Form 10-Q NORTECH SYSTEMS INC For: Mar 31

 

 

 

 

PART

ITEM 1. FINANCIAL STATEMENTS

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

 

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

 

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

⁽¹⁾ The balance sheet at December 31, 2020 has been derived from the audited financial statements at that date

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(IN THOUSANDS)

 

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

 

CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

We are a Maple Grove, Minnesota based leading provider of design and manufacturing solutions for complex electromechanical systems, assemblies and components. We primarily serve the medical device aerospace and defense, and industrial markets. Our design services span concept development to commercial design, and include software, electrical, mechanical, and biomedical engineering. Our manufacturing and supply chain capabilities are vertically integrated around electromedical systems, wire, cable and interconnect assemblies, printed circuit board assemblies, as well as system-level assembly, integration and final test. We maintain facilities in Bemidji, Blue Earth, Mankato, Merrifield, and Milaca, Minnesota; Monterrey, Mexico; and Suzhou, China. All of our facilities are certified to one or more of the ISO/AS standards, including 9001, AS9100 and 13485, with most having additional certifications based on the needs of the customers they serve.

 

Recent Developments

 

Global Pandemic

In March 2020, the World Health Organization recognized the outbreak of a novel coronavirus (“COVID-19”) as a pandemic. While the COVID-19 pandemic has had an impact on our operations, we have been able to continue to operate our manufacturing facilities and provide essential services to our customers. Additionally, in an effort to protect the health and safety of our employees and in compliance with state regulations, we have instituted a work-from-home policy for employees who can perform their job functions offsite, implemented social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within our manufacturing facilities, and suspended all non-essential employee travel.

 

The full extent to which COVID-19 will directly or indirectly impact our business, financial condition, and results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. The ultimate impact of COVID-19 depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, we are unable to estimate the extent to which COVID-19 will negatively impact our financial results or liquidity.

 

We will continue to assess the current and potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations. We actively manage our cash and working capital to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.

 

Facility Consolidation 

To further improve operational efficiencies and lower overhead costs, the Company approved on August 7, 2020, the closure of our Merrifield, Minnesota, production facility, shifting wire and cable assembly, system-level assembly and printed circuit board (PCB) manufacturing to Nortech’s other Minnesota locations. The Merrifield production facility consolidation was completed in the first quarter of 2021 and impacted approximately 42 employees, who were offered positions at other Nortech facilities in Minnesota. We entered into an agreement on February 23, 2021 with a third-party agent to sell our facility in Merrifield, MN and some related assets. We expect the sale to close in the second quarter of 2021 near the carrying value of the assets, however a sale transaction and the expected sale value is not guaranteed. As of March 31, 2021, this closure did qualify for held for sale accounting.

 

 

Results of Operations

 

The following table presents statements of operations data as percentages of total net sales for the periods indicated:

 

		Three Months Ended
		March 31,
		2021				2020
Net Sales			100.0	%			100.0	%
Cost of Goods Sold			92.9				89.0
Gross Profit			7.1				11.0
Selling Expenses			3.3				2.3
General and Administrative Expenses			12.7				7.3
Restructuring Charges			1.0				0.0
(Loss) Income from Operations			(9.9	)			1.4
Interest Expense			(0.3	)			(0.8	)
(Loss) Income Before Income Taxes			(10.2	)			0.6
Income Tax (Benefit) Expense			(3.2	)			0.1
Net (Loss) Income			(7.0	)%			0.5	%

 

Net Sales

 

Net sales were $22.1 million in the first quarter of 2021, as compared to $27.4 million in the first quarter of the prior year, a decrease of $5.3 million or 19.6% that was driven primarily by the COVID-19 pandemic and the related supply chain shortages. Net sales results were varied by markets, the medical market decreased by $3.1 million or 20.2%. The industrial market sector decreased by $1.1 million or 14.9% in the first quarter of 2021 as compared to the same quarter of 2020. Net sales from the aerospace and defense markets decreased by $1.1 million or 24.8% in the first quarter of 2021 as compared to the first quarter of 2020.

 

 

Net sales by our major industry markets for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

 

		Three months Ended March 31,
		2021				2020				%
		$				$				Change
Medical			12,342				15,461				(20.2	)
Industrial			6,218				7,309				(14.9	)
Aerospace and Defense			3,512				4,670				(24.8	)
Total Net Sales			22,072				27,440				(19.6	)

 

 

Net sales by timing of transfer of goods and services for the three ended March 31, 2021 is as follows (in thousands):

 

		Three Months Ended March 31, 2021
		Product/ Service Transferred Over Time				Product Transferred at Point in Time				Noncash Consideration				Total Net Sales by Market
Medical		$	8,959			$	2,893			$	490			$	12,342
Industrial			4,630				1,336				252				6,218
Aerospace and Defense			3,064				262				186				3,512
Total net sales		$	16,653			$	4,491			$	928			$	22,072

 

 

Net sales by timing of transfer of goods and services for the three ended March 31, 2020 is as follows (in thousands):

 

		Three Months Ended March 31, 2020
		Product/ Service Transferred Over Time				Product Transferred at Point in Time				Noncash Consideration				Total Net Sales by Market
Medical		$	13,703			$	1,061			$	697			$	15,461
Industrial			6,016				970				323				7,309
Aerospace and Defense			4,317				134				219				4,670
Total net sales		$	24,036			$	2,165			$	1,239			$	27,440

 

 

Backlog

 

Our 90-day shipment backlog as of March 31, 2021 was $31.1 million, a 28.3% increase from the beginning of the quarter and a 13.0% increase from March 31, 2020. Backlog for our medical customers has increased 27.4% from the beginning of the quarter and 10.7% from the prior year. Our industrial customers’ backlog increased 61.6% from the beginning of the quarter and 59.4% from the prior year. The aerospace and defense backlog decreased 7.6% from the beginning of the quarter and 25.3% from the prior year. Our backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be transferred within 180 days.

 

90-day shipment backlog by our major industry markets are as follows (in thousands):

 

		Shipment Backlog as of the Period Ended
		March 31,				December 31,				March 31,
		2021				2020				2020
Medical		$	15,870			$	12,454			$	14,330
Industrial			10,123				6,263				6,352
Aerospace and Defense			5,087				5,508				6,812
Total 90-Day Backlog		$	31,080			$	24,225			$	27,494

 

Our 90-day backlog varies due to order size, manufacturing delays, contract terms and conditions and timing from customer delivery schedules and releases. These variables cause inconsistencies in comparing the backlog from one period to the next. Our total shipment backlog was $62.8 million and $53.0 million for periods ended March 31, 2021 and March 31, 2020, respectively.

 

Gross Profit

 

Gross profit as a percent of net sales 7.1% and 11.0% for the three months ended March 31, 2021 and 2020, respectively. The decline in gross profit as a percent of sales was driven by lower sales on a fixed cost base in part due to the impact of COVID-19.

 

Selling Expense

 

Selling expenses for the three months ended March 31, 2021 and 2020 was $0.7 million or 3.3% of sales and $0.6 million or 2.3% of sales, respectively.

 

General and Administrative Expense

 

General and administrative expenses for the three months ended March 31, 2021 and 2020, were $2.8 million or 12.7% of sales and $2.0 million or 7.3% of sales, respectively. This increase is due primarily to higher bad debt expense of $0.4 million and increased training expenses of $0.2 million.

 

Restructuring Charges

 

Restructuring charges for the three months ended March 31, 2021 was $0.2 million or 1.0% of sales. There were no restructuring charges for the three months ended March 31, 2020. The restructuring charges are due to the closure of the Merrifield facility.

 

 

Income (Loss) before Income Taxes

 

First quarter 2021 loss from operations was $2.3 million compared to income of $0.2 million for the first quarter in 2020.

 

Income Taxes

 

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the three months ended March 31, 2021 and 2020 was 31% and 18%, respectively.

 

Net Income (Loss)

 

Net loss for the three months ended March 31, 2021 was $1.6 million or $0.58 per basic and diluted common share. Net income for the three months ended March 31, 2020 of $0.1 million or $0.05 per basic and diluted common share.

 

Liquidity and Capital Resources

 

Our 2020 and 2021 sales and shipment backlog were impacted by the ongoing COVID-19 pandemic and the related supply chain shortages. Due to the inherent uncertainty of this evolving situation, we are unable at this time to predict the likely impact of the COVID-19 pandemic on our future operations which has led to indicators of an inability to continue as a going concern. However, these indicators have been mitigated by our focus on reducing costs, minimizing capital expenditures, and managing working capital. In addition, we believe that cash provided by operations, funds available under the credit agreement with Bank of America, N.A. (BofA), funds received from our sales leaseback transaction and cash on hand will be adequate to meet our liquidity needs, including working capital, capital expenditures, and debt payment obligations.

 

Net cash used by operating activities for the three months ended March 31, 2021 was $0.9 million. The net loss in the three months ended March 31, 2021 negatively impacted operating cash flows.

 

We have a credit agreement with Bank of America (BofA) which was entered into on June 15, 2017 and amended on December 29, 2017 and provides for a line of credit arrangement of $16.0 million that expires on June 15, 2022. The credit arrangement also has a $5.0 million real estate term note outstanding with a maturity date of June 15, 2022.

 

Both the line of credit and real estate term notes are subject to fluctuations in the LIBOR rates. The line of credit and real estate term notes with BofA contain certain covenants which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The availability under our line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line of credit is secured by substantially all of our assets.

 

The Bank of America Credit Agreement provides for, among other things, a Fixed Charge Coverage Ratio of not less than 1.0 to 1.0, for the twelve months ending December 31, 2020 and each Fiscal Quarter end thereafter subject only during a trigger period commencing when our availability under our line is less than $2,000 until availability is above that amount for 30 days due to amendment to our agreement dated in December of 2020. The Company met the covenants for the period ended March 31, 2021.

 

 

The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. At March 31, 2021, we had outstanding advances of $2.2 million and we had unused availability under our line of credit of $7.6 million, supported by our borrowing base. We believe our financing arrangements and cash flows to be provided by operations will be sufficient to satisfy our future working capital needs.

 

On April 15, 2020, we entered into a Promissory Note with Bank of America, N.A. (the “Promissory Note”), which provides for an unsecured loan of $6.1 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”) of which; funds were received on April 22, 2020. The Promissory Note has a term of 2 years with a 1% per annum interest rate. Payments are deferred for 6 months from the date of the Promissory Note and we can apply for forgiveness of the Promissory Note after 60 days. Forgiveness of the Promissory Note will be determined in accordance with the provisions of the Cares Act and applicable regulations. Any principal and interest amounts outstanding after the determination of amounts forgiven will be repaid on a monthly basis.

 

Off-Balance Sheet Arrangements

 

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies and estimates are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of our accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts and other information from outside sources, as appropriate. Actual results could differ from these estimates.

 

 

Forward-Looking Statements

 

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

 

♦

Volatility in the marketplace which may affect market supply, demand of our products or currency exchange rates;

♦

Supply chain disruption and unreliability due to COVID-19;

♦

Lack of supply of sufficient human resources to produce our products;

♦

Increased competition from within the EMS industry or the decision of OEMs to cease or limit outsourcing;

♦

Changes in the reliability and efficiency of our operating facilities or those of third parties;

♦

Increases in certain raw material costs such as copper and oil;

♦

Commodity and energy cost instability;

♦

Risks related to FDA noncompliance;

♦

The loss of a major customer;

♦

General economic, financial and business conditions that could affect our financial condition and results of operations;

♦

Increased or unanticipated costs related to compliance with securities and environmental regulation;

♦

Disruption of global or local information management systems due to natural disaster or cyber-security incident;

♦

Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent novel coronavirus that affect our operations, our customers' operations or our suppliers' operations.

 

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Discussion of these factors is also 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.

 

Please refer to forward-looking statements and risks as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). These controls and procedures are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of these disclosure controls and procedures as of the date of the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

 

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject to various legal proceedings and claims that arise in the ordinary course of business.

 

ITEM 1A. RISK FACTORS

 

We are affected by the risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition or operating results or could cause our actual results to differ materially from our expectations are described in our annual report on Form 10-K for the fiscal year ended under the heading “Part I – Item 1A.Risk Factors.” There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

As of March 31, 2021, our share repurchase program has expired, and no additional amounts are available for repurchase.

 

ITEM 3. DEFAULTS ON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

ITEM 6. EXHIBITS

 

Exhibits

 

10.1*

Fifth Amendment dated December 1, 2020 to Loan and Security Agreement between the Company and Bank of America, N.A.

 

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

32*

Certification of the Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101*

Financial statements from the quarterly report on Form 10-Q for the quarter ended March 31, 2021, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Condensed Notes to Condensed Consolidated Financial Statements.

 

 

 

*Filed herewith

 

 

Signatures

-------------

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Nortech Systems Incorporated and Subsidiaries

--------------------------------------------------------

 

 

Date: May 14, 2021	by	/s/ Jay D. Miller
	Jay D. Miller
	Chief Executive Officer and President
	Nortech Systems Incorporated
Date: May 14, 2021	by	/s/ Christopher D. Jones
	Christopher D. Jones
	Vice President and Chief Financial Officer
	Nortech Systems Incorporated

 

 

Exhibit 10.1

 

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made and entered into effective as of December 1st, 2020, by and between NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (“Borrower”), and BANK OF AMERICA, N.A., a national banking association (together with its successors and assigns, the “Lender”).

 

RECITALS:

 

A.         Borrower and Lender are parties to a certain Loan and Security Agreement dated as of June 15, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). Capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Loan Agreement.

 

B.         Borrower has requested that Lender amend and modify certain terms and provisions of the Loan Agreement.

 

C.         Lender has agreed to so amend the Loan Agreement upon the terms and subject to the conditions set forth in this Amendment.

 

AGREEMENTS:

 

NOW, THEREFORE, in consideration of the premises herein set forth and for other good and valuable consideration, the nature, receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1.    Recitals. Borrower and Lender agree that the Recitals set forth above are true and correct.

 

2.    Definitions. The following definitions are hereby added in alphabetical order to, or amended and restated in, as appropriate, Section 1.1 of the Loan Agreement:

 

Applicable Margin: the margin set forth below, as determined by the average daily Availability for the immediately preceding Fiscal Quarter:

 

Level	Average Daily Availability	Base Rate Revolver Loans	LIBOR Revolver Loans	Base Rate Term Loans	LIBOR Term Loans
I	> $6,400,000	0.75%	1.75%	1.00%	2.00%
II	< $6,400,000	1.00%	2.00%	1.25%	2.25%

 

Beginning on the Fifth Amendment Effective Date and continuing through December 31, 2020, margins shall be determined as if Level I were applicable. Thereafter, the margins shall be subject to increase or decrease by Lender on the first day of the calendar month following each Fiscal Quarter end based on average daily Availability for the immediately preceding Fiscal Quarter. If Lender is unable to calculate average daily Availability for a Fiscal Quarter due to Borrower’s failure to deliver any Borrowing Base Certificate when required hereunder, then, at the option of Lender, margins shall be determined as if Level II were applicable until the first day of the calendar month following Lender’s receipt of such Borrowing Base Certificate.

 

 

Borrowing Base Certificate: a certificate substantially in the form of Exhibit A (or such other form acceptable to Lender) and satisfactory to Lender in all respects, by which Borrower certifies the Borrowing Base; provided, however, that so long as an Ineligible Inventory Trigger Period is not in effect, ineligible Inventory shall be reported on a quarterly basis and not a monthly basis, beginning with the Borrowing Base Certificate delivered with respect to the Fiscal Quarter ending December 31, 2020.

 

Dominion Account Trigger Period: the period (a) commencing on any day that (i) an Event of Default occurs, or (ii) Availability is less than $2,400,000 or 15.00% of the Revolver Commitment; and (b) continuing until, during each of the preceding 30 consecutive days, no Event of Default has existed and Availability has been more than $2,400,000 and 15.00% of the Revolver Commitment.

 

FCCR Trigger Period: the period (a) commencing on any day that (i) an Event of Default occurs, or (ii) Availability is less than $2,000,000 or 12.50% of the Revolver Commitment; and (b) continuing until, during each of the preceding 30 consecutive days, no Event of Default has existed and Availability has been more than $2,000,000 and 12.50% of the Revolver Commitment.

 

Fifth Amendment Effective Date: means December 1st, 2020.

 

FRBNY: Federal Reserve Bank of New York.

 

Governmental Authority: any federal, state, local, foreign or other agency, authority, body, commission, court, instrumentality, political subdivision, central bank, or other entity or officer exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions for any governmental, judicial, investigative, regulatory or self-regulatory authority (including the Financial Conduct Authority, the Prudential Regulation Authority and any supra-national bodies such as the European Union or European Central Bank).

 

Ineligible Inventory Trigger Period: the period (a) commencing on any day that (i) an Event of Default occurs, or (ii) Availability is less than $4,000,000 or 25.00% of the Revolver Commitment; and (b) continuing until, during each of the preceding 30 consecutive days, no Event of Default has existed and Availability has been more than $4,000,000 and 25.00% of the Revolver Commitment.

 

ISDA Definitions: 2006 ISDA Definitions 2006 ISDA Definitions (or successor definitional booklet for interest rate derivatives) published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time.

 

LIBOR: for any Interest Period, the per annum rate of interest (rounded up to the nearest 1/8th of 1%) determined by Lender at approximately 11:00 a.m. (London time) two Business Days prior to an Interest Period, for a term comparable to such period, equal to the LIBOR Screen Rate; provided, that in no event shall LIBOR be less than 0.00%.

 

LIBOR Replacement Date: as defined in Section 3.6.2.

 

LIBOR Screen Rate: the LIBOR quote on the applicable screen page that Lender designates to determine LIBOR (or such other commercially available source providing such quotations as designated by Lender from time to time).

 

 

LIBOR Successor Rate: as defined in Section 3.6.2.

 

LIBOR Successor Rate Conforming Changes: with respect to any proposed LIBOR Successor Rate, any conforming changes to this Agreement, including changes to Base Rate, Interest Period, timing and frequency of determining rates and payments of interest and other technical, administrative or operational matters (including, for the avoidance of doubt, the definition of Business Day, timing of borrowing requests or prepayment, conversion or continuation notices and length of look-back periods) as may be appropriate, in Lender’s discretion, to reflect the adoption and implementation of such LIBOR Successor Rate and to permit its administration by Lender in a manner substantially consistent with market practice (or, if Lender determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such LIBOR Successor Rate exists, in such other manner of administration as Lender determines is reasonably necessary in connection with administration of this Agreement or any other Loan Document).

 

Pre-Adjustment Successor Rate: as defined in Section 3.6.2.

 

Related Adjustment: in determining any LIBOR Successor Rate, the first relevant available alternative set forth in the order below that can be determined by Lender applicable to such LIBOR Successor Rate: (a) the spread adjustment, or method for calculating or determining such spread adjustment, that has been selected or recommended by the Relevant Governmental Body for the relevant Pre-Adjustment Successor Rate (taking into account the interest period, interest payment date or payment period for interest calculated and/or tenor thereto) and which adjustment or method (i) is published on an information service as selected by Lender from time to time in its discretion, or (ii) solely with respect to Term SOFR, if not currently published, which was previously so recommended for Term SOFR and published on an information service acceptable to Lender; or (b) the spread adjustment that would apply (or has previously been applied) to the fallback rate for a derivative transaction referencing the ISDA Definitions (taking into account the interest period, interest payment date or payment period for interest calculated and/or tenor thereto).

 

Relevant Governmental Body: the Federal Reserve Board and/or FRBNY, or a committee officially endorsed or convened by the Federal Reserve Board and/or FRBNY.

 

Scheduled Unavailability Date: as defined in Section 3.6.2(b).

 

SOFR: with respect to any Business Day, the secured overnight financing rate that is published for such day by FRBNY as administrator of the benchmark (or a successor administrator) on FRBNY’s website (or any successor source) at approximately 8:00 a.m. (New York City time) on the next Business Day and, in each case, that has been selected or recommended by the Relevant Governmental Body.

 

Term SOFR: the forward-looking term rate for any period that is approximately (as determined by Lender) as long as any interest period option set forth in the definition of “Interest Period” and that is based on SOFR and has been selected or recommended by the Relevant Governmental Body, in each case as published on an information service selected by Lender from time to time in its discretion.

 

 

3.    Inability to Determine Rates. Section 3.6 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

3.6.1         Inability to Determine Rates. If Lender notifies Borrower in connection with a Borrowing, conversion or continuation of, a LIBOR Loan that for any reason (a) Dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable Loan amount or Interest Period, (b) adequate and reasonable means do not exist for determining LIBOR for the applicable Interest Period, or (c) LIBOR for the applicable Interest Period does not adequately and fairly reflect the cost to Lender of funding the Loan, then Lender's obligation to make or maintain LIBOR Loans shall be suspended to the extent of the affected LIBOR Loan or Interest Period until Lender revokes the notice. Upon receipt of the notice, Borrower may revoke any pending request for a Borrowing, conversion or continuation of a LIBOR Loan or, failing that, will be deemed to have submitted a request for a Base Rate Loan. Notwithstanding the foregoing, Lender may propose an alternative interest rate for the applicable Loan, which Borrower may elect to apply to the Loan.

 

3.6.2 Replacement of LIBOR. Notwithstanding anything to the contrary in any Loan Document, if Lender determines (which determination shall be conclusive absent manifest error), or Borrower notifies Lender that Borrower has determined, that:

 

(a)         adequate and reasonable means do not exist for ascertaining LIBOR for any Interest Period hereunder or any other tenors of LIBOR, including because the LIBOR Screen Rate is not available or published on a current basis, and such circumstances are unlikely to be temporary; or

 

(b)         the administrator of the LIBOR Screen Rate or a Governmental Authority having jurisdiction over Lender or such administrator has made a public statement identifying a specific date after which LIBOR or the LIBOR Screen Rate shall no longer be made available or used for determining the interest rate of loans, provided that, at the time of such statement, there is no successor administrator satisfactory to Lender that will continue to provide LIBOR after such specific date (such specific date, “Scheduled Unavailability Date”); or

 

(c)         the administrator of the LIBOR Screen Rate or a Governmental Authority having jurisdiction over such administrator has made a public statement announcing that all Interest Periods and other tenors of LIBOR are no longer representative; or

 

(d)         commercial loans currently being executed, or that include language similar to that contained in this Section, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR;

 

then, in the case of clauses (a) through (c) above, on a date and time determined by Lender (any such date, “LIBOR Replacement Date”), which date shall be at the end of an Interest Period or on the relevant interest payment date, as applicable, for interest calculated and shall occur reasonably promptly upon the occurrence of any of the events or circumstances under clauses (a), (b) or (c) above and, solely with respect to clause (b) above, no later than the Scheduled Unavailability Date, LIBOR will be replaced hereunder and under the other Loan Documents with, subject to the proviso below, the first available alternative set forth in the order below for any payment period for interest calculated that can be determined by Lender, in each case, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document (“LIBOR Successor Rate”; and any such rate before giving effect to the Related Adjustment, “Pre-Adjustment Successor Rate”):

 

(x)         Term SOFR plus the Related Adjustment; and

 

 

(y)          SOFR plus the Related Adjustment;

 

and in the case of clause (d) above, Lender may amend this Agreement solely for the purpose of replacing LIBOR under this Agreement and the other Loan Documents in accordance with the definition of “LIBOR Successor Rate” and such amendment will become effective at 5:00 p.m. on the fifth Business Day after Lender has notified Borrower of the occurrence of the circumstances described in clause (d) above; provided that if Lender determines that Term SOFR has become available, is administratively feasible for Lender and would have been identified as the Pre-Adjustment Successor Rate in accordance with the foregoing if it had been so available at the time that the LIBOR Successor Rate then in effect was so identified, and notifies Borrower of such availability, then from and after the beginning of the Interest Period, relevant interest payment date or payment period for interest calculated, in each case, commencing no less than 30 days after the date of such notice, the Pre-Adjustment Successor Rate shall be Term SOFR and the LIBOR Successor Rate shall be Term SOFR plus the relevant Related Adjustment.

 

Lender will promptly (in one or more notices) notify Borrower of (x) any occurrence of any events, periods or circumstances under clauses (a) through (c) above, (y) a LIBOR Replacement Date, and (z) the LIBOR Successor Rate. Any LIBOR Successor Rate shall be applied in a manner consistent with market practice; provided that to the extent such market practice is not administratively feasible for Lender, such LIBOR Successor Rate shall be applied in a manner as otherwise reasonably determined by Lender. Notwithstanding anything to the contrary in any Loan Document, if at any time any LIBOR Successor Rate as so determined would otherwise be less than 0.00%, the LIBOR Successor Rate will be deemed to be 0.00% for the purposes of this Agreement and the other Loan Documents.

 

In connection with the implementation of a LIBOR Successor Rate, Lender will have the right to make LIBOR Successor Rate Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such LIBOR Successor Rate Conforming Changes will become effective without any further action or consent of any other party to this Agreement; provided that, with respect to any such amendment effected, Lender shall deliver each amendment implementing such LIBOR Successor Rate Conforming Changes to Borrower reasonably promptly after such amendment becomes effective.

 

If events or circumstances of the type described in clauses (a) through (c) above occur with respect to any LIBOR Successor Rate then in effect, the successor rate thereto shall be determined in accordance with the definition of “LIBOR Successor Rate.”

 

3.6.3 Alternate Benchmark Rate. Notwithstanding anything to the contrary herein, (a) after any such determination by Lender or receipt by Lender of any such notice described in Section 3.6.2(a) through (c), as applicable, if Lender determines that none of the LIBOR Successor Rates is available on or prior to the LIBOR Replacement Date, (ii) if the events or circumstances described in Section 3.6.2(d) have occurred but none of the LIBOR Successor Rates is available, or (iii) if the events or circumstances of the type described in Section 3.6.2(a) through (c) have occurred with respect to the LIBOR Successor Rate then in effect and Lender determines that none of the LIBOR Successor Rates is available, then in each case, Lender may amend this Agreement solely for the purpose of replacing LIBOR or any then current LIBOR Successor Rate in accordance with this Section at the end of any Interest Period, relevant interest payment date or payment period for interest calculated, as applicable, with another alternate benchmark rate giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated commercial credit facilities for such alternative benchmarks and, in each case, including any Related Adjustments and any other mathematical or other adjustments to such benchmark giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated commercial credit facilities for such benchmarks, which adjustment or method for calculating such adjustment shall be published on an information service as selected by Lender from time to time in its discretion and may be periodically updated. For the avoidance of doubt, any such proposed rate and adjustments shall constitute a LIBOR Successor Rate.

 

 

3.6.4 No Successor Rate. If, at the end of any Interest Period, relevant interest payment date or payment period for interest calculated, no LIBOR Successor Rate has been determined in accordance with Section 3.6.2 or 3.6.3 and the circumstances under Section 3.6.2(a) or (c) exist or the Scheduled Unavailability Date has occurred (as applicable), Lender will promptly so notify Borrower. Thereafter, (a) the obligation of Lender to make or maintain LIBOR Loans shall be suspended (to the extent of the affected LIBOR Loans, Interest Periods, interest payment dates or payment periods), and (b) the LIBOR component shall no longer be utilized in determining Base Rate, until the LIBOR Successor Rate has been determined in accordance with Section 3.6.2 or 3.6.3. Upon receipt of such notice, Borrowers may revoke any pending request for a Borrowing of, conversion to or continuation of LIBOR Loans (to the extent of the affected Loans, Interest Periods, interest payment dates or payment periods) or, failing that, will be deemed to have converted such request into a request for Base Rate Loans (subject to clause (b) above).

 

4.    Dominion Account. Section 5.7.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

5.7.1 Dominion Account. During any Dominion Account Trigger Period, the ledger balance in the main Dominion Account as of the end of a Business Day shall be applied to the Obligations at the beginning of the next Business Day. If, a credit balance results from such application, it shall not accrue interest in favor of Borrower and shall be made available to Borrower as long as no Default or Event of Default exists. Notwithstanding anything herein to the contrary, monies and collateral proceeds obtained from an Obligor shall not be applied to repayment of its Excluded Swap Obligations. For purposes of calculating interest only, Lender will be deemed to have applied funds deposited to the Dominion Account or otherwise received by Lender to pay down the Obligations on the first Business Day following the Business Day of deposit to the Dominion Account or receipt by Lender.

 

5.    Fixed Charge Coverage Ratio. Section 9.3.1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

9.3.1         Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio for each 12 month period of at least 1.0 to 1.0 while a FCCR Trigger Period is in effect, measured for the most recent period for which financial statements were delivered hereunder prior to a FCCR Trigger Period and each period ending thereafter until the FCCR Trigger Period is no longer in effect.

 

6.    Annual Administration Fee. The phrase “an annual administration fee of $15,000” in paragraph (d) of Exhibit D to the Loan Agreement is hereby deleted in its entirety and replaced with the phrase “an annual administration fee of $10,000”.

 

 

7.    Borrowing Base Certificate. The phrase “the 15th day of each month” in paragraph (a) of Exhibit F to the Loan Agreement is hereby deleted in its entirety and replaced with the phrase “the 20th day of each month”.

 

8.    Account Reporting. Paragraph (b) of Exhibit F to the Loan Agreement is hereby amended and restated in its entirety as follows:

 

(b) Borrower shall keep accurate and complete records of its Accounts, including all payments and collections thereon, and shall submit to Lender sales, collection, reconciliation and other reports in form reasonably satisfactory to Lender, on such periodic basis as Lender may reasonably request (but no more frequently than once per month so long as no Event of Default has occurred and is continuing). Borrower shall also provide to Lender, on or before the 20th day of each month, a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account’s Account Debtor name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute, and including such proof of delivery, copies of invoices and invoice registers, copies of related documents, repayment histories, status reports and other information as Lender may reasonably request. If Accounts in an aggregate face amount of $500,000 or more cease to be Eligible Accounts, Borrower shall notify Lender of such occurrence promptly (and in any event within one Business Day) after Borrower has knowledge thereof.

 

9.    Inventory Reporting. Paragraph (c) of Exhibit F to the Loan Agreement is hereby amended and restated in its entirety as follows:

 

(c) Borrower shall keep accurate and complete records of its Inventory, including costs and daily withdrawals and additions, and shall submit to Lender inventory and reconciliation reports in form reasonably satisfactory to Lender, on such periodic basis as Lender may reasonably request (but no more frequently than once per month so long as no Event of Default has occurred and is continuing). Borrower shall conduct quarterly (and on a more frequent basis if requested by Lender when an Event of Default exists) cycle counts of inventory consistent with historical practices, and shall provide to Lender a report based on each such inventory count promptly upon completion thereof but no later than 20 days following the end of such calendar quarter, together with such supporting information as Lender may reasonably request.

 

10.    Equipment Reporting. Paragraph (d) of Exhibit F to the Loan Agreement is hereby amended and restated in its entirety as follows:

 

(d) Borrower shall keep accurate and complete records of its Equipment, including kind, quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Lender, promptly upon completion thereof but no later than 20 days following the end of each calendar quarter, a current schedule thereof for such calendar quarter, in form reasonably satisfactory to Lender. Promptly upon request, Borrower shall deliver to Lender evidence of its ownership or interests in any Equipment.

 

11.    Conditions Precedent. This Amendment shall become effective upon delivery to Lender of the following, each in form and substance acceptable to Lender:

 

a.    this Amendment, duly executed by Borrower and Lender; and

 

b.    such other documents, instruments and agreements as Lender may reasonably require.

 

 

12.    Representations; No Default. Borrower represents and warrants that: (a) Borrower has the power and legal right and authority to enter into this Amendment and has duly authorized the execution and delivery of this Amendment and other agreements and documents executed and delivered by Borrower in connection herewith, (b) neither this Amendment nor the agreements contained herein contravene or constitute a Default or Event of Default under the Loan Agreement or a default under any other agreement, instrument or indenture to which Borrower is a party or a signatory, or any provision of Borrower’s Articles of Incorporation or By-Laws or, to the best of Borrower’s knowledge, any other agreement or requirement of law, or result in the imposition of any lien or other encumbrance on any of its property under any agreement binding on or applicable to Borrower or any of its property except, if any, in favor of Lender, (c) no consent, approval or authorization of or registration or declaration with any party, including but not limited to any governmental authority, is required in connection with the execution and delivery by Borrower of this Amendment or other agreements and documents executed and delivered by Borrower in connection herewith or the performance of obligations of Borrower herein described, except for those which Borrower has obtained or provided and as to which Borrower has delivered certified copies of documents evidencing each such action to Lender, (d) no events have taken place and no circumstances exist at the date hereof which would give Borrower grounds to assert a defense, offset or counterclaim to the obligations of Borrower under the Loan Agreement or any of the other Loan Documents, (e) there are no known claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys’ fees) of any kind, character or nature whatsoever, fixed or contingent, which Borrower may have or claim to have against Lender, which might arise out of or be connected with any act of commission or omission of Lender existing or occurring on or prior to the date of this Amendment, including, without limitation, any claims, liabilities or obligations arising with respect to the indebtedness evidenced by any promissory note executed by Borrower in favor of Lender, (f) the representations and warranties of Borrower contained in the Loan Agreement are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date and (g) no Default or Event of Default has occurred and is continuing under the Loan Agreement.

 

13.    Affirmation, Further References. Lender and Borrower each acknowledge and affirm that the Loan Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Loan Agreement (except as amended by this Amendment) and of each of the other Loan Documents shall remain unmodified and in full force and effect. All references in any document or instrument to the Loan Agreement are hereby amended and shall refer to the Loan Agreement as amended by this Amendment.

 

14.    Severability. Whenever possible, each provision of this Amendment and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

 

15.    Successors. This Amendment shall be binding upon Borrower and Lender and their respective successors and assigns, and shall inure to the benefit of Borrower and Lender and to the respective successors and assigns of Lender.

 

 

16.    Costs and Expenses. Borrower agrees to reimburse Lender, upon execution of this Amendment, for all reasonable out-of-pocket expenses (including attorneys’ fees and legal expenses of counsel for Lender) incurred in connection with the Loan Agreement, including in connection with the negotiation, preparation and execution of this Amendment and all other documents negotiated, prepared and executed in connection with this Amendment, and in enforcing the obligations of Borrower under this Amendment, and to pay and save Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment.

 

17.    Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.

 

18.    Counterparts; Digital Copies. This Amendment may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and any party to this Amendment may execute any such agreement by executing a counterpart of such agreement. A facsimile or digital copy (pdf) of this signed Amendment shall be deemed to be an original thereof.

 

19.    Governing Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of law principles thereof.

 

20.    Release of Rights and Claims. Borrower, for itself and its successors and assigns, hereby releases, acquits, and forever discharges Lender and its successors and assigns for any and all manner of actions, suits, claims, charges, judgments, levies and executions occurring or arising from the transactions entered into with Lender prior to entering into this Amendment whether known or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect which Borrower may have against Lender.

 

21.    No Waiver. Nothing contained in this Amendment (or in any other agreement or understanding between the parties) shall constitute a waiver of, or shall otherwise diminish or impair, Lender’s rights or remedies under the Loan Agreement or any of the other Loan Documents, or under applicable law.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the parties hereto have entered into this Amendment as of the date first above written.

 

BORROWER:	NORTECH SYSTEMS INCORPORATED   By: /s/ Alan K Nordstrom Name: Alan K Nordstrom Title: Controller
LENDER:	BANK OF AMERICA, N.A.   By: /s/ Brian Conole Name: Brian Conole Title: Senior Vice President

 

 

Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Jay D. Miller, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2021	By:	/s/ Jay D. Miller
		Jay D. Miller
		Chief Executive Officer and President
		Nortech Systems Incorporated

 

 

Exhibit 31.2

 

Certification of Chief Financial Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Christopher D. Jones, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 14, 2021	By:	/s/ Christopher D. Jones
		Christopher D. Jones
		Vice President and Chief Financial Officer
		Nortech Systems Incorporated

 

 

Exhibit 32

 

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Jay D. Miller, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2021

 

By:	/s/ Jay D. Miller
	Jay D. Miller
	Chief Executive Officer and President
	Nortech Systems Incorporated

 

 

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Christopher D. Jones, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 14, 2021

 

By:	/s/ Christopher D. Jones
	Christopher D. Jones
	Vice President and Chief Financial Officer
	Nortech Systems Incorporated

 

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