10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to          

NORTECH SYSTEMS INCORPORATED

Commission file number 0-13257

State of Incorporation: Minnesota

IRS Employer Identification No. 41-1681094

Executive Offices: 7550 Meridian Circle N., Suite # 150, Maple Grove, MN 55369

Telephone number: (952) 345-2244

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	NSYS	NASDAQ Capital Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-accelerated Filer ☒	Smaller Reporting Company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

Number of shares of $.01 par value common stock outstanding as of May 6, 2024 was 2,756,677.

1

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
			PAGE
Item 1	-	Financial Statements
		Condensed Consolidated Statements of Operations and Comprehensive Income	3
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Cash Flows	5-6
		Condensed Consolidated Statements of Shareholders’ Equity	7
		Condensed Notes to Consolidated Financial Statements	8-15
Item 2	-	Management’s Discussion and Analysis of Financial Condition And Results of Operations	15
Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4	-	Controls and Procedures	20
PART II – OTHER INFORMATION
Item 1	-	Legal Proceedings	21
Item 1A.	-	Risk Factors	21
Item 2	-	Unregistered Sales of Equity Securities, Use of Proceeds	21
Item 3	-	Defaults on Senior Securities	21
Item 4	-	Mine Safety Disclosures	21
Item 5	-	Other Information	21
Item 6	-	Exhibits	22
SIGNATURES			23

2

PART

ITEM 1. FINANCIAL STATEMENTS

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)

	THREE MONTHS ENDED
	MARCH 31,
	2024			2023
Net sales	$	34,215		$	34,888
Cost of goods sold		28,767			29,404
Gross profit		5,448			5,484
Operating expenses:
Selling expenses		805			890
General and administrative expenses		3,170			3,265
Research and development expenses		318			276
Total operating expenses		4,293			4,431
Income from operations		1,155			1,053
Other expense
Interest expense		(167	)		(110	)
Total other expense		(167	)		(110	)
Income before income taxes		988			943
Income tax expense		223			262
Net income	$	765		$	681
Income per common share:
Basic	$	0.28		$	0.25
Weighted average number of common shares outstanding - basic		2,742,511			2,692,033
Diluted	$	0.26		$	0.23
Weighted average number of common shares outstanding - dilutive		2,908,457			2,903,635
Other comprehensive income
Foreign currency translation (loss) gain		(183	)		40
Comprehensive income, net of tax	$	582		$	721

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

3

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2024 AND DECMEBER 31, 2023
(IN THOUSANDS, EXCEPT SHARE DATA)

	MARCH 31, 2024			DECEMBER 31, 2023(1)
ASSETS
Current assets:
Cash	$	4,028		$	960
Restricted cash		-			715
Accounts receivable, less allowances of $292 and $358, respectively		16,051			19,279
Inventories, net		22,951			21,660
Contract assets		14,194			14,481
Prepaid assets and other assets		1,892			1,698
Total current assets		59,116			58,793
Property and equipment, net		6,134			6,513
Operating lease assets, net		7,339			6,917
Deferred tax assets		2,640			2,641
Other intangible assets, net		223			263
Total assets	$	75,452		$	75,127
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of finance lease obligations	$	296		$	356
Current portion of operating lease obligations		1,235			1,033
Accounts payable		15,217			15,924
Accrued payroll and commissions		4,771			4,138
Customer deposits		3,139			4,068
Other accrued liabilities		1,063			1,063
Total current liabilities		25,721			26,582
Long-term liabilities:
Long-term line of credit		6,170			5,815
Long-term finance lease obligations, net of current portion		168			209
Long-term operating lease obligations, net of current portion		6,977			6,763
Other long-term liabilities		410			414
Total long-term liabilities		13,725			13,201
Total liabilities		39,446			39,783
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding		250			250
Common stock - $0.01 par value; 9,000,000 shares authorized; 2,755,178 and 2,740,178 shares issued and outstanding, respectively		27			27
Additional paid-in capital		17,009			16,929
Accumulated other comprehensive loss		(715	)		(532	)
Retained earnings		19,435			18,670
Total shareholders' equity		36,006			35,344
Total liabilities and shareholders' equity	$	75,452		$	75,127

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

⁽¹⁾ The balance sheet as of December 31, 2023 has been derived from the consolidated audited financial statements at that date.

4

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

	THREE MONTHS ENDED
	MARCH 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	765		$	681
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		482			505
Compensation on stock-based awards		80			99
Change in inventory reserves		76			32
Change in accounts receivable allowances		(66	)		(32	)
Other, net		(4	)		(15	)
Changes in current operating assets and liabilities:
Accounts receivable		3,215			(206	)
Inventories		(1,400	)		1,075
Contract assets		287			(823	)
Prepaid expenses and other current assets		(328	)		(600	)
Accounts payable		(8	)		(1,799	)
Accrued payroll and commissions		640			1,244
Customer deposits		(926	)		1,315
Other accrued liabilities		15			242
Net cash provided by operating activities		2,828			1,718
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		9			-
Purchases of property and equipment		(744	)		(496	)
Net cash used in investing activities		(735	)		(496	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit		32,768			31,133
Payments to line of credit		(32,394	)		(32,145	)
Principal payments on financing leases		(100	)		(96	)
Stock option exercises		-			35
Net cash provided by (used in) financing activities		274			(1,073	)
Effect of exchange rate changes on cash		(14	)		3
Net change in cash and cash equivalents		2,353			152
Cash and cash equivalents - beginning of period		1,675			2,481
Cash and cash equivalents - end of period	$	4,028		$	2,633
Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets:
Cash	$	4,028		$	1,267
Restricted cash		-			1,366
Total cash and restricted cash reported in the condensed consolidated statements of cash flows	$	4,028		$	2,633

5

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

	THREE MONTHS ENDED
	MARCH 31,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	134	$	129
Cash paid for income taxes	$	141	$	112
Supplemental noncash investing and financing activities:
Property and equipment purchases in accounts payable	$	16	$	78
Operating lease assets acquired under operating lease	$	719	$	-

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

6

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(IN THOUSANDS)

											Accumulated
									Additional		Other						Total
	Preferred Stock				Common Stock				Paid-In		Comprehensive			Retained			Shareholders’
	Shares		Amount		Shares		Amount		Capital		Loss			Earnings			Equity
Balance as of December 31, 2022		250	$	250		2,691	$	27	$	16,347	$	(370	)	$	11,826		$	28,080
Net income		-		-		-		-		-		-			681			681
Foreign currency translation adjustment		-		-		-		-		-		40			-			40
Stock option exercises		-		-		10		-		35		-			-			35
Compensation on stock-based awards		-		-		-		-		99		-			-			99
Cumulative adjustment related to the adoption of ASC 326 (Current expected credit loss)		-		-		-		-		-		-			(30	)		(30	)
Balance as of March 31, 2023		250	$	250		2,701	$	27	$	16,481	$	(330	)	$	12,477		$	28,905
Balance as of December 31, 2023		250	$	250		2,740	$	27	$	16,929	$	(532	)	$	18,670		$	35,344
Net income		-		-		-		-		-		-			765			765
Foreign currency translation adjustment		-		-		-		-		-		(183	)		-			(183	)
Compensation on stock-based awards		-		-		-		-		80		-			-			80
Issuance for stock-based awards		-		-		15		-		-		-			-			-
Balance as of March 31, 2024		250	$	250		2,755	$	27	$	17,009	$	(715	)	$	19,435		$	36,006

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

7

CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

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, the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the Company’s audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.

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. All dollar amounts are stated in thousands of U.S. dollars.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of net sales and expenses during each reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, accounts receivable allowances, realizability of deferred tax assets and long-lived asset recovery. Actual results could differ from those estimates.

Recently Issued New Accounting Standards

In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")  2023-07, Segment Reporting Topic (280): Improvements to Reportable Segment Disclosure. The ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

Out‐of‐Period Correction
During the first quarter of 2024, we identified an error that understated our accrued liabilities by approximately $178 as of December 31, 2023. We corrected the error on a prospective basis during the first quarter of 2024 through an out of period adjustment lowering our net income by $178. We assessed the materiality of the error and concluded that the error was not material to the results of operations or financial condition or for the prior annual and interim periods, and the correction is not expected to be material to the full year results for fiscal year 2024.

8

Inventories

Inventories are as follows:

	March 31,			December 31,
	2024			2023
Raw materials	$	22,143		$	20,863
Work in process		992			1,033
Finished goods		1,059			934
Reserves		(1,243	)		(1,170	)
Total inventories	$	22,951		$	21,660

Other Intangible Assets

Other intangible assets as of March 31, 2024 and December 31, 2023 are as follows:

	Customer Relationships		Patents		Total
Balances as of January 1, 2023	$	216	$	206	$	422
Amortization		144		15		159
Balances as of December 31, 2023	$	72	$	191	$	263
Amortization		36		4		40
Balances as of March 31, 2024	$	36	$	187	$	223

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The weighted average remaining amortization period of our intangible assets is 2.4 years. Of the patents value as of March 31, 2024, $77 are being amortized and $110 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for both the three months ended March 31, 2024 and 2023 was $40.

As of March 31, 2024, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Year	Amount
2024	$	47
2025		14
2026		14
2027		14
2028		14
Thereafter		10
Total	$	113

NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, accounts receivable, and contract assets. With regard to cash, we maintain our excess cash balances in checking accounts at primarily two financial institutions, one in the United States and one in China. The account in the United States may at times exceed federally insured limits. The Company’s $4,028 cash balance as of March 31, 2024, included approximately $930 and $7 was held at banks located in China and Mexico, respectively. We grant credit to customers in the normal course of business and generally do not require collateral on our accounts receivable.

We have certain customers whose revenue individually represented 10% or more of net sales, or whose accounts receivable balances individually represented 10% or more of gross accounts receivable. Two customers accounted for 35% of net sales for the three months ended March 31, 2024. One customer accounted for 29% of net sales for the three months ended March 31, 2023.

9

As of March 31, 2024, two customers represented approximately 37% of our gross accounts receivable. As of December 31, 2023, two customers represented approximately 35% of our gross accounts receivable.

Contract assets for three customers accounted for 41% of gross contract assets as of March 31, 2024. Contract assets for two customers accounted for 34% of gross contract assets as of December 31, 2023.

Export sales from the U.S. represented approximately 3% and 4% of net sales for the three months ended March 31, 2024 and 2023, respectively.

NOTE 3. REVENUE

Revenue Recognition

Revenue under contract manufacturing agreements that was recognized over time accounted for approximately 74% of net sales for both the three months ended March 31, 2024 and 2023.

Contract Assets

Contract assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the three months ended March 31, 2024 were as follows:

Balances as of January 1, 2024	$	14,481
Increase (decrease) attributed to:
Amounts transferred over time to contract assets		25,214
Amounts invoiced during the period		(25,501	)
Balance outstanding as of March 31, 2024	$	14,194

We expect substantially all of the remaining performance obligations for the contract assets recorded as of March 31, 2024, to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

The following tables summarize our net sales by market for the three months ended March 31, 2024 and 2023, respectively:

	Three Months Ended March 31, 2024
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	14,240	$	5,245	$	797	$	20,282
Aerospace and defense		5,545		242		73		5,860
Industrial		5,429		2,347		297		8,073
Total net sales	$	25,214	$	7,834	$	1,167	$	34,215

	Three Months Ended March 31, 2023
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	15,725	$	5,061	$	586	$	21,372
Aerospace and defense		6,590		2,408		474		9,472
Industrial		3,415		550		79		4,044
Total net sales	$	25,730	$	8,019	$	1,139	$	34,888

¹Noncash consideration represents material provided by the customer used in the build of the product.

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NOTE 4. FINANCING ARRANGEMENTS

We had a credit agreement with Bank of America, which was entered into on June 15, 2017 and provides for a line of credit arrangement of $16,000 that was to expire on June 15, 2026.

On February 29, 2024, we replaced the asset backed line of credit agreement with a $15,000 Senior Secured Revolving Line of Credit with Bank of America (the “Revolver”). The Revolver allows for borrowings at a defined base rate, or at the one, three or six month Secured Overnight Finance Rate, also known as “SOFR”, plus a defined margin. If the Company prepays SOFR borrowings before their contractual maturity, the Company has agreed to compensate the bank for lost margin, as defined in the Revolver agreement. The Company is required to quarterly pay a 20-basis point fee on the unused portion of the Revolver.

The Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges coverage ratio, both of which are defined in the Revolver agreement. The Company met the covenants for the period ended March 31, 2024. There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings. The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027.

Amounts borrowed on the Revolver are subject to variations in the SOFR index rate. Under the prior credit agreement with Bank of America, the line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY) index rate.  Our line of credit bears interest at a weighted-average interest rate of 9.4% and 8.3% as of March 31, 2024 and December 31, 2023, respectively. We had borrowings on our line of credit of $6,220 and $5,846 outstanding as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 we had unused availability on the line of credit of $8,780.

The line of credit is shown net of debt issuance costs of $50 and $31 on the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, respectively.

11

NOTE 5. LEASES

We have operating leases for certain manufacturing sites, office space, and equipment. Most leases include the option to renew, with renewal terms that can extend the lease term from one to five years or more. Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2024, we do not have material lease commitments that have not commenced.

The components of lease expense were as follows:

	March 31,		March 31,
Lease Cost	2024		2023
Operating lease cost	$	596	$	567
Finance lease interest cost		7		12
Finance lease amortization expense		131		182
Total lease cost	$	734	$	761

Supplemental condensed consolidated balance sheet information related to leases was as follows:

	Balance Sheet Location	March 31, 2024		December 31, 2023
Assets
Finance lease assets	Property and equipment, net	$	504	$	636
Operating lease assets	Operating lease assets, net		7,339		6,917
Total leased assets		$	7,843	$	7,553
Liabilities
Current
Current finance lease liabilities	Current portion of finance lease obligations	$	296	$	356
Current operating lease liabilities	Current portion of operating lease obligations		1,235		1,033
Noncurrent
Long-term finance lease liabilities	Long-term finance lease liabilities, net of current portion		168		209
Long-term operating lease liabilities	Long-term operating lease obligations, net of current portion		6,977		6,763
Total lease liabilities		$	8,676	$	8,361

Supplemental condensed consolidated statement of cash flows information related to leases was as follows:

	March 31,		March 31,
	2024		2023
Operating Leases
Cash paid for amounts included in the measurement of lease liabilities	$	459	$	493
Property acquired under operating lease	$	719	$	-

12

Future payments of lease liabilities as of March 31, 2024 were as follows:

	Operating Leases			Finance Leases			Total
2024	$	1,397		$	271		$	1,668
2025		1,635			106			1,741
2026		1,581			108			1,689
2027		1,286			-			1,286
2028		1,279			-			1,279
Thereafter		4,539			-			4,539
Total lease payments	$	11,717		$	485		$	12,202
Less: imputed interest		(3,505	)		(21	)		(3,526	)
Present value of lease liabilities	$	8,212		$	464		$	8,676

The lease term and discount rate as of March 31, 2024 were as follows:

Weighted-average remaining lease term (years)
Operating leases	7.9
Finance leases	1.7
Weighted-average discount rate
Operating leases	8.1	%
Finance leases	5.3	%

NOTE 6. STOCK BASED AWARDS

Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations within General and Administration expenses of $80 and $99 for the three months ended March 31, 2024 and 2023, respectively.

Stock Options

In May 2017, the shareholders approved the 2017 Stock Incentive Plan which authorized the issuance of 350,000 shares. An additional 50,000, 175,000 and 100,000 shares were authorized in March 2020, May 2022, and May 2023, respectively.

There were no stock options granted during both the three months ended March 31, 2024 and 2023.

Total compensation expense related to stock options was $56 and $68 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $776 of unrecognized compensation related to stock options which will be recognized over a weighted average period of 3.3 years.

Following is the status of option activity for the three months ended and as of March 31, 2024:

	Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		458,700		$	6.63		6.53	$	1,432
Granted		-			-
Exercised		-			-
Forfeited		(6,200	)		11.10
Outstanding – March 31, 2024		452,500		$	6.57		6.57	$	3,066
Exercisable on March 31, 2024		294,100		$	4.71		4.71	$	2,530

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Restricted Stock Units

During the periods ended March 31, 2024 and 2023, we granted 0 restricted stock units (“RSUs”). Total compensation expense related to the RSUs was $24 and $31 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, total unrecognized compensation expense related to the RSUs was $109, which will vest over a weighted average period of 1.0 years.

Following is the status of restricted stock activity for the three months ended and as of March 31, 2024:

	Shares			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		27,000			1.0	$	254
Granted		-
Vested		(15,000	)
Forfeited		-
Outstanding – March 31, 2024		12,000			1.0	$	160

NOTE 7. NET INCOME PER SHARE DATA

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding using the treasury stock method during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock units.

The calculation of diluted income per share excluded 38,405 and 28,637 in weighted average shares for the three months ended March 31, 2024 and 2023, respectively, as their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows:

	Three Months Ended March 31,
(In thousands)	2024		2023
Basic weighted average shares outstanding		2,742,511		2,692,033
Dilutive effect of outstanding stock options and non-vested restricted stock units		165,946		211,602
Diluted weighted average shares outstanding		2,908,457		2,903,635

NOTE 8. INCOME TAXES

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events.

Our effective tax rate for the three months ended March 31, 2024 was 22.6%. Our effective tax rate for the three months ended March 31, 2023 was 27.8%. The decrease in the effective tax rate is attributable to the application of a valuation allowance during the three-month period ended March 31, 2023 and inclusion of estimated research and development tax credits in the three months ended March 31, 2024, partially offset by increased taxes on foreign entities.

14

NOTE 9. PAYROLL TAX DEFERRAL

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which allowed for the deferral of the employer portion of social security taxes incurred through the end of calendar 2020. During the year ended December 31, 2023, the Company remitted $1,158 to the Internal Revenue Service (“IRS”) related to the deferral of payroll taxes, of which $785 was recorded as a refund receivable as of December 31, 2023, with a corresponding liability due. These amounts were settled during the three months ended March 31, 2024.

NOTE 10. RELATED PARTY TRANSACTIONS

David Kunin, our Chairman, is a minority owner of Abilitech Medical, Inc. We have accounts receivable related to Abilitech of $85. Payments of $28 were received during the three months ended March 31, 2024. Abilitech has ceased operations and therefore we do not believe that Abilitech will pay the Company for outstanding accounts receivable, and we have recorded a full allowance against the gross amount. The Company believes that transactions with Abilitech were on terms comparable to those that the Company could reasonably expect in an arm's length transaction with an unrelated third party.

David Kunin, our Chairman, is a minority owner (less than 10%) of Marpe Technologies, LTD an early-stage medical device company dedicated to the early detection of skin cancer through full body scanners. Mr. Kunin is also a member of the Board of Directors of Marpe Technologies. The Company has an agreement with Marpe Technologies to apply for a grant from the Israel-United States Binational Industrial Research and Development Foundation, a legal entity created by Agreement between the Government of the State of Israel and the Government of the United States of America (“BIRD Foundation”). The parties were successful in receiving approval for a $1,000 conditional grant. The Company and Marpe Technologies will each receive $500 from the BIRD Foundation and, among other obligations under the grant, each is required to contribute $500 to match grant funds from the BIRD Foundation. The Company has met its obligation by providing certain services at cost or with respect to administrative services at no cost to Marpe Technologies. The total value of the Company’s contribution will not exceed $500. Marpe is engaged in raising funds for its operations, which funds are necessary to pay for the Company’s services beyond its contribution. The Company will receive a 10-year exclusive right to manufacture the products of Marpe Technologies. There can be no assurances that Marpe Technologies’ medical device operations will be commercially successful, that Marpe Technologies will be successful in raising additional funds to finance its operations or, if commercially successful, the Company will recover the value of services provided to Marpe if not paid when the services are provided. The transactions between the Company and Marpe Technologies have been approved by the Audit Committee pursuant to the Company Related-Party Transactions Policy. During the three months ended March 31, 2024 and 2023, we recognized net sales to Marpe Technologies of $0 and $67, respectively. As of March 31, 2024 and December 31, 2023, we have recorded an unbilled receivable of $21 and $39, respectively, related to expected reimbursement from the BIRD Foundation and have outstanding accounts receivable of $0 and $20, respectively. The Company believes that transactions with Marpe are on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

ITEM 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations

Overview

We are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical, Aerospace & Defense and Industrial markets offering a full range of value-added engineering, technical and manufacturing services and support including project management, design, testing, prototyping, manufacturing, supply chain management and post-market services. Our products are complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board assemblies, complex higher-level assemblies and other box builds for a wide range of industries. We serve three major markets within the EMS industry: Medical, Aerospace and Defense, and the Industrial market which includes industrial capital equipment, transportation, vision, agriculture, oil and gas. As of March 31, 2024, we have facilities in Minnesota: Bemidji, Blue Earth, Mankato, Milaca and Maple Grove. We also have facilities in Monterrey, Mexico and Suzhou, China.

15

Results of Operations

Net Sales. Net sales for the three months ended March 31, 2024 and 2023 were $34,215 thousand and $34,888 thousand, respectively, a decrease of $673 thousand or 2%. The following is a summary of net sales by our major industry markets:

	Three Months Ended March 31,
(in thousands)	2024		2023		Increase (Decrease)
Medical	$	20,282	$	21,372	$	(1,090	)	(5.1	)%
Industrial		8,073		9,472		(1,399	)	(14.8	)%
Aerospace and defense		5,860		4,044		1,816		44.9	%
Total net sales	$	34.215	$	34,888	$	(673	)	(1.9	)%

● Medical: Net sales to our medical customers were $20,282 thousand in the first quarter of 2024, a 5.1% decrease from $21,372 thousand in the prior-year quarter. The decrease in net sales relates to demand fluctuations as customers work through inventory.

● Industrial: Net sales to our industrial customers were $8,073 thousand in the first quarter of 2024, a 14.8% decrease from $9,472 thousand in the prior-year quarter. The decrease in net sales relates to demand fluctuations as customers work through inventory.

● Defense: Net sales to our aerospace and defense customers were $5,860 thousand in the first quarter of 2024, a 44.9% increase from $4,044 thousand in the prior-year quarter. The increase in net sales relates to increasing demand in the aerospace and defense market and improved access to component parts which allowed increased manufacturing production.

Backlog. Our 90-day shipment backlog as of March 31, 2024 was $35,213 thousand, level with the beginning of the quarter and a 4.1% increase from March 31, 2023. Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be shipped within 180 days.

Our total order backlog as of March 31, 2024 was $86,001 thousand, a 6.2% decrease from $91,684 thousand at the beginning of the quarter and a 13.0% decrease from March 31, 2023. As the supply chain continues to normalize, lead times are reducing and customers are returning to their pre-pandemic ordering practices, which has resulted in a decrease in our backlog. Our 90-day order backlog by market has remained flat when compared to the prior quarter and increased relative to the same period of the prior year. More recently we are also noting, similar to many other contract manufactures, reduced visibility to revenues in the next several quarters as compared with order patterns in the prior-year quarters as customers are balancing their inventories and therefore, deferring the placement of some orders. 

90-day shipment and total backlog by our major industry markets are as follows (in thousands):

(in thousands)	March 31, 2024				December 31, 2023				March 31, 2023
	90 Day		Total		90 Day		Total		90 Day		Total
Medical	$	16,995	$	40,201	$	18,107	$	47,593	$	20,587	$	49,817
Industrial		8,200		15,184		8,644		13,857		7,776		20,530
Aerospace and defense		10,018		30,616		8,416		30,234		5,355		28,458
Total backlog	$	35,213	$	86,001	$	35,167	$	91,684	$	33,718	$	98,805

The 90-day and total backlog as of March 31, 2024 contain the contract asset value of $14,194 thousand which has been recognized as net sales.

16

Operating Costs and Expenses.

Net sales, cost of goods sold, gross margin, and operating costs were as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2024			2023			Increase/(Decrease)
Net sales	$	34,215		$	34,888		$	(673	)		(2.0	)%
Cost of goods sold		28,767			29,404			(637	)		(2.0	)%
Gross profit		5,448			5,484			(36	)		(2.0	)%
Gross margin percentage (1)		15.9	%		15.7	%		20		bpc(2)
Selling expenses		805			890			(85	)		(11.1	)%
% of Net sales		2.3	%		2.6	%
General and administrative expenses		3,170			3,265			(96	)		3.0	%
% of Net sales		9.3	%		9.5	%
Research &development expense		318			276			42			0.0	%
% Net sales		0.9	%		0.8	%
Operating income		1,155			1,053			102			9.1	%
% Net sales		3.4	%		3.0	%

⁽¹⁾ Gross margin percentage is defined as gross profit as a percentage of net sales.

⁽²⁾ Basis points change in gross margin percentage.

Gross profit and gross margins. Gross profit as a percent of net sales was 15.9% for the three months ended March 31, 2024. Gross profit as a percent of net sales was 15.7% for the three months ended March 31, 2023. The 20-basis point increase in gross profit as a percentage of net sales for the three months ended March 31, 2024 compared to the same period of the prior year relates primarily to favorable product mix and was net of a $178 thousand, or 16 basis points, catch-up accrual for Mexican statutory benefits.

Selling expenses. Selling expenses for the three months ended March 31, 2024 were $805 thousand or 2.3% of net sales. Selling expenses for the three months ended March 31, 2023 were $890 thousand or 2.6% of net sales. This decrease was driven by the lower revenue in the comparison periods.

General and administrative expenses. General and administrative expenses for the three months ended March 31, 2024 were $3,170 thousand or 9.3% of net sales. General and administrative expenses for the three months ended March 31, 2023 were $3,265 thousand or 9.5% of net sales.

Research and development expense. Research and development expenses were $318 and $276, or 0.9% and 0.8% of net sales, in the three months ended March 31, 2024 and 2023, respectively.

Operating income. Operating income for the three months ended March 31, 2024 was $1,155 thousand or 3.4% of net sales. Operating income for the three months ended March 31, 2023 was $1,053 thousand or 3.0% of net sales.

Other expense

Interest expense. Interest expense was $167 thousand for the three months ended March 31, 2024 and $110 thousand for the three months ended March 31, 2023. This increase was driven by higher interest rates. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

Income taxes. We reported income tax expense of $223 thousand and $262 thousand for the three months ended March 31, 2024 and 2023, respectively. Our effective tax rate was 22.6% and 27.8% for the three months ended March 31, 2024 and 2023, respectively. The decrease in the effective tax rate is attributable to the application of a valuation allowance during the three-month period ended March 31, 2023 and inclusion of estimated research and development tax credits in the three months ended March 31, 2024, partially offset by increased taxes on foreign entities.

Cash Flow Operating Results

The following is a summary of cash flow results:

	Three Months Ended March 31,
(in thousands)	2024			2023
Cash provided by (used in):
Operating activities	$	2,828		$	1,718
Investing activities		(735	)		(496	)
Financing activities		274			(1,073	)
Effect of exchange rates on changes in cash and cash equivalents		(14	)		3
Net change in cash and cash equivalents	$	2,353		$	152

17

Operating Activities. Cash provided by operating activities was $2,828 thousand in the first three months of 2024, compared with cash provided of $1,718 thousand in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

● Cash provided by accounts receivable and contract assets was $3,502 thousand in the current-year quarter as compared with cash usage of $1,029 thousand in the same prior-year quarter. The improved cash flow in the current year was due to an expected increase in cash collections due to higher sales and the timing of customer payments in the fourth quarter of 2023 as compared with the fourth quarter of 2022.

● Cash used in inventory was $1,400 thousand in the current-year quarter as compared with cash provided of $1,075 thousand in the prior-year quarter. The increase in the current-year period cash usage was the result of procurement requirements related to a higher 90-day shipment backlog versus the prior-year quarterly period and normal timing variances of inventory purchases.

● Cash provided by changes in accounts payable and accruals was $632 thousand in the current-year period as compared with cash usage of $555 thousand, primarily related to the timing of cash payments.

● Cash used in customer deposits was $926 thousand in the current-year quarter as compared with cash provided of $1,315 thousand in the prior-year period. This was driven by decreased lead times in the supply chain.

Investing Activities. Cash used in investing activities was $735 thousand in the first three months of 2024, compared with cash used of $496 thousand in the same prior-year period, both primarily for capital expenditures.

Financing Activities. Cash provided by financing activities was $274 thousand in the first three months of 2024, compared with cash used of $1,073 thousand in the same prior-year period. The improvement in cash provided by operating activities resulted from the timing of line of credit repayments.

Liquidity and Capital Resources

We believe that our existing financing arrangements, anticipated cash flows from operations and cash on hand will be sufficient to satisfy our working capital needs for the next twelve months, capital expenditures and debt repayments.

Credit Facility. We had a credit agreement with Bank of America, which was entered into on June 15, 2017 and provided for a line of credit arrangement of $16 million that was to expire on June 15, 2026.

On February 29, 2024, we replaced the asset backed line of credit agreement with a $15 million Senior Secured Revolving Line of Credit with Bank of America (the “Revolver”). The Revolver allows for borrowings at a defined base rate, or at the one, three or six month Secured Overnight Finance Rate, also known as “SOFR”, plus a defined margin. If the Company prepays SOFR borrowings before their contractual maturity, the Company has agreed to compensate the bank for lost margin, as defined in the Revolver agreement. The Company is required to quarterly pay a 20-basis point fee on the unused portion of the Revolver.

The Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges coverage ratio, both of which are defined in the Revolver agreement. The Company met the covenants for the period ended March 31, 2024. There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings. The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027.

Amounts borrowed on the Revolver are subject to variations in the SOFR index rate. Under the prior credit agreement with Bank of America, the line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY) index rate.  Our line of credit bears interest at a weighted-average interest rate of 9.4% and 8.3% as of March 31, 2024 and December 31, 2023, respectively. We had borrowings on our line of credit of $6.2 million and $5.8 million outstanding as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 we had unused availability on the line of credit of $8.8 million.

18

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

Forward-Looking Statements

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

♦ Volatility in the marketplace which may affect market supply, demand of our products or currency exchange rates;

♦ Supply chain disruption and unreliability;

♦ Lack of supply of sufficient human resources to produce our products;

♦ Increased competition from within the EMS industry or the decision of OEMs to cease or limit outsourcing;

♦ Changes in the reliability and efficiency of our operating facilities or those of third parties;

♦ Increases in certain raw material costs such as copper and oil;

♦ Commodity and energy cost instability;

♦ Risks related to FDA noncompliance;

♦ The loss of a major customer;

♦ General economic, financial and business conditions that could affect our financial condition and results of operations;

♦ Increased or unanticipated costs related to compliance with securities and environmental regulation;

♦ Disruption of global or local information management systems due to natural disaster or cyber-security incident;

♦ Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent novel coronavirus that affect our operations, our customers' operations or our suppliers' operations.

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Discussion of these factors is also incorporated in Part I, Item 1A, “Risk Factors,” and should be considered an integral part of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the forgoing cautionary statements. We undertake no obligations to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.

Please refer to forward-looking statements and risks as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

19

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). These controls and procedures are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of these disclosure controls and procedures as of the date of the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

20

PART II

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims that arise in the ordinary course of business.

ITEM 1A. RISK FACTORS

We are affected by the risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition or operating results or could cause our actual results to differ materially from our expectations are described in our annual report on Form 10-K for the fiscal year ended under the heading “Part I – Item 1A.Risk Factors.” There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our share repurchase program has expired, and no additional amounts are available for repurchase.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

21

ITEM 6. EXHIBITS

Exhibits

31.1* Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

31.2* Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

32* Certification of the Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101* Financial statements from the quarterly report on Form 10-Q for the quarter ended March 31, 2024, formatted in iXBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Condensed Notes to Condensed Consolidated Financial Statements.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith

22

Signatures

-------------

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Nortech Systems Incorporated and Subsidiaries
Date: May 14, 2024		by /s/ Jay D. Miller
		Jay D. Miller
		Chief Executive Officer and President
		Nortech Systems Incorporated
Date: May 14, 2024		by /s/ Andrew D. C. LaFrence
		Andrew D. C. LaFrence
		Chief Financial Officer and Senior Vice President of Finance
		Nortech Systems Incorporated

23

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

I, Jay D. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nortech Systems Incorporated and Subsidiaries;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2024	By:	/s/ Jay D. Miller
		Jay D. Miller
		Chief Executive Officer and President
		Nortech Systems Incorporated

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

I, Andrew D. C. LaFrence, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nortech Systems Incorporated. and Subsidiaies;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2024	By:	/s/ Andrew D. C. LaFrence
		Andrew D. C. LaFrence
		Chief Financial Officer and Senior Vice President of Finance
		Nortech Systems Incorporated

EX-32

Exhibit 32

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Jay D. Miller, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2024

By:	/s/ Jay D. Miller
	Jay D. Miller
	Chief Executive Officer and President
	Nortech Systems Incorporated

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Andrew D .C. LaFrence, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2024

By:	/s/ Andrew D. C. LaFrence
	Andrew D. C. LaFrence
	Chief Financial Officer and Senior Vice President of Finance
	Nortech Systems Incorporated

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	Mar. 31, 2024	May 06, 2024
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2024
Document Transition Report	false
Entity Registrant Name	NORTECH SYSTEMS INCORPORATED
Entity File Number	0-13257
Entity Incorporation, State or Country Code	MN
Entity Tax Identification Number	41-1681094
Entity Address, Address Line One	7550 Meridian Circle N., Suite # 150
Entity Address, City or Town	Maple Grove
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55369
City Area Code	952
Local Phone Number	345-2244
Title of 12(b) Security	Common Stock, par value $.01 per share
Trading Symbol	NSYS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		2,756,677
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Current Fiscal Year End Date	--12-31
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Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Net sales	$ 34,215	$ 34,888
Cost of goods sold	28,767	29,404
Gross profit	5,448	5,484
Operating Expenses
Selling expenses	805	890
General and administrative expenses	3,170	3,265
Research and development expenses	318	276
Total operating expenses	4,293	4,431
Income from operations	1,155	1,053
Other expense
Interest expense	(167)	(110)
Total other expense	(167)	(110)
Income before income taxes	988	943
Income tax expense	223	262
Net income	$ 765	$ 681
Income per common share: (in dollars per share)	$ 0.28	$ 0.25
Weighted average number of common shares outstanding - basic (in shares)	2,742,511	2,692,033
Diluted (in dollars per share)	$ 0.26	$ 0.23
Weighted average number of common shares outstanding - dilutive (in shares)	2,908,457	2,903,635
Other comprehensive income
Foreign currency translation (loss) gain	$ (183)	$ 40
Comprehensive income, net of tax	$ 582	$ 721

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Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Current assets:
Cash	$ 4,028	$ 960
Restricted cash	0	715
Accounts receivable, less allowances of $292 and $358, respectively	16,051	19,279
Inventories, net	22,951	21,660
Contract assets	14,194	14,481
Prepaid assets and other assets	1,892	1,698
Total current assets	59,116	58,793
Property and equipment, net	6,134	6,513
Operating lease assets, net	7,339	6,917
Deferred tax assets	2,640	2,641
Other intangible assets, net	223	263
Total assets	75,452	75,127
Current liabilities:
Current portion of finance lease obligations	296	356
Current portion of operating lease obligations	1,235	1,033
Accounts payable	15,217	15,924
Accrued payroll and commissions	4,771	4,138
Customer deposits	3,139	4,068
Other accrued liabilities	1,063	1,063
Total current liabilities	25,721	26,582
Long-term liabilities:
Long-term line of credit	6,170	5,815
Long-term finance lease obligations, net of current portion	168	209
Long-term operating lease obligations, net of current portion	6,977	6,763
Other long-term liabilities	410	414
Total long-term liabilities	13,725	13,201
Total liabilities	39,446	39,783
Shareholders' equity:
Preferred stock, $1 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding	250	250
Common stock - $0.01 par value; 9,000,000 shares authorized; 2,747,678 and 2,740,178 shares issued and outstanding, respectively	27	27
Additional paid-in capital	17,009	16,929
Accumulated other comprehensive loss	(715)	(532)
Retained earnings	19,435	18,670
Total shareholders' equity	36,006	35,344
Total liabilities and shareholders' equity	$ 75,452	$ 75,127

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Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Accounts receivable allowance	$ 292	$ 358
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred Stock, Shares Authorized (in shares)	1,000,000	1,000,000
Preferred Stock, Shares Outstanding (in shares)	250,000	250,000
Preferred stock, shares issued (in shares)	250,000	250,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	9,000,000	9,000,000
Common Stock, Shares, Issued (in shares)	2,755,178	2,740,178
Common stock, shares outstanding (in shares)		2,740,178

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 765	$ 681
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	482	505
Compensation on stock-based awards	80	99
Change in inventory reserves	76	32
Change in accounts receivable allowances	(66)	(32)
Other, net	(4)	(15)
Changes in current operating assets and liabilities:
Accounts receivable	3,215	(206)
Inventories	(1,400)	1,075
Contract assets	287	(823)
Prepaid expenses and other current assets	(328)	(600)
Accounts payable	(8)	(1,799)
Accrued payroll and commissions	640	1,244
Customer deposits	(926)	1,315
Other accrued liabilities	15	242
Net cash provided by operating activities	2,828	1,718
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment	9	0
Purchases of property and equipment	(744)	(496)
Net cash used in investing activities	(735)	(496)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit	32,768	31,133
Payments to line of credit	(32,394)	(32,145)
Principal payments on financing leases	(100)	(96)
Stock option exercises	0	35
Net cash provided by (used in) financing activities	274	(1,073)
Effect of exchange rate changes on cash	(14)	3
Net change in cash and cash equivalents	2,353	152
Cash and cash equivalents - beginning of period	1,675	2,481
Cash and cash equivalents - end of period	4,028	2,633
Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets:
Cash	4,028	1,267
Restricted cash	0	1,366
Total cash and restricted cash reported in the condensed consolidated statements of cash flows	4,028	2,633
Supplemental disclosure of cash flow information:
Cash paid for interest	134	129
Cash paid for income taxes	141	112
Supplemental noncash investing and financing activities:
Property and equipment purchases in accounts payable	16	78
Operating lease assets acquired under operating lease	$ 719	$ 0

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Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Preferred Stock [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Preferred Stock [Member]	Common Stock [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Common Stock [Member]	Additional Paid-in Capital [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member] Cumulative Effect, Period of Adoption, Adjustment [Member]	Retained Earnings [Member]	Cumulative Effect, Period of Adoption, Adjustment [Member]	Total
Balance (in shares) at Dec. 31, 2022	0	250,000	0	2,691,000
Balance at Dec. 31, 2022	$ 0	$ 250	$ 0	$ 27	$ 0	$ 16,347	$ 0	$ (370)	$ (30)	$ 11,826	$ (30)	$ 28,080
Net income		0		0		0		0		681		681
Foreign currency translation adjustment		$ 0		$ 0		0		40		0		40
Stock option exercises (in shares)		0		10,000
Stock option exercises		$ 0		$ 0		35		0		0		35
Compensation on stock-based awards		$ 0		$ 0		99		0		0		99
Balance (in shares) at Mar. 31, 2023		250,000		2,701,000
Balance at Mar. 31, 2023		$ 250		$ 27		16,481		(330)		12,477		28,905
Balance (in shares) at Dec. 31, 2023		250,000		2,740,000
Balance at Dec. 31, 2023		$ 250		$ 27		16,929		(532)		18,670		35,344
Net income		0		0		0		0		765		765
Foreign currency translation adjustment		0		0		0		(183)		0		$ (183)
Stock option exercises (in shares)												(0)
Compensation on stock-based awards		$ 0		$ 0		80		0		0		$ 80
Issuance for stock-based awards (in shares)		0		15,000
Issuance for stock-based awards		$ 0		$ 0		0		0		0		0
Balance (in shares) at Mar. 31, 2024		250,000		2,755,000
Balance at Mar. 31, 2024		$ 250		$ 27		$ 17,009		$ (715)		$ 19,435		$ 36,006

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Note 1 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

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, the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the Company’s audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.

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. All dollar amounts are stated in thousands of U.S. dollars.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of net sales and expenses during each reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, accounts receivable allowances, realizability of deferred tax assets and long-lived asset recovery. Actual results could differ from those estimates.

Recently Issued New Accounting Standards

In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")  2023-07, Segment Reporting Topic (280): Improvements to Reportable Segment Disclosure. The ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

Out‐of‐Period Correction
During the first quarter of 2024, we identified an error that understated our accrued liabilities by approximately $178 as of December 31, 2023. We corrected the error on a prospective basis during the first quarter of 2024 through an out of period adjustment lowering our net income by $178. We assessed the materiality of the error and concluded that the error was not material to the results of operations or financial condition or for the prior annual and interim periods, and the correction is not expected to be material to the full year results for fiscal year 2024.

Inventories

Inventories are as follows:

	March 31,			December 31,
	2024			2023
Raw materials	$	22,143		$	20,863
Work in process		992			1,033
Finished goods		1,059			934
Reserves		(1,243	)		(1,170	)
Total inventories	$	22,951		$	21,660

Other Intangible Assets

Other intangible assets as of March 31, 2024 and December 31, 2023 are as follows:

	Customer Relationships		Patents		Total
Balances as of January 1, 2023	$	216	$	206	$	422
Amortization		144		15		159
Balances as of December 31, 2023	$	72	$	191	$	263
Amortization		36		4		40
Balances as of March 31, 2024	$	36	$	187	$	223

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The weighted average remaining amortization period of our intangible assets is 2.4 years. Of the patents value as of March 31, 2024, $77 are being amortized and $110 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for both the three months ended March 31, 2024 and 2023 was $40.

As of March 31, 2024, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Year	Amount
2024	$	47
2025		14
2026		14
2027		14
2028		14
Thereafter		10
Total	$	113

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Note 2 - Concentration of Credit Risk and Major Customers

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, accounts receivable, and contract assets. With regard to cash, we maintain our excess cash balances in checking accounts at primarily two financial institutions, one in the United States and one in China. The account in the United States may at times exceed federally insured limits. The Company’s $4,028 cash balance as of March 31, 2024, included approximately $930 and $7 was held at banks located in China and Mexico, respectively. We grant credit to customers in the normal course of business and generally do not require collateral on our accounts receivable.

We have certain customers whose revenue individually represented 10% or more of net sales, or whose accounts receivable balances individually represented 10% or more of gross accounts receivable. Two customers accounted for 35% of net sales for the three months ended March 31, 2024. One customer accounted for 29% of net sales for the three months ended March 31, 2023.

As of March 31, 2024, two customers represented approximately 37% of our gross accounts receivable. As of December 31, 2023, two customers represented approximately 35% of our gross accounts receivable.

Contract assets for three customers accounted for 41% of gross contract assets as of March 31, 2024. Contract assets for two customers accounted for 34% of gross contract assets as of December 31, 2023.

Export sales from the U.S. represented approximately 3% and 4% of net sales for the three months ended March 31, 2024 and 2023, respectively.

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Note 3 - Revenue

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE 3. REVENUE

Revenue Recognition

Revenue under contract manufacturing agreements that was recognized over time accounted for approximately 74% of net sales for both the three months ended March 31, 2024 and 2023.

Contract Assets

Contract assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the three months ended March 31, 2024 were as follows:

Balances as of January 1, 2024	$	14,481
Increase (decrease) attributed to:
Amounts transferred over time to contract assets		25,214
Amounts invoiced during the period		(25,501	)
Balance outstanding as of March 31, 2024	$	14,194

We expect substantially all of the remaining performance obligations for the contract assets recorded as of March 31, 2024, to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

The following tables summarize our net sales by market for the three months ended March 31, 2024 and 2023, respectively:

	Three Months Ended March 31, 2024
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	14,240	$	5,245	$	797	$	20,282
Aerospace and defense		5,545		242		73		5,860
Industrial		5,429		2,347		297		8,073
Total net sales	$	25,214	$	7,834	$	1,167	$	34,215

	Three Months Ended March 31, 2023
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	15,725	$	5,061	$	586	$	21,372
Aerospace and defense		6,590		2,408		474		9,472
Industrial		3,415		550		79		4,044
Total net sales	$	25,730	$	8,019	$	1,139	$	34,888

¹Noncash consideration represents material provided by the customer used in the build of the product.

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Note 4 - Financing Arrangements

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE 4. FINANCING ARRANGEMENTS

We had a credit agreement with Bank of America, which was entered into on June 15, 2017 and provides for a line of credit arrangement of $16,000 that was to expire on June 15, 2026.

On February 29, 2024, we replaced the asset backed line of credit agreement with a $15,000 Senior Secured Revolving Line of Credit with Bank of America (the “Revolver”). The Revolver allows for borrowings at a defined base rate, or at the one, three or six month Secured Overnight Finance Rate, also known as “SOFR”, plus a defined margin. If the Company prepays SOFR borrowings before their contractual maturity, the Company has agreed to compensate the bank for lost margin, as defined in the Revolver agreement. The Company is required to quarterly pay a 20-basis point fee on the unused portion of the Revolver.

The Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges coverage ratio, both of which are defined in the Revolver agreement. The Company met the covenants for the period ended March 31, 2024. There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings. The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027.

Amounts borrowed on the Revolver are subject to variations in the SOFR index rate. Under the prior credit agreement with Bank of America, the line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY) index rate.  Our line of credit bears interest at a weighted-average interest rate of 9.4% and 8.3% as of March 31, 2024 and December 31, 2023, respectively. We had borrowings on our line of credit of $6,220 and $5,846 outstanding as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 we had unused availability on the line of credit of $8,780.

The line of credit is shown net of debt issuance costs of $50 and $31 on the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023, respectively.

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Note 5 - Leases

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Lease Disclosure [Text Block]

NOTE 5. LEASES

We have operating leases for certain manufacturing sites, office space, and equipment. Most leases include the option to renew, with renewal terms that can extend the lease term from one to five years or more. Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2024, we do not have material lease commitments that have not commenced.

The components of lease expense were as follows:

	March 31,		March 31,
Lease Cost	2024		2023
Operating lease cost	$	596	$	567
Finance lease interest cost		7		12
Finance lease amortization expense		131		182
Total lease cost	$	734	$	761

Supplemental condensed consolidated balance sheet information related to leases was as follows:

	Balance Sheet Location	March 31, 2024		December 31, 2023
Assets
Finance lease assets	Property and equipment, net	$	504	$	636
Operating lease assets	Operating lease assets, net		7,339		6,917
Total leased assets		$	7,843	$	7,553
Liabilities
Current
Current finance lease liabilities	Current portion of finance lease obligations	$	296	$	356
Current operating lease liabilities	Current portion of operating lease obligations		1,235		1,033
Noncurrent
Long-term finance lease liabilities	Long-term finance lease liabilities, net of current portion		168		209
Long-term operating lease liabilities	Long-term operating lease obligations, net of current portion		6,977		6,763
Total lease liabilities		$	8,676	$	8,361

Supplemental condensed consolidated statement of cash flows information related to leases was as follows:

	March 31,		March 31,
	2024		2023
Operating Leases
Cash paid for amounts included in the measurement of lease liabilities	$	459	$	493
Property acquired under operating lease	$	719	$	-

Future payments of lease liabilities as of March 31, 2024 were as follows:

	Operating Leases			Finance Leases			Total
2024	$	1,397		$	271		$	1,668
2025		1,635			106			1,741
2026		1,581			108			1,689
2027		1,286			-			1,286
2028		1,279			-			1,279
Thereafter		4,539			-			4,539
Total lease payments	$	11,717		$	485		$	12,202
Less: imputed interest		(3,505	)		(21	)		(3,526	)
Present value of lease liabilities	$	8,212		$	464		$	8,676

The lease term and discount rate as of March 31, 2024 were as follows:

Weighted-average remaining lease term (years)
Operating leases	7.9
Finance leases	1.7
Weighted-average discount rate
Operating leases	8.1	%
Finance leases	5.3	%

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Note 6 - Stock Based Awards

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 6. STOCK BASED AWARDS

Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations within General and Administration expenses of $80 and $99 for the three months ended March 31, 2024 and 2023, respectively.

Stock Options

In May 2017, the shareholders approved the 2017 Stock Incentive Plan which authorized the issuance of 350,000 shares. An additional 50,000, 175,000 and 100,000 shares were authorized in March 2020, May 2022, and May 2023, respectively.

There were no stock options granted during both the three months ended March 31, 2024 and 2023.

Total compensation expense related to stock options was $56 and $68 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $776 of unrecognized compensation related to stock options which will be recognized over a weighted average period of 3.3 years.

Following is the status of option activity for the three months ended and as of March 31, 2024:

	Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		458,700		$	6.63		6.53	$	1,432
Granted		-			-
Exercised		-			-
Forfeited		(6,200	)		11.10
Outstanding – March 31, 2024		452,500		$	6.57		6.57	$	3,066
Exercisable on March 31, 2024		294,100		$	4.71		4.71	$	2,530

Restricted Stock Units

During the periods ended March 31, 2024 and 2023, we granted 0 restricted stock units (“RSUs”). Total compensation expense related to the RSUs was $24 and $31 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, total unrecognized compensation expense related to the RSUs was $109, which will vest over a weighted average period of 1.0 years.

Following is the status of restricted stock activity for the three months ended and as of March 31, 2024:

	Shares			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		27,000			1.0	$	254
Granted		-
Vested		(15,000	)
Forfeited		-
Outstanding – March 31, 2024		12,000			1.0	$	160

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Note 7 - Net Income Per Share Data

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE 7. NET INCOME PER SHARE DATA

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding using the treasury stock method during the period. The Company’s potentially dilutive common shares are those that result from dilutive common stock options and non-vested stock relating to restricted stock units.

The calculation of diluted income per share excluded 38,405 and 28,637 in weighted average shares for the three months ended March 31, 2024 and 2023, respectively, as their effect was anti-dilutive. Basic and diluted weighted average shares outstanding were as follows:

	Three Months Ended March 31,
(In thousands)	2024		2023
Basic weighted average shares outstanding		2,742,511		2,692,033
Dilutive effect of outstanding stock options and non-vested restricted stock units		165,946		211,602
Diluted weighted average shares outstanding		2,908,457		2,903,635

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Note 8 - Income Taxes

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 8. INCOME TAXES

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events.

Our effective tax rate for the three months ended March 31, 2024 was 22.6%. Our effective tax rate for the three months ended March 31, 2023 was 27.8%. The decrease in the effective tax rate is attributable to the application of a valuation allowance during the three-month period ended March 31, 2023 and inclusion of estimated research and development tax credits in the three months ended March 31, 2024, partially offset by increased taxes on foreign entities.

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Note 9 - Payroll Tax Deferral

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Employee Retention Credit [Text Block]

NOTE 9. PAYROLL TAX DEFERRAL

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which allowed for the deferral of the employer portion of social security taxes incurred through the end of calendar 2020. During the year ended December 31, 2023, the Company remitted $1,158 to the Internal Revenue Service (“IRS”) related to the deferral of payroll taxes, of which $785 was recorded as a refund receivable as of December 31, 2023, with a corresponding liability due. These amounts were settled during the three months ended March 31, 2024.

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Note 10 - Related Party Transactions

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

NOTE 10. RELATED PARTY TRANSACTIONS

David Kunin, our Chairman, is a minority owner of Abilitech Medical, Inc. We have accounts receivable related to Abilitech of $85. Payments of $28 were received during the three months ended March 31, 2024. Abilitech has ceased operations and therefore we do not believe that Abilitech will pay the Company for outstanding accounts receivable, and we have recorded a full allowance against the gross amount. The Company believes that transactions with Abilitech were on terms comparable to those that the Company could reasonably expect in an arm's length transaction with an unrelated third party.

David Kunin, our Chairman, is a minority owner (less than 10%) of Marpe Technologies, LTD an early-stage medical device company dedicated to the early detection of skin cancer through full body scanners. Mr. Kunin is also a member of the Board of Directors of Marpe Technologies. The Company has an agreement with Marpe Technologies to apply for a grant from the Israel-United States Binational Industrial Research and Development Foundation, a legal entity created by Agreement between the Government of the State of Israel and the Government of the United States of America (“BIRD Foundation”). The parties were successful in receiving approval for a $1,000 conditional grant. The Company and Marpe Technologies will each receive $500 from the BIRD Foundation and, among other obligations under the grant, each is required to contribute $500 to match grant funds from the BIRD Foundation. The Company has met its obligation by providing certain services at cost or with respect to administrative services at no cost to Marpe Technologies. The total value of the Company’s contribution will not exceed $500. Marpe is engaged in raising funds for its operations, which funds are necessary to pay for the Company’s services beyond its contribution. The Company will receive a 10-year exclusive right to manufacture the products of Marpe Technologies. There can be no assurances that Marpe Technologies’ medical device operations will be commercially successful, that Marpe Technologies will be successful in raising additional funds to finance its operations or, if commercially successful, the Company will recover the value of services provided to Marpe if not paid when the services are provided. The transactions between the Company and Marpe Technologies have been approved by the Audit Committee pursuant to the Company Related-Party Transactions Policy. During the three months ended March 31, 2024 and 2023, we recognized net sales to Marpe Technologies of $0 and $67, respectively. As of March 31, 2024 and December 31, 2023, we have recorded an unbilled receivable of $21 and $39, respectively, related to expected reimbursement from the BIRD Foundation and have outstanding accounts receivable of $0 and $20, respectively. The Company believes that transactions with Marpe are on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

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Insider Trading Arrangements

3 Months Ended

Mar. 31, 2024

Insider Trading Arr Line Items

Material Terms of Trading Arrangement [Text Block]

ITEM 5. OTHER INFORMATION

None.

Rule 10b5-1 Arrangement Adopted [Flag]

false

Rule 10b5-1 Arrangement Terminated [Flag]

false

Non-Rule 10b5-1 Arrangement Adopted [Flag]

false

Non-Rule 10b5-1 Arrangement Terminated [Flag]

false

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2024

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation and Principles of Consolidation

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, the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the Company’s audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the year ended December 31, 2023, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC.

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. All dollar amounts are stated in thousands of U.S. dollars.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of net sales and expenses during each reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, accounts receivable allowances, realizability of deferred tax assets and long-lived asset recovery. Actual results could differ from those estimates.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued New Accounting Standards

In November 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")  2023-07, Segment Reporting Topic (280): Improvements to Reportable Segment Disclosure. The ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements and related disclosures.

Error Correction [Policy Text Block]

Out‐of‐Period Correction
During the first quarter of 2024, we identified an error that understated our accrued liabilities by approximately $178 as of December 31, 2023. We corrected the error on a prospective basis during the first quarter of 2024 through an out of period adjustment lowering our net income by $178. We assessed the materiality of the error and concluded that the error was not material to the results of operations or financial condition or for the prior annual and interim periods, and the correction is not expected to be material to the full year results for fiscal year 2024.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are as follows:

	March 31,			December 31,
	2024			2023
Raw materials	$	22,143		$	20,863
Work in process		992			1,033
Finished goods		1,059			934
Reserves		(1,243	)		(1,170	)
Total inventories	$	22,951		$	21,660

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Other Intangible Assets

Other intangible assets as of March 31, 2024 and December 31, 2023 are as follows:

	Customer Relationships		Patents		Total
Balances as of January 1, 2023	$	216	$	206	$	422
Amortization		144		15		159
Balances as of December 31, 2023	$	72	$	191	$	263
Amortization		36		4		40
Balances as of March 31, 2024	$	36	$	187	$	223

Intangible assets are amortized on a straight-line basis over their estimated useful lives. The weighted average remaining amortization period of our intangible assets is 2.4 years. Of the patents value as of March 31, 2024, $77 are being amortized and $110 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for both the three months ended March 31, 2024 and 2023 was $40.

As of March 31, 2024, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Year	Amount
2024	$	47
2025		14
2026		14
2027		14
2028		14
Thereafter		10
Total	$	113

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Note 1 - Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	March 31,			December 31,
	2024			2023
Raw materials	$	22,143		$	20,863
Work in process		992			1,033
Finished goods		1,059			934
Reserves		(1,243	)		(1,170	)
Total inventories	$	22,951		$	21,660

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Customer Relationships		Patents		Total
Balances as of January 1, 2023	$	216	$	206	$	422
Amortization		144		15		159
Balances as of December 31, 2023	$	72	$	191	$	263
Amortization		36		4		40
Balances as of March 31, 2024	$	36	$	187	$	223

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Year	Amount
2024	$	47
2025		14
2026		14
2027		14
2028		14
Thereafter		10
Total	$	113

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Note 3 - Revenue (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

Balances as of January 1, 2024	$	14,481
Increase (decrease) attributed to:
Amounts transferred over time to contract assets		25,214
Amounts invoiced during the period		(25,501	)
Balance outstanding as of March 31, 2024	$	14,194

Disaggregation of Revenue [Table Text Block]

	Three Months Ended March 31, 2024
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	14,240	$	5,245	$	797	$	20,282
Aerospace and defense		5,545		242		73		5,860
Industrial		5,429		2,347		297		8,073
Total net sales	$	25,214	$	7,834	$	1,167	$	34,215

	Three Months Ended March 31, 2023
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration1		Total Net Sales by Market
Medical	$	15,725	$	5,061	$	586	$	21,372
Aerospace and defense		6,590		2,408		474		9,472
Industrial		3,415		550		79		4,044
Total net sales	$	25,730	$	8,019	$	1,139	$	34,888

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Note 5 - Leases (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Lease, Cost [Table Text Block]

	March 31,		March 31,
Lease Cost	2024		2023
Operating lease cost	$	596	$	567
Finance lease interest cost		7		12
Finance lease amortization expense		131		182
Total lease cost	$	734	$	761

	March 31,		March 31,
	2024		2023
Operating Leases
Cash paid for amounts included in the measurement of lease liabilities	$	459	$	493
Property acquired under operating lease	$	719	$	-

Weighted-average remaining lease term (years)
Operating leases	7.9
Finance leases	1.7
Weighted-average discount rate
Operating leases	8.1	%
Finance leases	5.3	%

Schedule of Supplemental Balance Sheet Information Related to Leases [Table Text Block]

	Balance Sheet Location	March 31, 2024		December 31, 2023
Assets
Finance lease assets	Property and equipment, net	$	504	$	636
Operating lease assets	Operating lease assets, net		7,339		6,917
Total leased assets		$	7,843	$	7,553
Liabilities
Current
Current finance lease liabilities	Current portion of finance lease obligations	$	296	$	356
Current operating lease liabilities	Current portion of operating lease obligations		1,235		1,033
Noncurrent
Long-term finance lease liabilities	Long-term finance lease liabilities, net of current portion		168		209
Long-term operating lease liabilities	Long-term operating lease obligations, net of current portion		6,977		6,763
Total lease liabilities		$	8,676	$	8,361

Schedule of Lease Liability Maturity [Table Text Block]

	Operating Leases			Finance Leases			Total
2024	$	1,397		$	271		$	1,668
2025		1,635			106			1,741
2026		1,581			108			1,689
2027		1,286			-			1,286
2028		1,279			-			1,279
Thereafter		4,539			-			4,539
Total lease payments	$	11,717		$	485		$	12,202
Less: imputed interest		(3,505	)		(21	)		(3,526	)
Present value of lease liabilities	$	8,212		$	464		$	8,676

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Note 6 - Stock Based Awards (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Share-Based Payment Arrangement, Option, Activity [Table Text Block]

	Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		458,700		$	6.63		6.53	$	1,432
Granted		-			-
Exercised		-			-
Forfeited		(6,200	)		11.10
Outstanding – March 31, 2024		452,500		$	6.57		6.57	$	3,066
Exercisable on March 31, 2024		294,100		$	4.71		4.71	$	2,530

Share-Based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block]

	Shares			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding – December 31, 2023		27,000			1.0	$	254
Granted		-
Vested		(15,000	)
Forfeited		-
Outstanding – March 31, 2024		12,000			1.0	$	160

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Note 7 - Net Income Per Share Data (Tables)

3 Months Ended

Mar. 31, 2024

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended March 31,
(In thousands)	2024		2023
Basic weighted average shares outstanding		2,742,511		2,692,033
Dilutive effect of outstanding stock options and non-vested restricted stock units		165,946		211,602
Diluted weighted average shares outstanding		2,908,457		2,903,635

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Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023	Dec. 31, 2022
Cost of Goods and Services Sold	$ 28,767,000	$ 29,404,000
Finite-Lived Intangible Assets, Remaining Amortization Period	2 years 4 months 24 days
Finite-Lived Intangible Assets, Net	$ 223,000		$ 263,000	$ 422,000
Amortization of Intangible Assets	40,000	$ 40,000	$ 159,000
Patents Received [Member]
Finite-Lived Intangible Assets, Net	77,000
Patents In Process [Member]
Finite-Lived Intangible Assets, Net	110,000
Revision of Prior Period, Error Correction, Adjustment [Member]
Accrued Liabilities, Current	178,000
Cost of Goods and Services Sold	$ (178)

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Note 1 - Summary of Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Raw Materials	$ 22,143	$ 20,863
Work in Process	992	1,033
Finished Goods	1,059	934
Reserves	(1,243)	(1,170)
Total	$ 22,951	$ 21,660

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Note 1 - Summary of Significant Accounting Policies - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Balance	$ 263	$ 422	$ 422
Amortization	40	40	159
Balance	223		263
Customer Relationships [Member]
Balance	72	216	216
Amortization	36		144
Balance	36		72
Patents [Member]
Balance	191	$ 206	206
Amortization	4		15
Balance	$ 187		$ 191

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Note 1 - Summary of Significant Accounting Policies - Estimated Future Annual Amortization Expense (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023	Dec. 31, 2022
Total	$ 223	$ 263	$ 422
Finite-lived Intangible Assets, Excluding Projects in Process [Member]
2024	47
2025	14
2026	14
2027	14
2028	14
Thereafter	10
Total	$ 113

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Note 2 - Concentration of Credit Risk and Major Customers (Details Textual) $ in Thousands	3 Months Ended
	Mar. 31, 2024 USD ($)	Mar. 31, 2023 USD ($)	Dec. 31, 2023 USD ($)
Cash and Cash Equivalents, at Carrying Value	$ 4,028	$ 1,267	$ 960
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$ 4,028	$ 2,633
Revenue Benchmark [Member] | Customer Concentration Risk [Member]
Concentration Risk Number of Customers	2	1
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | Two Customers [Member]
Concentration Risk, Percentage	35.00%
Revenue Benchmark [Member] | Customer Concentration Risk [Member] | One Customer [Member]
Concentration Risk, Percentage		29.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Concentration Risk Number of Customers	2	2
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Two Customers [Member]
Concentration Risk, Percentage	37.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | One Customer [Member]
Concentration Risk, Percentage		35.00%
Contract Assets Benchmark [Member] | Customer Concentration Risk [Member]
Concentration Risk Number of Customers	3	2
Contract Assets Benchmark [Member] | Customer Concentration Risk [Member] | One Customer [Member]
Concentration Risk, Percentage	41.00%	34.00%
UNITED STATES
Excess Cash Balances, Number of High Credit Quality Financial Institutions	1
CHINA
Excess Cash Balances, Number of High Credit Quality Financial Institutions	1
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$ 930
MEXICO
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$ 7
Non-US [Member] | Revenue Benchmark [Member] | Geographic Concentration Risk [Member]
Concentration Risk, Percentage	3.00%	4.00%

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Note 3 - Revenue (Details Textual)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Percentage of Revenue Transferred to Customers	74.00%	74.00%

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Note 3 - Revenue - Contract Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Balance outstanding		$ 14,481
Amounts transferred over time to contract assets	$ 25,214
Amounts invoiced during the period	(25,501)
Balance outstanding at March 31, 2023	$ 14,194

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Note 3 - Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2024	Mar. 31, 2023
Net sales		$ 34,215	$ 34,888
Medical [Member]
Net sales		20,282	21,372
Aerospace and Defense [Member]
Net sales		5,860	9,472
Industrial [Member]
Net sales		8,073	4,044
Transferred over Time [Member]
Net sales		25,214	25,730
Transferred over Time [Member] | Medical [Member]
Net sales		14,240	15,725
Transferred over Time [Member] | Aerospace and Defense [Member]
Net sales		5,545	6,590
Transferred over Time [Member] | Industrial [Member]
Net sales		5,429	3,415
Transferred at Point in Time [Member]
Net sales		7,834	8,019
Transferred at Point in Time [Member] | Medical [Member]
Net sales		5,245	5,061
Transferred at Point in Time [Member] | Aerospace and Defense [Member]
Net sales		242	2,408
Transferred at Point in Time [Member] | Industrial [Member]
Net sales		2,347	550
Noncash Consideration [Member]
Net sales	[1]	1,167	1,139
Noncash Consideration [Member] | Medical [Member]
Net sales	[1]	797	586
Noncash Consideration [Member] | Aerospace and Defense [Member]
Net sales	[1]	73	474
Noncash Consideration [Member] | Industrial [Member]
Net sales	[1]	$ 297	$ 79

[1] Noncash consideration represents material provided by the customer used in the build of the product.

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Note 4 - Financing Arrangements (Details Textual) - Bank of America [Member] - Credit Agreement [Member] - Line of Credit [Member] $ in Thousands		3 Months Ended	12 Months Ended
	Feb. 29, 2024 USD ($)	Mar. 31, 2024 USD ($)	Dec. 31, 2023 USD ($)	Jun. 15, 2017 USD ($)
Line of Credit Facility, Maximum Borrowing Capacity	$ 15,000			$ 16,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.20%
Debt Instrument, Maximum Leverage Ratio	2.5
Debt Instrument, Minimum Fixed Charges Coverage Ratio	1.25
Debt Instrument, Interest Rate During Period		9.40%	8.30%
Long-Term Line of Credit		$ 6,220	$ 5,846
Line of Credit Facility, Remaining Borrowing Capacity		8,780
Debt Issuance Costs, Net		$ 50	$ 31

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Note 5 - Leases (Details Textual)	Mar. 31, 2024
Minimum [Member]
Lessee, Operating Lease, Renewal Term	1 year
Maximum [Member]
Lessee, Operating Lease, Renewal Term	5 years

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Note 5 - Leases - Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Sep. 30, 2023
Operating lease cost	$ 596	$ 567
Cash paid for amounts included in the measurement of lease liabilities	459	493
Operating leases (Year)			7 years 10 months 24 days
Finance lease interest cost	7	12
Finance leases (Year)			1 year 8 months 12 days
Operating lease assets acquired under operating lease	719	0
Finance lease amortization expense	131	182
Operating leases			8.10%
Finance leases			5.30%
Total lease cost	$ 734	$ 761

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Note 5 - Leases - Supplemental Balance Sheet Information (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Operating lease assets	$ 504	$ 636
Finance lease assets	7,339	6,917
Total leased assets	7,843	7,553
Operating lease assets	296	356
Operating lease assets	1,235	1,033
Operating lease assets	168	209
Operating lease assets	6,977	6,763
Operating lease assets	8,676	8,361
Property and Equipment [Member]
Finance lease assets	$ 7,339	$ 6,917

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Note 5 - Leases - Maturity of Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2024	Dec. 31, 2023
Remaining 2024, operating leases	$ 1,397
Remaining 2024, finance leases	271
Remaining 2024	1,668
2025, operating leases	1,635
2025, finance leases	106
2025	1,741
2026, operating leases	1,581
2026, finance leases	108
2026	1,689
2027, operating leases	1,286
2027, finance leases	0
2027	1,286
2028, operating lease	1,279
2028, finance leases	0
2028	1,279
Therafter, operating leases	4,539
Therafter, finance leases	0
Therafter	4,539
Total lease payments, operating leases	11,717
Total lease payments, finance leases	485
Total lease payments	12,202
Less: Interest, operating leases	(3,505)
Less: Interest, finance leases	(21)
Less: Interest	(3,526)
Present value of lease liabilities, operating leases	8,212
Present value of lease liabilities, finance leases	464
Operating lease assets	$ 8,676	$ 8,361

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Note 6 - Stock Based Awards (Details Textual) - USD ($) $ in Thousands	1 Months Ended			3 Months Ended
	May 31, 2023	May 31, 2022	May 31, 2020	Mar. 31, 2024	Mar. 31, 2023	May 31, 2017
Share-Based Payment Arrangement, Expense				$ 80	$ 99
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross				0
Share-Based Payment Arrangement, Option [Member]
Share-Based Payment Arrangement, Expense				$ 56	68
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount				$ 776
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition				3 years 3 months 18 days
Restricted Stock Units (RSUs) [Member]
Share-Based Payment Arrangement, Expense				$ 24	$ 31
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount				$ 109
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition				1 year
Stock Incentive Plan 2017 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Authorized						350,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Additional Shares Authorized	100,000	175,000	50,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross				0	0
Stock Incentive Plan 2017 [Member] | Restricted Stock Units (RSUs) [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period				0	0

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Note 6 - Stock Based Awards - Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Outstanding, shares (in shares)	458,700
Outstanding, weighted average exercise price (in dollars per share)	$ 6.63
Outstanding – weighted average remaining contractual term (Year)	6 years 6 months 25 days	6 years 6 months 10 days
Outstanding – aggregate intrinsic value	$ 3,066	$ 1,432
Granted, shares (in shares)	0
Granted, weighted average exercise price (in dollars per share)	$ 0
Exercised, shares (in shares)	0
Exercised, weighted average exercise price (in dollars per share)	$ 0
Forefeited, shares (in shares)	(6,200)
Forefeited, weighted average exercise price (in dollars per share)	$ 11.1
Outstanding, shares (in shares)	452,500	458,700
Outstanding, weighted average exercise price (in dollars per share)	$ 6.57	$ 6.63
Exercisable, shares (in shares)	294,100
Exercisable, weighted average exercise price (in dollars per share)	$ 4.71
Exercisable, weighted average remaining contractual term (Year)	4 years 8 months 15 days
Exercisable, aggregate intrinsic value	$ 2,530

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Note 6 - Stock Based Awards - Restricted Stock Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2024	Dec. 31, 2023
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross	0
Restricted Stock [Member]
Outstanding – shares (in shares)	27,000
Outstanding – weighted average remaining contractual term (in dollars per share)	$ 1
Outstanding – aggregate intrinsic value	$ 160	$ 254
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross	0
Vested, shares (in shares)	(15,000)
Forfeited, shares (in shares)	0
Outstanding , shares (in shares)	12,000
Outstanding – weighted average remaining contractual term (in dollars per share)	$ 1

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Note 7 - Net Income Per Share Data (Details Textual) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	38,405	28,637

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Note 7 - Net Income Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Weighted average number of common shares outstanding - basic (in shares)	2,742,511	2,692,033
Dilutive effect of outstanding stock options and non-vested restricted stock units (in shares)	165,946	211,602
Diluted weighted average shares outstanding (in shares)	2,908,457	2,903,635

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Note 8 - Income Taxes (Details Textual)	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023
Effective Income Tax Rate Reconciliation, Percent	22.60%	27.80%

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Note 9 - Payroll Tax Deferral (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2023	Dec. 31, 2022
Social Security Tax Payment Deferred		$ 1,158
Tax Credit Receivable	$ 785

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Note 10 - Related Party Transactions (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2024	Mar. 31, 2023	Dec. 31, 2023
Agreement Between the BIRD Foundation, the Company, and MARPE Technologies, LTD [Member]
Agreement, Conditional Grant	$ 1,000
Agreement, Exclusive Manufacturing Rights, Term (Year)	10 years
Abilitech Medical, Inc [Member] | Loss on Long-Term Purchase Commitment [Member]
Accounts Receivable, after Allowance for Credit Loss	$ 85
Abilitech Medical, Inc [Member] | Payments Received for Delivery of EMS Products [Member]
Related Party Transaction, Amounts of Transaction	$ 28
David Kunin [Member] | Marpe Technologies, LTD [Member] | Maximum [Member]
Ownership, Percent	10.00%
Marpe Technologies, LTD [Member] | Agreement Between the BIRD Foundation, the Company, and MARPE Technologies, LTD [Member]
Accounts Receivable, after Allowance for Credit Loss	$ 0		$ 20
Related Party Transaction, Amounts of Transaction	0	$ 67
Agreement, Conditional Grant Matching Amount	500
Unbilled Contracts Receivable	$ 21		$ 39