What changed in this filing

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Item 1. Business

2025-03-31 compared with 2024-03-20 · 148 added, 80 removed, 11 unchanged (95% of the section changed)

Nortech Systems Incorporated, (“the Company”, “we”, “our”) organized in December 1990, is a provider of engineering design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies and components headquartered in Maple Grove, Minnesota, a suburb of Minneapolis, Minnesota.

Systems Incorporated, (“the Company”, “we”, “our”) organized in December 1990, is a provider of engineering

design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies and components headquartered

in Maple Grove, Minnesota, a suburb of Minneapolis, Minnesota.

We maintain facilities and operations in Minnesota in the United States;

1 unchanged sentence

and Suzhou, China.

We offer a full range of value-added engineering, technical and manufacturing services and support including project management, designing, testing, prototyping, manufacturing, supply chain management and post-market services.

Our manufacturing and engineering services include complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board assemblies, complex higher-level assemblies and other box builds for a wide range of industries.

In the design phase, we provide technical support, subject matter expertise in design for manufacturing and testing capabilities that allow our customer programs to get to production faster while meeting both their quality and cost requirements.

Our breadth of manufacturing, technical expertise and experience make us attractive to our broad customer base.

Our customers are original equipment manufacturers (“OEMs”) in the Medical, Aerospace and Defense and Industrial markets.

The diversity in the markets we serve is an advantage to mitigate the effects of fluctuations from the economy and competition.

Our customers rely on our experience and capabilities in manufacturing and supply chain to manage and reduce total overall cost over the life cycle of their products.

This requires a strong relationship with our customers based on a trusting partnership as we perform as an extension of their operations.

offer a full range of value-added engineering, technical and manufacturing services and support including project management, designing,

testing, prototyping, manufacturing, supply chain management and post-market services.

Our manufacturing and engineering services include

complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board assemblies,

complex higher-level assemblies and other box builds for a wide range of industries.

In the design phase, we provide technical support,

subject matter expertise in design for manufacturing and testing capabilities that allow our customer programs to get to production faster

while meeting both their quality and cost requirements.

breadth of manufacturing, technical expertise and experience make us attractive to our broad customer base.

Our customers are original

equipment manufacturers (“OEMs”) in the Medical Device, Medical Imaging, Aerospace and Defense and Industrial markets.

diversity in the markets we serve is an advantage to mitigate the effects of fluctuations from the economy and competition.

Our customers

rely on our experience and capabilities in manufacturing and supply chain to manage and reduce total overall cost over the life cycle

of their products.

This requires a strong relationship with our customers based on a trusting partnership as we perform as an extension

of their operations.

Most of our net sales are derived from products built to the customer’s unique design specifications.

Our quality systems and processes are based on ISO standards with all facilities certified to at least one of the following:

ISO 9001, ISO 13485 or AS9100.

ISO 13485 or AS9100.

These certifications and registrations provide our customers assurance of our capabilities and proven processes.

Our Milaca operation is a U.S.

Food and Drug Administration (“FDA”) registered facility.

In addition to industry standard certifications, we actively manage quality metrics throughout product life-cycle at all levels of the organization to provide real-time, pro-active support to our customers and their projects.

Process validation is performed through the strict phases of installation qualification, operation qualification and performance qualification.

Business Segment

The Company operates in the Medical, Aerospace and Defense and Industrial markets with over 50% of its net sales coming from medical device and product manufacturing and related engineering services.

All of our operations fall under the Contract Manufacturing segment within the Electronic Manufacturing Services (“EMS”) industry.

We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers’ needs.

We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll, and all corporate accounting functions.

Our financial information is evaluated regularly on a consolidated basis by the chief operating decision maker in assessing performance and allocating resources.

Business Strategy

The EMS industry has evolved into a dynamic, high-tech, regulated global electronics contract services industry.

We continue to expand our capabilities and footprint to better meet these changing market requirements.

Along with offering technical expertise in our quality processes, engineering design applications and testing, we are also increasing our focus on supplier-managed inventory services and the cost drivers throughout the global supply chain.

We continue to transform our business model from one that is less transactional, and price/commodity driven to a solution-based model focused on value added services.

We continue to pursue strategic opportunities that may include acquisitions, mergers, and/or joint ventures with complementary companies to expand our service offering, advance our competitive edge, grow our customer base and increase net sales.

Food and Drug Administration (“FDA”) registered facility, and our Suzhou operation is a China

National Medical Imaging Administration certified facility.

In addition to industry standard certifications, we actively manage quality

metrics throughout product life cycle at all levels of the organization to provide real-time, pro-active support to our customers and

their projects.

Process validation is performed through the strict phases of installation qualification, operation qualification and

performance qualification.

Company operates in the Medical Device, Medical Imaging, Aerospace and Defense, and Industrial markets with over 50% of its net

sales coming from the medical-related markets.

All of our operations fall under the Contract Manufacturing segment within the

Electronic Manufacturing Services (“EMS”) industry.

We strategically direct production between our various manufacturing

facilities based on a number of considerations to best meet our customers’ needs.

Our plants generate net sales over several

of the markets the Company serves.

We share resources for sales, marketing, engineering, supply chain, information services, human

resources, payroll, and all corporate accounting functions.

Our financial information is evaluated regularly on a consolidated basis

by the chief operating decision maker in assessing performance and allocating resources.

EMS industry has evolved into a dynamic, high-tech, regulated global electronics contract services industry.

We continue to expand our

capabilities and footprint to better meet these changing market requirements.

Along with offering technical expertise in our quality

processes, engineering design applications and testing, we continue to transform our business model from one that is less transactional,

and price/commodity driven to a solution-based model.

Our model is focused on value-added customer and supplier-managed inventory solutions

and the underlying cost drivers throughout the global supply chain.

We continue to pursue strategic opportunities that may include acquisitions,

mergers, and/or joint ventures with complementary companies to expand our service offering, advance our competitive edge, grow our customer

base and increase net sales.

Our strategic objectives and our history have been based on both organic and acquired growth.

We are committed to quality, cost effectiveness and responsiveness to customer requirements.

To achieve these objectives, we have invested in Restriction of Hazardous Substances (lead free) processing, equipment, plant capacity studies, people, enterprise resource planning systems, lean manufacturing and supply chain management techniques at our facilities.

We are committed to continuous improvement and have invested in training our people to identify and act on improvement opportunities.

We maintain a diversified customer base and expand into other capabilities and services when there is a fit with our core competencies and strategic vision.

We concentrate our marketing efforts in the Medical, Aerospace and Defense and Industrial markets.

Our marketing strategy emphasizes our breadth, expertise and experience in each of our markets.

Our expertise helps our customers save time and money and also reduces their risks.

The breadth of our manufacturing, supply chain, engineering services and complete turnkey solutions assist our customers in getting their products to market quickly while managing the total cost solution.

Our strength is managing low to moderate volume components and assemblies with high mix customer demand.

This requires us to have close customer relationships and operational flexibility to manage the variation of product demands.

Our customer emphasis continues to be on companies that require an electronic manufacturing partner with a high degree of manufacturing and quality sophistication, including statistical process control, statistical quality control, ISO standards, Military Specifications, AS9100 and FDA facility registration.

We continue efforts to penetrate our existing customer base and expand market opportunities with participation in industry forums and selected trade shows.

We target customers who value proven manufacturing performance, design, project management and application engineering expertise and who value the flexibility to manage the supply chain of a high mix of products and services.

We market our services through a mix of traditional marketing outreach, a specialized business development team and independent manufacturers' representatives.

For more information on our marketing and service offerings see our web site at www.nortechsys.com.

are committed to quality, cost effectiveness and responsiveness to customer requirements.

To achieve these objectives, we have invested

in equipment, plant capacity studies, people, enterprise resource planning systems, lean manufacturing and supply chain management techniques

at our facilities.

We have also invested in fiber optic technologies to provide a lighter weight, data-driven and environmentally cleaner solution

to our customers.

We are committed to continuous improvement and have invested in training our people to identify and act on improvement

opportunities.

We maintain a diversified customer base and expand into other capabilities and services when there is a fit with our core

competencies and strategic vision.

concentrate our marketing efforts in the Medical Device, Medical Imaging, Aerospace and Defense, and Industrial markets.

Our marketing

strategy emphasizes our breadth, expertise and experience in each of our markets.

Our expertise helps our customers save time and money

and also reduces their risks.

The breadth of our manufacturing, supply chain, engineering services and complete turnkey solutions assist

our customers in getting their products to market quickly while managing the total cost solution.

Our strength is managing low to moderate

volume components and assemblies with high mix customer demand.

This requires us to have close customer relationships and operational

flexibility to manage the variation of product demands.

customer emphasis continues to be on companies that require an electronic manufacturing partner with a high degree of manufacturing and

quality sophistication, including statistical process control, statistical quality control, ISO standards, military specifications, AS9100

and FDA facility registration.

We continue efforts to penetrate our existing customer base and expand market opportunities with participation

in industry forums and selected trade shows.

We target customers who value proven manufacturing performance, design, project management

and application engineering expertise and who value the flexibility to manage the supply chain of a high mix of products and services.

We market our services through a mix of traditional marketing outreach, a specialized business development team and in limited circumstances,

independent manufacturers’ representatives.

For more information on our marketing and service offerings see our website at www.nortechsys.com.

The information on our Company’s website is not part of this filing.

Sources and Availability of Materials

We currently purchase most of our electronic components globally and directly from electronic component manufacturers and large electronic distributors.

In 2022 and into 2023, we, like many other companies in our industries, experienced significant supply chain and shipping disruptions.

We attempt to overcome these disruptions through advanced supply chain solutions we develop in partnership with our customers, a commitment to strong supplier partnerships and risk management tools.

Major Customers

Two customers, individually, accounted for at 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023, and one customer accounted for 26.9% of net sales for the year ended December 31, 2022.

Patents and Licenses

Our success depends on our technical expertise, trade secrets, supply chain and manufacturing skills.

During the normal course of business, we obtain or develop proprietary product requiring licensing, patent, copyright or trademark protection.

The contract manufacturing EMS industry's competitive makeup includes small closely held contract manufacturing companies, large global full-service contract manufacturers, company-owned in-house manufacturing facilities and foreign contract manufacturers.

We do not believe that the small closely held operations pose a significant competitive threat in the markets and customers we serve, as they generally do not have the complete manufacturing and engineering services or capabilities required by our target customers.

We believe the larger global full service and foreign manufacturers are more focused on higher volume customer engagements and we do not see them as our primary competition.

We continue to see opportunities with OEM companies that have their own in-house electronic manufacturing capabilities as they evaluate their internal costs and investments against outsourcing to contract manufacturers like us.

We see trends of the low volume, high mix customer demand going to a regional supply base.

and Availability of Materials

currently purchase most of our electronic components globally and directly from electronic component manufacturers and large electronic

distributors.

During the COVID pandemic, we, like many other companies in our industries, experienced significant supply chain and shipping

More recently, we are experiencing shifts in customer order patterns as they seek to reduce fulfillment times, which requires

changes to our procurement strategies and inventory investments.

We attempt to overcome these changes through advanced supply chain solutions

we develop in partnership with our customers, a commitment to strong supplier partnerships and risk management tools.

customer individually, accounted for at 27.7% of net sales for the year ended December 31, 2024, and two customers, individually, accounted

for 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023.

success depends on our technical expertise, trade secrets, supply chain and manufacturing skills.

During the normal course of business,

we obtain or develop proprietary product requiring licensing, patent, copyright or trademark protection.

contract manufacturing EMS industry’s competitive makeup includes small closely held contract manufacturing companies, large global

full-service contract manufacturers, company-owned in-house manufacturing facilities and foreign contract manufacturers.

We do not believe

that the small closely held operations pose a significant competitive threat in the markets and customers we serve, as they generally

do not have the complete manufacturing and engineering services or capabilities required by our target customers.

We believe the larger

global full service and foreign manufacturers are more focused on higher volume customer engagements and we do not see them as our primary

We continue to see opportunities with OEM companies that have their own in-house electronic manufacturing capabilities as

they evaluate their internal costs and investments against outsourcing to contract manufacturers like us.

We see trends of the low volume,

high mix customer demand going to a regional supply base.

This is a good fit with our operations in US, Mexico and China.

We continue to study and investigate other regions and global alternatives to meet our competitive challenges and customer requirements.

Research and Development

We perform research and development for customers on an as requested, project and program basis for development of conceptual engineering and design activities as well as products moving into production.

We spent approximately $1.2 million and $1.5 million on product research and development in the years ended December 31, 2023 and 2022, respectively.

We continue to explore opportunities for developing proprietary manufacturing methods or products, particularly in complex wire and cable interconnect technologies.

Environmental Law Compliance

We believe that our manufacturing facilities are currently operating in compliance with local, state, and federal environmental laws.

We plan to continue acquiring environmental-oriented equipment and incurring the expenditures we deem necessary for compliance with applicable laws.

Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected our capital expenditures, earnings or competitive position.

Government Regulation

As a medical device manufacturer, we have additional compliance requirements.

We are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures.

Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections and product field monitoring by the FDA.

To support the quality requirements of our Aerospace and Defense market customers, all our US locations are International Traffic in Arms Regulations (“ITAR”) compliant.

Human Capital Resources

We have 733 full-time and 42 part-time/temporary employees as of December 31, 2023, none which is covered by union agreements.

Manufacturing personnel, including direct, indirect support and sales functions, comprise 728 employees, while general administrative employees total 47.

Foreign Operations and Export Sales from Our Domestic Operations

We have leased manufacturing facilities in Monterrey, Mexico and Suzhou, China.

Monterrey, Mexico has approximately $747,000 and $494,000 in long-term assets, and $2,123,000 and $2,469,000 of net operating lease assets as of December 31, 2023 and 2022, respectively.

Suzhou, China has approximately $861,000 and $805,000 in long-term assets, and $278,000 and $384,000 of net operating lease assets as of December 31, 2023 and 2022, respectively.

to study and investigate other regions and global alternatives to meet our competitive challenges and customer requirements.

and Development

perform research and development for customers on an as requested, project and program basis for development of conceptual

engineering and design activities as well as products moving into production.

We spent approximately $1.2 million on product

research and development in each of the years ended December 31, 2024 and 2023.

We continue to explore opportunities

for developing proprietary manufacturing methods or products, particularly in complex wire and cable interconnect

technologies.

Environmental

Law Compliance

believe that our manufacturing facilities are currently operating in compliance with local, state, and federal environmental laws.

plan to continue acquiring environmentally efficient equipment and incurring the expenditures we deem necessary for compliance with applicable

Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected our capital expenditures,

earnings or competitive position.

a medical device manufacturer, we have additional compliance requirements.

We are required to register with the FDA and are subject to

periodic inspection by the FDA for compliance with the FDA’s Quality Management System Regulation (“QMSR”) requirements,

which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation

Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic

inspections and product field monitoring by the FDA.

To support the quality requirements of our Aerospace and Defense market customers,

all our US locations are International Traffic in Arms Regulations (“ITAR”) compliant.

Capital Resources

have 701 full-time and 43 part-time/temporary employees as of December 31, 2024, none which are covered by union agreements.

Manufacturing

personnel, including direct, indirect support and sales functions, comprise 657 employees, while general administrative employees total

Operations and Export Sales from Our Domestic Operations

have leased manufacturing facilities in Monterrey, Mexico and Suzhou, China.

Monterrey, Mexico has approximately $687,000 and $747,000

in long-term assets, and $1,758,000 and $2,123,000 of net operating lease assets as of December 31, 2024 and 2023, respectively.

China has approximately $812,000 and $861,000 in long-term assets, and $685,000 and $278,000 of net operating lease assets as of December

31, 2024 and 2023, respectively.

Export sales from our U.S.

domestic operations represented 4.1% and 4.0% of net sales for the years ended December 31, 2023 and 2022, respectively.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available free of charge, as soon as reasonably practicable, after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission ("SEC").

These reports are available on our website at http://www.nortechsys.com and on the SEC's website at http://www.sec.gov .

Information included on our website is not deemed to be incorporated into this Annual Report on Form 10-K.

domestic operations represented 3.4% and 4.1% of net sales for the years

ended December 31, 2024 and 2023, respectively.

Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available

free of charge, as soon as reasonably practicable, after we electronically file such material with, or furnish it to, the United States

Securities and Exchange Commission (“SEC”).

These reports are available on our website at http://www.nortechsys.com

and on the SEC’s website at http://www.sec.gov .

Information included on our website is not deemed to be incorporated into

this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business