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, 2026

☐

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 August 5, 2026 was 2,853,766.

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	23
Item 4 - Controls and Procedures	23

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings	24
Item 1A. - Risk Factors	24
Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds	24
Item 3 - Defaults on Senior Securities	24
Item 4 - Mine Safety Disclosures	24
Item 5 - Other Information	24
Item 6 - Exhibits	24
SIGNATURES	25

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)

	2026			2025			2026			2025
	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2026			2025			2026			2025

Net sales	$	33,540		$	30,675		$	63,856		$	57,570
Cost of goods sold		27,837			25,838			53,451			49,655
Gross profit		5,703			4,837			10,405			7,915
Operating expenses:
Selling		1,484			1,204			2,815			2,388
General and administrative		3,250			2,589			6,264			5,504
Research and development		346			302			656			628
Restructuring charges		-			-			-			266
Total operating expenses		5,080			4,095			9,735			8,786
Income (loss) from operations		623			742			670			(871	)
Other expense:
Interest expense, net		(197	)		(257	)		(453	)		(471	)
Income (loss) before income taxes		426			485			217			(1,342	)
Income tax expense (benefit)		110			172			(65	)		(339	)
Net income (loss)	$	316		$	313		$	282		$	(1,003	)

Net income (loss) per common share:
Basic (in dollars per share)	$	0.11		$	0.12		$	0.10		$	(0.36	)
Weighted average number of common shares outstanding - basic (in shares)		2,805,183			2,773,598			2,795,659			2,767,263
Diluted (in dollars per share)	$	0.11		$	0.12		$	0.09		$	(0.36	)
Weighted average number of common shares outstanding - diluted (in shares)		2,999,002			2,954,765			3,007,439			2,767,263

Other comprehensive income (loss)
Foreign currency translation	$	21		$	124		$	90		$	130
Comprehensive income (loss), net of tax	$	337		$	437		$	372		$	(873	)

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2026 AND DECEMBER 31, 2025

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

	JUNE 30, 2026			DECEMBER 31, 2025
ASSETS
Current assets:
Cash	$	1,380		$	1,655
Restricted cash		294			-
Accounts receivable, less allowance for credit losses of $154 and $161, respectively		19,850			16,998
Inventories, net		24,512			20,695
Contract assets		16,979			15,184
Prepaid assets and other assets		1,279			1,618
Total current assets		64,294			56,150
Property and equipment, net		4,977			5,203
Operating lease assets, net		6,420			7,016
Deferred tax assets		3,963			3,394
Other intangible assets, net		147			156
Deferred line of credit issuance costs, net		244			-
Total assets	$	80,045		$	71,919

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	7,868		$	7,000
Current portion of term loan, net of debt issuance costs		432			-
Accounts payable		14,949			12,809
Accrued payroll and commissions		2,808			1,822
Customer deposits		6,848			5,386
Current portion of operating leases		1,246			1,332
Current portion of finance lease obligations		243			274
Other accrued liabilities		1,644			1,221
Total current liabilities		36,038			29,844
Long-term liabilities:
Term loan, net of debt issuance costs		1,636			-
Long-term operating lease obligations		5,929			6,476
Long-term finance lease obligations		534			626
Other long-term liabilities		434			426
Total long-term liabilities		8,533			7,528
Total liabilities		44,571			37,372
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; 2,853,766 and 2,786,134 shares issued and outstanding, respectively		29			28
Additional paid-in capital		18,409			17,855
Accumulated other comprehensive loss		(619	)		(709	)
Retained earnings		17,405			17,123
Total shareholders’ equity		35,474			34,547
Total liabilities and shareholders’ equity	$	80,045		$	71,919

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	2026			2025
	SIX MONTHS ENDED
	JUNE 30,
	2026			2025
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	282		$	(1,003	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		618			678
Compensation on stock-based awards		320			235
Change in allowance for credit losses		(7	)		10
Change in inventory reserves		(311	)		351
Deferred taxes		(569	)		(700	)
Changes in current operating items:
Accounts receivable		(2,705	)		(2,842	)
Inventories		(3,530	)		2,714
Contract assets		(1,795	)		(1,192	)
Prepaid expenses and other assets		338			(1,647	)
Accounts payable		2,077			295
Accrued payroll and commissions		978			(94	)
Customer deposits		1,463			36
Other accrued liabilities		392			386
Net cash used in operating activities		(2,449	)		(2,773	)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment		-			9
Purchases of property and equipment		(323	)		(367	)
Net cash used in investing activities		(323	)		(358	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit		35,061			51,405
Payments to line of credit		(34,198	)		(48,485	)
Proceeds from term loan		2,200			-
Payments of debt issuance costs		(290	)		-
Principal payments on term loan		(110	)		-
Principal payments on financing leases		(124	)		(85	)
Stock award exercises		235			23
Net cash provided by financing activities		2,774			2,858

Effect of exchange rate changes on cash and restricted cash		17			9

Net change in cash and restricted cash		19			(264	)
Cash and restricted cash - beginning of period		1,655			916
Cash and restricted cash - end of period	$	1,674		$	652

Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets:
Cash	$	1,380		$	652
Restricted cash		294			-
Total cash and restricted cash reported in the condensed consolidated statements of cash flows	$	1,674		$	652

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

	SIX MONTHS ENDED
	JUNE 30,
	2026			2025

Supplemental disclosure of cash flow information:
Cash paid for interest	$	279		$	470
Cash (received) paid for income taxes	$	(135	)	$	389

Supplemental noncash investing and financing activities:
Property and equipment purchases in accounts payable	$	17		$	27
Conversion of notes payable to finance leases	$	-		$	637

See Accompanying Notes to Condensed Consolidated Financial Statements.

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 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 March 31, 2026		250	$	250		2,786	$	28	$	17,981	$	(640	)	$	17,089		$	34,708
Net income		-		-		-		-		-		-			316			316
Foreign currency translation adjustment		-		-		-		-		-		21			-			21
Stock award exercises		-		-		68		1		234		-			-			235
Compensation on stock-based awards		-		-		-		-		194		-			-			194
Balance as of June 30, 2026		250	$	250		2,854	$	29	$	18,409	$	(619	)	$	17,405		$	35,474

Balance as of December 31, 2024		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 as of December 31, 2025		250	$	250		2,786	$	28	$	17,855	$	(709	)	$	17,123		$	34,547
Balance		250	$	250		2,786	$	28	$	17,855	$	(709	)	$	17,123		$	34,547
Net income		-		-		-		-		-		-			282			282
Net income (loss)		-		-		-		-		-		-			282			282
Foreign currency translation adjustment		-		-		-		-		-		90			-			90
Stock award exercises		-		-		68		1		234		-			-			235
Compensation on stock-based awards		-		-		-		-		320		-			-			320
Balance as of June 30, 2026		250	$	250		2,854	$	29	$	18,409	$	(619	)	$	17,405		$	35,474
Balance		250	$	250		2,854	$	29	$	18,409	$	(619	)	$	17,405		$	35,474

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, 2025, 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 lower of cost or net realizable value reserves for inventories, allowance for credit losses, realizability of deferred tax assets and long-lived asset recovery. Actual results could differ from those estimates.

Tariff Legislation

In February 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs, resulting in the termination of all IEEPA-based tariffs effective February 24, 2026. Following this ruling, the Administration imposed a temporary 10% global tariff on most imported products under Section 122 of the Trade Expansion Act of 1962, effective February 24, 2026, for a 150-day period.

The tariffs apply broadly to manufactured goods and component parts purchased by the Company. Management is evaluating the impact of these tariff actions on future product costs and sourcing strategies. The Company is also pursuing reimbursement and recovery of previously paid IEEPA-related tariffs from the federal government and certain vendors. As of June 30, 2026, no amounts have been recognized related to potential recoveries. The Company is evaluating and pursuing potential refund claims; however, the timing and amount of any recoveries remain uncertain.

In July 2026, following the expiration of the Section 122 tariffs, the U.S. Trade Representative implemented new tariffs under Section 301 of the Trade Act of 1974 on imports from certain countries, with rates generally ranging from 10% to 12.5%. Management is continuing to evaluate the potential impact of these tariffs on the Company’s future product costs, supply chain, and sourcing strategies.

Recently Issued New Accounting Standards

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 statement disclosures.

Adoption of New Accounting Standard

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 has adopted this ASU and it did not have a material impact on the consolidated financial statements.

Restricted Cash

Restricted cash on our consolidated balance sheets relates to contractual cash dominion provisions under the Company’s financing arrangements, which at June 30, 2026 were governed by the new Associated Bank facility. As of June 30, 2026 and December 31, 2025, we had restricted cash of $294 and $0, respectively.

The restricted cash balance at June 30, 2026 primarily represents customer deposits that are temporarily restricted due to timing at period end and are subject to the cash dominion provisions of the financing arrangement. These customer deposits are applied against the Company’s line of credit on the next business day.

Inventories

Inventories are as follows:

SCHEDULE OF INVENTORIES

	June 30,			December 31,
	2026			2025
Raw materials	$	23,863		$	20,575
Work in process		1,250			1,003
Finished goods		941			970
Reserves		(1,542	)		(1,853	)
Inventories, net	$	24,512		$	20,695

Other Intangible Assets

Other intangible assets as of June 30, 2026 and December 31, 2025 are as follows:

SCHEDULE OF OTHER INTANGIBLE ASSETS

	Patents
Balances as of December 31, 2025	$	156
Amortization		(9	)
Balances as of June 30, 2026	$	147

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 3.6 years. Of the patents’ value as of June 30, 2026, $62 are being amortized and $85 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for both the three months ended June 30, 2026 and 2025 was $4. Amortization expense of finite life intangible assets for both the six months ended June 30, 2026 and 2025 was $9.

As of June 30, 2026, estimated future annual amortization expense related to these assets is as follows:

Year	Amount
Remainder of 2026	$	9
2027		18
2028		18
2029		12
2030		4
Thereafter		1
Total	$	62

Property and Equipment

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. At June 30, 2026, the Company determined that no triggering events existed that would require an impairment assessment.

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 $1,380 cash balance as of June 30, 2026, included approximately $1,047 and $146 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, 2026 and 2025 are as follows:

	2026			2025			2026			2025
	Three Months Ended June 30,						Six Months Ended June 30,
	2026			2025			2026			2025
Customer A		30	%		31	%		31	%		31	%
Customer B		11	%		10	%		12	%		10	%
Total		41	%		41	%		43	%		41	%

Customers who represent 10% or more of accounts receivable and contract assets for the periods ended June 30, 2026 and December 31, 2025 are as follows:


	Accounts Receivable
	June 30, 2026		December 31, 2025
Customer A	26	%	20	%

	June 30, 2026			December 31, 2025
	Contract Assets
	June 30, 2026			December 31, 2025
Customer A		37	%		36	%
Customer C		11	%		13	%
Total		48	%		49	%

Export sales from the U.S. represented approximately 3% of net sales for both the three and six months ended June 30, 2026. Export sales from the U.S. represented approximately 2% of net sales for both the three and six months ended June 30, 2025.

NOTE 3. NET SALES

Revenue Recognition

Revenue under contract manufacturing agreements that was recognized over time, excluding noncash consideration, accounted for 68% and 71% of net sales for the three and six months ended June 30, 2026, respectively, and 75% of net sales for both the three and six months ended June 30, 2025. The following tables summarize our net sales by market for the three and six months ended June 30, 2026 and 2025, respectively:

SCHEDULE OF NET SALES BY MARKET


	Three Months Ended June 30, 2026
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
Medical Device	$	7,252	$	1,882	$	1,135	$	10,269
Medical Imaging		8,478		2,358		5		10,841
Industrial		3,846		4,198		76		8,120
Aerospace and Defense		3,390		916		4		4,310
Total net sales	$	22,966	$	9,354	$	1,220	$	33,540

					¹
	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

					¹
	Six Months Ended June 30, 2026
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration¹		Total Net Sales by Market
Medical Device	$	13,931	$	3,372	$	1,877	$	19,180
Medical Imaging		16,484		4,225		8		20,717
Industrial		7,535		7,216		251		15,002
Aerospace and Defense		7,644		1,272		41		8,957
Total net sales	$	45,594	$	16,085	$	2,177	$	63,856

					¹
	Six 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	$	10,821	$	3,734	$	1,065	$	15,620
Medical Imaging		14,198		4,042		12		18,252
Industrial		11,296		3,931		234		15,461
Aerospace and Defense		6,757		1,364		116		8,237
Total net sales	$	43,072	$	13,071	$	1,427	$	57,570

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

Contract Assets

Contract assets, recorded in the condensed consolidated balance sheets, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the six months ended June 30, 2026 were as follows:

SCHEDULE OF CONTRACT ASSETS

Balance as of December 31, 2025	$	15,184
Increase (decrease) attributed to:
Amounts transferred over time to contract assets		45,594
Allowance for current expected credit losses		-
Amounts invoiced during the period		(43,799	)
Balance outstanding as of June 30, 2026	$	16,979

We expect substantially all amounts recorded as contract assets as of June 30, 2026 to be billed and reclassified to accounts receivable within 90 days, with any remaining amounts expected to be billed and reclassified within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

Contract Liabilities

Contract liabilities, recorded as customer deposits, were $6,848 and $5,386 at June 30, 2026 and December 31, 2025, respectively. Contract liabilities primarily relate to customer prepayments, generally to purchase customer-specific inventory, and billings in advance of the Company satisfying its performance obligations. Revenue recognized during the three and six months ended June 30, 2026 that was included in the contract liability balance at January 1, 2026 was $905 and $1,470, respectively. Changes between periods represent the timing of customer deposits and the satisfaction of performance obligations.