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NORTECH SYSTEMS INC — Interim / Quarterly Report 2000
May 12, 2000
34862_10-q_2000-05-12_3fdd20d8-0efa-4af0-a82b-2622b933b755.zip
Interim / Quarterly Report
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
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/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities exchange Act of 1934
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For the quarterly period ended March 31, 2000.
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/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Transition period from to .
Commission File Number 0-13257.
NORTECH SYSTEMS INCORPORATED (Exact name of registrant as specified in its chapter)
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| 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) |
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(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 / /
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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.
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NORTECH SYSTEMS INCORPORATED
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
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| PAGE | |
|---|---|
| PART IFINANCIAL INFORMATION | |
| Item 1Financial Statements | 4-7 |
| Item 2Management'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 IIOTHER INFORMATION | |
| Item 2Exhibits and Reports on Form 8-K | 10 |
| SIGNATURES | 11 |
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NORTECH SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
FOR THE PERIODS ENDED MARCH 31, 2000 AND DECEMBER 31, 1999
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| March 2000 — (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 |
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See notes to consolidated financials statements
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| March 31 2000 — (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 |
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See notes to consolidated financials statements
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NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
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| March 31 2000 — (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 |
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See notes to consolidated financials statements
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ZEQ.=1,SEQ=6,EFW="2014340",CP="NORTECH SYSTEMS INCORPORATED",DN="1",CHK=172342,FOLIO=6,FILE='DISK014:[00STP8.00STP1598]DG1598A.;7',USER='BMOORE',CD='10-MAY-2000;19:00
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
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| March 31 2000 — (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 |
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See notes to consolidated financials statements
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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.
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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.
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PART IIOTHER INFORMATION
Item 2. Exhibits and Reports on Form 8-K.
None
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ZEQ.=1,SEQ=10,EFW="2014340",CP="NORTECH SYSTEMS INCORPORATED",DN="1",CHK=835480,FOLIO=10,FILE='DISK014:[00STP8.00STP1598]DK1598A.;9',USER='BMOORE',CD='10-MAY-2000;19:00
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.
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| Dated: May 10, 2000 | |
|---|---|
| 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 |
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TOC_END TOC_BEGIN PART IIOTHER INFORMATION
SIGNATURES TOC_END SEQ=,FILE='QUICKLINK',USER=CPULLIA,SEQ=,EFW="2014340",CP="NORTECH SYSTEMS INCORPORATED",DN="1"