NORTECH SYSTEMS INC
For the period ended Jun 30, 2026. Filed Aug 12, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2026 · Filed Aug 12, 2026
NSYS$11.20+6.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-03-31; filed 2026-05-13.
0001493152-26-022752
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-06-30; filed 2026-08-12.
0001493152-26-037344
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 38 previous paragraphs and 40 current paragraphs.
21 unchanged; 14 reworded; 5 added; 3 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 11 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (5)
Current report
The Company’s results of operations in 2026 have benefited from higher gross margin from increased net sales as the result of improved backlog. This increase was offset in 2026 with increased incentive compensation expense. For the three and six months ended June 30, 2026, incentive compensation expense (reversal of expense) aggregated $402 and $647, respectively, as compared with ($131) and $0 in the three and six months ended June 30, 2025, respectively.
Current report
*Gross profit and gross margin percentage.*Gross margin percentage was 17.0% and 15.8% for the three months ended June 30, 2026, and 2025, respectively. Gross margin percentage was 16.3% and 13.7% for the six months ended June 30, 2026, and 2025, respectively. The improvement was primarily attributable to higher revenue levels and improved manufacturing cost absorption resulting from increased production activity. The benefit of higher volumes was partially offset by unfavorable sales mix.
Current report
Research and development. Research and development expenses increased slightly at $346 and $302 in the three months ended June 30, 2026 and 2025, respectively, and $656 and $628 in the six months ended June 30, 2026 and 2025, respectively. The increases are the result of higher incentive compensation accruals in 2026.
Current report
Operating income (loss). Operating income was $623 for the three months ended June 30, 2026 or 1.9% of net sales and operating income was $742 or 2.4% of net sales for the three months ended June 30, 2025. The decrease was primarily attributable to higher selling and general and administrative expenses, which more than offset the increase in gross profit resulting from higher sales volume. Operating income was $670 or 1.0% of net sales for the six months ended June 30, 2026 and operating loss was $(871) or (1.5)% of net sales for the six months ended June 30, 2025. The increase was primarily attributable to higher gross profit associated with increased revenue and improved operating leverage, together with the absence of restructuring charges recorded in the first quarter of 2025.
Current report
*Interest expense, net.*Interest expense, net was $197 and $257 for the three months ended June 30, 2026 and 2025, respectively. Interest expense, net was $453 and $471 for the six months ended June 30, 2026 and 2025, respectively. This decrease in the quarterly comparison was driven by the lower average borrowings and reduced interest costs following the transition to the Company’s new financing arrangements. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.
Removed paragraphs (3)
Previous report
*Gross profit and gross margin percentage.*Gross margin percentage was 15.5% and 11.4% for the three months ended March 31, 2026, and 2025, respectively. The increase in gross margin percentage was the result of improved plant utilization primarily from our restructuring activities and higher sales on a fixed cost base.
Previous report
Operating income (loss). Operating income was $47 for the three months ended March 31, 2026 or 0.2% of net sales and operating loss was $(1,613) or (6.0)% of net sales for the three months ended March 31, 2025. The improvement was primarily driven by higher gross margin percentage, which increased operating income by $1,234, and higher net sales, which contributed an additional $390.
Previous report
*Interest expense, net.*Interest expense, net was $256 and $214 for the three months ended March 31, 2026 and 2025, respectively. This increase was driven by the write-off of unamortized debt issuance costs of $88 associated with our prior financing arrangement that was refinanced in the period. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.
Reworded paragraphs (14)
Previous wording
Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support. Quality, on-time delivery, and reliability are of upmost importance. Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early engagement design, and development strategy. We continue to focus on lean manufacturing initiatives, quality and on-time delivery improvements to increase asset utilization, reduce lead times and provide competitive pricing.
Current wording
Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support. Quality, on-time delivery, and reliability are of utmost importance. Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early engagement design, and development strategy. We continue to focus on lean manufacturing initiatives, quality and on-time delivery improvements to increase asset utilization, reduce lead times and provide competitive pricing.
Previous wording
*Net Sales.*Net sales for the three months ended March 31, 2026 and 2025 were $30,316 and $26,895, respectively, a comparative period increase of $3,421 or 12.7%. Net sales in the three months ended March 31, 2026 were positively impacted in Aerospace and Defense from the receipt of customer approvals for products transferred from our Blue Earth facility to our Bemidji facility during 2025 as well as manufacturing and plant utilization efficiencies gained related to our 2025 facility optimization. The following is a summary of net sales by our major industry markets:
Current wording
*Net Sales.*Net sales for the three months ended June 30, 2026 and 2025 were $33,540 and $30,675, respectively, a comparative period increase of $2,865 or 9.3%. Net sales for the six months ended June 30, 2026 and 2025 were $63,856 and $57,570, respectively, a comparative period increase of $6,286 or 10.9%. The following is a summary of net sales by our major industry markets:
Previous wording
*Backlog.*Our 90-day shipment backlog as of March 31, 2026 was $31,475, an increase of 15.3% from $27,288 at the beginning of the quarter, and a 17.7% increase from March 31, 2025. 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.
Current wording
*Backlog.*Our 90-day shipment backlog as of June 30, 2026 was $33,445, an increase of 6.3% from $31,475 at the beginning of the quarter, and a 25.8% increase from June 30, 2025. 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.
Previous wording
Our total order backlog as of March 31, 2026, was $90,802, representing a 17.4% increase from $77,343 at the beginning of the quarter and a 32.9% increase compared to the same period in the prior year; this year over year growth was primarily driven by an increase in Aerospace and Defense orders.
Current wording
Our total order backlog as of June 30, 2026, was $93,849, representing a 3.4% increase from $90,802 at the beginning of the quarter and a 19.8% increase compared to the same period in the prior year; this year over year growth was primarily driven by an increase in Aerospace and Defense orders.
Previous wording
The 90-day and total backlog as of March 31, 2026 includes orders already recognized in net sales and included in the contract asset value of $16,010.
Current wording
The 90-day and total backlog as of June 30, 2026 includes orders already recognized in net sales and included in the contract asset value of $16,979.
Previous wording
Selling expenses. Selling expenses, as measured as a percentage of net sales*,*were 4.4% for both the three months ended March 31, 2026, and 2025.
Current wording
Selling expenses. Selling expenses, as measured as a percentage of net sales*,were 4.4% and 3.9% for the three months ended June 30, 2026, and 2025, respectively. Selling expenses, as measured as a percentage of net sales,*were 4.4% and 4.1% for the six months ended June 30, 2026, and 2025, respectively. The increase as a percentage of sales was primarily attributable to higher incentive compensation accruals in 2026.
Previous wording
General and administrative expenses. General and administrative expenses, as measured as a percentage of net sales, were 9.9% and 10.8% for the three months ended March 31, 2026 and 2025, respectively. This decrease as a percentage of net sales was primarily the result of higher sales on a fixed cost base.
Current wording
General and administrative expenses. General and administrative expenses, as measured as a percentage of net sales, were 9.7% and 8.4% for the three months ended June 30, 2026 and 2025, respectively, and 9.8% and 9.6% for the six months ended June 30, 2026 and 2025, respectively. The increase as a percentage of net sales was primarily the result of higher incentive compensation accruals in 2026.
Previous wording
Restructuring charges. Restructuring charges were $0 and $266 in the three months ended March 31, 2026 and 2025, respectively. During the first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility.
Current wording
Restructuring charges. Restructuring charges were $0 and $266 in the three and six months ended June 30, 2026 and 2025, respectively. During the first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility.
Previous wording
Income taxes. Our effective tax rate for the three months ended March 31, 2026 and 2025 was 84% and 28%, respectively. The primary drivers of the change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign entities.
Current wording
Income taxes. Our effective tax rate for the three and six months ended June 30, 2026 was 26% and (30)%, respectively. Our effective tax rate for the three and six months ended June 30, 2025 was 35% and 25%, respectively. The primary drivers of the change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign entities.
Previous wording
Operating Activities. Cash used in operating activities was $1,561 in the first three months of 2026, compared with $2,930 in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:
Current wording
Operating Activities. Cash used in operating activities was $2,449 in the first six months of 2026, compared with $2,773 in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:
Previous wording
Investing Activities. Cash used in investing activities was $228 in the first three months of 2026, compared with $268 in the same prior-year period, both due from the purchases of property and equipment.
Current wording
Investing Activities. Cash used in investing activities was $323 in the first six months of 2026, compared with $358 in the same prior-year period, both due from the purchases of property and equipment.
Previous wording
*Financing Activities.*Cash provided by financing activities was $2,336 in the first three months of 2026 and $3,446 in the same prior-year period. The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations as well as the term loan borrowing in the first three months of 2026.
Current wording
*Financing Activities.*Cash provided by financing activities was $2,774 in the first six months of 2026 and $2,858 in the same prior-year period. The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations as well as the term loan borrowing in the first six months of 2026.
Previous wording
On March 20, 2026, the Company entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory in the United States of America (“U.S.”), and a $2,200 term loan (the “Associated Facility”). The Associated Facility includes a sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the U.S. The Associated Facility matures in March 2029. The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the revolving credit facility. The term loan requires monthly principal payments of $37 plus interest. Borrowings under the Associated Facility bear interest, at the Company’s option, at a defined base rate derived from the Bank’s prime rate, or at one-month or three-month Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of revolving credit borrowings, and plus 2.25% in the case of the term loan. At March 31, 2026, the revolving credit facility and term loan accrued interest at 8.52% and 8.00%, respectively. At March 31, 2026, there was $7,196 outstanding under the revolving credit facility and $3,500 of unused availability. Borrowings under the Associated Facility may be prepaid at any time without penalty. The Associated Facility does not contain prepayment premiums, make-whole provisions, or other features that would require separate accounting as embedded derivatives.
Current wording
On March 20, 2026, the Company entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory in the United States of America (“U.S.”), and a $2,200 term loan (the “Associated Facility”). The Associated Facility includes a sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the U.S. The Associated Facility matures in March 2029. The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the revolving credit facility. The term loan requires monthly principal payments of $37 plus interest. Borrowings under the Associated Facility bear interest, at the Company’s option, at a defined base rate derived from the Bank’s prime rate, or at one-month or three-month Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of revolving credit borrowings, and plus 2.25% in the case of the term loan. The revolving credit facility and term loan bear interest at a weighted-average interest rate of 7.9% and 7.7%, respectively, for the three months ended June 30, 2026. At June 30, 2026, there was $7,573 outstanding under the revolving credit facility and $3,552 of unused availability. Borrowings under the Associated Facility may be prepaid at any time without penalty. The Associated Facility does not contain prepayment premiums, make-whole provisions, or other features that would require separate accounting as embedded derivatives.
Previous wording
The Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent. This agreement also requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of EBITDA, as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and capital lease principal payments. The Company was in compliance with all covenants under the Associated Facility as of March 31, 2026.
Current wording
The Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent. This agreement also requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of EBITDA, as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and finance lease principal payments. The Company was in compliance with all covenants under the Associated Facility as of June 30, 2026.