 1997, compared to $6,668,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the third quarter of 1997 to be slightly higher than the second quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital increased to $9,206,777 during the second quarter of 1997, compared to $8,498,531 as of December 31, 1996. The Company believes that its financial stability will continue to improve during 1997 and would expect that its operating cash flow and available credit facilities will be sufficient to fund the expected growth in the near term. Page 9 PART II - OTHER INFORMATION ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K. None (The remainder of this page was intentionally left blank.) Page 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: August 13, 1997 NORTECH SYSTEMS INCORPORATED By: Quentin E. Finkelson --------------------------------------- Quentin E. Finkelson President & Chief Executive Officer By: Garry M. Anderly --------------------------------------- Garry M. Anderly Principal Financial & Accounting Officer Page 11