Nortech Systems(NSYS) - 2019 Q2 - Quarterly Report

Financial Performance - Net sales for Q2 2019 were $27.3 million, a decrease of $1.2 million or 4.2% compared to Q2 2018, with the medical market increasing by $1.5 million or 11.6%[65] - For the first six months of 2019, net sales were $55.5 million, an increase of $0.5 million or 0.9% compared to the same period in 2018, driven by a $6.2 million increase in the medical market[66] - The gross profit margin for Q2 2019 was 8.5%, down from 13.4% in Q2 2018, attributed to product mix and operational inefficiencies[72] - The company reported a net loss of $1.6 million for Q2 2019, compared to a net income of $0.4 million in Q2 2018[78] Backlog and Orders - The 90-day shipment backlog as of June 30, 2019, was $31 million, flat from the beginning of the quarter but up 31.4% from the prior year[70] - The medical backlog decreased by 3.2% from the beginning of the quarter but increased by 55.0% from the prior year[70] - The aerospace and defense backlog increased by 13.4% from the beginning of the quarter and 22.7% from the prior year[70] Expenses and Cash Flow - General and administrative expenses for Q2 2019 were $2.7 million, or 10.0% of sales, compared to $2.0 million, or 7.2% of sales in Q2 2018[74] - Cash used in operating activities for the first six months of 2019 was $2.2 million, driven by increases in accounts receivable and unbilled revenue[80] Debt and Credit Arrangements - The company had outstanding advances of $12.3 million under its line of credit as of June 30, 2019, with unused availability of $3.7 million[84] - The company entered into a line of credit arrangement with China Construction Bank for 6,000,000 RMB, with borrowings of 3,006,204 RMB ($437) at June 30, 2019, bearing an interest rate of 6%[86] - As of June 30, 2019, the company did not meet the fixed charge coverage ratio of 1.0 to 1.0, which was waived by BofA in the second amendment to the credit agreement[85] Internal Controls and Compliance - The company evaluated the effectiveness of its disclosure controls and procedures, concluding they were effective as of the end of the reporting period[95] - There were no changes in internal control over financial reporting that materially affected the company during the most recently completed fiscal quarter, except for the implementation of controls related to the new lease standard[96] - The company has significant accounting policies that require judgment in selecting assumptions for financial estimates, which may differ from actual results[88] Legal Matters - The company is subject to various legal proceedings and claims arising in the ordinary course of business[98] - There were no off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K[87]