BK TECHNOLOGIES CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————
FORM 10-K
———————
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to
__________
Commission file number: 001-32644
———————
BK TECHNOLOGIES CORPORATION
(Exact
name of registrant as specified in its charter)
———————
|
Nevada
|
83-4064262
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
7100 Technology Drive
West Melbourne, Florida 32904
(Address
of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (321)
984-1414
Securities registered pursuant to Section 12(b) of the
Act:
|
Title
of Each Class
|
|
Trading
Symbol(s)
|
|
Name of
Each Exchange on Which Registered
|
|
Common
Stock, par value $.60
|
|
BKTI
|
|
NYSE
American
|
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ☐
No ☒
Indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check
mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No
☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer ☐
|
Accelerated filer
☐
|
|
Non-accelerated
filer ☒
|
Smaller
reporting company ☒
|
|
|
Emerging
growth company ☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ☐
No ☒
The
aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant on June 28, 2019,
based on the closing price of such stock on the NYSE American on
such date, was $27,554,176. As of February 20, 2020, 12,548,094
shares of the registrant’s Common Stock were
outstanding.
Documents Incorporated by Reference:
Portions of the registrant’s
definitive proxy statement for its 2020 annual stockholders’
meeting are incorporated by reference in Part III of this report.
The registrant’s definitive proxy statement will be filed
with the U.S. Securities and Exchange Commission within 120 days
after December 31, 2019
.
TABLE OF CONTENTS
|
|
|
|
Page
|
|
PART I
|
1
|
||
|
|
|
|
|
|
|
1
|
||
|
|
|
|
|
|
|
9
|
||
|
|
|
|
|
|
|
19
|
||
|
|
|
|
|
|
|
19
|
||
|
|
|
|
|
|
|
19
|
||
|
|
|
|
|
|
|
19
|
||
|
|
|
|
|
|
PART II
|
20
|
||
|
|
|
|
|
|
|
20
|
||
|
|
|
|
|
|
|
20
|
||
|
|
|
|
|
|
|
21
|
||
|
|
|
|
|
|
|
30
|
||
|
|
|
|
|
|
|
30
|
||
|
|
|
|
|
|
|
31
|
||
|
|
|
|
|
|
|
31
|
||
|
|
|
|
|
|
|
31
|
||
|
|
|
||
|
PART III
|
32
|
||
|
|
|
||
|
|
32
|
||
|
|
|
|
|
|
|
32
|
||
|
|
|
|
|
|
|
32
|
||
|
|
|
|
|
|
|
32
|
||
|
|
|
|
|
|
|
32
|
||
|
|
|
||
|
PART IV
|
33
|
||
|
|
|
|
|
|
|
33
|
||
|
|
|
|
|
|
|
34
|
||
|
|
|
|
|
|
35
|
|||
PART I
I
tem 1. Business
General
BK
Technologies Corporation (NYSE American: BKTI) (together with its
wholly owned subsidiaries, “BK,” the
“Company,” “we” or “us”) is a
holding company that, through BK Technologies, Inc., its operating
subsidiary, provides two-way radio communications equipment of high
quality and reliability. All operating activities described herein
are undertaken by our operating subsidiary.
In
business for over 70 years, BK designs, manufactures and markets
wireless communications products consisting of two-way land mobile
radios (“LMRs”), repeaters, base stations and related
components and subsystems. Two-way LMRs can be units that are
hand-held (portable) or installed in vehicles (mobile). Repeaters
expand the range of two-way LMRs, enabling them to operate over a
wider area. Base station components and subsystems are installed at
radio transmitter sites to improve performance by enhancing the
signal and reducing or eliminating signal interference and enabling
the use of one antenna for both transmission and reception. We
employ both analog and digital technologies in our
products.
Our
digital technology is compliant with the Project 25 standard
(“P-25”) for digital LMR equipment. The P-25 has been
adopted by representatives from the Association of Public-Safety
Communications Officials-International (“APCO”), the
National Association of State Technology Directors
(“NASTD”), the United States (“U.S.”)
Federal Government and other public safety user organizations. Our
P-25 digital products and our analog products function in the very
high frequency (“VHF”) (136MHz – 174MHz),
ultra-high frequency (“UHF”) (380MHz – 470MHz,
450MHz – 520MHz), and 700-800 MHz bands. Our P-25 KNG and
KNG2 Series mobile and portable digital radios have been validated
under the P-25 Compliance Assessment Program (“CAP”) as
being P-25 compliant and interoperable with the communications
network infrastructure of six of our competitors. Since we do not
provide our own communications network infrastructure, we believe
CAP validation provides confidence for federal, state and local
emergency response agencies that our products are a viable and
attractive alternative for use on the infrastructure of our
competitors.
We
offer products under the brand names BK Radio and RELM. Generally,
BK Technologies and BK Radio-branded products serve the government
and public safety market, while RELM-branded products serve the
business and industrial market.
BK
Technologies and BK Radio-branded products consist of
high-specification LMR equipment for professional radio users
primarily in government, public safety and military applications.
These products have more extensive features and capabilities than
those offered in the RELM line. Our P-25 digital products are
marketed under the BK Radio brand, which includes the KNG and KNG2
product lines. RELM-branded products provide basic yet feature-rich
and reliable two-way communications for commercial and industrial
concerns, such as hotels, construction firms, schools and
transportation services. Typically, these users are not radio
professionals and require easy, fast and affordable communication
among a defined group of users.
We
believe that we provide superior value to a wide array of customers
with demanding requirements, including, for example, emergency
response, public safety, homeland security and military customers
of federal and state government agencies, as well as various
commercial enterprises. Our two-way radio products excel in
applications with harsh and hazardous conditions. They provide
high-specification performance, durability and reliability at a
lower cost relative to comparable offerings.
We were
incorporated under the laws of the State of Nevada on October 24,
1997. We are the resulting corporation from the reincorporation
merger of our predecessor, Adage, Inc., a Pennsylvania corporation,
which reincorporated from Pennsylvania to Nevada effective as of
January 30, 1998. Effective on June 4, 2018, we changed our
corporate name from “RELM Wireless Corporation” to
“BK Technologies, Inc.”
1
On
March 28, 2019, we implemented a holding company reorganization.
The reorganization created a new holding company, BK Technologies
Corporation, which became the new parent company of BK
Technologies, Inc. BK Technologies Corporation’s only
significant assets are the outstanding equity interests in BK
Technologies, Inc. and any other future subsidiaries of BK
Technologies Corporation. The holding company reorganization was
intended to create a more efficient corporate structure and
increase operational flexibility.
For
additional information regarding the reorganization, please see
below under “Significant Events.”
For
the purpose of this report, references to “we” or the
“Company” or our management or business at any period
prior to the holding company reorganization (March 28, 2019) refer
to those of BK Technologies, Inc. as the predecessor company and
its subsidiaries and thereafter to those of BK Technologies
Corporation and its subsidiaries, except as otherwise specified or
to the extent the context otherwise indicates.
Our
principal executive offices are located at 7100 Technology Drive,
West Melbourne, Florida 32904 and our telephone number is (321)
984-1414.
Available Information
Our
Internet website address is www.bktechnologies.com. We make
available on our Internet website, free of charge, our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, proxy statements and amendments to these
reports as soon as practicable after we file such material with, or
furnish it to, the U.S. Securities and Exchange Commission (the
“SEC”). In addition, our Code of Business Conduct and
Ethics, Code of Ethics for the CEO and Senior Financial Officers,
Audit Committee Charter, Compensation Committee Charter, Nominating
and Governance Committee Charter and other corporate governance
policies are available on our website, under “Investor
Relations.” The information contained on our website is not
incorporated by reference in this report. A copy of any of these
materials may be obtained, free of charge, upon request from our
investor relations department. All reports that the Company files
with or furnishes to the SEC also are available free of charge via
the SEC’s website at http://www.sec.gov.
Significant Events
On
March 28, 2019, we implemented a holding company reorganization.
The reorganization created a new holding company, BK Technologies
Corporation, which became the new parent company of BK
Technologies, Inc. The holding company reorganization was intended
to create a more efficient corporate structure and increase
operational flexibility. We did not incur any material operational
or financial impacts in connection with the reorganization. The
holding company reorganization was effected through a merger
transaction among BK Technologies, Inc., BK Technologies
Corporation, then a wholly-owned subsidiary of BK Technologies,
Inc., and a former direct, wholly-owned subsidiary of BK
Technologies Corporation that merged with and into BK Technologies,
Inc., with BK Technologies, Inc. surviving as a wholly-owned
subsidiary of BK Technologies Corporation. The merger was a
tax-free transaction for U.S. federal income tax purposes for our
stockholders. No stockholder vote was required to effect the merger
transaction.
As part
of the holding company reorganization, stockholders of BK
Technologies, Inc. became stockholders of BK Technologies
Corporation, on a one-for-one basis, with the same number of shares
and same ownership percentage of common stock that they held
immediately prior to the holding company reorganization. Following
the reorganization, BK Technologies Corporation replaced BK
Technologies, Inc. as the publicly traded entity, and shares of BK
Technologies Corporation were listed on the NYSE American under the
symbol “BKTI,” which is the same symbol as previously
used by BK Technologies, Inc. Our common stock was assigned a new
CUSIP Number: 05587G 104. The holding company has the same
directors and executive officers as its predecessor, BK
Technologies, Inc.
On July
10, 2019, we announced that our operating subsidiary received an
order totaling approximately $3.1 million from the U.S. Forest
Service (“USFS”). The order was for KNG-Series Digital
P-25 portable and mobile radios with accessories. The order was
fulfilled in the third quarter of 2019.
2
On July
11, 2019, we announced that our operating subsidiary received an
order totaling approximately $1.6 million for KNG-Series radios and
related accessories from a new California State customer. The order
was for KNG-Series Digital P-25 portable and mobile radios with
accessories and was fulfilled in the second quarter of
2019.
In
August 2019, the Transportation Security Administration
(“TSA”) of the U.S. Department of Homeland Security
(“DHS”) notified us of its intent to exercise its
fourth one-year option, extending the contract with us for an
additional year to September 27, 2020. The option provides for the
purchase of up to $2.0 million of our products. Concurrent with the
extension, the TSA placed a firm delivery order for equipment and
services totaling approximately $1.8 million of which approximately
$0.2 million was shipped in September 2019, and the remainder was
fulfilled in the fourth quarter of 2019. The original contract
awarded in September 2015 totaled $26.2 million, with $15.5 million
in firm delivery orders and $10.7 million in annual option
exercises.
On
January 15, 2020, we announced that our operating subsidiary
received an order totaling approximately $2.1 million for
KNG2-Series radios and related accessories from a California State
customer. The order was for KNG2-Series Digital P-25 portable
radios with accessories and was fulfilled in the fourth quarter of
2019.
During
2019, pursuant to our capital return program, we declared and paid
four quarterly dividends of $0.02 per share of our common stock. We
have paid fifteen consecutive quarterly dividends. In addition, we
declared a quarterly dividend of $0.02 per share of our common
stock on March 2, 2020, to be paid on April 13, 2020 to holders of
record as of March 31, 2020.
On
February 5, 2020, we announced that our operating subsidiary
received orders totaling approximately $2.8 million from the USFS.
The orders are for KNG-Series Digital P-25 portable radios, mobile
radios, and base stations, as well as related accessories. The
order is expected to be fulfilled in the first quarter of
2020.
In
December 2019, a strain of the coronavirus surfaced in Wuhan,
China. Subsequently, governmental and commercial efforts commenced
to contain the spread of the virus. As a result, some of our supply
chain partners in China temporarily suspended or modified their
business operations beyond the normal Chinese Lunar New Year
shutdown. In February 2020, operations resumed to varying degrees
at certain of our supply chain partners.
These developments have not impacted our
operations to-date.
The situation
, however,
is complex and rapidly-evolving.
The
potential future
impact on
our operations, if any, is uncertain.
Industry Overview
LMR
communications consist of hand-held (portable) and vehicle-mounted
(mobile) two-way radios commonly used by the public safety sector
(e.g., police, fire, and emergency responders), military and
commercial business concerns (e.g., corporate disaster recovery,
hotels, airports, farms, transportation service providers, and
construction firms), and government agencies within the U.S. and
abroad. LMR systems are constructed to meet an organization’s
specific communications needs. The cost of a complete system can
vary widely, depending on the size and configuration. Likewise, the
cost of radio sets can range from under $100 for a basic analog
portable, to thousands of dollars for a fully featured P-25 digital
unit. Typically, there are no recurring airtime usage charges.
Accordingly, LMR usage patterns are considerably different from
those for cellular and other wireless communications tools. LMR
usage often consists of direct radio-to-radio communications
outside of the range of a communication network with one to many
members of a group. Also, LMR functions with push-to-talk operation
(i.e., no call set-up or dialing a phone number is required). LMR
communications often consist of multiple short (five second)
transmissions between multiple members of a group. For the public
safety sector, this is known as Mission Critical Voice. The average
useful life of a unit can vary, depending upon the application in
which the unit is deployed and its handling.
LMR
systems are the most widely-used and longest-used form of wireless
dispatch communications in the U.S., having been first placed in
service in 1921. LMR was initially used almost exclusively by law
enforcement, and all radio communications were transmitted in an
analog format. Analog transmissions typically consist of a voice or
other signal modulated directly onto a continuous radio carrier
wave. Over time, advances in technology decreased the cost of LMR
products and increased their popularity and usage by businesses and
other agencies. Responding to the growing usage, additional radio
frequency spectrum was allocated by the Federal Communications
Commission (“FCC”) for LMR use.
3
More
recently, growth of the LMR industry has slowed, reflecting several
factors:
●
LMR is a mature
industry, having been in existence for over 90 years;
●
some LMR users are
in mature industry segments that have experienced slow growth
rates;
●
funding and budgets
for government and public safety agencies have been constrained;
and
●
limited
availability of radio frequency spectrum, which hinders existing
users in expanding their systems and potential new users from
establishing new systems.
Years
ago, as a result of the limited spectrum availability, the FCC
mandated that new LMR equipment utilize technology that is more
spectrum-efficient. This effectively meant that the industry had to
migrate to digital technology. Responding to the mandate, the APCO,
the NASTD, the U.S. Federal Government and the Telecommunications
Industry Association (“TIA”), in concert with several
LMR manufacturers, including BK, recommended a standard for digital
LMR devices that would meet the FCC spectrum-efficiency
requirements and provide solutions to several problems experienced
primarily by public safety users. The standard is called P-25. The
primary objectives of P-25 are to: (i) allow effective and reliable
communication among users of compliant equipment, regardless of its
manufacturer, known as interoperability, (ii) maximize radio
spectrum efficiency and (iii) promote competition among LMR
providers through an open system architecture.
Although the FCC
does not require public safety agencies or any radio users to
purchase P-25 equipment or otherwise adopt the standard, compliance
with the standard is a primary consideration for government and
public safety purchasers. Users of nationally available 700 MHz
frequencies designed for interoperability are required to use P-25
equipment. In addition, U.S. Federal Government grant programs that
provide assistance in funding for state and local agencies to
purchase interoperable communications equipment for first
responders strongly encourage compliance with the P-25 standard.
Accordingly, although funding for LMR purchases by many government
agencies is limited, we believe that, as users upgrade equipment to
achieve interoperability and comply with FCC narrow-banding
mandates, demand for P-25 equipment will continue to grow.
Additionally, the P-25 standard has also been widely adopted in
other countries. The migration to P-25 equipment is primarily
limited to government and public safety agencies. Radio users in
the business and industrial market utilize alternative digital
technologies (e.g., Digital Mobile Radio) and analog LMR
products.
Presently, the
market is dominated by one supplier, Motorola Solutions, Inc.,
which offers a broader range of products than we do, including
multiband radios. However, the open architecture of the P-25
standard is designed to eliminate the ability of one or more
suppliers to lock out competitors. Formerly, because of proprietary
characteristics incorporated in many LMR systems, a customer was
effectively precluded from purchasing additional LMR products from
a supplier other than the initial supplier of the system.
Additionally, the system infrastructure technology was prohibitive
for smaller suppliers to develop and implement. P-25 provides an
environment in which users will increasingly have a wider selection
of LMR suppliers, including smaller suppliers such as
BK.
Description of Products and P-25 CAP Compliance
We
design, manufacture, and market wireless communications equipment
consisting of two-way LMRs, repeaters, base stations and related
components and subsystems. We do not provide complete, integrated,
communications systems and infrastructure. Two-way LMRs can be
units that are hand-held (portable) or installed in vehicles
(mobile). Repeaters expand the range of two-way LMRs, enabling them
to communicate over a wider area. Base station components and
subsystems are installed at radio transmitter sites to improve
performance by enhancing the signal, reducing or eliminating signal
interference and enabling the use of one antenna for both
transmission and reception.
We
employ both analog and digital technologies in our products. Our
digital products are compliant with P-25 specifications. Our P-25
digital products and our analog products function in the VHF
(136MHz – 174MHz), UHF (380MHz – 470MHz, 450MHz –
520MHz), and 700-800 MHz bands.
4
Our
P-25 KNG and KNG2 Series mobile and portable digital radios have
been validated under the P-25 CAP as being P-25 compliant and
interoperable with the communications network infrastructure of six
of our competitors. Since we do not provide our own communications
network infrastructure, we believe CAP validation provides
confidence for federal, state and local emergency response agencies
that our products are a viable and attractive alternative for use
on the infrastructure of our competitors.
The
P-25 CAP is a voluntary program that allows LMR equipment suppliers
to formally demonstrate their products’ compliance with P-25
requirements. The purpose of the program is to provide federal,
state and local emergency response agencies with evidence that the
communications equipment they are purchasing satisfies the P-25
standard for performance, conformance and interoperability. The
program is a result of legislation passed by the U.S. Congress to
improve communication interoperability for first responders and is
a partnership of the DHS’s Command, Control and
Interoperability Division, the National Institute of Standards and
Technology, radio equipment manufacturers and the emergency
response community.
Description of Markets
Government and Public Safety Market
The
government and public safety market includes military, fire,
rescue, law enforcement, homeland security and emergency responder
personnel. In most instances, BK Radio-branded products serve this
market and are sold either directly to end-users or through two-way
communications dealers. Government and public safety sales
represented approximately 93% of our total sales for 2019 and 95%
for 2018.
Government and
public safety users currently use products that employ either P-25
digital or analog technology. However, public safety users in
federal, state and local government agencies and certain other
countries are migrating to primarily using digital P-25 products.
The evolution of the standard and compliant digital products is
explained in the “Industry Overview”
section above.
Business and Industrial Market
This
market includes enterprises of all sizes that require fast and
affordable push-to-talk communication among a discrete group of
users, such as corporate disaster recovery, hotels, construction
firms, schools and transportation service providers. Users in this
market continue to predominantly utilize analog products. We offer
products to this market under the RELM brand name. Our sales in
this market may be direct to end-users or to dealers and
distributors who then resell the products. Our sales to this market
represented approximately 7% of our total sales for 2019 and 5% for
2018.
Engineering, Research and Development
Our
engineering and product development activities are conducted by a
team of 18 employees, combined with contract engineering resources.
Their primary development focus has been the design of a new line
of next-generation P-25 digital products, the BKR Series, which we
expect to eventually supplant our flagship KNG and KNG2 products.
We anticipate that the first product in this line will be available
in 2020 pending approval of the FCC. The first models in the KNG
line were introduced in 2008 and are included on our primary
federal contract vehicles. Subsequently, we added UHF and
700-800MHz products, as well as P-25 Phase II TDMA (Time Division
Multiple Access) trunking. The KNG2 Series was introduced in 2016.
Our KNG and KNG2 products also provide encrypted operation, GPS
location and network authentication capabilities.
A
segment of our engineering team is responsible for product
specifications based on customer requirements and participates in
quality assurance activities. They also have primary responsibility
for applied and production engineering.
For
2019 and 2018, our engineering and development expenses were
approximately $9.8 million and $7.8 million, respectively. The
increase was primarily attributed to the development of a new line
of products, including multiband radios, that we anticipate will
supplant the KNG and KNG2 series.
5
Intellectual Property
We
presently have no U.S. patents in force. We have registered federal
trademarks related to the names “BK Technologies,”
“BK Radio” and “Radios for Heroes” and have
applied for registration of “BKR.” We rely on trade
secret laws and employee and third-party nondisclosure agreements
to protect our intellectual property rights.
Manufacturing and Raw Materials
Our
manufacturing strategy is to utilize the highest quality and most
cost-effective resources available for every aspect of our
manufacturing. Consistent with that strategy, for many years we
have successfully utilized a hybrid of internal manufacturing
capability in concert with outside contract arrangements for
different manufacturing processes. The breadth of our internal
manufacturing capabilities was expanded during 2019. Our outside
contract arrangements, some of which are with offshore concerns,
have been managed and updated to meet our present requirements.
This hybrid approach has been instrumental in controlling our
product costs, allowing us to be competitive and manage our gross
margins.
Contract
manufacturers produce various subassemblies and products on our
behalf. Generally, the contract manufacturers procure raw materials
from BK-approved sources and complete manufacturing activities in
accordance with our specifications. Manufacturing agreements and
purchase orders govern the business relationship with the contract
manufacturers. These agreements and purchase orders have various
terms and conditions and may be renewed or modified upon agreement
by both parties. Their scope may also be expanded to include new
products in the future.
We plan
to continue utilizing both internal and external contract
manufacturing where it furthers our business objectives. This
strategy allows us to effectively manage product costs and
lead-times while focusing other resources on our core technological
competencies of product design and development, and to help reduce
capital investment in manufacturing equipment. We also believe
that, in certain circumstances, the use of experienced, high-volume
manufacturers can provide greater manufacturing specialization and
expertise, higher levels of flexibility and responsiveness, and
faster delivery of product, all of which contribute toward product
cost control. To ensure that products manufactured by others meet
our quality standards, our production and engineering team works
closely with our ISO 9002 industry-qualified contract manufacturers
in all key aspects of the production process. We establish product
specifications, select the components and, in some cases, the
suppliers. We retain all document control. We also work with our
contract manufacturers to improve process control and product
design and conduct periodic on-site inspections.
We rely
upon a limited number of both domestic and foreign suppliers for
several key products and components. Approximately 64.0% of our
material, subassembly and product procurements in 2019 were sourced
from three suppliers. We place purchase orders from time to time
with these suppliers and have no guaranteed supply arrangements. In
addition, certain components are obtained from single sources.
During 2019 and 2018, our operations were not materially impaired
due to delays from single-source suppliers. However, the absence of
a single-source component could potentially delay the manufacture
of finished products. We manage the risk of such delays by securing
secondary sources, where possible, and redesigning products in
response to component shortages or obsolescence. We strive to
maintain strong relationships with all of our suppliers. We
anticipate that the current relationships, or others that are
comparable, will be available to us in the future.
Seasonal Impact
We may
experience fluctuations in our quarterly results, in part, due to
governmental customer spending patterns that are influenced by
government fiscal year budgets and appropriations. We may also
experience fluctuations in our quarterly results, derived, in part,
from sales to federal and state agencies that participate in
wildland fire-suppression efforts, which may be greater during the
summer season when forest fire activity is heightened. In some
years, these factors may cause an increase in sales for the second
and third quarters, compared with the first and fourth quarters of
the same fiscal year. Such increases in sales may cause quarterly
variances in our cash flow from operations and overall financial
results.
6
Significant Customers
Sales
to the U.S. Government represented approximately 49% and 40% of our
total sales for the years ended December 31, 2019 and 2018,
respectively. These sales were primarily to various government
agencies, including those within the DHS, the U.S. Department of
Defense (“DOD”), the USFS and the U.S. Department of
Interior (“DOI”).
Backlog
Our
backlog of unshipped customer orders was approximately $7.2 million
and $7.6 million as of December 31, 2019 and 2018,
respectively. The decrease was attributed primarily to the timing
and fulfillment of orders.
Competition
We
compete with other domestic and foreign companies primarily in the
North American market, but also internationally. One dominant
competitor, Motorola Solutions, Inc., is estimated to have well in
excess of half the market for LMR products. We compete by
capitalizing on our advantages and strengths, which include price,
product quality and customer responsiveness.
Government Regulation
We are
subject to various international and U.S. federal, state and local
laws affecting our business. Any finding that we have been or
are in noncompliance with such laws could result in, among other
things, governmental penalties. Further, changes in existing
laws or new laws may adversely affect our business and could also
have the effect of limiting capital expenditures by our customers,
which could have a material adverse effect on our business,
financial condition and results of operations.
In
connection with our U.S. Government contracts, we are subject to
the U.S. Federal Government procurement regulations that may
provide the buyer with the right to audit and review our
performance, as well as our compliance with applicable laws and
regulations. In addition, our business is subject to
government regulation based on the products we sell that may be
subject to government requirements, such as obtaining an export
license or end-user certificate from the buyer, in certain
circumstances. If a government audit uncovers improper
or illegal activities, or if we are alleged to have violated any
laws or regulations governing the products we sell under our
government contracts, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of
contracts, forfeiture of profits, suspension of payments, fines and
suspension or debarment from doing business with U.S. Federal
Government agencies.
Our
products are regulated by the FCC in the U.S. and similar agencies
in other countries where we offer our products. Consequently,
we and our customers could be positively or negatively affected by
the rules and regulations adopted from time to time by the FCC or
regulatory agencies in other countries. For example, our
wireless communications products, including two-way LMRs, are
subject to FCC regulations related to radio frequency
spectrum. As a result of limited spectrum availability, the
FCC has mandated that new LMR equipment utilize technology that is
more spectrum-efficient, which effectively meant that the industry
had to migrate to digital technology. These types of mandates
may provide us with new business opportunities or may require us to
modify all or some of our products so that they can continue to be
manufactured and marketed, which may lead to an increase in our
capital expenditures and research and development
expenses.
As a
public company, we are also subject to regulations of the SEC and
the stock exchange on which we are listed (NYSE
American).
Some of
our operations use substances regulated under various federal,
state, local and international laws governing the environment and
worker health and safety, including those governing the discharge
of pollutants into the ground, air and water, the management and
disposal of hazardous substances and wastes and the cleanup of
contaminated sites, as well as relating to the protection of the
environment. Certain of our products are subject to various
federal, state, local and international laws governing chemical
substances in electronic products. During 2019, compliance with
these U.S. federal, state and local and international laws did not
have a material effect on our capital expenditures, earnings or
competitive position.
7
Employees
As of
December 31, 2019, we had 111 employees, including 109 full-time
employees, most of whom are located at our West Melbourne, Florida
facility; 56 of these employees are engaged in direct manufacturing
or manufacturing support, 18 in engineering, 26 in sales and
marketing and 11 in headquarters, accounting and human resources
activities. Our employees are not represented by any collective
bargaining agreements, nor has there ever been a labor-related work
stoppage. We believe our relations with our employees are
good.
Information Relating to Domestic and Export Sales
The
following table summarizes our sales of LMR products by customer
location:
|
|
2019
|
2018
|
|
|
(in
millions)
|
|
|
United
States
|
$
39.7
|
$
44.8
|
|
International
|
0.4
|
4.6
|
|
Total
|
$
40.1
|
$
49.4
|
Additional
financial information is provided in the Consolidated Financial
Statements included in this report.
8
I
tem 1A. Risk Factors
Various portions of this report contain forward-looking statements
that involve risks and uncertainties. Actual results, performance
or achievements could differ materially from those anticipated in
these forward-looking statements as a result of certain risk
factors, including those set forth below and elsewhere in this
report. We undertake no obligation to revise or update any
forward-looking statements contained herein to reflect subsequent
events or circumstances or the occurrence of unanticipated
events.
We depend on the success of our LMR product line
We
currently depend on our LMR products as our sole source of sales. A
decline in the price of and/or demand for LMR products, as a result
of competition, technological change, the introduction of new
products by us or others or a failure to manage product transitions
successfully, could have a material adverse effect on our business,
financial condition and results of operations. In addition, our
future success will largely depend on the successful introduction
and sale of our BKR Series product line, including our initial
multiband product, which has been delayed from initial projections
and which we may be unable to successfully complete in a timely
manner, or at all. Even if we successfully develop and launch the
BKR Series product line, or any other new products, the development
of which is a complex and uncertain process requiring innovation
and investment, such products may not achieve market acceptance,
which could have a material adverse effect on us.
We are engaged in a highly competitive industry
We face
intense competition from other LMR suppliers, and the failure to
compete effectively could materially and adversely affect our
market share, financial condition and results of operations. The
largest supplier of LMR products in the world, Motorola Solutions,
Inc., currently is estimated to have well in excess of half the
market for LMR products. This supplier is also the world’s
largest supplier of P-25 products. Some of our competitors are
significantly larger and have longer operating histories, greater
name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than we have. Some
also have established reputations for success in developing and
supplying LMR products, including providing complete, integrated,
communications systems and infrastructure. We do not provide
complete, integrated, communications systems and infrastructure.
These advantages may allow our competitors:
●
to be more
attractive to customers who desire a single-source supplier of LMR
products;
●
to respond more
quickly to new or emerging technologies and changes in customer
requirements, which may render our products obsolete or less
marketable;
●
to engage in more
extensive research and development;
●
to undertake more
far-reaching marketing campaigns;
●
to be able to take
advantage of acquisitions and other opportunities;
●
to adopt more
aggressive pricing policies; and
●
to be more
attractive to potential employees and strategic
partners.
Some of
our competitors have established broad networks of sales locations
and multiple distribution channels that are more extensive than
ours. We may not be able to compete successfully and competitive
pressures may materially and adversely affect our business, results
of operations and financial condition.
9
An
increase in the demand for P-25 products could benefit competitors
that are better financed and positioned to meet such demand. P-25
products have been brought to the market by an increasing number of
our competitors. Our first P-25 portable radio was brought to
market in 2003, and in recent years we introduced two new lines of
P-25 products, the KNG and KNG2 Series. We are currently developing
a new line of P-25 digital products, the BKR Series, which we
anticipate will include multiband products, among other new
products. Bringing such products to market and achieving a
significant market penetration for them will continue to require
time and expenditures of funds, and we may be unable to
successfully do so. We may be unsuccessful in developing and
marketing, on a timely basis, fully functional product enhancements
or new products that respond to these and other technological
advances, and our new products may not be accepted by customers. An
inability to successfully develop and/or market products could have
a material adverse effect on our business, financial condition and
results of operations.
Our industry is characterized by rapidly changing technology and
our success is dependent on our ability to adapt to such
changes
Our
business could suffer if we are unable to keep pace with rapid
technological changes and product development in our industry. The
market for our LMR products is characterized by ongoing
technological development, evolving industry standards and frequent
product introductions. The LMR industry has been transitioning from
analog LMR products to digital LMR products in recent years. In
addition, the APCO P-25 standard is being increasingly adopted. If
we are unable to successfully keep up with these changes, our
business, financial condition and results of operations could be
materially adversely affected.
We depend heavily on sales to the U.S. Government
We are
subject to risks associated with our reliance on sales to the U.S.
Government. For the year ended December 31, 2019, approximately
49.1% of our sales were to agencies and departments of the U.S.
Government. These sales were primarily to agencies of the DHS, DOD,
USFS and DOI. We may be unable to maintain this government
business. Our ability to maintain our government business will
depend on many factors outside of our control, including
competitive factors, changes in government personnel making
contract decisions, spending limits and political factors. The loss
of sales to the U.S. Government would have a material adverse
effect on our business, financial condition and results of
operations.
In
addition, most U.S. Government customers award business through a
competitive bidding process, which results in greater competition
and increased pricing pressure. The bidding process involves
significant cost and managerial time to prepare bids for contracts
that may not be awarded to us. Even if we are awarded contracts, we
may fail to accurately estimate the resources and costs required to
fulfill a contract, which could negatively impact the profitability
of any contract awarded to us. In addition, following a contract
award, we may experience significant expense or delay, contract
modification or contract rescission as a result of customer delay
or our competitors protesting or challenging contracts awarded to
us in competitive bidding.
Any
delay, especially any prolonged delay, in the U.S. Government
budget process or a government shutdown may result in us incurring
substantial labor or other costs without reimbursement under our
customer contracts, decrease the number of purchase orders issued
under our contracts with government agencies, or result in the
suspension of work on contracts in progress or in payment
delays.
Any of
these events could have a material adverse effect on our business,
financial condition and results of operations.
10
Our business is partially dependent on U.S. Government contracts,
which are highly regulated and subject to terminations and
oversight audits by U.S. Government representatives that could
result in adverse findings and negatively impact our
business
Our
U.S. Government business is subject to specific procurement
regulations with numerous compliance requirements. These
requirements, although customary in U.S. Government contracting,
increase our performance and compliance costs. These costs may
increase in the future, thereby reducing our margins, which could
have an adverse effect on our financial condition. Failure to
comply with these regulations could lead to suspension or debarment
from U.S. Government contracting or subcontracting for a period of
time. Among the causes for debarment are violations of various laws
or policies, including those related to procurement integrity, U.S.
Government security regulations, employment practices, protection
of criminal justice data, protection of the environment, accuracy
of records, proper recording of costs, foreign corruption and the
False Claims Act.
Generally, U.S.
Government contracts are subject to oversight audits by U.S.
Government representatives and could result in adjustments to our
contracts. Any costs found to be improperly allocated to a specific
contract or grant may not be allowed, and such costs already
reimbursed to us may have to be refunded. Future audits and
adjustments, if required, may materially reduce our revenues or
profits upon completion and final negotiation of audits. Negative
audit findings could also result in investigations, termination of
a contract, forfeiture of profits or reimbursements, suspension of
payments, fines and suspension or prohibition from doing business
with the U.S. Government. All contracts with the U.S. Government
are subject to cancellation at the convenience of the U.S.
Government.
In
addition, contacts with government officials and participation in
political activities are areas that are tightly controlled by
federal, state, local and international laws. Failure to comply
with these laws could cost us opportunities to seek certain
government sales opportunities or even result in fines, prosecution
or debarment.
Our business is subject to the economic, political, and other risks
of manufacturing products in foreign countries
We
engage in business with manufacturers located in other countries.
Approximately 67.0% of our material, subassembly and product
procurements in 2019 were sourced internationally. Accordingly, we
are subject to special considerations and risks not typically
associated with companies operating solely in the U.S. These
include the risks associated with the political, economic, legal,
health and other conditions in such foreign countries, among
others. Our business, financial condition and operating results may
be materially and adversely affected by, among other things,
changes in the general political, social, health and economic
conditions in foreign countries in which we maintain sourcing
relationships, unfavorable changes in U.S. trade legislation and
regulations, the imposition of governmental economic sanctions on
countries in which we do business or other trade barriers, threats
of war, terrorism or governmental instability, labor disruptions,
the impact of public health epidemics on employees and the global
economy, such as the coronavirus currently impacting China, which
may cause our manufacturers or suppliers to temporarily suspend
operations in the affected region, potentially negatively impacting
our product launch timing and shipments, currency controls,
fluctuating exchange rates with respect to contracts not
denominated in U.S. dollars, and unanticipated or unfavorable
changes in government policies with respect to laws and
regulations, anti-inflation measures and method of taxation. If we
were unable to navigate foreign regulatory environments, or if we
were unable to enforce our contract rights in foreign countries,
our business could be adversely impacted. Any of these events could
interrupt our manufacturing process and cause operational
disruptions, increase prices for manufacturing, reduce our sales or
otherwise have an adverse effect on our operating
performance.
The
U.S. Government has indicated its intent to alter its approach to
trade policy, including, in some instances, to revise, renegotiate
or terminate certain multilateral trade agreements. It has also
imposed new tariffs on certain foreign goods and raised the
possibility of imposing additional increases or new tariffs on
other goods. Such actions have, in some cases, led to retaliatory
trade measures by certain foreign governments. Such policies could
make it more difficult or costly for us to do business in or import
our products from those countries. In turn, we may need to raise
prices or make changes to our operations, which could negatively
impact our revenue or operating results. At this time, it remains
unclear what additional actions, if any, will be taken by the U.S.
Government or foreign governments with respect to tariff and
international trade agreements and policies, and we cannot predict
future trade policy or the terms of any revised trade agreements or
any impact on our business.
The coronavirus could adversely impact our ability to obtain
necessary materials and ship finished products to customers, which
could negatively impact our results of operations and cash
flow.
Governments and
health organizations have identified an outbreak of an illness
caused by a new coronavirus. The World Health Organization has
declared the outbreak a global public health emergency. It was
first detected in Wuhan City, Hubei Province, China, but has spread
within China and to other countries. Since the outbreak, some of
our China-based supply chain partners were temporarily closed for a
period of time. Most of these facilities have been reopened to
varying degrees. Depending on the progression of the outbreak, our
ability to obtain necessary supplies and ship finished products to
customers may be partly or completely disrupted. If the coronavirus
continues to progress, it could have a material negative impact on
our results of operations and cash flow.
11
We carry substantial quantities of inventory, and inaccurate
estimates of necessary inventory could materially harm our
business, financial condition and operating results
We
carry a significant amount of inventory to service customer
requirements in a timely manner. If we are unable to sell this
inventory over a commercially reasonable time, in the future we may
be required to take inventory markdowns, which would reduce our net
sales and/or gross margins. In addition, it is critical to our
success that we accurately predict trends in customer demand,
including seasonal fluctuations, in the future and do not overstock
unpopular products or fail to sufficiently stock popular products.
Both scenarios could materially harm our business, financial
condition and operating results.
We enter into fixed-price contracts that could subject us to losses
in the event we fail to properly estimate our costs or hedge our
risks associated with currency fluctuations
We
sometimes enter into firm fixed-price contracts. If our initial
cost estimates are incorrect, we can lose money on these contracts.
Because certain of these contracts involve new technologies and
applications, require us to engage subcontractors and/or can last
multiple years, unforeseen events, such as technological
difficulties, fluctuations in the price of raw materials, problems
with our subcontractors or suppliers and other cost overruns, can
result in the contract pricing becoming less favorable or even
unprofitable to us and have an adverse impact on our financial
results. In addition, a significant increase in inflation rates or
currency fluctuations could have an adverse impact on the
profitability of longer-term contracts.
Our investment strategy may not be successful, which could
adversely impact our financial condition
We may
invest part of our cash balances in public companies. For example,
as of December 31, 2019, we held 477,282 shares of the common stock
of 1347 Property Insurance Holdings, Inc. (Nasdaq: PIH)
(“PIH”). These types of investments are more risky than
holding our cash balances as bank deposits or, for example, such
conservative investments as treasury bonds or money market funds.
There can be no assurance that we will be able to maintain or
enhance the value or the performance of the companies in which we
have invested or in which we may invest in the future, or that we
will be able to achieve returns or benefits from these investments.
We may lose all or part of our investment relating to such
companies if their value decreases as a result of their financial
performance or for any other reason. If our interests differ from
those of other investors in companies over which we do not have
control, we may be unable to effect any change at those companies.
We are not required to meet any diversification standards, and our
investments may become concentrated. If our investment strategy is
not successful or we achieve less than expected returns from these
investments, it could have a material adverse effect on us. The
Board of Directors may also change our investment strategy at any
time, and such changes could further increase our exposure, which
could adversely impact us.
Fundamental Global Investors, LLC, with its affiliates, is our
largest stockholder, and its interests may differ from the
interests of our other stockholders
The
interests of Fundamental Global Investors, LLC (“Fundamental
Global”) may differ from the interests of our other
stockholders. Fundamental Global and its affiliates, including CWA
Asset Management Group, LLC, 50% of which is owned by Fundamental
Global, together hold approximately 39% of the Company’s
outstanding shares of common stock. Kyle Cerminara, Chief Executive
Officer, Partner and Manager of Fundamental Global and Chairman and
Chief Executive Officer of Ballantyne Strong, Inc., and Lewis
Johnson, President, Partner and Manager of Fundamental Global
Investors, LLC and Co-Chairman of Ballantyne Strong, Inc., serve as
Chairman and Co-Chairman, respectively, of our Board of Directors.
As a result of its ownership position and Messrs. Cerminara’s
and Johnson’s positions with the Company, Fundamental Global
has the ability to exert significant influence over our policies
and affairs, including the power to impact the election of our
directors, and approval of any action requiring a stockholder vote,
such as amendments to our articles of incorporation, by-laws,
significant stock issuances, reorganizations, mergers and asset
sales. Fundamental Global may have interests that differ from those
of our other stockholders and may vote in a way with which our
other stockholders disagree and which may be adverse to their
interests. Fundamental Global’s significant ownership may
also have the effect of delaying, preventing or deterring a change
of control of the Company, could deprive our stockholders of an
opportunity to receive a premium for their common stock as part of
a sale of the Company and might ultimately affect the market price
of our common stock.
12
If we are unable to maintain our brand and reputation, our
business, results of operations and prospects could be materially
harmed
Our
business, results of operations and prospects depend, in part, on
maintaining and strengthening our brand and reputation for
providing high-quality products and services. Reputational value is
based in large part on perceptions. Although reputations may take
decades to build, any negative incidents can quickly erode trust
and confidence, particularly if they result in adverse publicity,
governmental investigations or litigation. If problems with our
products cause operational disruption or other difficulties, or
there are delays or other issues with the delivery of our products
or services, our brand and reputation could be diminished. Damage
to our reputation could also arise from actual or perceived legal
violations or product safety issues, cybersecurity breaches, actual
or perceived poor employee relations, actual or perceived poor
service, actual or perceived poor privacy practices, operational or
sustainability issues, actual or perceived ethical issues or other
events within or outside of our control that generate negative
publicity with respect to us. Any event that has the potential to
negatively impact our reputation could lead to lost sales, loss of
new opportunities and retention and recruiting difficulties. If we
fail to promote and maintain our brand and reputation successfully,
our business, results of operations and prospects could be
materially harmed.
We face a number of risks related to challenging economic
conditions
Current
economic conditions in the U.S. and elsewhere remain uncertain.
These challenging economic conditions could materially and
adversely impact our business, liquidity and financial condition in
a number of ways, including:
●
Potential deferment or
reduction of purchases by customers
:
Significant deficits and limited
appropriations confronting our federal, state and local government
customers may cause them to defer or reduce purchases of our
products. Furthermore, uncertainty about current and future
economic conditions may cause customers to defer purchases of our
products in response to tighter credit and decreased cash
availability. Additionally, any delay, especially any prolonged
delay, in the U.S. Government budget process or government shutdown
may negatively impact the ability of many of our customers to
purchase our products and decrease the number of purchase orders
issued under our contracts with government agencies.
●
Negative impact from
increased financial pressures on third-party dealers, distributors
and suppliers
:
We
make sales to certain of our customers through third-party dealers
and distributors. We generally do not require collateral from our
customers. If credit pressures or other financial difficulties
result in insolvencies of these third parties and we are unable to
successfully transition the end customers to purchase our products
from other third parties, or directly from us, it could materially
and adversely impact our business, financial condition and
operating results. Challenging economic conditions may also impact
the financial condition of one or more of our key suppliers, which
could negatively affect our ability to secure product to meet our
customers’ demands.
●
Limited access by us to
credit and capital
:
The credit markets may limit our access to credit and impair our
ability to raise capital, if needed, on acceptable terms or at all.
From time to time, we also have cash in financial institutions in
excess of federally insured limits, which funds might be at risk of
loss should such financial institutions face financial
difficulties.
13
The terms of the credit agreement with JPMorgan Chase Bank, N.A.,
contain restrictive covenants that may limit our operating
flexibility
On
January 30, 2020, BK Technologies, Inc., our wholly-owned operating
subsidiary, entered into a $5.0 million Credit Agreement and a
related Line of Credit Note (the “Note” and
collectively with the Credit Agreement, the “Credit
Agreement”) with JPMorgan Chase Bank, N.A.
(“JPMC”), which provides for a
revolving line of credit
. The Credit
Agreement contains limitations and covenants that may limit BK
Technologies, Inc.’s ability to take certain actions,
including pay dividends to us, enter into
liens, indebtedness, loans and guarantees,
acquisitions and mergers, or sales of assets, and engage in stock
repurchases. It also contains one financial covenant requiring BK
Technologies, Inc. to maintain a tangible net worth of at least
$20.0 million at any fiscal quarter end.
We are a guarantor
of BK Technologies, Inc.’s obligations under the Credit
Agreement. Events beyond our control, including changes in general
business and economic conditions, may impair BK Technologies,
Inc.’s ability to comply with these covenants, and a breach
of any covenants may result in an event of default. Upon the
occurrence of an event of default, JPMC
may declare the entire unpaid balance immediately
due and payable and/or exercise any and all remedial and other
rights under the Credit Agreement.
BK Technologies, Inc. may
be unable to repay any accelerated indebtedness, and we may not be
able to repay any indebtedness pursuant to the guarantee or
refinance any accelerated indebtedness on favorable terms, or at
all. In general, the occurrence of any event of default under the
Credit Agreement could have an adverse effect on our financial
condition or results of operations.
We depend on a limited number of manufacturers and on a limited
number of suppliers of components to produce our products, and the
inability to obtain adequate and timely delivery of supplies and
manufactured products could have a material adverse effect on
us
We
contract with manufacturers to produce portions of our products,
and our dependence on a limited number of contract manufacturers
exposes us to certain risks, including shortages of manufacturing
capacity, reduced control over delivery schedules, quality
assurance, production yield and costs. If any of our manufacturers
terminate production or cannot meet our production requirements, we
may have to rely on other contract manufacturing sources or
identify and qualify new contract manufacturers. The lead-time
required to qualify a new manufacturer could range from
approximately two to six months. Despite efforts to do so, we may
not be able to identify or qualify new contract manufacturers in a
timely and cost-effective manner, and these new manufacturers may
not allocate sufficient capacity to us in order to meet our
requirements. Any significant delay in our ability to obtain
adequate quantities of our products from our current or alternative
contract manufacturers could have a material adverse effect on our
business, financial condition and results of
operations.
In
addition, our dependence on limited and sole source suppliers of
components involves several risks, including a potential inability
to obtain an adequate supply of components, price increases, late
deliveries and poor component quality. Approximately 64.0% of our
material, subassembly and product procurements in 2019 were sourced
from three suppliers. We place purchase orders from time to time
with these suppliers and have no guaranteed supply arrangements.
Disruption or termination of the supply of these components could
delay shipments of our products. The lead-time required for orders
of some of our components is as much as six months. In addition,
the lead-time required to qualify new suppliers for our components
is as much as six months. If we are unable to accurately predict
our component needs, or if our component supply is disrupted, we
may miss market opportunities by not being able to meet the demand
for our products. This may damage our relationships with current
and prospective customers and, thus, have a material adverse effect
on our business, financial condition and results of
operations.
14
We may not be able to manage our growth
Acquisitions and
other business transactions may disrupt or otherwise have a
negative impact on our business, financial condition and results of
operations. We do not have any acquisitions currently pending, and
there can be no assurance that we will complete any future
acquisitions or other business transactions or that any such
transactions which are completed will prove favorable to our
business. We intend to seek stockholder approval for any such
transactions only when so required by applicable law or regulation.
Any acquisitions of businesses and their respective assets also
involve the risks that the businesses and assets acquired may prove
to be less valuable than we expect and we may assume unknown or
unexpected liabilities, costs and problems. We hope to grow
rapidly, and the failure to manage our growth could materially and
adversely affect our business, financial condition and results of
operations. Our business plan contemplates, among other things,
leveraging our products and technology for growth in our customer
base and sales. This growth, if it materializes, could
significantly challenge our management, employees, operations and
financial capabilities. In the event of this expansion, we have to
continue to implement and improve our operating systems and to
expand, train, and manage our employee base. If we are unable to
manage and integrate our expanding operations effectively, our
business, results of operations and financial condition could be
materially and adversely affected.
Retention of our executive officers and key personnel is critical
to our business
Our key
executives are critical to our success. The loss of services from
any of our executive officers or other key employees due to any
reason whatsoever could have a material adverse effect on our
business, financial condition and results of
operations.
Our
success is also dependent upon our ability to hire and retain
qualified operations, development and other personnel. Competition
for qualified personnel in our industry is intense, and we may be
unable to hire or retain necessary personnel. The inability to
attract and retain qualified personnel could have a material
adverse effect on our business, financial condition and results of
operations.
We have
had changes in our senior management team and other personnel over
the past few years and have promoted or hired new employees to fill
certain roles. Our inability to effectively integrate the
newly-hired or promoted senior managers or other employees into our
business process, controls and systems could have a material
adverse effect on us.
We rely on a combination of contract, trademark and trade secret
laws to protect our intellectual property rights, and failure to
effectively utilize or successfully assert these rights could
negatively impact us
Currently, we hold
no U.S. patents. We have several trademarks related to the names
“BK Technologies,” “BK Radio” and
“Radios for Heroes,” and have applied for a trademark
related to the name “BKR.” As part of our
confidentiality procedures, we generally enter into nondisclosure
agreements with our employees, distributors and customers and limit
access to and distribution of our proprietary information. We also
rely on trade secret laws to protect our intellectual property
rights. There is a risk that we may be unable to prevent another
party from manufacturing and selling competing products or
otherwise violating our intellectual property rights. Our
intellectual property rights, and any additional rights we may
obtain in the future, may be invalidated, circumvented or
challenged in the future. It may also be particularly difficult to
protect our products and intellectual property under the laws of
certain countries in which our products are or may be manufactured
or sold. Our failure to perfect or successfully assert intellectual
property rights could harm our competitive position and could
negatively impact us.
Rising health care costs may have a material adverse effect on
us
The
costs of employee health care insurance have been increasing in
recent years due to rising health care costs, legislative changes
and general economic conditions. We cannot predict what other
health care programs and regulations ultimately will be implemented
at the federal or state level or the effect of any future
legislation or regulation in the U.S. on our business, financial
condition and results of operations. In addition, we cannot predict
when or if Congress will repeal and/or replace certain health care
programs and regulations at the federal level and the impact such
changes would have on our business. A continued increase in health
care costs could have a material adverse effect on us.
15
The insurance that we maintain may not fully cover all potential
exposures
We
maintain property, business interruption and casualty insurance,
but such insurance may not cover all risks associated with the
hazards of our business and is subject to limitations, including
deductibles and maximum liabilities covered. We are potentially at
risk if one or more of our insurance carriers fail. Additionally,
severe disruptions in the domestic and global financial markets
could adversely impact the ratings and survival of some insurers.
In the future, we may not be able to obtain coverage at current
levels, and our premiums may increase significantly on coverage
that we maintain.
Our stock price is vulnerable to significant fluctuations,
including due to our fluctuating quarterly operating
results
Our
quarterly operating results may fluctuate significantly from
quarter to quarter and may be below the expectations of the
investment community, resulting in volatility for the market price
for our common stock. Other factors affecting the volatility of our
stock price include:
●
future
announcements concerning us or our competitors;
●
the announcement or
introduction of technological innovations or new products by us or
our competitors, including announcements regarding the status of
our BKR Series product line;
●
changes in product
pricing policies by us or our competitors;
●
changes in earnings
estimates by us or our competitors or by securities
analysts;
●
additions or
departures of our key personnel; and
●
sales of our common
stock.
In
addition, the stock market is subject to price and volume
fluctuations affecting the market price for the stock of many
companies generally, which fluctuations often are unrelated to
operating performance.
Natural disasters, acts of war or terrorism and other catastrophic
events beyond our control could have a material adverse effect on
our operations and financial condition
The
occurrence of one or more natural disasters, such as fires,
hurricanes, tornados, tsunamis, floods and earthquakes;
geo-political events, such as civil unrest in a country in which
our suppliers or manufacturers are located, or acts of war or
terrorism (wherever located around the world) or military
activities disrupting transportation, communication or utility
systems or otherwise causing damage to our business, employees,
suppliers, manufacturers and customers; or other highly disruptive
events, such as nuclear accidents, pandemics, unusual weather
conditions or cyber attacks, could have a material adverse effect
on our business, financial condition and results of operations.
Such events could result, among other things, in operational
disruptions, physical damage to or destruction or disruption of one
or more of our properties or properties used by third parties in
connection with the supply of products or services to us, the lack
of an adequate workforce in parts or all of our operations and
communications and transportation disruptions. These factors could
also cause consumer confidence and spending to decrease or result
in increased volatility in the U.S. and global financial markets
and economy. Such occurrences could have a material adverse effect
on us and could also have indirect consequences, such as increases
in the costs of insurance, if they result in significant loss of
property or other insurable damage.
16
A security breach or other significant disruption of our
information technology systems, or those of our distributors,
manufacturers, suppliers and other partners, caused by cyber attack
or other means, could have a negative impact on our operations,
sales and results of operations
From
time to time, we experience cyber attacks on our information
technology systems and the information systems of our distributors,
manufacturers, suppliers and other partners, whose systems we do
not control. These systems are vulnerable to damage,
unauthorized access or interruption from a variety of sources,
including, but not limited to, continually evolving cyber attacks
(including social engineering and phishing attempts), attempts to
gain unauthorized access to data, cyber intrusion, computer
viruses, security breach, misconduct by employees or other insiders
with access to our data, energy blackouts, natural disasters,
terrorism, sabotage, war and telecommunication failures. Cyber
attacks are rapidly evolving and becoming increasingly
sophisticated. Computer hackers and others might compromise our
security measures, or security measures of those parties that we do
business with now or in the future, and obtain the personal
information of our customers, employees and partners or our
business information. A cyber attack or other significant
disruption involving our information technology systems or those of
our distributors, manufacturers, suppliers or other partners, could
result in disruptions in critical systems, corruption or loss of
data, theft of data, funds or intellectual property, and
unauthorized release of our or our customers’ proprietary,
confidential or sensitive information. Such unauthorized access to,
or release of, this information could expose us to data loss,
disrupt our operations, allow others to unfairly compete with us,
subject us to litigation, government enforcement actions,
regulatory penalties and costly response measures, and could
seriously disrupt our operations. Any resulting negative publicity
could also significantly harm our reputation. We may not have
adequate insurance coverage to compensate us for any losses
associated with such events. Any or all of the foregoing could have
a negative impact on our business, financial condition, results of
operations and cash flows.
Because
the techniques used to obtain unauthorized access to, or disable,
degrade or sabotage, information technology systems change
frequently and often are not recognized until launched against a
target, we may be unable to anticipate these techniques, implement
adequate preventative measures or remediate any intrusion on a
timely or effective basis. Moreover, the development and
maintenance of these preventative and detective measures is costly
and requires ongoing monitoring and updating as technologies change
and efforts to overcome security measures become more
sophisticated. We, therefore, remain potentially vulnerable to
additional known or yet unknown threats, as in some instances, we,
our distributors, manufacturers, suppliers and other partners, may
be unaware of an incident or its magnitude and effects. We also
face the risk that we expose our customers or partners to
cybersecurity attacks. In addition, from time to time, we implement
updates to our information technology systems and software, which
can disrupt or shutdown our information technology systems. We may
not be able to successfully integrate and launch these new systems
as planned without disruption to our operations.
Each
of the foregoing factors could have an adverse effect on our
reputation, business, financial condition or results of
operations.
The risk of noncompliance with U.S. and foreign laws and
regulations applicable to us could materially adversely affect
us
Failure
to comply with government regulations applicable to our business
could result in penalties and reputational damage. Our products are
regulated by the FCC and otherwise subject to a wide range of
global laws. As a public company, we are also subject to
regulations of the SEC and the stock exchange on which we are
listed. These laws and regulations are complex, change frequently,
have tended to become more stringent over time and increase our
cost of doing business. Compliance with existing or future laws,
including U.S. tax laws, could subject us to future costs or
liabilities, impact our production capabilities, constrict our
ability to sell, expand or acquire facilities, restrict what
products and services we can offer, and generally impact our
financial performance. Failure to comply with or to respond to
changes in these requirements and regulations could result in
penalties on us, such as fines, restrictions on operations or a
temporary or permanent closure of our facility. These penalties
could have a material adverse effect on our business, operating
results and financial condition. In addition, existing or new
regulatory requirements or interpretations could materially
adversely impact us.
17
We may not be able to maintain our NYSE American
listing
Our
common stock has been listed on the NYSE American since 2005. If we
are unable to satisfy the continued listing standards of the NYSE
American, which include, among others, minimum stockholders’
equity, market capitalization, pre-tax income and per share sales
price, our common stock may be delisted. If our common stock is
delisted, we would be forced to have our common stock quoted on the
OTC Markets or some other quotation medium, depending on our
ability to meet the specific requirements of those quotation
systems. In that case, we may lose some or all of our institutional
investors, and selling our common stock on the OTC Markets would be
more difficult because smaller quantities of shares would likely be
bought and sold and transactions could be delayed. These factors
could result in lower prices and larger spreads in the bid and ask
prices for shares of our common stock. If this happens, we will
have greater difficulty accessing the capital markets to raise any
additional necessary capital.
Any infringement claim against us could have a material adverse
effect on our business, financial condition and results of
operations
As the
number of competing products available in the market increases and
the functions of those products further overlap, the potential for
infringement claims may increase. Any such claims, with or without
merit, may result in costly litigation or require us to redesign
the affected product to avoid infringement or require us to obtain
a license for future sales of the affected product. Any of the
foregoing could damage our reputation and have a material adverse
effect upon our business, financial condition and results of
operations. Any litigation resulting from any such claim could
require us to incur substantial costs and divert significant
resources, including the efforts of our management and engineering
personnel.
We have deferred tax assets that we may not be able to utilize
under certain circumstances
If we
incur future operating losses, we may be required to provide some
or all of our deferred tax assets with a valuation allowance,
resulting in additional non-cash income tax expense. The change in
the valuation allowance may have a material impact on future net
income or loss.
We may be unable to obtain components and parts that are verified
to be Democratic Republic of Congo (“DRC”)
conflict-free, which could result in reputational
damage
The
Dodd-Frank Wall Street Reform and Consumer Protection Act includes
disclosure requirements regarding the use of tin, tantalum,
tungsten and gold (which are defined as “conflict
minerals”) in our products and whether these materials
originated from the DRC or an adjoining country. The SEC rules
necessitate a complex compliance process and related administrative
expense for a company once it determines a conflict mineral is
necessary to the functionality or production of a product that the
company manufactures or contracts to manufacture. These
requirements could affect the sourcing, availability and cost of
minerals used in the manufacture of certain of our products, and we
may not be able to obtain conflict-free products or supplies in
sufficient quantities or at competitive prices for our operations.
We have incurred, and will continue to incur, costs associated with
complying with these supply chain due diligence procedures. In
addition, because our supply chain is complex, if we discover that
our products include minerals that have been identified as
“not found to be DRC conflict-free” or we are unable to
determine whether such minerals are included in our products, we
may face reputational challenges with our customers, stockholders
and other stakeholders as a result.
18
As a holding company, BK Technologies Corporation is dependent on
the operations and funds of its subsidiaries
On
March 28, 2019, we completed a reorganization pursuant to which BK
Technologies Corporation became a holding company with no business
operations of its own. BK Technologies Corporation’s only
significant assets are the outstanding equity interests in BK
Technologies, Inc. and any other future subsidiaries of BK
Technologies Corporation. As a result, we rely on cash flows from
subsidiaries to meet our obligations, including payment of
dividends to our stockholders. Additionally, our subsidiaries may
be restricted in their ability to pay cash dividends or to make
other distributions to BK Technologies Corporation, as the new
holding company; for instance, the Credit Agreement permits BK
Technologies, Inc. to pay dividends to us only if there is no
default, and the payment of the dividends would not result in a
default, under the Credit Agreement. The holding company
reorganization was intended to create a more efficient corporate
structure and increase operational flexibility. The anticipated
benefits of this reorganization may not be obtained if
circumstances prevent us from taking advantage of the opportunities
that we expect it may afford us. As a result, we may incur the
costs of a holding company structure without realizing the
anticipated benefits, which could adversely affect our reputation,
financial condition, and results of operations.
Future sales of shares of our common stock may negatively affect
our stock price and impair our ability to raise equity
capital
Approximately
6.3 million (49.9%) of our shares of outstanding common stock
as of December 31, 2019 were owned by certain of our executive
officers and directors and other affiliates, and may be resold
publicly at any time, subject to the volume and other restrictions
under Rule 144 of the Securities Act of 1933, as amended.
Approximately 50.1% of our outstanding shares of common stock as of
December 31, 2019 are freely tradable without
restriction.
Sales
of substantial amounts of shares of our common stock, or even the
potential for such sales, could lower the market price of our
common stock and impair our ability to raise capital through the
sale of equity securities.
I
tem 1B. Unresolved Staff
Comments
None.
I
tem 2. Properties
We do
not own any real estate. We lease approximately 54,000 square feet
of industrial space at 7100 Technology Drive in West Melbourne,
Florida. In November 2018, the lease was amended to provide for
certain leasehold improvements and extend the lease term until June
30, 2027. Rental, maintenance and tax expenses for this facility
were approximately $502,000 and $490,000 in 2019 and 2018,
respectively. We also lease 8,100 square feet of office space in
Lawrence, Kansas, to accommodate a segment of our engineering team.
In November 2019, the lease was amended to extend the lease term
until December 31, 2021. Rental, maintenance and tax expenses for
this facility were approximately $108,000 in each of 2019 and
2018.
In
February 2020, we entered into a lease for 6,857 square feet of
office space at Sawgrass Technology Park, 1619 NW 136
th
Avenue in Sunrise,
Florida, for a period of 64 months. Annual rental, maintenance and
tax expenses for the facility will be approximately $196,000 for
the first year, increasing by approximately 3% for each subsequent
twelve month period.
I
tem 3. Legal Proceedings
From
time to time we may be involved in various claims and legal actions
arising in the ordinary course of our business. There were no
pending material claims or legal matters as of December 31,
2019.
I
tem 4. Mine
Safety Disclosures
Not
applicable.
19
PART II
I
tem 5. Market For Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
(a)
Market Information.
Our
common stock trades on the NYSE American under the symbol
“BKTI.”
(b)
Holders.
On
February 19, 2020, there were 645 holders of record of our common
stock.
(c)
Dividends.
We
currently pay quarterly cash dividends. The declaration and payment
of cash dividends, if any, is subject to the discretion of the
Board of Directors. The Board’s final determination as to
whether to declare and pay dividends is based upon its
consideration of our operating results, financial condition and
anticipated capital requirements, as well as such other factors it
may deem relevant.
We
receive dividends from our wholly-owned subsidiary, BK
Technologies, Inc., to fund the quarterly cash dividends to our
stockholders. The Credit Agreement permits BK Technologies, Inc. to
pay dividends to us if there is no default, and if the payment of
the dividend would not result in a default, under the Credit
Agreement.
(d)
Issuer Purchases of Equity Securities.
|
Period
|
Total Number of Shares Purchased
|
Average Price Paid Per Share (1)
|
Total Number of Shares Purchased as Part of Publicly Announced
Plans or Programs (2)
|
Maximum Number of Shares that May Yet Be Purchased Under Publicly
Announced Plans or Programs (2)
|
|
10/01/19-10/31/19
|
15,384
|
$
3.44
|
15,384
|
177,891
|
|
11/01/19-11/30/19
|
15,569
|
$
3.18
|
15,569
|
162,322
|
|
12/01/19-12/31/19
|
44,180
|
$
3.09
|
44,180
|
118,142
|
|
Total
|
75,133
|
$
3.24
|
75,133
|
|
(1)
Average
price
paid per share of
common stock repurchased is the executed price, including
commissions paid to brokers.
(2)
The
Company
has a repurchase
program of up to 1 million shares of the Company’s common
stock that can be purchased, from time to time, pursuant to a stock
repurchase plan in conformity with the provisions of Rule 10b5-1
and Rule 10b-18 promulgated under the Exchange Act. The repurchase
program was initially announced in May 2016 and expanded in June
2017 and has no termination date.
I
tem 6. Selected Financial Data
Not
required for smaller reporting companies.
20
I
tem 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Executive Summary
BK
Technologies Corporation is a holding company, with a wholly-owned
operating subsidiary, BK Technologies, Inc. We design, manufacture
and market two-way land mobile radios, repeaters, base stations and
related components and subsystems. All operating activities are
undertaken by BK Technologies, Inc.
Generally, our
financial and operating results for 2019 declined from the
preceding year. Sales for 2019 were approximately 18.8% below sales
for 2018, while gross profit margins as a percentage of sales
decreased primarily due to lower sales and manufacturing levels,
which also contributed to higher inventory levels at the end of
2019. Additionally, operating expenses increased, which was largely
attributed to product development and engineering expenses related
to development of an anticipated new line of products, including a
multiband radio. The combination of these factors resulted in an
operating loss for 2019, and the use of approximately $2.5 million
in cash in operating activities.
Total
sales in 2019 decreased 18.8% to approximately $40.1 million,
compared with approximately $49.4 million for the prior year. The
decrease was primarily attributed to decreased sales to state and
international public safety agencies in California and
Canada.
Gross
profit margin as a percentage of sales in 2019 was approximately
39.0%, compared with 40.5% for the previous year. The decrease was
attributed primarily to lower sales and manufacturing
volumes.
Selling, general
and administrative (“SG&A”) expenses for 2019
totaled approximately $20.0 million, or 50.0% of sales, compared
with $17.6 million, or 35.5% of sales, for 2018. The increase in
SG&A expenses was attributed primarily to new product
development-related expenses.
For
2019, we recognized an operating loss of approximately $4.4
million, compared with operating income of approximately $2.4
million for the preceding year.
We
recognized other income totaling approximately $762,000 in 2019,
primarily attributed to an unrealized gain from our investment in
PIH, made through FGI 1347 Holdings, LP, a consolidated variable
interest entity. This compares with $2.9 million of other expense
last year, primarily related to unrealized losses from investments
in PIH and Iteris, Inc. (Nasdaq: ITI), as well as currency exchange
losses.
For
2019, we recognized a pretax loss of approximately $3.6 million,
compared with approximately $472,000 for the prior
year.
We
recognized an income tax benefit for 2019 totaling approximately
$1.0 million, compared with a benefit of approximately $277,000 for
the prior year. The income tax benefit for both years is largely
non-cash as a result of deferred items.
Net
loss for 2019 totaled approximately $2.6 million ($0.21 per basic
and diluted share), compared with approximately $195,000 ($0.01 per
basic and diluted share) for 2018.
As of
December 31, 2019, working capital totaled approximately $14.5
million, of which $8.6 million was comprised of cash, cash
equivalents and trade receivables. This compares with working
capital totaling approximately $21.0 million at 2018 year end,
which included $17.0 million of cash, cash equivalents and trade
receivables. During 2019, we repurchased 267,350 shares of our
common stock, utilizing cash of approximately $1.0
million.
In
early 2020, an outbreak of the coronavirus occurred in China and
other countries. These developments have not impacted our
operations to date. The extent of the outbreak and its potential
future impact on our operations, however, is uncertain. A prolonged
outbreak could interrupt our operations and those of our customers
and suppliers.
During
2018, we started development of a new product line, the BKR Series,
including a new multiband product, which we have continued to
develop throughout 2019 and into 2020. Our anticipated introduction
of the new multiband product has been delayed from our initial
expectations and may be delayed beyond our current anticipated
launch date in late 2020 due to various factors, including
potential impacts related to the coronavirus outbreak. We may be
unable to successfully launch our new product line in a timely
manner, or at all. If we do introduce a product in the BKR Series,
we cannot assure that it will gain market acceptance or increase
our addressable markets.
21
We may
experience fluctuations in our quarterly results, in part, due to
governmental customer spending patterns that are influenced by
government fiscal year-end budgets and appropriations. We may also
experience fluctuations in our quarterly results, in part, due to
our sales to federal and state agencies that participate in
wildland fire-suppression efforts, which may be greater during the
summer season when forest fire activity is heightened. In some
years, these factors may cause an increase in sales for the second
and third quarters, compared with the first and fourth quarters of
the same fiscal year. Such increases in sales may cause quarterly
variances in our cash flow from operations and overall financial
condition.
Results of Operations
As an
aid to understanding our operating results, the following table
shows items from our consolidated statements of operations
expressed as a percentage of sales:
|
|
Percent of
Sales
for Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Sales
|
100.0
%
|
100.0
%
|
|
Cost of
products
|
(61.0
)
|
(59.5
)
|
|
Gross
margin
|
39.0
|
40.5
|
|
Selling, general
and administrative expenses
|
(50.0
)
|
(35.5
)
|
|
Other income
(expense), net
|
1.9
|
(6.0
)
|
|
Loss before income
taxes
|
(9.1
)
|
(1.0
)
|
|
Income tax
benefit
|
2.5
|
0.6
|
|
Net
loss
|
(6.6
)%
|
(0.4
)%
|
Fiscal Year 2019 Compared With Fiscal Year 2018
Sales, net
Sales
for 2019 totaled approximately $40.1 million, compared with
approximately $49.4 last year.
The
decrease in sales was attributed primarily to state and
international public safety agencies in California and Canada,
respectively, that had made substantial purchases during the
previous two years that did not reoccur during 2019, which was
partially offset by sales to new state and local public safety
agencies. Also, while sales for 2019 were adversely impacted by the
federal government shutdown during the year’s first quarter,
legacy federal customers were the largest sales contributors for
the year.
Our funnel of
sales prospects for coming quarters includes potential
new customers
in federal, state and local public safety agencies.
Additionally, based on information from customers and our field
sales team, demand from established state and federal agencies may
improve in 2020 from 2019 levels. We also recently
reorganized our sales resources to more effectively focus on target
markets and customers where we believe we can maximize our sales
success. We believe the reorganization and our current sales
funnel better position us to capture new sales opportunities moving
forward. However, the potential future effects of the coronavirus,
while uncertain and without impact to our operations to-date, have
the potential to adversely impact our supply chain, and ultimately
our ability to fulfill customer demand.
The anticipated
launch in 2019 of our BKR Series product line, including multiband
product offerings, was delayed. While the initial product in this
line is anticipated to be available in the first half of 2020, with
additional models coming in late 2020 and early 2021, introduction
could be delayed by various factors, including potential impacts
related to the coronavirus. BKRSeries products, we believe, should
increase our addressable market, in particular, by expanding the
number of federal customers that may purchase our products.
However, the timing and size of orders from agencies at all levels
can be unpredictable and subject to the influence of budgets,
priorities and other factors. Accordingly, we cannot assure that
sales will occur under particular contracts, or that our sales
prospects will otherwise be realized.
22
Cost of Products and Gross Profit Margin
Gross
profit margin as a percentage of sales for 2019 was approximately
39.0%, compared with 40.5% for the prior year.
Our
cost of products and gross profit margins are primarily derived
from material, labor and overhead costs, product mix, manufacturing
volumes and pricing. For 2019, gross profit margins were adversely
impacted by the first and fourth quarters, during which we
experienced lower manufacturing volumes, resulting in suboptimal
utilization and absorption of manufacturing and support expenses.
Also, the mix of product sales was more heavily weighted toward
lower margin products in 2019 compared with the preceding year. We
believe that our anticipated sales growth and the expected
production and sale of higher margin new products should favorably
impact overall gross profit margins in the future.
We
utilize a combination of internal manufacturing capabilities and
contract manufacturing relationships for production efficiencies
and to manage material and labor costs, and anticipate continuing
to do so in the future. We believe that our current manufacturing
capabilities and contract relationships or comparable alternatives
will continue to be available to us. Although in the future we may
encounter new product cost and competitive pricing pressures, the
extent of their impact on gross margins, if any, is
uncertain.
Selling, General and Administrative Expenses
SG&A expenses
consist of sales, marketing, commissions, engineering, product
development, management information systems, accounting,
headquarters and non-cash, share-based employee compensation
expenses.
SG&A expenses
for 2019 totaled approximately $20.0 million, or 50.0% of sales,
compared with approximately $17.6 million, or 35.5% of sales, for
the previous year.
Engineering and
product development expenses for 2019 totaled approximately $9.8
million (24.5% of total sales), compared with approximately $7.8
million (15.7% of total sales) last year. The increase was
attributed primarily to new product development-related expenses.
During 2018, we started initiatives to develop a new line of
portable and mobile radios with enhanced features that are
anticipated to succeed our current KNG line starting in the first
half of 2020. Additionally, expenses related to the development of
our BKR Series product line, including our multiband product,
increased compared with last year. During the fourth quarter of
2019, we replaced our Chief Technology Officer (CTO), appointing a
new CTO with an extensive background and experience in LMR
development. The primary focus of our new CTO was to evaluate,
direct and complete our multiband radio development. The evaluation
identified design changes that we believe should improve the
product’s functionality and performance. As a result of
implementing these changes, the precise date for introducing the
multiband product in the market is uncertain; however, it is
anticipated to be in late 2020.
Marketing and
selling expenses for 2019 totaled approximately $5.2 million (13.0%
of total sales), compared with approximately $5.4 million (11.0% of
total sales) last year. Sales incentive and commission expenses
decreased as a result of lower sales, which were partially offset
by increased expenses associated with additional sales staff and
marketing initiatives.
General
and administrative expenses for 2019 totaled approximately $5.0
million (12.5% of total sales), compared with approximately $4.4
million (8.9% of total sales) last year. The increase in general
and administrative expenses for 2019 was primarily attributed to
corporate headquarters, including expenses relating to our holding
company reorganization, and upgrading our information technology
security and capabilities.
For
2019, our operating loss totaled approximately $4.4 million (10.9%
of sales), compared with operating income of approximately $2.4
million (4.9% of sales) last year. The operating loss for 2019 was
primarily attributed to lower sales, combined with increased
product development expenses.
23
Other Income (Expense)
Interest Income
We
recorded net interest income of approximately $150,000 for 2019,
compared with approximately $102,000 for the previous year.
Interest income increased primarily as a result of more favorable
interest rates, compared with the prior year period. We may earn
interest income on our cash balances. During 2019, we had no
outstanding borrowing under the Credit Facility (defined below),
and therefore did not incur any interest expense on any outstanding
borrowings under the Credit Facility. The Credit Facility matured
on December 26, 2019 and was not renewed. The interest rate on such
Credit Facility as of December 26, 2019 was
The
Wall Street Journal
prime rate plus 25
basis points (5.00% as of December 26, 2019). Additionally, on
September 25, 2019, through a wholly-owned subsidiary, we entered
into a Master Loan Agreement with U.S. Bank Equipment Finance, a
division of U.S. Bank National Association, in the amount of
$425,000, to finance various items of equipment. The loan is
collateralized by equipment. The agreement has a term of five years
and bears a fixed interest rate of 5.11%.
(Gain) Loss on Investment in Securities
For
2019, we recognized an unrealized gain of approximately $716,000 on
our investment in PIH
, compared to a
loss of approximately $2.7 million last year, which was comprised
of an approximately $1.8 million unrealized loss on the PIH
investment, along with a loss on the sale of securities totaling
approximately $849,000.
During 2018,
we sold 1,317,503 shares of
Iteris, Inc. (Nasdaq: ITI), which cost approximately $2.4 million,
for approximately $8.3 million, and recognized a loss of
approximately $849,000.
Other Expense
For
2019, we recognized other expense totaling approximately $104,000,
compared with approximately $328,000 last year. Last year’s
other expenses were primarily attributed to exchange losses related
to sales under a Canadian dollar-denominated contract.
Income Tax Benefit
We
recorded an income tax benefit of approximately $987,000 for 2019,
compared with approximately $277,000 last year.
Our
income tax provision is based on management’s estimate of the
effective tax rate for the full year. The tax provision
(benefit) in any period will be affected by, among other things,
permanent, as well as temporary, differences in the deductibility
of certain items, in addition to changes in tax legislation. As a
result, we may experience significant fluctuations in the effective
book tax rate (that is, tax expense divided by pre-tax book income)
from period to period.
As of
December 31, 2019, our net deferred tax assets totaled
approximately $4.4 million, and were primarily derived from
research and development tax credits, operating loss carryforwards
and accrued expenses.
In
order to fully utilize the net deferred tax assets, we will need to
generate sufficient taxable income in future years. We analyze all
positive and negative evidence to determine if, based on the weight
of available evidence, we are more likely than not to realize the
benefit of the net deferred tax assets. The recognition of the net
deferred tax assets and related tax benefits is based upon our
conclusions regarding, among other considerations, estimates of
future earnings based on information currently available and
current and anticipated customers, contracts and product
introductions, as well as historical operating results and certain
tax planning strategies.
Based
on our analysis of all available evidence, both positive and
negative, we have concluded that we have the ability to generate
sufficient taxable income in the necessary period to utilize the
entire benefit for the deferred tax asset. We cannot presently
estimate what, if any, changes to the valuation of our deferred tax
assets may be deemed appropriate in the future. If we incur future
losses, it may be necessary to record additional valuation
allowance related to the deferred tax assets recognized as of
December 31, 2019.
24
Liquidity and Capital Resources
For the
year ended December 31, 2019, net cash used in operating activities
totaled approximately $2.5 million, compared with cash provided by
operating activities of approximately $5.3 million for last
year. Cash used in operating activities for 2019 was
primarily related to a net loss, an increase in inventory, a
decrease in accrued compensation, and an unrealized gain on
investment in securities, all of which were partially offset by a
decrease in accounts receivable, an increase in deferred revenue,
and depreciation and amortization.
For the
year ended December 31, 2019, we had a net loss of approximately
$2.6 million, compared with approximately $0.2 million last year.
Net inventories increased during 2019 by approximately $2.2
million, compared with a decrease of approximately $2.9 million
last year. The increase for 2019 was primarily attributable to
material purchases, combined with a decrease in sales. Accrued
compensation decreased approximately $743,000 for 2019, which was
primarily attributed to the payment of sales and management
incentive compensation. For the same period last year, accrued
compensation increased approximately $650,000. Unrealized gain on
investment in securities for the year ended December 31, 2019
totaled approximately $716,000, compared with losses of
approximately $2.7 million for the prior year, which comprised of
unrealized loss on investment in securities of approximately $1.8
million and loss on sale of available-for-sale securities of
approximately $849,000. For additional information pertaining to
our investment in securities, refer to Notes 1 (Summary of
Significant Accounting Policies) and 6 (Investment in Securities)
to the consolidated financial statements for the year ended
December 31, 2019. Accounts receivable for 2019 decreased
approximately $1.8 million, compared with an increase of
approximately $197,000 during the previous year. The decrease in
accounts receivable was attributable to collections and reduced
sales. Deferred revenue for 2019 increased approximately $947,000,
compared with approximately $1.1 million last year. The increases
in deferred revenue were attributed to increased sales of extended
warranties. Depreciation and amortization totaled approximately
$1.2 million for the year ended December 31, 2019, compared with
approximately $921,000 for the same period last year, due primarily
to additional capital equipment purchases.
Cash
used in investing activities for the year ended December 31, 2019
totaled approximately $2.5 million and was attributed to purchases
of property, plant and equipment. For the same period last year,
cash provided by investing activities totaled approximately $3.2
million, and was primarily comprised of proceeds from the sale of
available-for-sale securities totaling approximately $8.3 million,
which was partially offset by an investment in FGI 1347 Holdings,
LP of approximately $3.7 million and purchases of property, plant
and equipment totaling approximately $1.4 million.
For the
year ended December 31, 2019, approximately $1.7 million was used
in financing activities, primarily related to our capital return
program, which included quarterly dividends totaling approximately
$1.0 million and stock repurchases totaling approximately $1.0
million, partially offset by $0.4 million received from U.S. Bank
Equipment Finance for the purchase of manufacturing equipment
items, pursuant to the Master Loan Agreement, described below. For
the same period last year, approximately $1.1 million was used to
pay dividends and approximately $3.3 million was used for stock
repurchases.
On
September 25, 2019, BK Technologies, Inc., our wholly-owned
subsidiary, and U.S. Bank Equipment Finance, a division of U.S.
Bank National Association, as a lender, entered into a Master Loan
Agreement in the amount of $425,000 to finance manufacturing items
of equipment. The loan is collateralized by the equipment purchased
using the proceeds. The Master Loan Agreementis payable in 60 equal
monthly principal and interest payments of approximately $8,046
beginning on October 25, 2019 and maturing on September 25, 2024
and bears an interest rate of 5.11%.
On
March 28, 2019, BK Technologies, Inc., our wholly-owned subsidiary,
and RELM Communications, Inc., a wholly-owned subsidiary of BK
Technologies, Inc., entered into an Amended and Restated Loan and
Security Agreement (the “Loan and Security Agreement”)
with Silicon Valley Bank (“SVB”). The Loan and Security
Agreement replaced BK Technologies, Inc.’s prior Loan and
Security Agreement with SVB (the “Prior Agreement”)
under which its collateralized revolving credit facility (the
“Credit Facility”) was maintained. The loan and
security agreement matured on December 26, 2019 and was not
renewed.
BK Technologies, Inc. was in
compliance with all covenants under the Loan and Security Agreement
as of the maturity date. As of the maturity date, there were no
borrowings outstanding under the Credit
Facility.
25
On
January 30, 2020, BK Technologies, Inc., our wholly-owned
subsidiary, entered into the Credit Agreement with JPMC. The Credit
Agreement provides for a revolving line of credit of up to $5.0
million, with availability under the line of credit subject to a
borrowing base calculated as a percentage of accounts receivable
and inventory. The line of credit will expire on January 31, 2021.
Proceeds of borrowings under the Credit Agreement may be used for
general corporate purposes. The line of credit is
collateralized
by a blanket lien on all personal property of BK Technologies, Inc.
pursuant to the terms of the Continuing Security Agreement with
JPMC. We and each subsidiary of BK Technologies, Inc. are
guarantors of obligations under the Credit Agreement, in accordance
with the terms of the Continuing Guaranty.
Borrowings under
the Credit Agreement will bear interest at a rate per annum equal
to one-month LIBOR (or zero if the LIBOR is less than zero) plus a
margin of 1.90%. The line of credit is to be repaid in monthly
payments of interest only, payable in arrears, commencing on
February 1, 2020, with all outstanding principal and interest to be
payable in full at maturity.
The
Credit Agreement contains certain customary restrictive covenants,
including restrictions on liens, indebtedness, loans and
guarantees, acquisitions and mergers, sales of assets, and stock
repurchases by BK Technologies, Inc. The Credit Agreement contains
one financial covenant requiring BK Technologies, Inc. to maintain
a tangible net worth of at least $20.0 million at any fiscal
quarter end.
The
Credit Agreement provides for customary events of default,
including: (1) failure to pay principal, interest or fees under the
Credit Agreement when due and payable; (2) failure to comply with
other covenants and agreements contained in the Credit Agreement
and the other documents executed in connection therewith; (3) the
making of false or inaccurate representations and warranties; (4)
defaults under other agreements with JPMC or under other debt or
other obligations of BK Technologies, Inc.; (5) money judgments and
material adverse changes; (6) a change in control or ceasing to
operate business in the ordinary course; and (7) certain events of
bankruptcy or insolvency. Upon the occurrence of an event of
default, JPMC may declare the entire unpaid balance immediately due
and payable and/or exercise any and all remedial and other rights
under the Credit Agreement.
In
February 2020, we entered into a lease for 6,857 square feet of
office space at Sawgrass Technology Park, 1619 NW 136
th
Avenue in Sunrise,
Florida, for a period of 64 months. Annual rental, maintenance and
tax expenses for the facility will be approximately $196,000 for
the first year, increasing by approximately 3% for each subsequent
twelve month period.
Our
cash and cash equivalents balance at December 31, 2019 was
approximately $4.7 million. We believe these funds, combined
with anticipated cash generated from operations and the Credit
Agreement, are sufficient to meet our working capital requirements
for the foreseeable future. However, although we do not anticipate
needing additional capital in the near term, financial and economic
conditions could limit our access to credit and impair our ability
to raise capital, if needed, on acceptable terms or at all. We also
face other risks that could impact our business, liquidity and
financial condition. For a description of these risks, see
“Part I—Item 1A. Risk Factors” in this
report.
Off Balance Sheet Arrangements
We do
not have any off balance sheet arrangements.
Recently Adopted Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) ASU 2014-09,
“Revenue from Contracts with Customers,” which provided
for a single, principles-based model for revenue recognition and
replaced the existing revenue recognition guidance, became
effective for annual and interim periods beginning on or after
December 15, 2017, and replaced most existing revenue recognition
guidance under accounting principles generally accepted in the
United States of America (“GAAP”). This ASU required
additional disclosures about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer
contracts, including significant judgements and estimates and
changes in those estimates. It permitted the use of either a
modified retrospective or cumulative effect transition method. The
Company adopted ASU 2014-09 in the first quarter of 2018 and
applied the modified retrospective approach. Because the
Company’s primary source of revenues is from shipments of
products, the adoption of this new guidance did not have any impact
on its consolidated financial statements and related disclosures.
See Note 1, under “Revenue Recognition,” for additional
information.
26
In
January 2016, the FASB issued ASU 2016-01 “Financial
Instruments,” which amended the guidance in GAAP on the
classification and measurement of financial instruments. Changes
primarily affected the accounting for equity investments, financial
liabilities under the fair value option, and the presentation and
disclosure requirements for financial instruments. In addition, the
ASU clarified guidance related to the valuation allowance
assessment when recognizing deferred tax assets resulting from
unrealized losses on available-for-sale debt securities. The new
standard became effective for fiscal years and interim periods
beginning after December 15, 2017, and upon adoption, an entity was
required to apply the amendments by means of a cumulative-effect
adjustment to the balance sheet at the beginning of the first
reporting period in which the guidance is effective. The Company
adopted the new guidance in the first quarter of 2018, which had a
material impact on its retained earnings, as the Company
reclassified approximately $4.3 million of unrealized gain on
investment in securities that was previously classified in other
comprehensive income.
In
August 2018, the FASB issued ASU 2018-15,
“Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That
Is a Service Contract,” to help entities evaluate the
accounting for fees paid by a customer in a cloud computing
arrangement (hosting arrangement) by providing guidance for
determining when the arrangement includes a software license. The
amendments in ASU 2018-15 align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal use
software license). The accounting for the service element of a
hosting arrangement that is a service contract is not affected by
the amendments in ASU 2018-15. The amendments in ASU 2018-15 will
become effective for fiscal years and interim periods beginning
after December 15, 2019. Early adoption is permitted, including
adoption in any interim period. The Company adopted the new
guidance in the fourth quarter of 2018, with no material impact on
its consolidated financial statements and related
disclosures.
In
February 2016, the FASB issued ASU 2016-02 “Leases,”
which amended leasing guidance by requiring companies to recognize
a right-of-use (“ROU”) asset and a lease liability for
all operating and capital (finance) leases with lease terms greater
than twelve months. The lease liability is equal to the present
value of lease payments. The lease asset is based on the lease
liability, subject to adjustment, such as for initial direct costs.
For income statement purposes, leases continue to be classified as
operating or capital (finance), with lease expense in both cases
calculated substantially the same as under the prior leasing
guidance. The updated guidance became effective for interim and
annual periods beginning after December 15, 2018. The Company
adopted the new guidance on January 1, 2019. Adoption resulted in
the recognition of ROU assets and lease liabilities on the
consolidated financial statements. Based on the Company’s
lease portfolio as of December 31, 2019, which consisted solely of
operating leases, the Company recognized approximately $2.9 million
of ROU assets and $3.0 million of lease liabilities on its
consolidated financial statements as of December 31, 2019. Refer to
Note 7 (Leases) for further details on leases.
Recent Accounting Pronouncements
The
Company does not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to its financial
condition, results of operations, cash flows or
disclosures.
Critical Accounting Policies and Estimates
Our
revenue recognition process and our more subjective accounting
estimation processes affect our reported revenues and current
assets and are, therefore, critical in assessing our financial and
operating status. The processes for determining the allowance for
collection of trade receivables, allowance for excess or obsolete
inventory, allowance for product warranty, software development and
income taxes involve certain assumptions that, if incorrect, could
create an adverse impact on our operations and financial
position.
27
Revenue
Effective January
1, 2018, the Company adopted ASU 2014-09, “Revenue from
Contracts with Customers” and the additional related ASUs
(“ASC 606”), which replaced existing revenue guidance
and outlines a single set of comprehensive principles for
recognizing revenue under GAAP. The Company elected the modified
retrospective method upon adoption, with no impact to the opening
retained earnings or revenue reported. These standards provide
guidance on recognizing revenue, including a five-step method to
determine when revenue recognition is appropriate:
Step 1:
Identify the contract with the customer;
Step 2:
Identify the performance obligations in the contract;
Step 3:
Determine the transaction price;
Step 4:
Allocate the transaction price to the performance obligations;
and
Step 5:
Recognize revenue as the Company satisfies a performance
obligation.
ASC 606
provides that revenue is recognized when control of the promised
goods or services is transferred to customers at an amount that
reflects the consideration to which the entity expects to be
entitled to in exchange for those goods or services. We generally
satisfy performance obligations upon shipment of the product or
service to the customer. This is consistent with the time in which
the customer obtains control of the product or service. For
extended warranties, sales revenue associated with the warranty is
deferred at the time of sale and later recognized on a
straight-line basis over the extended warranty period. Some
contracts include installation services, which are completed in a
short period of time and the revenue is recognized when the
installation is complete. Customary payment terms are granted to
customers, based on credit evaluations. We currently do not have
any contracts where revenue is recognized, but the customer payment
is contingent on a future event.
Allowance for Doubtful Accounts
The
allowance for doubtful accounts was approximately $50,000 on gross
trade receivables of approximately $4.0 million as of December
31, 2019, as compared with $50,000 on gross trade receivables of
approximately $5.8 million as of December 31, 2018. This allowance
is used to state trade receivables at a net realizable value or the
amount that we estimate will be collected on our gross receivables
as of December 31, 2019 and 2018. Because the amount that we will
actually collect on the receivables outstanding as of December 31,
2019 and 2018 cannot be known with certainty, we rely on prior
experience. Our historical collection losses have typically been
infrequent, with write-offs of trade receivables being less than 1%
of sales during past years. Accordingly, we have maintained a
general allowance of up to approximately 5% of the gross trade
receivables balance in order to allow for future collection losses
that arise from customer accounts that do not indicate the
inability to pay but turn out to have such an inability. Currently,
our general allowance on trade receivables is approximately 1.3% of
gross receivables. As revenues and total receivables increase, the
allowance balance may also increase. We also maintain a specific
allowance for customer accounts that we know may not be collectible
due to various reasons, such as bankruptcy and other customer
liquidity issues. We analyze our trade receivables portfolio based
on the age of each customer’s invoice. In this way, we can
identify those accounts that are more likely than not to have
collection problems. We may reserve a portion or all of the
customer’s balance. As of December 31, 2019 and 2018, we had
no specific allowance on trade receivables.
28
Excess and Obsolete Inventory
The
allowance for obsolete and slow-moving inventory was approximately
$823,000 and $629,000 at December 31, 2019 and 2018,
respectively.
The
allowance for slow-moving, excess, or obsolete inventory is used to
state our inventories at the lower of cost or net realizable value.
Because the amount of inventory that we will actually recoup
through sales cannot be known with certainty at any particular
time, we rely on past sales experience, future sales forecasts and
our strategic business plans. Generally, in analyzing our inventory
levels, we classify inventory as having been used or unused during
the past year and establish an allowance based upon several
factors, including, but not limited to, business forecasts,
inventory quantities and historical usage profile. Supplemental to
the aforementioned analysis, specific inventory items are reviewed
individually by management. Based on the review, considering
business levels, future prospects, new products and technology
changes, management, using its business judgment, may adjust the
valuation of specific inventory items to reflect an accurate
valuation estimate. Management also performs a determination of net
realizable value for all finished goods with a selling price below
cost. For all such items, the inventory is valued at not more than
the selling price less cost, if any, to sell.
Allowance for Product Warranty
We
offer two-year warranties to our customers, depending on the
specific product and terms of the customer purchase agreement. Our
typical warranties require us to repair and replace defective
products during the warranty period at no cost to the customer. At
the time the product revenue is recognized, we record a liability
for estimated costs under our warranties. The costs are estimated
based on historical experience. We periodically assess the adequacy
of our recorded liability for product warranties and adjust the
amount as necessary.
Income Taxes
We
account for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply in the
period in which the deferred tax asset or liability is expected to
be realized. The effect of changes in net deferred tax assets and
liabilities is recognized on our consolidated balance sheets and
consolidated statements of operations in the period in which the
change is recognized. Valuation allowances are provided to the
extent that it is more likely than not that some portion, or all,
of deferred tax assets will not be realized. In determining whether
a tax asset is realizable, we consider, among other things,
estimates of future earnings based on information currently
available, current and anticipated customers, contracts and new
product introductions, as well as recent operating results and
certain tax planning strategies. If we fail to achieve the future
results anticipated in the calculation and valuation of net
deferred tax assets, we may be required to increase the valuation
allowance related to our deferred tax assets in the
future.
29
Forward-Looking Statements
We
believe that it is important to communicate our future expectations
to our security holders and to the public. This report, therefore,
contains statements about future events and expectations which are
“forward-looking statements” within the meaning of
Sections 27A of the Securities Act of 1933, as amended, and 21E of
the Exchange Act, including the statements about our plans,
objectives, expectations and prospects under the heading
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” You can expect to
identify these statements by forward-looking words such as
“may,” “might,” “could,”
“would,” “should,” “will,”
“anticipate,” “believe,”
“plan,” “estimate,” “project,”
“expect,” “intend,” “seek,”
“are encouraged” and other similar expressions. Any
statement contained in this report that is not a statement of
historical fact may be deemed to be a forward-looking statement.
Forward-looking statements include, but are not limited to, the
following: changes or advances in technology; the success of our
LMR product line; successful introduction of new products and
technologies, including our ability to successfully develop and
sell our anticipated new multiband product and other related
products in the planned new BKR Series product line; competition in
the LMR industry; general economic and business conditions,
including federal, state and local government budget deficits and
spending limitations and any impact from a prolonged shutdown of
the U.S. Government; the availability, terms and deployment of
capital; reliance on contract manufacturers and suppliers; risks
associated with fixed-price contacts; heavy reliance on sales to
agencies of the U.S. Government and our ability to comply with the
requirements of contracts, laws and regulations related to such
sales; allocations by government agencies among multiple approved
suppliers under existing agreements; our ability to comply with
U.S. tax laws and utilize deferred tax assets; our ability to
attract and retain executive officers, skilled workers and key
personnel; our ability to manage our growth; our ability to
identify potential candidates for, and consummate, acquisition,
disposition or investment transactions, and risks incumbent to
being a noncontrolling interest stockholder in a corporation;
impact of our capital allocation strategy; risks related to
maintaining our brand and reputation; impact of government
regulation; rising health care costs; our business with
manufacturers located in other countries, including changes in the
U.S. Government and foreign governments’ trade and tariff
policies; our inventory and debt levels; protection of our
intellectual property rights; fluctuation in our operating results
and stock price; acts of war or terrorism, natural disasters and
other catastrophic events; any infringement claims; data security
breaches, cyber attacks and other factors impacting our technology
systems; availability of adequate insurance coverage; maintenance
of our NYSE American listing; risks related to being a holding
company; and the effect on our stock price and ability to raise
equity capital of future sales of shares of our common
stock.
Although we believe
that the plans, objectives, expectations and prospects reflected in
or suggested by our forward-looking statements are reasonable,
those statements involve risks, uncertainties and other factors
that may cause our actual results, performance or achievements to
be materially different from any future results, performance or
achievements expressed or implied by these forward-looking
statements, and we can give no assurance that our plans,
objectives, expectations and prospects will be
achieved.
Important factors
that might cause our actual results to differ materially from the
results contemplated by the forward-looking statements are
contained in “Part I—Item 1A. Risk Factors” and
elsewhere in this report and in our subsequent filings with the
SEC. We assume no obligation to publicly update or revise any
forward-looking statements made in this report, whether as a result
of new information, future events, changes in assumptions or
otherwise, after the date of this report. Readers are cautioned not
to place undue reliance on these forward-looking
statements.
I
tem 7A. Quantitative and
Qualitative Disclosures About Market Risk
Not
required for smaller reporting companies.
I
tem 8. Financial Statements and Supplementary
Data
See the
Consolidated Financial Statements included in this
report.
30
R
EPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of Directors and Stockholders
BK Technologies Corporation
West Melbourne, Florida
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of BK
Technologies Corporation (the “Company”) as of December
31, 2019 and 2018, and the related consolidated statements of
operations, changes in stockholders’ equity, and cash flows
for each of the years in the two-year period ended December 31,
2019, and the related notes (collectively referred to as the
consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2019 and 2018, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31,
2019, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with U.S. federal securities
laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As a part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ MSL, P.A.
We have
served as the Company’s auditor since 2015.
Fort
Lauderdale, Florida
March
4, 2020
F-1
B
K TECHNOLOGIES CORPORATION
CONSOLIDATED
BALANCE SHEETS
(in thousands, except share data)
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
4,676
|
$
11,268
|
|
Trade accounts
receivable, net
|
3,964
|
5,721
|
|
Inventories,
net
|
13,513
|
11,466
|
|
Prepaid expenses
and other current assets
|
1,733
|
2,401
|
|
Total current
assets
|
23,886
|
30,856
|
|
|
|
|
|
Property, plant and
equipment, net
|
3,964
|
2,729
|
|
Right-of-use (ROU)
asset
|
2,885
|
—
|
|
Investment in
securities
|
2,635
|
1,919
|
|
Deferred tax
assets, net
|
4,373
|
3,495
|
|
Other
assets
|
197
|
192
|
|
Total
assets
|
$
37,940
|
$
39,191
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
5,310
|
$
5,595
|
|
Accrued
compensation and related taxes
|
1,271
|
2,014
|
|
Accrued warranty
expense
|
1,248
|
1,546
|
|
Accrued other
expenses and other current liabilities
|
479
|
292
|
|
Dividends
payable
|
252
|
256
|
|
Short-term lease
liability
|
369
|
—
|
|
Note
payable-current portion
|
78
|
—
|
|
Deferred
revenue
|
369
|
180
|
|
Total current
liabilities
|
9,376
|
9,883
|
|
|
|
|
|
Note payable, net
of current portion
|
328
|
—
|
|
Long-term lease
liability
|
2,606
|
—
|
|
Deferred
revenue
|
2,354
|
1,596
|
|
Total
liabilities
|
14,664
|
11,479
|
|
Commitments and
contingencies
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock;
$1.00 par value; 1,000,000 authorized shares; none issued or
outstanding
|
—
|
—
|
|
Common stock; $.60
par value; 20,000,000 authorized shares; 13,929,381 and 13,882,937
issued and 12,596,923 and 12,817,829 outstanding shares at December
31, 2019 and 2018, respectively
|
8,357
|
8,330
|
|
Additional paid-in
capital
|
26,095
|
25,867
|
|
Accumulated
deficit
|
(6,043
)
|
(2,393
)
|
|
Treasury stock, at
cost, 1,332,458 and 1,065,108 shares at December 31, 2019 and 2018,
respectively
|
(5,133
)
|
(4,092
)
|
|
Total
stockholders’ equity
|
23,276
|
27,712
|
|
Total liabilities
and stockholders’ equity
|
$
37,940
|
$
39,191
|
See notes to consolidated financial statements.
F-2
B
K TECHNOLOGIES CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Sales,
net
|
$
40,100
|
$
49,380
|
|
Expenses
|
|
|
|
Cost of
products
|
24,449
|
29,403
|
|
Selling, general
and administrative
|
20,036
|
17,552
|
|
Total
expenses
|
44,485
|
46,955
|
|
Operating (loss)
income
|
(4,385
)
|
2,425
|
|
Other income
(expense):
|
|
|
|
Interest
income
|
150
|
102
|
|
Gain (loss) on
investment in securities
|
716
|
(2,671
)
|
|
Other
expense
|
(104
)
|
(328
)
|
|
Total other income
(expense)
|
762
|
(2,897
)
|
|
Loss before income
taxes
|
(3,623
)
|
(472
)
|
|
Income tax
benefit
|
987
|
277
|
|
Net
loss
|
$
(2,636
)
|
$
(195
)
|
|
Net loss per
share-basic
|
$
(0.21
)
|
$
(0.01
)
|
|
Net loss per
share-diluted
|
$
(0.21
)
|
$
(0.01
)
|
|
Weighted average
shares outstanding-basic
|
12,705
|
13,464
|
|
Weighted average
shares outstanding-diluted
|
12,705
|
13,464
|
See notes to consolidated financial statements.
F-3
B
K TECHNOLOGIES CORPORATION
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share and per share data)
|
|
Common Stock
Shares
|
Common Stock
Amount
|
Additional
Paid-In Capital
|
Accumulated
Deficit
|
Other
Comprehensive Income
|
Treasury
Stock
|
Total
|
|
Balance at December
31, 2017
|
13,844,584
|
$
8,307
|
$
25,642
|
$
(5,450
)
|
$
4,318
|
$
(810
)
|
$
32,007
|
|
Restricted stock
units issued
|
38,353
|
23
|
(23
)
|
—
|
—
|
—
|
—
|
|
Share-based
compensation expense
|
—
|
—
|
95
|
—
|
—
|
—
|
95
|
|
Restricted stock
unit compensation expense
|
—
|
—
|
153
|
—
|
—
|
—
|
153
|
|
Dividends declared
($0.08 per share)
|
—
|
—
|
—
|
(1,066
)
|
—
|
—
|
(1,066
)
|
|
Net
loss
|
—
|
—
|
—
|
(195
)
|
—
|
—
|
(195
)
|
|
Effect of adoption
of ASU 2016-01
|
—
|
—
|
—
|
4,318
|
(4,318
)
|
—
|
—
|
|
Repurchase of
common stock
|
—
|
—
|
—
|
—
|
—
|
(3,282
)
|
(3,282
)
|
|
Balance at December
31, 2018
|
13,882,937
|
8,330
|
25,867
|
(2,393
)
|
—
|
(4,092
)
|
27,712
|
|
Stock options
exercised
|
1,000
|
—
|
2
|
—
|
—
|
—
|
2
|
|
Restricted stock
units issued
|
45,444
|
27
|
(27
)
|
—
|
—
|
—
|
—
|
|
Share-based
compensation expense
|
—
|
—
|
148
|
—
|
—
|
—
|
148
|
|
Restricted stock
unit compensation expense
|
—
|
—
|
105
|
—
|
—
|
—
|
105
|
|
Dividends declared
($0.08 per share)
|
—
|
—
|
—
|
(1,014
)
|
—
|
—
|
(1,014
)
|
|
Net
loss
|
—
|
—
|
—
|
(2,636
)
|
—
|
—
|
(2,636
)
|
|
Repurchase of
common stock
|
—
|
—
|
—
|
—
|
—
|
(1,041
)
|
(1,041
)
|
|
Balance at December
31, 2019
|
13,929,381
|
$
8,357
|
$
26,095
|
$
(6,043
)
|
$
—
|
$
(5,133
)
|
$
23,276
|
See notes to consolidated financial statements.
F-4
B
K TECHNOLOGIES CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Operating
activities
|
|
|
|
Net
loss
|
$
(2,636
)
|
$
(195
)
|
|
Adjustments to
reconcile net loss to net cash (used in) provided by operating
activities:
|
|
|
|
Inventory
allowance
|
194
|
(38
)
|
|
Deferred tax
benefit
|
(878
)
|
(178
)
|
|
Depreciation and
amortization
|
1,219
|
921
|
|
Share-based
compensation expense
|
148
|
95
|
|
Restricted stock
unit compensation expense
|
105
|
153
|
|
Loss on sale of
available-for-sale securities
|
—
|
849
|
|
Unrealized (gain)
loss on investment in securities
|
(716
)
|
1,822
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
1,757
|
(197
)
|
|
Inventories
|
(2,241
)
|
2,930
|
|
Prepaid expenses
and other current assets
|
669
|
(1,629
)
|
|
Other
assets
|
(5
)
|
53
|
|
Lease
liability
|
90
|
—
|
|
Accounts
payable
|
(285
)
|
(376
)
|
|
Accrued
compensation and related taxes
|
(743
)
|
650
|
|
Accrued warranty
expense
|
(298
)
|
157
|
|
Deferred
revenue
|
947
|
1,138
|
|
Accrued other
expenses and other current liabilities
|
187
|
(867
)
|
|
Net
cash (used in) provided by operating activities
|
(2,486
)
|
5,288
|
|
|
|
|
|
Investing
activities
|
|
|
|
Purchases of
property, plant and equipment
|
(2,455
)
|
(1,396
)
|
|
Investment in
securities
|
—
|
(3,741
)
|
|
Proceeds from sale
of available-for-sale securities
|
—
|
8,335
|
|
Net
cash (used in) provided by investing activities
|
(2,455
)
|
3,198
|
|
|
|
|
|
Financing
activities
|
|
|
|
Dividends
paid
|
(1,018
)
|
(1,083
)
|
|
Repurchase of
common stock
|
(1,041
)
|
(3,282
)
|
|
Proceeds from
issuance of common stock
|
2
|
—
|
|
Proceeds from
debt
|
425
|
—
|
|
Repayment of
debt
|
(19
)
|
—
|
|
Net
cash used in financing activities
|
(1,651
)
|
(4,365
)
|
|
|
|
|
|
Net change in cash
and cash equivalents
|
(6,592
)
|
4,121
|
|
Cash and cash
equivalents, beginning of year
|
11,268
|
7,147
|
|
Cash and cash
equivalents, end of year
|
$
4,676
|
$
11,268
|
|
|
|
|
|
Supplemental
disclosure
|
|
|
|
Cash paid for
income taxes
|
$
—
|
$
—
|
|
Interest
paid
|
$
10
|
$
—
|
|
|
|
|
|
Non-cash
financing activity
|
|
|
|
Restricted stock
units issued
|
$
147
|
$
140
|
See notes to consolidated financial statements.
F-5
B
K TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
Description of Business
BK
Technologies Corporation (collectively with its subsidiaries, the
“Company”) is a holding company. The primary business
of its wholly-owned operating subsidiary, BK Technologies, Inc., is
the designing, manufacturing and marketing of wireless
communications equipment primarily consisting of two-way land
mobile radios and related products, which are sold in two primary
markets: (1) the government and public safety market, and (2) the
business and industrial market. The Company has only one reportable
business segment.
On
March 28, 2019, BK Technologies, Inc., the predecessor of BK
Technologies Corporation, implemented a holding company
reorganization, which resulted in BK Technologies Corporation
becoming the direct parent company of, and the successor issuer to,
BK Technologies, Inc. For the purpose of this report, references to
the “Company” or its management or business at any
period prior to the holding company reorganization (March 28, 2019)
refer to those of BK Technologies, Inc. as the predecessor company
and its subsidiaries and thereafter to those of BK Technologies
Corporation and its subsidiaries, except as otherwise specified or
to the extent the context otherwise indicates.
Principles of Consolidation
The
accounts of the Company have been included in the accompanying
consolidated financial statements. All significant intercompany
balances and transactions have been eliminated in
consolidation.
The
Company consolidates entities in which it has a controlling
financial interest. The Company determines whether it has a
controlling financial interest in an entity by first evaluating
whether the entity is a variable interest entity
(“VIE”) or a voting interest entity.
VIEs
are entities in which (i) the total equity investment at risk is
not sufficient to enable the entity to finance its activities
independently, or (ii) the at-risk equity holders do not have the
normal characteristics of a controlling financial interest. A
controlling financial interest in a VIE is present when an
enterprise has one or more variable interests that have both (i)
the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance, and (ii)
the obligation to absorb losses of the VIE or the right to receive
benefits from the VIE that could potentially be significant to the
VIE. The enterprise with a controlling financial interest is the
primary beneficiary and consolidates the VIE.
Voting
interest entities lack one or more of the characteristics of a VIE.
The usual condition for a controlling financial interest is
ownership of a majority voting interest for a corporation or a
majority of kick-out or participating rights for a limited
partnership.
When
the Company does not have a controlling financial interest in an
entity but exerts significant influence over the entity’s
operating and financial policies (generally defined as owning a
voting or economic interest of between 20% to 50%), the
Company’s investment is accounted for under the equity method
of accounting. If the Company does not have a controlling financial
interest in, or exert significant influence over, an entity, the
Company accounts for its investment at fair value, if the fair
value option was elected, or at cost.
The
Company has an investment in 1347 Property Insurance Holdings,
Inc., made through FGI 1347 Holdings, LP, a consolidated
VIE.
Inventories
Inventories are
stated at the lower of cost (determined by the average cost method)
or net realizable value. Freight costs are classified as a
component of cost of products in the accompanying consolidated
statements of operations.
F-6
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
(Continued)
The
allowance for slow-moving, excess, or obsolete inventory is used to
state the Company’s inventories at the lower of cost or net
realizable value. Because the amount of inventory that will
actually be recouped through sales cannot be known with certainty
at any particular time, the Company relies on past sales
experience, future sales forecasts, and its strategic business
plans. Generally, in analyzing inventory levels, inventory is
classified as having been used or unused during the past year. The
Company then establishes an allowance based upon several factors,
including, but not limited to, business forecasts, inventory
quantities and historic usage profile.
Supplemental to the
aforementioned analysis, specific inventory items are reviewed
individually by management. Based on the review, considering
business levels, future prospects, new products and technology
changes, management, using its business judgment, may adjust the
valuation of specific inventory items to reflect an accurate
valuation estimate. Management also performs a determination of net
realizable value for all finished goods with a selling price below
cost. For all such items, the inventory is valued at not more than
the selling price less cost, if any, to sell.
Property, Plant and Equipment
Property, plant and
equipment is carried at cost less accumulated depreciation.
Expenditures for maintenance, repairs and minor renewals are
expensed as incurred. When assets are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from
the respective accounts and the resulting gain or loss is reflected
in operations for the period.
Depreciation and
amortization are generally computed on the straight-line method
using lives of 3 to 10 years for machinery and equipment and 5 to 8
years for leasehold improvements.
Impairment of Long-Lived Assets
Management
regularly reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount
of the assets exceeds their fair value, which considers the
discounted future net cash flows. No long-lived assets were
considered impaired at December 31, 2019 and 2018.
Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash
equivalents.
Allowance for Doubtful Accounts
The
Company records an allowance for doubtful accounts based on
specifically identified amounts that the Company believes to be
uncollectible. The Company also records an additional allowance
based on certain percentages of the Company’s aged
receivables
, which are determined
based on historical experience and the Company’s assessment
of the general financial conditions affecting the Company’s
customer base. If the Company’s actual collections experience
changes, revisions to the Company’s allowance may be
required. After all attempts to collect a receivable have failed,
the receivable is written off against the allowance. Based on the
information available, management believes the allowance for
doubtful accounts as of December 31, 2019 and 2018 is
adequate.
F-7
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
(Continued)
Revenue Recognition
Effective January
1, 2018, the Company adopted Accounting Standards Update
(“ASU”) 2014-09, “Revenue from Contracts with
Customers” and the additional related ASUs (“ASC
606”), which replaced existing revenue guidance and outlines
a single set of comprehensive principles for recognizing revenue
under accounting principles generally accepted in the United States
of America (“GAAP”). The Company elected the modified
retrospective method upon adoption, with no impact to the opening
retained earnings or revenue reported. These standards provide
guidance on recognizing revenue, including a five-step method to
determine when revenue recognition is appropriate:
Step 1:
Identify the contract with the customer;
Step 2:
Identify the performance obligations in the contract;
Step 3:
Determine the transaction price;
Step 4:
Allocate the transaction price to the performance obligations;
and
Step 5:
Recognize revenue as the Company satisfies a performance
obligation.
ASC 606
provides that sales revenue is recognized when control of the
promised goods or services is transferred to customers at an amount
that reflects the consideration to which the entity expects to be
entitled to in exchange for those goods or services. The Company
generally satisfies performance obligations upon shipment of the
product or service to the customer. This is consistent with the
time in which the customer obtains control of the product or
service. For extended warranties, sales revenue associated with the
warranty is deferred at the time of sale and later recognized on a
straight-line basis over the extended warranty period. Some
contracts include installation services, which are completed in a
short period of time and the revenue is recognized when the
installation is complete. Customary payment terms are granted to
customers, based on credit evaluations. Currently, the Company does
not have any contracts where revenue is recognized, but the
customer payment is contingent on a future event.
The
Company periodically reviews its revenue recognition procedures to
assure that such procedures are in accordance with GAAP. Surcharges
collected on certain sales to government customers and remitted to
governmental agencies are not included in revenues or in costs and
expenses.
Income Taxes
The
Company accounts for income taxes using the asset and liability
method specified by GAAP. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply in the period in which the deferred tax
asset or liability is expected to be realized. The effect of
changes in net deferred tax assets and liabilities is recognized on
the Company’s consolidated balance sheets and consolidated
statements of operations in the period in which the change is
recognized. Valuation allowances are provided to the extent that
impairment of tax assets is more likely than not. In determining
whether a tax asset is realizable, the Company considers, among
other things, estimates of future earnings based on information
currently available, current and anticipated customers, contracts
and new product introductions, as well as recent operating results
and certain tax planning strategies. If the Company fails to
achieve the future results anticipated in the calculation and
valuation of net deferred tax assets, the Company may be required
to increase the valuation allowance related to its deferred tax
assets in the future.
F-8
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
(Continued)
On
December 22, 2017, the U.S. government enacted comprehensive tax
legislation commonly referred to as the Tax Cuts and Jobs Act (the
“2017 Tax Act”). The 2017 Tax Act makes broad and
complex changes to the U.S. tax code, including, but not limited
to, (1) reducing the U.S. federal corporate tax rate from 35% to
21%; (2) eliminating the corporate alternative minimum tax
(“AMT”) and changing how existing AMT credits can be
realized; and (3) changing rules related to uses and limitations of
net operating loss carryforwards created in tax years beginning
after December 31, 2017.
In
connection with the Company’s initial analysis of the impact
of the 2017 Tax Act, the Company recorded a discrete net tax
expense of $665 in the year ended December 31, 2017 for the effect
of the corporate rate reduction, which was finalized as of December
31, 2018. The net tax expense primarily relates to a reduction in
the deferred tax assets of $1,524 and a reduction in the deferred
tax liability related to unrealized gain on available-for-sale
securities of $(859).
Concentration of Credit Risk
The
Company performs periodic credit evaluations of its
customers’ financial condition and generally does not require
collateral. At December 31, 2019 and 2018, accounts receivable from
governmental customers were approximately $353 and $3,331,
respectively. Generally, receivables are due within 30 days. Credit
losses relating to customers have been consistently within
management’s expectations.
The
Company primarily maintains cash balances at one financial
institution. Accounts are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250. From time to time, the
Company has had cash in financial institutions in excess of
federally insured limits. As of December 31, 2019, the Company had
cash and cash equivalents in excess of FDIC limits of
$5,009.
Manufacturing and Raw Materials
The
Company relies upon a limited number of manufacturers to produce
its products and on a limited number of component suppliers. Some
of these manufacturers and suppliers are in other countries.
Approximately 67.0% of the Company’s material, subassembly
and product procurements in 2019 were sourced internationally, of
which approximately 64.0% were sourced from three suppliers. For
2018, approximately 66.8% of the Company’s material,
subassembly and product procurements were sourced internationally,
of which approximately 60.0%were sourced from two suppliers.
Purchase orders denominated in U.S. dollars are placed with these
suppliers from time to time and there are no guaranteed supply
arrangements or commitments.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of sales
and expenses during the reporting period. Significant estimates
include accounts receivable allowances, inventory obsolescence
allowance, warranty allowance, and income tax accruals. Actual
results could differ from those estimates.
Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash
equivalents, trade accounts receivable, investment in securities,
accounts payable, accrued expenses and other liabilities. As of
December 31, 2019 and 2018, the carrying amount of cash and cash
equivalents, trade accounts receivable, accounts payable, accrued
expenses and other liabilities approximated their respective fair
value due to the short-term nature and maturity of these
instruments. The Company uses observable market data or assumptions
(Level 1 inputs, as defined in accounting guidance) that it
believes market participants would use in pricing the investment in
securities.
There were no sales of
investment in securities as a result of an other-than-temporary
impairment of the securities.
There were no transfers of
investments in securities between Level 1 and Level 2 during the
years ended December 31, 2019 and 2018.
F-9
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
(Continued)
Available-For-Sale Securities
Investments
reported on the December 31, 2017 balance sheet consisted of
marketable equity securities of a publicly held company, Iteris,
Inc. (Nasdaq: ITI). As of December 31, 2017, the investment cost
was $2,402. On January 1, 2018, the Company adopted ASU 2016-01
“Financial Instruments,” which amended the guidance in
GAAP regarding the classification and measurement of financial
instruments. Changes to the prior guidance primarily affected the
accounting for equity investments, financial liabilities under the
fair value option and the presentation and disclosure requirements
for financial instruments. In addition, the ASU clarified guidance
related to the valuation allowance assessment when recognizing
deferred tax assets resulting from unrealized losses on
available-for-sale debt securities. Upon its adoption, the Company
applied the amendments by means of a cumulative-effect adjustment
to the balance sheet at the beginning of the first reporting period
in which the guidance was effective. On January 1, 2018, the
Company recognized approximately $4,300 of net unrealized gain in
its accumulated deficit balance. During the first quarter of 2018,
the Company sold 1,317,503 shares of Iteris, Inc., which cost
$2,402, for approximately $8,335 of proceeds and reported a loss on
the sale of approximately $849.
Shipping and Handling Costs
Shipping and
handling costs are classified as a part of cost of products in the
accompanying consolidated statements of operations for the years
ended December 31, 2019 and 2018. Amounts billed to a customer, if
any, for shipping and handling are reported as
revenue.
Advertising and Promotion Costs
The
cost for advertising and promotion is expensed as incurred.
Advertising and promotion expenses are classified as part of
selling, general and administrative (“SG&A”)
expenses in the accompanying consolidated statements of operations.
For the years ended December 31, 2019 and 2018, such expenses
totaled $555 and $597, respectively.
Engineering, Research and Development Costs
Included in
SG&A expenses for the years ended December 31, 2019 and 2018
are engineering, research and development costs of $9,803 and
$7,768, respectively.
Share-Based Compensation
The
Company accounts for share-based arrangements in accordance with
GAAP, which requires a public entity to measure the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with
limited exceptions). That cost will be recognized over the period
during which the employee is required to provide service in
exchange for the award requisite service period (usually the
vesting period). No compensation cost is recognized for equity
instruments for which employees do not render the requisite
service.
Restricted Stock Units
On
September 6, 2019, the Company granted to each non-employee
director restricted stock units with a grant fair value of $40 per
award (resulting in total aggregate grant-date fair value of $280),
which will vest in five equal, annual installments beginning with
the first anniversary of the grant date, subject to the
director’s continued service through such date, provided
that, if the director makes himself available and consents to be
nominated by the Company for continued service as a director, but
is not nominated for the Board for election by shareholders, other
than for good reason, as determined by the Board in its discretion,
then the restricted stock units shall vest in full as of the
director’s last date of service as a director of the
Company.
F-10
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1.
Summary of
Significant Accounting Policies (Continued)
On
September 6, 2018, the Company granted to each non-employee
director restricted stock units with a grant fair value of $20 per
award (resulting in total aggregate grant-date fair value of $140),
which vest in five equal, annual installments beginning with the
first anniversary of the grant date, subject to the
director’s continued service through such date, provided
that, if the director makes himself available and consents to be
nominated by the Company for continued service as a director, but
is not nominated for the Board for election by shareholders, other
than for good reason, as determined by the Board in its discretion,
then the restricted stock units vest in full as of the
director’s last date of service as a director of the Company.
On September 6, 2019, which was the first anniversary of the grant
date, the first tranche of the September 2018 restricted stock
units vested.
On June
4, 2018, the Company granted to each non-employee director
restricted stock units with a grant fair value of $20 per award
(resulting in total aggregate grant-date fair value of $140), which
vested on June 4, 2019, subject to continued service through such
vesting date.
On June
15, 2017, the Company granted to each non-employee director
restricted stock units with a grant fair value of $20 per award
(resulting in total aggregate grant-date fair value of $140), which
vested on June 15, 2018.
The
Company recorded non-cash restricted stock unit compensation
expense of $105 and $153 for the years ended December 31, 2019 and
2018, respectively.
Earnings (Loss) Per Share
Earnings (loss) per
share amounts are computed and presented for all periods in
accordance with GAAP.
Comprehensive Loss
Comprehensive loss
was equal to net loss for the years ended December 31, 2019 and
2018.
Product Warranty
The
Company offers two-year warranties to its customers, depending on
the specific product and terms of the customer purchase agreement.
The Company’s typical warranties require it to repair and
replace defective products during the warranty period at no cost to
the customer. At the time the product revenue is recognized, the
Company records a liability for estimated costs under its
warranties. The costs are estimated based on historical experience.
The Company periodically assesses the adequacy of its recorded
liability for product warranties and adjusts the amount as
necessary.
Recently Adopted Accounting Pronouncements
In May 2014,
the Financial Accounting Standards Board (“FASB”)
issued ASU 2014-09 on “Revenue from Contracts with
Customers,” which provided for a single, principles-based
model for revenue recognition and replaced the existing revenue
recognition guidance. In August 2015, the FASB issued ASU 2015-14,
which delayed the effective date of ASU 2014-09 by one year. The
guidance became effective for annual and interim periods beginning
on or after December 15, 2017, and replaced most existing revenue
recognition guidance under GAAP when it became effective. This ASU
required additional disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and estimates and
changes in those estimates. It permitted the use of either a
retrospective or cumulative effect transition method. The Company
adopted ASU 2014-09 in the first quarter of 2018 and applied the
modified retrospective approach. Because the Company’s
primary source of revenues is from shipments of products, the
adoption of ASU 2014-09 did not have a material impact on its
consolidated financial statements. See Note 1, under “Revenue
Recognition,” for additional information.
F-11
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
1. Summary of Significant Accounting Policies
(Continued)
In
January 2016, the FASB issued ASU 2016-01 “Financial
Instruments,” which amended the guidance in GAAP on the
classification and measurement of financial instruments. Changes to
the previous guidance primarily affected the accounting for equity
investments, financial liabilities under the fair value option, and
the presentation and disclosure requirements for financial
instruments. In addition, the ASU clarified guidance related to the
valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt
securities. The new standard became effective for fiscal years and
interim periods beginning after December 15, 2017, and upon
adoption, an entity was required to apply the amendments by means
of a cumulative-effect adjustment to the balance sheet at the
beginning of the first reporting period in which the guidance is
effective. On January 1, 2018, the Company adopted the new guidance
and, consequently, the Company recognized approximately $4,300 of
net unrealized gain in its accumulated deficit
balance.
In
August 2018, the FASB issued ASU 2018-15,
“Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That
Is a Service Contract,” to help entities evaluate the
accounting for fees paid by a customer in a cloud computing
arrangement (hosting arrangement) by providing guidance for
determining when the arrangement includes a software license. The
amendments in ASU 2018-15 align the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a
service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use
software (and hosting arrangements that include an internal use
software license). The accounting for the service element of a
hosting arrangement that is a service contract is not affected by
the amendments in ASU 2018-15. The amendments in ASU 2018-15 will
become effective for fiscal years and interim periods beginning
after December 15, 2019. Early adoption is permitted, including
adoption in any interim period. The Company adopted the new
guidance in the fourth quarter of 2018, with no material impact on
its consolidated financial statements and related
disclosures.
In
February 2016, the FASB issued ASU 2016-02 “Leases,”
which amended leasing guidance by requiring companies to recognize
a right-of-use (“ROU”) asset and a lease liability for
all operating and capital (finance) leases with lease terms greater
than twelve months. The lease liability is equal to the present
value of lease payments. The lease asset is based on the lease
liability, subject to adjustment, such as for initial direct costs.
For income statement purposes, leases continue to be classified as
operating or capital (finance), with lease expense in both cases
calculated substantially the same as under the prior leasing
guidance. The updated guidance became effective for interim and
annual periods beginning after December 15, 2018. The Company
adopted the new guidance on January 1, 2019. Adoption resulted in
the recognition of ROU assets and lease liabilities on the
consolidated financial statements. Based on the Company’s
lease portfolio as of December 31, 2019, which consisted solely of
operating leases, the Company recognized approximately $2,885 of
ROU assets and $2,975 of lease liabilities on its consolidated
financial statements as of December 31, 2019. Refer to Note 7
(Leases) for further details on leases.
Recent Accounting Pronouncements
The
Company does not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to its financial
condition, results of operations, cash flows or
disclosures.
F-12
BK TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
2. Inventories, net
Inventories, which
are presented net of allowance for obsolete and slow-moving
inventory, consisted of the following:
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Finished
goods
|
$
3,864
|
$
2,004
|
|
Work in
process
|
6,122
|
5,750
|
|
Raw
materials
|
3,527
|
3,712
|
|
|
$
13,513
|
$
11,466
|
Changes
in the allowance for obsolete and slow-moving inventory are as
follows:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Balance, beginning
of year
|
$
629
|
$
789
|
|
Charged to cost of
sales
|
194
|
(38
)
|
|
Disposal of
inventory
|
—
|
(122
)
|
|
Balance, end of
year
|
$
823
|
$
629
|
For the
year ended December 31, 2018, the Company wrote off obsolete
inventory that had been fully allowed for previously, which had no
material impact to the Company’s consolidated balance sheets
or consolidated statements of operations.
3. Allowance for Doubtful Accounts
Changes
in the allowance for doubtful accounts are composed of the
following:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Balance, beginning
of year
|
$
50
|
$
50
|
|
Provision for
doubtful accounts
|
—
|
—
|
|
Uncollectible
accounts written off
|
—
|
—
|
|
Balance, end of
year
|
$
50
|
$
50
|
4. Property, Plant and Equipment, net
Property, plant and
equipment, net include the following:
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Leasehold
improvements
|
$
732
|
$
542
|
|
Machinery and
equipment
|
12,430
|
10,224
|
|
Less accumulated
depreciation and amortization
|
(9,198
)
|
(8,037
)
|
|
Property, plant and
equipment, net
|
$
3,964
|
$
2,729
|
Depreciation and
amortization expense relating to property, plant and equipment for
the years ended December 31, 2019 and 2018 was approximately $1,219
and $868, respectively.
F-13
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
5. Debt
On
January 30, 2020, BK Technologies, Inc., a wholly-owned subsidiary
of the Company, entered into a $5,000 Credit Agreement and a
related Line of Credit Note (the “Note” and
collectively with the Credit Agreement, the “Credit
Agreement”) with JPMorgan Chase Bank, N.A.
(“JPMC”).
The
Credit Agreement provides for a revolving line of credit of up to
$5,000, with availability under the line of credit subject to a
borrowing base calculated as a percentage of accounts receivable
and inventory. The line of credit will expire on January 31, 2021.
Proceeds of borrowings under the Credit Agreement may be used for
general corporate purposes. The line of credit is
collateralized
by a blanket lien on all personal property of BK Technologies, Inc.
pursuant to the terms of the Continuing Security Agreement with the
Lender. The Company and each subsidiary of BK Technologies, Inc.
are guarantors of BK Technologies, Inc.’s obligations under
the Credit Agreement, in accordance with the terms of the
Continuing Guaranty.
Borrowings under
the Credit Agreement will bear interest at a rate per annum equal
to one-month LIBOR or zero if the LIBOR is less than zero) plus a
margin of 1.90%. The line of credit is to be repaid in monthly
payments of interest only, payable in arrears, commencing on
February 1, 2020, with all outstanding principal and interest to be
payable in full at maturity.
The
Credit Agreement contains certain customary restrictive covenants,
including restrictions on liens, indebtedness, loans and
guarantees, acquisitions and mergers, sales of assets, and stock
repurchases by BK Technologies, Inc. The Credit Agreement contains
one financial covenant requiring BK Technologies, Inc. to maintain
a tangible net worth of at least $20,000 at any fiscal quarter
end.
The
Credit Agreement provides for customary events of default,
including: (1) failure to pay principal, interest or fees under the
Credit Agreement when due and payable; (2) failure to comply with
other covenants and agreements contained in the Credit Agreement
and the other documents executed in connection therewith; (3) the
making of false or inaccurate representations and warranties; (4)
defaults under other agreements with JPMC or under other debt or
other obligations of BK Technologies, Inc.; (5) money judgments and
material adverse changes; (6) a change in control or ceasing to
operate business in the ordinary course; and (7) certain events of
bankruptcy or insolvency. Upon the occurrence of an event of
default, JPMC may declare the entire unpaid balance immediately due
and payable and/or exercise any and all remedial and other rights
under the Credit Agreement.
On
September 25, 2019, BK Technologies, Inc., a wholly-owned
subsidiary of BK Technologies Corporation, and U.S. Bank Equipment
Finance, a division of U.S. Bank National Association, as a lender,
entered into a Master Loan Agreement in the amount of $425 to
finance various items of equipment. The loan is collateralized by
the equipment purchased using the proceeds. The Master Loan
Agreement is payable in 60 monthly principal and interest payments
of approximately $8 beginning on October 25, 2019 and maturing on
September 25, 2024, and bears a fixed interest rate of
5.11%.
On
March 28, 2019, BK Technologies, Inc., a wholly-owned subsidiary of
the Company, RELM Communications, Inc., a wholly-owned subsidiary
of BK Technologies, Inc., and Silicon Valley Bank, as lender
(“SVB”), entered into an Amended and Restated Loan and
Security Agreement (the “Loan and Security Agreement”).
The Loan and Security Agreement replaced BK Technologies,
Inc.’s prior Loan and Security Agreement with SVB (the
“Prior Agreement”) under which its
collateralized
revolving credit facility (the “Credit Facility”) was
maintained. The Loan and Security Agreement matured on December 26,
2019, and the Company elected not to renew it.
Pursuant to the Loan and Security Agreement, the
Credit Facility provided BK Technologies, Inc. with a maximum
borrowing availability of $1,000 and BK Technologies, Inc. was
subject to substantially the same customary borrowing terms and
conditions under the Credit Facility as it was under the Prior
Agreement, including the accuracy of representations and
warranties, compliance with financial maintenance and restrictive
covenants and the absence of events of
default.
Pursuant to the Loan and Security Agreement,
payment of cash dividends, in the
aggregate not to exceed $5,000 during any twelve-month period, was
permitted
so long as an event of default did not exist at
the time of such dividend and would not exist after giving effect
to such dividend. The variable rate at which borrowings under the
Credit Facility were to bear interest was
The
Wall Street Journal
prime rate plus 25
basis points.
F-14
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
5. Debt (Continued)
The
financial maintenance covenants, which were required to be
maintained at all times and tested quarterly (or, for the
“Adjusted Quick Ratio” covenant, monthly, if any
obligations were outstanding), included: (1) a ratio of
“Quick Assets” to the sum of “Current
Liabilities” plus outstanding borrowings to SVB to the extent
not included in “Current Liabilities” minus the current
portion of “Deferred Revenue” (all as defined in the
Loan and Security Agreement) of at least 1.25:1.00 and (2) maximum
“Total Leverage” (as defined in the Loan and Security
Agreement) of no greater total consolidated
“Indebtedness” than 3 times “Adjusted
EBITDA” (all as defined in the Loan and Security Agreement).
BK Technologies, Inc.’s obligations were collateralized by
substantially all of its assets, principally accounts receivable
and inventory.
BK
Technologies, Inc. was in compliance with all covenants under the
Loan and Security Agreement when it matured on December 26, 2019.
BK Technologies, Inc. had no borrowings outstanding under the
credit facility at the time it matured.
6. Investment in Securities
The
Company has an investment in a limited partnership, FGI 1347
Holdings, LP, of which the Company is the sole limited partner. FGI
1347 Holdings, LP was established for the purpose of investing in
securities.
As
of December 31, 2019, the Company indirectly held approximately
$190 in cash and 477,282 shares of 1347 Property Insurance
Holdings, Inc. (Nasdaq: PIH) with fair value of $2,635, through an
investment in FGI 1347 Holdings, LP. These shares were purchased in
March and May 2018 for approximately $3,741. As of December 31,
2019 and 2018, the unrealized loss on the investment was
approximately $1,106 and $1,822, respectively.
During
the years ended December 31, 2019 and 2018, the Company recognized
a gain of approximately $716 and a loss of approximately of $1,822,
respectively, due to changes in the unrealized loss on investment
in securities.
Affiliates of
Fundamental Global Investors, LLC serve as the general partner and
the investment manager of FGI 1347 Holdings, LP, and the Company is
the sole limited partner. As of December 31, 2019, the Company and
the affiliates of Fundamental Global Investors, LLC, including,
without limitation, Ballantyne Strong, Inc., beneficially owned in
the aggregate 2,714,362 shares of PIH’s common stock,
representing approximately 45.1% of PIH’s outstanding shares.
Fundamental Global with its affiliates is the largest stockholder
of the Company. Mr. Kyle Cerminara, Chairman of the Company’s
Board of Directors, is Chief Executive Officer, Co-Founder and
Partner of Fundamental Global Investors, LLC and serves as Chief
Executive Officer and Chairman of the Board of Directors of
Ballantyne Strong. Mr. Lewis M. Johnson, Co-Chairman of the
Company, is President, Co-Founder and Partner of Fundamental Global
Investors, LLC and serves as Co-Chairman of Ballantyne Strong.
Messrs. Cerminara and Johnson also serve as Chairman and
Co-Chairman, respectively, of the Board of Directors of
PIH.
7. Leases
The
Company leases approximately 54,000 square feet (not in thousands)
of industrial space in West Melbourne, Florida, under a
non-cancellable operating lease. The lease has the expiration date
of June 30, 2027. Rental, maintenance and tax expenses for this
facility were approximately $502 and $490 in 2019 and 2018,
respectively. The Company also leases 8,100 square feet (not in
thousands) of office space in Lawrence, Kansas, to accommodate a
portion of the Company's engineering team. In November 2019, this
lease was amended to extend the lease term until December 31, 2021.
Rental, maintenance and tax expenses for this facility were
approximately $108 in 2019 and 2018.
In
February 2020, the Company entered into a lease for 6,857 (not in
thousands) square feet of office space at Sawgrass Technology Park,
1619 NW 136
th
Avenue in Sunrise,
Florida, for a period of 64 months. Annual rental, maintenance and
tax expenses for the facility will be approximately $196 for the
first year, increasing by approximately 3% for each subsequent
twelve month period.
The
Company adopted ASU No. 2016-02, “Leases” (Topic 842)
on January 1, 2019 and applied the modified retrospective approach
to adoption whereby the standard is applied only to the current and
future periods. The Company leases manufacturing and office
facilities and equipment under operating leases and determines if
an arrangement is a lease at inception. ROU assets represent the
Company’s right to use an underlying asset for the lease term
and lease liabilities represent its obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at the lease commencement date based on
the present value of lease payments over the lease
term.
As
most of its leases do not provide an implicit rate, the Company
uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of
lease payments. The Company’s lease terms may include options
to extend or terminate the lease when it is reasonably certain that
the Company will exercise that option. The Company has lease
agreements with lease and non-lease components, which are accounted
for separately.
F-15
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
7. Leases (Continued)
Lease
costs consist of the following:
|
|
December
31,
2019
|
|
Operating lease
cost
|
$
573
|
|
Short-term lease
cost
|
2
|
|
Variable lease
cost
|
128
|
|
Total lease
cost
|
$
703
|
Supplemental
cash flow information related to leases was as
follows:
|
|
December
31,
2019
|
|
Cash paid for
amounts included in the measurement of lease
liabilities:
|
|
|
Operating
cash flows (fixed payments)
|
$
522
|
|
Operating cash
flows (liability reduction)
|
$
369
|
Other
information related to operating leases was as
follows:
|
|
December
31,
2019
|
|
Weighted average
remaining lease term (in years)
|
6.23
|
|
Weighted average
discount rate
|
5.50
%
|
Maturity
of lease liabilities as of December 31, 2019 were as
follows:
|
|
December 31,
2019
|
|
2020
|
$
522
|
|
2021
|
552
|
|
2022
|
439
|
|
2023
|
448
|
|
2024
|
456
|
|
Thereafter
|
1,190
|
|
Total
payments
|
3,607
|
|
Less:
imputed interest
|
632
|
|
Total
liability
|
$
2,975
|
F-16
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
8. Income Taxes
The
income tax benefit is summarized as follows:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Current:
|
|
|
|
Federal
|
$
(107
)
|
$
(110
)
|
|
State
|
(3
)
|
10
|
|
|
(110
)
|
(100
)
|
|
Deferred:
|
|
|
|
Federal
|
(889
)
|
(280
)
|
|
State
|
12
|
103
|
|
|
(877
)
|
(177
)
|
|
|
$
(987
)
|
$
(277
)
|
A
reconciliation of the statutory U.S. income tax rate to the
effective income tax rate follows:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
|
|
|
|
Statutory U.S.
income tax rate
|
(21.00
)%
|
(21.00
)%
|
|
State taxes, net of
federal benefit
|
(1.21
)%
|
1.75
%
|
|
Permanent
differences
|
0.61
%
|
3.52
%
|
|
Change in valuation
allowance
|
0.00
%
|
(13.53
)%
|
|
Change in net
operating loss carryforwards and tax credits
|
(5.50
)%
|
(33.48
)%
|
|
Other
|
(0.14
)%
|
4.02
%
|
|
Effective income
tax rate
|
(27.24
)%
|
(58.72
)%
|
F-17
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
8. Income Taxes (Continued)
The
components of the deferred income tax assets (liabilities) are as
follows:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Deferred tax
assets:
|
|
|
|
Operating
loss carryforwards
|
$
1,347
|
$
313
|
|
R&D
Tax Credit
|
1,678
|
1,394
|
|
AMT Tax
Credit
|
72
|
179
|
|
Section
263A costs
|
294
|
252
|
|
R&D
costs
|
110
|
224
|
|
Amortization
|
24
|
24
|
|
Unrealized
loss
|
252
|
422
|
|
|
|
|
|
Asset
reserves:
|
|
|
|
Bad
debts
|
11
|
12
|
|
Inventory
allowance
|
187
|
146
|
|
|
|
|
|
Accrued
expenses:
|
|
|
|
Non-qualified
stock options
|
132
|
112
|
|
Compensation
|
132
|
140
|
|
Warranty
|
904
|
764
|
|
Deferred tax
assets
|
5,143
|
3,982
|
|
|
|
|
|
Less state
valuation allowance
|
—
|
—
|
|
Total deferred tax
assets
|
5,143
|
3,982
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
Depreciation
|
(770
)
|
(487
)
|
|
Total deferred tax
liabilities
|
(770
)
|
(487
)
|
|
|
|
|
|
Net deferred tax
assets (before unrealized gain)
|
4,373
|
3,495
|
|
|
|
|
|
Deferred tax
liability: unrealized gain
|
—
|
—
|
|
Net deferred tax
assets
|
$
4,373
|
$
3,495
|
As of
December 31, 2019, the Company had a net deferred tax asset of
approximately $5,143 offset by deferred tax liabilities of $770
derived from accelerated tax depreciation. This asset is primarily
composed of net operating loss carryforwards (“NOLs”),
research and development tax credits and costs, and deferred
revenue. The NOLs total approximately $4,857 for federal and $7,526
for state purposes, with expirations starting in 2020 for state
purposes. State NOLs of $1,209 expired in 2019.
During
2018, the Company generated no additional NOLs and during 2019, the
Company generated $4,857 of additional federal NOLs. The deferred
tax asset amounts are based upon management’s conclusions
regarding, among other considerations, the Company’s current
and anticipated customer base, contracts, and product
introductions, certain tax planning strategies, and
management’s estimates of future earnings based on
information currently available, as well as recent operating
results during 2019, 2018, and 2017. GAAP requires that all
positive and negative evidence be analyzed to determine if, based
on the weight of available evidence, the Company is more likely
than not to realize the benefit of the deferred tax
asset.
F-18
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
8. Income Taxes (Continued)
Management’s
analysis of all available evidence, both positive and negative,
provides support that the Company has the ability to generate
sufficient taxable income in the necessary period to utilize the
entire benefit for the deferred tax asset.
Should
the factors underlying management’s analysis change, future
valuation adjustments to the Company’s net deferred tax asset
may be necessary. If future losses are incurred, it may be
necessary to record a valuation allowance related to the
Company’s net deferred tax asset recorded as of December 31,
2019. It cannot presently be estimated what, if any, changes to the
valuation of the Company’s deferred tax asset may be deemed
appropriate in the future. The 2019 federal and state NOLs and tax
credit carryforwards could be subject to limitation if, within any
three-year period prior to the expiration of the applicable
carryforward period, there is a greater than 50% change in
ownership of the Company.
For the
year ended December 31, 2019, the Company is expecting a refund of
a portion of the alternative minimum tax credits of approximately
$72 (net). The alternative minimum tax legislation was repealed by
the 2017 Tax Act.
The
Company performed a comprehensive review of its portfolio of
uncertain tax positions in accordance with recognition standards
established by GAAP. In this regard, an uncertain tax position
represents the Company’s expected treatment of a tax position
taken in a filed tax return or planned to be taken in a future tax
return that has not been reflected in measuring income tax expense
for financial reporting purposes. As a result of this review, on
January 1, 2020, the Company is not aware of any uncertain tax
positions that would require additional liabilities or which such
classification would be required. The amount of unrecognized tax
positions did not change as of December 31, 2019, and the Company
does not believe there will be any material changes in its
unrecognized tax positions over the next twelve
months.
Penalties and
tax-related interest expense, of which there were no material
amounts for the years ended December 31, 2019 and 2018, are
reported as a component of income tax expense
(benefit).
The
Company files federal income tax returns, as well as multiple state
and local jurisdiction tax returns. A number of years may elapse
before an uncertain tax position is audited and finally resolved.
While it is often difficult to predict the final outcome or the
timing of resolution on any particular uncertain tax position, the
Company believes that its allowances for income taxes reflect the
most probable outcome. The Company adjusts these allowances, as
well as the related interest, in light of changing facts and
circumstances. The resolution of a matter would be recognized as an
adjustment to the provision for income taxes and the effective tax
rate in the period of resolution. The calendar years 2016, 2017,
and 2018 are still open to IRS examination under the statute of
limitations. The last IRS examination on the Company’s 2007
calendar year was closed with no change.
F-19
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
9. Loss Per Share
The
following table sets forth the computation of basic and diluted
loss per share:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Numerator:
|
|
|
|
Net
loss from continuing operations numerator for basic and diluted
earnings per share
|
$
(2,636
)
|
$
(195
)
|
|
Denominator:
|
|
|
|
Denominator
for basic loss per share weighted average shares
|
12,705,304
|
13,463,826
|
|
Effect
of dilutive securities:
|
|
|
|
Stock
options
|
—
|
—
|
|
Denominator
for diluted loss per share weighted average shares
|
12,705,304
|
13,463,826
|
|
Basic
loss per share
|
$
(0.21
)
|
$
(0.01
)
|
|
Diluted
loss per share
|
$
(0.21
)
|
$
(0.01
)
|
Approximately
569,500 stock options and 0 restricted stock units for the year
ended December 31, 2019 and 460,500 stock options and 24,066
restricted stock units for the year ended December 31, 2018, were
excluded from the calculation because they were
anti-dilutive.
10. Share-Based Employee Compensation
The
Company has an employee and non-employee director incentive
compensation equity plan. Related to these programs, the Company
recorded $148 and $95 of share-based employee compensation expense
during the years ended December 31, 2019 and 2018, respectively,
which is included as a component of cost of products and SG&A
expenses in the accompanying consolidated statements of operations.
No amount of share-based employee compensation expense was
capitalized as part of capital expenditures or inventory for the
years presented.
The
Company uses the Black-Scholes-Merton option valuation model to
calculate the fair value of a stock option grant. The share-based
employee compensation expense recorded in the years ended December
31, 2019 and 2018 was calculated using the assumptions noted in the
following table. Expected volatilities are based on the historical
volatility of the Company’s common stock over the period of
time, commensurate with the expected life of the stock options. The
dividend yield assumption is based on the Company’s
expectations of dividend payouts at the grant date. In 2019, the
Company paid dividends on January 16, for a dividend declared in
2018, April 15, July 15 and October 15. In December 2019, the
Company’s Board of Directors also declared a quarterly
dividend that was paid on January 17, 2020. The Company has
estimated its future stock option exercises. The expected term of
option grants is based upon the observed and expected time to the
date of post vesting exercises and forfeitures of options by the
Company’s employees. The risk-free interest rate is derived
from the average U.S. Treasury rate for the period, which
approximates the rate at the time of the stock option
grant.
|
|
FY
2019
|
FY
2018
|
|
Expected
Volatility
|
49.0
%
|
51.9
%
|
|
Expected
Dividends
|
2.0
%
|
2.0
%
|
|
Expected Term (in
years)
|
6.5
|
6.5
|
|
Risk-Free
Rate
|
2.36
%
|
2.76
%
|
|
Estimated
Forfeitures
|
0.0
%
|
0.0
%
|
F-20
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
10. Share-Based Employee Compensation (Continued)
A
summary of stock option activity under the Company’s equity
compensation plans as of December 31, 2019, and changes during the
year ended December 31, 2019, are presented below:
|
As of
January 1, 2019
|
Stock
Options
|
Wgt. Avg.
Exercise Price ($) Per Share
|
Wgt. Avg.
Remaining Contractual Life (Years)
|
Wgt. Avg. Grant
Date Fair Value ($) Per Share
|
Aggregate
Intrinsic Value ($)
|
|
Outstanding
|
460,500
|
4.22
|
—
|
1.76
|
—
|
|
Vested
|
156,900
|
4.03
|
—
|
2.05
|
—
|
|
Nonvested
|
303,600
|
4.32
|
—
|
1.61
|
—
|
|
|
|
|
|
|
|
|
Period
activity
|
|
|
|
|
|
|
Issued
|
150,000
|
4.01
|
—
|
1.64
|
—
|
|
Exercised
|
1,000
|
1.89
|
—
|
0.71
|
—
|
|
Forfeited
|
40,000
|
4.35
|
—
|
1.49
|
—
|
|
Expired
|
—
|
—
|
—
|
—
|
—
|
|
|
|
|
|
|
|
|
As
of December 31, 2019
|
|
|
|
|
|
|
Outstanding
|
569,500
|
4.16
|
6.82
|
1.75
|
24,000
|
|
Vested
|
214,800
|
4.12
|
4.20
|
1.95
|
24,000
|
|
Nonvested
|
354,700
|
4.18
|
8.40
|
1.63
|
—
|
Outstanding:
|
Range of
Exercise Prices ($) Per Share
|
Stock Options
Outstanding
|
Wgt.
Avg.
Exercise Price
($) Per Share
|
Wgt. Avg.
Remaining Contractual Life (Years)
|
|
|
|
|
2.23
|
3.83
|
175,000
|
3.50
|
7.68
|
|
|
|
4.07
|
5.10
|
394,500
|
4.45
|
6.44
|
|
|
|
|
569,500
|
4.16
|
6.82
|
|
|
|
Exercisable:
|
Range of
Exercise Prices ($) Per Share
|
Stock Options
Exercisable
|
Wgt.
Avg.
Exercise Price
($) Per Share
|
|
|
|
|
|
2.23
|
3.83
|
53,000
|
3.03
|
|
|
|
|
4.07
|
5.10
|
161,800
|
4.48
|
|
|
|
|
|
214,800
|
4.12
|
|
|
|
|
The
weighted-average grant-date fair value per option granted during
the years ended December 31, 2019 and 2018 was $1.64 and $1.61,
respectively. The aggregate intrinsic value of stock options
exercised during the years ended December 31, 2019 and 2018 was
approximately $1 and $0, respectively.
In
connection with the restricted stock units granted to non-employee
directors, the Company accrues compensation expense based on the
estimated number of shares expected to be issued, utilizing the
most current information available to the Company at the date of
the consolidated financial statements. The Company estimates the
fair value of the restricted stock unit awards based upon the
market price of the underlying common stock on the date of grant.
As of December 31, 2019 and 2018, there was approximately $982 and
$703, respectively, of total unrecognized compensation cost related
to non-vested share-based compensation arrangements, including
stock options and restricted stock units. This compensation cost is
expected to be recognized approximately over four
years.
F-21
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
11. Significant Customers
Sales
to the U.S. Government represented approximately 49.1% and 40.0% of
the Company’s total sales for the years ended December 31,
2019 and 2018, respectively. These sales were primarily to the
various government agencies, including those within the United
States Department of Defense, the United States Forest Service, the
United States Department of Interior, and the United States
Department of Homeland Security.
12. Retirement Plan
The
Company sponsors a participant contributory retirement 401(k) plan,
which is available to all employees. The Company’s
contribution to the plan is either a percentage of the
participant’s contribution (50% of the participant’s
contribution up to a maximum of 6%) or a discretionary amount. For
the years ended December 31, 2019 and 2018, total contributions
made by the Company were $164 and $144, respectively.
13. Commitments and Contingencies
Royalty Commitment
In
2002, the Company entered into a technology license related to its
development of digital products. Under this agreement, the Company
is obligated to pay a royalty for each product sold that utilizes
the technology covered by this agreement. The Company paid $133 and
$164 for the years ended December 31, 2019 and 2018, respectively.
The agreement has an indefinite term, and can be terminated by
either party under certain conditions.
Purchase Commitments
The
Company has purchase commitments for inventory totaling $5,324 as
of December 31, 2019.
Self-Insured Health Benefits
The
Company maintains a self-insured health benefit plan for its
employees. This plan is administered by a third party. As of
December 31, 2019, the plan had a stop-loss provision insuring
losses beyond $80 per employee per year and an aggregate stop-loss
of $1,437. As of December 31, 2019 and 2018, the Company recorded
an accrual for estimated claims in the amount of approximately $165
and $165, respectively, in accrued other expenses and other current
liabilities on the Company’s consolidated balance
sheets.
This amount
represents the Company’s estimate of incurred but not
reported claims as of December 31, 2019 and 2018.
Liability for Product Warranties
Changes
in the Company’s liability for its standard two-year product
warranties during the years ended December 31, 2019 and 2018 are as
follows:
|
|
Balance at
Beginning of Year
|
Warranties
Issued
|
Warranties
Settled
|
Balance at End
of Year
|
|
2019
|
$
1,546
|
$
606
|
$
(904
)
|
$
1,248
|
|
2018
|
$
1,389
|
$
1,329
|
$
(1,172
)
|
$
1,546
|
Legal Proceedings
From
time to time the Company may be involved in various claims and
legal actions arising in the ordinary course of its
business.
There
were no other pending material claims or legal matters as of
December 31, 2019.
F-22
BK
TECHNOLOGIES CORPORATION
YEARS ENDED DECEMBER 31, 2019 AND 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data and
percentages)
14. Capital Program
In May
2016, the Company implemented a capital return program that
included a stock repurchase program and a quarterly dividend.
Under the program, the Company’s Board of Directors approved
the repurchase of up to 500,000 shares of the Company’s
common stock pursuant to a stock repurchase plan in conformity with
the provisions of Rule 10b5-1 and Rule 10b-18 promulgated under the
Securities Exchange Act of 1934, as amended. In June 2017, the
Board of Directors approved an increase in the Company’s
capital return program, authorizing the repurchase of 500,000
shares of the Company’s common stock in addition to the
500,000 shares originally authorized, for a total repurchase
authorization of 1 million shares, pursuant to a stock repurchase
plan in conformity with the provisions of Rule 10b5-1 and Rule
10b-18 promulgated under the Securities Exchange Act of 1934, as
amended. The repurchase program has no termination
date.
Pursuant to the
capital return program, during 2018, the Company’s Board of
Directors declared quarterly dividends on the Company’s
common stock of $0.02 per share on March 14, June 4, September 6
and December 7. The dividends were payable to stockholders of
record as of April 2, 2018, July 2, 2018, October 1, 2018 and
January 2, 2019, respectively. These dividends were paid on April
16, 2018, July 16, 2018, October 15, 2018 and January 16,
2019.
Pursuant to the
capital return program, during 2019, the Company’s Board of
Directors declared quarterly dividends on the Company’s
common stock of $0.02 per share on March 5, June 10, September 12
and December 5. The dividends were payable to stockholders of
record as of April 1, 2019, July 1, 2019, October 1, 2019 and
January 3, 2020, respectively. These dividends were paid on April
15, 2019, July 15, 2019, October 15, 2019 and January 17,
2020.
In
addition, the Company declared a quarterly dividend of $0.02 per
share of common stock on March 2, 2020, to be paid on April 13,
2020 to holders of record as of March 31, 2020.
F-23
I
tem 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
I
tem 9A. Controls and
Procedures
Evaluation of Disclosure Controls and Procedures
Our
President (who serves as our principal executive officer) and Chief
Financial Officer (who serves as our principal financial and
accounting officer) have evaluated the effectiveness of our
disclosure controls and procedures (as defined in the Exchange Act
Rule 13a-15(e)) as of December 31, 2019. Based on that evaluation,
the President and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective as of December
31, 2019.
Management’s Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over our financial reporting, as such term is
defined in Rule 13a-15(f) of the Exchange Act. Our internal control
system was designed to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of inherent limitations, a system of internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate due to
a change in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
An
internal control material weakness is a significant deficiency, or
combination of significant deficiencies, that results in more than
a remote likelihood that a material misstatement of the
consolidated financial statements will not be prevented or
detected.
Our
management, including our principal executive officer and principal
financial officer, conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31,
2019, and concluded that our internal control over financial
reporting was effective as of December 31, 2019. In making the
assessment of internal control over financial reporting, management
used the criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
identified in connection with the evaluation required by Exchange
Act Rule 13a-15(d) that occurred during the fourth fiscal quarter
covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
I
tem 9B. Other
Information
None.
31
PART III
I
tem 10. Directors, Executive Officers and
Corporate Governance
Information about
our Directors and Executive Officers will be contained in the
“Proposal 1: Election of Directors” and
“Corporate Governance—Board of Directors
Independence” sections of our definitive proxy statement, to
be filed in connection with our 2020 annual meeting of
stockholders, and is incorporated herein by reference.
The
disclosure of delinquent filers under Section 16(a) of the Exchange
Act, if any, will be contained in the
“Miscellaneous—Delinquent Section 16(a) Reports”
section of our definitive proxy statement, to be filed in
connection with our 2020 annual meeting of stockholders, and is
incorporated herein by reference.
We have
a separately-designated standing audit committee. Information about
our audit committee and the audit committee financial expert will
be contained in the “Corporate Governance—Meetings and
Committees of the Board of Directors” section of our
definitive proxy statement, to be filed in connection with our 2020
annual meeting of stockholders, and is incorporated herein by
reference.
We have
adopted the Code of Business Conduct and Ethics (the “Code of
Conduct”) that applies to all of our directors, officers and
employees, including our principal executive officer, principal
financial officer and principal accounting officer, and the Code of
Ethics for the CEO and Senior Financial Officers (the “Code
of Ethics”) containing additional specific policies. The Code
of Conduct and the Code of Ethics are posted on our Internet
website, www.bktechnologies.com, under the “Investor
Relations” tab, and are available free of charge, upon
request to Corporate Secretary, 7100 Technology Drive, West
Melbourne, Florida 32904; telephone number: (321) 984-1414. Any
amendment to, or waiver from, the codes applicable to our directors
and executive officers will be disclosed in a current report on
Form 8-K within four business days following the date of the
amendment or waiver unless the rules of the NYSE American then
permit website posting of such amendments and waivers, in which
case we would post such disclosures on our Internet
website.
I
tem 11. Executive Compensation
The
information required by this item will be contained in the
“Executive Compensation,” “Summary Compensation
Table for 2018-2019,” “Outstanding Equity Awards at
2019 Fiscal Year-End,” “Retirement Benefits for
2019,” “Potential Payments Upon Termination or in
Connection With a Change of Control,” “Director
Compensation for 2019” and “Corporate
Governance—Meetings and Committees of the Board of
Directors—Compensation Committee” sections of our
definitive proxy statement, to be filed in connection with our 2020
annual meeting of stockholders, and is incorporated herein by
reference.
I
tem 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters
The
information required by this item will be contained in the
“Security Ownership of Certain Beneficial Owners and
Management” and “Equity Compensation Plan
Information” sections of our definitive proxy statement, to
be filed in connection with our 2020 annual meeting of
stockholders, and is incorporated herein by reference.
I
tem 13. Certain Relationships and Related
Transactions, and Director Independence
The
information required by this item will be contained in the
“Transactions with Related Persons” and
“Corporate Governance—Board of Directors
Independence” sections of our definitive proxy statement, to
be filed in connection with our 2020 annual meeting of
stockholders, and is incorporated herein by reference.
I
tem 14. Principal Accounting
Fees and Services
The
information required by this item will be contained in the
“Fees Paid to Our Independent Registered Public Accounting
Firm” and “Corporate Governance—Meetings and
Committees of the Board of Directors—Audit Committee”
sections of our definitive proxy statement, to be filed in
connection with our 2020 annual meeting of stockholders, and is
incorporated herein by reference.
32
PART IV
(a) The
following documents are filed as a part of this
report:
|
1.
Consolidated Financial Statements listed below:
|
Page
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
(b) Exhibits:
|
Number
|
|
Exhibit
|
|
|
Articles
of Merger, filed with the Nevada Secretary of State on March 28,
2019 (incorporated by reference from Exhibit 3.1 to the
Company’s Current Report on Form 8-K12B filed March 28,
2019)
|
|
|
|
Articles of Incorporation (incorporated by reference from Exhibit
3.2 to the Company’s Current Report on Form 8-K12B filed
March 28, 2019)
|
|
|
|
Bylaws
(incorporated by reference from Exhibit 3.3 to the Company’s
Current Report on Form 8-K12B filed March 28, 2019)
|
|
|
|
Description
of the Company’s Registered Securities*
|
|
|
|
Form of
Common Stock Certificate (incorporated by reference from Exhibit
4.1 to the Company’s Current Report on Form 8-K12B filed
March 28, 2019)
|
|
|
|
2007
Incentive Compensation Plan (incorporated by reference from Annex G
to the Company’s Definitive Proxy Statement on Schedule 14A
filed April 5, 2007, relating to the 2007 annual
stockholders’ meeting)
|
|
|
|
Amendment
to the 2007 Incentive Compensation Plan, effective as of March 17,
2017 (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed March 21,
2017)
|
|
|
|
Form of
2007 Incentive Compensation Plan Stock Option Agreement
(incorporated by reference from Exhibit 10.15 to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2012)
|
|
|
|
2017
Incentive Compensation Plan (incorporated by reference from Exhibit
4.5 to the Company’s Registration Statement on Form S-8 filed
June 15, 2017)
|
|
|
|
Omnibus
Amendment to Incentive Compensation Plans, dated as of March 28,
2019,
by and between BK Technologies,
Inc. and BK Technologies Corporation (incorporated
by
reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K12B filed March 28, 2019)
|
|
|
|
Form of
Stock Option Agreement under the 2017 Incentive Compensation Plan
(incorporated by reference from Exhibit 4.6 to the Company’s
Registration Statement on Form S-8 filed June 15,
2017)
|
|
|
|
Form of
Restricted Share Agreement under the 2017 Incentive Compensation
Plan (incorporated by reference from Exhibit 4.7 to the
Company’s Registration Statement on Form S-8 filed June 15,
2017)
|
|
|
|
Form of
Restricted Stock Unit Agreement under the 2017 Incentive
Compensation Plan (incorporated by reference from Exhibit 4.8 to
the Company’s Registration Statement on Form S-8 filed June
15, 2017)
|
|
|
|
Form of
Non-Employee Director Restricted Share Unit Agreement under the
2017 Incentive Compensation Plan (September 2018) (Incorporated by
reference from Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q filed November 7, 2018)
|
|
|
|
Form of
Stock Option Agreement under the BK Technologies Corporation 2017
Incentive Compensation Plan (incorporated by reference from Exhibit
10.2 to the Company’s Current Report on Form 8-K12B filed
March 28, 2019)
|
|
|
|
Form of Restricted Share Agreement under the BK Technologies
Corporation 2017 Incentive Compensation Plan (incorporated by
reference from Exhibit 10.3 to the Company’s Current Report
on Form 8-K12B filed March 28, 2019)
|
|
|
|
Form of
Restricted Stock Unit Agreement under the BK Technologies
Corporation 2017 Incentive Compensation Plan (incorporated by
reference from Exhibit 10.4 to the Company’s Current Report
on Form 8-K12B filed March 28, 2019)
|
|
|
|
Relocation
Agreement, dated December 31, 2019, between the Company and Henry
R. (Randy) Willis (incorporated by reference from Exhibit 10.20 to
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018)
|
|
|
|
Employment
Agreement, executed March 20, 2019, by and between BK Technologies,
Inc. and Timothy A. Vitou (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K filed March
21, 2019)
|
|
|
|
Employment
Agreement, executed March 20, 2019, by and between BK Technologies,
Inc. and William P. Kelly (incorporated by reference from Exhibit
10.2 to the Company’s Current Report on Form 8-K filed March
21, 2019)
|
|
|
|
Employment
Agreement, executed March 20, 2019, by and between BK Technologies,
Inc. and Randy Willis (incorporated by reference from Exhibit 10.3
to the Company’s Current Report on Form 8-K filed March 21,
2019)
|
|
|
|
Employment
Agreement, executed March 20, 2019, by and between BK Technologies,
Inc. and James R. Holthaus (incorporated by reference from Exhibit
10.4 to the Company’s Current Report on Form 8-K filed March
21, 2019)
|
|
|
|
First
Amendment, approved October 30, 2019, to Employment Agreement,
executed March 20, 2019, by and between BK Technologies, Inc. and
James R. Holthaus (incorporated by reference from Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed October 31,
2019)
|
|
|
|
Employment
Agreement, dated October 31, 2019, by and between BK Technologies,
Inc. and Branko Avanic*
|
|
|
|
Credit
Agreement, executed as of January 30, 2020, by and between JPMorgan
Chase Bank, N.A., as lender, and BK Technologies, Inc., as borrower
(incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed January 30, 2020)
|
|
|
|
Line of Credit Note, executed as of January 30, 2020, by BK
Technologies, Inc., as borrower, for the benefit of JPMorgan Chase
Bank, N.A., as lender
(incorporated by reference from
Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed January 30, 2020)
|
|
|
|
Continuing
Guaranty, executed as of January 30, 2020, by and among JPMorgan
Chase Bank, N.A., as lender, and BK Technologies Corporation and
RELM Communications, Inc., as guarantors (incorporated by reference
from Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed January 30, 2020)
|
|
|
|
Continuing
Security Agreement, executed as of January 30, 2020, by and between
JPMorgan Chase Bank, N.A., as lender, and BK Technologies, Inc., as
pledgor (incorporated by reference from Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed January 30,
2020)
|
|
|
|
Subsidiaries
of the Company*
|
|
|
|
Consent
of Moore Stephens Lovelace, P.A. (relating to the Company’s
Registration Statements on Form S-8) (Registration
No. 333-218765 and Registration
No. 333-147354)*
|
|
|
|
Power
of Attorney (included on signature page)
|
|
|
|
Certification
Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
Certification
Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished
pursuant to Item 601(b)(32) of Regulation S-K)**
|
|
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Item
601(b)(32) of Regulation S-K)**
|
33
|
101.INS
|
|
XBRL
Instance Document*
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document*
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document*
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document*
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document*
|
|
101.DEF
|
|
XBRL
Taxonomy Definition Linkbase Document*
|
|
|
|
|
______________________________________
*
Included with this
filing.
**
Furnished herewith
(not filed).
+
Each
management contract or compensatory plan or
arrangement.
(c) Consolidated
Financial Statement Schedules:
All
schedules have been omitted because they are inapplicable or not
material, or the information called for thereby is included in the
Consolidated Financial Statements and notes thereto.
I
tem 16. Form 10-K Summary
None.
34
S
IGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
BK TECHNOLOGIES CORPORATION
|
|
|
|
|
|
|
|
By:
|
/s/
Timothy A. Vitou
|
|
|
|
Timothy
A. Vitou
|
|
|
|
President
|
POWER OF ATTORNEY
Each
person whose signature appears below hereby constitutes and
appoints Timothy A. Vitou and William P. Kelly, and each of them,
his attorneys-in-fact, each with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to
sign this annual report on Form 10-K and any and all amendments to
this report on Form 10-K, and to file the same, with all
exhibits thereto and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of
them or his or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates
indicated.
|
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
|
/s/
D. Kyle
Cerminara
|
|
Chairman of the
Board
|
|
March 4,
2020
|
|
D. Kyle
Cerminara
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lewis M.
Johnson
|
|
Co-Chairman of the
Board
|
|
March 4,
2020
|
| Lewis M. Johnson |
|
|
|
|
|
|
|
|
|
|
|
/s/
Timothy A.
Vitou
|
|
President
(Principal Executive Officer)
|
|
March 4,
2020
|
|
Timothy A.
Vitou
|
|
|
|
|
|
|
|
|
|
|
|
/s/
William P.
Kelly
|
|
Executive Vice
President and Chief Financial Officer
|
|
March 4,
2020
|
|
William P.
Kelly
|
|
(Principal
Financial Officer and Principal Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Michael R.
Dill
|
|
Director
|
|
March 4,
2020
|
|
Michael R.
Dill
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Charles T.
Lanktree
|
|
Director
|
|
March 4,
2020
|
|
Charles T.
Lanktree
|
|
|
|
|
|
|
|
|
|
|
|
/s/
E. Gray
Payne
|
|
Director
|
|
March 4,
2020
|
|
E. Gray
Payne
|
|
|
|
|
|
|
|
|
|
|
|
/s/
John W.
Struble
|
|
Director
|
|
March 4,
2020
|
|
John W.
Struble
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ryan R.K.
Turner
|
|
Director |
|
March 4,
2020
|
|
Ryan R.K.
Turner
|
|
|
|
|
35
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary