-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RyT+MT2iXzzdgzdsjgyqyV7x8ybUAVzP46mZ+yJmJihosvAl9YdM3zKZEw+6i1kB 58dzeGOGFPTa7jAPZ2rJfA== 0001047469-99-032303.txt : 19990817 0001047469-99-032303.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032303 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTECH SYSTEMS INC CENTRAL INDEX KEY: 0000722313 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 411681094 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13257 FILM NUMBER: 99691331 BUSINESS ADDRESS: STREET 1: 641 EAST LAKE ST STREET 2: SUITE 234 CITY: WAYZATA STATE: MN ZIP: 55391 BUSINESS PHONE: 6124734102 FORMER COMPANY: FORMER CONFORMED NAME: DSC NORTECH INC DATE OF NAME CHANGE: 19901217 FORMER COMPANY: FORMER CONFORMED NAME: DIGIGRAPHIC SYSTEMS CORP DATE OF NAME CHANGE: 19881113 10-Q 1 10-Q 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, 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 of (I.R.S. Employer Incorporation or organization) Identification No.) 641 East Lake St. Suite 244, Wayzata, MN 55391 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (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, 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 JUNE 30, 1999 INDEX
PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements 4-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Results of Operations 9 Discontinued Operations 9 Segment Reporting Information 10 Item 2 - Management's Discussion and Analysis of Financial Condition 11 PART II - OTHER INFORMATION Item 2 - Exhibits and Reports on Form 8-K 12 SIGNATURES 13
Page 3 NORTECH SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND DECEMBER 31, 1998
JUNE 30 DECEMBER 31 ASSETS 1999 1998 (UNAUDITED) (AUDITED) ----------- ------------- Current Assets Cash and cash equivalents $ 409,956 $ 375,528 Accounts receivable, net 5,087,403 4,647,376 Inventories: Finished goods 310,630 1,737,483 Work in process 1,243,765 1,386,502 Raw materials 6,069,688 4,681,384 -------------------- ---------------------- Total inventories $ 7,624,083 $ 7,805,369 Prepaid expenses and other 862,692 941,728 Net Current Assets of Discontinued Operations 2,602,217 2,431,486 -------------------- ---------------------- Total current assets $ 16,586,351 $ 16,201,487 -------------------- ---------------------- PLANT, Property, and Equipment (at Cost) Land and Building/leaseholds $ 3,927,026 $ 3,903,236 Manufacturing equipment 4,589,934 3,923,015 Office and other equipment 2,154,895 2,433,476 -------------------- ---------------------- $ 10,671,855 $ 10,259,727 Less accumulated depreciation and amortization (4,414,895) (3,968,837) -------------------- ---------------------- Net Property and Equipment for Continuing Operations $ 6,256,960 $ 6,290,890 -------------------- ---------------------- Net Property and Equipment for Discontinued Operations 406,856 474,181 -------------------- ---------------------- Other Assets Goodwill and other intangible assets 129,107 144,210 Deferred tax asset 475,000 475,000 Other assets 87,250 57,250 -------------------- ---------------------- Total Other Assets from Continuing Operations $ 691,357 676,460 -------------------- ---------------------- Total Other Assets from Discontinued Operations 1,025,959 1,085,544 -------------------- ---------------------- Total Assets $ 24,967,483 $ 24,728,562 ==================== ======================
See accompanying notes to consolidated financials statements Page 4 NORTECH SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS LIABILITIES FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND DECEMBER 31, 1998
JUNE 30 DECEMBER 31 LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 (UNAUDITED) (AUDITED) ----------------- ------------------ Current Liabilities: Current maturities of long-term debt $ 648,063 $ 810,934 Accounts payable 2,433,524 3,232,593 Accrued payrolls and commissions 1,533,785 682,539 Other 2,131,904 491,388 ----------------- ------------------ Total Current Liabilities $ 6,747,276 $ 5,217,454 ----------------- ------------------ Long-Term Debt Notes Payable (net of current maturities shown above) $ 10,765,383 $ 11,146,537 ----------------- ------------------ 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; 2,351,377 and 2,312,262 shares issued and outstanding. 23,514 23,514 Additional paid-in capital 12,131,045 12,131,045 Accumulated deficit (4,949,735) (4,039,988) ----------------- ------------------ Total Shareholders' Equity $ 7,454,824 $ 8,364,571 ----------------- ------------------ Total Liabilities & Shareholders' Equity $ 24,967,483 $ 24,728,562 ================= ==================
See accompanying notes to consolidated financials statements Page 5 NORTECH SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
JUNE 30 JUNE 30 1999 1998 (UNAUDITED) (UNAUDITED) -------------------- ---------------------- Sales $ 9,421,813 $ 8,374,280 Cost of Sales 7,787,771 6,968,476 -------------------- ---------------------- Gross Profit $ 1,634,042 $ 1,405,804 Selling, General and Admin. 1,020,485 907,513 Engineering/Reseach & Development 0 0 Misc. (Income) Expense, net 21,344 1,236 Interest Expense 167,990 129,638 -------------------- ---------------------- Net Income From Continuing Operations Before Income Taxes $ 424,223 $ 367,417 Income Tax-Continuing Operations 148,479 145,949 -------------------- ---------------------- Net Income-Continuing Operations $ 275,744 $ 221,468 -------------------- ---------------------- Discontinued Operations, Net of Income Taxes Net (Loss) From Operations (255,208) (33,630) Estimated (Loss) on Sale (1,180,000) 0 -------------------- ---------------------- Total Discontinued Operations, Net of Income Taxes (1,435,208) (33,630) -------------------- ---------------------- Net Income(Loss) $ (1,159,464) $ 187,838 ==================== ====================== Income/(Loss) per Share of Common Stock From Continuing Operations $ 0.12 $ 0.09 From Discontinued Operations $ (0.61) $ (0.01) -------------------- ---------------------- Total Income/(Loss) per Share of Common Stock $ (0.49) $ 0.08 ==================== ====================== Weighted Average Number of Shares Outstanding 2,351,377 2,345,262 ==================== ======================
See accompanying notes to consolidated financials statements Page 6 NORTECH SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
JUNE 30 JUNE 30 1999 1998 (UNAUDITED) (UNAUDITED) -------------------- ---------------------- Sales $ 18,889,152 $ 17,603,629 Cost of Sales 15,554,971 14,747,816 -------------------- ---------------------- Gross Profit $ 3,334,181 $ 2,855,813 Selling, General and Admin. 2,058,613 1,735,810 Engineering/Reseach & Development 0 0 Misc. (Income) Expense, net 12,384 (19,606) Interest Expense 293,120 308,231 -------------------- ---------------------- Net Income From Continuing Operations Before Income Taxes $ 970,064 $ 831,378 Income Tax-Continuing Operations 339,522 329,205 -------------------- ---------------------- Net Income-Continuing Operations $ 630,542 $ 502,173 -------------------- ---------------------- Discontinued Operations, Net of Income Taxes Net (Loss) From Operations (361,299) (67,903) Estimated (Loss) on Sale (1,180,000) 0 -------------------- ---------------------- Total Discontinued Operations, Net of Income Taxes $ (1,541,299) $ (67,903) -------------------- ---------------------- Net Income(Loss) $ (910,757) $ 434,270 ==================== ====================== Income/(Loss) per Share of Common Stock From Continuing Operations 0.27 0.22 From Discontinued Operations (0.66) (0.03) -------------------- ---------------------- Total Income/(Loss) per Share of Common Stock $ (0.39) $ 0.19 ==================== ====================== Weighted Average Number of Shares Outstanding 2,351,377 2,345,262 ==================== ======================
See accompanying notes to consolidated financials statements Page 7 NORTECH SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
JUNE 30 JUNE 30 1999 1998 (UNAUDITED) (UNAUDITED) -------------------- ---------------------- Cash Flows from Operating Activities Net Income $ 630,542 $ 434,270 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 446,058 441,130 Deferred Taxes Loss on Sale of Discontinued operations (1,180,000) Changes in Operating Assets and Liabilities: Accounts receivable (440,027) (246,320) Inventories 181,286 (1,519,541) Prepaid expenses 79,036 (30,278) Other assets (14,897) 148,646 Net assets of discontinued operation (103,406) Accounts payable (799,069) (52,561) Accrued payrolls 851,246 (161,478) Other accruals 1,419,632 61,985 -------------------- ---------------------- Net cash used by operating activity 1,070,401 (924,147) Cash Flows from Investing Activities: Acquistion of equipment (412,128) (122,554) Proceeds from sale of Assets 0 0 Payment of Pref. Stock Dividend 0 0 -------------------- ---------------------- Net cash used by investing activity (412,128) (122,554) Cash Flows from Financing Activities: Net borrowing of Long Term debt 830,283 Payments of long term debt (460,974) (375,774) Change in current debt (162,871) (12,846) -------------------- ---------------------- Net cash provided by financing activities (623,845) 441,663 -------------------- ---------------------- Net Increase/(Decrease) in Cash 34,428 (605,038) Cash at Beginning of Period 375,528 714,169 -------------------- ---------------------- Cash at End of Period $ 409,956 $ 109,131 ==================== ======================
See accompanying notes to consolidated financials statements Page 8 NOTE 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, 1998. (2) DISCONTINUED OPERATION 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 July 30, The Company has interested buyers that want to sign confidentiality agreements with The Company. Although it is difficult to predict, the Company expects to complete the sales in the third quarter of 1999. Display Products and Medical Management are reported as discontinued operations, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. The estimated loss recorded during 1999 on the sale of the discontinued operation, was $1,800,000, which included a reduction in asset value of $1,200,000 and a reduction for anticipated closing costs and operating losses until disposal, of $600,000. The loss was reported net of an income tax benefit of $620,000, for an after-tax loss of $1,180,000. (The remainder of this page was intentionally left blank.) Page 9 (3) 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. Segment discontinued as of June 30, 1999. 3. MEDICAL MANAGEMENT - Provides service bureau and office management services to physicians and clinics. Segment discontinued as of June 30, 1999. Each of these is a business segment, with its respective financial performance detailed in this report for the six months ended June 30, 1999 and June 30, 1998. NORTECH SYSTEMS INCORPORATED BUSINESS SEGMENT INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
JUNE 30 JUNE 30 1999 1998 (UNAUDITED) (UNAUDITED) -------------------- ---------------------- BUSINESS SEGMENT NET REVENUES Contract Manufacturing $ 18,889,152 $ 17,603,629 Display Products 1,458,500 2,264,580 Medical Management 210,071 206,360 -------------------- ---------------------- Total $ 20,557,723 $ 20,074,569 ==================== ====================== BUSINESS SEGMENT PROFIT/(LOSS) Contract Manufacturing $ 630,542 $ 502,173 Display Products (308,673) (22,360) Medical Management (52,626) (45,543) -------------------- ---------------------- Total $ 269,243 $ 434,270 ==================== ====================== JUNE 30 DECEMBER 31 1999 1998 (UNAUDITED) (AUDITED) -------------------- ---------------------- BUSINESS SEGMENT ASSETS Contract Manufacturing $ 20,902,452 $ 21,142,528 Display Products 3,883,454 4,034,706 Medical Management 181,577 241,575 -------------------- ---------------------- Total $ 24,967,483 $ 25,418,809 ==================== ======================
Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS FOR PERIOD ENDED JUNE 30, 1999 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 related only to the continuing operation of contract manufacturing. See below, the details of discontinued operations. For the quarter ended June 30, 1999, the Company had revenues of $9,421,813 compared to revenues of $8,374,280 for the quarter ended June 30, 1998. The increase in revenues resulted primarily from the additional revenues generated from internal growth. The net income for the three months ended June 30, 1999 was $275,744 or $.12 per share, compared to a net income of $221,468 or $.09 per share, for the three months ended June 30, 1998. The net income for the quarter ended June 30, 1999 was primarily impacted by increased gross profit from the increased revenue offset by increased selling expenses. Company's 90 day order backlog was $8,590,000 as of June 30, 1999, compared to $8,575,000 at the beginning of the quarter. Based on the current conditions, the Company anticipates revenue levels in the third quarter of 1999 to be about the same as the second quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital increased to $9,539,075 during the second quarter of 1999, compared to $9,080,589 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 faculties 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 11 PART II - OTHER INFORMATION ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K. None (The remainder of this page was intentionally left blank.) Page 12 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 11, 1999 NORTECH SYSTEMS INCORPORATED 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 Page 13 EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 409,956 0 5,166,963 79,560 7,624,083 16,586,351 10,671,855 4,414,895 24,967,483 6,747,276 0 0 250,000 23,514 7,181,310 24,967,483 9,421,813 9,421,813 7,787,771 7,787,771 1,041,829 0 167,990 424,223 148,479 275,744 (1,435,208) 0 0 (1,159,464) (.49) (.49)
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