Greetings and welcome to the Nortech's First Quarter 2016 Conference Call. And at this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Paula Graff, CFO. Please go ahead Ma'am.

Thank you, and good morning. And welcome to Nortech Systems' first quarter 2016 conference call. I'm Paula Graff, Vice President and CFO, and with me is, Rich Wasielewski, Nortech's President and CEO. Following my introduction, Rich will offer comments on our fourth quarter results and current development in both our markets and industry. Then he'll open up the call for your questions. Before we begin, please be advised that the statements made during this call maybe forward-looking and are subject to risk factors and uncertainties. Please see the complete Safe Harbor statements in our press release and SEC filings. I will now turn the call over to Rich Wasielewski. Rich?

Thank you, Paula and good morning everyone. Yesterday we reported net sales of $29 million for the first quarter of 2016. With backlog ending at $20.2 million up 11% over the prior year and off 2% from the beginning of the quarter. Our medical customer's sales in the quarter rose 21% over the prior year to $11.7 million. Our recently acquired design engineering service revenue had another strong quarter billing $1.6 million. Accounting for over 50% of the increase. While other new customers and programs accounted for 25% of the increase and repeat customers also saw double digit growth. Our medical backlog increased from the prior year 45% and prior quarter 11% with the device-engineering backlog about $900,000 ours. Without the device this backlog increase over prior year would still be 25%. With the strong backlog and pipeline activities this trend should continue through 2016. We are now supporting a record number of design transfer projects moving into production in to the second half of the year. Our sales of Defense customers was $3.8 million in the quarter, an increase of $700,000 or 23% year-over-year. As a result of new customers and programs. Our 90 day backlog ended the quarter of 6% from the start of the quarter but it was at a $ 1.5 million compared to the prior year. Some of our large OEM defense customers have recently announced positive quarterly results aided by the stability in the defense industry. And this trend is showing up in our business as well. For us, stability is good given the past 7 years. Given the increased competition, reduced order quantities, reduced length of contracts have impacted this market and our customers. Our industrial customers were off 8% year-over-year again with mixed results with sub market sectors within the industrial market.…

[Operator Instructions] And we will take our first question from Sheldon Grosky [ph]. Please go ahead.

Good morning everyone. What sort of growth rate do you think you might be able to get for revenue for the rest of the year?

Well the industry is talking about 3% to 6% depending on which markets, the markets which we serve are a little stronger, especially medical. I think they all anticipated better first quarter GDP, I think that's messing with our industrial customers so I would be online with last year, if I had to predict right now.

Say again?

I would say it would be right around last year's 3% if I had to predict something right now.

Thank you

We will take our next question from Mitch Omi. Please go ahead.

I am a relative new comer to your company. This is my second conference call and I am looking, so the device acquisition was maybe 9 months to a year ago?

Yes, third quarter

And I want to use that as a template to have you address sort of the contribution and the margin and the financing because as I look at this this was a $5 million acquisition of which several of that was financed with nodes which we have got ongoing costs of about $80,000 in debt for this and adding the increase in revenue coming out of that and looking at your historic margin, talk to me about the margins in that business because they are not broken out. And how that, does it pencil?

Yes, if you look at 10-Q there is a section that talks about what the proforma would have been. It shows what their performance in 2015 would have been worth about $0.02. I think we might be a little bit stronger with them except we are carrying about $46,000 per quarter so $0.02 would get you about $54,000 plus another $46,000 so it will get you in the $100,000 range roughly. Then you add on the accretiveness for production of what it leads to. Whether or not we will be getting the increases that we should in backlog, and all of medical the medical device business and the production business so you have to put a factor on that and we are tracking through that so that's more in the pipeline because the design comes first. We didn't expect to see that in the first 112 to 18 months so we will keep an eye on that and mention that in the call as we round that up, so good question Mitch. Right now it's accretive about $0.02 to $0.03 per share.

Going back I didn't see other acquisitions like this, I am seeing this as a one off opportunity at this time. Would you sort of agree with that or are there other acquisitions you see out there. I know you can't really tell me.

Going forward or past?

Going forward if part of your acquisition plan is to have sort of the repertoire you have in manufacturing and getting better at that.

We are always opportunistic with our acquisitions the strategically nice we acquired a company called Triberics in 2010 which is our FDA medical device production facility, that got us into this Medical FDA business as opposed to it before medical systems cables and so we knew that transaction from 2010 we were trying to build the design engineering in house. We looked at, we got into due diligence on the device this time so I think we will be more opportunistic now. It will be easier if we took five years to get a design engineering shop and get to this level we would be opportunistic if we see one and yes we still out there always looking more from an opportunistic standpoint and we would lead up from an engineering challenge. It is very difficult in this day to develop that within. We still do it but it's more evolution and this growth rates that we are seeing we need to be something differently, we just haven't evolved.

What is it you exactly have in Asia and what are you doing there?

Asia operation is right now a cable assembly house and its strategic need is to work with our global U.S. based companies. They are moving on, its regional manufacturing for regional sales and growth. That's kind of where our strategy is at today. Not a lot of shipments from Asia back to the United States. It should be incremental as we report it because it's for the region. So it's made in Asia for Asia consumption. Differently than they did with offshoring in the past where they came with their cost and labor. We are looking at it more on a value side and they like the value added on the engineering side that they don't get that type of technical expertise and we give them that support.

Was it driven by just one customer that you knew would give your business to go there or did you just?

A little bit of both. There's half a dozen customers that have been approaching and that's what made this attractive. I believe the evolution now is on shoring for item here and then when they take it there they feel more comfortable with a U.S. global customer is more customer with a U.S. based supplier. That's the market trend we are seeing.

Okay. My last question. Just given the magnitude of your operations and the size of the company, the ownership among shareholders, you are listed on the NASDAQ and as a result a lot of companies are finding 9 or 10 years later that the benefits that accrue from being listed at the NASDAQ have largely gone away for U.S. especially. Are you okay to have a book value? You have no institutional ownership, you have no analytical following and most companies think they can save $150,000 on the low end and as high as $350,000 to $400,000 with the accounting costs associated with being compliant. Have you considered that?

We haven't considered it over the counter. As far as that goes we like the transparency that NASDAQ gives us. We are dealing with probably 25 to 40 fortune 100 and 500 companies that see that transparency and see what NASDAQ gives us and I think those are the main reasons. The costs are now, I say if we start from scratch we would probably be more in your range. It's kind of routine now. It's also now whether with our leveraging with the banks they would require what most of banks does for us. We feel it gives us discipline for our audits whether it's for NASDAQ or SEC but the banks would require that same information. So you're correct there with the cost, I would say the cost is more opportunistic in it takes my time and my staff's time to deal with everything but it makes us a better company as well. So, I don't think it's something in the near future. It's always discussed because that's our job to see what's best and most cost effective.

Thank you very much

You bet Mitch. Have a great day.

[Operator Instructions]

If there are no further questions we will conclude this call. Thank you for your interest in North Tech and we look forward to updating you in the future. Have a great day.