<PAGE>
As filed with the Securities and Exchange Commission on July 16, 1996.
Registration No. 333-00888
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 TO FORM S-3
(FILED ON FORM S-1)
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
NORTECH SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
---------------
Minnesota Primary Standard Industrial 41-1681094
(State or other jurisdiction of Classification Code (I.R.S. Employer
incorporation or organization) 3573 Identification No.)
641 East Lake Street, Suite 234
Wayzata, MN 55391
(612) 473-4102
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
Quentin E. Finkelson
President and Chief Executive Officer
Nortech Systems Incorporated
641 East Lake Street, Suite 234
Wayzata, MN 55391
(612) 473-4102
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copy to:
Bert M. Gross, Esq.
Phillips & Gross, P.A.
90 South Seventh Street, Suite 5420
Minneapolis, MN 55402
(612) 349-6786
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Title of Each Amount to be Proposed Proposed Amount of
Class of Securities Registered Maximum Maximum Registration Fee
to be Registered Offering Price Per Aggregate
Share (1) Offering Price (1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 111,400 shares $7.0625 $1,412,500 $487.07(2)
$.01 par value
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee under
Rule 457(c) based on the average of the high ($7.375) and the low ($6.75)
prices for such shares on the NASDAQ National Market System on January 22,
1996.
(2) Paid on January 24, 1996.
<PAGE>
NORTECH SYSTEMS INCORPORATED
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
Item No. Form S-1 Item and Caption Location in Prospectus
- -------- -------------------------------------- ------------------------------------------------------------
<S> <C> <C>
1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . . . Outside Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover
Pages of Prospectus. . . . . . . . . . . . Available Information; Outside Cover Page
of Prospectus
3 Summary Information and Risk Factors . . . . Investment Considerations
4 Use of Proceeds. . . . . . . . . . . . . . . Use of Proceeds
5 Determination of Offering Price. . . . . . . Not Applicable
6 Dilution . . . . . . . . . . . . . . . . . . Not Applicable
7 Selling Security Holders . . . . . . . . . . Selling Shareholders
8 Plan of Distribution . . . . . . . . . . . . Inside Front Cover of Prospectus; Plan of
Distribution
9 Description of Securities to be Registered . Description of Securities to be Registered
10 Interests of Named Experts and Counsel . . . Legal Opinions
11 Information with Respect to the
Registrant . . . . . . . . . . . . . . . . . The Company; Investment Considerations; Market for
Registrant's Common Equity and Related Stockholder Matters;
Selected Consolidated Financial Data; Supplementary Financial
Information; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Management; Executive
Compensation; Stock Option Grants; Stock Option Exercises and
Option Values; Security Ownership of Certain Beneficial Owners
and Management; Shares Eligible for Future Sale; Consolidated
Financial Statements
12 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . Disclosure of Commission Position on Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 9, 1996
111,400 Shares
NORTECH SYSTEMS INCORPORATED
Common Stock
_____________
The 111,400 shares of Common Stock offered hereby (the "Shares") are
being offered by the Selling Shareholders. Nortech Systems Incorporated (the
"Company") will not receive any of the proceeds from the sale of Shares by
the Selling Shareholders. See "Selling Shareholders."
The Selling Shareholders have advised the Company that sales of the
Shares may be made from time to time in the over-the-counter market, through
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Shareholders
may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Shareholders" and "Plan of Distribution."
No period of time has been fixed within which the Shares may be offered
or sold. The Company will initially pay all expenses with respect to this
offering, except for brokerage fees and commissions and transfer taxes for
the Selling Shareholders, which will be borne by the Selling Shareholders.
The Common Stock is quoted on the NASDAQ National Market System under
the symbol "NSYS." On July 8, 1996, the last sale price of the Common
Stock as reported by NASDAQ was $6.75 per share. See "Market for
Registrant's Common Equity." The Common Stock is being offered on a delayed
or continuous basis.
See "Investment Considerations" for a discussion of certain matters
that should be considered by prospective purchasers of the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation in connection with this
offering other than those contained in this Prospectus, and if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy by
anyone in any jurisdiction in which such offer to sell or solicitation is not
authorized, or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
its date.
----------
The date of this Prospectus is July 9, 1996
<PAGE>
THE COMPANY
DESCRIPTION OF BUSINESS
Nortech Systems Incorporated (the "Company") is a Minnesota
corporation organized in December 1990. Prior to December 1990, the business
of the Company was operated as DSC Nortech, Inc., which in 1990 filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. The business and assets of DSC Nortech, Inc., were transferred to the
Company in December 1990. The Company's headquarters are in Wayzata,
Minnesota, a suburb of Minneapolis, Minnesota. The Company's main
manufacturing facility is located in Bemidji, Minnesota, with a satellite
manufacturing and engineering support facility located in Augusta, Wisconsin.
The Company manufactures wire harnesses, cables, and electromechanical
assemblies. The Company provides a full "turnkey" contract manufacturing
service to its customers. This service begins with procurement of materials
and ends with the shipment of finished products to the customer. All
products are built to the customer's design specifications.
The Company believes it provides a high degree of manufacturing
sophistication. This includes the use of statistical process control to
insure product quality, state-of-the-art materials, management techniques
allowing just-in-time (JIT) delivery of products, and the systems necessary
to effectively manage the business. This level of sophistication enables
the Company to attract major original equipment manufacturers (OEM).
The strategy of the Company has been to expand its customer base, and
the Company has added several new customers from various industries;
including companies engaged in the production of medical products, super
computers, mid-size and micro computer business systems, and industrial
products. The Company strategy is to develop a customer base spanning
several industry segments to avoid the effects of fluctuations within a given
industry. Some of the Company's major customers are Cray Research, G.E.
Medical Systems and OTC, a division of SPX Corporation.
The Company believes that contract manufacturing will continue to grow
and expand in the United States because contract manufacturing provides OEMs
with the domestic equivalent of off-shore sourcing without the associated
logistical problems. The contract manufacturer can provide an OEM with a
quality product at a price well below that available in the OEM's own
facility. This is due primarily to the specialization available through the
contract manufacturer and the significantly lower overhead costs.
In 1991 the Company acquired all of the common stock of SMR Computer
Services, Inc. The Company through this subsidiary (now named Nortech
Medical Services, Inc.) provides service bureau and office management
services to physicians.
In March of 1995, the Company acquired the assets of Monitor Technology
Corporation, consisting of inventory, accounts receivable, equipment and
other assets. The Company has continued the business of Monitor which is
the manufacturing of large-screen, high-resolution video monitors for radar,
document and medical imaging. In addition, this division provides repair
services on internally and externally produced monitors.
In August of 1995, the Company acquired the assets of the Aerospace
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.
PATENTS AND LICENSES
The Company is not dependent on a proprietary product requiring
licensing, patent, copyright or trademark protection. There are no revenues
derived from the Company's service-related business for which patents,
licenses, copyrights and trademark protection are necessary for successful
operations.
2
<PAGE>
BACKLOG.
The Company's firm 90-day order backlog was approximately $3,285,000
on December 31, 1994, approximately $4,813,000 on December 31, 1995,
and approximately $6,284,000 on March 31, 1996.
RESEARCH AND DEVELOPMENT
The Company expended $124,919 on Company-sponsored research and
development in 1995 and $73,366 in the first quarter of 1996. This research
is related to the development of large-screen, high-resolution video
monitors for the Company's imaging division. In 1994 and 1993, no funds
were expended on Company-sponsored research.
COMPLIANCE WITH ENVIRONMENTAL PROVISIONS
Management believes that its manufacturing facilities are
currently operating under compliance with local, state, and federal
environmental laws. Any environmental-oriented equipment is capitalized and
depreciated over a seven-year period. The annualized depreciation expense
for this type of environmental equipment on a Company-wide basis is
insignificant.
EMPLOYEES
The Company has 288 full-time and 83 part-time employees as of March
1, 1996, consisting of 348 employees in manufacturing and manufacturing
product support and 23 in general administration.
PROPERTIES
The Company's headquarters consist of approximately 2,900 square
feet located in Wayzata, Minnesota, a western suburb of Minneapolis,
Minnesota, leased on a month-to-month basis. The Company believes its
Wayzata facilities are now adequate and will be adequate in the
foreseeable future for its headquarters. However, should the Company need
other or additional space, it believes such facilities are readily
available. The Company owns its Bemidji, Minnesota facilities consisting of
eight acres of land and 60,000 square feet of office and manufacturing
space and leases another 8,000 square feet of manufacturing and office
space in Augusta, Wisconsin.
The Company's monitor construction and repair business is operated from
a facility located in Plymouth, Minnesota. The building contains
approximately 22,800 square feet and is leased by the Company for a term
that terminates on May 31, 2000. The Company has an option to extend the
lease for an additional five-year term. The Company believes that this
facility is adequate for its monitor operations and will be adequate for
the foreseeable future for such operations.
The Company also owns three buildings which contain approximately
46,900 square feet located Fairmont, Minnesota, which are used for the
manufacturing of the Company's custom designed, high-technology electronic
cable assemblies. The Company believes that these buildings are adequate and
will be adequate in the foreseeable future for this portion of the Company's
business.
INVESTMENT CONSIDERATIONS
CONTROL OF THE COMPANY
Upon completion of this offering, Myron Kunin, a director of the
Company, will own approximately 40% of the outstanding Common Stock and will
effectively remain in a position to elect the Company's Board of Directors
and control the Company.
3
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 2,362,263 outstanding
shares of Common Stock. Of these shares, 1,279,866 shares, including the
111,400 shares sold in this offering, will be freely tradeable without
restriction under the Securities Act. The remaining 1,082,397 shares of
Common Stock are "restricted securities" within the meaning of Rule 144
under the Securities Act and are eligible for sale, subject to the volume
and other resale restrictions imposed by Rule 144.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregate) who has beneficially owned restricted
securities for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of the Common Stock (23,622 shares
immediately after completion of this offering) or (ii) the average weekly
trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Commission. Sales
pursuant to Rule 144 are also subject to certain requirements relating
to manner of sale, notice and availability of current public information
about the Company. A person who is not deemed to have been an affiliate of
the Company at any time during the 90 days immediately preceding the sale
and whose restricted securities have been fully paid for three years since
the later of the date they were acquired from the Company or the date they
were acquired from an affiliate of the Company may sell such
restricted securities under Rule 144(k) without regard to the restrictions
described above.
In March 1995, the Company acquired substantially all of the assets
of Monitor Technology Corporation ("Monitor"). A portion of the purchase
price was paid by issuing to Monitor 250,000 shares of the Company's Common
Stock. An option was granted to Monitor at closing to require the Company
to repurchase all or any portion of the 250,000 shares at $6.00 per share.
Of the 250,000 shares, 200,000 were issued to Monitor and 50,000 are held in
escrow pending an arbitration proceeding to resolve issues relating to
possible breaches of the Monitor's warranties. The 200,000 shares issued to
Monitor were distributed to Monitor's shareholders. Of these shares, 88,600
shares have been redeemed by the Company at $6.00 per share. The remaining
111,400 shares are the subject of this offering.
COMPETITION
The contract manufacturing industry is characterized by competition
among a variety of company-owned facilities and foreign competitors. The
Company does not believe that the small operations are significant
competitors, as they do not seem to have the capabilities required by
target customers of the Company. The Company also believes that foreign
competitors do not provide a substantial competitive threat because the cable
and wire harness industry involves a high weight-to-cost ratio.
Consequently, shipping and transportation costs decrease the ability of
foreign manufacturers to compete in this market segment. Further,
off-shore production cannot effectively meet the requirements of just-in-time
inventory management techniques presently being implemented by many major
target customers. Therefore, the Company's principal competitors are
larger full-service manufacturers, many of which have substantially far
greater assets and capital resources than are available to the Company and
are better financed than the Company.
The Company will continue to pursue marketing opportunities in the
Upper Midwest. Although there presently are no dominant contract
manufacturers in the wire harness and cable assembly business in the Upper
Midwest, there are several established competitors. Many of these
competitors specialize in molded cables or wire assemblies and have
sufficient manufacturing capabilities to offer a significant competitive
challenge to the Company's operations. The principal competitive factors
in the contract manufacturing industry are price, quality and responsive
service. The Company believes that it can compete favorably in the market
segments to which it sells.
4
<PAGE>
CONCENTRATION OF CUSTOMERS
Three customers accounted for approximately 24.1%, 16.6% and 11.8%
of sales, respectively, for the year ended December 31, 1995. One
customer accounted for approximately 10.4% of accounts receivable at December
31, 1995.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Market System
under the symbol "NSYS." Prior to October 11, 1995, the stock was
quoted on the NASDAQ Small Cap Market System.
The high and low bid quotations for the Company's Common Stock for
each quarterly period within the two most recent years and for the quarterly
period ended March 31, 1996, were as follows:
Quarter ended: Low High
- ------------- --- ----
March 31, 1994 $5.00 $5.75
June 30, 1994 $4.00 $4.75
September 30, 1994 $3.75 $4.50
December 31, 1994 $3.00 $3.75
March 31, 1995 $3.00 $4.00
June 30, 1995 $3.00 $4.25
September 30, 1995 $3.25 $6.00
December 31, 1995 $4.75 $8.50
March 31, 1996 $6.00 $9.00
As of May 1, 1996, there were approximately 1,460 holders of shares of
the Company's Common Stock. The Company has never paid a cash dividend on
shares of its Common Stock and does not intend to pay cash dividends in the
foreseeable future.
DESCRIPTION OF SECURITIES TO BE REGISTERED
GENERAL
The Company's authorized Common Stock consists of 9,000,000 shares,
par value $.01 per share, of which 2,362,263 shares of Common Stock were
outstanding as of April 30, 1996.
Each holder of shares of Common Stock is entitled to one vote per share
in all matters to be voted on by stockholders. There are no cumulative
voting rights.
The holders of Common Stock are entitled to share rateably in dividends
and other distributions as and when declare by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Upon the
liquidation, dissolution or winding up of the Company, and after redemption
of the 250,000 shares of preferred stock outstanding at a redemption price
of $1.00 per share (plus accrued but unpaid dividends), the
5
<PAGE>
holder of each share of Common Stock would be entitled to share pro rata in
the distribution of all assets available for distribution. The holders of
Common Stock are not entitled to preemptive rights to purchase Common
Stock. The shares of Common Stock to be sold by the selling shareholder in
this offering are fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer, Incorporated is the transfer agent
and registrar for the Common Stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following represents selected consolidated financial data as
of December 31, 1991, 1992, 1993, 1994 and 1995.
YEAR ENDED:
-----------
<TABLE>
<CAPTION>
Dec. 31, 1995(1) Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
---------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $18,305,928 $12,820,709 $11,705,833 $7,299,916 $6,052,996
Income From
Continuing Operations $1,331,924 $1,183,406 $1,042,556 $636,723 $530,413
Income Per
Common Share From
Continuing Operations $0.55 $0.54 $0.47 $0.28 $0.24
Total Assets $13,223,064 $6,647,897 $6,553,291 $5,284.001 $2,974,806
Total Long-Term
Debt $3,768,685 $746,755 $858,437 $977,635 $1,012,942
Redeemable Shares(2) $1,500,000
</TABLE>
(1) The Company acquired Monitor Technology Corporation on March 28, 1995 and
Aerospace Systems on August 23, 1995. 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.
(2) See "Shares Eligible for Future Sale."
SUPPLEMENTARY FINANCIAL INFORMATION
The following represents net sales, gross profit (net sales less costs
and expenses associated directly with or allocated to products sold or
services rendered), income before extraordinary items and cumulative effect
of a change in accounting, per share data based on such income, and net
income, for each full quarter within the two most recent fiscal years of the
Company, and for the quarter ended March 31, 1996.
6
<PAGE>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
QUARTER ENDED(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1996
-------------- ------------- ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $3,625,624 $4,374,899 $5,449,175 $4,856,590 $5,574,986
Gross Profit $673,905 $964,800 $966,969 $1,159,166 $1,006,355
Net Income $244,003 $244,049 $212,588 $631,284 $189,894
Income Per Share of
Common Stock $.11 $.10 $.10 $.25 $.08
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
- ------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1994 JUNE 30, 1994 SEPTEMBER 30, 1994 DECEMBER 31, 1994
--------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net Sales $3,499,798 $3,235,186 $2,666,091 $3,419,634
Gross Profit $704,144 $614,024 $566,570 $713,831
Net Income $297,126 $262,564 $200,622 $423,094
Income Per Share of
Common Stock $.14 $.12 $.09 $.19
</TABLE>
(1) The Company acquired Monitor Technology Corporation on March 28, 1995 and
Aerospace Systems on August 23, 1995. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 industries.
For the quarter ended March 31, 1996, the Company had revenues
of $5,574,986 compared to revenues of $3,625,264 for the quarter ended
March 31, 1995. The increase in revenues resulted primarily from the
additional revenues generated by the recently acquired Aerospace Division.
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 was due to increased sales levels and acquisition
activity in 1995.
7
<PAGE>
For the quarter ended March 31, 1996, the Company had gross profit
of $1,006,355 compared to gross profit of $673,905 for the quarter ended
March 31, 1995. Increased gross profit resulted from the increased revenue
levels due to the recently acquired Aerospace Division.
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.
For the quarter ended March 31, 1996, selling, general and
administrative expenses were $593,108 compared to $404,447 for the same
period in 1995. The increase was associated with the acquisition of the
Aerospace Division which was not included in the period ended March 31, 1995.
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.
During the quarter ended March 31, 1996, the miscellaneous income was
$56 compared to $25,289 for the period ended March 31, 1995. Reduced
miscellaneous income was due to changes in the mix of the Company's business.
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.
For the quarter ended March 31, 1996, interest expense was $86,745
compared to $21,441 for the period ended March 31, 1995. Increased
interest expense reflects the additional debt incurred for the acquisition
of Monitor Technology and the Aerospace Division.
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 carryforward attributes in a Chapter 11 bankruptcy prior
to December 31, 1993 where stock was issued for debt, need not be
reduced by debt 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.
During the quarter ended March 31, 1996, a tax provision of $63,300
was recorded compared to no such provision for the quarter ended March 31,
1995. No tax expense was recorded in 1995 because of the reasons
8
<PAGE>
set forth above.
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.
The net income for the three months ended March 31, 1996 was $189,894
or $.08 per share, compared to a net income of $244,003 or $.11 per share,
for the three months ended March 31, 1995. The net income for the quarter
ended March 31, 1996 was primarily impacted by the continuing expending
funds on Company-sponsored research and development of large-screen,
high resolution video monitors for the imaging division and the
recognition of income tax expense. The net income for the quarter ended
March 31, 1995 includes expenses associated with the reconfiguration of the
Bemidji Production facility.
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, and to $5,658,228 as of
March 31, 1996. 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 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, the division provides repair services on
internally and externally produced monitors.
In August 1995, the Company acquired 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.
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.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue following
the guidance of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, for measurement and recognition of
stock-based transactions with employees. The Company will adopt the
disclosure provisions of SFAS No. 123 in 1996.
9
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION OR DIRECTOR SINCE
- -------------- --- --------------------------------------------- -----------------
<S> <C> <C> <C>
Quentin E. Finkelson 63 Chairman, President, Chief Executive Officer
and Secretary 1990
Gregory D. Tweed 46 Senior Vice President and General Manager 1990
Garry Anderly 49 Vice President of Finance and Administration 1990
Peter L. Kucera 49 Vice President of Quality 1990
Myron Kunin 67 Director 1990
Richard W. Perkins 65 Director 1993
</TABLE>
Mr. Finkelson has been President and Chief Executive Officer,
Treasurer, Secretary and Director since November 30, 1990. Prior thereto,
Mr. Finkelson was President, Secretary and Treasurer of DSC Nortech,
Inc., the Company's predecessor, and a director of that Company since 1988.
Mr. Tweed has been Senior Vice President and General Manager of the
Company since November 30, 1990.
Mr. Anderly has been Vice President of Finance and Administration of
the Company since November 30, 1990.
Mr. Kucera has been Vice President of Quality of the Company since
November 30, 1990.
Mr. Kunin has served as Chairman of the Board of Directors and
Chief Executive Officer of Regis Corporation since 1983. He is also a
director of The Cerplex Group. He has been a director of the Company since
November 30, 1990.
Mr. Perkins is President, Chief Executive Officer and a director of
Perkins Capital Management, Inc., where he has held those positions since
January 1985. He is also a director of Bio-Vascular, Inc., Childrens
Broadcasting Corporation, Lifecore Biomedical, Inc., Garment Graphics,
Inc., CNS, Inc., Eagle Pacific Industries, Quantech, Ltd. and Discus
Acquisition Corporation.
Directors of the Company are elected at the annual shareholders meeting
and serve until their successors are duly elected and qualified. Executive
officers of the Company are elected by the Board of Directors and serve
until their successors are duly elected and qualified.
EXECUTIVE COMPENSATION
The following table shows, for 1995, 1994 and 1993, the cash
compensation paid by the Company, as well as certain other compensation paid
or accrued for those years, to the Company's President/Chief Executive
Officer, the only executive officer whose total annual compensation exceeded
$100,000:
10
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quentin E. Finkelson 1995 122,453 0 50,000
President/Chief Executive Officer 1994 113,412 0 10,000
Secretary, and Director 1993 110,035 0 15,000
</TABLE>
STOCK OPTION GRANTS
The following table provides information on stock options granted in
1995 to the Named Executive Officer pursuant to the Company's 1992 Stock
Option Plan.
OPTION SHARES GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS/ POTENTIAL REALIZABLE
SARS VALUE AT ASSUMED
OPTIONS/ GRANTED TO ANNUAL RATES OF STOCK
SARS EMPLOYEES EXERCISE OR PRICE APPRECIATION
GRANTED IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERM
NAME (#) YEAR ($/SH) DATE ---------------------
5%($)(1) 10%($)(1)
(A) (B) (C) (D) (E) (F) (G)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Quentin E. Finkelson 50,000 52.6% 5.25 12/1/05 165,085 418,346
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 5% and 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
STOCK OPTION EXERCISES AND OPTION VALUES
The following table contains information concerning stock options
exercised during 1995 and stock options unexercised at the end of 1995 with
respect to the Named Executive Officer:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Value of
Number of unexercised
unexercised in-the-money
options/SARs at options/SARs at
fiscal year-end fiscal year-end
(#) ($)
---------------------------------------
Shares
acquired on Value Exercisable/ Exercisable
Name exercise(#) Realized($) unexercisable unexercisable
(a) (b) (c) (d) (e)(1)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quentin E. Finkelson 0 0 25,000/50,000 139,375/137,500
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Market value of underlying securities at year-end minus the exercise price.
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 1, 1996, the ownership of
Common Stock of the Company by each shareholder who is known by the
Company to won beneficially more than 5% of the outstanding shares of the
Company, by each director and by all executive officers and directors as a
group. The parties listed in the table have the voting and investment
powers with respect to the shares indicated:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
BENEFICIALLY OWNED OF CLASS
- ---------------------------------------------------------------------------------
<S> <C> <C>
Myron Kunin 958,357 40.6%
7201 Metro Boulevard
Edina, MN 55439
- ---------------------------------------------------------------------------------
Quentin Finkelson 137,040(1) 5.8%
- ---------------------------------------------------------------------------------
Richard W. Perkins 12,000 *
- ---------------------------------------------------------------------------------
All executive officers and directors 1,129,897(2) 47.8%
as a group (six persons)
</TABLE>
(1) Includes 25,000 shares subject to presently exercisable options granted to
Mr. Finkelson pursuant to the Company's stock option plan.
(2) Includes 42,500 shares subject to presently exercisable options.
* Less than one percent.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of May 1, 1996, and as adjusted
to reflect the sale of the Common Stock offered hereby for the Selling
Shareholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
-------------------- -------------------
SHARES BEING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ------ ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Jack Lehtinen 69,600 2.8% 69,600 0 0
Joseph Lloyd (2) 7,400 * 7,400 0 0
Daniel J. Jones 2,300 * 2,300 0 0
Timothy J. Kalstad 2,400 * 2,400 0 0
Thomas J. Tingo 900 * 900 0 0
Curtis S. Gustafson 9,600 * 9,600 0 0
John L. Roudebush 9,600 * 9,600 0 0
John F. Lamoureux 9,600 * 9,600 0 0
</TABLE>
- ----------------------
(1) Excludes additional Shares that may be awarded to the Selling Shareholders
pursuant to pending arbitration proceedings. See "Shares Eligible for
Future Sale." The maximum number of additional
12
<PAGE>
Shares subject to award to each Selling Shareholder is as follows:
Mr. Lehtinen 17,400; Mr. Lloyd 1,850; Mr. Jones 1,200; Mr. Kalstad 600;
Mr. Tingo 600; and Messrs. Gustafson, Roudebush and Lamoureux 2,400 each.
(2) Mr. Lloyd is employed by the Company as the general manager of its Imaging
Technologies Division.
* less than one percent.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholders may sell
Shares from time to time in transactions in the over-the-counter
market, through negotiated transactions or otherwise, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices.
Sales may be made pursuant to this Prospectus to or through
broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or the purchasers
of Common Stock for whom such broker-dealer may act as agent or to whom they
may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling
Shareholders and any broker-dealers or other persons acting on their
behalf in connection with the sale of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit realized by them on the resale
of the Shares as principals may be deemed to be underwriting commissions
under the Securities Act. No period of time has been fixed within which the
Shares may be offered or sold.
The Company will not receive any part of the proceeds of any sales
of Shares pursuant to this Prospectus. Pursuant to the agreements entered
between the Company and the Selling Shareholders, the Company will initially
pay all the expenses of registering the Shares, except for selling expenses
incurred by the Selling Shareholders in connection with this offering,
including any fees and commissions payable to broker-dealers or other
persons, which will be borne by the Selling Shareholders.
LEGAL OPINIONS
The validity of the Common Stock being offered hereby will be passed
upon for the Company and the Selling Shareholders by Phillips &
Gross, P.A., Minneapolis, Minnesota. Bert Gross, a shareholder of Phillips
& Gross, P.A., owns 30,000 shares of the Company's stock.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company as of December 31, 1994 and 1995 and for the years ended
December 31, 1993, 1994, and 1995 included herein and elsewhere in the
Registration Statement, audited by Larson, Allen, Weishair & Co., LLP,
independent auditors, as stated in their reports herein and elsewhere in
the Registration Statement, are included herein in reliance on the reports
of such firm, given on the authority of that firm as experts in accounting
and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section 302A.521, Minnesota Statutes, provides that a corporation
shall indemnify any person who was or is made or is threatened to be made a
party to any proceeding by reason of the former or present official
capacity of such person against judgments, penalties and fines including,
without limitation, excise taxes assessed against each person with respect
to an employee benefit plan, settlements, and reasonable expenses,
including
13
<PAGE>
attorneys' fees and disbursements, incurred by such person in connection
with the proceeding, if, with respect to the acts or omissions of such
person complained of in the proceeding, such person (i) has not been
indemnified by another organization or employee benefit plan for the same
penalties, fines, taxes and expenses with respect to the same acts or
omissions; (ii) acted in good faith; (iii) received no improper personal
benefit and Section 302A.255 (regarding conflict of interest), if
applicable, has been satisfied; (iv) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful; and (v) in the
case of acts or omissions by persons who were or are serving other
organizations at the request of the corporation or whose duties involve
or involved service for other organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information
can be inspected and copied at the public reference facility maintained by
the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington D.C. 20549, and at the regional offices of the Commission at 7
World Trade Center, 13th Floor, New York, New York 10048 and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 at prescribed rates. The Common Stock is quoted on the
NASDAQ National Market System and reports, proxy statements and other
information regarding the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of the Registration Statement on Form
S-1 filed by the Company with the Commission under the Securities Act.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect
to the Company. Any statements contained herein concerning the provisions
of any contract, agreement or other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected without charge at the
Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, and copies of all or any part thereof may be obtained
from such office at prescribed rates.
14
<PAGE>
- --------------------------------------------
- --------------------------------------------
TABLE OF CONTENTS
PAGE
The Company. . . . . . . . . . . . . . . 2
Investment Considerations. . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . 5
Market for Registrant's Common Equity
and Stockholder Matters . . . . . . . . 5
Description of Securities to be
Registered. . . . . . . . . . . . . . . 5
Selected Consolidated Financial Data . . 6
Supplementary Financial Information. . . 6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . 7
Management . . . . . . . . . . . . . . . 9
Executive Compensation . . . . . . . . . 10
Stock Option Grants. . . . . . . . . . . 10
Option Shares Granted in Last Fiscal
Year. . . . . . . . . . . . . . . . . . 10
Stock Option Exercises and Option
Values. . . . . . . . . . . . . . . . . 10
Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . 11
Selling Shareholders . . . . . . . . . . 12
Plan of Distribution . . . . . . . . . . 12
Legal Opinions . . . . . . . . . . . . . 12
Experts. . . . . . . . . . . . . . . . . 12
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . 12
Available Information. . . . . . . . . . 13
Index to Consolidated Financial
Statements. . . . . . . . . . . . . . . F-1
- --------------------------------------------
- --------------------------------------------
--------------------------------------------
--------------------------------------------
111,400 Shares
NORTECH SYSTEMS INCORPORATED
Common Stock
__________
PROSPECTUS
__________
______________, 1996
--------------------------------------------
--------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities being registered:
ITEM AMOUNT
----- ------
Securities and Exchange Commission Registration Fee . . . $ 608.84*
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . $ 500.00*
Legal Fees and Expenses . . . . . . . . .. . . . . . . $10,000.00*
Accounting Fees and Expenses . . . . . . . . . . . . . . $ 4,000.00*
Transfer Agent Fees and Expenses . . . . . . . . . . . . $ 200.00*
Miscellaneous Expenses . . . . . . . . . . . . . . . . . $ 200.00*
Total . . . . . . . . . . . . . . . . . . . . . . . $ 15,508.84
- -------------------
*Estimated Amounts.
Item 14. Indemnification of Directors and Officers.
Section 302A.521, Minnesota Statutes, provides that a corporation shall
indemnify any person who was or is made or is threatened to be made a party to
any proceeding by reason of the former or present official capacity of such
person against judgments, penalties and fines including, without limitation,
excise taxes assessed against each person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (i) has not been indemnified by another organization or
employee benefit plan for the same penalties, fines, taxes and expenses with
respect to the same acts or omissions; (ii) acted in good faith; (iii) received
no improper personal benefit and Section 302A.255 (regarding conflict of
interest), if applicable, has been satisfied; (iv) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and (v)
in the case of acts or omissions by persons who were or are serving other
organizations at the request of the corporation or whose duties involve or
involved service for other organizations, reasonably believed that the conduct
was not opposed to the best interests of the corporation.
Item 15. Recent Sales of Unregistered Securities.
The following information is furnished as to all securities of the Company
sold by the Company within the past three years which were not registered under
the Securities Act: On March 28, 1995 the Company acquired all of the assets of
Monitor Technology Corporation in exchange for 250,000 shares of the Company's
common stock. The assets of Monitor were valued for purposes of this
transaction at $1,500,000. Exemption from registration was claimed under
Section 4(2) of the Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
II-1
<PAGE>
REGISTRATION
S-K EXHIBIT
TABLE
ITEM REFERENCE
- ----- ---------
Asset Purchase Agreement between the Registrant, Monitor
Technology Corporation and the Shareholders of Monitor
Technology Corporation dated February 24, 1995
(incorporated by reference to Exhibit 2 to Form 8-K Current
Report filed April 5, 1995) 2.1
Asset Purchase Agreement between the Registrant and
Communication Cable, Inc. dated August 23, 1995
(incorporated by reference to Exhibit 2 to Form 8-K
Current Report filed August 28, 1995) 2.2
Articles of Incorporation of the Company 3.1
Bylaws of the Company 3.2
Form of Stock Certificate 4.1
Opinion of Phillips & Gross, P.A. 5
Revolving Note and Security Agreement for working capital
line of credit between Company and Northern National Bank
dated December 29, 1995 (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995) 10.1
Promissory Note for purchase of facility in Fairmont, Minnesota
between Company and Northern National Bank dated
December 29, 1995 (incorporated by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995) 10.2
Promissory Note for purchase of capital equipment located in Fairmont,
Minnesota facility between Company and Northern National Bank dated
December 29, 1995 (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995) 10.3
Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2
and 10.3 (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995) 10.4
Promissory Note for working capital line of credit between the
Company and Northern National Bank dated May 2, 1994 (incorporated
by reference to Exhibit 10.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994) 10.5
Promissory Note and Loan Agreement for capital equipment line of credit
between the Company and Northern National Bank dated April 29, 1994
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994) 10.6
Loan Agreement for Real Estate between the Company and Northern
National Bank dated March 18, 1994 (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994) 10.7
II-2
<PAGE>
Update Promissory Note and Loan Agreement for NMS capital equipment
between the Company and Northern National Bank dated January 15, 1995
(incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994) 10.8
Promissory Notes and Loan Agreement for Real Estate between the
Company and MMCDC and MMCDC/NNC dated March 18, 1994 (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994) 10.9
Promissory Note and Loan Agreement for capital equipment line of credit
between the Company and Northern National Bank dated September 24, 1993
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993) 10.10
Promissory Notes for capital equipment between the Company and City of
Augusta, Wisconsin dated August 17, 1993 (incorporated by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993) 10.11
Promissory Notes and Loan Agreement for capital equipment between the
Company and Northern States Power Company dated November 15, 1993
(incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993) 10.12
Nortech Medical Services, Inc. Wholly-owned subsidiary of the Company
incorporated in Minnesota on August 12, 1991 21
Consent of Larson, Allen, Weishair & Co., LLP 23.1
Consent of Phillips & Gross, P.A. (included in Exhibit 5) 23.2
Powers of Attorney 24
(b) Financial Statement Schedules.
Report of Independent Auditors on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules to the consolidated financial statements required by
Article 5 of Regulation S-X are inapplicable and, therefore, have been omitted.
Item 17. Undertakings
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus as filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective, and
II-3
<PAGE>
(2) for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant further hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on the 9th day of July, 1996.
NORTECH SYSTEMS INCORPORATED
By /s/ Quentin E. Finkelson
--------------------------------------
Quentin E. Finkelson, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Quentin E. Finkelson Chairman of the Board of Directors,
- ------------------------- President and Chief Executive Officer
Quentin E. Finkelson (Principal Executive Officer) July 9, 1996
/s/ Garry M. Anderly Vice President of Finance and
- ------------------------- Administration (Principal Financial
Garry M. Anderly and Accounting Officer) July 9, 1996
*
- ------------------------- Director July 9, 1996
Myron Kunin
*
- ------------------------- Director July 9, 1996
Richard W. Perkins
*By /s/ Quentin E. Finkelson
-------------------------- July 9, 1996
Quentin E. Finkelson
(Attorney-in-Fact)
</TABLE>
- -------------------
* Quentin E. Finkelson, pursuant to Powers of Attorney executed by each of
the directors listed above whose name is marked by an "*" and filed as
an exhibit hereto, by signing his name hereto does hereby sign and
execute this Registration Statement on behalf of each such directors.
S-1
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report. F-2
Consolidated Balance Sheets at December 31, 1995 and 1994. F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993. F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. F-6
Notes to Consolidated Financial Statements. F-8
Consolidated Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995. F-22
Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995 (unaudited). F-24
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (unaudited). F-25
F-1
<PAGE>
LARSON
ALLEN
[LOGO] WEISHAIR
& CO.
CERTIFIED PUBLIC ACCOUNTANTS
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 perforrn 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
ervded December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Larson, Allen, Meishair & Co., LLP
LARSON, ALLEN, MEISHAIR & CO., LLP
St. Cloud, Minnesota
February 16, 1996
F-2
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
ASSETS
<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
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
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.
F-3
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
-------- ------- ----------- ------------ ----------
-------- ------- ----------- ------------ ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
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.
F-6
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
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 Ass (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 Pa (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
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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
F-8
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995,1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, $O, and $O, 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.
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.
F-9
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-10
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 ACQUISITIONS (CONTINUED)
MONITOR TECHNOLOGY CORPORATION (CONTINUED)
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 hereafter.
The Company's obligation under the repurchase agreement is guaranteed
by a director of the Company.
AEROSPACE
On August 23, 1995, the Company acquired the Aerospace Division of
Communication Cable, Inc. The Aerospace Division 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
------------
------------
F-11
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 ACQUISITIONS (CONTINUED)
The following proforma unaudited consolidated statements of income
for the Company are presented as though the acquisitions of Monitor
Technology Corporation and the Aerospace Division of Communication
Cable, Inc. had occurred on January 1, 1995 and 1994.
<TABLE>
<CAPTION>
(Unaudited) 1995 1994
------------------------------------- -------------- --------------
<S> <C> <C>
Revenues $22,332,054 $120,449,800
----------- ------------
----------- ------------
Net Income (Loss) $ 1,497,486 $ 1,281,232
----------- ------------
----------- ------------
Net Income Per Share of Common Stock $ .61 $ .52
----------- ------------
----------- ------------
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
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
---------- ----------
----------- ----------
</TABLE>
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.
F-12
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT
<TABLE>
<CAPTION>
Description 1995 1994
---------------------------------------------- ---------- -------
<S> <C> <C>
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
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
F-13
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 311,1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT (CONTINUED)
Description 1995 1994
---------------------------------------------- ---------- -------
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 and Inventory and
General Intangibles 640,000 0
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
Note Payable - Northern National Bank,
Interest at Bank's Prime, Monthly Payments of
$375 Including Interest, Due 0 4,296
January 15, 1996; Secured by Vehicle ---------- --------
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
---------- --------
---------- --------
</TABLE>
F-14
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT (CONTINUED)
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.
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.
F-15
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 RELATED PARTY TRANSACTIONS (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<C> <C> <C>
Current Taxes - Federal $ 37,000 $ 17,183 $ 2,148
Current Taxes - State 63,000 17,023 6,646
Deferred Taxes (100,000) (280,000) (250,000)
--------- --------- ---------
Total $ 0 $(245,794) $(241,206)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax assets at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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
----------- ----------
----------- ----------
</TABLE>
The statutory rate reconciliation for each of the three years in the
period ended December 31, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
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)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 8 INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
Investment Research and
Operating Loss Tax Credit Development Tax
Year of Expiration Carryforward Carryforward Credit Carryforward
------------------ -------------- -------------- -------------------
<S> <C> <C> <C>
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
---------- -------- --------
---------- -------- --------
</TABLE>
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.
F-17
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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.
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.
F-18
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 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:
<TABLE>
<CAPTION>
Option Price
Shares (Per Share)
---------- --------------
<S> <C> <C>
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
--------
--------
</TABLE>
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.
F-19
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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.
F-20
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
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 0.11 0.10 0.10 0.25 0.55
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total
3/31/95 6/30/95 9/30/95 12/31/95 1995
-------------- -------------- -------------- -------------- -------------
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 0.14 0.12 0.09 0.19 0.54
</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.
F-21
<PAGE>
NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS
MARCH 31, 1996 and DECEMBER 31, 1995
MARCH 31 DECEMBER 31
ASSETS 1996 1995
(UNAUDITED) (AUDITED)
----------- ------------
Current Assets
Cash and cash equivalents $ 472,605 $ 924,590
Accounts receivable, net 2,870,570 1,856,219
Inventories:
Finished goods 200,705 205,879
Work in process 2,020,197 1,676,949
Raw materials 2,462,519 1,972,384
----------- ------------
Total inventories $ 4,683,421 $ 3,855,212
Prepaid expenses and other 651,623 561,701
----------- ------------
Total current assets $ 8,678,219 $ 7,197,722
----------- ------------
PLANT, Property, and Equipment (at Cost)
Land and Building/leaseholds $ 2,008,315 $ 2,005,859
Manufacturing equipment 2,321,675 2,389,201
Office and other equipment 1,835,097 1,701,640
----------- ------------
$ 6,165,087 $ 6,096,700
Less accumulated depreciation and
amortization (2,280,323) (2,256,862)
----------- ------------
$ 3,884,764 $ 3,839,838
----------- ------------
Other Assets
Goodwill and other intangible assets 987,732 998,254
Deferred tax asset 1,130,000 1,130,000
Other assets 57,250 57,250
----------- ------------
Total Other Assets $ 2,174,982 2,185,504
----------- ------------
Total Assets $14,737,965 $13,223,064
=========== ============
F-22
<PAGE>
NORTECH SYSTEMS INCORPORATED
BALANCE SHEETS
MARCH 31, 1996 and DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31 DECEMBER 31
1996 1995
(UNAUDITED) (AUDITED)
----------- -----------
Current Liabilities:
Current maturities of long-term debt $ 288,748 $ 283,100
Line of credit 0 0
Accounts payable 2,140,595 1,054,880
Accured payrolls and commissions 574,793 407,016
Other 15,855 173,217
----------- -----------
Total Current Liabilities $ 3,019,991 $ 1,918,213
----------- -----------
Long-Term Debt
Notes Payable (net of current
maturities shown above) $ 3,961,730 $ 3,768,685
----------- -----------
Redeemable Stock $ 1,500,000 $ 1,500,000
Shareholders' 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
March 31, 1996 and December 31, 1995,
Respectively 22,009 22,009
additional paid-in capital 11,242,672 11,242,672
accumulated deficit (5,258,437) (5,478,515)
----------- -----------
Total Shareholders' Equity $ 6,256,244 $ 6,036,166
----------- -----------
Total Liabilities, Redeemable Stock and
Shareholders' Equity $14,737,965 $13,223,064
=========== ============
F-23
<PAGE>
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND MARCH 31, 1995
MARCH 31 MARCH 31
1996 1995
(Unaudited) (Unaudited)
----------- -----------
Sales $5,574,986 $3,625,264
Cost of Sales 4,568,631 2,951,359
---------- ----------
Gross Profit $1,006,355 $ 673,905
18.1% 18.6%
Selling, General and Admin. 593,108 404,447
Engineering/Reseach & Development 73,366 29,303
Misc. (Income) Expense, net (58) (25,289)
Interest Expense 86,745 21,441
---------- ----------
Net Income (Loss) Before Tax
Provision $ 253,194 $ 244,003
Tax Provision 63,300 0
---------- ----------
Net Income $ 189,894 $ 244,003
========== ==========
Income (Loss) per Share of Common Stock
Net income $ 0.08 $ 0.11
========== ==========
Weighted Average Number of Shares
Outstanding 2,450,863 2,206,398
========== ==========
F-24
<PAGE>
NORTECH SYSTEMS INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND MARCH 31, 1995
MARCH 31 MARCH 31
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash Flows from Operating Activities
Net Income $ 189,894 $ 244,003
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 65,524 61,246
Changes in Operating Assets and Liabilities:
Accounts receivable (1,014,351) (468,218)
Inventories (828,209) (518,928)
Prepaid expenses (89,922) (113,991)
Other assets 10,522 (552,707)
Accounts payable 1,085,715 476,621
Accured payrolls 167,777 (86,791)
Other accruals (157,362) (7,669)
------------ ------------
Net cash used by operating act. (570,412) (966,434)
Cash Flows from Investing Activities:
Acquistion of equipment (99,928) (42,629)
Acquistion of Comp. assets 0 (697,210)
Net Proceeds Under Line of Credit 0 0
Proceeds from Sale of Stock 0 1,202,198
Other activities 19,661 0
Payment of Pref. Stock Dividend 0 (14,514)
------------ ------------
Net cash provided by investing act. (80,267) 447,845
Cash Flows from Financing Activities:
Net borrowing of L/T debt 225,000 300,000
Payments of long term debt (31,954) (31,415)
Change in current debt 5,648 (41,260)
------------ ------------
Net cash provided by financing
activities 198,694 227,325
------------ ------------
Net (Decrease) in Cash (451,985) (291,264)
Cash at Beginning of Period 924,590 841,702
------------ ------------
Cash at End of Period $ 472,605 $ 550,438
=========== ===========
F-25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
REGISTRATION
S-K EXHIBIT
TABLE
REFERENCE PAGE
- --------- ----
<S> <C> <C>
2.1 Asset Purchase Agreement between the Registrant, Monitor Technology Corporation and the
Shareholders of Monitor Technology Corporation dated February 24, 1995 (incorporated by
reference to Exhibit 2 to Form 8-K Current Report filed April 5, 1995) . . . . . . . . . . . .
2.2 Asset Purchase Agreement between the Registrant and Communication Cable, Inc. dated
August 23, 1995 (incorporated by reference to Exhibit 2 to Form 8-K Current Report filed
August 28, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.1 Articles of Incorporation of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Bylaws of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.1 Form of Stock Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 Opinion of Phillips & Gross, P.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.1 Revolving Note and Security Agreement for working capital line of credit between Company
and Northern National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year ended December 31, 1995) . . . . . .
10.2 Promissory Note for purchase of facility in Fairmont, Minnesota between Company and Northern
National Bank dated December 29, 1995 (incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995). . . . . . . . . .
10.3 Promissory Note for purchase of capital equipment located in Fairmont, Minnesota facility
between Company and Northern National Bank dated December 29, 1995 (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.4 Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2 and 10.3 (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Promissory Note for working capital line of credit between the Company and Northern National
Bank dated May 2, 1994 (incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994) . . . . . . . . . . . . . . . . . .
10.6 Promissory Note and Loan Agreement for capital equipment line of credit between the Company
and Northern National Bank dated April 29, 1994 (incorporated by reference to Exhibit 10.2
to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) . . . . . .
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REGISTRATION
S-K EXHIBIT
TABLE
REFERENCE PAGE
- --------- ----
<S> <C> <C>
10.7 Loan Agreement for Real Estate between the Company and Northern National Bank dated
March 18, 1994 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994). . . . . . . . . . . . . . . . . . . . . .
10.8 Update Promissory Note and Loan Agreement for NMS capital equipment between the Company
and Northern National Bank dated January 15, 1995 (incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K for the year ended December 31, 1994) . . . . . .
10.9 Promissory Notes and Loan Agreement for Real Estate between the Company and MMCDC and
MMCDC/NNC dated March 18, 1994 (incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994). . . . . . . . . . . . . . .
10.10 Promissory Note and Loan Agreement for capital equipment line of credit between the
Company and Northern National Bank dated September 24, 1993 (incorporated by reference
to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31,
1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.11 Promissory Notes for capital equipment between the Company and City of Augusta, Wisconsin
dated August 17, 1993 (incorporated by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993) . . . . . . . . . . . . . . . . . .
10.12 Promissory Notes and Loan Agreement for capital equipment between the Company and Northern
States Power Company dated November 15, 1993 (incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1993). . . . . . . .
21 Nortech Medical Services, Inc. Wholly-owned subsidiary of the Company incorporated in
Minnesota on August 12, 1991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.1 Consent of Larson, Allen, Weishair & Co.. . . . . . . . . . . . . . . . . . . . . . . . . . .
23.2 Consent of Phillips & Gross, P.A. (included in Exhibit 5) . . . . . . . . . . . . . . . . . .
24 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
NORTECH SYSTEMS INCORPORATED
The undersigned individual, being of full age, for the purpose of
forming a corporation under and pursuant to Chapter 302A of the Minnesota
Statutes, as amended, hereby adopts the following Articles of Incorporation:
ARTICLE 1 - NAME
1.1) The name of the corporation shall be Nortech Systems Incorporated.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at 2350 Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402.
ARTICLE 3 - CAPITAL STOCK
3.1) AUTHORIZED SHARES. The aggregate number of shares the corporation
has authority to issue shall be 10 million shares, consisting of 9 million
shares of Common Stock which shall have a par value of $.01 per share solely for
the purpose of a statute or regulation imposing a tax or fee based upon the
capitalization of the corporation, and 1 million shares of Preferred Stock,
$1.00 par value.
3.2) PREFERRED STOCK RIGHTS. The Preferred Stock shall have the following
rights, privileges, and limitations:
(a) VOTING. Holders of Preferred Stock shall not be entitled to vote at
any time or under any circumstances except as otherwise required by law.
(b) DISTRIBUTIONS. The holders of record of shares of Preferred Stock
shall be entitled to receive, when and as declared, distributions at the
annual rate of twelve percent (12%) of par value per share, payable pro
rata from the date of issue in semi-annual payments to be made on June 30
and December 31 of each year. Distributions from the Preferred Stock shall
not be cumulative, and no rights shall accrue to holders of shares of
Preferred Stock by reason of the fact that the corporation may fail to
declare or pay dividends on the Preferred Stock in any previous fiscal year
of the corporation.
(c) LIQUIDATION. In the event of any liquidation, dissolution or winding
up of the corporation, holders of Preferred Stock shall be entitled to
receive One Dollar ($1.00) per share, plus any accrued but unpaid
distributions
<PAGE>
(with any distributions payable in the then current year calculated on a
pro rata basis from the beginning of that year to the effective date of
the liquidation, dissolution, or winding up of the corporation), before
any distribution shall be made on account of the Common Stock. Such payment
with respect to the Preferred Stock shall constitute the extent of the
participation of the holders of the Preferred Stock in any and all present
or future distributions of the corporation or the stock, securities, or
assets to be receive by holders of equity securities of the corporation.
After such payment to the holders of Preferred Stock, any remaining assets
of the corporation available for distribution shall be distributed solely
for the ratable benefit of the holders of Common Stock.
3.3) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
valuing all nonmonetary consideration and establishing a price in money or other
consideration, or a minimum price, or a general formula or method by which the
price will be determined.
3.4) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.
3.5) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The Board
is further authorized to issue shares of one class or series to holders of that
class or series or to holders of another class or series to effectuate share
dividends or splits.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.
4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by
the shareholders of the corporation
ARTICLE 5 - DIRECTOR
5.1) NAME. The name of the person constituting the first Board of
Directors is as follows:
Myron Kunin
2
<PAGE>
5.2) WRITTEN ACTION BY DIRECTORS. Any action required or permitted to be
taken at a Board meeting may be taken by written action signed by all of the
directors.
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.
ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) After the issuance of shares of the corporation, any provision
contained in these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority of the
voting power of the shares present and entitled to vote at a duly held meeting
or such greater percentage as may be otherwise prescribed by the laws of the
State of Minnesota.
ARTICLE 8 - AMENDMENT OF BYLAWS
8.1) After the initial Bylaws of the corporation are adopted by the
incorporators or first Board in the manner provided by law, and subject to the
limitations and the power of the shareholders to amend the Bylaws as provided by
law, the Board of Directors may adopt, amend or repeal the Bylaws.
ARTICLE 9 - LIMITATION OF DIRECTOR LIABILITY
9.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE 10 - INCORPORATOR
10.1) The name and mailing address of the incorporator are as follows:
Myron Kunin, c/o Bert M. Gross
2350 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
3
<PAGE>
I swear that the foregoing is true and accurate and that I have the
authority to sign these Articles of Incorporation.
Dated: October 30, 1990.
/s/ Myron Kunin
---------------------------------
Myron Kunin
4
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NORTECH SYSTEMS INCORPORATED
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation shall be in the City of Wayzata, County of Hennepin, Minnesota.
SECTION 2. REGISTERED OFFICE. The location and address of the registered
office of the corporation is 641 East Lake Street, Suite 234, Wayzata, Minnesota
55391. The registered office need not be identical with the principal executive
office of the corporation and may be changed from time to time by the Board of
Directors.
SECTION 3. OTHER OFFICES. The corporation may have other offices at such
places within and without the State of Minnesota as the Board of Directors may
determine from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this
corporation shall be held at its principal executive office unless some other
place for any such meeting within or without the State of Minnesota is
designated by the Board of Directors in the notice of meeting.
SECTION 2. REGULAR MEETINGS. Regular meetings of the shareholders of this
corporation may be held at the discretion of the Board of Directors on an annual
or less frequent periodic basis on such dates and at such times and places as
may be designated by the Board of Directors in the notices of meeting. At
regular meetings the shareholders shall elect a Board of Directors and transact
such other business as may be appropriate for action by shareholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes appropriate for action by shareholders, may be called by
the chief executive officer, by the acting chief executive officer in the
absence of the chief executive officer, or by the Board of Directors or any two
or more members thereof. Such meeting shall be held on such date and at such
time and place as shall be fixed by the person or persons calling the meeting
and designated in the notice of meeting. Business transacted at any special
meeting of shareholders shall be limited to the purpose or purposes stated in
the notice of meeting. Any business transacted at any special meeting of
shareholders that is not included among the stated purposes of such meeting
shall be voidable by or on behalf of the corporation unless all of the
shareholders have waived notice of the meeting.
<PAGE>
SECTION 4. NOTICE OF MEETINGS. Except where a meeting of shareholders is
an adjourned meeting and the date, time, and place of such meeting were
announced at the time of adjournment, notice of all meetings of shareholders
stating the date, time, and place thereof, and any other information required by
law or desired by the Board of Directors or by such other person or persons
calling the meeting, and in the case of special meetings, the purpose thereof,
shall be given to each shareholder of record entitled to vote at such meeting
not less than ten (10) days prior to the date of such meeting. If a plan of
merger or exchange or the sale or other disposition of all or substantially all
of the assets of the corporation is to be considered at a meeting of
shareholders, notice of such meeting shall be given to every shareholder,
whether or not entitled to vote. The notice of meeting at which there is to be
considered a proposal to adopt a plan of merger or exchange or the sale or other
disposition of all or substantially all of the assets of the corporation shall
be given not less than ten (10) days prior to the date of such meeting, shall
state the purpose of such meeting, and, where a plan of merger or exchange is to
be considered, shall include a copy or a short description of the plan.
Notices of meeting shall be given to each shareholder entitled thereto by
oral communication, by mailing a copy thereof to such shareholder at an address
designated by such shareholder or to the last known address of such shareholder,
by handing a copy thereof to such shareholder, or by any other delivery that
conforms to law. Notice by mail shall be deemed given when deposited in the
United States mail with sufficient postage affixed. Notice shall be deemed
received when it is given.
Any shareholder may waive notice of any meeting of shareholders. Waiver of
notice shall be effective whether given before, at, or after the meeting and
whether given orally, in writing, or by attendance. Attendance by a shareholder
at a meeting is a waiver of notice of that meeting, except where the shareholder
objects at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened and does not participate
thereafter in the meeting, or objects before a vote on an item of business
because the item may not lawfully be considered at that meeting and does not
participate in the consideration of that item at the meeting.
SECTION 5. RECORD DATE. For the purpose of determining shareholders
entitled to notice of and to vote at any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the corporation may, but need not, fix
a date as the record date for any such determination of shareholders, which
record date, however, shall in no event be more than forty-five (45) days prior
to any such intended action or meeting.
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SECTION 6. QUORUM. The holders of a majority of the voting power of all
shares of the corporation entitled to vote at a meeting shall constitute a
quorum at a meeting of shareholders for the purpose of taking any action other
than adjourning such meeting. If the holders of a majority of the voting
power of all shares are not represented at a meeting, the shareholders present
in person or by proxy shall constitute a quorum for the sole purpose of
adjourning such meeting, and the holders of a majority of the shares so
represented may adjourn the meeting to such date, time, and place as they
shall announce at the time of adjournment. Any business that might have been
transacted at the adjourned meeting had a quorum been present, may be
transacted at the meeting held pursuant to such an adjournment and at which a
quorum shall be represented. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact
business until adjournment, even though the withdrawal of a number of
shareholders originally represented leaves less than the number otherwise
required for a quorum.
SECTION 7. VOTING AND PROXIES. At each meeting of the shareholders every
shareholder shall be entitled to one vote in person or by proxy for each share
of capital stock held by such shareholder, except as may be otherwise provided
in the Articles of Incorporation or the terms of the share. Every appointment
of a proxy shall be in writing (which shall include telegraphing, cabling, or
telephotographic transmission), and shall be filed with the Secretary of the
corporation before or at the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or more
shareholders shall be valid if signed by any one of them, unless the Secretary
of the corporation receives from any one of such shareholders written notice
either denying the authority of another of such shareholders to appoint a proxy
or appointing a different proxy. All questions regarding the qualification of
voters, the validity of appointments of proxies, and the acceptance or rejection
of votes shall be decided by the presiding officer of the meeting. The
shareholders shall take action by the affirmative vote of the holders of a
majority of the voting power of the shares present, in person or represented by
proxy, and entitled to vote, except where a different vote is required by law,
the Articles of Incorporation, or these Bylaws.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of its Board of Directors. The
directors may exercise all such powers and do all such things as may be
exercised or done by the corporation, subject to the provisions of applicable
law, the Articles of Incorporation, and these Bylaws.
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SECTION 2. NUMBER, TENURE, AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by resolution of the shareholders, subject to increase by resolution of the
Board of Directors. Each director shall be elected at a regular meeting of
shareholders and shall hold office until the next regular meeting of
shareholders and thereafter until a successor is duly elected and qualified,
unless a prior vacancy shall occur by reason of death, resignation, or removal
from office. Directors shall be natural persons, but need not be shareholders.
SECTION 3. MEETINGS. Meetings of the Board of Directors shall be held
immediately after, and at the same place as, regular meetings of shareholders.
Other meetings of the Board of Directors may be held at such times and places as
shall from time to time be determined by the Board of Directors. Meetings of
the Board of Directors also may be called by the chief executive officer, by the
acting chief executive officer in the absence of the chief executive officer, or
by any director, in which case the person or persons calling such meeting may
fix the date, time, and place thereof, either within or without the State of
Minnesota, and shall cause notice of meeting to be given.
SECTION 4. NOTICE OF MEETINGS. If the date, time, and place of a meeting
of the Board of Directors has been announced at a previous meeting, no notice is
required. In all other cases two (2) days' notice of meetings of the Board of
Directors, stating the date and time thereof and any other information required
by law or desired by the person or persons calling such meeting, shall be given
to each director. If notice of meeting is required, and such notice does not
state the place of the meeting, such meeting shall be held at the principal
executive office of the corporation. Notice of meetings of the Board of
Directors shall be given to directors in the manner provided in these Bylaws for
giving notice to shareholders of meetings of shareholders.
Any director may waive notice of any meeting. A waiver of notice by a
director is effective whether given before, at, or after the meeting, and
whether given orally, in writing, or by attendance. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
unless such director objects at the beginning of the meeting to the transaction
of business on grounds that the meeting is not lawfully called or convened and
does not participate thereafter in the meeting.
SECTION 5. QUORUM AND VOTING. A majority of the directors currently
holding office shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. In the absence of a quorum, a majority of
the directors present may adjourn the meeting from time to time until a quorum
is present. If a quorum is present when a duly called or held meeting is
convened, the directors present may continue to transact business
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until adjournment, even though the withdrawal of a number of directors
originally present leaves less than the number otherwise required for a quorum.
The Board of Directors shall take action by the affirmative vote of a
majority of the directors present at any duly held meeting, except as to any
question upon which any different vote is required by law, the Articles of
Incorporation, or these Bylaws. A director may give advance written consent
or objection to a proposal to be acted upon at a meeting of the Board of
Directors. If the proposal acted on at the meeting is substantially the same
or has substantially the same effect as the proposal to which the director has
consented or objected, such consent or objection shall be counted as a vote
for or against the proposal and shall be recorded in the minutes of the
meeting. Such consent or objection shall not be considered in determining the
existence of a quorum.
SECTION 6. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the directors remaining in office, even though said remaining
directors be less than a quorum. Any newly created directorship resulting from
an increase in the authorized number of directors by action of the Board of
Directors may be filled by a majority vote of the directors serving at the time
of such increase. Any vacancy or newly created directorship may be filled by
resolution of the shareholders. Unless a prior vacancy occurs by reason of
death, resignation, or removal from office, any director so elected shall hold
office until the next regular meeting of shareholders and until a successor is
duly elected and qualified.
SECTION 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any
director or directors may be removed from office, with or without cause, at any
special meeting of the shareholders duly called for that purpose as provided in
these Bylaws, by a vote of the shareholders holding a majority of the shares
entitled to vote at an election of directors. At such meeting, without further
notice, the shareholders may fill any vacancy or vacancies created by such
removal. Any such vacancy not so filled may be filled by the directors as
provided in Section 6 of this Article. Any director named by the Board of
Directors to fill a vacancy may be removed at any time, with or without cause,
by an affirmative vote of a majority of all remaining directors, even though
said remaining directors be less than a quorum, if the shareholders have not
elected directors in the interval between the appointment to fill the vacancy
and the time of removal.
SECTION 8. COMMITTEES. The Board of Directors, by a resolution approved
by the affirmative vote of a majority of the directors then holding office, may
establish one or more committees of one or more persons having the authority of
the Board of Directors in the management of the business of the corporation to
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<PAGE>
the extent provided in such resolution. Such committees, however, shall at all
times be subject to the direction and control of the Board of Directors.
Committee members need not be directors and shall be appointed by the
affirmative vote of a majority of the directors present. A majority of the
members of any committee shall constitute a quorum for the transaction of
business at a meeting of any such committee. In other matters of procedure the
provisions of these Bylaws shall apply to committees and the members thereof to
the same extent they apply to the Board of Directors and directors, including,
without limitation, the provisions with respect to meetings and notice thereof,
absent members, written actions, and valid acts. Each committee shall keep
regular minutes of its proceedings and report the same to the Board of
Directors.
SECTION 9. ACTION IN WRITING. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a lawfully constituted
committee thereof may be taken by written action signed by all of the directors
then in office or by all of the members of such committee, as the case may be.
If the action does not require shareholder approval, such action shall be
effective if signed by the number of directors or members of such committee that
would be required to take the same action at a meeting at which all directors or
committee members were present. If any written action is taken by less than all
directors, all directors shall be notified immediately of its text and effective
date. The failure to provide such notice, however, shall not invalidate such
written action.
SECTION 10. MEETING BY MEANS OF ELECTRONIC COMMUNICATION. Members of the
Board of Directors of the corporation, or any committee designated by such
Board, may participate in a meeting of such Board or committee by means of
conference telephone or similar means of communication by which all persons
participating in the meeting can simultaneously hear each other. Participation
in a meeting pursuant to this section shall constitute presence in person at
such meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The officers of the corporation
shall consist of one or more natural persons elected by the Board of Directors
exercising the functions of the offices, however designated, of chief executive
officer and chief financial officer. The Board of Directors may also appoint
such other officers and assistant officers as it may deem necessary. Except as
provided in these Bylaws, the Board of Directors shall fix the powers, duties,
and compensation of all officers. Officers may be, but need not be, directors
of the corporation. Any number of offices may be held by the same person.
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SECTION 2. TERM OF OFFICE. An officer shall hold office until a successor
shall have been duly elected, unless prior thereto such officer shall have
resigned or been removed from office as herein provided.
SECTION 3. REMOVAL AND VACANCIES. Any officer or agent elected or
appointed by the Board of Directors shall hold office at the pleasure of the
Board of Directors and may be removed, with or without cause, at any time by the
vote of a majority of the Board of Directors. Any vacancy in an office of the
corporation shall be filled by action of the Board of Directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the chief executive officer shall
have general active management of the business of the corporation, in the
absence of the Chairperson of the Board or if the office of Chairperson of the
Board is vacant, shall preside at meetings of the shareholders and Board of
Directors, shall see that all orders and resolutions of the Board of Directors
are carried into effect, shall sign and deliver in the name of the corporation
any deeds, mortgages, bonds, contracts, or other instruments pertaining to the
business of the corporation, except in cases in which the authority to sign and
deliver is required by law to be exercised by another person or is expressly
delegated by the Articles of Incorporation, these Bylaws, or the Board of
Directors to some other officer or agent of the corporation, may maintain
records of and certify proceedings of the Board of Directors and shareholders,
and shall perform such other duties as may from time to time be prescribed by
the Board of Directors.
SECTION 5. CHIEF FINANCIAL OFFICER. Unless provided otherwise by a
resolution adopted by the Board of Directors, the chief financial officer shall
keep accurate financial records for the corporation, shall deposit all monies,
drafts, and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time, shall endorse for deposit all notes, checks, and drafts received by the
corporation as ordered by the Board of Directors, making proper vouchers
therefor, shall disburse corporate funds and issue checks and drafts in the name
of the corporation as ordered by the Board of Directors, shall render to the
chief executive officer and the Board of Directors, whenever requested, an
account of all such officer's transactions as chief financial officer and of the
financial condition of the corporation, and shall perform such other duties as
may be prescribed by the Board of Directors or the chief executive officer from
time to time.
SECTION 6. CHAIRPERSON OF THE BOARD. The Board of Directors may elect a
Chairperson of the Board who, if elected, shall preside at all meetings of the
shareholders and of the Board of Directors and shall perform such other duties
as may be prescribed by the
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Board of Directors from time to time.
SECTION 7. PRESIDENT. Unless otherwise determined by the Board of
Directors, the President shall be the chief executive officer of the
corporation. If an officer other than the President is designated chief
executive officer, the President shall have such powers and perform such
duties as the Board of Directors or the chief executive officer may prescribe
from time to time.
SECTION 8. VICE PRESIDENTS. The Vice President, if any, or Vice
Presidents in case there be more than one, shall have such powers and perform
such duties as the chief executive officer or the Board of Directors may
prescribe from time to time. In the absence of the President or in the event of
the President's death, inability, or refusal to act, the Vice President, or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors, or, in the absence of any
designation, in the order of their election, shall perform the duties of the
President, and, when so acting, shall have all the powers of and be subject to
all of the restrictions upon the President.
SECTION 9. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and of the shareholders and shall maintain records of, and
whenever necessary, certify all proceedings of the Board of Directors and of the
shareholders. The Secretary shall keep the stock books of the corporation, when
so directed by the Board of Directors or other person or persons authorized to
call such meetings, shall give or cause to be given notice of meetings of the
shareholders and of meetings of the Board of Directors, and shall also perform
such other duties and have such other powers as the chief executive officer or
the Board of Directors may prescribe from time to time.
SECTION 10. TREASURER. Unless otherwise determined by the Board of
Directors, the Treasurer shall be the chief financial officer of the
corporation. If an officer other than the Treasurer is designated chief
financial officer, the Treasurer shall have such powers and perform such duties
as the chief executive officer or the Board of Directors may prescribe from time
to time.
SECTION 11. DELEGATION. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board of Directors may delegate in writing some or all of the
duties and powers of such person's office to other persons.
ARTICLE V
CERTIFICATES AND OWNERSHIP OF SHARES
SECTION 1. CERTIFICATES. All shares of the corporation shall be
represented by certificates. Each certificate shall contain on
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its face (a) the name of the corporation, (b) a statement that the corporation
is incorporated under the laws of the State of Minnesota, (c) the name of the
person to whom it is issued, and (d) the number and class of shares, and the
designation of the series, if any, that the certificate represents.
Certificates shall also contain any other information required by law or
desired by the Board of Directors, and shall be in such form as shall be
determined by the Board of Directors. Such certificates shall be signed by
the chief executive officer, by the chief financial officer, or, unless
otherwise limited by resolution of the Board of Directors, by any other
officer of the corporation. If a certificate is signed (1) by a transfer
agent or (2) by a transfer clerk acting on behalf of the corporation and a
registrar, the signature of any such officer of the corporation may be a
facsimile. If a person signs or has a facsimile signature placed upon a
certificate while an officer, transfer agent, or registrar of a corporation,
the certificate may be issued by the corporation, even if the person has
ceased to have that capacity before the certificate is issued, with the same
effect as if the person had that capacity at the date of its issue. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued with the number of shares and date of issue shall be
entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation or the transfer agent for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed, or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board
of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by such holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by such holder's attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender of such shares to the corporation or the
transfer agent of the corporation.
SECTION 3. OWNERSHIP. Except as otherwise provided in this Section, the
person in whose name shares stand on the books of the corporation shall be
deemed by the corporation to be the owner thereof for all purposes. The Board
of Directors, however, by a resolution approved by the affirmative vote of a
majority of directors then in office, may establish a procedure whereby a
shareholder may certify in writing to the corporation that all or a portion of
the shares registered in the name of such shareholder are held for the account
of one or more beneficial owners. Upon receipt by the corporation of the
writing, the persons specified as beneficial owners, rather than the actual
shareholder, shall be
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deemed the shareholders for such purposes as are permitted by the resolution
of the Board of Directors and are specified in the writing.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize such officers
or agents as they shall designate to enter into contracts or execute and deliver
instruments in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. The corporation shall not lend money to, guarantee the
obligation of, become a surety for, or otherwise financially assist any person
unless the transaction, or class of transactions to which the transaction
belongs, has been approved by the affirmative vote of a majority of directors
present, and (a) is in the usual and regular course of business of the
corporation, (b) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest, an organization
with which the corporation has a business relationship, or an organization to
which the corporation has the power to make donations, or (c) is with, or for
the benefit of, an officer or other employee of the corporation or a subsidiary,
including an officer or employee who is a director of the corporation or a
subsidiary, and may reasonably be expected, in the judgment of the Board of
Directors, to benefit the corporation.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officers or agents of the
corporation as shall be designated and in such manner as shall be determined
from time to time by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks or other financial institutions as the Board of Directors may select.
ARTICLE VII
MISCELLANEOUS
SECTION 1. DIVIDENDS. The Board of Directors from time to time may
declare, and the corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be such
twelve-month period as is set by a resolution of the Board of Directors,
provided, however, that the first fiscal year
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of the corporation may be a shorter period if permitted by law and set by a
resolution of the Board of Directors.
SECTION 3. AMENDMENTS. Except as limited by the Articles of
Incorporation, these Bylaws may be altered or amended by the Board of
Directors. Such authority of the Board of Directors is subject to the power of
the shareholders of this corporation to alter or repeal such Bylaws, and the
Board of Directors, after adoption of the initial Bylaws, shall not make,
alter, or repeal any Bylaw fixing quorum for shareholder meetings, prescribing
procedures for removing directors or filling vacancies on the Board of
Directors, fixing the number of directors or their classifications,
qualifications or terms of office. The Board of Directors may, however, adopt
or amend a bylaw to increase the number of directors.
* * * * * *
The undersigned, Assistant Secretary of Nortech Systems Incorporated, a
Minnesota corporation, does hereby certify that the foregoing Bylaws are the
Bylaws adopted for the corporation by its Board of Directors at a meeting held
on the 31st day of October, 1990.
/s/ Bert M. Gross
-------------------
Assistant Secretary
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EXHIBIT 5
[LETTERHEAD]
July 8, 1996
The Securities & Exchange Commission
Judiciary Plaza
450 - 5th Street N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Re: NORTECH SYSTEMS INCORPORATED
This opinion is furnished in connection with the Registration Statement
on Form S-1, (the "Registration Statement") filed with the Securities and
Exchange Commission by Nortech Systems Incorporated (the "Company"), covering
up to 111,400 shares of the Company's common stock, par value $.01, (the
"Common Stock").
We have acted as counsel to the Company and, as such, have examined the
Company's Articles of Incorporation, Bylaws and such other corporate records
and documents as we have considered relevant and necessary for the purposes
of this opinion. We have participated in the preparation and filing of the
Registration Statement. We are familiar with the proceedings taken by the
Company with respect to the authorization and issuance of shares of Common
Stock as described in the Registration Statement.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Minnesota.
2. The Company had at the time of issuance of the shares of Common
Stock offered by the Selling Shareholders, and has at present, corporate
authority to issue the shares of Common Stock covered by the Registration
Statement.
<PAGE>
3. The shares of Common Stock previously issued and proposed to be sold
by the Selling Shareholders in the public offering as described in the
Registration Statement have been duly and validly issued, and are fully paid
and non-assessable.
We hereby consent to the reference of our firm in the section captioned
"Legal Opinions" in the Registration Statement.
Sincerely,
PHILLIPS & GROSS, P.A.
By
Bert M. Gross
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration No. 333-00888
of Nortech Systems Incorporated on Form S-3 of our report dated February 16,
1996, relating to the financial statements of Nortech Systems Incorporated
and Subsidiary as of December 31, 1994 and 1995 and for the years ended
December 31, 1993, 1994 and 1995 appearing in the Prospectus, which is part
of this Registration Statement, and our report dated February 16, 1996
relating to the financial statement schedule appearing in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Larson, Allen, Weishair & Co., LLP
LARSON, ALLEN, WEISHAIR & CO., LLP
St. Cloud, Minnesota
July 8, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that NORTECH SYSTEMS INCORPORATED, a
Minnesota corporation (the "Company"), and each of the undersigned directors
of the Company, hereby constitutes and appoints Quentin E. Finkelson his true
and lawful attorney-in-fact and agent, for him and on his behalf and his
name, place and stead, in any and all capacities to sign, execute, affix his
seal thereto and file a Registration Statement on Form S-1 or any other
applicable form under the Securities Act of 1933, as amended, and amendments
thereto, including pre-effective and post-effective amendments, with all
exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority, relating to the proposed registration of up to
111,400 shares of the Company's Common Stock, par value $.01.
There is hereby granted to said attorney full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
respect of the foregoing as fully as he or himself might or could do if
personally present, hereby ratifying and confirming all that said
attorney-in-fact and agent, may lawfully do or cause to be done by virtue
hereof.
This Power of Attorney may be executed in any number of counterparts,
each of which shall be an original, but all of which taken together shall
constitute one and the same instrument and any of the undersigned directors
may execute this Power of Attorney by signing any such counterpart.
IN WITNESS WHEREOF, NORTECH SYSTEMS INCORPORATED has caused this Power
of Attorney to be executed in its name by its Chairman of the Board of
Directors and Chief Executive Officer on the 9th day of July, 1996.
NORTECH SYSTEMS INCORPORATED
By /s/ Quentin E. Finkelson
---------------------------------
Quentin E. Finkelson, Chairman of
the Board of Directors and Chief
Executive Officer
<PAGE>
The undersigned, directors of NORTECH SYSTEMS INCORPORATED, have
hereunto set their hands as of the 9th day of July, 1996.
/s/ Myron Kunin
-----------------------------------
Myron Kunin
/s/ Richard W. Perkins
-----------------------------------
Richard W. Perkins
DIRECTORS
2
