Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the interim periods have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do

not

include all of the financial information and footnotes required by GAAP for complete financial statements, although we believe the disclosures are adequate to make the information presented

not

misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form

10

-K for the year ended

December 31, 2020.

The operating results for the interim periods presented are

not

necessarily indicative of the results expected for the full year or for any other interim period. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these condensed consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results, since actual results could differ from those estimates.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Revenue [Policy Text Block]

Revenue Recognition

Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract's transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation. Revenue is recorded net of returns, allowances and customer discounts. Our net sales for services were less than

10%

of our total sales for all periods presented, and accordingly, are included in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.

Share-based Payment Arrangement [Policy Text Block]

Stock-Based Awards

Following is the status of all stock options as of

March 31, 2021:

	Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding - January 1, 2021		362,640		$	3.96
Granted		-			-
Exercised		(1,000	)		3.70
Cancelled		(6,140	)		3.40
Outstanding - March 31, 2021		355,500		$	3.97		7.52	$	821
Exercisable - March 31, 2021		173,700		$	3.77		6.99	$	437

In

May 2017,

the shareholders approved the

2017

Stock Incentive Plan which authorized the issuance of

400,000

shares, an additional

50,000

shares were authorized in

March 2020.

There were

no

stock options granted during the

three

months ended

March 31, 2021.

Total compensation expense was

$21

and

$39

for the

three

ended

March 31, 2021

and

2020,

respectively. As of

March 31, 2021,

there was

$308

of unrecognized compensation which will vest over the next

2.15

years.

In

November 2010,

the Board of Directors adopted the Nortech Systems Incorporated Equity Appreciation Rights Plan (

“2010

Plan”). The total number of Equity Appreciation Right Units (“Units”) that can be issued under the

2010

Plan shall

not

exceed an aggregate of

1,000,000

Units as amended and restated on

March 11, 2015.

During the

three

months ended

March 31, 2020,

there were

no

units granted. There were

no

units granted during the

three

months ended

March 31, 2021.

Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) per Common Share

For the

three

months ended

March 31, 2021,

all stock options are deemed to be antidilutive as there was a net loss and, therefore, were

not

included in the computation of income per common share amount. For the

three

months ended

March 31, 2020

there were

2,668,590

diluted shares with

$0.05

earnings per diluted share.

Cash and Cash Equivalents, Unrestricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The

March 31, 2021

balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day. As of

March 31, 2021,

we had

no

outstanding letters of credit.

Accounts Receivable [Policy Text Block]

Accounts Receivable and Allowance for Doubtful Accounts

Credit is extended based upon an evaluation of the customer's financial condition and, while collateral is

not

required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. Trade accounts receivable have been reduced by an allowance for doubtful accounts of

$722

at

March 31, 2021

and

$343

at

December 31, 2020.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are stated at the lower of cost (average cost method) or net realizable value. Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for the estimated value of the inventories that

may

have a lower value than stated or quantities in excess of future production needs.

Inventories are as follows:

	March 31,			December 31,
	2021			2020
Raw Materials	$	17,235		$	14,865
Work in Process		1,143			969
Finished Goods		465			242
Reserves		(1,764	)		(2,159	)
Total	$	17,079		$	13,917

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Other Intangible Assets

Other intangible assets at

March 31, 2021

and

December 31, 2020

are as follows:

			March 31, 2021
			Gross
			Carrying		Accumulated		Net Book
	Years		Amount		Amortization		Value
Customer Relationships		9	$	1,302	$	832	$	470
Intellectual Property		3		100		100		-
Trade Names		20		814		234		580
Patents		7		122		-		122
Totals			$	2,338	$	1,166	$	1,172

			December 31, 2020
			Gross
			Carrying		Accumulated		Net Book
	Years		Amount		Amortization		Value
Customer Relationships		9	$	1,302	$	795	$	507
Intellectual Property		3		100		100		-
Trade Names		20		814		225		589
Patents		7		77		-		77
Totals			$	2,293	$	1,120	$	1,173

Amortization expense for the

three

months ended

March 31, 2021

and

2020

was

$46

and

$51,

respectively.

Estimated future annual amortization expense (

not

including patents) related to these assets is approximately as follows:

Year	Amount
Remainder of 2021	$	139
2022		185
2023		185
2024		113
2025		41
Thereafter		387
Total	$	1,050

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Pronouncements Issued But

Not

Yet Adopted

In

June 2016,

the FASB issued ASU

No.

 

2016

-

13,

“Financial Instruments - Credit Losses (ASC

326

): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for periods beginning after

December 15, 2022;

early adoption is permitted. We are currently evaluating the impact of this guidance on our financial condition and results of operations.