<PAGE>
NORTECH SYSTEMS
1995 ANNUAL REPORT
<PAGE>
CORPORATE DESCRIPTION
Nortech Systems, Inc. manufactures wire harnesses, cable assemblies and
electromechanical assemblies for the commercial and defense industries. It also
designs, manufactures and markets high-performance display monitors for medical
imaging, document imaging, radar and industry applications.
Based in Wayzata, Minnesota, Nortech Systems has contract manufacturing
operations in Augusta, Wisconsin, Bemidji, Minnesota and Fairmont, Minnesota,
and medical imaging operations in Plymouth, Minnesota.
Nortech Systems is traded on the Nasdaq Stock Market under the symbol NSYS.
CONTINUOUS QUALITY IMPROVEMENT
Nortech Systems practices quality management in every aspect of its business.
This philosophy demands continuous quality improvement, accurate process
measurement and intensive employee involvement at all levels. The quality
management effort at Nortech Systems is continuous, with increased customer
satisfaction as its constant goal.
[CHART]
NORTECH SYSTEMS FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenues $6,053 $7,300 $11,706 $12,821 $18,306
Net Income $530 $637 $1,043 $1,183 $1,332
Income from Operations $530 $544 $801 $938 $1,332
Net Income Per Share $0.24 $0.28 $0.47 $0.54 $0.55
Total Assets $2,975 $5,284 $6,553 $6,648 $13,223
Total Liabilities and $2,975 $5,284 $6,553 $6,648 $13,223
Shareholders' Equity
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
HIGHLIGHTS
- - Posted 24th consecutive profitable quarter in fourth quarter 1995.
- - Achieved five-year cumulative sales growth of 211 percent.
- - Grew sales 43 percent to $18.3 million, and net operating income 42 percent to
$1.3 million.
- - Acquired Aerospace Systems, opening new contract manufacturing opportunities
and positioning the company as military-and commercial-qualified.
- - Established Imaging Technologies Division, which designs, manufactures and
markets proprietary, high-performance display monitors for medical imaging,
document imaging, radar and industry applications.
- - Received ISO 9002 certification.
- - Nortech Systems stock began trading on the Nasdaq National Market.
- - Ranked 37th on Forbes magazine's "200 Best Small Companies in America" list.
3
<PAGE>
TO OUR SHAREHOLDERS:
In 1995 we made outstanding progress at Nortech Systems. We strengthened our
contract manufacturing operations -- the core of our business -- and added a new
division for the manufacture of our first proprietary products, high-performance
display monitors for medical and document imaging.
BROADENING THE BASE OF OUR BUSINESS
The outlook for growth in contract manufacturing is excellent. A new Frost &
Sullivan study predicts that the U.S. market for contract manufacturing will
more than triple, to $36 billion, by 2001. For greater economy and efficiency,
companies routinely outsource manufacturing projects that they would have
conducted in house a few years ago. There is also a trend toward "full service"
contract manufacturing.
Our customers are using us for a greater range of services - from designing and
building to testing and shipping, and even turnkey assembly of an entire
product. We now also manufacture higher level electronic subsystems. In order to
broaden our capabilities and meet the demand for greater services, we have added
major testing, molding and wire cutting equipment to our manufacturing
capabilities.
In August 1995 we opened up new contract manufacturing opportunities with our
acquisition of Aerospace Systems, a division of Communications Cable, Inc.,
Fairmont, Minnesota. Like Nortech Systems, Aerospace is a contract manufacturer
of wire harnesses and cable assemblies. There is real synergy in the
acquisition, since Aerospace's customer base is 75 percent military and Nortech
Systems' has been 100 percent commercial. Now we are military- and commercial-
qualified. This gives us a strong marketing advantage in an age when many
defense contractors, in the face of reduced government spending, are competing
more for commercial business.
4
<PAGE>
NORTECH SYSTEMS SERVES THE COMPUTER, MEDICAL, COMMUNICATIONS, AUTOMOTIVE,
AEROSPACE, MILITARY, TRUCKING AND ELECTRONICS INDUSTRIES AND AGRICULTURE.
[PHOTO] Satellite Dish
<PAGE>
[PHOTO] Automobile Dashboard Displaying Speedometer,
Odometer, Tachometer.
THE SUCCESS OF NORTECH SYSTEMS IS BUILT AROUND THREE ENDURING VALUES:
SUPERIOR PRODUCT QUALITY, EXCELLENT CUSTOMER SERVICE AND COMMITTED EMPLOYEES.
<PAGE>
In March 1995 we created Nortech Systems' Imaging Technologies Division by
acquiring the assets of Monitor Technology Corporation, Plymouth, Minnesota. We
see great market opportunities for the new division, which designs, manufactures
and markets proprietary, high-performance display monitors for medical imaging,
document imaging, radar and industry applications. In a short time frame, we
have added new medical imaging products to the Imaging Technologies line. In
September we announced the introduction of the widest series of multi-mode gray
scale monitors yet available. In November, at the Radiological Society of North
America show, we previewed two ultra high brightness 21" monitors for medical
imaging. Response was excellent.
ISO 9002 CERTIFICATION
We received certification under ISO 9002, completing a nearly three year program
to train Nortech Systems employees to meet stringent ISO standards and keep us
competitive in the global marketplace. This training program has built in our
employees a real commitment to achieve greater efficiency on the production line
and to understand how every action and procedure directly affects our business.
We are proud of our ISO 9002 certification, but we continue our drive for
greater efficiency.
HIGH VELOCITY MANAGEMENT
As a key management tool, we apply high velocity management throughout our
organization. This philosophy is based on time as the driver of all operations
and improvements in a business. With high velocity management, the company
focuses on improving critical leverage points in order to ease cash flow, reduce
operating costs and make the company more competitive. By focusing on time, we
have the decisive advantage of flexibility, innovation, responsiveness and low
cost, giving significantly better value to customers and shareholders.
GROWING NATIONAL VISIBILITY FOR NORTECH SYSTEMS
In October the common stock of Nortech Systems began trading on the Nasdaq
National Market, giving us greater market visibility. The national listing
provides brokers and others with immediate access to the best bid and ask prices
and other information about the company's shares throughout the trading day. Our
current market makers are John G. Kinnard & Co., Inc., Miller, Johnson & Kuehn,
Inc. and R.J. Steichen & Co., all of Minneapolis.
Also in October we received excellent national exposure when Nortech Systems was
ranked 37th on Forbes magazine's "200 Best Small Companies in America" list.
Companies that qualified for this listing reported a five-year average return on
equity of at least 12.4 percent, and met stringent criteria for earnings and
sales growth.
7
<PAGE>
STRONG FINANCIAL PERFORMANCE
We posted our 24th consecutive profitable quarter in the fourth quarter of 1995.
Our five-year cumulative sales increase stands at 211 percent. We also reported
net sales of $18.3 million for the year ended December 31, 1995, a 43 percent
increase over net sales for 1994. Sales for the fourth quarter were $4.8
million, a 42 percent increase over net sales for the same period last year.
Net operating income for 1995 was $1.3 million, a 42 percent increase over
1994. Net income for 1995 was $1.3 million, or $.55 per share, compared with
$1.2 million, or $.54 per share, for 1994.
For the quarter, net operating income was $425,000, a 140 percent increase over
the same period last year. Net income for the fourth quarter was $631,000, or
$.25 per share, compared with $423,000, or $.19 per share, for the same period
last year.
Per share data for 1995 reflects an increased number of shares associated with
the acquisition of Monitor Technology Corporation.
On a comparative basis, if the number of shares had been constant, net income
per share would have been $.61 for the year and $.29 for the fourth quarter.
LOOKING TOWARD THE FUTURE
The success of Nortech Systems is built around three enduring values: superior
product quality, excellent customer service and committed employees. We are
applying these same values in our new divisions and facilities.
We look to 1996 as a year for further significant growth.
/s/ Q.E. Finkelson
Quentin E. Finkelson,
Chairman, President & Chief Executive Officer
8
<PAGE>
THE CORE OF NORTECH SYSTEMS' BUSINESS IS THE MANUFACTURE OF WIRE HARNESSES,
CABLE ASSEMBLIES, SPECIALIZED CABLES AND FIBER-OPTIC ASSEMBLIES TO EXACT
CUSTOMER SPECIFICATIONS.
[PHOTO] Control Panel of an X-Ray Imaging Machine
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS, YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
REVENUES.
For the years ended December 31, 1995, and 1994 the Company had sales of
$18,305,928 and $12,820,709, respectively. The increase of $5,485,219, or 42.8%
resulted primarily from increased sales to the medical and automotive industries
offset by the reduced sales to the mid-sized computer industries as well as
increased revenues from the newly acquired divisions. For the year ended
December 31, 1993 the Company had sales of $11,705,833. The approximate 9.5%
increase in sales in 1994 was attributable to an increase in sales in the mid-
sized computer industry.
GROSS PROFIT.
The Company had gross profit of $3,764,840 in 1995, $2,598,569 in 1994 and
$2,385,016 in 1993. Gross profits as a percentage of gross sales were 20.6% in
1995, 20.3% in 1994 and 20.4% in 1993. The increase in gross profit from 1994
to 1995 as due to increased sales levels and acquisition activity in 1995.
SELLING, GENERAL AND ADMINISTRATIVE.
Selling, general and administrative expenses were $2,280,105 in 1995, $1,647,797
in 1994, and $1,546,971 in 1993. The increase from 1994 to 1995 reflects
increased selling, general and administrative expenses associated with the
acquisition of two additional divisions. The increase from 1993 to 1994
reflects increased selling expense due to increased revenue levels.
MISCELLANEOUS INCOME.
Miscellaneous income was $177,967 in 1995, $86,307 in 1994, and $71,030 in 1993.
The miscellaneous income resulted primarily from charges for miscellaneous
services.
INTEREST EXPENSE.
Interest expense was $240,562 in 1995, $117,835 in 1994, and $124,887 in
1993. The increased expense for 1995 is due to the increased debt from acquired
operations.
INCOME TAXES.
Tax expense was not recorded in 1995 because of additional net operating loss
carryforwards (NOLs) of approximately $2,504,000 which were recognized because
of final tax regulations. The regulations clarified that tax carry forwards
attributes in a Chapter 11 bankruptcy prior to December 31, 1993 where stock was
issued for debt, need not be reduced by cancellation income. The tax benefit of
approximately $851,000 created by additional NOLs was partially offset by a
$300,000 increase in the deferred tax valuation allowance.
Realization of the deferred tax asset is dependent upon the Company generating
sufficient taxable earnings in future periods. In determining that realization
of the deferred tax asset is more likely than not, the Company gave
consideration to recent earnings history, its expectation for taxable earnings
in the future and the expiration dates associated with tax carryforwards.
Tax benefits of $245,794 and $241,206 were recorded in 1994 and 1993 due to the
reduction in the deferred tax valuation allowance of $600,000 and $540,000,
respectively, due to the realization of net operating loss carryforwards.
NET INCOME.
The Company's net income in 1995 was $1,331,924 or .55 per common share. The
Company's net income in 1994 was $1,183,406 or $.54 per common share. The
Company's net income in 1993 was $1,042,556 or $.47 per common share.
10
<PAGE>
The Company believes that the effect of inflation on past operations has not
been significant and anticipates that inflation will not have a significant
impact on future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital improved from $2,922,773 as of December 31, 1994
to $5,279,509 as of December 31, 1995. Stockholders' equity increased from
$4,720,503 as of December 31, 1994, to $6,036,166 as of December 31, 1995 due to
the Company's 1995 net income and the issuance of common stock due to the
exercise of stock options and gain-sharing distributions. The Company's
liquidity and capital resources have improved substantially, and the Company
believes that its' future financial requirements can be met with funds generated
from the operating activities and from the Company s operating line of credit.
In March 1995, the Company completed the net asset purchase of Monitor
Technology Corporation. This division of the Company designs and builds high
and ultra-high resolution CRT monitors for radar, document and medical imaging.
In addition, they provide repair services on internally and externally produced
monitors.
In August 1995, the Company acquired all the assets of Aerospace Systems, a
division of Communication Cable, Inc. The Company has continued the business
formally conducted by Aerospace which involves the manufacturing of custom-
designed, high-technology electronic cable assemblies for various applications.
These acquisitions are expected to positively impact future operations and
enhance the financial condition of the Company over time. However, there are no
guarantees of future performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS
NORTECH SYSTEMS INCORPORATED
AND SUBSIDIARY
BEMIDJI, MINNESOTA
We have audited the accompanying consolidated balance sheets of Nortech Systems
Incorporated and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nortech Systems
Incorporated and Subsidiary as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
ST. CLOUD, MINNESOTA
FEBRUARY 16, 1996
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents (Including
Interest Bearing Cash of $906,111 and
$822,404 at December 31, 1995 and 1994) $ 924,590 $ 841,702
Accounts Receivable, Less Allowance for
Uncollectible Accounts
(1995-$6,053; 1994-$4,343) 1,856,219 1,243,599
Inventories 3,855,212 1,514,658
Prepaid Expenses and Other 131,701 43,453
Deferred Tax Asset 430,000 460,000
-------------- ------------
Total Current Assets $ 7,197,722 $ 4,103,412
-------------- ------------
Property and Equipment (At Cost)
Land 108,300 68,300
Building and Leasehold Improvements 1,897,559 832,601
Manufacturing Equipment 2,389,201 902,916
Office and Other Equipment 1,701,640 1,583,714
-------------- ------------
Total $ 6,096,700 $ 3,387,531
Accumulated Depreciation (2,256,862) (1,844,046)
-------------- ------------
Total Property and Equipment
(At Depreciated Cost) $ 3,839,838 $ 1,543,485
-------------- ------------
Other Assets
Goodwill and Other Intangible Assets 998,254 --
Deferred Tax Asset 1,130,000 1,000,000
Other Assets 57,250 1,000
-------------- ------------
Total Other Assets $ 2,185,504 $ 1,001,000
-------------- ------------
Total Assets $ 13,223,064 $ 6,647,897
-------------- ------------
-------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12 NORTECH SYSTEMS INCORPORATED
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- --------------------------------------------------------------------------------
Current Liabilities
Current Maturities of Long-Term Debt $ 283,100 $ 189,144
Accounts Payable 1,054,880 580,860
Accrued Payroll 407,016 380,267
Other Liabilities 173,217 30,368
-------------- ------------
Total Current Liabilities $ 1,918,213 $ 1,180,639
-------------- ------------
Long-Term Debt
Notes Payable
(Net of Current Maturities Shown Above) $ 3,768,685 $ 746,755
-------------- ------------
Redeemable Common Stock
$.01 Par Value; 250,000 Shares
Issued and Outstanding
Redeemable at $6 Per Share $ 1,500,000 $ --
-------------- ------------
Stockholders' Equity
Preferred Stock, $1 Par Value;
1,000,000 Shares Authorized;
250,000 Shares Issued and Outstanding $ 250,000 $ 250,000
Common Stock $.01 Par Value; 9,000,000
Shares Authorized; 2,200,863 and 2,194,305
Shares Issued and Outstanding, Net of
Redeemable Shares Reported Above, at
December 31, 1995 and 1994, Respectively 22,009 21,943
Additional Paid-In Capital 11,242,672 11,229,065
Accumulated Deficit (5,478,515) (6,780,505)
-------------- ------------
Total Stockholders' Equity $ 6,036,166 $ 4,720,503
-------------- ------------
Total Liabilities and Stockholders' Equity $ 13,223,064 $ 6,647,897
-------------- ------------
-------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NORTECH SYSTEMS INCORPORATED 13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
-------------- --------------- --------------
<S> <C> <C> <C>
Sales $ 18,305,928 $ 12,820,709 $ 11,705,833
Cost of Sales (14,541,088) (10,222,140) (9,320,817)
-------------- --------------- --------------
Gross Profit $ 3,764,840 $ 2,598,569 $ 2,385,016
Selling, General and Administrative Expenses (2,280,105) (1,647,797) (1,546,971)
Research and Development Costs (124,919) -- --
Interest Income 34,703 18,368 17,162
Miscellaneous Income 177,967 86,307 71,030
Interest Expense (240,562) (117,835) (124,887)
-------------- --------------- --------------
Income Before Income Tax Provision $ 1,331,924 $ 937,612 $ 801,350
Income Tax Benefit -- 245,794 241,206
-------------- --------------- --------------
Net Income $ 1,331,924 $ 1,183,406 $ 1,042,556
Income Per Share of Common Stock
Net Income Per Share of Common Stock $ 0.55 $ 0.54 $ 0.47
-------------- --------------- --------------
-------------- --------------- --------------
Weighted Average Number of Shares Outstanding 2,407,804 2,194,021 2,217,265
-------------- --------------- --------------
-------------- --------------- --------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Additional Total
Preferred Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Equity
---------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1992 $ 250,000 $ 22,408 $ 11,322,929 $ (8,976,661) $ 2,618,676
1993 Net Income -- -- -- 1,042,556 1,042,556
Redemption of Stock -- (500) (105,750) -- (106,250)
Issuance of Stock -- 29 9,582 -- 9,611
Dividends Paid -- -- -- (14,860) (14,860)
---------- ---------- ------------- ------------- ------------
Balance December 31, 1993 $ 250,000 $ 21,937 $ 11,226,761 $ (7,948,965) $ 3,549,733
1994 Net Income -- -- -- 1,183,406 1,183,406
Issuance of Stock -- 6 2,304 -- 2,310
Dividends Paid -- -- -- (14,946) (14,946)
---------- ---------- ------------- ------------- ------------
Balance December 31, 1994 $ 250,000 $ 21,943 $ 11,229,065 $ (6,780,505) $ 4,720,503
1995 Net Income -- -- -- 1,331,924 1,331,924
Issuance of Stock - Stock Options -- 50 8,700 -- 8,750
Issuance of Stock - Other -- 16 4,907 -- 4,923
Dividends Paid -- -- -- (29,934) (29,934)
---------- ---------- ------------- ------------- ------------
Balance December 31, 1995 $ 250,000 $ 22,009 $ 11,242,672 $ (5,478,515) $ 6,036,166
---------- ---------- ------------- ------------- ------------
---------- ---------- ------------- ------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
14 NORTECH SYSTEMS INCORPORATED
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Cash Received from Customers $ 18,114,515 $ 13,307,176 $ 11,284,702
Interest Income Received 34,703 18,368 17,162
Cash Paid to Suppliers and Employees (17,379,766) (11,794,879) (11,135,177)
Interest Expense Paid (239,809) (117,927) (126,521)
Income Taxes Paid (19,016) (34,206) (7,546)
-------------- -------------- --------------
Net Cash Provided by Operating Activities $ 510,627 $ 1,378,532 $ 32,620
-------------- -------------- --------------
Cash Flows from Investing Activities
Acquisition of Businesses $ (2,930,696) $ -- $ --
Acquisition of Property and Equipment (458,359) (224,096) (422,821)
Acquisition of Intangible Assets (82,059) -- --
Purchase of Investments (56,250) -- --
-------------- -------------- --------------
Net Cash Used by Investing Activities $ (3,527,364) $ (224,096) $ (422,821)
-------------- -------------- --------------
Cash Flows from Financing Activities
Net Proceeds (Payments) Under Line of Credit $ -- $ (266,533) $ 349,329
Payments on Long-Term Debt (289,294) (963,178) (278,739)
Proceeds from Long-Term Debt 3,405,180 531,000 196,092
Proceeds from Sale of Stock 13,673 2,310 9,611
Redemption of Stock -- -- (106,250)
Payment of Dividends (29,934) (14,946) (14,860)
-------------- -------------- --------------
Net Cash Provided (Used)
by Financing Activities $ 3,099,625 $ (711,347) $ 155,183
-------------- -------------- --------------
Net Increase (Decrease) in Cash
and Cash Equivalents $ 82,888 $ 443,089 $ (235,018)
Cash and Cash Equivalents - Beginning 841,702 398,613 633,631
-------------- -------------- --------------
Cash and Cash Equivalents - Ending $ 924,590 $ 841,702 $ 398,613
-------------- -------------- --------------
-------------- -------------- --------------
Non-Cash Transactions
During 1995 the Company issued $1,500,000 of redeemable Common Stock
as part of the purchase of another corporation's net assets.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
NORTECH SYSTEMS INCORPORATED 15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reconciliation of Net Income to Net
Cash Provided by Operating Activities
Net Income $ 1,331,924 $ 1,183,406 $ 1,042,556
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 444,636 245,847 167,723
Deferred Taxes (100,000) (280,000) (250,000)
(Increase) Decrease in
Accounts Receivable (369,380) 365,160 (485,253)
(Increase) Decrease in Accounts
Receivable - Stockholder -- 35,000 (6,908)
(Increase) Decrease in Inventory (407,932) 173,065 (475,431)
(Increase) Decrease in Prepaid Assets (79,751) 33,507 (31,618)
Decrease in
Accounts Payable - Stockholder -- -- (10,729)
Increase (Decrease) in
Accounts Payable 207,835 (391,788) (79,179)
Increase (Decrease) in Accrued Payroll (17,852) 6,077 173,111
Increase (Decrease) in
Accrued Liabilities (498,853) 8,258 (11,652)
------------ -------------- ------------
Net Cash Provided by
Operating Activities $ 510,627 $ 1,378,532 $ 32,620
------------ -------------- ------------
------------ -------------- ------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
16 NORTECH SYSTEMS INCORPORATED
<PAGE>
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Nortech Systems Incorporated (the "Company") is a Minnesota corporation with
headquarters in Wayzata, Minnesota, a suburb of Minneapolis, Minnesota. The
Company's main manufacturing facility is located in Bemidji, Minnesota, with
additional manufacturing and engineering support locations in Fairmont,
Minnesota; Plymouth, Minnesota and Augusta, Wisconsin. The Company manufactures
wire harnesses, cables, and electromechanical assemblies, as well as large-
screen, high-resolution video monitors for radar, document and medical imaging.
The Company provides a full "turnkey" contract manufacturing service to its
customers. All products are built to the customer's design specifications. The
Company also services the types of monitors it produces. Nortech Medical
Services, Inc., its wholly owned subsidiary, provides service bureau and office
management services to physicians and clinics throughout Minnesota.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market (based on the lower of replacement cost or net realizable value).
PROPERTY AND EQUIPMENT
The Company capitalizes the cost of purchased software, equipment and leasehold
improvements. Expenditures for maintenance and repairs and minor renewals and
betterments which do not improve or extend the life of the respective assets are
expensed. The assets and related depreciation accounts are adjusted for property
retirements and disposals with the resulting gain or loss included in results of
operations. Fully depreciated assets remain in the accounts until retired from
service.
DEPRECIATION
Property and equipment are depreciated by the straight-line and accelerated
methods of depreciation. Accelerated depreciation did not materially exceed
straight-line depreciation for the years ended December 31, 1995, 1994 and 1993.
Depreciation was calculated over estimated useful lives as follows:
Building and Improvements: 31 Years
Manufacturing Equipment: 5 - 7 Years
Office and Other Equipment: 5 - 7 Years
REVENUE RECOGNITION
Sales are recorded by the Company when products are shipped to the customer.
GOODWILL
Goodwill representing the excess of the purchase price over the fair value of
the net assets of the acquired entities (see Note 2), is being amortized on a
straight-line basis over the period of expected benefit of fifteen years. Total
amortization of goodwill recorded for fiscal years 1995, 1994 and 1993 was
$30,724, $-0- and $-0-, respectively. The carrying value of goodwill will be
reviewed periodically based on the undiscounted cash flows of the entity
acquired over the remaining amortization period. Should this review indicate
that goodwill will not be recoverable, the Company's carrying value of the
goodwill will be reduced by the estimated shortfall of undiscounted cash flows.
NORTECH SYSTEMS INCORPORATED 17
<PAGE>
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
During 1995 the Company acquired other intangible assets including purchased
technology and certification costs. Total costs of these assets were $82,059,
which are being amortized over a period of 5 to 7 years. The related
amortization expense for 1995 was $1,096.
CASH AND CASH EQUIVALENTS
The Company considers its investments with an original maturity of three months
or less to be cash equivalents. At December 31, 1995, the Company had invested
excess funds of $285,000 in repurchase agreements collateralized by government
backed securities. Due to the short-term nature of the agreements, the Company
does not take possession of the securities, which are instead held at the
Company's principal bank from which it purchases the securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments, receivables, accounts
payable and accrued liabilities approximate fair value because of the short
maturity of these instruments. The fair value of long-term debt approximates its
carrying value and is based on current rates at which the Company could borrow
funds with similar remaining maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company has adopted FASB Statement No. 109, Accounting for Income Taxes,
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The provision for income taxes is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
Investment credits are accounted for by using the "flow-through" method whereby
the benefit is reflected as a reduction of income taxes in the year utilized.
EARNINGS PER SHARE
Primary earnings per share of common stock is computed by dividing net income by
the weighted average number of common shares outstanding during the period.
The impact of outstanding warrants and options was not material and was not
included in the calculation of primary earnings per share.
Preferred stock issued is noncumulative and nonconvertible.
NOTE 2: ACQUISITIONS
In 1995 the Company acquired the two businesses described below, which have been
accounted for by the purchase method of accounting. The results of the
operations of the acquired Companies are included in the Company's consolidated
statement of income from the dates of the acquisitions.
18 NORTECH SYSTEMS INCORPORATED
<PAGE>
NOTE 2: ACQUISITIONS (CONTINUED)
MONITOR TECHNOLOGY CORPORATION
On March 28, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Monitor Technology Corporation (MTC). Monitor
Technology Corporation designs and builds high and ultra-high resolution CRT
monitors for computer applications throughout the United States. In addition,
they provide repair services on internally and externally produced monitors.
The purchase price of $2,232,667, which includes the assumption of liabilities
of $707,887 and acquisition costs of $24,780, was paid with cash and by issuing
250,000 shares of the Company's common stock. The common stock was valued at $6,
which is the redeemable price based on a repurchase agreement issued to the
seller at closing. The excess of the purchase price over the estimated fair
value of assets acquired is being amortized on a straight-line basis over 15
years.
The agreement also allows the seller the option which requires the Company to
repurchase the common stock at $6 a share commencing on March 28, 1996, and
extending for a period of thirty days thereafter. The Company's obligation under
the repurchase agreement is guaranteed by a director of the Company.
AEROSPACE SYSTEMS
On August 23, 1995, the Company acquired Aerospace Systems, a
division of Communications Cable, Inc. Aerospace Systems manufactures and sells
multi-conductor electrical cable assemblies to customer specifications for the
aerospace industry throughout the United States.
The purchase price was $2,950,517 consisting of a cash payment of $2,845,506,
the assumption of liabilities of $44,601, and acquisition costs of $60,410.
The excess of the purchase price over the estimated fair value of the net assets
acquired is being amortized on a straight-line basis over 15 years.
A summary of the purchase price allocation for MTC and Aerospace is as follows:
Net Working Capital Items $ 1,984,359
Property, Plant and Equipment 2,250,810
Excess of Cost over Fair Value
of Net Assets of Purchased
Businesses 948,015
--------------
Total $ 5,183,184
--------------
--------------
The following proforma unaudited consolidated statements of income for the
Company are presented as though the acquisitions of Monitor Technology
Corporation and Aerospace Systems, a division of Communications Cable, Inc. had
occurred on January 1, 1995 and 1994.
(UNAUDITED) 1995 1994
- ----------------------------------------------------------------------
Revenues $ 22,332,054 $ 20,449,800
--------------- ---------------
--------------- ---------------
Net Income (Loss) $ 1,497,486 $ 1,281,232
--------------- ---------------
--------------- ---------------
Net Income Per Share
of Common Stock $ .61 $ .52
--------------- ---------------
--------------- ---------------
The proforma financial information is presented for information purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
NOTE 3: INVENTORIES
Inventories consist of the following:
1995 1994
- ----------------------------------------------------------------------
Raw Materials $ 1,972,384 $ 795,272
Work in Process 1,676,949 603,932
Finished Goods 205,879 115,454
-------------- --------------
Total $ 3,855,212 $ 1,514,658
-------------- --------------
-------------- --------------
NORTECH SYSTEMS INCORPORATED 19
<PAGE>
NOTE 4: SHORT-TERM LINE OF CREDIT
The Company had a line of credit available at December 31, 1994, for $350,000.
The line of credit was with Northern National Bank, paid interest at a variable
rate, and was secured by accounts receivable and inventory. The interest rate
was 8% at December 31, 1994. The maximum and average amounts outstanding on
lines of credit during 1994, were $349,329 and $320,219, respectively. There was
no balance outstanding as of December 31, 1994.
NOTE 5: LONG-TERM DEBT
DESCRIPTION 1995 1994
- ----------------------------------------------------------------------
Note Payable - Northern National
Bank, Revolving Line of Credit,
Borrowing Limit of $3,000,000,
Interest at LIBOR Index Plus 2 1/2%,
Due January 1997; Secured by
Accounts Receivable, Equipment,
Inventory and General Intangibles $2,161,179 $ 0
- ----------------------------------------------------------------------
Note Payable - City of Augusta,
Interest at Firstar Bank of Eau
Claire's Prime, Five Annual
Payments Beginning August 1996,
Due August 2000; Secured by
Leasehold Improvements 40,000 40,000
- ----------------------------------------------------------------------
Note Payable - Northern States
Power Company, Interest at 6%,
Monthly Payments of $483 Including
Interest, Due December 1998;
Secured by Equipment 15,483 20,199
DESCRIPTION 1995 1994
- ----------------------------------------------------------------------
Note Payable - Northern National
Bank, Interest at Bank's Prime Plus
2%, Monthly Payments of $1,200
Including Interest, Due April 2000;
Secured by Real Estate 120,754 122,876
- ----------------------------------------------------------------------
Note Payable - Midwest Minnesota
Community, Development Corporation,
Interest at 9%, Monthly Payments of
$2,802 Including Interest, Due January
2000; Secured by Real Estate and
Equipment 115,297 135,178
- ----------------------------------------------------------------------
Note Payable - Midwest Minnesota
Community, Development Corporation,
Interest at 8%, Monthly Payments
of $1,654 Including Interest, Due
September 2009; Secured by Real
Estate and Equipment 142,185 146,279
- ----------------------------------------------------------------------
Note Payable - Northern National
Bank, Interest at 7.5%, Monthly
Payments of $5,270 Including Interest,
Due May 1999; Secured by Inventory,
Equipment, Accounts Receivable
and General Intangibles 230,608 232,796
- ----------------------------------------------------------------------
Note Payable - Northern National
Bank, Interest at LIBOR Index Plus
2 1/2%, Monthly Payments of $13,060
Including Interest, Due January 2001;
Secured by Equipment, Accounts
Receivable, Inventory and
General Intangibles 640,000 0
20 NORTECH SYSTEMS INCORPORATED
<PAGE>
DESCRIPTION 1995 1994
- ----------------------------------------------------------------------
Note Payable - Northern National
Bank Interest at LIBOR Index Plus
2 1/2%, Monthly Payments of $5,000
Including Interest, Due January 2001;
Secured by Equipment, Accounts
Receivable, Inventory and
General Intangibles 510,000 0
- ----------------------------------------------------------------------
Note Payable - Joint Economic
Development Commission, Inc.,
Interest at 10%, Monthly Payments
of $1,652 Including Interest, Due
June 1996; Secured by Building
and Land 76,279 90,586
- ----------------------------------------------------------------------
Note Payable - Northern National Bank,
Interest at Bank's Prime Plus 3%, Monthly
Payments of $11,638 Including Interest, Due
December 1995; Secured by Certificate of
Deposit, Equipment, Accounts Receivable
and Inventory 0 45,119
- ----------------------------------------------------------------------
Note Payable - Northern National Bank,
Interest at Bank's Prime, Monthly Payments
of $4,600 Including Interest, Due January 15,
1995; Secured by Inventory, Equipment and
Accounts Receivable 0 98,570
- ----------------------------------------------------------------------
DESCRIPTION 1995 1994
- ----------------------------------------------------------------------
Note Payable - Northern National Bank,
Interest at Bank's Prime, Monthly
Payments of $375 Including Interest,
Due January 15, 1996; Secured by Vehicle 0 4,296
-------------------------------
Total Long-Term Debt $ 4,051,785 $ 935,899
Current Maturities 283,100 189,144
-------------------------------
Long-Term Debt - Net of
Current Maturities $ 3,768,685 $ 746,755
-------------------------------
-------------------------------
Maturity requirements by year on long-term debt are as follows:
Years Ending December 31, Amount
------------------------- --------
1996 $ 283,100
1997 2,400,339
1998 258,046
1999 296,594
2000 314,579
Later Years 499,127
------------
Total $ 4,051,785
------------
------------
The maximum and average amounts outstanding on the Company's revolving line of
credit during 1995 were $2,161,179 and $400,000, respectively.
NORTECH SYSTEMS INCORPORATED 21
<PAGE>
NOTE 6: LEASE OBLIGATION
The Company has entered into various operating leases for equipment and office
space. Rent expense for the years ended December 31, 1995, 1994 and 1993, was
$290,799, $77,516 and $118,672, respectively. The future minimum lease payments
are as follows:
Years Ending December 31, Amount
------------------------- --------
1996 $ 227,695
1997 184,625
1998 176,700
1999 176,700
2000 176,700
------------
Total $ 942,420
------------
------------
NOTE 7: RELATED PARTY TRANSACTIONS
Ceridian Corporation is one of the Company's stockholders at December 31, 1995,
1994 and 1993. Transactions and balances with Ceridian Corporation are as
follows:
CONTRACT FOR DEED - CERIDIAN CORPORATION
During 1991 the Company entered into a contract for deed with Ceridian
Corporation for the purchase of the building and land. The original purchase
price was $840,000. The contract was paid off in 1994.
SALES
In 1995, 1994 and 1993, sales to Ceridian Corporation represented approximately
1% of total sales in each year.
NOTE 8: INCOME TAXES
The provision for income taxes for each of the three years in the period ended
December 31, 1995, consists of the following:
1995 1994 1993
----------------------------------------------------
Current Taxes $ 37,000 $ 17,183 $ 2,148
Federal
Current Taxes 63,000 17,023 6,646
State
Deferred Taxes (100,000) (280,000) (250,000)
----------------------------------------------------
Total $ 0 $ (245,794) $ (241,206)
----------------------------------------------------
----------------------------------------------------
Deferred tax assets at December 31, 1995 and 1994,
consist of the following:
1995 1994
-------------------------------
Net Operating Loss
(NOL) Carryforwards $ 1,635,000 $ 1,240,000
Tax Credit Carryforwards 295,000 320,000
Other 30,000 0
Valuation Allowance (400,000) (100,000)
-------------------------------
Total $ 1,560,000 $ 1,460,000
-------------------------------
-------------------------------
22 NORTECH SYSTEMS INCORPORATED
<PAGE>
The statutory rate reconciliation for each of the three years in the period
ended December 31, is as follows:
1995 1994 1993
--------------------------------------------------
Statutory Tax
Provision $ 453,000 $ 319,000 $ 272,000
State Income Taxes 80,000 50,000 40,000
Additional NOL
Carryforwards (851,000) 0 0
Increase (Reduction)
in Deferred Tax
Valuation
Allowance 300,000 (600,000) (540,000)
Other 18,000 (14,794) (13,206)
--------------------------------------------------
Income Tax
Benefit $ 0 $ (245,794) $ (241,206)
--------------------------------------------------
--------------------------------------------------
The Company has available for Federal income tax purposes, operating loss
carryforwards, unused investment credits, and unused research and development
credits which may provide future tax benefits, expiring as follows:
Research and
Investment Tax Development
Year of Operating Loss Credit Tax Credit
Expiration Carryforward Carryforward Carryforward
- ----------------------------------------------------------------------
1996 $ 0 $ 12,546 $ 44,779
1997 0 4,064 43,051
1998 0 50,888 97,643
1999 3,678,800 39,965 0
2001 767,300 0 0
2002 253,200 0 0
2003 109,700 0 0
- ----------------------------------------------------------------------
Totals $ 4,809,000 $ 107,463 $ 185,473
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
During 1995 the Company identified an additional $2,503,778 of net operating
loss carryforwards related to final tax regulations. The regulations clarified
that tax carryforward attributes in a Title 11 bankruptcy prior to December 31,
1993, where stock was issued for debt, need not be reduced by debt cancellation
income. As a result of the increase in net operating loss carryforwards, which
must be utilized prior to taking the benefit in tax credit carryovers, the
Company has increased its valuation allowance accordingly.
In 1995 the Company utilized operating loss carryforwards of $1,450,000 to
offset federal taxable income and $46,000 of research and development credits to
offset state tax.
In 1994 the Company utilized operating loss carryforwards of $932,000 to offset
federal taxable income and $126,100 to offset state taxable income. The Company
also utilized $33,900 of research and development tax credits to offset state
tax.
In 1993 the Company utilized operating loss carryforwards of $760,000 to offset
federal taxable income and $365,300 to offset state taxable income.
NOTE 9: PREFERRED STOCK TRANSACTIONS
The holders of the preferred stock are entitled to a noncumulative dividend of
12% when and as declared. In liquidation, holders of preferred stock have
preference to the extent of $1.00 per share plus dividends accrued but
unpaid. Preferred stock dividends of $29,934, $14,946 and $14,860 were paid
during the year-ended December 31, 1995, 1994 and 1993, respectively.
During 1993, Nortech Systems Incorporated redeemed 50,000 shares of common stock
from Ceridian Corporation.
NORTECH SYSTEMS INCORPORATED 23
<PAGE>
NOTE 10: MAJOR CUSTOMERS AND CONCENTRATION
OF CREDIT RISK
The Company sells its products to companies in the computer, medical,
governmental and various other industries. Historically, the Company has not
experienced significant losses related to receivables from customers in any
particular industry or geographic area.
The Company maintains its excess cash balances in checking, money market and
certificate of deposit accounts at two financial institutions. These balances
exceed the federally insured limit by $520,000 at December 31, 1995. The
Company has not experienced any losses in any of the short-term investment
instruments it has used for excess cash balances.
Three customers accounted for approximately 24.1%, 16.6% and 11.8% of sales,
respectively, for the year ended December 31, 1995. One
customer accounts for approximately 10.4% of accounts receivable at December 31,
1995.
Three customers accounted for approximately 26.8%, 24.5% and 20.2% of sales,
respectively, for the year ended December 31, 1994. Three customers accounted
for approximately 29.8%, 20.5% and 11.3% of accounts receivable, respectively,
at December 31, 1994.
Two customers accounted for approximately 33.5% and 27.3% of sales,
respectively, for the year ended December 31, 1993.
NOTE 11: EMPLOYEE STOCK OPTION AND AWARD PLANS
In 1992, the Company approved the adoption of a stock option plan. The purpose
of the Plan is to promote the interests of the Company and its shareholders by
providing officers, directors and other key employees with additional incentive
and the opportunity, through stock ownership, to increase their proprietary
interest in the Company and their personal interest in its continued
success.
Through December 31, 1995, 100,000 shares have been authorized for issuance.
In addition, the Company has contingently granted an additional 50,000 options
to its president awaiting approval by the shareholders.
Stock options may be granted for the purchase of common stock at a price not
less than the fair market value on the date of the grant. Options are generally
exercisable after one or more years and expire no later than 10 years from the
date of grant. Changes in the stock options outstanding, including contingent
options, are as follows:
Option Price
Shares (Per Share)
----------------------------------
Balance as of
December 31, 1992 22,500 $1.75
GRANTED JANUARY 21, 1993 15,000 $1.625
--------
Balance as of
December 31, 1993 37,500 $1.625 - $ 1.75
GRANTED JANUARY 24, 1994 10,000 $3.625
--------
Balance as of
December 31, 1994 47,500 $1.625 - $ 3.625
GRANTED DECEMBER 1, 1995 95,000 $5.25
Exercised (5,000) $1.75
--------
Balance as of
December 31, 1995 137,500 $1.625 - $ 5.25
--------
--------
24 NORTECH SYSTEMS INCORPORATED
<PAGE>
During 1993, the Company adopted a gain sharing plan. The purpose of the Plan
is to provide a bonus for increased output, improved quality and productivity
and reduced costs. The Company has authorized 50,000 shares to be available
under this Plan.
In accordance with the terms of the Plan, employees can acquire newly issued
shares of common stock for 90% of the current market value. 5,069 shares have
been issued under this Plan through December 31, 1995.
NOTE 12: RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the FASB) statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, will become effective for the Company in 1996. Currently,
Statement No. 121 would have no impact on the Company's financial position or
results of operations.
FASB issued Statement No. 123, Accounting for Stock Based Compensation, which
will become effective for the Company in 1996. The Company has not determined
the impact of Statement No. 123 on its financial position or results of
operations.
NOTE 13: SUPPLEMENTARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total
3/31/95 6/30/95 9/30/95 12/31/95 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $3,625,264 $4,374,899 $5,449,175 $4,856, 590 $18,305,928
Gross Profit $673,905 $964,800 $966,969 $1,159,166 $3,764,840
Net Income $244,003 $244,049 $212,588 $631,284 $1,331,924
Income Per Share of Common Stock $.11 $.10 $.10 $.25 $.55
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total
3/31/94 6/30/94 9/30/94 12/31/94 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Net Sales $3,499,798 $3,235,186 $2,666,091 $3,419,634 $12,820,709
Gross Profit $704,144 $614,024 $566,570 $713,831 $2,598,569
Net Income $297,126 $262,564 $200,622 $423,094 $1,183,406
Income Per Share of Common Stock $.14 $.12 $.09 $.19 $.54
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the 4th quarter of 1995, the Company reduced previous quarter's tax expense
of $206,388, which increased 4th quarter net income
by $.08 per share due to recognition of additional net operating
loss carryforwards.
NORTECH SYSTEMS INCORPORATED 25
<PAGE>
REGISTRAR AND TRANSFER AGENT
American Securities Transfer, 1825 Lawrence Street, #444, Denver, Colorado 80202
LEGAL COUNSEL
Phillips & Gross, P.A., 5420 Norwest Center, 90 South 7th Street, Minneapolis,
Minnesota 55402
AUDITORS
Larson, Allen, Weishair & Co., 500 Zapp Bank Plaza, 1015 St. Germain, St. Cloud,
Minnesota 56301
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1995 (including financial statements and a list of exhibits thereto) may be
obtained by shareholders without charge upon written request addressed to
Quentin E. Finkelson, Nortech Systems Incorporated, 641 East Lake Street,
Wayzata, Minnesota 55391. The exhibits to the Form 10-K may be obtained in the
same manner, but a reasonable fee will be charged to such shareholders for
copying and related expenses.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Board of
Directors currently intends to retain any and all earnings for use in the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination as to payment of dividends will
depend upon the financial condition and results of operations of the Company and
such other factors as are deemed relevant by the Board of Directors.
ANNUAL MEETING
The annual meeting of shareholders will be held May 23, 1996 at 4:00 p.m. at the
Minneapolis Hilton and Towers, 1001 Marquette Avenue, Minneapolis, Minnesota, in
the Rochester Room on the third floor. All shareholders are invited to attend.
MARKET INFORMATION
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol NSYS. Prior to October 11, 1995, the stock was traded on the Nasdaq Small
Cap Market.
The high and low bid quotations for the Company's Common Stock for each
quarterly period within the two most recent years were as follows:
Quarter Ended: Low High
--------------------------------------------------------
March 31, 1994 $5.000 $5.750
June 30, 1994 $4.000 $4.750
September 30, 1994 $3.750 $4.500
December 31, 1994 $3.000 $3.750
March 31, 1995 $3.000 $4.000
June 30, 1995 $3.000 $4.250
September 30, 1995 $3.250 $6.000
December 31, 1995 $4.750 $8.500
The low and high quotations set forth above were furnished
by Nasdaq. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
As of March 15, 1996, there were approximately 1,459 holders of shares of the
Company's Common Stock.
26
<PAGE>
ADDITIONAL INFORMATION
For additional Company information, you may contact:
Quentin E. Finkelson
Chairman, President & Chief Executive Officer
Nortech Systems Incorporated
641 East Lake Street,
Wayzata, Minnesota 55391
Corporate Headquarters
Nortech Systems Incorporated
641 East Lake Street,
Wayzata, Minnesota 55391
Manufacturing Facilities
Nortech Systems Incorporated
350 Industrial Drive
Augusta, Wisconsin 54722
Nortech Systems Incorporated
4050 Norris Court N.W.
Bemidji, Minnesota 56601
Nortech Systems
Aerospace Systems Division
1007 East 10th Street
P.O. Box 998
Fairmont, Minnesota 56031
Nortech Systems
Imaging Technologies Division
2500 Niagara Lane North
Plymouth, Minnesota 55447
DIRECTORS
Quentin E. Finkelson
Chairman, President & Chief Executive Officer
Nortech Systems Incorporated
Wayzata, Minnesota
Myron Kunin
Chairman & Chief Executive Officer
Regis Corporation
Edina, Minnesota
Richard W. Perkins
President & Chief Executive Officer
Perkins Capital Management
Wayzata, Minnesota
OFFICERS
Quentin E. Finkelson
Chairman, President & Chief Executive Officer
Gregory D. Tweed
Executive Vice President & Chief Operating Officer
Garry Anderly
Senior Vice President, Corporate Finance; Treasurer
Peter L. Kucera
Vice President, Corporate Quality
<PAGE>
[LOGO]
NORTECH SYSTEMS
641 East Lake Street - Wayzata, Minnesota 55391 - (612)473-0833
