Operating Profits Improve

MINNEAPOLIS – Nortech Systems Inc. (NASDAQ: NSYS) today reported net sales of $29.7 million for the third quarter ended September 30, compared with net sales of $30.4 million for the third quarter of 2015. For the nine months ended September 30, Nortech’s net sales increased 5 percent to $87.6 million.

Operating income for the third quarter was $190,000, compared with an operating loss of $66,000 for the third quarter of 2015. For the nine-month period, Nortech reported operating income of $301,000, compared with an operating loss of $751,000 for the same period in 2015.

Nortech Systems reported net income in the third quarter of $63,000, or $.02 per diluted common share, compared with a net loss of $124,000, or $0.05 per diluted common share, for the same period last year. Third quarter results included an increase of $456,000 to the bad debt reserve for a customer that filed for Chapter 11 bankruptcy protection. For the nine months ended September 30, Nortech reported a net loss of $54,000, or $0.02 per diluted common share. This compares with a net loss of $695,000, or $0.25 per diluted common share, for the same period in 2015.

“Our medical sales continued their strong momentum in the third quarter, up 9 percent sequentially and 27 percent year over year with backlog growing 35 percent over the prior year,” said Rich Wasielewski, Nortech Systems’ president and CEO. “We’re successfully leveraging our cross-selling opportunities and early engagement design engineering capabilities to gain traction in the higher-growth medical market.”

Nortech’s other two core markets are still experiencing mixed results. Industrial sales decreased 25 percent in the quarter, due primarily to transportation customers, while defense sales rose 6 percent. The overall corporate backlog increased 5 percent during the quarter, providing some additional momentum for the remainder of the year.

“Our improved gross margin had a major impact on operating profits,” explained Wasielewski, noting that the company’s gross margin improved 320 basis points to 12.7 percent of sales in the third quarter, as compared to the prior year’s third quarter. This increase was aided by the mix of medical products, greater engineering service activity and selective pricing actions.

“These results show we’re making progress in Nortech’s transformation,” added Wasielewski. “Our strategic investments the past two years have positioned us to better capitalize on growth opportunities. We’ve also improved our competitiveness by strengthening our global footprint.”

The company is targeting the medical market with full-service solutions from product development, design transfer and production manufacturing services, along with FDA expertise. For industrial and defense markets, Nortech is focused on improving asset utilization and profitability while supporting early engagement including design for manufacturability and rapid prototyping.

Conference Call

Nortech Systems announces a conference call to be held at 10:00 a.m. (CDT) on Thursday, November 3, 2016, to discuss the company’s third quarter results, which will be released after the market closes on November 2. Anyone interested in participating in the conference can access the call by dialing 866-320-0174 from within the United States, or 785-424-1631 if calling internationally. An audio webcast and replay of this conference call can be accessed at the investor relations portion of Nortech’s website at www.nortechsys.com or at www.investorcalendar.com. A podcast (MP3 download) will also be available. The telephone replay will be available through November 17, 2016, by dialing 877-481-4010 (from U.S.) or 919-882-2331 (International). To access the replay, the conference ID 10126 is required.

About Nortech Systems Incorporated

Nortech Systems Incorporated (www.nortechsys.com), based in Maple Grove, Minn., is a full-service electronics manufacturing services (EMS) provider of wire and cable assemblies, printed circuit board assemblies and higher-level complete box build assemblies for a wide range of industries. Markets served include industrial, medical and aerospace/defense. The company has operations in the U.S., Latin America and Asia. Nortech Systems Incorporated is traded on the NASDAQ Stock Market under the symbol NSYS.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. While this release is based on management’s best judgment and current expectations, actual results may differ and involve a number of risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: volatility in market conditions which may affect market supply of and demand for the company’s products; increased competition; changes in the reliability and efficiency of operating facilities or those of third parties; risks related to availability of labor; commodity and energy cost instability; general economic, financial and business conditions that could affect the company’s financial condition and results of operations; as well as risk factors listed from time to time in the company’s filings with the SEC.

Condensed Statement of Operations

Three Months Ended
September 30
Nine Months Ended
September 30
2016 2015 2016 2015
Net Sales $29,718,414 $30,409,064 $87,613,591 $83,750,159
Income (Loss) From Operations 189,764 (65,646) 300,776 (750,607)
Interest Expense (139,458) (133,960) (410,727) (341,148)
Loss Before Income Taxes 50,306 (199,606) (109,951) (1,091,755)
Income Tax Benefit (13,000) (76,000) (56,000) (397,000)
Net Loss $63,306 ($123,606) ($53,951) ($694,755)
Net Loss per Basic and Diluted Common Shares $0.02 ($0.05) ($0.02) ($0.25)
Weighted Average Number of Common Shares Outstanding:
Basic 2,747,832 2,746,325 2,747,288 2,745,568
Diluted 2,749,944 2,746,325 2,747,288 2,745,568

Condensed Balance Sheets

September 30, 2016
December 31, 2015
Accounts Receivable $17,688,678 $18,431,746
Inventories 21,742,523 20,185,445
Other Current Assets 1,699,705 1,755,548
Property and Other Long-term Assets 16,079,531 16,192,348
Total Assets $57,210,437 $56,565,087
Accounts Payable $14,875,460 $13,041,377
Other Current Liabilities 5,822,314 6,630,333
Line of Credit – Long-term 8,213,268 7,691,237
Long-term Debt and Other Long-term Liabilities 6,100,883 6,930,284
Shareholders’ Equity 22,198,512 22,271,856
Total Liabilities and Shareholders’ Equity $57,210,437 $56,565,087