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 June 30, 2025

☐

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 $0.01 par value common stock outstanding as of July 31, 2025 was 2,786,134.

TABLE OF CONTENTS

	PAGE

PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	3
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Cash Flows	5-6
Condensed Consolidated Statements of Shareholders’ Equity	7
Notes to Condensed Consolidated Financial Statements	8-17
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	24
Item 4 - Controls and Procedures	24

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings	25
Item 1A. - Risk Factors	25
Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds	25
Item 3 - Defaults on Senior Securities	25
Item 4 - Mine Safety Disclosures	25
Item 5 - Other Information	25
Item 6 - Exhibits	25
SIGNATURES	26

PART I

ITEM 1. FINANCIAL STATEMENTS

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	2025			2024			2025			2024
	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2025			2024			2025			2024

Net sales	$	30,675		$	33,891		$	57,570		$	68,106
Cost of goods sold		25,838			29,274			49,655			58,041
Gross profit		4,837			4,617			7,915			10,065
Operating expenses:
Selling		1,204			909			2,388			1,714
General and administrative		2,589			2,982			5,504			6,152
Research and development		302			291			628			609
Restructuring charges		-			91			266			91
Total operating expenses		4,095			4,273			8,786			8,566
Income (loss) from operations		742			344			(871	)		1,499
Other expense:
Interest expense		(257	)		(165	)		(471	)		(332	)
Income (loss) before income taxes		485			179			(1,342	)		1,167
Income tax expense (benefit)		172			22			(339	)		245
Net income (loss)	$	313		$	157		$	(1,003	)	$	922

Net income (loss) per common share:
Basic (in dollars per share)	$	0.12		$	0.06		$	(0.36	)	$	0.34
Weighted average number of common shares outstanding - basic (in shares)		2,773,598			2,760,052			2,767,263			2,751,330
Diluted (in dollars per share)	$	0.12		$	0.05		$	(0.36	)	$	0.32
Weighted average number of common shares outstanding - diluted (in shares)		2,954,765			2,935,671			2,767,263			2,922,113

Other comprehensive income (loss)
Foreign currency translation		124			(175	)		130			(358	)
Comprehensive income (loss), net of tax	$	437		$	(18	)	$	(873	)	$	564

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2025 AND DECEMBER 31, 2024

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

	JUNE 30, 2025			DECEMBER 31, 2024
ASSETS
Current assets:
Cash	$	652		$	916
Accounts receivable, less allowances of $206 and $196, respectively		17,810			14,875
Inventories, net		18,628			21,638
Contract assets		14,984			13,792
Assets held for sale		495			-
Prepaid assets and other assets		5,749			4,094
Total current assets		58,318			55,315
Property and equipment, net		5,443			6,232
Operating lease assets, net		7,563			8,139
Deferred tax assets		3,275			2,575
Other intangible assets, net		165			174
Other assets		61			-
Total assets	$	74,825		$	72,435

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,931		$	11,582
Accrued payroll and commissions		1,752			1,841
Customer deposits		5,176			5,140
Current portion of operating lease obligations		1,237			1,175
Current portion of finance lease obligations		229			143
Notes payable		-			344
Other accrued liabilities		1,283			1,203
Total current liabilities		21,608			21,428
Long-term liabilities:
Long-term line of credit		11,615			8,634
Long-term operating lease obligations, net of current portion		7,145			7,773
Long-term finance lease obligations, net of current portion		781			311
Other long-term liabilities		288			284
Total long-term liabilities		19,829			17,002
Total liabilities		41,437			38,430
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; 2,780,134 and 2,760,793 shares issued and outstanding, respectively		28			28
Additional paid-in capital		17,585			17,329
Accumulated other comprehensive loss		(847	)		(977	)
Retained earnings		16,372			17,375
Total shareholders’ equity		33,388			34,005
Total liabilities and shareholders’ equity	$	74,825		$	72,435

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	2025			2024
	SIX MONTHS ENDED
	JUNE 30,
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,003	)	$	922
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		678			966
Compensation on stock-based awards		235			206
Deferred taxes		(700	)		-
Change in accounts receivable allowance		10			(88	)
Change in inventory reserves		351			113
Other, net		-			(59	)
Changes in current operating assets and liabilities:
Accounts receivable		(2,842	)		1,690
Inventories		2,714			(1,288	)
Contract assets		(1,192	)		(476	)
Prepaid expenses and other assets		(1,647	)		(531	)
Accounts payable		295			(2,546	)
Accrued payroll and commissions		(94	)		(1,516	)
Customer deposits		36			1,385
Other accrued liabilities		386			(236	)
Net cash used in operating activities		(2,773	)		(1,458	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		9			9
Purchases of property and equipment		(367	)		(1,020	)
Net cash used in investing activities		(358	)		(1,011	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit		51,405			68,323
Payments to line of credit		(48,485	)		(65,809	)
Principal payments on financing leases		(85	)		(202	)
Stock option exercises		23			31
Net cash provided by financing activities		2,858			2,343

Effect of exchange rate changes on cash		9			(7	)

Net change in cash		(264	)		(133	)
Cash - beginning of period		916			1,675
Cash - end of period	$	652		$	1,542

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	SIX MONTHS ENDED
	JUNE 30,
	2025		2024

Supplemental disclosure of cash flow information:
Cash paid for interest	$	470	$	307
Cash paid for income taxes	$	389	$	279

Supplemental noncash investing and financing activities:
Property and equipment purchases in accounts payable	$	27	$	75
Conversion of notes payable to finance leases	$	637	$	-
Operating lease assets acquired under operating leases	$	-	$	1,923

See Accompanying Notes to Condensed Consolidated Financial Statements.

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

(UNAUDITED)

(IN THOUSANDS)

	Shares		Amount		Shares		Amount		Capital		Loss			Earnings			Equity
											Accumulated
									Additional		Other						Total
	Preferred Stock				Common Stock				Paid-In		Comprehensive			Retained			Shareholders’
	Shares		Amount		Shares		Amount		Capital		Loss			Earnings			Equity
Balance as of March 31, 2024		250	$	250		2,755	$	27	$	17,009	$	(715	)	$	19,435		$	36,006
Net income		-		-		-		-		-		-			157			157
Foreign currency translation adjustment		-		-		-		-		-		(175	)		-			(175	)
Compensation on stock-based awards		-		-		-		-		126		-			-			126
Issuance for stock-based awards		-		-		7		1		30		-			-			31
Balance as of June 30, 2024		250	$	250		2,762	$	28	$	17,165	$	(890	)	$	19,592		$	36,145

Balance as of March 31, 2025		250	$	250		2,761	$	28	$	17,466	$	(971	)	$	16,059		$	32,832
Net income		-		-		-		-		-		-			313			313
Foreign currency translation adjustment		-		-		-		-		-		124			-			124
Stock option exercises		-		-		19		-		2		-			-			2
Compensation on stock-based awards		-		-		-		-		117		-			-			117
Balance as of June 30, 2025		250	$	250		2,780	$	28	$	17,585	$	(847	)	$	16,372		$	33,388

Balance as of December 31, 2023		250	$	250		2,740	$	27	$	16,929	$	(532	)	$	18,670		$	35,344
Net income		-		-		-		-		-		-			922			922
Foreign currency translation adjustment		-		-		-		-		-		(358	)		-			(358	)
Compensation on stock-based awards		-		-		-		-		206		-			-			206
Issuance for stock-based awards		-		-		22		1		30		-			-			31
Balance as of June 30, 2024		250	$	250		2,762	$	28	$	17,165	$	(890	)	$	19,592		$	36,145

Balance as of December 31, 2024		250	$	250		2,761	$	28	$	17,329	$	(977	)	$	17,375		$	34,005
Balance		250	$	250		2,761	$	28	$	17,329	$	(977	)	$	17,375		$	34,005
Net loss		-		-		-		-		-		-			(1,003	)		(1,003	)
Foreign currency translation adjustment		-		-		-		-		-		130			-			130
Stock option exercises		-		-		19		-		21		-			-			21
Compensation on stock-based awards		-		-		-		-		235		-			-			235
Balance as of June 30, 2025		250	$	250		2,780	$	28	$	17,585	$	(847	)	$	16,372		$	33,388
Balance		250	$	250		2,780	$	28	$	17,585	$	(847	)	$	16,372		$	33,388

See Accompanying Notes to Condensed Consolidated Financial Statements.

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 (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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, 2024, 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 U.S. GAAP 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 condensed 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 net realizable value reserves 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 Company adopted this ASU in the fourth quarter of 2024 and has included related interim reporting disclosures in Note 9 – Segment Information to these condensed consolidated financial statements.

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 disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregated expense information in the notes to the financial statements related to purchases of inventory, employee compensation, depreciation, intangible asset amortization and selling expenses for each statement of earnings line item that contains those expenses. ASU No. 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The guidance is to be applied on a prospective basis with the option to apply the standard retrospectively; this ASU allows for early adoption. The Company is currently evaluating the impact of this ASU on its consolidated financial statements disclosures.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act of 2017, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation, among other tax changes. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others in the future. The Company is currently evaluating the provisions of the new law and the potential effects on the Company’s financial position, results of operations, and cash flows.

Inventories

Inventories are as follows:

SCHEDULE OF INVENTORIES

	June 30,			December 31,
	2025			2024
Raw materials	$	18,570		$	21,122
Work in process		802			892
Finished goods		1,053			1,070
Reserves		(1,797	)		(1,446	)
Inventories, net	$	18,628		$	21,638

Other Intangible Assets

Other intangible assets as of June 30, 2025 and December 31, 2024 are as follows:

SCHEDULE OF OTHER INTANGIBLE ASSETS

	Patents
Balances as of December 31, 2024	$	174
Amortization		(9	)
Balances as of June 30, 2025	$	165

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 4.6 years. Of the patents value as of June 30, 2025, $81 are being amortized and $84 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for the three months ended June 30, 2025 and 2024 was $4 and $40, respectively. Amortization expense of finite life intangible assets for the six months ended June 30, 2025 and 2024 was $9 and $80, respectively.

As of June 30, 2025, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Year	Amount
Remainder of 2025	$	10
2026		18
2027		18
2028		18
2029		12
Thereafter		5
Total	$	81

Property and Equipment

As of June 30, 2025, the Company classified its Blue Earth manufacturing facility and related land as held for sale as the criteria for classification as held for sale were met. The sale of the Blue Earth facility was completed in July 2025 for $500. The carrying value of these assets held for sale was $495 as of June 30, 2025 and is classified as a current asset in our condensed consolidated balance sheets.

During the second quarter of 2025, in light of our sustained low stock price, we performed a Step 1 recoverability test in accordance with U.S. GAAP for our long-lived assets. Based on our assessment of undiscounted future cash flows, we concluded that the carrying amounts of our asset group is recoverable, and therefore, no impairment was recognized at this stage. However, as a result of the sale of our Blue Earth facility in July 2025, we are now closer to meeting the criteria for a Step 2 impairment analysis, which involves estimating the fair value of the asset group. If future developments, including changes in market conditions or operational forecasts, result in a decline in fair value below carrying amounts, this may lead to the recognition of an impairment loss in subsequent periods.

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. We maintain our excess cash balances in checking accounts primarily at 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 $652 cash balance as of June 30, 2025, included approximately $573 and $5 that 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 or contract asset balances individually represented 10% or more of gross accounts receivable.

Customers who represent 10% or more of net sales for the three and six months ended June 30, 2025 and 2024 are as follows:

	2025			2024			2025			2024
	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
Customer A		31	%		26	%		31	%		25	%
Customer B		10	%		-	%		10	%		-	%
Total		41	%		26	%		41	%		25	%

Customers who represent 10% or more of accounts receivable and contract assets for the period ended June 30, 2025 and December 31, 2024 are as follows:

	June 30, 2025			December 31, 2024
	Accounts Receivable
	June 30, 2025			December 31, 2024
Customer A		22	%		23	%
Customer C		10	%		13	%
Total		32	%		36	%

	June 30, 2025			December 31, 2024
	Contract Assets
	June 30, 2025			December 31, 2024
Customer A		30	%		33	%
Customer D		16	%		12	%
Total		46	%		45	%

Export sales from the U.S. represented approximately 2% of net sales for both the three and six months ended June 30, 2025. Export sales from the U.S. represented approximately 3% and 2% of net sales for the three and six months ended June 30, 2024, respectively.

NOTE 3. NET SALES

Revenue Recognition

Revenue under contract manufacturing agreements that was recognized over time, excluding noncash consideration, accounted for 75% of net sales for both the three and six months ended June 30, 2025 and 74% of net sales for both the three and six months ended June 30, 2024.

The following tables summarize our net sales by market for the three and six months ended June 30, 2025 and 2024, respectively:

SCHEDULE OF NET SALES BY MARKET

	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
	Three Months Ended June 30, 2025
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
Medical Device	$	5,049	$	2,004	$	497	$	7,550
Medical Imaging		7,490		2,169		5		9,664
Industrial		6,590		1,799		127		8,516
Aerospace and Defense		3,975		886		84		4,945
Total net sales	$	23,104	$	6,858	$	713	$	30,675

	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
	Three Months Ended June 30, 2024
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
Medical Device⁽²⁾	$	6,857	$	2,129	$	703	$	9,689

SEC Form 10-Q filed by Nortech Systems Incorporated