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 September 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 November 6, 2025 was 2,786,134.

TABLE OF CONTENTS

	PAGE

PART I – FINANCIAL INFORMATION

Item 1 - Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income	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	8-18
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3 - Quantitative and Qualitative Disclosures About Market Risk	25
Item 4 - Controls and Procedures	25

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings	26
Item 1A. - Risk Factors	26
Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds	27
Item 3 - Defaults on Senior Securities	27
Item 4 - Mine Safety Disclosures	27
Item 5 - Other Information	27
Item 6 - Exhibits	27
SIGNATURES	28

PART I

ITEM 1. FINANCIAL STATEMENTS

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	2025			2024			2025			2024
	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2025			2024			2025			2024

Net sales	$	30,482		$	31,407		$	88,052		$	99,513
Cost of goods sold		25,457			27,572			75,112			85,613
Gross profit		5,025			3,835			12,940			13,900
Operating expenses:
Selling		1,221			891			3,609			2,605
General and administrative		2,593			2,951			8,097			9,103
Research and development		266			284			894			893
Restructuring charges		-			176			266			267
Total operating expenses		4,080			4,302			12,866			12,868
Income (loss) from operations		945			(467	)		74			1,032
Other expense:
Interest expense		(273	)		(216	)		(744	)		(548	)
Income (loss) before income taxes		672			(683	)		(670	)		484
Income tax expense		818			56			479			301
Net (loss) income	$	(146	)	$	(739	)	$	(1,149	)	$	183

Net (loss) income per common share:
Basic (in dollars per share)	$	(0.05	)	$	(0.27	)	$	(0.41	)	$	0.07
Weighted average number of common shares outstanding - basic (in shares)		2,785,541			2,760,438			2,773,401			2,754,399
Diluted (in dollars per share)	$	(0.05	)	$	(0.27	)	$	(0.41	)	$	0.06
Weighted average number of common shares outstanding - diluted (in shares)		2,785,541			2,760,438			2,773,401			2,931,343

Other comprehensive (loss) income
Foreign currency translation		(21	)		223			109			(135	)
Comprehensive (loss) income, net of tax	$	(167	)	$	(516	)	$	(1,040	)	$	48

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

	SEPTEMBER 30, 2025			DECEMBER 31, 2024
ASSETS
Current assets:
Cash	$	1,271		$	916
Accounts receivable, less allowances of $186 and $196, respectively		18,810			14,875
Inventories, net		18,425			21,638
Contract assets		15,328			13,792
Prepaid assets and other assets		5,372			4,094
Total current assets		59,206			55,315
Property and equipment, net		5,322			6,232
Operating lease assets, net		7,306			8,139
Deferred tax assets		2,763			2,575
Other intangible assets, net		160			174
Total assets	$	74,757		$	72,435

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	12,030		$	-
Accounts payable		11,678			11,582
Accrued payroll and commissions		2,402			1,841
Customer deposits		4,716			5,140
Current portion of operating lease obligations		1,319			1,175
Current portion of finance lease obligations		239			143
Notes payable		-			344
Other accrued liabilities		1,221			1,203
Total current liabilities		33,605			21,428
Long-term liabilities:
Long-term line of credit		-			8,634
Long-term operating lease obligations, net of current portion		6,795			7,773
Long-term finance lease obligations, net of current portion		713			311
Other long-term liabilities		287			284
Total long-term liabilities		7,795			17,002
Total liabilities		41,400			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; 2,786,134 and 2,760,793 shares issued and outstanding, respectively		28			28
Additional paid-in capital		17,721			17,329
Accumulated other comprehensive loss		(868	)		(977	)
Retained earnings		16,226			17,375
Total shareholders’ equity		33,357			34,005
Total liabilities and shareholders’ equity	$	74,757		$	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
	NINE MONTHS ENDED
	SEPTEMBER 30,
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income	$	(1,149	)	$	183
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		986			1,400
Compensation on stock-based awards		369			334
Deferred income taxes		(189	)		-
Change in accounts receivable allowance		(10	)		(72	)
Change in inventory reserves		346			194
Other, net		-			9
Changes in current operating assets and liabilities:
Accounts receivable		(3,875	)		2,727
Inventories		2,823			(922	)
Contract assets		(1,536	)		(577	)
Prepaid expenses and other assets		(1,244	)		(2,888	)
Accounts payable		165			(3,609	)
Accrued payroll and commissions		555			(1,198	)
Customer deposits		(424	)		1,195
Other accrued liabilities		318			181
Net cash used in operating activities		(2,865	)		(3,043	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		504			9
Purchases of equipment		(517	)		(980	)
Net cash used in investing activities		(13	)		(971	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit		76,215			99,888
Payments to line of credit		(72,880	)		(96,185	)
Proceeds from financing leases		-			198
Principal payments on financing leases		(140	)		(304	)
Share repurchases		-			(67	)
Stock option exercises		23			31
Net cash provided by financing activities		3,218			3,561

Effect of exchange rate changes on cash		15			17

Net change in cash		355			(436	)
Cash - beginning of period		916			1,675
Cash - end of period	$	1,271		$	1,239

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	NINE MONTHS ENDED
	SEPTEMBER 30,
	2025		2024

Supplemental disclosure of cash flow information:
Cash paid for interest	$	740	$	531
Cash paid for income taxes	$	580	$	374

Supplemental noncash investing and financing activities:
Property and equipment purchases in accounts payable	$	66	$	107
Conversion of notes payable to finance leases	$	637	$	-
Operating lease assets acquired under operating leases	$	-	$	1,923
Equipment acquired under finance leases	$	-	$	256

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 June 30, 2024		250	$	250		2,762		$	28	$	17,165		$	(890	)	$	19,592		$	36,145
Net loss		-		-		-			-		-			-			(739	)		(739	)
Foreign currency translation adjustment		-		-		-			-		-			223			-			223
Compensation on stock-based awards		-		-		-			-		128			-			-			128
Stock repurchases		-		-		(6	)		-		(67	)		-			-			(67	)
Balance as of September 30, 2024		250	$	250		2,756		$	28	$	17,226		$	(667	)	$	18,853		$	35,690

Balance as of June 30, 2025		250	$	250		2,780		$	28	$	17,585		$	(847	)	$	16,372		$	33,388
Net loss		-		-		-			-		-			-			(146	)		(146	)
Foreign currency translation adjustment		-		-		-			-		-			(21	)		-			(21	)
Stock option exercises		-		-		6			-		2			-			-			2
Compensation on stock-based awards		-		-		-			-		134			-			-			134
Balance as of September 30, 2025		250	$	250		2,786		$	28	$	17,721		$	(868	)	$	16,226		$	33,357

Balance as of December 31, 2023		250	$	250		2,740		$	27	$	16,929		$	(532	)	$	18,670		$	35,344
Net income		-		-		-			-		-			-			183			183
Foreign currency translation adjustment		-		-		-			-		-			(135	)		-			(135	)
Compensation on stock-based awards		-		-		-			-		334			-			-			334
Stock option exercises		-		-		22			1		30			-			-			31
Stock repurchases		-		-		(6	)		-		(67	)		-			-			(67	)
Balance as of September 30, 2024		250	$	250		2,756		$	28	$	17,226		$	(667	)	$	18,853		$	35,690

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		-		-		-			-		-			-			(1,149	)		(1,149	)
Net income (loss)		-		-		-			-		-			-			(1,149	)		(1,149	)
Foreign currency translation adjustment		-		-		-			-		-			109			-			109
Stock option exercises		-		-		25			-		23			-			-			23
Compensation on stock-based awards		-		-		-			-		369			-			-			369
Balance as of September 30, 2025		250	$	250		2,786		$	28	$	17,721		$	(868	)	$	16,226		$	33,357
Balance		250	$	250		2,786		$	28	$	17,721		$	(868	)	$	16,226		$	33,357

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 December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 (“ASU No. 2024-03”), 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 FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU No. 2025-05”), which reduces the complexity of applying credit losses to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606 (revenue from contracts with customers). ASU 2025-05 is effective for annual and interim reporting periods beginning after December 15, 2025. The Company is currently evaluating the impact of this ASU on its consolidated financial statements disclosures.

Inventories

Inventories are as follows:

SCHEDULE OF INVENTORIES

	September 30,			December 31,
	2025			2024
Raw materials	$	17,818		$	21,122
Work in process		1,354			892
Finished goods		1,048			1,070
Reserves		(1,795	)		(1,446	)
Inventories, net	$	18,425		$	21,638

Other Intangible Assets

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

SCHEDULE OF OTHER INTANGIBLE ASSETS

	Patents
Balances as of December 31, 2024	$	174
Amortization		(14	)
Balances as of September 30, 2025	$	160

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 4.3 years. Of the patents value as of September 30, 2025, $76 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 September 30, 2025 and 2024 was $5 and $4, respectively. Amortization expense of finite life intangible assets for the nine months ended September 30, 2025 and 2024 was $14 and $84, respectively.

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

Year	Amount
Remainder of 2025	$	5
2026		18
2027		18
2028		18
2029		12
Thereafter		5
Total	$	76

Property and Equipment

The sale of the Blue Earth manufacturing facility and related land was completed in the three months ended September 30, 2025, for $500, which approximated book value and therefore, no gain or loss was recorded on the sale.

During the third 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 are 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 $1,271 cash balance as of September 30, 2025, included approximately $1,042 and $120 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 nine months ended September 30, 2025 and 2024 are as follows:

	2025	2024	2025	2024
	Three Months Ended September 30,		Nine Months Ended September 30,
	2025	2024	2025	2024
Customer A

SEC Form 10-Q filed by Nortech Systems Incorporated