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Nortech Systems Reports Second Quarter Results

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Company Posts Sequential Gains in Revenue and Operating Profits

Nortech Systems Incorporated (NASDAQ:NSYS) today reported net sales of
$28.5 million for the second quarter ended June 30, 2018, which includes
$1.6 million of revenue recognized under new FASB accounting guidelines
adopted this fiscal year. On a pro forma basis to adjust for this change
in accounting guidance, second quarter sales of $26.9 million increased
5 percent and $1.2 million sequentially from the first quarter of 2018
while net sales for the second quarter of 2017 were $30.1 million.

For the six months ended June 30, 2018, Nortech Systems' reported net
sales of $55.0 million, which includes $2.3 million of revenue
recognized under the new FASB guidelines. For the first six months of
2017, net sales were $58.5 million.

For the second quarter of 2018, Nortech Systems reported operating
income of $734,000, compared to an operating loss of $120,000 for the
first quarter of 2018; operating income was $95,000 for the prior-year
period. For the first six months of 2018, operating income of $615,000
compares with $215,000 for the same period last year.

For the second quarter of 2018, Nortech Systems reported net income of
$390,000, or $0.14 per diluted common share, compared with a net loss of
$16,000, or $0.01 per diluted common share, for the same period last
year which included $175,000 of loss on extinguishment of debt. For the
six months ended June 30, 2018, Nortech Systems reported essentially
breakeven results. This compares with a net loss of $30,000, or $0.01
per diluted common share, for the first six months of 2017.

"We're pleased with our sequential quarterly sales and profit
improvements," said Rich Wasielewski, Nortech Systems' president and
CEO. "After several quarters of working through customer inventory
issues, it was good to see contributions across the board." He noted
that Nortech's overall quarterly backlog increased nine percent, both
sequentially and year over year, with all three markets – medical,
industrial and defense – providing momentum heading into the second half
of the year.

Gross margin in the second quarter of 2018 was 13.4 percent, an
improvement of 190 basis points sequentially and 220 basis points
compared to the prior-year period. The strong gross margin performance
resulted from a favorable product/service mix, cost reductions and
process improvements.

"Our industry continues to face tariff concerns and electronic component
shortages," concluded Wasielewski, adding that these issues may become
even more challenging in the second half of the year. Nortech estimates
it was unable to ship $0.6 million in customer orders in the second
quarter due to component shortages.

Conference Call

Nortech Systems announces a conference call to be held at 10:00 a.m.
(CDT) on Thursday, August 16, 2018, to discuss the company's second
quarter results. Anyone interested in participating in the conference
can access the call by dialing 877-407-0782 from within the United
States, or 201-689-8567 if calling internationally. An audio webcast and
replay of this conference call can be accessed at the investor relations
portion of Nortech Systems' website at www.nortechsys.com
or at www.investorcalendar.com.
The telephone replay will be available through August 30, 2018, by
dialing 877-481-4010 (from U.S.) or 919-882-2331 (International). To
access the replay, the conference ID 36917 is required.

About Nortech Systems Incorporated

Nortech Systems (www.nortechsys.com),
based in Maple Grove, Minn., is a full-service electronics manufacturing
services (EMS) provider of complex interconnect solutions, printed
circuit board assemblies and diagnostic repair and integration services
including higher-level assemblies and box builds for a wide range of
industries. Markets served include industrial and commercial equipment,
medical device, and aerospace & defense. Nortech has a range of
specialized, high-tech facilities in the U.S., Latin America and Asia
used for customized design, manufacture, testing and repair of its
solutions. Nortech Systems is traded on the NASDAQ Stock Market under
the symbol NSYS.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to
the safe harbor provision of the Private Securities Litigation Reform
Act of 1995. Examples of forward-looking statements include, among
others, statements we make regarding business development activities,
backlog, financial results, and initiatives related to operational
efficiencies, cash management, working capital utilization, inventory
reduction and accounts payable reduction. While this release is based on
management's best judgment and current expectations, actual results may
differ and involve a number of risks and uncertainties. Important
factors that could cause actual results to differ materially from the
forward-looking statements include, without limitation: volatility in
market conditions which may affect market supply of and demand for the
company's products; increased competition; dependence on major
customers, including a single customer that has represented a large
percentage of our revenues in recent years; changes in the reliability
and efficiency of operating facilities or those of third parties; risks
related to availability of labor; commodity and energy cost instability;
general economic, financial and business conditions that could affect
the company's financial condition and results of operations; as well as
risk factors listed from time to time in the company's filings with the
SEC.

             
Condensed Consolidated Statements of Operations

(in thousands, except for share data)

 
As Reported As Reported

Pro Forma as if the
previous accounting
guidance
was in effect

THREE MONTHS ENDED SIX MONTHS ENDED

THREE
MONTHS
ENDED

SIX
MONTHS
ENDED

JUNE 30, JUNE 30, JUNE 30,
Unaudited   Unaudited Unaudited   Unaudited Unaudited Unaudited
2018 2017 2018 2017 2018 2018
 
Net Sales $ 28,538 $ 30,134 54,985 $ 58,452 26,928 $ 52,658
 
Cost of Goods Sold 24,721   26,769   48,140   51,995   23,106   45,836  
 
Gross Profit 3,817   3,365   6,845   6,457   3,822   6,822  
13.4 % 11.2 % 12.4 % 11.0 % 14.2 % 13.0 %
 
Operating Expenses
Selling Expenses 1,037 1,327 2,075 2,532 1,037 2,075

General and Administrative Expenses

2,046 1,944 4,155 4,065 2,046 4,155
Gain on Sale of Property and Equipment -   (1 ) -   (355 )

-

 

-

 
Total Operating Expenses 3,083   3,270   6,230   6,242   3,083   6,230  
 
Income From Operations 734   95   615   215   739   592  
 
Other Expense
Loss on Extinguishment of Debt - (175 ) - (175 ) - -
Interest Expense (209 ) (142 ) (382 ) (281 ) (209 ) (382 )
 
Income (Loss) Before Income Taxes 525 (222 ) 233 (241 ) 530 210
 
Income Tax Expense (Benefit) 135   (206 ) 235   (211 ) 135   235  
 
Net Income (Loss) $ 390   $ (16 ) (2 ) $ (30 ) 395   $ (25 )
 
Income (Loss) Per Common Share - Basic and Diluted $ 0.14   $ (0.01 ) (0.00 ) $ (0.01 ) 0.15   $ (0.01 )
 
Weighted Average Number of Common Shares Outstanding - Basic and
Diluted
2,695,994   2,747,831   2,708,234   2,747,831   2,695,994   2,708,234  
 
     
Condensed Consolidated Balance Sheets

(in thousands)

 
JUNE 30, 2018 DECEMBER 31, 2017
Unaudited Audited
Cash $ 437 $ 473
Restricted Cash 234 306
Accounts Receivable 19,309 17,417
Inventories 13,969 18,527
Contract Assets 6,547 -
Prepaid Expenses and Other Current Assets 1,259 1,044
Property and Other Long-term Assets 10,138 10,204
Goodwill and Other Intangible Assets, Net 4,008 4,114
Total Assets $ 55,901 $ 52,085
 
Accounts Payable $ 15,676 $ 11,699
Other Current Liabilities 6,975 6,346
Long Term Line of Credit 7,142 8,503
Long-term Debt and Other Long-term Liabilities 5,099 5,712
Shareholders' Equity 21,009 19,825
Total Liabilities and Shareholders' Equity $ 55,901 $ 52,085

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