Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Feb. 28, 2017 | Jun. 30, 2016 | |
Document and Entity Information | |||
Entity Registrant Name | NORTECH SYSTEMS INC | ||
Entity Central Index Key | 722,313 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 4,533,953 | ||
Entity Common Stock, Shares Outstanding | 2,747,831 | ||
Document Fiscal Year Focus | 2,016 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Net Sales | $ 116,621,719 | $ 115,191,905 |
Cost of Goods Sold | 102,781,469 | 103,132,874 |
Gross Profit | 13,840,250 | 12,059,031 |
Operating Expenses: | ||
Selling Expenses | 4,947,853 | 5,248,521 |
General and Administrative Expenses | 8,263,334 | 7,232,558 |
Total Operating Expenses | 13,211,187 | 12,481,079 |
Income (Loss) From Operations | 629,063 | (422,048) |
Interest Expense | (550,289) | (465,374) |
Income (Loss) Before Income Taxes | 78,774 | (887,422) |
Income Tax Expense (Benefit) | 35,000 | (316,000) |
Net Income (Loss) | $ 43,774 | $ (571,422) |
Earnings (Loss) Per Common Share: | ||
Basic (in dollars per share) | $ 0.02 | $ (0.21) |
Weighted Average Number of Common Shares Outstanding - Basic (in shares) | 2,747,424 | 2,745,759 |
Diluted (in dollars per share) | $ 0.02 | $ (0.21) |
Weighted Average Number of Common Shares Outstanding - Dilutive (in shares) | 2,749,545 | 2,745,759 |
Other comprehensive income (loss) | ||
Foreign currency translation | $ 18,491 | |
Comprehensive income (loss), net of tax | $ 62,265 | $ (571,422) |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current Assets | ||
Cash | $ 268,204 | $ 887 |
Accounts Receivable, less allowances of $883,000 and $320,000 | 17,320,784 | 18,431,746 |
Inventories | 20,653,841 | 20,185,445 |
Prepaid Expenses | 1,048,373 | 1,452,656 |
Income Taxes Receivable | 198,535 | 302,005 |
Total Current Assets | 39,489,737 | 40,372,739 |
Property and Equipment, Net | 10,330,834 | 10,507,748 |
Goodwill | 3,283,454 | 3,283,454 |
Other Intangible Assets, Net | 1,861,764 | 2,052,420 |
Deferred Taxes | 543,000 | 341,000 |
Other Non Current Assets | 7,726 | 7,726 |
Total Assets | 55,516,515 | 56,565,087 |
Current Liabilities | ||
Current Maturities of Long-Term Debt | 1,565,347 | 1,495,513 |
Accounts Payable | 13,825,530 | 13,041,377 |
Accrued Payroll and Commissions | 3,311,693 | 3,139,698 |
Other Accrued Liabilities | 1,603,069 | 1,987,740 |
Income Taxes Payable | 7,382 | |
Total Current Liabilities | 20,305,639 | 19,671,710 |
Long-Term Liabilities | ||
Line of Credit | 7,315,262 | 7,691,237 |
Long-Term Debt, Net of Current Maturities | 4,891,631 | 5,954,669 |
Other Long-Term Liabilities | 689,195 | 975,615 |
Total Long-Term Liabilities | 12,896,088 | 14,621,521 |
Total Liabilities | 33,201,727 | 34,293,231 |
Shareholders' Equity | ||
Preferred Stock, $1 par value; 1,000,000 Shares Authorized; 250,000 Shares Issued and Outstanding | 250,000 | 250,000 |
Common Stock-$0.01 par value; 9,000,000 Shares Authorized; 2,747,831 and 2,746,329 Shares Issued and Outstanding | 27,478 | 27,463 |
Additional Paid-In Capital | 15,746,665 | 15,766,013 |
Accumulated Other Comprehensive Loss | (44,445) | (62,936) |
Retained Earnings | 6,335,090 | 6,291,316 |
Total Shareholders' Equity | 22,314,788 | 22,271,856 |
Total Liabilities and Shareholders' Equity | $ 55,516,515 | $ 56,565,087 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
CONSOLIDATED BALANCE SHEETS | ||
Accounts Receivable Allowance | $ 883,000 | $ 320,000 |
Preferred Stock, par value (in dollars per share) | $ 1 | $ 1 |
Preferred Stock, Shares Authorized | 1,000,000 | 1,000,000 |
Preferred Stock, Shares Issued | 250,000 | 250,000 |
Preferred Stock, Shares Outstanding | 250,000 | 250,000 |
Common Stock - par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common Stock - Shares Authorized | 9,000,000 | 9,000,000 |
Common Stock - Shares Issued | 2,747,831 | 2,747,831 |
Common Stock - Shares Outstanding | 2,746,329 | 2,746,329 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income (Loss) | $ 43,774 | $ (571,422) |
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: | ||
Depreciation | 2,104,983 | 2,161,117 |
Amortization | 190,654 | 97,975 |
Compensation on Stock-Based Awards | 994 | 3,309 |
Compensation on Equity Appreciation Rights | (36,773) | (69,338) |
Deferred Taxes | (202,000) | (54,501) |
Change in Contingent Consideration | (294,342) | |
Loss on Disposal of Property and Equipment | 2,473 | 1,129 |
Changes in Current Operating Items | ||
Accounts Receivable | 1,067,751 | (864,078) |
Inventories | (489,084) | (1,661,386) |
Prepaid Expenses | 400,877 | (605,513) |
Income Taxes Receivable | 96,088 | 163,732 |
Income Taxes Payable | 7,382 | |
Accounts Payable | 817,227 | 3,935,440 |
Accrued Payroll and Commissions | 175,343 | 128,367 |
Other Accrued Liabilities | (343,840) | 708,135 |
Net Cash Provided by Operating Activities | 3,534,125 | 3,380,348 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds from Sale of Property and Equipment | 3,000 | |
Business Acquisition | (1,990,143) | |
Purchases of Property and Equipment | (1,956,208) | (1,678,465) |
Net Cash Used in Investing Activities | (1,953,208) | (3,668,608) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net Proceeds from (Repayments on) Line of Credit | (375,975) | (306,947) |
Proceeds from Long-Term Debt | 466,000 | 1,570,158 |
Principal Payments on Long-Term Debt | (1,459,203) | (1,022,551) |
Debt Issuance Costs | (44,175) | |
Proceeds from Issuance of Common Stock | 4,822 | 10,666 |
Excess Tax Benefits from Stock-Based Awards | (25,149) | 911 |
Net Cash (Used in) Financing Activities | (1,389,505) | 208,062 |
Effect of Exchange Rate Changes on Cash | 75,905 | 14,714 |
NET CHANGE IN CASH | 267,317 | (65,484) |
Cash - Beginning of Year | 887 | 66,371 |
CASH - END OF YEAR | 268,204 | 887 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash Paid During the Period for Interest | 499,111 | 442,259 |
Cash Paid (Refunded) During the Period for Income Taxes | 110,590 | (526,819) |
Supplemental Noncash Investing and Financing Activities: | ||
Seller Financed Note Payable for the Acquisition of Business | 2,077,194 | |
Liability for Contingent Consideration Related to Acquisition of Business | 851,000 | |
Capital Expenditures in Accounts Payable | $ 40,970 | $ 54,067 |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total |
Balance at Dec. 31, 2014 | $ 250,000 | $ 27,430 | $ 15,751,160 | $ (62,936) | $ 6,862,738 | $ 22,828,392 |
Increase (Decrease) in Stockholders' Equity | ||||||
Net Income (Loss) | (571,422) | (571,422) | ||||
Compensation on stock-based awards | 3,309 | 3,309 | ||||
Issuance of common stock | 33 | 10,633 | 10,666 | |||
Excess tax benefit from stock-based awards | 911 | 911 | ||||
Balance at Dec. 31, 2015 | 250,000 | 27,463 | 15,766,013 | (62,936) | 6,291,316 | 22,271,856 |
Increase (Decrease) in Stockholders' Equity | ||||||
Net Income (Loss) | 43,774 | 43,774 | ||||
Foreign currency translation adjustment | 18,491 | 18,491 | ||||
Compensation on stock-based awards | 994 | 994 | ||||
Issuance of common stock | 15 | 4,807 | 4,822 | |||
Excess tax benefit from stock-based awards | (25,149) | (25,149) | ||||
Balance at Dec. 31, 2016 | $ 250,000 | $ 27,478 | $ 15,746,665 | $ (44,445) | $ 6,335,090 | $ 22,314,788 |
Nature of Business and Summary
Nature of Business and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2016 | |
Nature of Business and Summary of Significant Accounting Policies | |
Nature of Business and Summary of Significant Accounting Policies | NOTE 1 - Nature of Business and Summary of Significant Accounting Policies Nature of Business Our manufacturing services include complete medical devices, printed circuit board assemblies, wire and cable assemblies, and complex higher level electromechanical assemblies for a wide range of medical, industrial and defense and aerospace industries. We provide a full “turn-key” contract manufacturing service to our customers. All products are built to the customer’s design specifications. We also provide engineering services and repair services. Our manufacturing facilities are located in Bemidji, Blue Earth, Merrifield, Milaca and Mankato, Minnesota as well as Augusta, Wisconsin, Monterrey, Mexico and Suzhou, China. Products are sold to customers both domestically and internationally. A summary of our significant accounting policies follows: Principles of Consolidation The consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries, Manufacturing Assembly Solutions of Monterrey, Inc. and Nortech Systems Hong Kong Company, Limited and its subsidiary, Nortech Systems Suzhou Company, Limited. All significant intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, allowance for doubtful accounts, realizability of deferred tax assets, goodwill impairment and long-lived asset impairment testing. Actual results could differ from those estimates. Accounts Receivable and Allowance for Doubtful Accounts We grant credit to customers in the normal course of business. Accounts receivable are unsecured and are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts was $883,000 and $320,000 at December 31, 2016 and 2015, respectively. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the customers’ current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the production of our products. Inventory reserves are maintained for inventories that may have a lower value than stated or quantities in excess of future production needs. Inventories are as follows: 2016 2015 Raw materials $ $ Work in process Finished goods Reserves ) ) Total $ $ Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized, while maintenance and minor repairs are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Leasehold improvements are depreciated over the shorter of their estimated useful lives or their remaining lease terms. All other property and equipment are depreciated by the straight-line method over their estimated useful lives, as follows: Buildings 39 Years Leasehold improvements 3-15 Years Manufacturing equipment 3-7 Years Office and other equipment 3-7 Years Property and equipment at December 31, 2016 and 2015: 2016 2015 Land $ $ Building and Leasehold Improvements Manufacturing Equipment Office and Other Equipment Accumulated Depreciation ) ) Total Property and Equipment, net $ $ Other Intangible Assets Finite life intangible assets at December 31, 2016 and 2015 are as follows: December 31, 2016 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ December 31, 2015 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ Amortization of finite life intangible assets was $190,654 and $97,975 for the years ended December 31, 2016 and 2015, respectively. Estimated future annual amortization expense associated with finite lived intangible assets is expected to be approximately as follows: Year Amount 2017 $ 2018 2019 2020 2021 Thereafter $ 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 . 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 its carrying value, a second step of the test is required to determine if recorded goodwill is impaired. In the event that goodwill is impaired, an impairment charge to earnings would become necessary. Based upon our annual goodwill impairment test we concluded that goodwill was not impaired. We recognize the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition. We assess the fair value of assets, including intangible assets, using a variety of methods and each asset is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the asset and the appropriate discount rates for a market participant. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Long-Lived Asset Impairment We evaluate long-lived assets, primarily property and equipment, 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 or asset group. 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. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to dispose. Preferred Stock Preferred stock issued is non-cumulative and nonconvertible. The holders of the preferred stock are entitled to a non-cumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. No preferred stock dividends were declared or paid during the years ended December 31, 2016 and 2015. Revenue Recognition We recognize manufacturing revenue when we ship goods or the goods are received by our customer, when title has passed, all contractual obligations have been satisfied, the price is fixed or determinable and collection of the resulting receivable is reasonably assured. Generally, there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services. If such requirements or obligations exist, then we recognize the related revenues at the time when such requirements are completed and the obligations are fulfilled. We also provide engineering services separate from the manufacturing of a product. Revenue for engineering services is generally recognized on a time and materials basis or upon completion of the engineering process. In addition, we have another separate source of revenue that comes from short-term repair services, which are recognized when the repairs are completed and the repaired products are shipped back to the customer. 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 consolidated statement of income. 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. Product Warranties We provide limited warranty for the replacement or repair of defective product within a specified time period after the sale at no cost to our customers. We make no other guarantees or warranties, expressed or implied, of any nature whatsoever as to the goods including, without limitation, warranties to merchantability, fit for a particular purpose or non-infringement of patent or the like unless agreed upon in writing. We estimate the costs that may be incurred under our limited warranty and provide a reserve based on actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. Our warranty claim costs are not material given the nature of our products and services. Advertising Advertising costs are charged to operations as incurred. The total amount charged to expense was $131,000 and $108,000 for the years ended December 31, 2016 and 2015, respectively. Income Taxes We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The company recognizes interest and penalties accrued on any unrecognized tax benefits as a component on income tax expense. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Management must also assess whether uncertain tax positions as filed could result in the recognition of a liability for possible interest and penalties if any. Our estimates are based on the information available to us at the time we prepare the income tax provisions. Our income tax returns are subject to audit by federal, state, and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. Incentive Compensation We use a Black-Scholes option-pricing model to determine the grant date fair value of our incentive awards and recognize the expense on a straight-line basis over the vesting period less awards expected to be forfeited using estimated forfeiture rates. See Note 6 for additional information. Net Income (Loss) Per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Dilutive net income (loss) per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding, unless their effect is antidilutive. A reconciliation of basic and diluted share amounts for the years ended December 31, 2016 and 2015 is as follows: 2016 2015 Basic weighted average common shares outstanding Weighted average common stock equivalents from assumed exercise of stock options — Diluted weighted average common shares outstanding Outstanding stock options totaling 23,250 options for the year ended December 31, 2016, were excluded from the net income per share calculation because the shares would be anti-dilutive. Due to the loss in 2015, basic and diluted shares are the same. Any outstanding shares would result in anti-dilution. Fair Value of Financial Instruments The carrying amounts of all financial instruments approximate their fair values. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the carrying value of our long-term debt and line of credit approximates its fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value framework requires the categorization of assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. Our assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. We endeavor to use the best available information in measuring fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of December 31, 2016, we estimated the fair value of the contingent consideration associated with the Devicix acquisition using a probability weighted discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a level 3 measurement. (see Note 8) Enterprise-Wide Disclosures Our results of operations for the years ended December 31, 2016 and 2015 represent a single operating and reporting segment referred to as Contract Manufacturing within the EMS industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers’ requirements. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and all corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. Export sales from our domestic operations represent approximately 8% and 13% of consolidated net sales for the years ended December 31, 2016 and 2015, respectively. Net sales by our major EMS industry markets for the years ended December 31, 2016 and 2015 are as follows: (in thousands) 2016 2015 Aerospace and Defense $ $ Medical Industrial Total Net Sales $ $ Noncurrent assets, excluding deferred taxes, by country are as follows: United States Mexico China Total December 31, 2016 Property and equipment, net $ $ $ $ Other assets — December 31, 2015 Property and equipment, net $ $ $ — $ Other assets — Foreign Currency Transactions The functional currency for our Mexico subsidiary is the US dollar. Foreign exchange transaction gains and losses attributable to exchange rate movements related to transactions made in the local currency and on intercompany receivables and payables not deemed to be of a long-term investment nature are recorded in other income (expense). The functional currency for our China subsidiary is the Renminbi (RMB). Assets and liabilities of the China operation are translated from RMB into U.S. dollars at period-end rates, while income and expense are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income (loss) within shareholders’ equity. The total foreign currency translation adjustment increased shareholders’ equity by $19,000, from an accumulated foreign currency translation loss of $63,000 as of December 31, 2015 to an accumulated foreign currency translation loss of $44,000 as of December 31, 2016. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated statements of income. Net foreign currency transaction gains (losses) included in the determination of net earnings was ($82,000) and ($15,000) for the years ended December 31, 2016 and 2015, respectively. Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the effect of this update on our consolidated financial statements. In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for our financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company does not expect this guidance to have a significant impact on its consolidated financial statements. During February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard on a modified retrospective basis to all periods presented. We are currently assessing the effect that ASU 2016-02 will have on our consolidated financial statements. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This standard changes the measurement principle for certain inventory methods from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This standard does not apply to inventory that is measured using Last-in First-out (“LIFO”) or the retail inventory method. The provisions of ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company does not expect this guidance to have a significant impact on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, with no early adoption permitted, using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. We have not yet selected a transition method and are currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements. |
Major Customers and Concentrati
Major Customers and Concentration of Credit Risk | 12 Months Ended |
Dec. 31, 2016 | |
Major Customers and Concentration of Credit Risk | |
Major Customers and Concentration of Credit Risk | NOTE 2 - Major Customers and Concentration of Credit Risk 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 one high-credit quality financial institution. These accounts may at times exceed federally insured limits. Our largest customer has two divisions that together accounted for approximately 24% and 27% of net sales for the years ended December 31, 2016 and 2015, respectively. One division accounted for approximately 20% and 18% of net sales for the years ended December 31, 2016 and 2015, respectively. The second division accounted for approximately 4% and 9% of net sales for the years ended December 31, 2016 and 2015, respectively. Accounts receivable from the customer at December 31, 2016 and 2015 represented 14% and 17% of our total accounts receivable, respectively. We do not require collateral on our accounts receivable. |
Financing Agreements and Subseq
Financing Agreements and Subsequent Event | 12 Months Ended |
Dec. 31, 2016 | |
Financing Agreements and Subsequent Event | |
Financing Agreements and Subsequent Event | NOTE 3 - Financing Agreements and Subsequent Event We have a credit agreement with Wells Fargo Bank. Under the 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 three-month LIBOR + 2.25% (approximately 3.25% at December 31, 2016) while our real estate term notes bear interest at three-month LIBOR + 2.75% (approximately 3.75% at December 31, 2016). The weighted-average interest rate on our line of credit was 3.1% and 2.8% for the twelve months ended December 31, 2016 and December 31, 2015, respectively. We had borrowing on our line of credit of $7,315,262 and $7,691,237 outstanding as of December 31, 2016 and December 31, 2015, respectively. The line of credit requires a lock box arrangement; however there are no subjective acceleration clauses that would accelerate the maturity of our outstanding borrowings. On January 12, 2017, the Company entered into the Tenth Amendment (the Tenth Amendment) to its Third Amended and Restated Credit and Security Agreement with Wells Fargo Bank, National Association (the Amended Credit Agreement). The Tenth Amendment provides for, among other things, a fixed charge coverage ratio of not less than (i) 1.05 to 1.00 for the trailing twelve month period ending December 31, 2016, up to and through the trailing twelve month period ending on June 30, 2017, and (ii) 1.10 to 1.00 for each trailing twelve month period thereafter. The fixed charge coverage ratio in existence on December 31, 2016, that the Company was required to maintain under the Amended Credit Agreement was not less than (i) 1.20 to 1.00 for the trailing twelve month period ending December 31, 2016, and (i) 1.15 to 1.00 for each period thereafter. The Tenth Amendment did not amend any other terms of the line of credit or the equipment, capital expenditure or real estate term notes under the existing Amended Credit Agreement. The credit agreement contains 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 the line is subject to borrowing base requirements. At December 31, 2016, we have net unused availability under our line of credit of approximately $5.7 million. 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 $1.0 million and $1.3 million. The $1.0 million promissory note has a four-year term, bearing interest at 4% per annum, requiring monthly principal and interest payments of $22,579 and is subject to offsets if certain revenue levels are not met. The $1.3 million promissory note has a four year term and bears interest at 4% per annum, requiring monthly principal and interest payments of $29,353 and is not subject to offset. A summary of long-term debt balances at December 31, 2016 and 2015 is as follows: Description 2016 2015 Term notes payable - Wells Fargo Bank, N.A. Real estate term notes bearing interest at three month LIBOR + 2.75% maturing March 31, 2027, and December 31, 2027 with combined monthly payments of approximately $19,000 plus interest, secured by substantially all assets. $ $ Equipment notes bearing interest at three month LIBOR + 2.75% maturing May 2018 with a combined monthly payments of approximately $46,000 plus interest, secured by substantially all assets Industrial revenue bond payable to the City of Blue Earth, Minnesota which bears a variable interest rate (approx. 0.24% at December 31, 2014), and has a maturity date of June 1, 2021, with principal of $80,000 payable annually on June 1 Devicix Acquistion Note 1 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019 Devicix Acquistion Note 2 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019 Discount on Devicix Notes Payable ) ) Debt issuance Costs ) ) Total long-term debt Current maturities of long-term debt ) ) Long-term debt - net of current maturities $ $ Future maturity requirements for long-term debt outstanding as of December 31, 2016, are as follows: Years Ending December 31, Amount 2017 $ 2018 2019 2020 2021 Future $ |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Income Taxes | NOTE 4 - Income Taxes The income tax expense (benefit) for the years ended December 31, 2016 and 2015 consists of the following: 2016 2015 Current taxes - Federal $ $ ) Current taxes - State Current taxes - Foreign ) Deferred taxes - Federal ) ) Deferred taxes - State Deferred taxes - Foreign ) — Income tax expense (benefit) $ $ ) The statutory rate reconciliation for the years ended December 31, 2016 and 2015 is as follows: 2016 2015 Statutory federal tax provision (benefit) $ $ ) State income taxes ) Effect of foreign operations ) Uncertain tax positions ) Income tax credits ) ) Valuation allowance Permanent differences Other — — Income tax expense (benefit) $ $ ) Income (loss) from operations before income taxes was derived from the following sources: 2016 2015 Domestic $ $ ) Foreign ) Total $ $ ) Deferred tax assets (liabilities) at December 31, 2016 and 2015, consist of the following: 2016 2015 Deferred Tax Allowance for uncollectable accounts $ $ Inventories reserve Accrued vacation Non-compete amortization Stock-based compensation and equity appreciation rights Net operating loss carryforwards Tax credit carryforwards Other Valuation allowance ) ) Deferred tax assets Prepaid expenses ) ) Property and equipment ) ) Deferred tax liabilities ) ) Net deferred tax assets $ $ We established a valuation allowance because we determined that it was more likely than not that a portion of the net operating loss carryforwards and research and development credit would not be utilized. At December 31, 2016, the Company has established a valuation allowance of $135,000 against certain of its stated deferred tax assets to reduce the total to an amount which management believes to be appropriate realization of deferred tax asset is dependent upon sufficient future taxable income during the periods when deductible temporary differences and carryforwards are expected to be available to reduce taxable income. The tax effects from an uncertain tax positions can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the years ended December 31, 2016 and 2015: Balance as of December 31, 2014 $ Tax positions related to 2015: Additions based on tax positions related to the current year Additions based on tax positions related to the prior year Reductions based on tax positions related to a prior year ) Statute of limitations ) Balance as of December 31, 2015 Tax positions related to current year: Additions based on tax positions related to the current year Additions based on tax positions related to a prior year Reductions based on tax positions related to a prior year ) Statute of limitations ) Balance as of December 31, 2016 $ The $52,000 of unrecognized tax benefits as of December 31, 2016 includes amounts which, if ultimately recognized, will reduce our annual effective tax rate. It is included in other long-term liabilities on the accompanying consolidated balance sheets. Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2016 and 2015 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns. We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2016, with few exceptions, the Company or its subsidiaries are no longer subject to examination prior to tax year 2010. |
401(K) Retirement Plan
401(K) Retirement Plan | 12 Months Ended |
Dec. 31, 2016 | |
401(K) Retirement Plan | |
401(K) Retirement Plan | NOTE 5 - 401(K) Retirement Plan We have a 401(k) profit sharing plan (the 401(k) Plan) for our employees. The 401(k) Plan is a defined contribution plan covering substantially all of our U.S. employees. Employees are eligible to participate in the Plan after completing three months of service and attaining the age of 18. Employees are allowed to contribute up to 60% of their wages to the 401(k) Plan. Historically we have matched 25% of the employees’ contributions up to 6% of covered compensation. We made contributions of approximately $270,000 and $249,000 during the years ended December 31, 2016 and 2015, respectively. |
Incentive Plans
Incentive Plans | 12 Months Ended |
Dec. 31, 2016 | |
Incentive Plans | |
Incentive Plans | NOTE 6 - Incentive Plans Employee Profit Sharing During 1993, we adopted an employee profit sharing plan (the 1993 Plan). The purpose of the 1993 Plan is to provide a bonus for increased output, improved quality and productivity and reduced costs. We have authorized 50,000 common shares to be available under the 1993 Plan. In accordance with the terms of the 1993 Plan, employees could acquire newly issued shares of common stock for 90% of the current market value. During 2016 and 2015, no common shares were issued in connection with the 1993 Plan. Through December 31, 2016, 22,118 common shares had been issued under the 1993 Plan. Stock Options On May 3, 2005, the shareholders approved the 2005 Incentive Compensation Plan (the 2005 Plan) and eliminated the remaining 172,500 option shares available for grant under the prior 2003 Plan effective February 23, 2005. The total number of shares of common stock that may be granted under the 2005 Plan is 200,000. The 2005 Plan has not been renewed, and therefore no further grants may be made under the 2005 Plan. The 2005 Plan provides that option shares granted come from our authorized but unissued common stock. The price of the option shares granted under the plan will not be less than 100% of the fair market value of the common shares on the date of grant. Options are generally exercisable after one or more years and expire no later than 10 years from the date of grant. We estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the consolidated statements of income over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. We estimate forfeitures at the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We used the Black-Scholes option-pricing model to calculate the fair value of option-based awards. Our determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, our expected stock price, volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. The expected volatility and holding period are based on our historical experience. For all grants, the amount of compensation expense recognized has been adjusted for an estimated forfeiture rate, which is based on historical data. There were no grants during the years ended December 31, 2016 and 2015. Total compensation expense related to stock options for the years ended December 31, 2016 and 2015 was $994 and $3,309, respectively. As of December 31, 2016 there was no remaining unrecognized compensation. A summary of option activity as of December 31, 2016, and changes during the year then ended is presented below. Options Weighted- Weighted- Aggregate Outstanding — January 1, 2016 $ Granted — — Exercised ) Cancelled ) Outstanding — December 31, 2016 $ 4.21 $ Exercisable on December 31, 2016 $ 4.21 $ The total intrinsic value of options exercised during the years ended December 31, 2016 and 2015 was $964 and $8,166, respectively. Cash received from option exercises during the year ended December 31, 2016 and December 31, 2015 was $4,822 and $10,666, respectively. Equity Appreciation Rights Plan In November 2010, the Board of Directors approved the adoption of the Nortech Systems Incorporated Equity Appreciation Rights Plan (the 2010 Plan). The total number of Equity Appreciation Right Units (Units) the Plan can issue shall not exceed an aggregate of 1,000,000 Units as amended and restated on March 11, 2015 and approved by the shareholders on May 6, 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 this 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. During the year ended December 31, 2010, 100,000 Units were issued with a vesting date of December 31, 2012. On March 7, 2012, we granted an additional 250,000 Units with vesting dates ranging from December 31, 2014 through December 31, 2016. On February 13, 2013, we granted an additional 350,000 Units with vesting dates ranging from December 31, 2015 through December 31, 2019. On January 1, 2014, we granted an additional 50,000 Units with vesting dates ranging from December 31, 2016 to December 31, 2017. During the year ended December 31, 2015, we granted 52,500 Units with a base date of January 1, 2015 and a vesting date of January 1, 2018. During the year ended December 31, 2016, we granted 31,666 Units with a base date of January 1, 2016 and a vesting date of January 1, 2019. Total compensation income related to the vested outstanding Units based on the estimated appreciation over their remaining terms was approximately $37,000 and $69,000 for the years ended December 31, 2016 and 2015, respectively. The income for the years ended December 31, 2016 and 2015 was the result of a change in the estimate of the appreciation of book value per share of common stock. A summary of the liability as of December 31 and changes during the years then ended, is presented below. 2016 2015 Beginning Balance $ $ Reductions ) ) Payments ) ) Ending Balance $ $ As of December 31, 2016, approximately $23,000 of this balance was included in other accrued liabilities and the remaining $22,000 balance was included in other long-term liabilities. As of December 31, 2015, approximately $61,000 of this balance was included in other accrued liabilities and the remaining $82,000 balance was included in other long-term liabilities. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | NOTE 7 - Commitments and Contingencies Operating Leases We have various operating leases for production and office equipment, office space, and buildings under non-cancelable lease agreements expiring on various dates through 2022. Rent expense for the years ended December 31, 2016 and 2015 amounted to approximately $1,153,000 and $911,000 respectively. Approximate future minimum lease payments under non-cancelable leases are as follows: Years Ending December 31, Amount 2017 $ 2018 2019 2020 2021 Thereafter Total $ Litigation We are subject to various legal proceedings and claims that arise in the ordinary course of business. In our opinion, the amount of any ultimate liability with respect to these actions will not materially affect our consolidated financial statements or results of operations. Executive Life Insurance Plan During 2002, we set up an Executive Bonus Life Insurance Plan (the Plan) for our key employees (participants). Pursuant to the Plan, we will pay a bonus to officer participants of 15% and a bonus to all other participants of 10% of the participants’ base annual salary, as well as an additional bonus to cover federal and state taxes incurred by the participants. The participants are required to purchase life insurance and retain ownership of the life insurance policy once it is purchased. The Plan provides a five-year graded vesting schedule in which the participants vest at a rate of 20% each year. Should a participant terminate employment prior to the fifth year of vesting, that participant may be required to reimburse us for any unvested amounts, under certain circumstances. Expenses under the Plan were $327,000 and $207,000 for the years ended December 31, 2016 and 2015, respectively. Change of Control Agreements Since 2002, we entered into Change of Control Agreements (the Agreement(s)) with certain key executives (the Executive(s)). The Agreements provide an inducement for each Executive to remain as an employee in the event of any proposed or anticipated change of control in the organization, including facilitating an orderly transition, and to provide economic security for the Executive after a change in control has occurred. In the event of an involuntarily termination in connection with a change of control as defined in the agreements, each Executive would receive their base salary, annual bonus at time of termination, and continued participation in health, disability and life insurance plans for a period of three years for officers and two years for all other participants. Participants would also receive professional outplacement services up to $10,000, if applicable. Each Agreement remains in full force until the Executive terminates employment or we terminate the employment of the Executive. |
Business Acquisition
Business Acquisition | 12 Months Ended |
Dec. 31, 2016 | |
Business Acquisition | |
Business Acquisition | NOTE 8 - Business Acquisition On July 1, 2015, we completed the acquisition of substantially all of the assets of Devicix, LLC upon the terms and conditions contained in an Asset Purchase Agreement entered into on June 17, 2015. Devicix is an innovative medical product design and engineering firm with a proven track record of helping clients move from concept to production. The addition of Devicix will enhance and broaden our capabilities for complete design, manufacturing and service, particularly for regulated medical devices. Acquisition date fair value of the consideration transferred totaled $5.1 million which was comprised of cash payments of $2.0 million from our operating line of credit at closing and two promissory notes payable to the seller in the aggregate principal amounts of $1.0 million and $1.3 million. The $1.0 million promissory note has a four-year term, bearing interest at 4% per annum and is subject to offsets if certain revenue levels are not met. The $1.3 million promissory note has a four year term and bears interest at 4% per annum and is not subject to offset. The asset purchase agreement also includes additional consideration payable within 90 days of the completion of each of the first four 12-month periods after July 1, 2015. The earnout will be equal to 15% of eligible engineering revenue over a $6,000,000 threshold and 3% of eligible production revenue generated from Devicix customers. The maximum dollar amount of earnout payments under the Asset Purchase Agreement is $2,500,000. We estimated the fair value of the contingent consideration to be $851,000 using a probability weighted discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a level 3 measurement as defined in ASC 820. The estimated fair value of the contingent considerations was determined using the following assumptions: discount rates of 21-23%, probability levels of milestone range of outcomes, and expected timing of achievement of contingent consideration earn-out amounts. During 2016, the contingent consideration was adjusted from $851,000 to $556,000. The change in estimate of $294,342 is shown in general & administrative expenses in the statement of comprehensive income. The following table summarizes the contingent consideration balance and activity for the years ended December 31, 2016 and December 31, 2015: Beginning fair value of contingent liability, December 31, 2014 $ — Initial fair value of contingent consideration Period change in valuation — Contingent liability balance, December 31, 2015 Period change in valuation ) Payments ) Contingent liability balance, December 31, 2016 Less: Current liability Non-current liability $ The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date: July 1, 2015 Total Purchase Consideration: Cash $ Loans to Seller Contingent Consideration Total Purchase Consideration $ Assets Acquired and Liabilities Assumed: Cash $ Accounts Receivable AR due to seller ) Prepaid Expenses and Inventory Fixed Assets Trade Names Customer Relationship Goodwill Accounts Payable ) Accrued Payroll, Benefits and Other Current Liabilities ) Customer Deposits ) Total Assets Acquired and Liabilities Assumed $ The Devicix acquisition resulted in $3.2 million of goodwill, which is deductible for tax purposes. Specifically, the goodwill recorded as part of the acquisition of Devicix includes the expected synergies and other benefits that we believe will result from combining the operations of Devicix with the operations of Nortech Systems. Included in our consolidated statements of comprehensive income for the year ended December 31, 2015 are net sales of approximately $2.5 million and net income before income taxes of approximately $0.3 million, since the July 1, 2015 acquisition. We incurred $62,000 in legal, professional, and other costs related to this acquisition accounted for as general and administrative expenses. The weighted-average useful life of intangible assets acquired is 11.4 years. The table below reflects our unaudited pro forma combined results of operations as if the acquisition had taken place as of January 1, 2015: Pro Forma Year Ended December 31, 2015 (unaudited) Net Sales $ Income (Loss) from Operations $ ) Net Income (Loss) $ ) Basic & Diluted Loss per Common Share $ ) The pro forma unaudited results do not purport to be indicative of the results which would have been obtained had the acquisition been completed as of the beginning of the earliest period presented. In addition they do not include any benefits that may result from the acquisition due to synergies that may be derived from the elimination of any duplicative costs. Pro forma results presented above reflect: (1) amortization adjustments relating to fair value estimates of intangible assets and (2) incremental interest expense on assumed indebtedness. Pro forma adjustments described above have been tax effected using the effective rate during the respective periods. |
Plant Closure
Plant Closure | 12 Months Ended |
Dec. 31, 2016 | |
Plant Closure | |
Plant Closure | NOTE 9 — Plant Closure On August 1, 2016 the Company announced plans to close its manufacturing operations in Augusta, Wisconsin, by the end of 2016. In January 2017, production ceased and on February 7, 2017, the building was put up for sale and reclassed to held for sale. Nortech has operated a facility in Augusta since 1992, serving mainly an industrial customer base and defense overflow production that aligned with their custom cable capabilities. Nortech will consolidate operations at its other facilities, continuing to serve customers without interruption. This consolidation will increase Nortech’s overall asset utilization and cost leveraging. Approximately 50 employees at the Augusta facility are affected. At December 31, 2016, the Company had property and equipment with net book value of $392,000 at the Augusta facility, consisting of building and improvements of $312,000 and equipment of $80,000. |
SCHEDULE II - Valuation and Qua
SCHEDULE II - Valuation and Qualifying Accounts | 12 Months Ended |
Dec. 31, 2016 | |
Valuation and Qualifying Accounts | |
Valuation and Qualifying Accounts | NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY SCHEDULE II — Valuation and Qualifying Accounts FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Additions Balance at Charged Balance at Beginning to Costs End of Classification of Year and Expenses Deductions Year Year Ended December 31, 2016: Allowance for Uncollectible Accounts $ $ $ ) $ Inventory Reserves ) Year Ended December 31, 2015: Allowance for Uncollectible Accounts $ $ $ ) $ Inventory Reserves ) |
Nature of Business and Summar17
Nature of Business and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Nature of Business and Summary of Significant Accounting Policies | |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries, Manufacturing Assembly Solutions of Monterrey, Inc. and Nortech Systems Hong Kong Company, Limited and its subsidiary, Nortech Systems Suzhou Company, Limited. All significant intercompany accounts and transactions have been eliminated. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, allowance for doubtful accounts, realizability of deferred tax assets, goodwill impairment and long-lived asset impairment testing. Actual results could differ from those estimates. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts We grant credit to customers in the normal course of business. Accounts receivable are unsecured and are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts was $883,000 and $320,000 at December 31, 2016 and 2015, respectively. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the customers’ current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. |
Inventories | Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the production of our products. Inventory reserves are maintained for inventories that may have a lower value than stated or quantities in excess of future production needs. Inventories are as follows: 2016 2015 Raw materials $ $ Work in process Finished goods Reserves ) ) Total $ $ |
Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized, while maintenance and minor repairs are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Leasehold improvements are depreciated over the shorter of their estimated useful lives or their remaining lease terms. All other property and equipment are depreciated by the straight-line method over their estimated useful lives, as follows: Buildings 39 Years Leasehold improvements 3-15 Years Manufacturing equipment 3-7 Years Office and other equipment 3-7 Years Property and equipment at December 31, 2016 and 2015: 2016 2015 Land $ $ Building and Leasehold Improvements Manufacturing Equipment Office and Other Equipment Accumulated Depreciation ) ) Total Property and Equipment, net $ $ |
Other Intangible Assets | Other Intangible Assets Finite life intangible assets at December 31, 2016 and 2015 are as follows: December 31, 2016 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ December 31, 2015 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ Amortization of finite life intangible assets was $190,654 and $97,975 for the years ended December 31, 2016 and 2015, respectively. Estimated future annual amortization expense associated with finite lived intangible assets is expected to be approximately as follows: Year Amount 2017 $ 2018 2019 2020 2021 Thereafter $ |
Goodwill and Other Intangible Assets | 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 . 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 its carrying value, a second step of the test is required to determine if recorded goodwill is impaired. In the event that goodwill is impaired, an impairment charge to earnings would become necessary. Based upon our annual goodwill impairment test we concluded that goodwill was not impaired. We recognize the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition. We assess the fair value of assets, including intangible assets, using a variety of methods and each asset is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the asset and the appropriate discount rates for a market participant. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. |
Long-Lived Asset Impairment | Long-Lived Asset Impairment We evaluate long-lived assets, primarily property and equipment, 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 or asset group. 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. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to dispose. |
Preferred Stock | Preferred Stock Preferred stock issued is non-cumulative and nonconvertible. The holders of the preferred stock are entitled to a non-cumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. No preferred stock dividends were declared or paid during the years ended December 31, 2016 and 2015. |
Revenue Recognition | Revenue Recognition We recognize manufacturing revenue when we ship goods or the goods are received by our customer, when title has passed, all contractual obligations have been satisfied, the price is fixed or determinable and collection of the resulting receivable is reasonably assured. Generally, there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services. If such requirements or obligations exist, then we recognize the related revenues at the time when such requirements are completed and the obligations are fulfilled. We also provide engineering services separate from the manufacturing of a product. Revenue for engineering services is generally recognized on a time and materials basis or upon completion of the engineering process. In addition, we have another separate source of revenue that comes from short-term repair services, which are recognized when the repairs are completed and the repaired products are shipped back to the customer. 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 consolidated statement of income. 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. |
Product Warranties | Product Warranties We provide limited warranty for the replacement or repair of defective product within a specified time period after the sale at no cost to our customers. We make no other guarantees or warranties, expressed or implied, of any nature whatsoever as to the goods including, without limitation, warranties to merchantability, fit for a particular purpose or non-infringement of patent or the like unless agreed upon in writing. We estimate the costs that may be incurred under our limited warranty and provide a reserve based on actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. Our warranty claim costs are not material given the nature of our products and services. |
Advertising | Advertising Advertising costs are charged to operations as incurred. The total amount charged to expense was $131,000 and $108,000 for the years ended December 31, 2016 and 2015, respectively. |
Income Taxes | Income Taxes We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The company recognizes interest and penalties accrued on any unrecognized tax benefits as a component on income tax expense. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Management must also assess whether uncertain tax positions as filed could result in the recognition of a liability for possible interest and penalties if any. Our estimates are based on the information available to us at the time we prepare the income tax provisions. Our income tax returns are subject to audit by federal, state, and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. |
Incentive Compensation | Incentive Compensation We use a Black-Scholes option-pricing model to determine the grant date fair value of our incentive awards and recognize the expense on a straight-line basis over the vesting period less awards expected to be forfeited using estimated forfeiture rates. See Note 6 for additional information. |
Net Income (Loss) Per Common Share | Net Income (Loss) Per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Dilutive net income (loss) per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding, unless their effect is antidilutive. A reconciliation of basic and diluted share amounts for the years ended December 31, 2016 and 2015 is as follows: 2016 2015 Basic weighted average common shares outstanding Weighted average common stock equivalents from assumed exercise of stock options — Diluted weighted average common shares outstanding Outstanding stock options totaling 23,250 options for the year ended December 31, 2016, were excluded from the net income per share calculation because the shares would be anti-dilutive. Due to the loss in 2015, basic and diluted shares are the same. Any outstanding shares would result in anti-dilution. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of all financial instruments approximate their fair values. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the carrying value of our long-term debt and line of credit approximates its fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value framework requires the categorization of assets and liabilities into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. Our assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. We endeavor to use the best available information in measuring fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of December 31, 2016, we estimated the fair value of the contingent consideration associated with the Devicix acquisition using a probability weighted discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a level 3 measurement. (see Note 8) |
Enterprise-Wide Disclosures | Enterprise-Wide Disclosures Our results of operations for the years ended December 31, 2016 and 2015 represent a single operating and reporting segment referred to as Contract Manufacturing within the EMS industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers’ requirements. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and all corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. Export sales from our domestic operations represent approximately 8% and 13% of consolidated net sales for the years ended December 31, 2016 and 2015, respectively. Net sales by our major EMS industry markets for the years ended December 31, 2016 and 2015 are as follows: (in thousands) 2016 2015 Aerospace and Defense $ $ Medical Industrial Total Net Sales $ $ Noncurrent assets, excluding deferred taxes, by country are as follows: United States Mexico China Total December 31, 2016 Property and equipment, net $ $ $ $ Other assets — December 31, 2015 Property and equipment, net $ $ $ — $ Other assets — |
Foreign Currency Transactions | Foreign Currency Transactions The functional currency for our Mexico subsidiary is the US dollar. Foreign exchange transaction gains and losses attributable to exchange rate movements related to transactions made in the local currency and on intercompany receivables and payables not deemed to be of a long-term investment nature are recorded in other income (expense). The functional currency for our China subsidiary is the Renminbi (RMB). Assets and liabilities of the China operation are translated from RMB into U.S. dollars at period-end rates, while income and expense are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income (loss) within shareholders’ equity. The total foreign currency translation adjustment increased shareholders’ equity by $19,000, from an accumulated foreign currency translation loss of $63,000 as of December 31, 2015 to an accumulated foreign currency translation loss of $44,000 as of December 31, 2016. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated statements of income. Net foreign currency transaction gains (losses) included in the determination of net earnings was ($82,000) and ($15,000) for the years ended December 31, 2016 and 2015, respectively. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the effect of this update on our consolidated financial statements. In March 2016, FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, allows an employer to repurchase more of an employee’s shares than previously allowed for tax withholding purposes without triggering liability accounting, allows a company to make a policy election to account for forfeitures as they occur, and eliminates the requirement that excess tax benefits be realized before companies can recognize them. The new guidance also requires excess tax benefits and tax shortfalls to be presented on the cash flow statement as an operating activity rather than as a financing activity, and clarifies that cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation are to be presented as a financing activity. The standard is effective for our financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company does not expect this guidance to have a significant impact on its consolidated financial statements. During February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard on a modified retrospective basis to all periods presented. We are currently assessing the effect that ASU 2016-02 will have on our consolidated financial statements. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” This standard changes the measurement principle for certain inventory methods from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This standard does not apply to inventory that is measured using Last-in First-out (“LIFO”) or the retail inventory method. The provisions of ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company does not expect this guidance to have a significant impact on its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, with no early adoption permitted, using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. We have not yet selected a transition method and are currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements. |
Nature of Business and Summar18
Nature of Business and Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Nature of Business and Summary of Significant Accounting Policies | |
Schedule of inventories | 2016 2015 Raw materials $ $ Work in process Finished goods Reserves ) ) Total $ $ |
Schedule of estimated useful lives of property and equipment | Buildings 39 Years Leasehold improvements 3-15 Years Manufacturing equipment 3-7 Years Office and other equipment 3-7 Years |
Schedule of property and equipment | 2016 2015 Land $ $ Building and Leasehold Improvements Manufacturing Equipment Office and Other Equipment Accumulated Depreciation ) ) Total Property and Equipment, net $ $ |
Schedule of intangible assets | December 31, 2016 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ December 31, 2015 Gross Accumulated Net Book Carrying Amortization Value Years Amount Amount Amount Bond Issue Costs 15 $ $ $ Customer Relationships 9 Trade Names 20 Totals $ $ $ |
Schedule of estimated future amortization expense | Year Amount 2017 $ 2018 2019 2020 2021 Thereafter $ |
Schedule of reconciliation of basic and diluted share amounts | 2016 2015 Basic weighted average common shares outstanding Weighted average common stock equivalents from assumed exercise of stock options — Diluted weighted average common shares outstanding |
Schedule of net sales by markets | (in thousands) 2016 2015 Aerospace and Defense $ $ Medical Industrial Total Net Sales $ $ |
Schedule of noncurrent assets, excluding deferred taxes, by country | United States Mexico China Total December 31, 2016 Property and equipment, net $ $ $ $ Other assets — December 31, 2015 Property and equipment, net $ $ $ — $ Other assets — |
Financing Agreements and Subs19
Financing Agreements and Subsequent Event (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Financing Agreements and Subsequent Event | |
Summary of long-term debt balances | Description 2016 2015 Term notes payable - Wells Fargo Bank, N.A. Real estate term notes bearing interest at three month LIBOR + 2.75% maturing March 31, 2027, and December 31, 2027 with combined monthly payments of approximately $19,000 plus interest, secured by substantially all assets. $ $ Equipment notes bearing interest at three month LIBOR + 2.75% maturing May 2018 with a combined monthly payments of approximately $46,000 plus interest, secured by substantially all assets Industrial revenue bond payable to the City of Blue Earth, Minnesota which bears a variable interest rate (approx. 0.24% at December 31, 2014), and has a maturity date of June 1, 2021, with principal of $80,000 payable annually on June 1 Devicix Acquistion Note 1 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019 Devicix Acquistion Note 2 payable to DeLange Holdings bears interest rate of 4.0% per annum, maturing July 1, 2019 Discount on Devicix Notes Payable ) ) Debt issuance Costs ) ) Total long-term debt Current maturities of long-term debt ) ) Long-term debt - net of current maturities $ $ |
Schedule of future maturity requirements for long-term debt | Years Ending December 31, Amount 2017 $ 2018 2019 2020 2021 Future $ |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Schedule of income tax expense (benefit) | 2016 2015 Current taxes - Federal $ $ ) Current taxes - State Current taxes - Foreign ) Deferred taxes - Federal ) ) Deferred taxes - State Deferred taxes - Foreign ) — Income tax expense (benefit) $ $ ) |
Schedule of statutory rate reconciliation | 2016 2015 Statutory federal tax provision (benefit) $ $ ) State income taxes ) Effect of foreign operations ) Uncertain tax positions ) Income tax credits ) ) Valuation allowance Permanent differences Other — — Income tax expense (benefit) $ $ ) |
Schedule of income (loss) from operations before income taxes | 2016 2015 Domestic $ $ ) Foreign ) Total $ $ ) |
Schedule of deferred tax assets (liabilities) | 2016 2015 Deferred Tax Allowance for uncollectable accounts $ $ Inventories reserve Accrued vacation Non-compete amortization Stock-based compensation and equity appreciation rights Net operating loss carryforwards Tax credit carryforwards Other Valuation allowance ) ) Deferred tax assets Prepaid expenses ) ) Property and equipment ) ) Deferred tax liabilities ) ) Net deferred tax assets $ $ |
Schedule of changes in total gross unrecognized tax benefit liabilities, excluding accrued interest | Balance as of December 31, 2014 $ Tax positions related to 2015: Additions based on tax positions related to the current year Additions based on tax positions related to the prior year Reductions based on tax positions related to a prior year ) Statute of limitations ) Balance as of December 31, 2015 Tax positions related to current year: Additions based on tax positions related to the current year Additions based on tax positions related to a prior year Reductions based on tax positions related to a prior year ) Statute of limitations ) Balance as of December 31, 2016 $ |
Incentive Plans (Tables)
Incentive Plans (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Incentive Plans | |
Summary of option activity | Options Weighted- Weighted- Aggregate Outstanding — January 1, 2016 $ Granted — — Exercised ) Cancelled ) Outstanding — December 31, 2016 $ 4.21 $ Exercisable on December 31, 2016 $ 4.21 $ |
Summary of the liability and changes during the years | 2016 2015 Beginning Balance $ $ Reductions ) ) Payments ) ) Ending Balance $ $ |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies | |
Schedule of future minimum lease payments under non-cancelable leases | Years Ending December 31, Amount 2017 $ 2018 2019 2020 2021 Thereafter Total $ |
Business Acquisition (Tables)
Business Acquisition (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Business Acquisition | |
Summary of balance and activity of contingent consideration | Beginning fair value of contingent liability, December 31, 2014 $ — Initial fair value of contingent consideration Period change in valuation — Contingent liability balance, December 31, 2015 Period change in valuation ) Payments ) Contingent liability balance, December 31, 2016 Less: Current liability Non-current liability $ |
Summary of estimated fair values of assets acquired and liabilities assumed at acquisition date | July 1, 2015 Total Purchase Consideration: Cash $ Loans to Seller Contingent Consideration Total Purchase Consideration $ Assets Acquired and Liabilities Assumed: Cash $ Accounts Receivable AR due to seller ) Prepaid Expenses and Inventory Fixed Assets Trade Names Customer Relationship Goodwill Accounts Payable ) Accrued Payroll, Benefits and Other Current Liabilities ) Customer Deposits ) Total Assets Acquired and Liabilities Assumed $ |
Schedule of unaudited pro forma combined results of operations | Pro Forma Year Ended December 31, 2015 (unaudited) Net Sales $ Income (Loss) from Operations $ ) Net Income (Loss) $ ) Basic & Diluted Loss per Common Share $ ) |
Nature of Business and Summar24
Nature of Business and Summary of Significant Accounting Policies - A/R, Inventories, Property and Equipment (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Accounts Receivable and Allowance for Doubtful Accounts | ||
Accounts Receivable Allowance | $ 883,000 | $ 320,000 |
Inventories | ||
Raw Materials | 14,533,690 | 13,782,411 |
Work in Process | 4,104,968 | 4,674,223 |
Finished Goods | 2,688,596 | 2,478,423 |
Reserves | (673,413) | (749,612) |
Total | 20,653,841 | 20,185,445 |
Property and Equipment | ||
Accumulated Depreciation | (24,524,750) | (22,712,738) |
Total Property and Equipment, net | 10,330,834 | 10,507,748 |
Land | ||
Property and Equipment | ||
Property and equipment | 375,000 | 375,000 |
Building and Leasehold Improvements | ||
Property and Equipment | ||
Property and equipment | $ 9,393,092 | 9,273,866 |
Buildings | ||
Property and Equipment | ||
Estimated useful lives | 39 years | |
Leasehold improvements | Minimum | ||
Property and Equipment | ||
Estimated useful lives | 3 years | |
Leasehold improvements | Maximum | ||
Property and Equipment | ||
Estimated useful lives | 15 years | |
Manufacturing equipment | ||
Property and Equipment | ||
Property and equipment | $ 19,632,033 | 18,588,934 |
Manufacturing equipment | Minimum | ||
Property and Equipment | ||
Estimated useful lives | 3 years | |
Manufacturing equipment | Maximum | ||
Property and Equipment | ||
Estimated useful lives | 7 years | |
Office and other equipment | ||
Property and Equipment | ||
Property and equipment | $ 5,455,459 | $ 4,982,686 |
Office and other equipment | Minimum | ||
Property and Equipment | ||
Estimated useful lives | 3 years | |
Office and other equipment | Maximum | ||
Property and Equipment | ||
Estimated useful lives | 7 years |
Nature of Business and Summar25
Nature of Business and Summary of Significant Accounting Policies - Other Intangible Assets (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Finite-Lived Intangible Assets | ||
Gross carrying amount | $ 2,195,373 | $ 2,195,373 |
Accumulated amortization | 333,609 | 142,953 |
Net Book Value Amount | 1,861,764 | 2,052,420 |
Amortization expense | 190,654 | 97,975 |
Estimated future amortization expense | ||
2,017 | 191,000 | |
2,018 | 191,000 | |
2,019 | 191,000 | |
2,020 | 191,000 | |
2,021 | 191,000 | |
Thereafter | 906,764 | |
Total | $ 1,861,764 | $ 2,052,420 |
Bond Issue Costs | ||
Finite-Lived Intangible Assets | ||
Remaining lives | 15 years | 15 years |
Gross carrying amount | $ 79,373 | $ 79,373 |
Accumulated amortization | 55,561 | 50,270 |
Net Book Value Amount | 23,812 | 29,103 |
Estimated future amortization expense | ||
Total | $ 23,812 | $ 29,103 |
Customer Relationships | ||
Finite-Lived Intangible Assets | ||
Remaining lives | 9 years | 9 years |
Gross carrying amount | $ 1,302,000 | $ 1,302,000 |
Accumulated amortization | 216,998 | 72,333 |
Net Book Value Amount | 1,085,002 | 1,229,667 |
Estimated future amortization expense | ||
Total | $ 1,085,002 | $ 1,229,667 |
Trade Names | ||
Finite-Lived Intangible Assets | ||
Remaining lives | 20 years | 20 years |
Gross carrying amount | $ 814,000 | $ 814,000 |
Accumulated amortization | 61,050 | 20,350 |
Net Book Value Amount | 752,950 | 793,650 |
Estimated future amortization expense | ||
Total | $ 752,950 | $ 793,650 |
Nature of Business and Summar26
Nature of Business and Summary of Significant Accounting Policies - Preferred Stock, Revenue Recognition, Product Warranties, Advertising, Net Income (Loss) Per Common Share (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Preferred Stock | ||
Non-cumulative dividend rate (as a percent) | 12.00% | |
Liquidation preference (in dollars per share) | $ 1 | |
Preferred stock dividends declared (in dollars per share) | $ 0 | $ 0 |
Revenue Recognition | ||
Percentage of sales (as a percent) | 10.00% | |
Product Warranties | ||
Cost of defective product | $ 0 | |
Advertising | ||
Advertising expense charged | $ 131,000 | $ 108,000 |
Reconciliation of basic and diluted share amounts | ||
Basic weighted average common shares outstanding | 2,747,424 | 2,745,759 |
Weighted average common stock equivalents from assumed exercise of stock options (in shares) | 2,121 | |
Diluted weighted average common shares outstanding | 2,749,545 | 2,745,759 |
Outstanding options excluded from computation of income per share as effect would be antidilutive (in shares) | 23,250 |
Nature of Business and Summar27
Nature of Business and Summary of Significant Accounting Policies - Enterprise Wide Disclosures and Foreign Currency Transactions (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Enterprise-Wide Disclosures | ||
Percentage of sales (as a percent) | 10.00% | |
Total Net Sales | $ 116,621,719 | $ 115,191,905 |
Property and equipment, net | 10,330,834 | 10,507,748 |
Other assets | 5,152,944 | 5,343,600 |
Foreign Currency Transactions | ||
Foreign currency translation adjustment | 19,000 | |
Foreign currency translation loss | 44,000 | 63,000 |
Net foreign currency transaction gains (losses) | (82,000) | (15,000) |
United States | ||
Enterprise-Wide Disclosures | ||
Property and equipment, net | 8,731,205 | 9,322,484 |
Other assets | 5,145,218 | 5,335,874 |
Mexico | ||
Enterprise-Wide Disclosures | ||
Property and equipment, net | 1,238,087 | 1,185,264 |
Other assets | 7,726 | $ 7,726 |
China | ||
Enterprise-Wide Disclosures | ||
Property and equipment, net | $ 361,542 | |
Export sales | Domestic | ||
Enterprise-Wide Disclosures | ||
Percentage of sales (as a percent) | 8.00% | 13.00% |
Aerospace and Defense | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | $ 16,115,000 | $ 14,458,000 |
Medical | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | 53,836,000 | 41,308,000 |
Industrial | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | $ 46,671,000 | $ 59,426,000 |
Major Customers and Concentra28
Major Customers and Concentration of Credit Risk (Details) | 12 Months Ended | |
Dec. 31, 2016itemdivision | Dec. 31, 2015 | |
Major customers and concentration of credit risk | ||
Percentage of concentration risk (as a percent) | 10.00% | |
Largest customer | ||
Major customers and concentration of credit risk | ||
Number of divisions | division | 2 | |
Credit concentration risk | ||
Major customers and concentration of credit risk | ||
Excess cash balance, number of high credit quality financial institution | item | 1 | |
Net sales | Customer concentration risk | Largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk (as a percent) | 24.00% | 27.00% |
Net sales | Customer concentration risk | Division one of largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk (as a percent) | 20.00% | 18.00% |
Net sales | Customer concentration risk | Division two of largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk (as a percent) | 4.00% | 9.00% |
Accounts receivable | Largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk (as a percent) | 14.00% | 17.00% |
Financing Agreements and Subs29
Financing Agreements and Subsequent Event (Details) | Jan. 12, 2017 | Jul. 01, 2015USD ($)item | Jun. 30, 2017 | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | Dec. 31, 2014 |
Financing arrangements | ||||||
Total debt | $ 6,585,298 | $ 7,636,429 | ||||
Discount on Devicix Notes Payable | (102,424) | (142,072) | ||||
Debt Issuance Costs | (25,896) | (44,175) | ||||
Total long-term debt | 6,456,978 | 7,450,182 | ||||
Current maturities of long-term debt | (1,565,347) | (1,495,513) | ||||
Long-term debt - net of current maturities | 4,891,631 | 5,954,669 | ||||
Future maturity requirements for long-term debt | ||||||
2,017 | 1,565,347 | |||||
2,018 | 2,716,668 | |||||
2,019 | 578,055 | |||||
2,020 | 230,067 | |||||
2,021 | 230,067 | |||||
Future | 1,265,094 | |||||
Total debt | $ 6,585,298 | $ 7,636,429 | ||||
Line of credit | ||||||
Financing arrangements | ||||||
Variable rate basis | three-month LIBOR | |||||
Interest rate margin on variable rate basis (as a percent) | 2.25% | |||||
Interest rate (as a percent) | 3.25% | |||||
Weighted-average interest rate (as a percent) | 3.10% | 2.80% | ||||
Outstanding balance | $ 7,315,262 | $ 7,691,237 | ||||
Minimum fixed charge coverage ratio | 1.20 | |||||
Minimum fixed charge coverage ratio thereafter | 1.15 | |||||
Unused availability supported by entity's borrowing base | $ 5,700,000 | |||||
Real estate term note | ||||||
Financing arrangements | ||||||
Variable rate basis | three-month LIBOR | |||||
Interest rate margin on variable rate basis (as a percent) | 2.75% | |||||
Interest rate (as a percent) | 3.75% | |||||
Amount of monthly principal payments | $ 19,000 | |||||
Tenth Amendment To Third Amended and Restated Credit and Security Agreement | Subsequent Event. | ||||||
Financing arrangements | ||||||
Minimum fixed charge coverage ratio | 1.05 | |||||
Minimum fixed charge coverage ratio thereafter | 1.10 | |||||
Real estate term notes | ||||||
Financing arrangements | ||||||
Variable rate basis | three-month LIBOR | |||||
Total debt | $ 2,415,428 | 2,645,495 | ||||
Future maturity requirements for long-term debt | ||||||
Total debt | $ 2,415,428 | 2,645,495 | ||||
Equipment notes maturing in May 2015 | ||||||
Financing arrangements | ||||||
Variable rate basis | three-month LIBOR | |||||
Interest rate margin on variable rate basis (as a percent) | 2.75% | |||||
Amount of monthly principal payments | $ 46,000 | |||||
Total debt | 2,489,624 | 2,633,740 | ||||
Future maturity requirements for long-term debt | ||||||
Total debt | 2,489,624 | 2,633,740 | ||||
Industrial revenue bond payable to the City of Blue Earth, Minnesota | ||||||
Financing arrangements | ||||||
Interest rate (as a percent) | 0.24% | |||||
Amount of annual principal payments | 80,000 | |||||
Total debt | 200,000 | 280,000 | ||||
Future maturity requirements for long-term debt | ||||||
Total debt | $ 200,000 | 280,000 | ||||
Devicix Acq Note 1, subordinate debt, due July 1, 2019 | ||||||
Financing arrangements | ||||||
Interest rate (as a percent) | 4.00% | |||||
Total debt | $ 643,585 | 903,128 | ||||
Future maturity requirements for long-term debt | ||||||
Total debt | $ 643,585 | 903,128 | ||||
Devicix Acq Note 2, subordinate debt, due July 1, 2019 | ||||||
Financing arrangements | ||||||
Interest rate (as a percent) | 4.00% | |||||
Total debt | $ 836,661 | 1,174,066 | ||||
Future maturity requirements for long-term debt | ||||||
Total debt | $ 836,661 | $ 1,174,066 | ||||
Devicix LLC | ||||||
Financing arrangements | ||||||
Number of promissory notes | item | 2 | |||||
Devicix LLC | Promissory note subject to offsets | ||||||
Financing arrangements | ||||||
Promissory note liability | $ 1,000,000 | |||||
Term of promissory note | 4 years | |||||
Interest rate per annum | 4.00% | |||||
Principal and interest payments | $ 22,579 | |||||
Devicix LLC | Promissory note not subject to offsets | ||||||
Financing arrangements | ||||||
Promissory note liability | $ 1,300,000 | |||||
Term of promissory note | 4 years | |||||
Interest rate per annum | 4.00% | |||||
Principal and interest payments | $ 29,353 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Components of income tax expense | ||
Current taxes - Federal | $ 240,000 | $ (297,000) |
Current taxes - State | 10,000 | 6,000 |
Current taxes - Foreign | (13,000) | 29,000 |
Deferred taxes - Federal | (167,000) | (107,000) |
Deferred taxes - State | 10,000 | 53,000 |
Deferred taxes - Foreign | (45,000) | |
Income tax expense (benefit) | 35,000 | (316,000) |
Reconciliation of federal income taxes and reported income taxes | ||
Statutory federal tax provision (benefit) | 27,000 | (302,000) |
State income taxes | (32,000) | 3,000 |
Effect of foreign operations | 107,000 | (5,000) |
Uncertain tax positions | 2,000 | (3,000) |
Income tax credits | (134,000) | (125,000) |
Valuation allowance | 49,000 | 86,000 |
Permanent differences | 16,000 | 30,000 |
Income tax expense (benefit) | 35,000 | (316,000) |
Income (loss) from operations before income taxes | ||
Domestic | 486,425 | (968,793) |
Foreign | (407,651) | 81,371 |
Income (Loss) Before Income Taxes | 78,774 | (887,422) |
Components of deferred tax assets (liabilities) | ||
Allowance for uncollectable accounts | 317,000 | 115,000 |
Inventories reserve | 242,000 | 270,000 |
Accrued vacation | 362,000 | 360,000 |
Non-compete amortization | 56,000 | 191,000 |
Stock-based compensation and equity appreciation rights | 29,000 | 111,000 |
Net operating loss carryforwards | 134,000 | 113,000 |
Tax credit carryforwards | 242,000 | 231,000 |
Other | 188,000 | 180,000 |
Deferred tax assets before valuation allowance | 1,570,000 | 1,571,000 |
Valuation allowance | (135,000) | (86,000) |
Deferred tax assets | 1,435,000 | 1,485,000 |
Prepaid expenses | (323,000) | (481,000) |
Property and equipment | (569,000) | (663,000) |
Deferred tax liabilities | (892,000) | (1,144,000) |
Net deferred tax assets | 543,000 | 341,000 |
Changes in total gross unrecognized tax benefit liabilities, excluding accrued interest | ||
Balance at the beginning of the period | 51,000 | 56,000 |
Additions based on tax positions related to the current year | 15,000 | 12,000 |
Additions based on tax positions related to a prior year | 5,000 | 2,000 |
Reductions based on tax positions related to a prior year | 6,000 | 9,000 |
Statute of limitations | (13,000) | (10,000) |
Balance at the end of the period | $ 52,000 | $ 51,000 |
401(K) Retirement Plan (Details
401(K) Retirement Plan (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
401(K) Retirement Plan | ||
Requisite service period for employees to be eligible for the defined contribution plan | 3 months | |
Requisite age for employees to be eligible for the defined contribution plan | 18 years | |
Employee contributions limit as a percentage of wages, maximum | 60.00% | |
Employer match of employee contributions for 6% of eligible compensation (as a percent) | 25.00% | |
Maximum percentage of covered compensation matched 25% by employer | 6.00% | |
Contributions made | $ 270,000 | $ 249,000 |
Incentive Plans (Details)
Incentive Plans (Details) - USD ($) | Jan. 02, 2014 | Feb. 13, 2013 | Mar. 07, 2012 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2010 | Nov. 30, 2010 | May 03, 2005 | Dec. 31, 1993 |
Stock Options | |||||||||
Incentive plans | |||||||||
Compensation expense | $ 994 | $ 3,309 | |||||||
Unrecognized compensation related to unvested awards | $ 0 | ||||||||
Options | |||||||||
Balance at the beginning of the period(in shares) | 139,750 | ||||||||
Granted (in shares) | 0 | ||||||||
Exercised (in shares) | (1,507) | ||||||||
Cancelled (in shares) | (100,493) | ||||||||
Balance at the end of the period (in shares) | 37,750 | 139,750 | |||||||
Exercisable at the end of the period (in shares) | 37,750 | ||||||||
Weighted-Average Exercise Price Per Share | |||||||||
Outstanding at the beginning of the period (in dollars per share) | $ 6.66 | ||||||||
Exercised (in dollars per share) | 3.20 | ||||||||
Cancelled (in dollars per share) | 7.43 | ||||||||
Outstanding at the end of the period (in dollars per share) | 4.75 | $ 6.66 | |||||||
Exercisable at the end of the period (in dollars per share) | $ 4.75 | ||||||||
Weighted-Average Remaining Contractual Term | |||||||||
Outstanding at the end of the period | 4 years 2 months 16 days | ||||||||
Exercisable at the end of the period | 4 years 2 months 16 days | ||||||||
Aggregate Intrinsic Value | |||||||||
Outstanding at the end of the period | $ 10,005 | ||||||||
Exercisable at the end of the period | 10,005 | ||||||||
Additional disclosures | |||||||||
Intrinsic value of options exercised | 964 | $ 8,166 | |||||||
Cash received from options exercised | $ 4,822 | $ 10,666 | |||||||
Stock Options | Minimum | |||||||||
Incentive plans | |||||||||
Exercisable period | 1 year | ||||||||
Stock Options | Maximum | |||||||||
Incentive plans | |||||||||
Expiration term | 10 years | ||||||||
1993 Plan | |||||||||
Incentive plans | |||||||||
Number of common shares authorized | 50,000 | ||||||||
Purchase price as a percentage of market value | 90.00% | ||||||||
Common shares issued | 22,118 | 0 | |||||||
2003 Plan | Stock Options | |||||||||
Incentive plans | |||||||||
Number of shares eliminated | 172,500 | ||||||||
2005 Plan | Stock Options | |||||||||
Incentive plans | |||||||||
Shares available for grant | 0 | 200,000 | |||||||
2005 Plan | Stock Options | Minimum | |||||||||
Incentive plans | |||||||||
Purchase price as a percentage of market value | 100.00% | ||||||||
2010 Plan | Equity Appreciation Rights Plan | |||||||||
Incentive plans | |||||||||
Compensation income | $ 37,000 | $ 69,000 | |||||||
Equity Appreciation Rights Plan | |||||||||
Vesting period from the base date | 3 years | ||||||||
Shares issued (in units) | 100,000 | ||||||||
Shares granted (in units) | 50,000 | 350,000 | 250,000 | 31,666 | 52,500 | ||||
Accrued compensation included in other accrued liabilities | $ 23,000 | $ 61,000 | |||||||
Accrued compensation included in other long-term liabilities | 22,000 | 82,000 | |||||||
Accrued compensation liability | |||||||||
Beginning Balance | 143,000 | 259,000 | |||||||
Reductions | (36,000) | (69,000) | |||||||
Payments | (62,000) | (47,000) | |||||||
Ending Balance | 45,000 | 143,000 | |||||||
Accrued compensation liability | |||||||||
Compensation liability included in other accrued liabilities | 23,000 | 61,000 | |||||||
Accrued compensation included in other long-term liabilities | $ 22,000 | $ 82,000 | |||||||
2010 Plan | Equity Appreciation Rights Plan | Maximum | |||||||||
Incentive plans | |||||||||
Number of common shares authorized | 1,000,000 | ||||||||
Equity Appreciation Rights Plan | |||||||||
Redemption cash payment period | 90 days |
Commitments and Contingencies -
Commitments and Contingencies - Lease payments (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Commitments and Contingencies | ||
Rent expense | $ 1,153,000 | $ 911,000 |
Operating Leases | ||
2,017 | 886,000 | |
2,018 | 888,000 | |
2,019 | 629,000 | |
2,020 | 383,000 | |
2,021 | 175,000 | |
Thereafter | 143,000 | |
Total | $ 3,104,000 |
Commitments and Contingencies34
Commitments and Contingencies - Life Insurance and Controll Agreements (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Maximum | ||
Commitment and contingencies | ||
Professional outplacement services that would be received by the participants | $ 10,000 | |
2002 Plan | ||
Commitment and contingencies | ||
Period of graded vesting schedule | 5 years | |
Annual vesting by the participants (as a percent) | 20.00% | |
Expenses incurred | $ 327,000 | $ 207,000 |
2002 Plan | Officer participants | ||
Commitment and contingencies | ||
Bonus to be paid as a percentage of the participants base annual salary | 15.00% | |
2002 Plan | Other participants | ||
Commitment and contingencies | ||
Bonus to be paid as a percentage of the participants base annual salary | 10.00% | |
Agreement(s) | Officer participants | ||
Commitment and contingencies | ||
Period of continued participation in health, disability and life insurance plans after involuntary termination | 3 years | |
Agreement(s) | Other participants | ||
Commitment and contingencies | ||
Period of continued participation in health, disability and life insurance plans after involuntary termination | 2 years |
Business Acquisition (Details)
Business Acquisition (Details) | Jul. 01, 2015USD ($)item | Dec. 31, 2015USD ($) | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($)$ / shares | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) | Jul. 01, 2015USD ($) |
Business Acquisition | |||||||
Business Acquisition | $ 1,990,143 | ||||||
Change in Contingent Consideration | $ (294,342) | ||||||
Summary of balance and activity of contingent consideration | |||||||
Beginning fair value of contingent liability | 851,000 | ||||||
Period change in valuation | (294,342) | ||||||
Ending fair value of contingent liability | $ 851,000 | 851,000 | |||||
Summary of estimated fair values of assets acquired and liabilities assumed at acquisition date: | |||||||
Cash | 1,990,143 | ||||||
Contingent Consideration | 851,000 | 851,000 | 851,000 | $ 851,000 | |||
Goodwill | $ 3,283,454 | 3,283,454 | |||||
Devicix LLC | |||||||
Business Acquisition | |||||||
Business Acquisition | $ 2,121,000 | ||||||
Number of promissory notes | item | 2 | ||||||
Earnout payable payment due date after measurement period | 90 days | ||||||
Number of 12 month periods | 4 years | ||||||
Measurement period for earnout | 12 months | ||||||
Earnout as a percentage of engineering revenue | 15.00% | ||||||
Engineering revenue threshold for earnout | $ 6,000,000 | ||||||
Earnout as a percentage of production revenue | 3.00% | ||||||
Change in Contingent Consideration | (294,342) | ||||||
Summary of balance and activity of contingent consideration | |||||||
Beginning fair value of contingent liability | 851,000 | ||||||
Initial fair value of contingent consideration | 851,000 | ||||||
Period change in valuation | (294,342) | ||||||
Payments | (658) | ||||||
Ending fair value of contingent liability | $ 851,000 | 851,000 | 556,000 | 851,000 | |||
Less: Current liability | 21,700 | ||||||
Non-current liability | 534,300 | ||||||
Summary of estimated fair values of assets acquired and liabilities assumed at acquisition date: | |||||||
Cash | 2,121,000 | ||||||
Loans to Seller | 2,141,000 | ||||||
Contingent Consideration | 851,000 | 851,000 | 851,000 | 851,000 | $ 556,000 | $ 851,000 | $ 851,000 |
Total Purchase Consideration | $ 5,113,000 | ||||||
Cash | 131,000 | ||||||
Accounts Receivable | 373,000 | ||||||
AR due to Seller | (173,000) | ||||||
Prepaid Expenses and Inventory | 35,000 | ||||||
Fixed Assets | 83,000 | ||||||
Goodwill | 3,208,000 | ||||||
Accounts Payable | (63,000) | ||||||
Accrued Payroll, Benefits and Other Current Liabilities | (122,000) | ||||||
Customer Deposits | (475,000) | ||||||
Total Assets Acquired and Liabilities Assumed | 5,113,000 | ||||||
Revenue since acquisition date | 2,500,000 | ||||||
Net income before income taxes since acquisition date | $ 300,000 | ||||||
Legal, professional and other costs | 62,000 | ||||||
Weighted-Average useful life of intangible assets acquired | 11 years 4 months 24 days | ||||||
Unaudited pro forma combined results of operations | |||||||
Net Sales | 117,937,523 | ||||||
Income (Loss) from Operations | (223,717) | ||||||
Net Income (Loss) | $ (381,360) | ||||||
Basic & Diluted | |||||||
Loss per Common Share | $ / shares | $ (0.14) | ||||||
Devicix LLC | General and administrative expense | |||||||
Business Acquisition | |||||||
Change in Contingent Consideration | 294,342 | ||||||
Summary of balance and activity of contingent consideration | |||||||
Period change in valuation | $ 294,342 | ||||||
Devicix LLC | Minimum | Level 3 | |||||||
Business Acquisition | |||||||
Assumptions used in determination of estimated fair value of contingent consideration, Discount rate | 21.00% | ||||||
Devicix LLC | Maximum | |||||||
Business Acquisition | |||||||
Maximum earnout | $ 2,500,000 | ||||||
Devicix LLC | Maximum | Level 3 | |||||||
Business Acquisition | |||||||
Assumptions used in determination of estimated fair value of contingent consideration, Discount rate | 23.00% | ||||||
Devicix LLC | Promissory note subject to offsets | |||||||
Business Acquisition | |||||||
Promissory note liability | $ 1,000,000 | ||||||
Term of promissory note | 4 years | ||||||
Interest rate per annum | 4.00% | ||||||
Devicix LLC | Promissory note not subject to offsets | |||||||
Business Acquisition | |||||||
Promissory note liability | $ 1,300,000 | ||||||
Term of promissory note | 4 years | ||||||
Interest rate per annum | 4.00% | ||||||
Trade Names | Devicix LLC | |||||||
Summary of estimated fair values of assets acquired and liabilities assumed at acquisition date: | |||||||
Intangible Assets | $ 814,000 | ||||||
Customer Relationships | Devicix LLC | |||||||
Summary of estimated fair values of assets acquired and liabilities assumed at acquisition date: | |||||||
Intangible Assets | $ 1,302,000 |
Plant Closure (Details)
Plant Closure (Details) | Aug. 01, 2016item | Dec. 31, 2016USD ($) | Dec. 31, 2015USD ($) |
PLANT CLOSURE | |||
Property and Equipment, Net | $ 10,330,834 | $ 10,507,748 | |
Augusta | Plant closing | |||
PLANT CLOSURE | |||
Number of Employees affected | item | 50 | ||
Augusta | Disposal Group, Not Discontinued Operations | Plant closing | |||
PLANT CLOSURE | |||
Property and Equipment, Net | 392,000 | ||
Building and Leasehold Improvements | Augusta | Disposal Group, Not Discontinued Operations | Plant closing | |||
PLANT CLOSURE | |||
Property and Equipment, Net | 312,000 | ||
Manufacturing equipment | Augusta | Disposal Group, Not Discontinued Operations | Plant closing | |||
PLANT CLOSURE | |||
Property and Equipment, Net | $ 80,000 |
SCHEDULE II - Valuation and Q37
SCHEDULE II - Valuation and Qualifying Accounts (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Allowance for Uncollectible Accounts | ||
Changes in valuation and qualifying accounts | ||
Balance at Beginning of Year | $ 320,000 | $ 137,000 |
Additions Charged to Costs and Expenses | 759,000 | 225,000 |
Deductions | (196,000) | (42,000) |
Balance at End of Year | 883,000 | 320,000 |
Inventory Reserves | ||
Changes in valuation and qualifying accounts | ||
Balance at Beginning of Year | 750,000 | 732,000 |
Additions Charged to Costs and Expenses | 595,000 | 457,000 |
Deductions | (672,000) | (439,000) |
Balance at End of Year | $ 673,000 | $ 750,000 |