Greetings and welcome to the Nortech Second Quarter 2018 Conference Call. 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. I would now like to turn the conference over to your host, Connie Beck, Vice President and Chief Financial Officer.

Thank you, Omer. Good morning and welcome to Nortech Systems’ second quarter 2018 conference call. I am Connie Beck, Vice President and CFO and with me is our President and CEO, Rich Wasielewski. I am going to start today’s call by going over our financial results, which were released yesterday morning. Then I will turn it over to Rich for additional comments on the second quarter, our market and company developments and then we will open it up for questions. Before we continue, please note that the statements made during this call and Q&A session maybe forward-looking regarding expected revenue, earnings, future plans, opportunities and other company expectations. These estimates, plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on this call. These risks include those that are detailed in our most recent Annual Report in Form 10-K and maybe amended or supplemented. The statements made during this conference call are based upon information known to Nortech as of the date and time of this call. We assume no obligation to update the information in today’s call. You can find Nortech’s complete Safe Harbor statements in our SEC filings. Looking at our second quarter results, our net sales of $28.5 million reflects additional revenue recognized due to our adoption of new FASB accounting standards this fiscal year. We gave more details about this change during our Q1 call in May. Our Form 10-Q also includes more information and disclosures. The additional revenue recognized this quarter due to the change in accounting standards was $1.6 million. On a pro forma basis to adjust for this accounting change, second quarter sales were $26.9 million. Sequentially, this is up $1.2 million or 5% from Q1 of 2018.…

Thanks Connie and good morning everyone. Overall, we are pleased with our second quarter results and the progress being made, particularly our sequential improvements in quarterly sales and profits. It’s been a while since we had across the board all our main revenue and profit generating products and services exceed their projections in the same quarter. We also saw good performance out of our manufacturing operations in the areas of quality, delivery and efficiency. And our supply chain management did an excellent job of minimizing the impact of the industries electronic part shortages. From an earnings per share standpoint this was our strongest quarter in 7 years. The U.S. and global economies are having a positive impact on our business environment and customers, both domestically and internationally. We continue to benefit from increased Department of Defense budgets increases and wining new longer term defense programs. We are beginning to see the expected returns from our strategic investments in China and Mexico and the engineering medical device project work is on upward cycle. In addition as Connie mentioned earlier we have done a decent job of adjusting our cost structure with current demand levels. A closer look at our revenue by markets, our Industrial segment was strong in Q2 with backlog up 5% over Q1. This segment again tracks with the overall U.S. economy, so we have been writing the stronger GDP here in Q2. Oil and gas, construction equipment, capital equipment continued to see improving demand. All these markets require our custom rugged environmental electronic products. Our global strategy for serving in the region, for region with our multinational customers continues to grow. Moving on to medical, with medical, we are seeing a robust pipeline of opportunities. Our overall medical backlog is up 70% since the start of the year…

At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Sheldon Grodsky, Grodsky Associates. Please proceed with your question.

First of all, let me wish you the best of luck in retirement Rich, whenever that happens, I hope things will go very well for you.

Yes. Good morning and thank you, Sheldon.

I think the 800 pound gorilla in the room is in the operations of Nortech this week, but you had a rather unusual surge in activity similar to when you had almost a year ago, does anyone at Nortech know where it came from and why?

Well, I guess we don’t track it very well and you probably can’t. But it appears to be the same event that happened the year before which is day traders. There was a blog in analysts for some day traders and a small article written that gave us pretty good grades as far as consistency and longevity and felt that Nortech was going to take off one of these days. And I think all of those things helped to contribute to it, but it wasn’t any major player. It was a number of day trades is the best as we can tell.

Is there a particular brokerage firm associated with these day traders?

Not yet we can tell and there was again our intelligence doesn’t show anything.

Okay. Moving over to operations, you kind of said that all the companies shooting on all cylinders for the first time in a long time, does it look like that’s going to continue or is there anything showing signs of slowing down?

Right now there is no – there is not a lot of downturn that we can tell. As I stated our backlog is up which as you have tracked us over the years that that’s always a good sign for the next quarter. It’s one of our leading indicators. The economy, the industrial follows the economy and that’s got pent up demand. The medical has always been good to us. We really took a lot a hits this past four quarters, because of robust maybe too much anticipation of growth and startups in 2017 that has worked its way through, so being up 13% or so in that area is where we want to be. If high single-digits is the medical growth and we are there in 10% to 14% range, we want to exceed the market. In the defense, that’s just a nice balance in our portfolio. And with the struggling for – a lot of that struggling that we have said for last 7 years has been in the defense arena, the defense market as it’s been depressed. It has now become a good guy for us. And I would say the last seven quarters, anytime you can keep increasing and there is no at least the next 2 years, the budgets are strong. And I think they are talking about even a stronger 2020. So really Sheldon, I am generally cost conservative in these, but all our indicators, all the environment, the global economy, the decisions we made are working.

The only negative being the tariffs and the component shortages?

Yes, but if we are growing double-digits like that, it’s going to have a minor impact at least for the near future. Our supply base is watching it close. We also have triggers. If it happens, I think it will be inflation and some pricing pressures and that could get us into a downturn, but it’s not in the immediate future and I think that there is enough demand here for 2018 that I think it maybe beyond 2018.

Thank you.

You are welcome. Have a good day.

[Operator Instructions] Our next question comes from Sam Rebotsky from SER Asset Management. Please proceed with your question.

Good luck on your retirement. Even though I am new to Nortech, the change that’s going on hopefully is beneficial and I guess hopefully you will do well in the future?

Thank you, Sam and good morning to you.

Thank you. There seems to be difficulty getting thoughts for various companies in your industry and some of them seem to be doing better than others. Is there any consolidation that’s going on, is there any benefit to you to consolidate with anybody else or how would you look at that? And I guess with somebody new coming on, that’s a difficult problem and of course you want to sort of steer the ship before you make acquisitions or merge, but is there any thoughts on that?

Well, it’s a thought, but it’s probably 2 or 3 down the road. The first action that we take is always with our supply chain and so far so good with the supply chain. There are shortages, don’t get me wrong, there are shortages, but we will attack our supply chain, we will attack anything we could get through the Internet of Things. And then we will work with our customers. Because of the custom nature of it in the quality and validation of components that come in, in the certifications makes it very difficult to see that anybody would have the same mix as us other than our customers and they would know where to go. The third that you are talking about here is that, that card is like I said I think our third or fourth down before we get there. But it is on the table. We thought if we can partner with, we can make kind of a group co-op that for shortage parts, we could get together. We generally do not have that type of relationship with our competition, but it maybe something for our CEOs to may be have a discussion on. So, it isn’t – your question is right on, it may just be a little bit too soon to answer that for us.

Well, that’s good. And hopefully the day traders have something right and that is the beginning of future growth as we maybe and instead of day trading maybe they should become investors, okay. So let’s see hope that we keep growing the earnings and improving.

Well, thank you, Sam. You have a great day.

Thank you.

[Operator Instructions] Our next question comes from Robert Pagley, Private Investor. Please proceed with your question.

I am curious first of all, I want to congratulate you on your successes and I wanted to get a little more feel for what’s going on in China, are you being affected by these shortages, is that something to do with the issues with the trade with China or is it something totally different, what is the nature of the shortages and what is your thinking actually do in China, by the way I am an electrical engineer, I have a PP license, so I am curious about this and I appreciate giving me a little update on it?

Well, first of, hello Robert and thanks for your question. China was – we went to China primarily to work with our multi-national customers in the cable and wire complex assembly arena. And we also had this vision with the aging population that are strengthened in medical devices is a nice expansion and we are seeing that today. We have a great start as we started Greenfield, so we have a great organization being done there, their quality and their delivery performance has been outstanding so far in the last 3 years. So that’s what’s taking place there to follow our multi-nationals that are doing in region production for the region. The second benefit of Asia is that 55% of this electronic supply chain comes out of Asia and we really were playing until we got there 3 years ago. We are only purchasing about 2% of our electronics here in the United States from Asia. That particular initiative hasn’t taken full hold yet, we are still in single digits and the part – the particular parts that we have, have not been impacted by the tariffs coming over here on this first phase. And hopefully they don’t go to Phase 2 and Phase 3 on the tariffs, but right now the type of components have not been impacted by Phase 1 of the government’s tariff program. The other I guess the benefit that we get out of China today is by making the product in – manufacturing the product in China for China we don’t have to deal with this tariff a lot – most of the parts are sourced there. There are still some coming from the United States and we are – those parts we will work with the customers to get those possibly transferred to a China source if needed. Hopefully that answers most of what you asked Robert, if not you can expand on it if you want.

Okay. One other thing I want to tell you, I am 94 years old and I just last week got a pacemaker put into my breast and I am suffering from swollen effect of that, but it works and I am curious about what is the electronic device you make that I am sure it’s not anything like my pacemaker, but what is it that you do in terms of your product?

Well, first of all, 94 that’s just – you are just a young man right now buddy, as far as I am concerned. So you keep it up, good luck with that pacemaker. We do more Class 2s which are more mechanical devices outside the body. We have done Class 3s that are more evasive. We are planning to do more along the lines of the pacemaker product. We do have a device of that that does affect a heart that’s on the table today, a project that we are working. We will see how it goes. But right now, the St. Jude’s, St. Boston size Medtronics, they have a very good supply chain or they are producing for themselves and we are making headway in that arena, but not at this time, so mostly outside mechanical type Class 1 and 2s.

Okay. It would be a packaging issue then, I don’t think you would do any of the kind of esoteric deposition of stuff on?

That’s correct.

Well, I thank you very much. You are telling me about this and I guess from what you say the issues of trade with China have – that are now in the headlines that’s not affecting you as far these power shortages is concerned to any extent. Is that true?

That is true today. It could change and even here in the third quarter, we are not seeing any kind great changes to it, but there is a lot of uncertainty and a lot of talk. So, the caveat would be not today, there is an expectation and we are watching it very closely.

Okay, that’s good. Because I think they are starting to I guess there is some Chinese people coming to visit Washington next month or next week, I don’t know they are on our way supposedly to try to resolve some of these issues and that will be good news for all of us not just for your company, but for all of us and it’s made in China and most of it is pretty good. So, I wish you well and congratulations on all your successes and I wish you a very productive and happy retirement if that’s where you are headed. So, thanks again Rich. Bye-bye now.

Good luck with that pacemaker.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Rich Wasielewski for closing remarks.

Well, that concludes our call. Thanks for joining us today and your interest in our Nortech and we will look forward to updating you in the future. Have a great day.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.