NORTECH SYSTEMS INC — Interim / Quarterly Report 1999

May 14, 1999

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, 1999. ( ) 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 (I.R.S. Employer of Incorporation or organization) Identification No.) 641 East Lake St. 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 April 30, 1999, there were 2,351,377 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 MARCH 31, 1999 INDEX

Page 3 NORTECH SYSTEMS INCORPORATED BALANCE SHEETS ASSETS FOR THE PERIOD ENDED MARCH 31, 1999 AND DECEMBER 31, 1998

Page 4 NORTECH SYSTEMS INCORPORATED BALANCE SHEETS LIABILITIES FOR THE PERIOD ENDED MARCH 31, 1999 and DECEMBER 31, 1998

Page 5 NORTECH SYSTEMS INCORPORATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998

Page 6 NORTECH SYSTEMS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998

Page 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS FOR PERIOD ENDED MARCH 31, 1999 For the quarter ended March 31, 1999, the Company had revenues of $10,539,316 compared to revenues of $10,491,782 for the quarter ended March 31, 1998. The increase in revenues resulted primarily from the additional revenues generated from internal growth. The net income for the three months ended March 31, 1999 was $248,704 or $.11 per share, compared to a net income of $246,430 or $.11 per share, for the three months ended March 31, 1998. The net income for the quarter ended March 31, 1999 was primarily impacted by increased gross profit from the increased revenue offset by increased expenses related to engineering and development costs of the new autosync monitor. Company's 90 day order backlog was $9,175,000 as of March 31, 1999, compared to $9,210,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the second quarter of 1999 to be about the same as the first quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital increased to $11,155,008 during the first quarter of 1999, compared to $10,984,033 as of December 31, 1998. The Company believes that its financial stability will continue to improve during 1999 and would expect that its operating cash flow and available credit faculities will be sufficient to fund the expected growth in the near term. UPDATE ON YEAR 2000 STATUS Nortech Systems, Inc recognizes the dangers of the "Year 2000 Problem". To ensure a minimum negative impact on business operations, Nortech has established a Y2K Initiative. The Y2K Initiative addresses the effect on the company, our vendors and our customers. We have completed the inventory and evaluation phase, and are nearing completion of the implementation phase. Testing is nearly completed on most systems. Monitoring and evaluation will continue throughout 1999 and into 2000 until we are sure all issues have been properly resolved. Page 8 SEGMENT REPORTING INFORMATION Nortech Systems, Inc manufactures and sells a variety of products used in the computer, medical, government and defense industries, primarily for the commercial industrial market. The Company's principal businesses are based upon the nature of the manufacturing operations of the respective location. 1. CONTRACT MANUFACTURING - Includes the manufacture of wire harnesses, cable and electromechanical assemblies, printed circuit board assemblies, and higher-level assemblies, all of which are manufactured under contract specifications. These products are sold primarily to the commercial and defense industries. 2. DISPLAY PRODUCTS - Includes the design, manufacture, and marketing of high performance display monitors. The products are sold primarily to the medical, industrial, and service industries. 3. MEDICAL MANAGEMENT - Provides service bureau and office management services to physicians and clinics. Each of these is a business segment, with its respective financial performance detailed in this report.

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: May 10, 1999 NORTECH SYSTEMS INCORPORATED By: Quentin E. Finkelson --------------------------------- Quentin E. Finkelson Its President and Chief Executive Officer By: Garry M. Anderly --------------------------------- Garry M. Anderly Principal Financial Officer and Principal Accounting Officer Page 11