Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

 

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to          

 

NORTECH SYSTEMS INCORPORATED

 

Commission file number 0-13257

 

State of Incorporation: Minnesota

 

IRS Employer Identification No. 41-1681094

 

Executive Offices: 7550 Meridian Circle N., Suite # 150, Maple Grove, MN 55369

 

Telephone number: (952) 345-2244

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

NSYS

NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐

 

Accelerated Filer ☐

Non-accelerated Filer ☒

 

Smaller Reporting Company ☒

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐

 

No Number of shares of $.01 par value common stock outstanding at August 5, 2019 was 2,657,314.

 

 

 

 

 

TABLE OF CONTENTS

 

 

PAGE

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1 - Financial Statements

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income

3

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows

5

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity

6

 

 

 

 

Condensed Notes to Consolidated Financial Statements

7-18

 

 

 

Item 2  -  Management’s Discussion and Analysis of Financial Condition And Results of Operations

19-24

 

 

 

Item 3  -  Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

Item 4  -  Controls and Procedures

25

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1  -  Legal Proceedings

26

 

 

 

 

Item 1A.  -  Risk Factors

26

 

 

 

 

Item 2  -  Unregistered Sales of Equity Securities, Use of Proceeds

26

 

 

 

 

Item 3  -  Defaults on Senior Securities

26

 

 

 

 

Item 4  -  Mine Safety Disclosures

26

 

 

 

 

Item 5  -  Other Information

26

 

 

 

 

Item 6  -  Exhibits

27

 

 

SIGNATURES

28

 

2

Table of Contents

 

PART 1

 

ITEM 1. FINANCIAL STATEMENTS

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

 

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

 
   

JUNE 30,

   

JUNE 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net Sales

  $ 27,292     $ 28,538     $ 55,457     $ 54,985  
                                 

Cost of Goods Sold

    24,967       24,721       50,171       48,140  
                                 

Gross Profit

    2,325       3,817       5,286       6,845  
                                 

Operating Expenses

                               

Selling Expenses

    797       1,037       1,558       2,075  

General and Administrative Expenses

    2,737       2,046       5,041       4,155  
                                 

Total Operating Expenses

    3,534       3,083       6,599       6,230  
                                 

(Loss) Income From Operations

    (1,209 )     734       (1,313 )     615  
                                 

Other Expense

                               

Interest Expense

    (279 )     (209 )     (524 )     (382 )
                                 

(Loss) Income Before Income Taxes

    (1,488 )     525       (1,837 )     233  
                                 

Income Tax Expense

    64       135       78       235  
                                 

(Net Loss) Income

  $ (1,552 )   $ 390     $ (1,915 )   $ (2 )
                                 

(Net Loss) Income Per Common Share - Basic and Diluted

  $ (0.58 )   $ 0.14     $ (0.72 )   $ (0.00 )
                                 

Weighted Average Number of Common Shares Outstanding - Basic and Diluted

    2,676,449       2,695,994       2,672,758       2,708,234  
                                 

Other comprehensive income (loss)

                               

Foreign currency translation

    (56 )     (126 )     -       (54 )

Comprehensive (Loss) Income, net of tax

  $ (1,608 )   $ 264     $ (1,915 )   $ (56 )

 

See Accompanying Condensed Notes to Consolidated Financial Statements

 

3

Table of Contents

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS, EXCEPT SHARE DATA)

 

   

JUNE 30,

   

DECEMBER 31,

 
   

2019

      2018(1)  

ASSETS

 

(Unaudited)

         

Current Assets

               

Cash

  $ 399     $ 480  

Restricted Cash

    406       467  

Accounts Receivable, less allowances of $262 and $222

    20,691       20,093  

Inventories

    16,273       17,004  

Contract Assets

    7,228       6,431  

Prepaid Expenses and Other Current Assets

    1,776       1,381  

Total Current Assets

    46,773       45,856  
                 

Property and Equipment, Net

    9,512       10,178  

Operating Lease Assets

    5,202       -  

Goodwill

    2,375       2,375  

Other Intangible Assets, Net

    1,439       1,523  

Other Non Current Assets

    28       28  

Total Assets

  $ 65,329     $ 59,960  
                 

LIABILITIES AND SHAREHOLDERS' EQUITY

               

Current Liabilities

               

Current Maturities of Long-Term Debt

  $ 878     $ 780  

Current Portion of Finance Lease Obligation

    364       337  

Current Portion of Operating Lease Obligations

    826       -  

Accounts Payable

    16,845       18,142  

Accrued Payroll and Commissions

    3,118       2,747  

Other Accrued Liabilities

    2,793       2,886  

Total Current Liabilities

    24,824       24,892  
                 

Long-Term Liabilities

               

Long Term Line of Credit

    12,297       9,264  

Long-Term Debt, Net

    3,401       3,624  

Long Term Finance Lease Obligation, Net

    776       951  

Long-Term Operating Lease Obligation, Net

    4,666       -  

Other Long-Term Liabilities

    118       139  

Total Long-Term Liabilities

    21,258       13,978  
                 

Total Liabilities

    46,082       38,870  
                 

Commitments and Contingencies

               
                 

Shareholders' Equity

               

Preferred Stock, $1 par value; 1,000,000 Shares Authorized: 250,000 Shares Issued and Outstanding

    250       250  

Common Stock - $0.01 par value; 9,000,000 Shares Authorized: 2,658,559 and 2,663,049 Shares Issued and Outstanding, respectively

    27       27  

Additional Paid-In Capital

    15,682       15,610  

Accumulated Other Comprehensive Loss

    (233 )     (233 )

Retained Earnings

    3,521       5,436  

Total Shareholders' Equity

    19,247       21,090  

Total Liabilities and Shareholders' Equity

  $ 65,329     $ 59,960  

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

(1) The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date 

 

4

Table of Contents

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

 

   

SIX MONTHS ENDED

 
   

JUNE 30,

 
   

2019

   

2018

 

Cash Flows From Operating Activities

               

Net Loss

  $ (1,915 )   $ (2 )

Adjustments to Reconcile Net Loss to Net Cash

               

Provided by (Used in) Operating Activities

               

Depreciation and Amortization

    1,096       1,108  

Compensation on Stock-Based Awards

    191       45  

Change in Accounts Receivable Allowance

    40       (5 )

Change in Inventory Reserves

    54       73  
Changes in Current Operating Items                

Accounts Receivable

    (646 )     (1,886 )

Inventories

    670       (594 )

Contract Assets

    (798 )     (88 )

Prepaid Expenses and Other Current Assets

    (395 )     (130 )

Accounts Payable

    (1,087 )     3,722  

Accrued Payroll and Commissions

    596       374  

Other Accrued Liabilities

    (49 )     124  

Net Cash (Used in) Provided by Operating Activities

    (2,243 )     2,741  

Cash Flows from Investing Activities

               

Purchase of Intangible Asset

    (25 )     (4 )

Purchases of Property and Equipment

    (545 )     (557 )

Net Cash Used in Investing Activities

    (570 )     (561 )

Cash Flows from Financing Activities

               

Net Change in Line of Credit

    3,469       (1,361 )

Principal Payments on Long-Term Debt

    (584 )     (545 )

Principal Payments on Finance Leases

    (96 )     (150 )

Stock Option Exercises

    7       -  

Share Repurchases

    (126 )     (186 )

Net Cash Provided By (Used in) Financing Activities

    2,670       (2,242 )
                 

Effect of Exchange Rate Changes on Cash

    -       (46 )
                 

Net Change in Cash

    (143 )     (108 )

Cash - Beginning of Period

    948       779  
                 

Cash - Ending of Period

  $ 805     $ 671  
                 

Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets

               

Cash

  $ 399     $ 437  

Restricted Cash

    406       234  

Total cash and restricted cash reported in the condensed consolidated statements of cash flows

  $ 805     $ 671  
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash Paid During the Period for Interest

  $ 477     $ 317  

Cash Paid and Refunded During the Period for Income Taxes

    (47 )     167  
                 

Supplemental Noncash Investing and Financing Activities:

               

Property and Equipment Purchases in Accounts Payable

    180       284  

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

5

Table of Contents

 

 

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(IN THOUSANDS)

 

                           

Accumulated

                 
                   

Additional

   

Other

   

Retained

   

Total

 
   

Preferred

   

Common

   

Paid-In

   

Comprehensive

    Earnings    

Shareholders'

 
                                                 

BALANCE MARCH 31, 2018

  $ 250     $ 27     $ 15,654     $ (29 )   $ 4,880     $ 20,782  

Net Income

    -       -       -       -       390       390  

Cumulative Adjustment

    -       -       -       -       (2 )     (2 )

Foreign currency translation adjustment

    -       -       -       (126 )     -       (126 )

Compensation on stock-based awards

    -       -       25       -       -       25  

Share repurchases

    -       -       (60 )     -       -       (60 )
                                                 

BALANCE JUNE 30, 2018

  $ 250     $ 27     $ 15,619     $ (155 )   $ 5,268     $ 21,009  
                                                 

BALANCE DECEMBER 31, 2017

  $ 250     $ 27     $ 15,760     $ (101 )   $ 3,889     $ 19,825  

Net Loss

    -       -       -       -       (2 )     (2 )

Cumulative Adjustment

    -       -       -       -       1,381       1,381  

Foreign currency translation adjustment

    -       -       -       (54 )     -       (54 )

Compensation on stock-based awards

    -       -       45       -       -       45  

Share repurchases

    -       -       (186 )     -       -       (186 )
                                                 

BALANCE JUNE 30, 2018

  $ 250     $ 27     $ 15,619     $ (155 )   $ 5,268     $ 21,009  
                                                 
                                                 

BALANCE MARCH 31, 2019

  $ 250     $ 27     $ 15,757     $ (177 )   $ 5,073     $ 20,930  

Net Loss

    -       -       -       -       (1,552 )     (1,552 )

Foreign currency translation adjustment

    -       -       -       (56 )     -       (56 )

Compensation on stock-based awards

    -       -       31       -       -       31  

Share repurchases

    -       -       (113 )     -       -       (113 )

Stock option exercises

    -       -       7       -       -       7  
                                                 

BALANCE JUNE 30, 2019

  $ 250     $ 27     $ 15,682     $ (233 )   $ 3,521     $ 19,247  
                                                 

BALANCE DECEMBER 31, 2018

  $ 250     $ 27     $ 15,610     $ (233 )   $ 5,436     $ 21,090  

Net Loss

    -       -       -       -       (1,915 )     (1,915 )

Stock option exercises

    -       -       7       -       -       7  

Compensation on stock-based awards

    -       -       191       -       -       191  

Share repurchases

    -       -       (126 )     -       -       (126 )
                                                 

BALANCE JUNE 30, 2019

  $ 250     $ 27     $ 15,682     $ (233 )   $ 3,521     $ 19,247  

 

See Accompanying Condensed Notes to Condensed Consolidated Financial Statements

 

6

Table of Contents

 

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

 

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the interim periods have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the financial information and footnotes required by GAAP for complete financial statements, although we believe the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year or for any other interim period. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these condensed consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results, since actual results could differ from those estimates.

 

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

 

Revenue Recognition

Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation. Revenue is recorded net of returns, allowances and customer discounts. Our net sales for services were less than 10% of our total sales for all periods presented, and accordingly, are included in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.

 

7

 

Stock-Based Awards

Following is the status of all stock options as of June 30, 2019:

 

   

Shares

   

Weighted-

Average

Exercise

Price Per

Share

   

Weighted-

Average

Remaining

Contractual

Term

(in years)

   

Aggregate

Intrinsic Value
(in thousands)

 

Outstanding - January 1, 2019

    224,750     $ 3.44                  

Granted

    169,500       4.44                  

Exercised

    (2,250 )     3.20                  

Cancelled

    (23,250 )     3.85                  

Outstanding - June 30, 2019

    368,750     $ 3.88       9.01     $ 134  

Exercisable - June 30, 2019

    111,817     $ 3.46       7.06     $ 64  

 

 

The 2005 Plan has not been renewed, and therefore no further grants may be made under the 2005 Plan. In May 2017, the shareholders approved the 2017 Stock Incentive Plan which authorized the issuance of 350,000 shares. There were 137,500 and 169,500 stock options granted during the three and six months ended June 30, 2019, respectively.

 

Total compensation expense related to stock options for the three months ended June 30, 2019 and 2018 was $32 and $25, respectively and $75 and $45 for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was $444 of unrecognized compensation which will vest over the next 3.26 years.

 

In November 2010, the Board of Directors adopted the Nortech Systems Incorporated Equity Appreciation Rights Plan (“2010 Plan”). The total number of Equity Appreciation Right Units (“Units”) that can be issued under the 2010 Plan shall not exceed an aggregate of 1,000,000 Units as amended and restated on March 11, 2015. The 2010 Plan provides that Units issued shall fully vest three years from the base date as defined in the agreement unless terminated earlier. Units give the holder a right to receive a cash payment equal to the appreciation in book value per share of common stock from the base date, as defined, to the redemption date. Unit redemption payments under the 2010 Plan shall be paid in cash within 90 days after we determine the book value of the Units as of the calendar year immediately preceding the redemption date. The Units are adjusted to market value for each reporting period.

 

During the six months ended June 30, 2019, 100,000 Units were granted in the first quarter. During the three and six months ended June 30, 2018, no additional Units were granted.

 

Total compensation expense (income) related to the vested outstanding Units based on the estimated appreciation over their remaining terms was $0 for the three and six months ended June 30, 2019 and 2018.

 

During the six months ended June 30, 2019, there were 25,000 restricted shares awarded that vested immediately that had expense of $116 during the first quarter.

 

8

 

Net Income (Loss) per Common Share

For both the three months and six months ended June 30, 2019 and 2018, all stock options are deemed to be antidilutive and, therefore, were not included in the computation of loss per common share amount.

 

Share Repurchase Program

As of June 30, 2019, we have a $250 share repurchase program which was authorized by our Board of Directors in August 2017. Under this repurchase program, we repurchased 28,363 and 31,740 shares in the open market transactions totaling $113 and $126 for the three and six months ended June 30, 2019, respectively. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital.

 

Restricted Cash

Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The June 30, 2019 balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day. As of June 30, 2019, we had no outstanding letters of credit.

 

Accounts Receivable and Allowance for Doubtful Accounts

Credit is extended based upon an evaluation of the customer’s financial condition and, while collateral is not required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. The amounts of trade accounts receivable at both the three months ended and six months ended June 30, 2019 have been reduced by an allowance for doubtful accounts of $262 at June 30, 2019 and $222 at December 31, 2018.

 

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for the estimated value of the inventories that may have a lower value than stated or quantities in excess of future production needs.

 

 

Inventories are as follows (in thousands):

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Raw Materials

  $ 16,447     $ 16,769  

Work in Process

    780       1,015  

Finished Goods

    212       332  

Reserves

    (1,166 )     (1,112 )
                 

Total

  $ 16,273     $ 17,004  

 

9

 

Other Intangible Assets

Other intangible assets at June 30, 2019 and December 31, 2018 are as follows (in thousands):

 

           

June 30, 2019

 
           

Gross

                 
           

Carrying

   

Accumulated

   

Net Book

 
   

Years

   

Amount

   

Amortization

   

Value

 

Customer Relationships

    9     $ 1,302     $ 578     $ 724  

Trade Names

    3       100       78       22  

Intellectual Property

    20       814       163       651  

Patents

    7       42       -       42  

Totals

          $ 2,258     $ 819     $ 1,439  

 

 

           

December 31, 2018

 
           

Gross

                 
           

Carrying

   

Accumulated

   

Net Book

 
   

Years

   

Amount

   

Amortization

   

Value

 

Customer Relationships

    9     $ 1,302     $ 506     $ 796  

Intellectual Property

    3       100       61       39  

Trade Names

    20       814       143       671  

Patents

    7       17       -       17  

Totals

          $ 2,233     $ 710     $ 1,523  

 

 

Amortization expense for the three and six months ended June 30, 2019 was $55 and $109, respectively.

Estimated future annual amortization expense (not including projects in process) related to these assets is approximately as follows (in thousands):

 

Year

 

Amount

 

Remainder of 2019

  $ 109  

2020

    192  

2021

    185  

2022

    185  

2023

    185  

Thereafter

    541  

Total

  $ 1,397  

 

 

Impairment of Goodwill and Other Intangible Assets

In accordance with ASC 350, Goodwill and Other Intangible Assets, goodwill is not amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value may exceed fair value. We test impairment annually as of October 1st. No events were identified during the six months ended June 30, 2018 that would require us to test for impairment. In testing goodwill for impairment, we perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to its carrying value. If the fair value is less than it carrying value, then the goodwill is determined to be impaired. In the event that goodwill is impaired, an impairment charge to earnings would become necessary.

 

10

 

Impairment Analysis

We evaluate long-lived assets, primarily property and equipment and intangible assets, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. No impairment expense was recorded during the three and six months ended June 30, 2019 and 2018.

 

Recently Issued Accounting Standards

 

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize lease assets and lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged. We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will not recognize operating lease related assets or liabilities for leases with a lease term less than one year. We did not elect the hindsight practical expedient to determine the reasonably certain term of existing leases.

 

The impact of adopting the new lease standard was the recognition of $5,731 of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had no impact to our Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Shareholders’ Equity.

 

 

NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

 

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. With regard to cash, we maintain our excess cash balances in checking accounts at primarily two financial institutions, one in the United States and one in China. The account in the United States may at times exceed federally insured limits. Of the $399 in cash at June 30, 2019, approximately $333 was held at banks located in China. We grant credit to customers in the normal course of business and do not require collateral on our accounts receivable.

 

Our largest customer has two divisions that together accounted for 10% or more of our net sales during the three and six months ended June 30, 2019 and 2018. One division accounted for approximately 21% and 22% of net sales for the three and six months ended June 30, 2019, respectively, and approximately 21% and 20% for both the three and six months ended June 30, 2018. The other division accounted for approximately 2% of net sales for both the three months and six ended June 30, 2019, and approximately 1% net sales for both the three and six months ended June 30, 2018. Together they accounted for approximately 23% and 24% of net sales for the three and six months ended June 30, 2019, respectively, and approximately 22% and 21% of net sales for the three and six months ended June 30, 2018, respectively. Accounts receivable from the customer at June 30, 2019 and December 31, 2018 represented approximately 22% and 16% of our total accounts receivable, respectively.

 

Export sales represented approximately 17% and 21% of net sales for the three months ended June 30, 2019 and 2018, respectively. Export sales represented 18% and 20% of net sales for the six months ended June 30, 2019 and 2018, respectively.

 

11

 

 

 

NOTE 3. REVENUE

 

Revenue recognition

Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

 

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances and customer discounts. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

 

The majority of our revenue is derived from the transfer of goods produced under contract manufacturing agreements which have no alternative use and we have an enforceable right to payment for our performance completed to date. Our performance obligations within our contract manufacturing agreements are generally satisfied over time as the goods are produced based on customer specifications and we have an enforceable right to payment for the goods produced. If these requirements are not met, the revenue is recognized at a point in time, generally upon shipment. Revenue under contract manufacturing agreements that was recognized over time accounted for approximately 91% of our revenue for both the three and six months ended June 30, 2019. Revenues under these agreements are generally recognized over time using an input measure based upon the proportion of actual costs incurred.

 

Accounting for contract manufacturing agreements involves the use of various techniques to estimate total revenue and costs. We estimate profit on these agreements as the difference between total estimated revenue and expected costs to complete the performance obligation within the terms of the agreement and recognize the respective profit as the goods are produced. The estimates to determine the profit earned on the performance obligation are based on anticipated selling prices and historical cost of goods sold and represent our best judgement at the time. Changes in judgements on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated profit.

 

On occasion our customers provide materials to be used in the manufacturing process and the fair value of the materials is included in revenue as noncash consideration at the point in time when the manufacturing process commences along with the same corresponding amount recorded as cost of goods sold. The inclusion of noncash consideration has no impact on overall profitability.

 

12

 

Contract Assets

Contract assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the three and six months ended June 30, 2019 was as follows (in thousands):

 

Six Months Ended June 30, 2019

       

Outstanding at January 1, 2019

  $ 6,431  

Increase (decrease) attributed to:

       

Transferred to receivables from contract assets recognized

    (4,985 )

Product transferred over time

    5,782  

Outstanding at June 30, 2019

  $ 7,228  

 

 

We expect substantially all the remaining performance obligations for the contract assets recorded as of June 30, 2019, to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

 

The following tables summarize our net sales by market for the three and six months ended June 30, 2019 (in thousands):

 

   

Three Months Ended June 30, 2019

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 4,155     $ 222     $ 205     $ 4,582  

Medical

    13,145       218       661       14,024  

Industrial

    7,428       878       380       8,686  

Total net sales

  $ 24,728     $ 1,318     $ 1,246     $ 27,292  

 

 

   

Six Months Ended June 30, 2019

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 8,258     $ 242     $ 327     $ 8,827  

Medical

    27,640       253       1,070       28,963  

Industrial

    15,568       1,475       624       17,667  

Total net sales

  $ 51,466     $ 1,970     $ 2,021     $ 55,457  

 

13

 

 

 

NOTE 4. FINANCING ARRANGEMENTS

 

We have a credit agreement with Bank of America which was entered into on June 15, 2017 and amended effective December 29, 2017 and provides for a line of credit arrangement of $16,000 that expires on June 15, 2022. The credit arrangement also has a $5,000 real estate term note outstanding with a maturity date of June 15, 2022.

 

Under the Bank of America credit agreement, both the line of credit and real estate term notes are subject to variations in the LIBOR rate. Our line of credit bears interest at a weighted-average interest rate of 5.8% and 4.5% as of June 30, 2019 and 2018, respectively. We had borrowings on our line of credit of $12,297 and $9,264 outstanding as of June 30, 2019 and December 31, 2018, respectively. There are no subjective acceleration clauses under the credit agreement that would accelerate the maturity of our outstanding borrowings.

 

The line of credit and real estate term notes with Bank of America contain certain covenants which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The availability under our line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line of credit is secured by substantially all of our assets.

 

The BofA credit agreement as amended provides for, among other things, a fixed charge coverage ratio of not less than (i) 1.0 to 1.0 for each period of four fiscal quarters, commencing with the period of four fiscal quarters ending December 31, 2018. As of June 30, 2019 we did not meet the fixed charge coverage ratio which was waived by BofA in the second amendment to the credit agreement received on August 13, 2019.

 

The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. At June 30, 2019, we had unused availability under our line of credit of $3,703, supported by our borrowing base. The line is secured by substantially all of our assets.

 

As part of the July 1, 2015 Devicix acquisition we entered into two unsecured subordinated promissory notes payable to the seller in the principal amounts of $1,000 and $1,300, which was fully paid off during the three months ended June 30, 2019.

 

In the second quarter of 2019, our China operations entered into a line of credit arrangement with China Construction Bank which provides for a line of credit arrangement of 6,000,000 Renminbi (RMB) that expires on April 3, 2021. This line of credit bears an interest rate of 6% and we had borrowings of 3,006,204 RMB ($437) at June 30, 2019.

 

14

 

Long-term debt at June 30, 2019 and December 30, 2018 consisted of following:

 

   

June 30,

   

December 31,

 
   

2019

   

2018

 

Real estate term notes bearing interest at one-month LIBOR + 2.25% (4.8% as of June 30, 2019 and December 31, 2018) maturing June 15, 2022 with monthly payments of approximately $41 plus interest secured by substantially all assets.

  $ 4,004     $ 4,253  
                 

China letter of credit arrangement

    437       -  
                 

Devicix Acquistion Note 1 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019

    -       156  
                 

Devicix Acquistion Note 2 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019

    -       203  
      4,441       4,612  
                 

Discount on Devicix Notes Payable

    -       (23 )

Debt issuance Costs

    (162 )     (185 )
                 

Total long-term debt

    4,279       4,404  

Current maturities of long-term debt

    (878 )     (780 )

Long-term debt - net of current maturities

  $ 3,401     $ 3,624  

 

15

 

 

 

NOTE 5. LEASES

 

We have operating leases for certain manufacturing sites, office space, and equipment. Most leases include the option to renew, with renewal terms that can extend the lease term from one to five years or more. Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants. At June 30, 2019, we do not have material lease commitments that have not commenced.

 

 

The components of lease expense were as follows:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

Lease Cost

 

2019

   

2019

 

Operating lease cost

  $ 253     $ 532  

Finance lease interest cost

    16       33  

Finance lease amortization expense

    66       131  

Total lease cost

  $ 335     $ 696  

 

 

Supplemental balance sheet information related to leases was as follows:

 

 

Balance Sheet Location

 

June 30, 2019

 

Assets

         

Operating lease assets

Operating lease assets

  $ 5,202  

Finance lease assets

Property, Plant and Equipment

    1,292  

Total leased assets

    6,494  
           

Liabilities

         

Current

         
           

Current operating lease liabilities

Current Portion of Operating Lease Obligations

    826  
           

Current finance lease liabilities

Current Portion of Finance Lease Obligations

    364  

Noncurrent

         

Long-term operating lease liabilities

Long Term Operating Lease Liabilities, Net

    4666  

Long term finance lease liabilities

Long Term Finance Lease Obligations, Net

    776  

Total lease liabilities

  $ 6,632  

 

16

 

Supplemental cash flow information related to leases was as follows:

 

   

Three Months Ended June 30,

 
   

2019

 

Operating leases

       

Cash paid for amounts included in the measurement of lease liabilities

  $ 200  

Right-of-use assets obtained in exchange for lease obligations

  $  

 

Maturities of lease liabilities were as follows:

 

   

Operating

Leases

   

Finance Leases

   

Total

 

Remaining 2019

  $ 447     $ 213     $ 660  

2020

    858       398       1,256  

2021

    722       398       1,120  

2022

    726       223       949  

2023

    738       2       740  

Thereafter

    3,380             3,380  

Total lease payments

  $ 6,871     $ 1,234     $ 8,105  

Less: Interest

    (1,379

)

    (94 )     (1,473

)

Present value of lease liabilities

  $ 5,492     $ 1,140     $ 6,632  

 

The lease term and discount rate at June 30, 2019 were as follows:

 

Weighted-average remaining lease term (years)

       

Operating leases

    8.1  

Finance leases

    3.5  

Weighted-average discount rate

       

Operating leases

    4.8

%

Finance leases

    5.4

%

 

Rent expense for our operating leases the three and six months ended June 30, 2018 as accounted under ASC 840, Leases, was $319 and $654, respectively.

 

The future minimum lease commitments as of December 31, 2018, under ASC 840 are as follows:

 

   

Operating Leases

 

2019

  $ 1,024  

2020

    858  

2021

    722  

2022

    726  

2023

    738  

Thereafter

    3,380  

Total minimum obligations

  $ 7,448  

 

17

 

 

 

NOTE 6. INCOME TAXES

 

On a quarterly basis, we estimate what our effective tax rate will be for the full calendar year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the three and six months ended June 30, 2019 was (4%) and the rate for the three and six months ended June 30, 2018 was 26% and 101%, respectively.

 

18

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

We are a Maple Grove, Minnesota based full-service electronics manufacturing services (“EMS”) contract manufacturer of wire and cable assemblies, printed circuit board assemblies, higher-level assemblies and box builds for a wide range of industries. We provide value added engineering services and technical support including design, testing, prototyping and supply chain management to customers mainly in the aerospace and defense, medical, and industrial equipment markets. We maintain facilities in Bemidji, Blue Earth, Eden Prairie, Mankato, Merrifield, and Milaca, Minnesota; Monterrey, Mexico; and Suzhou, China. All of our facilities are certified to one or more of the ISO/AS standards, including 9001, AS9100 and 13485, with most having additional certifications based on the needs of the customers they serve.

 

Results of Operations

 

The following table presents statements of operations data as percentages of total net sales for the periods indicated:

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net Sales

    100.0

%

    100.0

%

    100.0

%

    100.0

%

Cost of Goods Sold

    91.5       86.6       90.5       87.6  

Gross Profit

    8.5       13.4       9.5       12.4  
                                 

Selling Expenses

    2.9       3.6       2.8       3.8  

General and Administrative Expenses

    10.0       7.2       9.1       7.6  

Income from Operations

    (4.4 )     2.6       (2.4 )     1.0  
                                 

Other Expenses

    (1.0 )     (0.7 )     (0.9 )     (0.7 )

Income (Loss) Before Income Taxes

    (5.4 )     1.9       (3.3 )     0.3  
                                 

Income Tax Expense (Benefit)

    0.2       0.5       0.1       0.4  

Net Income (Loss)

    (5.6 %)     1.4 %     (3.4 %)     (0.1 %)

 

 

Net Sales

 

Net sales were $27.3 million in the second quarter of 2019, as compared to $28.5 million in the second quarter of the prior year, a decrease of $1.2 million or 4.2%. Net sales results were varied by markets, the medical market increased by $1.5 million or 11.6% with medical devices accounting for most of that increase. The industrial market decreased by $3.1 million or 25.8% of sales in the second quarter of 2019 as compared to the same quarter of 2018. Net sales from the aerospace and defense markets increased by $0.4 million or 7.3% in the second quarter of 2019 as compared to the second quarter of 2018.

 

Net sales were $55.5 million in the six months ended 2019, as compared to $55.0 million in the prior year, an increase of $0.5 million or 0.9%. Net sales results were varied by markets, the medical market increased by 6.2 million, or 27.5% with medical component products accounting for 42% of the increase and medical devices 58%. The industrial market decreased by $5.4 million of sales or 23.3%. Net sales from the aerospace and defense markets decreased $0.4 million or 4.4%.

 

19

Table of Contents

 

Net sales by our major EMS industry markets for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

%

   

2019

   

2018

   

%

 
    $     $    

Change

    $     $    

Change

 

Aerospace and Defense

    4,582       4,269       7.3       8,827       9,230       (4.4 )

Medical

    14,024       12,565       11.6       28,963       22,715       27.5  

Industrial

    8,686       11,704       (25.8 )     17,667       23,040       (23.3 )

Total Net Sales

    27,292       28,538       (4.4 )     55,457       54,985       0.9  

 

 

Net sales by timing of transfer of goods and services for the three and six months ended June 30, 2019 is as follows (in thousands):

 

   

Three Months Ended June 30, 2019

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 4,155     $ 222     $ 205     $ 4,582  

Medical

    13,145       218       661       14,024  

Industrial

    7,428       878       380       8,686  

Total net sales

  $ 24,728     $ 1,318     $ 1,246     $ 27,292  

 

 

   

Six Months Ended June 30, 2019

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 8,258     $ 242     $ 327     $ 8,827  

Medical

    27,640       253       1,070       28,963  

Industrial

    15,568       1,475       624       17,667  

Total net sales

  $ 51,466     $ 1,970     $ 2,021     $ 55,457  

 

20

Table of Contents

 

Net sales by timing of transfer of goods and services for the three and six months ended June 30, 2018 is as follows (in thousands):

 

   

Three Months Ended June 30, 2018

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 4,001     $ 72     $ 196     $ 4,269  

Medical

    11,934       87       544       12,565  

Industrial

    10,023       1,206       475       11,704  

Total net sales

  $ 25,958     $ 1,365     $ 1,215     $ 28,538  

 

 

   

Six Months Ended June 30, 2018

 
   

Product/ Service

Transferred

Over Time

   

Product

Transferred at

Point in Time

   

Noncash

Consideration

   

Total Net Sales

by Market

 

Aerospace and Defense

  $ 8,717     $ 120     $ 393     $ 9,230  

Medical

    21,201       569       945       22,715  

Industrial

    20,089       2,049       902       23,040  

Total net sales

  $ 50,007     $ 2,738     $ 2,240     $ 54,985  

 

 

Backlog

 

Our 90-day shipment backlog as of June 30, 2019 was $31 million, flat from the beginning of the quarter and a 31.4% increase as compared to the prior year. Backlog for our medical customers has decreased 3.2% from the beginning of the quarter and increased 55.0% from the prior year. The aerospace and defense backlog increased 13.4% from the beginning of the quarter and increased 22.7% from the prior year. Our industrial customers’ backlog decreased 3.3% from the beginning of the quarter and increased 4.1% from the prior year. Our backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be transferred within 180 days.

 

90-day shipment backlog by our major EMS industry markets are as follows (in thousands):

 

   

Shipment Backlog as of the Period Ended

 
   

June 30,

   

March 31,

   

June 30,

 
   

2019

   

2019

   

2018

 

Aerospace and Defense

  $ 6,833     $ 6,027     $ 5,568  

Medical

    16,701       17,256       10,776  

Industrial

    7,863       8,130       7,552  

Total Backlog

  $ 31,397     $ 31,413     $ 23,896  

 

 

Our 90-day backlog varies due to order size, manufacturing delays, contract terms and conditions and timing from customer delivery schedules and releases. These variables cause inconsistencies in comparing the backlog from one period to the next. Our total shipment backlog was $58.7 million at June 30, 2019 compared to $40.1 million at June 30, 2018.

 

21

Table of Contents

 

Gross Profit

 

Gross profit as a percent of net sales for the three months ended June 30, 2019 and 2018 was 8.5% and 13.4%, respectively. Gross profit as a percentage of sales for the six months ended June 30, 2019 and 2018 was 9.5% and 12.4%, respectively. The decline in gross profit both comparisons was driven by product mix and operational inefficiencies due to component shortages.

 

Selling Expense

 

Selling expenses for the three months ended June 30, 2019 and 2018 was $0.8 million or 2.9% of sales and $1.0 million or 3.6% of sales, respectively. Selling expense for the six months ended June 30, 2019 and 2018 was $1.6 million or 2.8% of sales and $2.1 million or 3.8% of sales, respectively. The decrease in both the three and six month periods is due to lower sales incentives and timing of events.

 

General and Administrative Expense

 

General and administrative expenses for the three months ended June 30, 2019 and 2018 were $2.7 million or 10.0% of sales and $2.0 million or 7.2% of sales, respectively. General and administrative expenses for the six months ended June 30, 2019 and 2018 were $5.0 million or 9.1% of sales and $4.2 million or 7.6% of sales, respectively. The increase in both comparisons was due to additional spend related to our recently implemented ERP system and one-time expenditures to improve operations.

 

Loss from Operations

 

Second quarter 2019 loss from operations was $1.2 million compared to income of $0.7 million for the second quarter in 2018. The increase in loss from operations for the period was due to the gross profit decline and higher general and administrative expenses.

 

Loss from operations for the first six months in 2018 was $1.3 million as compared to income of $0.6 million for the same comparable period in 2018.  The decrease to a loss from operations for the period was due to the gross profit decline and higher general and administrative expenses.

 

Income Taxes

 

On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the three and six months ended June 30, 2019 was (4%) and the rate for the three and six months ended June 30, 2018 was 26% and 101%, respectively.

 

Net Income (Loss)

 

Net loss for the three and six months ended June 30, 2019 was $1.6 million and $1.9 million, respectively. Net income for the three months ended June 30, 2018 was $0.4 million and net loss for six month ended June 30, 2018 was $0.2 million.

 

 
22

Table of Contents

 

Liquidity and Capital Resources

 

Net cash used in operating activities for the six months ended June 30, 2019 was $2.2 million. The increase in accounts receivable and unbilled revenue and decrease in accounts payable drove this cash outflow, partially offset by a decrease inventory.

 

Net cash provided by operating activities for the six months ended June 30, 2018 was $2.7 million. The noncash addback of depreciation and amortization, along with an increase in accounts payable, has positively impacted cash flows, offset by an increase in accounts receivable.

 

We have satisfied our liquidity needs over the past several years with cash flows generated from operations and a bank operating line of credit. We have a credit agreement with Bank of America (BofA) which was entered into on June 15, 2017 and amended on December 29, 2017 and provides for a line of credit arrangement of $16.0 million that expires on June 15, 2022. The credit arrangement also has a $5.0 million real estate term note outstanding with a maturity date of June 15, 2022.

 

Both the line of credit and real estate term notes are subject to fluctuations in the LIBOR rates. The line of credit and real estate term notes with BofA contain certain covenants which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The availability under our line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line of credit is secured by substantially all of our assets.

 

On June 30, 2019, we had outstanding advances of $12.3 million under the line of credit and unused availability of $3.7 million supported by our borrowing base. We believe our financing arrangements and cash flows to be provided by operations will be sufficient to satisfy our future working capital needs. Our working capital was $21.9 million and $21.0 million as of June 30, 2019 and December 31, 2018, respectively.

 

The BofA credit agreement as amended provides for, among other things, a fixed charge coverage ratio of not less than (i) 1.0 to 1.0 for each period of four fiscal quarters, commencing with the period of four fiscal quarters ending December 31, 2018. As of June 30, 2019 we did not meet the fixed charge cover ratio which was waived by BofA in the second amendment to the credit agreement received on August 13, 2019.

 

In the second quarter of 2019, our China operations entered into a line of credit arrangement with China Construction Bank which provides for a line of credit arrangement of 6,000,000 Renminbi (RMB) that expires on April 3, 2021. This line of credit bears an interest rate of 6% and we had borrowings of 3,006,204 RMB ($437) at June 30, 2019.

 

Off-Balance Sheet Arrangements

 

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies and estimates are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018. Some of our accounting policies require us to exercise significant judgment in selecting the appropriate assumptions for calculating financial estimates. Such judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, known trends in our industry, terms of existing contracts and other information from outside sources, as appropriate. Actual results could differ from these estimates.

 

23

Table of Contents

 

Forward-Looking Statements

 

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements generally will be accompanied by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “possible,” “potential,” “predict,” “project,” or other similar words that convey the uncertainty of future events or outcomes. Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements 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:

 

 

General economic, financial and business conditions that could affect our financial condition and results of operations;

     
 

Volatility in the marketplace which may affect market supply and demand for our products or currency exchange rates;

     
 

Increased competition from within the EMS industry or the decision of OEMs to cease or limit outsourcing;

     
 

Changes in the reliability and efficiency of operating facilities or those of third parties;

     
 

Risks related to availability of labor;

     
 

Increase in certain raw material costs such as copper and oil;

     
 

Commodity and energy cost instability;

     
 

Risks related to quality, regulatory, securities laws and debt covenant noncompliance;

     
 

Loss of a major customer or changes to customer orders;

     
 

Increased or unanticipated costs related to compliance with securities and environmental regulation; and

     
 

Disruption of global or local information management systems due to natural disaster or cyber-security incident.

 

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Discussion of these factors is also incorporated in Part I, Item 1A, “Risk Factors,” and should be considered an integral part of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the forgoing cautionary statements. We undertake no obligations to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.

 

Please refer to forward-looking statements and risks as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

24

Table of Contents

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). These controls and procedures are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of these disclosure controls and procedures as of the date of the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

 

Changes in Internal Control Over Financial Reporting

 

Except for the implementation of certain internal controls related to the adoption of the new lease standard (ASC 842), there was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

25

Table of Contents

 

PART II

 

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject to various legal proceedings and claims that arise in the ordinary course of business.

 

ITEM 1A. RISK FACTORS

 

We are affected by the risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition or operating results or could cause our actual results to differ materially from our expectations are described in our annual report on Form 10-K for the fiscal year ended under the heading “Part I – Item 1A.Risk Factors.” Other than as noted below, there have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The table below sets forth information regarding the repurchases we made of our common stock during the periods indicated.

 

Period

 

Total Number

of Shares

Purchased

   

Average

Price Paid

Per Share

   

Total Number of

Shares Purchased as

Part of Publicly

Announced Plan

   

Maximum Dollar

Value of Shares that

May Yet Be Purchased

Under the Plan

 

April 1 - April 30, 2019

    -     $ -       -     $ 153,148  

May 1 - May 30, 2019

    11,976     $ 3.99       11,976     $ 104,130  

June 1 - June 30, 2019

    16,387     $ 3.96       16,387     $ 37,661  

Total

    28,363     $ 3.87       28,363     $ 37,661  

 

As of June 30, 2019, we had a $250,000 share repurchase program with $37,661 remaining under this program.

 

 

ITEM 3. DEFAULTS ON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

26

Table of Contents

 

ITEM 6. EXHIBITS

 

Exhibits

 

 

10.1*

Second Amendment to Loan and Security Agreement and Waiver.

 

 

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

 

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.

 

 

32*

Certification of the Chief Executive Officer and Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101*

Financial statements from the quarterly report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Condensed Notes to Condensed Consolidated Financial Statements.

 

*Filed herewith

 

27

Table of Contents

 

Signatures

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

Nortech Systems Incorporated and Subsidiaries

 

 

Date: August 14, 2019

by /s/ Jay D. Miller

 

Jay D. Miller

Chief Executive Officer and President

Nortech Systems Incorporated

 

     
Date: August 14, 2019

by /s/ Constance M. Beck

 

Constance M. Beck

Vice President and Chief Financial Officer

Nortech Systems Incorporated

 

 

 

28

 

ex_155127.htm

Exhibit 10.1

 

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER

 

THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER (this “Amendment”) is made and entered into effective as of August 13, 2019, by and between NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (“Borrower”), and BANK OF AMERICA, N.A., a national banking association (the “Lender”).

 

RECITALS:     

 

A.          Borrower and Lender are parties to a certain Loan and Security Agreement dated as of June 15, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”). Capitalized terms not otherwise defined in this Amendment shall have the meanings assigned to them in the Loan Agreement.

 

B.          The Borrower has requested that the Lender (i) amend and modify certain terms and provisions of the Loan Agreement and (ii) waive the Borrower’s non-compliance with certain provisions set forth in the Loan Agreement.

 

C.          The Lender has agreed to grant such waiver and to so amend the Loan Agreement upon the terms and subject to the conditions set forth in this Amendment.

 

AGREEMENTS:

 

NOW, THEREFORE, in consideration of the premises herein set forth and for other good and valuable consideration, the nature, receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1.           Recitals. The Borrower and the Lender agree that the Recitals set forth above are true and correct.

 

2.           Waiver.

 

   a.          Pursuant to Section 9.3.1 of the Loan Agreement, the Borrower is required maintain a Fixed Charge Coverage Ratio of at least 1.0 to 1.0 for each period of four Fiscal Quarters. The Borrower has informed the Lender that the Fixed Charge Coverage Ratio for the four Fiscal Quarter period ending June 30, 2019 was less than 1.0 to 1.0. Such non-compliance with Section 9.3.1 of the Loan Agreement constitutes an Event of Default pursuant to Section 10.1(c) of the Loan Agreement (the “Existing Default”).

 

   b.          Borrower has requested that the Lender waive the Existing Default. Subject to the Borrower’s full satisfaction of all conditions precedent set forth in Section 4 below, the Lender hereby so waives the Existing Default. The foregoing waiver shall not apply to any other provision of the Loan Agreement or the other Loan Documents, and shall not give rise to any course of dealing or course of performance with respect to future requests.

 

3.           Amendments.

 

  a.           Definitions.

 

  i.     Section 1.1 of the Loan Agreement is hereby amended by amending and restating the following definitions in their entirety as follows:

 

 

 

 

Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for Borrower and its Subsidiaries for any applicable measurement period, of (a) EBITDA minus (i) Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans) (ii) cash taxes paid and (iii) Distributions made, to (b) Fixed Charges.

 

LIBOR: for any Interest Period, the per annum rate of interest (rounded up to the nearest 1/8th of 1%) determined by Lender at approximately 11:00 a.m. (London time) two Business Days prior to an interest period, for a term comparable to such period, equal to the London Interbank Offered Rate, or comparable or successor rate approved by Lender, as published on the applicable Reuters screen page (or other commercially available source designated by Lender from time to time); provided, that any comparable or successor rate shall be applied by Lender, if administratively feasible, in a manner consistent with market practice; and provided further, that in no event shall LIBOR be less than zero.

 

Swap Obligations: obligations under an agreement relating to a Swap.

 

ii.     Section 1.1 of the Loan Agreement is hereby amended by inserting the following new defined terms in their proper alphabetical order:

 

Beneficial Ownership Certification: a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation, in form and substance satisfactory to Lender.

 

Beneficial Ownership Regulation: 31 C.F.R. §1010.230.

 

Covered Entity: (a) a "covered entity," as defined and interpreted in accordance with 12 C.F.R. §252.82(b); (b) a "covered bank," as defined in and interpreted in accordance with 12 C.F.R. §47.3(b); or (c) a "covered FSI," as defined in and interpreted in accordance with 12 C.F.R. §382.2(b).

 

Swap: as defined in Section 1a(47) of the Commodity Exchange Act.

 

b.         Application of LIBOR to Outstanding Loans. Section 3.1.2(b) of the Loan Agreement is hereby amended by adding the following sentence immediately following the “.” at the end thereof:

 

Lender does not warrant or accept responsibility for, nor shall it have any liability with respect to, administration, submission or any other matter related to any rate used in determining LIBOR or with respect to any alternate or replacement for or successor to any such rate, or the effect of any of the foregoing.

 

c.         Inability to Determine Rates. Section 3.6 of the Loan Agreement is hereby amended by adding the following sentence immediately following the “.” at the end thereof:

 

Notwithstanding the foregoing, Lender may propose an alternative interest rate for the applicable Loan, which Borrower may elect to apply to the Loan.

 

d.         Organization and Qualification. Section 8.1.1 of the Loan Agreement is hereby amended by adding the following sentence immediately following the “.” at the end thereof:

 

No Obligor is, or is a subsidiary of, a credit institution, investment firm, or parent company of a credit institution or investment firm, in each case that is established in a member state of the European Union, Iceland, Liechtenstein or Norway, and no Obligor is a Covered Entity. The information included in the most recently provided Beneficial Ownership Certification is true and complete in all respects.

 

 

 

 

e.          ERISA. Section 8.1.17(b) of the Loan Agreement is hereby amended by adding the following sentence immediately following the “.” at the end thereof:

 

Borrower is not and will not be using "plan assets" (within the meaning of ERISA Section 3(42) or otherwise) of one or more benefit plans with respect to its entrance into, participation in, administration of and performance of the Loans, Letter of Credits, Commitments or Loan Documents.

 

f.          Patriot Act Notice; Beneficial Ownership Regulation. Section 11.17 of the Loan Agreement is hereby amended by (a) renaming such section “Patriot Act Notice; Beneficial Ownership” and (b) inserting the following immediately prior to the “.” at the end thereof:

 

; including the Patriot Act and Beneficial Ownership Regulation.

 

g.          Miscellaneous; Qualified Financial Contract. Section 11 of the Loan Agreement is hereby amended by adding new Section 11.19 to read as follows:

 

11.19.    Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any Swap or any other agreement or instrument that is a QFC (such support, "QFC Credit Support", and each such QFC, a "Supported QFC"), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the "U.S. Special Resolution Regimes") in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):

 

   11.19.1   Covered Party. If a Covered Entity that is party to a Supported QFC (each, a "Covered Party") becomes subject to a proceeding under a U.S. Special Resolution Regime, transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regimes if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. If a Covered Party or BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regimes if the Supported QFC and Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a defaulting lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.

 

 

 

 

   11.9.2     Definitions. As used in this Section, (a) "BHC Act Affiliate" means an "affiliate," as defined in and interpreted in accordance with 12 U.S.C. §1841(k); (b) "Default Right" has the meaning assigned in and interpreted in accordance with 12 C.F.R. §§252.81, 47.2 or 382.1, as applicable; and (c) "QFC" means a "qualified financial contract," as defined in and interpreted in accordance with 12 U.S.C. §5390(c)(8)(D).

 

4.     Conditions Precedent. This Amendment shall become effective upon delivery to the Lender of the following, each in form and substance acceptable to the Lender:

 

 a.     This Amendment, duly executed by the Borrower and the Lender.

 

 b.     A certificate of the Secretary or Assistant Secretary of Borrower that (i) attests to and attaches a copy of the resolutions authorizing the execution, delivery and performance of this Amendment, (ii) contains an incumbency certificate showing the names and titles, and bearing the signatures of the officers that are authorized to execute this Amendment, and (iii) certifies that there has been no amendment to Borrower’s Articles Incorporation or By-Laws since true and accurate copies of the same were last delivered and certified to the Lender or attaches the same, and certifies that the foregoing remain in full force and effect as of the date of this Amendment.

 

 c.     Such other documents, instruments and agreements as the Lender may reasonably require.

 

5.    Representations; No Default. Borrower represents and warrants that: (a) Borrower has the power and legal right and authority to enter into this Amendment and has duly authorized the execution and delivery of this Amendment and other agreements and documents executed and delivered by Borrower in connection herewith, (b) neither this Amendment nor the agreements contained herein contravene or constitute a Default or Event of Default under the Loan Agreement or a default under any other agreement, instrument or indenture to which Borrower is a party or a signatory, or any provision of Borrower’s Articles of Incorporation or By-Laws or, to the best of Borrower’s knowledge, any other agreement or requirement of law, or result in the imposition of any lien or other encumbrance on any of its property under any agreement binding on or applicable to Borrower or any of its property except, if any, in favor of the Lender, (c) no consent, approval or authorization of or registration or declaration with any party, including but not limited to any governmental authority, is required in connection with the execution and delivery by Borrower of this Amendment or other agreements and documents executed and delivered by Borrower in connection herewith or the performance of obligations of Borrower herein described, except for those which Borrower has obtained or provided and as to which Borrower has delivered certified copies of documents evidencing each such action to the Lender, (d) no events have taken place and no circumstances exist at the date hereof which would give Borrower grounds to assert a defense, offset or counterclaim to the obligations of Borrower under the Loan Agreement or any of the other Loan Documents, (e) there are no known claims, causes of action, suits, debts, liens, obligations, liabilities, demands, losses, costs and expenses (including attorneys’ fees) of any kind, character or nature whatsoever, fixed or contingent, which Borrower may have or claim to have against the Lender, which might arise out of or be connected with any act of commission or omission of the Lender existing or occurring on or prior to the date of this Amendment, including, without limitation, any claims, liabilities or obligations arising with respect to the indebtedness evidenced by any promissory note executed by Borrower in favor of the Lender, (f) the representations and warranties of Borrower contained in the Loan Agreement are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date and (g) except as expressly set forth in Section 2 above, no Default or Event of Default has occurred and is continuing under the Loan Agreement.

 

 

 

 

6.    Affirmation, Further References. The Lender and the Borrower each acknowledge and affirm that the Loan Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Loan Agreement (except as amended by this Amendment) and of each of the other Loan Documents shall remain unmodified and in full force and effect. All references in any document or instrument to the Loan Agreement are hereby amended and shall refer to the Loan Agreement as amended by this Amendment.

 

7.    Severability. Whenever possible, each provision of this Amendment and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

 

8.    Successors. This Amendment shall be binding upon the Borrower and the Lender and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Lender and to the respective successors and assigns of the Lender.

 

9.    Costs and Expenses. The Borrower agrees to reimburse the Lender, upon execution of this Amendment, for all reasonable out-of-pocket expenses (including attorneys’ fees and legal expenses of counsel for the Lender) incurred in connection with the Loan Agreement, including in connection with the negotiation, preparation and execution of this Amendment and all other documents negotiated, prepared and executed in connection with this Amendment, and in enforcing the obligations of the Borrower under this Amendment, and to pay and save the Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment.

 

10.   Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.

 

11.   Counterparts; Digital Copies. This Amendment may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and any party to this Amendment may execute any such agreement by executing a counterpart of such agreement. A facsimile or digital copy (pdf) of this signed Amendment shall be deemed to be an original thereof.

 

12.   Governing Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of law principles thereof.

 

13.   Release of Rights and Claims. Borrower, for itself and its successors and assigns, hereby releases, acquits, and forever discharges the Lender and its successors and assigns for any and all manner of actions, suits, claims, charges, judgments, levies and executions occurring or arising from the transactions entered into with the Lender prior to entering into this Amendment whether known or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect which Borrower may have against the Lender.

 

14.   No Waiver. Except as expressly provided in Section 2 above, nothing contained in this Amendment (or in any other agreement or understanding between the parties) shall constitute a waiver of, or shall otherwise diminish or impair, the Lender’s rights or remedies under the Loan Agreement or any of the other Loan Documents, or under applicable law.

 

[Remainder of Page Intentionally Blank]

 

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have entered into this Amendment as of the date first above written.

 

BORROWER:

 

 

 

 

 

NORTECH SYSTEMS INCORPORATED

 

 

By:/s/ Constance M. Beck

Name: Constance M. Beck

Title: CFO

 

LENDER:

BANK OF AMERICA, N.A.

 

 

By: /s/ Brian Conole

Name: Brian Conole

Title: Senior Vice President

   

 

[Signature Page to Second Amendment to Loan Agreement and Waiver]

 

ex_154659.htm

Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Jay D. Miller, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

 

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2019

By:

/s/ Jay D. Miller

     
   

Jay D. Miller

   

Chief Executive Officer and President

   

Nortech Systems Incorporated

 

ex_154660.htm

Exhibit 31.2

 

Certification of Chief Financial Officer

Pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Constance M. Beck, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Nortech Systems, Inc. and Subsidiary;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in the report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and

 

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2019

By:

/s/ Constance M. Beck

     
   

Constance M. Beck

   

Vice President and Chief Financial Officer

   

Nortech Systems Incorporated

 

 

ex_154661.htm

Exhibit 32

 

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Jay D. Miller, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2019

 

By:

/s/ Jay D. Miller

 
     
 

Jay D. Miller

 
 

Chief Executive Officer and President

 
 

Nortech Systems Incorporated

 

 

 

 

 

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

 

Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Constance M. Beck, hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 14, 2019

 

By:

/s/ Constance M. Beck

 
     
 

Constance M. Beck

 
 

Vice President and Chief Financial Officer

 
 

Nortech Systems Incorporated

 

 

v3.19.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 05, 2019
Document Information [Line Items]    
Entity Registrant Name NORTECH SYSTEMS INC  
Entity Central Index Key 0000722313  
Trading Symbol nsys  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Common Stock, Shares Outstanding (in shares)   2,657,314
Entity Shell Company false  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Title of 12(b) Security Common Stock  
v3.19.2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net sales $ 27,292 $ 28,538 $ 55,457 $ 54,985
Cost of Goods Sold 24,967 24,721 50,171 48,140
Gross Profit 2,325 3,817 5,286 6,845
Operating Expenses        
Selling Expenses 797 1,037 1,558 2,075
General and Administrative Expenses 2,737 2,046 5,041 4,155
Total Operating Expenses 3,534 3,083 6,599 6,230
(Loss) Income From Operations (1,209) 734 (1,313) 615
Other Expense        
Interest Expense (279) (209) (524) (382)
(Loss) Income Before Income Taxes (1,488) 525 (1,837) 233
Income Tax Expense 64 135 78 235
(Net Loss) Income $ (1,552) $ 390 $ (1,915) $ (2)
(Net Loss) Income Per Common Share - Basic and Diluted (in dollars per share) $ (0.58) $ 0.14 $ (0.72) $ 0
Weighted Average Number of Common Shares Outstanding - Basic and Diluted (in shares) 2,676,449 2,695,994 2,672,758 2,708,234
Other comprehensive income (loss)        
Foreign currency translation $ (56) $ (126) $ (54)
Comprehensive (Loss) Income, net of tax $ (1,608) $ 264 $ (1,915) $ (56)
v3.19.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
Jun. 30, 2019
Dec. 31, 2018
ASSETS    
Cash $ 399,000 $ 480,000 [1]
Restricted Cash 406,000 467,000 [1]
Accounts Receivable, less allowances of $262 and $222 20,691,000 20,093,000 [1]
Inventories 16,273,000 17,004,000 [1]
Contract Assets 7,228,000 6,431,000 [1]
Prepaid Expenses and Other Current Assets 1,776,000 1,381,000 [1]
Total Current Assets 46,773,000 45,856,000 [1]
Property and Equipment, Net 9,512,000 10,178,000 [1]
Operating Lease Assets 5,202,000
Goodwill 2,375,000 2,375,000 [1]
Other Intangible Assets, Net 1,439,000 1,523,000 [1]
Other Non Current Assets 28,000 28,000 [1]
Total Assets 65,329,000 59,960,000 [1]
Current Liabilities    
Current Maturities of Long-Term Debt 878,000 780,000 [1]
Current Portion of Finance Lease Obligation 364,000 337,000
Current Portion of Operating Lease Obligations 826,000 [1]
Accounts Payable 16,845,000 18,142,000 [1]
Accrued Payroll and Commissions 3,118,000 2,747,000 [1]
Other Accrued Liabilities 2,793,000 2,886,000 [1]
Total Current Liabilities 24,824,000 24,892,000 [1]
Long-Term Liabilities    
Long Term Line of Credit 12,297,000 9,264,000 [1]
Long-Term Debt, Net 3,401,000 3,624,000 [1]
Long Term Finance Lease Obligation, Net 776,000 951,000 [1]
Long-Term Operating Lease Obligation, Net 4,666,000 [1]
Other Long-Term Liabilities 118,000 139,000 [1]
Total Long-Term Liabilities 21,258,000 13,978,000 [1]
Total Liabilities 46,082,000 38,870,000 [1]
Commitments and Contingencies
Shareholders' Equity    
Preferred Stock, $1 par value; 1,000,000 Shares Authorized: 250,000 Shares Issued and Outstanding 250,000 250,000 [1]
Common Stock - $0.01 par value; 9,000,000 Shares Authorized: 2,658,559 and 2,663,049 Shares Issued and Outstanding, respectively 27,000 27,000 [1]
Additional Paid-In Capital 15,682,000 15,610,000 [1]
Accumulated Other Comprehensive Loss (233,000) (233,000) [1]
Retained Earnings 3,521,000 5,436,000 [1]
Total Shareholders' Equity 19,247,000 21,090,000 [1]
Total Liabilities and Shareholders' Equity $ 65,329,000 $ 59,960,000 [1]
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Accounts receivable allowance $ 262 $ 222
Preferred stock, par value (in dollars per share) $ 1 $ 1
Preferred stock, shares authorized (in shares) 1,000,000 1,000,000
Preferred stock, shares issued (in shares) 250,000 250,000
Preferred stock, shares outstanding (in shares) 250,000 250,000
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 9,000,000 9,000,000
Common stock, shares issued (in shares) 2,658,559 2,663,049
Common stock, shares outstanding (in shares) 2,658,559 2,663,049
v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash Flows From Operating Activities    
Net Loss $ (1,915) $ (2)
Adjustments to Reconcile Net Loss to Net Cash    
Depreciation and Amortization 1,096 1,108
Compensation on Stock-Based Awards 191 45
Change in Accounts Receivable Allowance 40 (5)
Change in Inventory Reserves 54 73
Changes in Current Operating Items    
Accounts Receivable (646) (1,886)
Inventories 670 (594)
Contract Assets (798) (88)
Prepaid Expenses and Other Current Assets (395) (130)
Accounts Payable (1,087) 3,722
Accrued Payroll and Commissions 596 374
Other Accrued Liabilities (49) 124
Net Cash (Used in) Provided by Operating Activities (2,243) 2,741
Cash Flows from Investing Activities    
Purchase of Intangible Asset (25) (4)
Purchases of Property and Equipment (545) (557)
Net Cash Used in Investing Activities (570) (561)
Cash Flows from Financing Activities    
Net Change in Line of Credit 3,469 (1,361)
Principal Payments on Long-Term Debt (584) (545)
Principal Payments on Finance Leases (96) (150)
Stock Option Exercises 7
Share Repurchases (126) (186)
Net Cash Provided By (Used in) Financing Activities 2,670 (2,242)
Effect of Exchange Rate Changes on Cash (46)
Net Change in Cash (143) (108)
Cash - Beginning of Period 948 779
Cash - Ending of Period 805 671
Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets    
Cash 399 437
Restricted Cash 406 234
Cash - Ending of Period 805 671
Supplemental Disclosure of Cash Flow Information:    
Cash Paid During the Period for Interest 477 317
Cash Paid and Refunded During the Period for Income Taxes (47) 167
Supplemental Noncash Investing and Financing Activities:    
Property and Equipment Purchases in Accounts Payable $ 180 $ 284
v3.19.2
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
AOCI Attributable to Parent [Member]
Retained Earnings [Member]
Total
BALANCE at Dec. 31, 2017 $ 250,000 $ 27,000 $ 15,760,000 $ (101,000) $ 3,889,000 $ 19,825,000
Net Loss (2,000) (2,000)
Cumulative Adjustment 1,381,000 1,381,000
Foreign currency translation adjustment (54,000) (54,000)
Compensation on stock-based awards 45,000 45,000
Share repurchases (186,000) (186,000)
BALANCE at Jun. 30, 2018 250,000 27,000 15,619,000 (155,000) 5,268,000 21,009,000
BALANCE at Mar. 31, 2018 250,000 27,000 15,654,000 (29,000) 4,880,000 20,782,000
Net Loss 390,000 390,000
Cumulative Adjustment (2,000) (2,000)
Foreign currency translation adjustment (126,000) (126,000)
Compensation on stock-based awards 25,000 25,000
Share repurchases (60,000) (60,000)
BALANCE at Jun. 30, 2018 250,000 27,000 15,619,000 (155,000) 5,268,000 21,009,000
BALANCE at Dec. 31, 2018 250,000 27,000 15,610,000 (233,000) 5,436,000 21,090,000 [1]
Net Loss (1,915,000) (1,915,000)
Foreign currency translation adjustment          
Compensation on stock-based awards 191,000 191,000
Share repurchases (126,000) (126,000)
Stock option exercises 7,000 7,000
BALANCE at Jun. 30, 2019 250,000 27,000 15,682,000 (233,000) 3,521,000 19,247,000
BALANCE at Mar. 31, 2019 250,000 27,000 15,757,000 (177,000) 5,073,000 20,930,000
Net Loss (1,552,000) (1,552,000)
Foreign currency translation adjustment (56,000) (56,000)
Compensation on stock-based awards 31,000 31,000
Share repurchases (113,000) (113,000)
Stock option exercises 7,000 7,000
BALANCE at Jun. 30, 2019 $ 250,000 $ 27,000 $ 15,682,000 $ (233,000) $ 3,521,000 $ 19,247,000
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 1 - Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Basis of Presentation and Significant Accounting Policies [Text Block]
NOTE
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for the interim periods have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do
not
include all of the financial information and footnotes required by GAAP for complete financial statements, although we believe the disclosures are adequate to make the information presented
not
misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form
10
-K for the year ended
December 31, 2018.
The operating results for the interim periods presented are
not
necessarily indicative of the results expected for the full year or for any other interim period. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
 
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these condensed consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results, since actual results could differ from those estimates.
 
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
 
Revenue Recognition
Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation. Revenue is recorded net of returns, allowances and customer discounts. Our net sales for services were less than
10%
of our total sales for all periods presented, and accordingly, are included in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.
 
Stoc
k-Based Awards
Following is the status of all stock options as of
June 30, 2019:
 
   
Shares
   
Weighted-
Average
Exercise
Price Per
Share
   
Weighted-
Average
Remaining
Contractual
Term
(in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding - January 1, 2019
   
224,750
    $
3.44
     
 
     
 
 
Granted
   
169,500
     
4.44
     
 
     
 
 
Exercised
   
(2,250
)    
3.20
     
 
     
 
 
Cancelled
   
(23,250
)    
3.85
     
 
     
 
 
Outstanding - June 30, 2019
   
368,750
    $
3.88
     
9.01
    $
134
 
Exercisable - June 30, 2019
   
111,817
    $
3.46
     
7.06
    $
64
 
 
 
The
2005
Plan has
not
been renewed, and therefore
no
further grants
may
be made under the
2005
Plan. In
May 2017,
the shareholders approved the
2017
Stock Incentive Plan which authorized the issuance of
350,000
shares. There were
137,500
and
169,500
stock options granted during the
three
and
six
months ended
June 30, 2019,
respectively.
 
Total compensation expense related to stock options for the
three
months ended
June 30, 2019
and
2018
was
$32
and
$25,
respectively and
$75
and
$45
for the
six
months ended
June 30, 2019
and
2018,
respectively. As of
June 30, 2019,
there was
$444
of unrecognized compensation which will vest over the next
3.26
years.
 
In
November 2010,
the Board of Directors adopted the Nortech Systems Incorporated Equity Appreciation Rights Plan (
“2010
Plan”). The total number of Equity Appreciation Right Units (“Units”) that can be issued under the
2010
Plan shall
not
exceed an aggregate of
1,000,000
Units as amended and restated on
March 11, 2015.
The
2010
Plan provides that Units issued shall fully vest
three
years from the base date as defined in the agreement unless terminated earlier. Units give the holder a right to receive a cash payment equal to the appreciation in book value per share of common stock from the base date, as defined, to the redemption date. Unit redemption payments under the
2010
Plan shall be paid in cash within
90
days after we determine the book value of the Units as of the calendar year immediately preceding the redemption date. The Units are adjusted to market value for each reporting period.
 
During the
six
months ended
June 30, 2019,
100,000
Units were granted in the
first
quarter. During the
three
and
six
months ended
June 30, 2018,
no
additional Units were granted.
 
Total compensation expense (income) related to the vested outstanding Units based on the estimated appreciation over their remaining terms was
$0
for the
three
and
six
months ended
June 30, 2019
and
2018.
 
During the
six
months ended
June 30, 2019,
there were
25,000
restricted shares awarded that vested immediately that had expense of
$116
during the
first
quarter.
 
Net Income (Loss) per Common Share
For both the
three
months and
six
months ended
June 30, 2019
and
2018,
all stock options are deemed to be antidilutive and, therefore, were
not
included in the computation of loss per common share amount.
 
Share Repurchase Program
As of
June 30, 2019,
we have a
$250
share repurchase program which was authorized by our Board of Directors in
August 2017.
Under this repurchase program, we repurchased
28,363
and
31,740
shares in the open market transactions totaling
$113
and
$126
for the
three
and
six
months ended
June 30, 2019,
respectively. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital.
 
Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The
June 30, 2019
balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day. As of
June 30, 2019,
we had
no
outstanding letters of credit.
 
Accounts Receivable and Allowance for Doubtful Accounts
Credit is extended based upon an evaluation of the customer’s financial condition and, while collateral is
not
required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. The amounts of trade accounts receivable at both the
three
months ended and
six
months ended
June 30, 2019
have been reduced by an allowance for doubtful accounts of
$262
at
June 30, 2019
and
$222
at
December 31, 2018.
 
Inventories
Inventories are stated at the lower of cost (
first
-in,
first
-out method) or net realizable value. Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for the estimated value of the inventories that
may
have a lower value than stated or quantities in excess of future production needs.
 
 
Inventories are as follows (in thousands):
 
   
June 30,
   
December 31,
 
   
2019
   
2018
 
Raw Materials
  $
16,447
    $
16,769
 
Work in Process
   
780
     
1,015
 
Finished Goods
   
212
     
332
 
Reserves
   
(1,166
)    
(1,112
)
                 
Total
  $
16,273
    $
17,004
 
 
Other Intangible Assets
Other intangible assets at
June 30, 2019
and
December 31, 2018
are as follows (in thousands):
 
           
June 30, 2019
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
578
    $
724
 
Trade Names
   
3
     
100
     
78
     
22
 
Intellectual Property
   
20
     
814
     
163
     
651
 
Patents
   
7
     
42
     
-
     
42
 
Totals
   
 
    $
2,258
    $
819
    $
1,439
 
 
 
           
December 31, 2018
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
506
    $
796
 
Intellectual Property
   
3
     
100
     
61
     
39
 
Trade Names
   
20
     
814
     
143
     
671
 
Patents
   
7
     
17
     
-
     
17
 
Totals
   
 
    $
2,233
    $
710
    $
1,523
 
 
 
Amortization expense for the
three
and
six
months ended
June 30, 2019
was
$55
and
$109,
respectively.
Estimated future annual amortization expense (
not
including projects in process) related to these assets is approximately as follows (in thousands):
 
Year
 
Amount
 
Remainder of 2019
  $
109
 
2020
   
192
 
2021
   
185
 
2022
   
185
 
2023
   
185
 
Thereafter
   
541
 
Total
  $
1,397
 
 
 
Impairment of Goodwill and Other Intangible Assets
In accordance with ASC
350,
Goodwill and Other Intangible Assets
, goodwill is
not
amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value
may
exceed fair value. We test impairment annually as of
October 1
st
.
No
events were identified during the
six
months ended
June 30, 2018
that would require us to test for impairment. In testing goodwill for impairment, we perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to its carrying value. If the fair value is less than it carrying value, then the goodwill is determined to be impaired. In the event that goodwill is impaired, an impairment charge to earnings would become necessary.
 
Impairment Analysis
We evaluate long-lived assets, primarily property and equipment and intangible assets, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group
may
not
be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are
not
sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value.
No
impairment expense was recorded during the
three
and
six
months ended
June 30, 2019
and
2018.
 
Recently Issued Accounting Standards
 
On
January 1, 2019,
we adopted ASU
No.
2016
-
02,
Leases (Topic
842
). This ASU requires lessees to recognize lease assets and lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged. We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us
not
to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will
not
recognize operating lease related assets or liabilities for leases with a lease term less than
one
year. We did
not
elect the hindsight practical expedient to determine the reasonably certain term of existing leases.
 
The impact of adopting the new lease standard was the recognition of
$5,731
of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had
no
impact to our Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Shareholders’ Equity.
v3.19.2
Note 2 - Concentration of Credit Risk and Major Customers
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Concentration Risk Disclosure [Text Block]
NOTE
2.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
 
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. With regard to cash, we maintain our excess cash balances in checking accounts at primarily
two
financial institutions,
one
in the United States and
one
in China. The account in the United States
may
at times exceed federally insured limits. Of the
$399
in cash at
June 30, 2019,
approximately
$333
was held at banks located in China. We grant credit to customers in the normal course of business and do
not
require collateral on our accounts receivable.
 
Our largest customer has
two
divisions that together accounted for
10%
or more of our net sales during the
three
and
six
months ended
June 30, 2019
and
2018.
One division accounted for approximately
21%
and
22%
of net sales for the
three
and
six
months ended
June 30, 2019,
respectively, and approximately
21%
and
20%
for both the
three
and
six
months ended
June 30, 2018.
The other division accounted for approximately
2%
of net sales for both the
three
months and
six
ended
June 30, 2019,
and approximately
1%
net sales for both the
three
and
six
months ended
June 30, 2018.
Together they accounted for approximately
23%
and
24%
of net sales for the
three
and
six
months ended
June 30, 2019,
respectively, and approximately
22%
and
21%
of net sales for the
three
and
six
months ended
June 30, 2018,
respectively. Accounts receivable from the customer at
June 30, 2019
and
December 31, 2018
represented approximately
22%
and
16%
of our total accounts receivable, respectively.
 
Export sales represented approximately
17%
and
21%
of net sales for the
three
months ended
June 30, 2019
and
2018,
respectively. Export sales represented
18%
and
20%
of net sales for the
six
months ended
June 30, 2019
and
2018,
respectively.
 
v3.19.2
Note 3 - Revenue
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
NOTE
3.
REVENUE
 
Revenue recognition
Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation, as the promise to transfer products or services is
not
separately identifiable from other promises in the contract and, therefore,
not
distinct.
 
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances and customer discounts. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
 
The majority of our revenue is derived from the transfer of goods produced under contract manufacturing agreements which have
no
alternative use and we have an enforceable right to payment for our performance completed to date. Our performance obligations within our contract manufacturing agreements are generally satisfied over time as the goods are produced based on customer specifications and we have an enforceable right to payment for the goods produced. If these requirements are
not
met, the revenue is recognized at a point in time, generally upon shipment. Revenue under contract manufacturing agreements that was recognized over time accounted for approximately
91%
of our revenue for both the
three
and
six
months ended
June 30, 2019.
Revenues under these agreements are generally recognized over time using an input measure based upon the proportion of actual costs incurred.
 
Accounting for contract manufacturing agreements involves the use of various techniques to estimate total revenue and costs. We estimate profit on these agreements as the difference between total estimated revenue and expected costs to complete the performance obligation within the terms of the agreement and recognize the respective profit as the goods are produced. The estimates to determine the profit earned on the performance obligation are based on anticipated selling prices and historical cost of goods sold and represent our best judgement at the time. Changes in judgements on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated profit.
 
On occasion our customers provide materials to be used in the manufacturing process and the fair value of the materials is included in revenue as noncash consideration at the point in time when the manufacturing process commences along with the same corresponding amount recorded as cost of goods sold. The inclusion of noncash consideration has
no
impact on overall profitability.
 
Contract Assets
Contract assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the
three
and
six
months ended
June 30, 2019
was as follows (in thousands):
 
Six Months Ended June 30, 2019
       
Outstanding at January 1, 2019
  $
6,431
 
Increase (decrease) attributed to:
       
Transferred to receivables from contract assets recognized
   
(4,985
)
Product transferred over time
   
5,782
 
Outstanding at June 30, 2019
  $
7,228
 
 
 
We expect substantially all the remaining performance obligations for the contract assets recorded as of
June 30, 2019,
to be transferred to receivables within
90
days, with any remaining amounts to be transferred within
180
days. We bill our customers upon shipment with payment terms of up to
120
days.
 
The following tables summarize our net sales by market for the
three
and
six
months ended
June 30, 2019 (
in thousands):
 
   
Three Months Ended June 30, 2019
 
   
Product/ Service
Transferred
Over Time
   
Product
Transferred at
Point in Time
   
Noncash
Consideration
   
Total Net Sales
by Market
 
Aerospace and Defense
  $
4,155
    $
222
    $
205
    $
4,582
 
Medical
   
13,145
     
218
     
661
     
14,024
 
Industrial
   
7,428
     
878
     
380
     
8,686
 
Total net sales
  $
24,728
    $
1,318
    $
1,246
    $
27,292
 
 
 
   
Six Months Ended June 30, 2019
 
   
Product/ Service
Transferred
Over Time
   
Product
Transferred at
Point in Time
   
Noncash
Consideration
   
Total Net Sales
by Market
 
Aerospace and Defense
  $
8,258
    $
242
    $
327
    $
8,827
 
Medical
   
27,640
     
253
     
1,070
     
28,963
 
Industrial
   
15,568
     
1,475
     
624
     
17,667
 
Total net sales
  $
51,466
    $
1,970
    $
2,021
    $
55,457
 
 
v3.19.2
Note 4 - Financing Arrangements
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Debt Disclosure [Text Block]
NOTE
4.
FINANCING ARRANGEMENTS
 
We have a credit agreement with Bank of America which was entered into on
June 15, 2017
and amended effective
December 29, 2017
and provides for a line of credit arrangement of
$16,000
that expires on
June 
15,
2022.
The credit arrangement also has a
$5,000
real estate term note outstanding with a maturity date of
June 15, 2022.
 
Under the Bank of America credit agreement, both the line of credit and real estate term notes are subject to variations in the LIBOR rate. Our line of credit bears interest at a weighted-average interest rate of
5.8%
and
4.5%
as of
June 30, 2019
and
2018,
respectively. We had borrowings on our line of credit of
$12,297
and
$9,264
outstanding as of
June 30, 2019
and
December 31, 2018,
respectively. There are
no
subjective acceleration clauses under the credit agreement that would accelerate the maturity of our outstanding borrowings.
 
The line of credit and real estate term notes with Bank of America contain certain covenants which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The availability under our line is subject to borrowing base requirements, and advances are at the discretion of the lender. The line of credit is secured by substantially all of our assets.
 
The BofA credit agreement as amended provides for, among other things, a fixed charge coverage ratio of
not
less than (i) 
1.0
to
1.0
for each period of
four
fiscal quarters, commencing with the period of
four
fiscal quarters ending
December 31, 2018.
As of
June 30, 2019
we did
not
meet the fixed charge coverage ratio which was waived by BofA in the
second
amendment to the credit agreement received on
August 13, 2019.
 
The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. At
June 30, 2019,
we had unused availability under our line of credit of
$3,703,
supported by our borrowing base. The line is secured by substantially all of our assets.
 
As part of the
July 1, 2015
Devicix acquisition we entered into
two
unsecured subordinated promissory notes payable to the seller in the principal amounts of
$1,000
and
$1,300,
which was fully paid off during the
three
months ended
June 30, 2019.
 
In the
second
quarter of
2019,
our China operations entered into a line of credit arrangement with China Construction Bank which provides for a line of credit arrangement of
6,000,000
Renminbi (RMB) that expires on
April 3, 2021.
This line of credit bears an interest rate of
6%
and we had borrowings of
3,006,204
RMB (
$437
) at
June 30, 2019.
 
Long-term debt at
June 30, 2019
and
December 30, 2018
consisted of following:
 
   
June 30,
   
December 31,
 
   
2019
   
2018
 
Real estate term notes bearing interest at one-month LIBOR + 2.25% (4.8% as of June 30, 2019 and December 31, 2018) maturing June 15, 2022 with monthly payments of approximately $41 plus interest secured by substantially all assets.
  $
4,004
    $
4,253
 
                 
China letter of credit arrangement
   
437
     
-
 
                 
Devicix Acquistion Note 1 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019
   
-
     
156
 
                 
Devicix Acquistion Note 2 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019
   
-
     
203
 
     
4,441
     
4,612
 
                 
Discount on Devicix Notes Payable
   
-
     
(23
)
Debt issuance Costs
   
(162
)    
(185
)
                 
Total long-term debt
   
4,279
     
4,404
 
Current maturities of long-term debt
   
(878
)    
(780
)
Long-term debt - net of current maturities
  $
3,401
    $
3,624
 
 
v3.19.2
Note 5 - Leases
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Lease Disclosure [Text Block]
NOTE
5.
LEASES
 
We have operating leases for certain manufacturing sites, office space, and equipment. Most leases include the option to renew, with renewal terms that can extend the lease term from
one
to
five
years or more. Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do
not
contain any material residual value guarantees or material restrictive covenants. At
June 30, 2019,
we do
not
have material lease commitments that have
not
commenced.
 
 
The components of lease expense were as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
Lease Cost
 
2019
   
2019
 
Operating lease cost
  $
253
    $
532
 
Finance lease interest cost
   
16
     
33
 
Finance lease amortization expense
   
66
     
131
 
Total lease cost
  $
335
    $
696
 
 
 
Supplemental balance sheet information related to leases was as follows:
 
 
Balance Sheet Location
 
June 30
, 2019
 
Assets
   
 
 
 
Operating lease assets
Operating lease assets
  $
5,202
 
Finance lease assets
Property, Plant and Equipment
   
1,292
 
Total leased assets
   
6,494
 
           
Liabilities
   
 
 
 
Current
   
 
 
 
           
Current operating lease liabilities
Current Portion of Operating Lease Obligations
   
826
 
           
Current finance lease liabilities
Current Portion of Finance Lease Obligations
   
364
 
Noncurrent
   
 
 
 
Long-term operating lease liabilities
Long Term Operating Lease Liabilities, Net
   
4666
 
Long term finance lease liabilities
Long Term Finance Lease Obligations, Net
   
776
 
Total lease liabilities
  $
6,632
 
 
Supplemental cash flow information related to leases was as follows:
 
   
Three Months Ended
June 30
,
 
   
2019
 
Operating leases
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
  $
200
 
Right-of-use assets obtained in exchange for lease obligations
  $
 
 
Maturities of lease liabilities were as follows:
 
   
Operating
Leases
   
Finance Leases
   
Total
 
Remaining 2019
  $
447
    $
213
    $
660
 
2020
   
858
     
398
     
1,256
 
2021
   
722
     
398
     
1,120
 
2022
   
726
     
223
     
949
 
2023
   
738
     
2
     
740
 
Thereafter
   
3,380
     
     
3,380
 
Total lease payments
  $
6,871
    $
1,234
    $
8,105
 
Less: Interest
   
(1,379
)
   
(94
)    
(1,473
)
Present value of lease liabilities
  $
5,492
    $
1,140
    $
6,632
 
 
The lease term and discount rate at
June 30, 2019
were as follows:
 
Weighted-average remaining lease term (years)
       
Operating leases
   
8.1
 
Finance leases
   
3.5
 
Weighted-average discount rate
       
Operating leases
   
4.8
%
Finance leases
   
5.4
%
 
Rent expense for our operating leases the
three
and
six
months ended
June 30, 2018
as accounted under ASC
840,
Leases
, was
$319
and
$654,
respectively.
 
The future minimum lease commitments as of
December 31, 2018,
under ASC
840
are as follows:
 
   
Operating Leases
 
2019
  $
1,024
 
2020
   
858
 
2021
   
722
 
2022
   
726
 
2023
   
738
 
Thereafter
   
3,380
 
Total minimum obligations
  $
7,448
 
 
v3.19.2
Note 6 - Income Taxes
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
NOTE
6.
INCOME TAXES
 
On a quarterly basis, we estimate what our effective tax rate will be for the full calendar year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events, by each tax jurisdiction. Our effective tax rate for the
three
and
six
months ended
June 30, 2019
was (
4%
) and the rate for the
three
and
six
months ended
June 30, 2018
was
26%
and
101%,
respectively.
 
v3.19.2
Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements for the interim periods have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do
not
include all of the financial information and footnotes required by GAAP for complete financial statements, although we believe the disclosures are adequate to make the information presented
not
misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form
10
-K for the year ended
December 31, 2018.
The operating results for the interim periods presented are
not
necessarily indicative of the results expected for the full year or for any other interim period. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
 
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In preparing these condensed consolidated financial statements, we have made our best estimates and judgments of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. Changes in the estimates and assumptions used by us could have a significant impact on our financial results, since actual results could differ from those estimates.
Consolidation, Policy [Policy Text Block]
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Revenue [Policy Text Block]
Revenue Recognition
Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation. Revenue is recorded net of returns, allowances and customer discounts. Our net sales for services were less than
10%
of our total sales for all periods presented, and accordingly, are included in net sales in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.
Share-based Payment Arrangement [Policy Text Block]
Stoc
k-Based Awards
Following is the status of all stock options as of
June 30, 2019:
 
   
Shares
   
Weighted-
Average
Exercise
Price Per
Share
   
Weighted-
Average
Remaining
Contractual
Term
(in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding - January 1, 2019
   
224,750
    $
3.44
     
 
     
 
 
Granted
   
169,500
     
4.44
     
 
     
 
 
Exercised
   
(2,250
)    
3.20
     
 
     
 
 
Cancelled
   
(23,250
)    
3.85
     
 
     
 
 
Outstanding - June 30, 2019
   
368,750
    $
3.88
     
9.01
    $
134
 
Exercisable - June 30, 2019
   
111,817
    $
3.46
     
7.06
    $
64
 
 
 
The
2005
Plan has
not
been renewed, and therefore
no
further grants
may
be made under the
2005
Plan. In
May 2017,
the shareholders approved the
2017
Stock Incentive Plan which authorized the issuance of
350,000
shares. There were
137,500
and
169,500
stock options granted during the
three
and
six
months ended
June 30, 2019,
respectively.
 
Total compensation expense related to stock options for the
three
months ended
June 30, 2019
and
2018
was
$32
and
$25,
respectively and
$75
and
$45
for the
six
months ended
June 30, 2019
and
2018,
respectively. As of
June 30, 2019,
there was
$444
of unrecognized compensation which will vest over the next
3.26
years.
 
In
November 2010,
the Board of Directors adopted the Nortech Systems Incorporated Equity Appreciation Rights Plan (
“2010
Plan”). The total number of Equity Appreciation Right Units (“Units”) that can be issued under the
2010
Plan shall
not
exceed an aggregate of
1,000,000
Units as amended and restated on
March 11, 2015.
The
2010
Plan provides that Units issued shall fully vest
three
years from the base date as defined in the agreement unless terminated earlier. Units give the holder a right to receive a cash payment equal to the appreciation in book value per share of common stock from the base date, as defined, to the redemption date. Unit redemption payments under the
2010
Plan shall be paid in cash within
90
days after we determine the book value of the Units as of the calendar year immediately preceding the redemption date. The Units are adjusted to market value for each reporting period.
 
During the
six
months ended
June 30, 2019,
100,000
Units were granted in the
first
quarter. During the
three
and
six
months ended
June 30, 2018,
no
additional Units were granted.
 
Total compensation expense (income) related to the vested outstanding Units based on the estimated appreciation over their remaining terms was
$0
for the
three
and
six
months ended
June 30, 2019
and
2018.
 
During the
six
months ended
June 30, 2019,
there were
25,000
restricted shares awarded that vested immediately that had expense of
$116
during the
first
quarter.
Earnings Per Share, Policy [Policy Text Block]
Net Income (Loss) per Common Share
For both the
three
months and
six
months ended
June 30, 2019
and
2018,
all stock options are deemed to be antidilutive and, therefore, were
not
included in the computation of loss per common share amount.
Share Repurchase Program [Policy Text Block]
Share Repurchase Program
As of
June 30, 2019,
we have a
$250
share repurchase program which was authorized by our Board of Directors in
August 2017.
Under this repurchase program, we repurchased
28,363
and
31,740
shares in the open market transactions totaling
$113
and
$126
for the
three
and
six
months ended
June 30, 2019,
respectively. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted from additional paid-in capital.
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]
Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The
June 30, 2019
balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day. As of
June 30, 2019,
we had
no
outstanding letters of credit.
Accounts Receivable [Policy Text Block]
Accounts Receivable and Allowance for Doubtful Accounts
Credit is extended based upon an evaluation of the customer’s financial condition and, while collateral is
not
required, the Company periodically receives surety bonds that guarantee payment. Credit terms are consistent with industry standards and practices. The amounts of trade accounts receivable at both the
three
months ended and
six
months ended
June 30, 2019
have been reduced by an allowance for doubtful accounts of
$262
at
June 30, 2019
and
$222
at
December 31, 2018.
Inventory, Policy [Policy Text Block]
Inventories
Inventories are stated at the lower of cost (
first
-in,
first
-out method) or net realizable value. Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for the estimated value of the inventories that
may
have a lower value than stated or quantities in excess of future production needs.
 
 
Inventories are as follows (in thousands):
 
   
June 30,
   
December 31,
 
   
2019
   
2018
 
Raw Materials
  $
16,446
    $
16,769
 
Work in Process
   
781
     
1,015
 
Finished Goods
   
212
     
332
 
Reserves
   
(1,166
)    
(1,112
)
                 
Total
  $
16,273
    $
17,004
 
 
Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]
Other Intangible Assets
Other intangible assets at
June 30, 2019
and
December 31, 2018
are as follows (in thousands):
 
           
June 30, 2019
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
578
    $
724
 
Trade Names
   
3
     
100
     
78
     
22
 
Intellectual Property
   
20
     
814
     
163
     
651
 
Patents
   
7
     
42
     
-
     
42
 
Totals
   
 
    $
2,258
    $
819
    $
1,439
 
 
 
           
December 31, 2018
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
506
    $
796
 
Intellectual Property
   
3
     
100
     
61
     
39
 
Trade Names
   
20
     
814
     
143
     
671
 
Patents
   
7
     
17
     
-
     
17
 
Totals
   
 
    $
2,233
    $
710
    $
1,523
 
 
 
Amortization expense for the
three
and
six
months ended
June 30, 2019
was
$55
and
$109,
respectively.
Estimated future annual amortization expense (
not
including projects in process) related to these assets is approximately as follows (in thousands):
 
Year
 
Amount
 
Remainder of 2019
  $
109
 
2020
   
192
 
2021
   
185
 
2022
   
185
 
2023
   
185
 
Thereafter
   
541
 
Total
  $
1,397
 
Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]
Impairment of Goodwill and Other Intangible Assets
In accordance with ASC
350,
Goodwill and Other Intangible Assets
, goodwill is
not
amortized but is required to be reviewed for impairment at least annually or when events or circumstances indicate that carrying value
may
exceed fair value. We test impairment annually as of
October 1
st
.
No
events were identified during the
six
months ended
June 30, 2018
that would require us to test for impairment. In testing goodwill for impairment, we perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that value to its carrying value. If the fair value is less than it carrying value, then the goodwill is determined to be impaired. In the event that goodwill is impaired, an impairment charge to earnings would become necessary.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
Impairment Analysis
We evaluate long-lived assets, primarily property and equipment and intangible assets, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group
may
not
be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are
not
sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value.
No
impairment expense was recorded during the
three
and
six
months ended
June 30, 2019
and
2018.
New Accounting Pronouncements, Policy [Policy Text Block]
Recently Issued Accounting Standards
 
On
January 1, 2019,
we adopted ASU
No.
2016
-
02,
Leases (Topic
842
). This ASU requires lessees to recognize lease assets and lease liabilities on the balance sheet. Under the new guidance, lessor accounting is largely unchanged. We have elected to adopt the standard on the modified retrospective basis. We have also elected the package of practical expedients, which permits us
not
to reassess our prior conclusions about lease identification, lease classification and initial direct costs. In addition, we have elected the short-term lease recognition whereby we will
not
recognize operating lease related assets or liabilities for leases with a lease term less than
one
year. We did
not
elect the hindsight practical expedient to determine the reasonably certain term of existing leases.
 
The impact of adopting the new lease standard was the recognition of
$5,731
of lease assets and lease liabilities related to our operating leases. The adoption of the new lease standard had
no
impact to our Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows or Condensed Consolidated Statements of Shareholders’ Equity.
v3.19.2
Note 1 - Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Share-based Payment Arrangement, Option, Activity [Table Text Block]
   
Shares
   
Weighted-
Average
Exercise
Price Per
Share
   
Weighted-
Average
Remaining
Contractual
Term
(in years)
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding - January 1, 2019
   
224,750
    $
3.44
     
 
     
 
 
Granted
   
169,500
     
4.44
     
 
     
 
 
Exercised
   
(2,250
)    
3.20
     
 
     
 
 
Cancelled
   
(23,250
)    
3.85
     
 
     
 
 
Outstanding - June 30, 2019
   
368,750
    $
3.88
     
9.01
    $
134
 
Exercisable - June 30, 2019
   
111,817
    $
3.46
     
7.06
    $
64
 
Schedule of Inventory, Current [Table Text Block]
   
June 30,
   
December 31,
 
   
2019
   
2018
 
Raw Materials
  $
16,447
    $
16,769
 
Work in Process
   
780
     
1,015
 
Finished Goods
   
212
     
332
 
Reserves
   
(1,166
)    
(1,112
)
                 
Total
  $
16,273
    $
17,004
 
Schedule of Finite-Lived Intangible Assets [Table Text Block]
           
June 30, 2019
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
578
    $
724
 
Trade Names
   
3
     
100
     
78
     
22
 
Intellectual Property
   
20
     
814
     
163
     
651
 
Patents
   
7
     
42
     
-
     
42
 
Totals
   
 
    $
2,258
    $
819
    $
1,439
 
           
December 31, 2018
 
           
Gross
                 
           
Carrying
   
Accumulated
   
Net Book
 
   
Years
   
Amount
   
Amortization
   
Value
 
Customer Relationships
   
9
    $
1,302
    $
506
    $
796
 
Intellectual Property
   
3
     
100
     
61
     
39
 
Trade Names
   
20
     
814
     
143
     
671
 
Patents
   
7
     
17
     
-
     
17
 
Totals
   
 
    $
2,233
    $
710
    $
1,523
 
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]
Year
 
Amount
 
Remainder of 2019
  $
109
 
2020
   
192
 
2021
   
185
 
2022
   
185
 
2023
   
185
 
Thereafter
   
541
 
Total
  $
1,397
 
v3.19.2
Note 3 - Revenue (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Contract with Customer, Asset and Liability [Table Text Block]
Six Months Ended June 30, 2019
       
Outstanding at January 1, 2019
  $
6,431
 
Increase (decrease) attributed to:
       
Transferred to receivables from contract assets recognized
   
(4,985
)
Product transferred over time
   
5,782
 
Outstanding at June 30, 2019
  $
7,228
 
Disaggregation of Revenue [Table Text Block]
   
Three Months Ended June 30, 2019
 
   
Product/ Service
Transferred
Over Time
   
Product
Transferred at
Point in Time
   
Noncash
Consideration
   
Total Net Sales
by Market
 
Aerospace and Defense
  $
4,155
    $
222
    $
205
    $
4,582
 
Medical
   
13,145
     
218
     
661
     
14,024
 
Industrial
   
7,428
     
878
     
380
     
8,686
 
Total net sales
  $
24,728
    $
1,318
    $
1,246
    $
27,292
 
   
Six Months Ended June 30, 2019
 
   
Product/ Service
Transferred
Over Time
   
Product
Transferred at
Point in Time
   
Noncash
Consideration
   
Total Net Sales
by Market
 
Aerospace and Defense
  $
8,258
    $
242
    $
327
    $
8,827
 
Medical
   
27,640
     
253
     
1,070
     
28,963
 
Industrial
   
15,568
     
1,475
     
624
     
17,667
 
Total net sales
  $
51,466
    $
1,970
    $
2,021
    $
55,457
 
v3.19.2
Note 4 - Financing Arrangements (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Schedule of Long-term Debt Instruments [Table Text Block]
   
June 30,
   
December 31,
 
   
2019
   
2018
 
Real estate term notes bearing interest at one-month LIBOR + 2.25% (4.8% as of June 30, 2019 and December 31, 2018) maturing June 15, 2022 with monthly payments of approximately $41 plus interest secured by substantially all assets.
  $
4,004
    $
4,253
 
                 
China letter of credit arrangement
   
437
     
-
 
                 
Devicix Acquistion Note 1 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019
   
-
     
156
 
                 
Devicix Acquistion Note 2 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019
   
-
     
203
 
     
4,441
     
4,612
 
                 
Discount on Devicix Notes Payable
   
-
     
(23
)
Debt issuance Costs
   
(162
)    
(185
)
                 
Total long-term debt
   
4,279
     
4,404
 
Current maturities of long-term debt
   
(878
)    
(780
)
Long-term debt - net of current maturities
  $
3,401
    $
3,624
 
v3.19.2
Note 5 - Leases (Tables)
6 Months Ended
Jun. 30, 2019
Notes Tables  
Lease, Cost [Table Text Block]
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
Lease Cost
 
2019
   
2019
 
Operating lease cost
  $
253
    $
532
 
Finance lease interest cost
   
16
     
33
 
Finance lease amortization expense
   
66
     
131
 
Total lease cost
  $
335
    $
696
 
   
Three Months Ended
June 30
,
 
   
2019
 
Operating leases
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
  $
200
 
Right-of-use assets obtained in exchange for lease obligations
  $
 
Weighted-average remaining lease term (years)
       
Operating leases
   
8.1
 
Finance leases
   
3.5
 
Weighted-average discount rate
       
Operating leases
   
4.8
%
Finance leases
   
5.4
%
Schedule of Supplemental Balance Sheet Information Related to Leases [Table Text Block]
 
Balance Sheet Location
 
June 30
, 2019
 
Assets
   
 
 
 
Operating lease assets
Operating lease assets
  $
5,202
 
Finance lease assets
Property, Plant and Equipment
   
1,292
 
Total leased assets
   
6,494
 
           
Liabilities
   
 
 
 
Current
   
 
 
 
           
Current operating lease liabilities
Current Portion of Operating Lease Obligations
   
826
 
           
Current finance lease liabilities
Current Portion of Finance Lease Obligations
   
364
 
Noncurrent
   
 
 
 
Long-term operating lease liabilities
Long Term Operating Lease Liabilities, Net
   
4666
 
Long term finance lease liabilities
Long Term Finance Lease Obligations, Net
   
776
 
Total lease liabilities
  $
6,632
 
Schedule of Lease Liability Maturity [Table Text Block]
   
Operating
Leases
   
Finance Leases
   
Total
 
Remaining 2019
  $
447
    $
213
    $
660
 
2020
   
858
     
398
     
1,256
 
2021
   
722
     
398
     
1,120
 
2022
   
726
     
223
     
949
 
2023
   
738
     
2
     
740
 
Thereafter
   
3,380
     
     
3,380
 
Total lease payments
  $
6,871
    $
1,234
    $
8,105
 
Less: Interest
   
(1,379
)
   
(94
)    
(1,473
)
Present value of lease liabilities
  $
5,492
    $
1,140
    $
6,632
 
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]
   
Operating Leases
 
2019
  $
1,024
 
2020
   
858
 
2021
   
722
 
2022
   
726
 
2023
   
738
 
Thereafter
   
3,380
 
Total minimum obligations
  $
7,448
 
v3.19.2
Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Jan. 01, 2019
Dec. 31, 2018
May 31, 2017
Nov. 30, 2010
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross 137,500   169,500          
Stock Repurchase Program, Authorized Amount $ 250,000   $ 250,000          
Stock Repurchased During Period, Shares 28,363   31,740          
Stock Repurchased During Period, Value $ 113,000 $ 60,000 $ 126,000 $ 186,000        
Letters of Credit Outstanding, Amount 0   0          
Accounts Receivable, Allowance for Credit Loss, Current 262,000   262,000     $ 222,000    
Amortization of Intangible Assets, Total 55,000   109,000          
Impairment of Long-Lived Assets to be Disposed of 0 0 0 0        
Operating Lease, Right-of-Use Asset 5,202,000   5,202,000   $ 5,731,000    
Operating Lease, Liability, Total 5,492,000   5,492,000   $ 5,731,000      
Share-based Payment Arrangement, Option [Member]                
Share-based Payment Arrangement, Expense 32,000 25,000 75,000 45,000        
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total 444,000   $ 444,000          
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition     3 years 94 days          
Stock Appreciation Rights (SARs) [Member]                
Share-based Payment Arrangement, Expense $ 0 $ 0 $ 0 $ 0        
Restricted Stock [Member]                
Share-based Payment Arrangement, Expense     $ 116,000          
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period     25,000          
Stock Incentive Plan 2017 [Member] | Share-based Payment Arrangement, Option [Member]                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized             350,000  
Equity Appreciation Rights Plan 2010 [Member] | Stock Appreciation Rights (SARs) [Member]                
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized               1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted   0 100,000 0        
v3.19.2
Note 1 - Summary of Significant Accounting Policies - Stock Option Activity (Details)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
USD ($)
$ / shares
shares
Jun. 30, 2019
USD ($)
$ / shares
shares
Outstanding (in shares) | shares   224,750
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares   $ 3.44
Granted (in shares) | shares 137,500 169,500
Granted, weighted average exercise price per share (in dollars per share) | $ / shares   $ 4.44
Exercised (in shares) | shares   (2,250)
Exercised, weighted average exercise price per share (in dollars per share) | $ / shares   $ 3.20
Cancelled (in shares) | shares   (23,250)
Cancelled, weighted average exercise price per share (in dollars per share) | $ / shares   $ 3.85
Outstanding (in shares) | shares 368,750 368,750
Outstanding, weighted average exercise price per share (in dollars per share) | $ / shares $ 3.88 $ 3.88
Outstanding, weighted average remaining contractual term (Year)   9 years 3 days
Outstanding, aggregate intrinsic value | $ $ 134 $ 134
Exercisable (in shares) | shares 111,817 111,817
Exercisable, weighted average exercise price per share (in dollars per share) | $ / shares $ 3.46 $ 3.46
Exercisable, weighted average remaining contractual term (Year)   7 years 21 days
Exercisable, aggregate intrinsic value | $ $ 64 $ 64
v3.19.2
Note 1 - Summary of Significant Accounting Policies - Inventories (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Raw Materials $ 16,447 $ 16,769
Work in Process 780 1,015
Finished Goods 212 332
Reserves (1,166) (1,112)
Total $ 16,273 $ 17,004 [1]
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 1 - Summary of Significant Accounting Policies - Other Intangible Assets (Details) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Gross carrying amount $ 2,258 $ 2,233
Accumulated amortization 819 710
Other Intangible Assets, Net $ 1,439 $ 1,523 [1]
Customer Relationships [Member]    
Remaining lives (Year) 9 years 9 years
Gross carrying amount $ 1,302 $ 1,302
Accumulated amortization 578 506
Other Intangible Assets, Net $ 724 $ 796
Trade Names [Member]    
Remaining lives (Year) 3 years 20 years
Gross carrying amount $ 100 $ 814
Accumulated amortization 78 143
Other Intangible Assets, Net $ 22 $ 671
Intellectual Property [Member]    
Remaining lives (Year) 20 years 3 years
Gross carrying amount $ 814 $ 100
Accumulated amortization 163 61
Other Intangible Assets, Net $ 651 $ 39
Patents [Member]    
Remaining lives (Year) 7 years 7 years
Gross carrying amount $ 42 $ 17
Accumulated amortization
Other Intangible Assets, Net $ 42 $ 17
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 1 - Summary of Significant Accounting Policies - Estimated Future Annual Amortization Expense (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Remainder of 2019 $ 109
2020 192
2021 185
2022 185
2023 185
Thereafter 541
Total $ 1,397
v3.19.2
Note 2 - Concentration of Credit Risk and Major Customers (Details Textual)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
USD ($)
Jun. 30, 2018
Jun. 30, 2019
USD ($)
Jun. 30, 2018
Dec. 31, 2018
Excess Cash Balances, Number of High Credit Quality Financial Institutions     2    
Cash, Ending Balance $ 399   $ 399    
Concentration Risk, Number of Divisions 2 2 2 2  
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | Division One of Largest Customer [Member]          
Concentration Risk, Percentage 21.00% 21.00% 22.00% 20.00%  
Geographic Concentration Risk [Member] | Revenue Benchmark [Member] | Largest Customer [Member]          
Concentration Risk, Percentage 17.00% 21.00% 18.00% 20.00%  
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Division Two of Largest Customer [Member]          
Concentration Risk, Percentage 2.00% 1.00% 2.00% 1.00%  
Customer Concentration Risk [Member] | Revenue Benchmark [Member] | Largest Customer [Member]          
Concentration Risk, Percentage 23.00% 22.00% 24.00% 21.00%  
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Largest Customer [Member]          
Concentration Risk, Percentage     22.00%   16.00%
UNITED STATES          
Excess Cash Balances, Number of High Credit Quality Financial Institutions     1    
CHINA          
Excess Cash Balances, Number of High Credit Quality Financial Institutions     1    
Cash, Ending Balance $ 333   $ 333    
v3.19.2
Note 3 - Revenue 1 (Details Textual)
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Percentage of Revenue Transferred to Customers 91.00%   91.00%
Revenue Remaining Performance Obligation, Customers Upon Shipment With Payment Terms   120 days  
v3.19.2
Note 3 - Revenue 2 (Details Textual)
Jun. 30, 2019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-07-01  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period 180 days
v3.19.2
Note 3 - Revenue - Contract Assets (Details)
$ in Thousands
6 Months Ended
Jun. 30, 2019
USD ($)
Outstanding at January 1, 2019 $ 6,431 [1]
Transferred to receivables from contract assets recognized (4,985)
Product transferred over time 5,782
Outstanding at June 30, 2019 $ 7,228
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 3 - Revenue - Disaggregation of Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Net sales $ 27,292 $ 28,538 $ 55,457 $ 54,985
Aerospace and Defense [Member]        
Net sales 4,582   8,827  
Medical [Member]        
Net sales 14,024   28,963  
Industrial [Member]        
Net sales 8,686   17,667  
Transferred over Time [Member]        
Net sales 24,728   51,466  
Transferred over Time [Member] | Aerospace and Defense [Member]        
Net sales 4,155   8,258  
Transferred over Time [Member] | Medical [Member]        
Net sales 13,145   27,640  
Transferred over Time [Member] | Industrial [Member]        
Net sales 7,428   15,568  
Transferred at Point in Time [Member]        
Net sales 1,318   1,970  
Transferred at Point in Time [Member] | Aerospace and Defense [Member]        
Net sales 222   242  
Transferred at Point in Time [Member] | Medical [Member]        
Net sales 218   253  
Transferred at Point in Time [Member] | Industrial [Member]        
Net sales 878   1,475  
Noncash Consideration [Member]        
Net sales 1,246   2,021  
Noncash Consideration [Member] | Aerospace and Defense [Member]        
Net sales 205   327  
Noncash Consideration [Member] | Medical [Member]        
Net sales 661   1,070  
Noncash Consideration [Member] | Industrial [Member]        
Net sales $ 380   $ 624  
v3.19.2
Note 4 - Financing Arrangements (Details Textual)
¥ in Thousands
6 Months Ended
Dec. 29, 2017
USD ($)
Jun. 30, 2019
USD ($)
Jun. 30, 2018
Jun. 30, 2019
CNY (¥)
Dec. 31, 2018
USD ($)
Jul. 01, 2015
USD ($)
Real Estate Term Note [Member]            
Debt Instrument, Interest Rate, Stated Percentage   4.80%   4.80% 4.80%  
First Unsecured Subordinated Promissory Notes Payable [Member]            
Debt Instrument, Interest Rate, Stated Percentage         4.00%  
Second Unsecured Subordinated Promissory Notes Payable [Member]            
Debt Instrument, Interest Rate, Stated Percentage         4.00%  
Promissory Note [Member] | First Unsecured Subordinated Promissory Notes Payable [Member]            
Debt Instrument, Face Amount           $ 1,000,000
Promissory Note [Member] | Second Unsecured Subordinated Promissory Notes Payable [Member]            
Debt Instrument, Face Amount           $ 1,300,000
Bank of America [Member] | Credit Agreement [Member]            
Long-term Line of Credit, Total   $ 12,297,000     $ 9,264,000  
Line of Credit, Minimum Fixed Charge Coverage Ratio During the Period 1          
Line of Credit Facility, Remaining Borrowing Capacity   $ 3,703        
Bank of America [Member] | Credit Agreement [Member] | Real Estate Term Note [Member]            
Debt Instrument, Face Amount $ 5,000,000          
Bank of America [Member] | Credit Agreement [Member] | Line of Credit [Member]            
Line of Credit Facility, Maximum Borrowing Capacity $ 16,000,000          
Debt Instrument, Interest Rate During Period   5.80% 4.50%      
China Construction Bank [Member] | Line of Credit [Member]            
Line of Credit Facility, Maximum Borrowing Capacity | ¥       ¥ 6,000,000    
Long-term Line of Credit, Total   $ 437,000   ¥ 3,006,204    
Debt Instrument, Interest Rate, Stated Percentage   6.00%   6.00%    
v3.19.2
Note 4 - Financing Arrangements - Long-term Debt (Details) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Long-term debt gross $ 4,441 $ 4,612
Discount on Devicix Notes Payable (23)
Debt issuance Costs (162) (185)
Total long-term debt 4,279 4,404
Current maturities of long-term debt (878) (780) [1]
Long-term debt - net of current maturities 3,401 3,624 [1]
Real Estate Term Note [Member]    
Long-term debt gross 4,004 4,253
Line of Credit [Member]    
Long-term debt gross 437
First Unsecured Subordinated Promissory Notes Payable [Member]    
Long-term debt gross 156
Second Unsecured Subordinated Promissory Notes Payable [Member]    
Long-term debt gross $ 203
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 4 - Financing Arrangements - Long-term Debt (Details) (Parentheticals) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Real Estate Term Note [Member]    
Variable rate basis 2.25% 2.25%
Interest rate 4.80% 4.80%
Monthly payments $ 41 $ 41
First Unsecured Subordinated Promissory Notes Payable [Member]    
Interest rate   4.00%
Second Unsecured Subordinated Promissory Notes Payable [Member]    
Interest rate   4.00%
v3.19.2
Note 5 - Leases (Details Textual) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2018
Jun. 30, 2018
Jun. 30, 2019
Operating Lease, Expense $ 319 $ 654  
Minimum [Member]      
Lessee, Operating Lease, Renewal Term     1 year
Maximum [Member]      
Lessee, Operating Lease, Renewal Term     5 years
v3.19.2
Note 5 - Leases - Lease Cost (Details)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
USD ($)
Jun. 30, 2019
USD ($)
Operating lease cost $ 253 $ 532
Finance lease interest cost 16 33
Finance lease amortization expense 66 131
Total lease cost $ 335 696
Cash paid for amounts included in the measurement of lease liabilities   200
Right-of-use assets obtained in exchange for lease obligations  
Operating leases (Year) 8 years 36 days 8 years 36 days
Finance leases (Year) 3 years 182 days 3 years 182 days
Operating leases 4.80% 4.80%
Finance leases 5.40% 5.40%
v3.19.2
Note 5 - Leases - Supplemental Balance Sheet Information (Details) - USD ($)
Jun. 30, 2019
Jan. 01, 2019
Dec. 31, 2018
Operating lease assets $ 5,202,000 $ 5,731,000
Finance lease assets 1,292,000    
Total leased assets 6,494,000    
Current operating lease liabilities 826,000   [1]
Current finance lease liabilities 364,000   337,000
Long-term operating lease liabilities 4,666,000   [1]
Long term finance lease liabilities 776,000   $ 951,000 [1]
Total lease liabilities $ 6,632,000    
[1] The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.
v3.19.2
Note 5 - Leases - Maturity of Lease Liabilities (Details) - USD ($)
Jun. 30, 2019
Jan. 01, 2019
Operating leases, remaining 2019 $ 447,000  
Finance leases, remaining 2019 213,000  
Total, remaining 2019 660,000  
Operating leases, 2020 858,000  
Finance leases, 2020 398,000  
Total, 2020 1,256,000  
Operating leases, 2021 722,000  
Finance leases, 2021 398,000  
Total, 2021 1,120,000  
Operating leases, 2022 726,000  
Finance leases, 2022 223,000  
Total, 2022 949,000  
Operating leases, 2023 738,000  
Finance leases, 2023 2,000  
Total, 2023 740,000  
Operating leases, thereafter 3,380,000  
Finance leases, thereafter  
Total, thereafter 3,380,000  
Operating leases, total lease payments 6,871,000  
Finance leases, total lease payments 1,234,000  
Total, total lease payments 8,105,000  
Operating leases, less: Interest (1,379,000)  
Finance leases, less: Interest (94,000)  
Total, less: Interest (1,473,000)  
Operating leases, present value of lease liabilities 5,492,000 $ 5,731,000
Finance leases, present value of lease liabilities 1,140,000  
Total, present value of lease liabilities $ 6,632,000  
v3.19.2
Note 5 - Leases - Future Minimum Lease Commitments (Details)
$ in Thousands
Dec. 31, 2018
USD ($)
2019 $ 1,024
2020 858
2021 722
2022 726
2023 738
Thereafter 3,380
Total minimum obligations $ 7,448
v3.19.2
Note 6 - Income Taxes (Details Textual)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Effective Income Tax Rate Reconciliation, Percent, Total (4.00%) 26.00% (4.00%) 101.00%