NORTECH SYSTEMS INC 10-K/A

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of March 12, 2026, there were 563 shareholders of record. Our stock is listed on the NASDAQ Capital Market under the symbol “NSYS”. We intend to invest our profits into the growth of our operations and, therefore, do not plan to pay out dividends to shareholders in the foreseeable future. We did not declare or pay a cash dividend in 2025 or 2024. Future dividend policy and payments, if any, will depend upon earnings, our financial condition, our need for funds, limitations on payments of dividends present in our current or future debt agreements and other factors. Stock price comparisons (NASDAQ): During the Three Months Ended Low High March 31, 2025 $ 8.50 $ 11.97 June 30, 2025 $ 7.25 $ 12.40 September 30, 2025 $ 7.66 $ 9.97 December 31, 2025 $ 6.50 $ 10.04 March 31, 2024 $ 9.13 $ 14.35 June 30, 2024 $ 10.19 $ 19.15 September 30, 2024 $ 11.00 $ 15.55 December 31, 2024 $ 9.53 $ 13.90 Purchases of Equity Securities by the Issuer and Affiliated Purchasers In May 2024, our Board of Directors approved a share repurchase program authorizing up to $100 in share repurchases. This share repurchase program commenced in August 2024 and expired in October 2024 upon completion of the program. We purchased 8,185 shares of the Company’s common stock at an average price of $12.09 per share. Equity Compensation Plan Information Certain information with respect to our equity compensation plans are contained in Part III, Item 12 of this Annual Report on Form 10-K. Item 6. Selected Financial Data [Reserved] 20 Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical Device, Medical Imaging, Aerospace and 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. As of December 31, 2025, we have facilities in Minnesota: Bemidji, Mankato, Milaca and Maple Grove. We closed our facility in Blue Earth, Minnesota in December 2024 and sold this facility in July 2025. We also have facilities in Monterrey, Mexico and Suzhou, China. 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. Our strategic investments have positioned us to capitalize on growth opportunities in the medical markets and improve our competitiveness by expanding our global footprint. Our industrial and defense markets are focused on improving our asset utilization and profitability while transforming to a value added, solution-sell business model that supports early engagement, design for manufacturability and rapid prototyping. All dollar amounts are stated in thousands of U.S. dollars. 21 Operating Results Net Sales. Net sales for the year ended December 31, 2025 and 2024 were $118,365 and $128,133, respectively, a year over year decrease of $9,768 or 7.6%. The following is a summary of net sales by our major industry markets: Year Ended December 31, 2025 2024 Increase (Decrease) Medical Device $ 31,930 $ 34,636 $ (2,706 ) (7.8 )% Medical Imaging 39,999 37,492 2,507 6.7 % Industrial 30,940 35,517 (4,577 ) (12.9 )% Aerospace and Defense 15,496 20,488 (4,992 ) (24.4 )% Total net sales $ 118,365 $ 128,133 $ (9,768 ) (7.6 )% ● Medical Device: Net sales to our Medical Device customers decreased $2,706, or 7.8%, in the year ended December 31, 2025 as compared with the same period in 2024. The decrease was primarily due to inventory re-balancing with existing customers and timing of customer product launches as well as lower productivity as we managed our facility consolidation primarily in the first quarter of 2025. ● Medical Imaging: Net sales to our Medical Imaging customers increased $2,507, or 6.7%, in the year ended December 31, 2025 as compared with the same period in 2024. The increase was primarily due to higher sales volume to existing customers driven by new program awards. ● Industrial: Net sales to our Industrial customers decreased $4,577, or 12.9%, in the year ended December 31, 2025 as compared with the same period in 2024. The decrease in net sales was primarily due to customer order delays and part shortages. ● Aerospace and Defense: Net sales to our Aerospace and Defense customers decreased $4,992, or 24.4%, in the year ended December 31, 2025, as compared with the same period in 2024. The decrease in net sales relates to delays in customer approvals as we have consolidated this business into our Bemidji facility and higher pre shipment over time revenue in 2024 due from increased production in anticipation of the closure of the Blue Earth facility. Backlog. Our 90-day shipment backlog as of December 31, 2025 was $27,288, up 3.2% from December 31, 2024. 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 December 31, 2025 was $77,343, a 17.4% increase from December 31, 2024. This was driven by increases in customer demand as well as customer shipment timing. 90-day and total shipment backlog by our major industry markets are as follows: December 31, 2025 December 31, 2024 % Change 90 Day Total 90 Day Total 90 Day Total Medical Device $ 8,733 $ 27,094 $ 6,953 $ 21,706 25.6 % 24.8 % Medical Imaging 5,725 9,032 7,168 10,353 (20.1 )% (12.8 )% Industrial 4,697 11,404 5,173 7,306 (9.2 )% 56.1 % Aerospace and Defense 8,133 29,813 7,157 26,487 13.6 % 12.6 % Total backlog $ 27,288 $ 77,343 $ 26,451 $ 65,852 3.2 % 17.4 % The 90-day and total backlog as of December 31, 2025 includes orders already recognized in net sales and included in the contract asset value of $15,184. 22 Operating Costs and Expenses. Net sales, cost of goods sold, gross profit, and operating costs were as follows: Year Ended December 31, 2025 2024 Increase/(Decrease) Net sales $ 118,365 $ 128,133 $ (9,768 ) (7.6 )% Cost of goods sold 100,359 111,411 (11,052 ) (9.9 )% Gross profit 18,006 16,722 1,284 7.7 % Gross margin percentage (1) 15.2 % 13.1 % 210 bpc (2) Selling 4,803 3,446 1,357 39.4 % % of Net sales 4.1 % 2.7 % General and administrative 10,790 11,709 (919 ) (7.8 )% % of Net sales 9.1 % 9.1 % Research and development 1,172 1,191 (19 ) (1.6 )% % of Net sales 1.0 % 0.9 % Restructuring charges 266 571 (305 ) (53.4 )% % of Net sales 0.2 % 0.4 % Operating income (loss) 975 (195 ) 1,170 (600 )% % of Net sales 0.8 % (0.2 )% (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 percentage of net sales was 15.2% and 13.1% for the years ended December 31, 2025, and 2024, respectively. During the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers. As a result of these organizational changes, which were previously classified as cost of sales totaling $1,170 in 2024, are now reported as selling expenses to better reflect the nature of the activities performed. In addition, gross profit increased as a percentage of net sales in the comparison period as a result of improved plant utilization primarily from our restructuring activities and favorable sales mix. Selling expenses. Selling expenses, as measured as a percentage of net sales, were 4.1% and 2.7% for the year ended December 31, 2025 and 2024, respectively. In 2025, we realigned the reporting structure of our customer facing managers from plant operations to business development. As a result, the year-over-year percentage increase is a result of this realignment from cost of sales as well as the impact of fixed costs on a lower revenue base. General and administrative expenses. General and administrative expenses decreased $919 or 7.8% in the year ended December 31, 2025 as compared with 2024 as the result of lower incentive compensation accruals in the current year. Restructuring charges. Restructuring charges were $266 and $571 in the years ended December 31, 2025 and 2024, respectively. During 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. During 2024, we incurred employee retention bonuses for our facility consolidation and closure of our Blue Earth facility. Operating income (loss). Operating income was $975 for the year ended December 31, 2025, or 0.8% of net sales, and operating loss was $195, or 0.2% of net sales, for the year ended December 31, 2024. This increase was driven by the improved gross margin and lower incentive compensation expense. Interest expense. Interest expense was $964 and $744 for the years ended December 31, 2025 and 2024, respectively. This increase was driven by higher borrowings under our line of credit arrangement and an increased interest rate. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements. Income taxes. Our effective tax rates for the years ended December 31, 2025 and 2024 were (2,391)% and (37.9)%, respectively. The unusually large negative rate in 2025 is primarily driven by the very small amount of pretax book income for the year, which causes normal permanent differences and valuation allowance adjustments to produce a disproportionately large impact on the calculated effective tax rate. The primary drivers of the change in the effective tax rates relate to changes in pretax book income between the years. Net Loss. Our net loss in 2025 was $252 or $0.09 per diluted and basic common share. Our net loss in 2024 was $1,295 or $0.47 per diluted and basic common share. 23 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, capital expenditures and debt repayments for the next year from the date of this filing with the Securities and Exchange Commission. Effective as of February 29, 2024, we entered into a credit agreement with Bank of America (the “BOA Revolver”.) This BOA Revolver contained financial and operating covenants based on our earnings and related cash flows. Compliance with these covenants was dependent on our financial results, which are subject to fluctuation as described in the Risk Factors section of this annual report on Form 10-K. As of a result of our restructuring activities in 2024 and early 2025, including the costs incurred to move hundreds of customer production parts between plants, as well as addressing post covid customer pricing headwinds, and reductions in our customer orders, we did not generate sufficient earnings and cash flows to meet certain financial covenants and required multiple amendments and default waivers under the BOA Revolver. On March 20, 2026, we entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15.0 million, subject to a borrowing base based on eligible accounts receivable and inventory, and a $2.2 million term loan (the “Associated Facility”). The Associated Facility includes a sublimit of $1.5 million for letters of credit and is secured by substantially all of our assets in the United States of America, and the Associated Facility matures in March 2029. 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 earnings before interest, tax, depreciation and amortization (“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 Associated Facility agreement includes broad and customary events of default such as non-payment of obligations, breaches of representations or covenants, unauthorized liens, insolvency events, material adverse changes, cross-defaults to other significant indebtedness, and change-of-control triggers. Additional events include unsatisfied judgments, loss of lender lien priority, defaults under material business agreements, impairment of key intellectual property, destruction of collateral, and certain ERISA, hedging, or legal compliance violations. Upon an event of default, including the lender’s determination that a material adverse event has occurred, as defined by the agreement, the lender may accelerate all obligations, terminate the commitments, and exercise its full rights and remedies against the collateral. Our ability to comply with these covenants depends in part on our ability to generate sufficient EBITDA and operating cash flow. If our EBITDA or cash flows declines due to any factor including as described in these risk factors, we may not remain in compliance with our financial covenants under the Associated Facility. Cash flows for the years ended December 31, 2025 and 2024 are summarized as follows: 2025 2024 Cash flows provided by (used in): Operating activities $ 2,743 $ (2,250 ) Investing activities (157 ) (1,263 ) Financing activities (1,867 ) 2,765 Effect of exchange rate changes on cash 20 (11 ) Net change in cash $ 739 $ (759 ) Cash provided by operating activities for the year ended December 31, 2025 was $2,743, compared with cash used in operating activities of $2,250 for the year ended December 31, 2024. In 2025, operating cash flow was driven by significant non-cash add-backs as well as favorable working-capital movements, as increases in accounts receivable and contract assets were more than offset by a decrease in prepaid expenses and an increase in accounts payable due to timing of payments. In 2024, cash used in operating activities reflected the timing of accounts payable payments and the payment of accrued bonus expenses. 24 Net cash used in investing activities was $157 and $1,263 for the years ended December 31, 2025 and 2024, respectively. Cash used in investing activities in both years primarily relates to the purchase of property and equipment, partially offset in the year ended December 31, 2025 by proceeds from the sale of the Blue Earth property and equipment. Net cash used in financing activities in 2025 of $1,867 consisted primarily of net payments on the line of credit. The cash provided by financing activities in 2024 of $2,765 consisted primarily of net proceeds from the line of credit of $2,849 and proceeds from notes payable of $345. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements, the reported amounts of net sales and expenses during the reporting periods presented, as well as our disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions, including, but not limited to, valuation allowance for inventories, allowance for credit losses, realizability of deferred tax assets and long-lived asset impairment testing. We base our estimates and assumptions on our historical experience and on various other information available to us at the time that these estimates and assumptions are made. We believe that these estimates and assumptions are reasonable under the circumstances and form the basis for our making judgments about the carrying values of our assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from our estimates primarily due to incorrect sales forecasting. We utilize a pipeline generated by our sales team and speak directly with all departments regarding estimates and assumptions. If, for any reason, those estimates, and assumptions vary substantially it would also impact our financial results. Our accounting policies are described in “Note 1 – Summary of Significant Accounting Policies,” in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K. We believe that the following discussion addresses our critical accounting policies and reflects those areas that require more significant judgments and use of estimates and assumptions in the preparation of our consolidated financial statements. Revenue Recognition Our net sales are comprised of product, engineering services and repair services. All net sales are recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our net sales being recognized over time including goods produced under contract manufacturing agreements and services net sales, when we have an enforceable right to payment for performance completed to date.. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. Most of our contracts have a single performance obligation and require that we provide services and products that are unique to each customer’s designed products and have no alternative usage. As of December 31, 2025, the Company has recorded a contract asset of $15,184 for unbilled customer net sales included in net sales. Net sales are recorded net of returns, allowances and customer discounts. Long-Lived Assets Impairment We evaluate long-lived assets, primarily property and equipment, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. As of December 31, 2025, the Company’s common stock was trading at a value less than the Company’s net equity value. As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of December 31, 2025. 25 Inventory Valuation Inventory is recorded at the lower of cost or net realizable value for inventory that may have a lower net realizable value than cost or quantities in excess of future production needs. Certain raw material inventories are purchased solely to meet a customer’s unique manufacturing requirements. We seek to require our customers to prepay for end of life or certain inventory in excess of current customer order quantities. We have an evaluation process to assess the value of the inventory that is slow moving, excess or obsolete on a quarterly basis. This process includes an evaluation of our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers. We periodically review the underlying inventory reserve assumptions based on recent trends. As of December 31, 2025, we had an inventory reserve of $1,853. Income Taxes Significant judgment is required in evaluating our tax positions and in determining income tax expense, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. We evaluate the recoverability of deferred tax assets based on available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. We establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of the deferred tax assets will not be realized. In making this determination, we evaluate all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases) to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. During 2025 and 2024, we concluded that it was more likely than not we would realize our recorded net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income or tax liability in either the carryback or carry-forward periods under the tax law. We establish reserves for uncertain tax positions when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail. If we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. We measure the benefit by determining the amount that is greater than 50% likely of being realized upon settlement. We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We regularly monitor our tax positions and tax liabilities. We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) a change in applicable tax law including a tax case or legislative guidance, or (iv) the expiration of the applicable statute of limitations. Significant judgment is required in accounting for tax reserves. Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our results of operations. Our reserve for uncertain tax positions aggregated $110 as of December 31, 2025. 26 New Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K. Forward-Looking Statements This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may also make forward-looking statements in other reports filed with the SEC, in materials delivered to stockholders and in press releases. Such statements generally will be accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “possible,” “potential,” “predict,” “project,” or other similar words that convey the uncertainty of future events or outcomes. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties. Discussion of these factors is 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-K 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 27 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES TABLE OF CONTENTS FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024