UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
For the quarterly period ended SeptemberJune 30, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
For the transition period from _________ to _________
Commission file number File Number: 001-32644
BK TECHNOLOGIES CORPORATION | |
(Exact name of registrant as specified in its charter) |
Nevada | 83-4064262 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or | Identification No.) |
7100 Technology Drive
West Melbourne, Florida 32904
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code: (321) 984-1414
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 $0.60 per share | BKTI | NYSE American |
Indicate by check mark whether the registrantregistrant: (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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 | ☒ | ||
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 Exchange Act).
There were 13,844,5843,404,218 shares of common stock, $0.60 par value, of the registrant outstanding at OctoberJuly 31, 2017.
TABLE OF CONTENTS
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTSBK TECHNOLOGIES CORPORATION
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, | December 31, | |
2017 | 2016 | |
(Unaudited) | ||
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $8,938 | $10,910 |
| Available-for-sale-securities | 1,180 | — |
| Trade accounts receivable, net | 7,032 | 3,448 |
| Inventories, net | 15,235 | 13,999 |
| Prepaid expenses and other current assets | 843 | 1,410 |
| Total current assets | 33,228 | 29,767 |
| Property, plant and equipment, net | 2,347 | 2,486 |
| Available-for-sale securities | 8,573 | 6,472 |
| Deferred tax assets, net | 1,701 | 3,418 |
| Other assets | 307 | 401 |
| Total assets | $46,156 | $42,544 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $5,776 | $1,973 |
| Accrued compensation and related taxes | 1,250 | 2,193 |
| Accrued warranty expense | 1,195 | 650 |
| Accrued other expenses and other current liabilities | 120 | 169 |
| Dividends payable | 274 | 1,235 |
| Deferred revenue | 150 | 142 |
| Total current liabilities | 8,765 | 6,362 |
| Deferred revenue | 452 | 408 |
| Total liabilities | $9,217 | $6,770 |
| 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; 13,844,584 and 13,754,749 issued and outstanding shares at September 30, 2017 and December 31, 2016, respectively | 8,307 | 8,253 |
| Additional paid-in capital | 25,586 | 25,382 |
| Accumulated (deficit) earnings | (901) | 240 |
| Accumulated other comprehensive income | 4,514 | 2,061 |
| Treasury stock, at cost, 127,010 and 30,422 at September 30, 2017 and December 31, 2016, respectively | (567) | (162) |
| Total stockholders' equity | 36,939 | 35,774 |
| Total liabilities and stockholders' equity | $46,156 | $42,544 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||
|
| (Unaudited) |
|
|
| |||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,688 |
|
| $ | 1,918 |
|
Trade accounts receivable, net |
|
| 9,189 |
|
|
| 10,616 |
|
Inventories, net |
|
| 22,911 |
|
|
| 22,105 |
|
Prepaid expenses and other current assets |
|
| 1,382 |
|
|
| 1,578 |
|
Total current assets |
|
| 36,170 |
|
|
| 36,217 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 5,025 |
|
|
| 4,884 |
|
Right-of-use (ROU) assets |
|
| 1,777 |
|
|
| 1,991 |
|
Investments |
|
| 992 |
|
|
| 1,481 |
|
Deferred tax assets, net |
|
| 4,116 |
|
|
| 4,116 |
|
Other assets |
|
| 379 |
|
|
| 143 |
|
Total assets |
| $ | 48,459 |
|
| $ | 48,832 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 12,549 |
|
| $ | 12,898 |
|
Accrued compensation and related taxes |
|
| 1,572 |
|
|
| 1,143 |
|
Accrued warranty expense |
|
| 730 |
|
|
| 591 |
|
Accrued other expenses and other current liabilities |
|
| 786 |
|
|
| 700 |
|
Short-term lease liabilities |
|
| 503 |
|
|
| 485 |
|
Credit facility |
|
| 6,516 |
|
|
| 5,854 |
|
Notes payable-current portion |
|
| 93 |
|
|
| 277 |
|
Deferred revenue |
|
| 1,055 |
|
|
| 1,022 |
|
Total current liabilities |
|
| 23,804 |
|
|
| 22,970 |
|
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
| 24 |
|
|
| 329 |
|
Long-term lease liabilities |
|
| 1,529 |
|
|
| 1,785 |
|
Deferred revenue |
|
| 5,276 |
|
|
| 3,613 |
|
Total liabilities |
|
| 30,633 |
|
|
| 28,697 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock; $1.00 par value; 1,000,000 authorized shares; none issued or outstanding |
|
| — |
|
|
| — |
|
Common stock; $0.60 par value; 10,000,000 authorized shares; 3,694,298 and 3,686,939 issued and 3,404,218 and 3,396,859 outstanding shares at June 30, 2023 and December 31, 2022, respectively |
|
| 2,217 |
|
|
| 2,212 |
|
Additional paid-in capital |
|
| 45,600 |
|
|
| 45,304 |
|
Accumulated deficit |
|
| (24,589 | ) |
|
| (21,979 | ) |
Treasury stock, at cost, 290,080 shares at June 30, 2023, and December 31, 2022, respectively |
|
| (5,402 | ) |
|
| (5,402 | ) |
Total stockholders’ equity |
|
| 17,826 |
|
|
| 20,135 |
|
Total liabilities and stockholders’ equity |
| $ | 48,459 |
|
| $ | 48,832 |
|
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data) (Unaudited)
Three Months Ended | Nine Months Ended | |||
September 30,2017 | September 30,2016 | September 30,2017 | September 30,2016 | |
| Sales, net | $11,831 | $14,730 | $29,973 | $43,463 |
| Expenses | ||||
| Cost of products | 8,014 | 10,099 | 19,425 | 29,412 |
| Selling, general and administrative | 3,660 | 3,549 | 10,624 | 10,110 |
| Total expenses | 11,674 | 13,648 | 30,049 | 39,522 |
| Operating income (loss) | 157 | 1,082 | (76) | 3,941 |
| Other income (expense): | ||||
| Interest income | 14 | 2 | 32 | 4 |
| Gain on available-for-sale | ||||
| securities | 670 | — | 1,287 | — |
| Gain (loss) on disposal of property, | ||||
| plant and equipment | 10 | — | (94) | — |
| Other (expense) income | 1 | — | (146) | 7 |
| Total other income | 695 | 2 | 1,079 | 11 |
| Income before income taxes | 852 | 1,084 | 1,003 | 3,952 |
| Income tax expense | (252) | (365) | (353) | (1,355) |
| Net income | $600 | $719 | $650 | $2,597 |
| Net earnings per share-basic: | $0.04 | $0.05 | $0.05 | $0.19 |
| Net earnings per share-diluted: | $0.04 | $0.05 | $0.05 | $0.19 |
| Weighted average shares outstanding-basic | 13,665,976 | 13,741,170 | 13,602,207 | 13,735,361 |
| Weighted average shares outstanding-diluted | 13,688,297 | 13,836,304 | 13,704,884 | 13,825,256 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Sales, net |
| $ | 18,996 |
|
| $ | 12,111 |
|
| $ | 37,717 |
|
| $ | 18,696 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products |
|
| 13,792 |
|
|
| 10,386 |
|
|
| 27,619 |
|
|
| 15,499 |
|
Selling, general and administrative |
|
| 5,988 |
|
|
| 5,405 |
|
|
| 11,869 |
|
|
| 10,321 |
|
Total operating expenses |
|
| 19,780 |
|
|
| 15,791 |
|
|
| 39,488 |
|
|
| 25,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (784 | ) |
|
| (3,680 | ) |
|
| (1,771 | ) |
|
| (7,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense |
|
| (155 | ) |
|
| (24 | ) |
|
| (298 | ) |
|
| (39 | ) |
Loss on investments |
|
| (376 | ) |
|
| (602 | ) |
|
| (489 | ) |
|
| (1,098 | ) |
Other expense |
|
| (25 | ) |
|
| (28 | ) |
|
| (52 | ) |
|
| (9 | ) |
Total other (expense) income |
|
| (556 | ) |
|
| (654 | ) |
|
| (839 | ) |
|
| (1,146 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (1,340 | ) |
|
| (4,334 | ) |
|
| (2,610 | ) |
|
| (8,270 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,340 | ) |
| $ | (4,334 | ) |
| $ | (2,610 | ) |
| $ | (8,270 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted: |
| $ | (0.39 | ) |
| $ | (1.28 | ) |
| $ | (0.77 | ) |
| $ | (2.45 | ) |
Weighted average shares outstanding-basic and diluted |
|
| 3,402,280 |
|
|
| 3,373,656 |
|
|
| 3,400,624 |
|
|
| 3,371,717 |
|
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended | Nine Months Ended | |||
September 30,2017 | September 30,2016 | September 30,2017 | September 30,2016 | |
| Net income | $600 | $719 | $650 | $2,597 |
| Unrealized (loss) gain on available- | ||||
| for-sale securities, net of tax | (25) | 891 | 2,453 | 1,664 |
| Total comprehensive income | $575 | $1,610 | $3,103 | $4,261 |
|
| Six Months Ended |
| |||||
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (2,610 | ) |
| $ | (8,270 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Inventories allowances |
|
| (86 | ) |
|
| 48 |
|
Amortization of deferred finance and other assets |
|
| 76 |
|
|
| — |
|
Depreciation and amortization |
|
| 777 |
|
|
| 696 |
|
Share-based compensation expense-stock options |
|
| 119 |
|
|
| 136 |
|
Share-based compensation expense-restricted stock units |
|
| 132 |
|
|
| 241 |
|
Loss on investments |
|
| 489 |
|
|
| 1,098 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| 1,427 |
|
|
| 1,710 |
|
Inventories |
|
| (719 | ) |
|
| (5,568 | ) |
Prepaid expenses and other current assets |
|
| 195 |
|
|
| 352 |
|
Other assets |
|
| (236 | ) |
|
| (39 | ) |
ROU assets and lease liabilities |
|
| (24 | ) |
|
| (17 | ) |
Accounts payable |
|
| (349 | ) |
|
| 3,921 |
|
Accrued compensation and related taxes |
|
| 429 |
|
|
| 682 |
|
Accrued warranty expense |
|
| 139 |
|
|
| 18 |
|
Deferred revenue |
|
| 1,696 |
|
|
| 206 |
|
Accrued other expenses and other current liabilities |
|
| 86 |
|
|
| (521 | ) |
Net cash provided by (used in) operating activities |
|
| 1,541 |
|
|
| (5,307 | ) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment |
|
| (918 | ) |
|
| (714 | ) |
Net cash used in investing activities |
|
| (918 | ) |
|
| (714 | ) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from common stock issuance |
|
| 50 |
|
|
| — |
|
Cash dividends paid |
|
| — |
|
|
| (1,011 | ) |
Proceeds from the credit facility and notes payable |
|
| 40,660 |
|
|
| 2,488 |
|
Repayment of the credit facility and notes payable |
|
| (40,563 | ) |
|
| (132 | ) |
Net cash provided by financing activities |
|
| 147 |
|
|
| 1,345 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| 770 |
|
|
| (4,676 | ) |
Cash and cash equivalents, beginning of period |
|
| 1,918 |
|
|
| 10,580 |
|
Cash and cash equivalents, end of period |
| $ | 2,688 |
|
| $ | 5,904 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 332 |
|
| $ | 43 |
|
Non-cash financing activity |
|
|
|
|
|
|
|
|
Common stock issued under restricted stock units |
| $ | 57 |
|
| $ | 178 |
|
See notes to condensed consolidated financial statements.
Nine Months Ended | ||
September 30,2017 | September 30,2016 | |
| Operating activities | ||
| Net income | $650 | $2,597 |
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
| Inventories allowances | 21 | 99 |
| Deferred tax expense | 353 | 972 |
| Depreciation and amortization | 727 | 718 |
| Share-based and stock compensation expense | 34 | 42 |
| Restricted stock unit compensation expense | 41 | - |
| Realized tax benefit from stock option exercise | - | 393 |
| Gain on available-for-sale securities | (1,287) | - |
| Loss on disposal of property, plant and equipment | 94 | - |
| Changes in operating assets and liabilities: | ||
| Trade accounts receivable | (3,584) | (2,115) |
| Inventories | (1,257) | 2,899 |
| Prepaid expenses and other current assets | 567 | 1,260 |
| Other assets | (12) | (7) |
| Accounts payable | 3,803 | 526 |
| Accrued compensation and related taxes | (943) | 803 |
| Accrued warranty expense | 545 | 48 |
| Deferred revenue | 52 | 36 |
| Customer deposits | - | 2 |
| Accrued other expenses and other current liabilities | (49) | 33 |
| Net cash (used in) provided by operating activities | (245) | 8,306 |
| Investing activities | ||
| Purchases of property, plant and equipment | (572) | (1,348) |
| Investment in securities | - | (481) |
| Proceeds from sale of available-for-sale securities | 1,819 | - |
| Net cash provided by (used in) investing activities | 1,247 | (1,829) |
| Financing activities | ||
| Proceeds from issuance of common stock | 183 | 30 |
| Cash dividends declared and paid | (2,752) | (2,472) |
| Repurchase of common stock | (405) | (83) |
| Cash used in financing activities | (2,974) | (2,525) |
| Net change in cash and cash equivalents | (1,972) | 3,952 |
| Cash and cash equivalents, beginning of period | 10,910 | 4,669 |
| Cash and cash equivalents, end of period | $8,938 | $8,621 |
| Supplemental disclosure | ||
| Cash paid for interest | $- | $- |
| Income tax paid | $- | $3 |
| Non-cash financing activity | ||
| Cashless exercise of stock options and related conversion of net shares to stockholders’ equity | $27 | $4 |
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended June 30, 2023 and 2022
Unaudited
(inIn thousands, except share and per share data and percentages)
1.
Basis of Presentation
The condensed consolidated balance sheetssheet as of SeptemberJune 30, 2017 and December 31, 2016,2023, the condensed consolidated statements of operations and comprehensive income for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022, and the condensed consolidated statements of cash flows for the ninethree and six months ended SeptemberJune 30, 20172023 and 20162022, have been prepared by RELM WirelessBK Technologies Corporation (the “Company”“Company,” “we,” “us,” “our”), and are unaudited. In the opinion of management, all adjustments, which include normal recurring adjustments, necessary for a fair presentation have been made. The condensed consolidated balance sheet at December 31, 20162022, has been derived from the Company’s audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that theseThese condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, as filed with the Securities and Exchange Commission.Commission (“SEC”) on March 16, 2023. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023, and 2022, are not necessarily indicative of the operating results for a full year.
Principles of Consolidation
The accounts of the Company and its subsidiaries have been included in the accompanying condensed 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.
Through September 30, 2022, the Company was the sole limited partner in FGI 1347 Holdings, LP (“1347 LP”), a consolidated VIE. The Company ceased to be the limited partner of 1347 LP as of September 30, 2022.
| 6 |
| Table of Contents |
Fair Value
The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, and available-for-sale securities,investments, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities. As of SeptemberJune 30, 2017,2023, and December 31, 2016,2022, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments.
Prior to September 14, 2022, the Company held an investment in the common stock of FG Financial Group, Inc. (“FGF”), which investment was held by the Company in 1347 LP. The Company usesused observable market data or assumptions (Level 1 inputs, as defined in accounting guidance) that it believes market participants would use in pricing its investment in FGF.
Effective September 14, 2022, the available-for-sale securities. There were no salesCompany has an investment in Series B common membership interests of available-for-sale securities, nor gains or losses reclassified out of accumulated other comprehensive income as a result of an other-than-temporary impairment ofFG Financial Holdings, LLC (“FG Holdings”). As further discussed in Note 6, the available-for-sale securities. There were no transfers of available-for-sale securities between Level 1 and Level 2 during the nine months ended September 30, 2017.
Liquidity
The Company incurred operating losses during 2023 and 2022 and reported negative cash flows from operations during 2022. The Company’s operating results have been negatively impacted by the worldwide shortages of materials, in particular semiconductors and integrated circuits, extended lead times, and increased costs and inventory levels for certain components.
On November 22, 2022, the Company’s subsidiaries, BK Technologies, Inc. and RELM Communications, Inc. (the “Subsidiaries”), entered into an Invoice Purchase and Security Agreement (“IPSA”) with Alterna Capital Solutions, LLC (“Alterna”), providing for a one-year Line of Credit with total maximum funding up to $15 million (the “Line of Credit”). The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement (see Note 11).
Management believes that cash and cash equivalents currently available, combined with anticipated cash to be material.
Reverse Stock Split
On March 23, 2023, the board of directors (the “Board”) of the Company approved a one (1)-for-five (5) reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), and on April 4, 2023, the Company filed with no material impactthe Secretary of State of the State of Nevada a Certificate of Change to its Articles of Incorporation to effect the Reverse Stock Split. The Reverse Stock Split became effective at 5:00 p.m. Eastern Time on April 21, 2023.
| 7 |
| Table of Contents |
The Company executed the one (1) for five (5) reverse stock split of its issued and outstanding common stock, par value $0.60 per share. Shares of common stock underlying outstanding stock options and restricted stock units were proportionately reduced, and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities. Accordingly, all shares and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and related disclosures.
Recent Accounting Pronouncements
The Company does not discuss recent pronouncements that are not anticipated to have ana material impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
2.
On January 31, 2023 the Company changed its capital return program, authorizingentered into a sales agreement (the “Sales Agreement”) with ThinkEquity LLC (“ThinkEquity” or the repurchase“Sales Agent”), relating to the sale of 500,000 shares of our common stock. In accordance with the Company'sterms of the Sales Agreement, we may offer and sell shares of our common stock in additionfrom time to time up to an aggregate offering price of $15,000,000 through or to the 500,000Sales Agent, acting as sales agent or principal. After adjusting for the Reverse Stock Split, the number of 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 promulgatedissuable under the Securities Exchange Act of 1934, as amended. The repurchase program has no termination date. Pursuant to the capital return program, the Company’s Board of Directors declared a quarterly dividend of $0.02 per shareterms of the Company'sSales Agreement is 845,070 shares of our common stock on September 18, 2017stock. The Company intends to shareholders of record as of October 2, 2017. These dividends were paid on October 16, 2017.
3.
The allowance for doubtful accounts on trade receivables was approximately $50 on gross trade receivables of $7,082$9,239 and $3,498$10,666 at SeptemberJune 30, 20172023, and December 31, 2016,2022, respectively. This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross trade receivables.
4.
Inventories, which are presented net of allowancesallowance for slow-moving,slow moving, excess, orand obsolete inventory, consistconsisted of the following:
September 30, 2017 | December 31, 2016 | |
| Finished goods | $3,535 | $3,216 |
| Work in process | 7,663 | 6,612 |
| Raw materials | 4,037 | 4,171 |
$15,235 | $13,999 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Finished goods |
| $ | 4,795 |
|
| $ | 2,965 |
|
Work in process |
|
| 7,556 |
|
|
| 7,313 |
|
Raw materials |
|
| 10,560 |
|
|
| 11,827 |
|
|
| $ | 22,911 |
|
| $ | 22,105 |
|
Allowances for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or net realizable value. The allowances were approximately $661$1,161 at SeptemberJune 30, 2017,2023, compared with approximately $1,607$1,247 at December 31, 2016. During the three months ended September 30, 2017, the2022.
5.Income Taxes
The Company disposed of excess and obsolete inventory for which reserves had been previously established. The impact to the Company’s balance sheet and statement of operations was not material.
The Company’s income tax provision is based on management’s estimate of the effective tax rate for the same periods lastfull year.
| 8 |
| Table of Contents |
As of SeptemberJune 30, 2017, and December 31, 2016,2023, the Company’s net deferred tax assets totaled approximately $1,701$4,116 and $3,418, respectively,were primarily derived from research and are primarily composed ofdevelopment tax credits, deferred revenue, and net operating loss carryforwards (“NOLs”), and research and development costs and tax credits partially offset by an increase to deferred tax liabilities of $1,360 derived from the unrealized gain on available-for-sale securities. As of September 30, 2017, these NOLs total approximately $626 for federal and $11,460 for state purposes, with expirations starting in 2018 through 2030.
In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years to utilize its NOLs prior to their expiration.years. The Company analyzed all positive and negative evidence to determine if, based on the weight of available evidence, the Companyit is 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 the Company’s 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 management’sthe analysis of all available evidence, both positive and negative, the Company’s managementCompany has concluded that the Companyit does not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax asset. Management estimated thatassets. Accordingly, the Company established a valuation allowance of $4,134 and $3,356 as of SeptemberJune 30, 2017, it is more likely than not that approximately $129 of the Company’s deferred tax asset will not be realized due to the inability to generate sufficient Florida taxable income in the necessary period to fully utilize its Florida NOLs.2023 and December 31, 2022, respectively. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of June 30, 2023.
6. Investments
Through September 30, 2017.
On September 14, 2022, FG contributed all of the shares of common stock of FGF held by 1347 LP to FG Holdings, with an approximate value of $945, based on the published price of FGF stock at the time of contribution, in exchange for Series B common membership interests of FG Holdings, with an equivalent value.
The investment in the Series B common membership interests of FG Holdings is measured using the NAV practical expedient in accordance with ASC 820 Fair Value Measurement and has not been classified within the fair value hierarchy. FG Holdings invests in the common and preferred stock of FGF. FG Holdings’ structure provides for Series A preferred interests, which accrue a return of eight percent per annum and receive 20% of positive profits with respect to the total return in the capital provided by the holders of Series A preferred membership interests. The Series B common membership interests receive cumulative distributions equal to the aggregate capital contributions by the Series B common membership interest equal to the total return on capital provided by the Series B common membership interests. Series B common membership interests also receive an additional return equal to 1.5 times the Series A of positive profits described above. There is no defined redemption frequency, and the Company cannot redeem or transfer its investment without the prior written consent of FG Holdings’ managers, who are FG affiliates. Distributions may be made to members at such times and amounts as determined by the managers, and shall be based on the most recent NAV. The Company does not have any unfunded commitments related to this investment.
As of SeptemberJune 30, 2017,2023, the Company, through its whollymembers and affiliates of FG Holdings beneficially owned subsidiary, held approximately 1.5 millionin the aggregate 5,666,111 shares of Iteris, Inc. (NASDAQ: ITI), which representedFGF’s common stock, representing approximately 4.5%55% of Iteris’sFGF’s outstanding shares. DuringAdditionally, FG and its affiliates constitute the quarter ended June 30, 2017, t
| 9 |
| Table of Contents |
7.Stockholders’ Equity
Effective on April 21, 2023, the Company filed a Certificate of Change to the Articles of Incorporation to effect the Reverse Stock Split (see Note 1). All share and per share information in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split. As of September 30, 2017, the Company and the significant stockholder of the Company beneficially own in the aggregate 1,746,743July 31, 2023, there were 3,694,298 shares of Iteris, which represents approximately 5.4%common stock issued and 3,404,218 outstanding, and no shares of Iteris’s outstanding shares.
The changes in condensed consolidated stockholders’ equity for the ninethree and six months ended SeptemberJune 30, 20172023, and 2022, are as follows:
Accumulated | |||||||
Common | Common | Additional | Accumulated | Other | |||
Stock | Stock | Paid-In | Earnings | Comprehensive | Treasury | ||
Shares | Amount | Capital | (Deficit) | Income | Stock | Total | |
| Balance at December 31, 2016 | 13,754,749 | $8,253 | $25,382 | $240 | $2,061 | $(162) | $35,774 |
| Common stock options exercised | |||||||
| and issued | 89,835 | 54 | 129 | - | - | - | 183 |
| Share-based compensation | |||||||
| expense | - | - | 34 | - | - | - | 34 |
| RSUs compensation expense | - | - | 41 | - | - | - | 41 |
| Dividends declared | (1,791) | - | - | (1,791) | |||
| Net income | - | - | - | 650 | - | - | 650 |
| Unrealized gain on | |||||||
| available-for-sale securities | - | - | - | - | 2,453 | - | 2,453 |
| Repurchase of common stock | - | - | - | - | - | (405) | (405) |
| Balance at September 30, 2017 | 13,844,584 | $8,307 | $25,586 | $(901) | $4,514 | $(567) | $36,939 |
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Treasury Stock |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at December 31, 2022 |
|
| 3,686,939 |
|
| $ | 2,212 |
|
| $ | 45,304 |
|
| $ | (21,979 | ) |
| $ | (5,402 | ) |
| $ | 20,135 |
|
Common stock issued |
|
| 858 |
|
|
| 1 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Common stock issued under restricted stock units |
|
| 1,920 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense-stock options |
|
| — |
|
|
| — |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 58 |
|
Share-based compensation expense-restricted stock units |
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,270 | ) |
|
| — |
|
|
| (1,270 | ) |
Balance at March 31, 2023 |
|
| 3,689,717 |
|
|
| 2,214 |
|
|
| 45,444 |
|
|
| (23,249 | ) |
|
| (5,402 | ) |
|
| 19,007 |
|
Common stock issue |
|
| 2,661 |
|
|
| 2 |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
Common stock issued under restricted stock units |
|
| 1,920 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense-stock options |
|
| — |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Share-based compensation expense-restricted stock units |
|
| — |
|
|
| — |
|
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,340 | ) |
|
| — |
|
|
| (1,340 | ) |
Balance at June 30, 2023 |
|
| 3,694,298 |
|
| $ | 2,217 |
|
| $ | 45,600 |
|
| $ | (24,589 | ) |
| $ | (5,402 | ) |
|
| 17,826 | |
|
| Common Stock Shares |
|
| Common Stock Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Treasury Stock |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at December 31, 2021 |
|
| 3,659,800 |
|
| $ | 2,196 |
|
| $ | 44,645 |
|
| $ | (8,821 | ) |
| $ | (5,402 | ) |
| $ | (32,618 | ) |
Common stock issued under restricted stock units |
|
| 3,200 |
|
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense-stock options |
|
| — |
|
|
| — |
|
|
| 85 |
|
|
| — |
|
|
| — |
|
|
| 85 |
|
Share-based compensation expense-restricted stock units |
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,936 | ) |
|
| — |
|
|
| (3,936 | ) |
Balance at March 31, 2022 |
|
| 3,663,000 |
|
|
| 2,198 |
|
|
| 44,798 |
|
|
| (12,757 | ) |
|
| (5,402 | ) |
|
| 28,837 |
|
Common stock issued under restricted stock units |
|
| 10,773 |
|
|
| 6 |
|
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation expense-stock options |
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
Share-based compensation expense-restricted stock units |
|
| — |
|
|
| — |
|
|
| 171 |
|
|
| — |
|
|
| — |
|
|
| 171 |
|
Common stock dividends ($0.03 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,014 | ) |
|
| — |
|
|
| (1,014 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,334 | ) |
|
| — |
|
|
| (4,334 | ) |
Balance at June 30, 2022 |
|
| 3,673,773 |
|
| $ | 2,204 |
|
| $ | 45,014 |
|
| $ | (18,105 | ) |
| $ | (5,402 | ) |
| $ | (23,711 | ) |
| 10 |
| Table of Contents |
8.
The following table sets forth the computation of basic and diluted incomeloss per share:
Three Months Ended | Nine Months Ended | |||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |
| Numerator: | ||||
| Net income (numerator for basic and diluted earnings per share) | $600 | $719 | $650 | $2,597 |
| Denominator: | ||||
| Denominator for basic earnings per share weighted average shares | 13,665,976 | 13,741,170 | 13,602,207 | 13,735,361 |
| Effect of dilutive securities: | ||||
| Options and RSUs | 22,321 | 95,134 | 102,677 | 89,895 |
| Denominator: | ||||
| Denominator for diluted earnings per share weighted average shares | 13,688,297 | 13,836,304 | 13,704,884 | 13,825,256 |
| Basic income per share | $0.04 | $0.05 | $0.05 | $0.19 |
| Diluted income per share | $0.04 | $0.05 | $0.05 | $0.19 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss for basic and diluted earnings per share |
| $ | (1,340 | ) |
| $ | (4,334 | ) |
| $ | (2,610 | ) |
| $ | (8,270 | ) |
Denominator for basic loss per share weighted average shares |
|
| 3,402,280 |
|
|
| 3,373,656 |
|
|
| 3,400,624 |
|
|
| 3,371,717 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and restricted stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Denominator for diluted loss per share weighted average shares |
|
| 3,402,280 |
|
|
| 3,373,656 |
|
|
| 3,400,624 |
|
|
| 3,371,717 |
|
Basic and diluted loss per share |
| $ | (0.39 | ) |
| $ | (1.28 | ) |
| $ | (0.77 | ) |
| $ | (2.45 | ) |
Approximately 328,500226,900 stock options grantedand 41,129 restricted stock units for the three and ninesix months ended SeptemberJune 30, 20172023, and 181,800 stock options and 27,411 restricted stock units for the three and six months ended June 30, 2022, were excluded from the calculation because they were anti-dilutive.
Stock Options
The Company has an employee and non-employee director share-based incentive compensation plan.plans. Related to these programs, the Company recorded non-cash share-based employee compensation expense of $19$61 and $34$119 for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared with $16$51 and $42, respectively,$136, for the same periods last year. The Company considers its non-cash share-based employee compensation expenses as a component of cost of products and selling, general and administrative expenses. There was no non-cash share-based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented.
The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of a stock option grant.grants under this plan. The non-cash share-based employee compensation expense recorded in the three and nine months ended SeptemberJune 30, 20172023, was calculated using certain assumptions. Such assumptions are described more comprehensively in Note 1110 (Share-Based Employee Compensation) of the Notes to the Company’s Consolidated Financial Statementsconsolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
A summary of activity under the Company’s stock option plans during the ninethree months ended SeptemberJune 30, 20172023, is presented below:
As of January 1, 2017 | Stock Options | Wgt. Avg. Exercise Price ($) Per Share | Wgt. Avg. Remaining Contractual Life (Years) | Wgt. Avg. Grant Date Fair Value ($) Per Share | Aggregate Intrinsic Value ($) |
| Outstanding | 311,000 | 3.48 | - | 1.96 | - |
| Vested | 231,000 | 3.30 | - | 1.97 | - |
| Nonvested | 80,000 | 4.01 | - | 1.93 | - |
| Period activity | |||||
| Issued | 248,500 | 4.84 | - | 1.54 | - |
| Exercised | 125,000 | 2.88 | - | 1.62 | - |
| Forfeited | 80,000 | 4.31 | - | 1.95 | - |
| Expired | - | - | - | - | - |
| As of September 30, 2017 | |||||
| Outstanding | 354,500 | 4.46 | 7.60 | 1.79 | 35,960 |
| Vested | 108,000 | 3.69 | 3.36 | 2.28 | 35,960 |
| Nonvested | 246,500 | 4.80 | 9.46 | 1.57 | - |
|
| 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 ($) |
| |||||
As of January 1, 2023 | ||||||||||||||||||||
Outstanding |
|
| 200,300 |
|
|
| 15.48 |
|
|
| 7.87 |
|
|
| 5.64 |
|
|
| 460,925 |
|
Vested |
|
| 86,846 |
|
|
| 17.83 |
|
|
| 6.73 |
|
|
| 6.57 |
|
|
| 101,090 |
|
Nonvested |
|
| 113,454 |
|
|
| 13.68 |
|
|
| 8.74 |
|
|
| 4.93 |
|
|
| 359,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued |
|
| 28,600 |
|
|
| 11.51 |
|
|
| — |
|
|
| 6.57 |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Expired |
|
| 2,000 |
|
|
| 11.15 |
|
|
| — |
|
|
| 7.02 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
| 226,900 |
|
|
| 15.02 |
|
|
| 7.75 |
|
|
| 5.75 |
|
|
| 588,515 |
|
Vested |
|
| 128,973 |
|
|
| 16.40 |
|
|
| 7.04 |
|
|
| 5.93 |
|
|
| 244,668 |
|
Nonvested |
|
| 97,927 |
|
|
| 13.19 |
|
|
| 8.68 |
|
|
| 5.50 |
|
|
| 343,847 |
|
Restricted Stock Units
The Company recorded non-cash restricted stock unit compensation expense of $63 and $132 for the three and six months ended June 15, 2017,30, 2023, compared with $171 and $241 for the Company granted to eachsame periods last year.
A summary of non-vested restricted stock under the Company’s non-employee director RSUs with a grant fair value of $20 per award, which will vest on June 15, 2018, subject to continued service through such vesting date.
|
| Number of Shares |
|
| Weighted Average Price per Share |
| ||
Unvested at January 1, 2023 |
|
| 41,129 |
|
| $ | 13.20 |
|
Granted |
|
| - |
|
|
| - |
|
Vested and issued |
|
| - |
|
|
| - |
|
Cancelled/forfeited |
|
| - |
|
|
| - |
|
Unvested at June 30, 2023 |
|
| 41,129 |
|
| $ | 13.20 |
|
| 12 |
| Table of Contents |
10.
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. On March 28, 2017, The Sales Group, Inc. (“TSG”) purported to file a lawsuit in the U.S. District Court for the Central District of California against the Company. TSG was a sales representative ofquarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company terminated in March 2017. TSG has asserted claims against the Company for alleged breach of oral contract, violation of the Californiawill incur a loss and Arizona sales representative statutes, and an accounting of alleged unpaid sales commissions. TSG’s complaint seeks damages in the amount of $6,090 for alleged unpaid past and future sales commissions. On April 3, 2017, counsel for TSG sentthe loss can be reasonably estimated, it records a liability in its consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company a letter outlining additional alleged grounds for recovery against the Company and offering to settle the litigation in exchange for the continued paymentdoes not accrue legal reserves, consistent with applicable accounting guidance. There were no pending material claims or legal matters as of sales commissions to TSG for a negotiated period, a buyout of TSG’s alleged rights for a negotiated sum, or reinstatement of TSG for a period of at least 2.5 years with commission rates equal to those in effect at the time of TSG’s termination. The Company believes that TSG’s claim has no merit, that the Company had the right to terminate TSG without the payment of any further sales commissions and intends to defend against this litigation vigorously. The Company filed a motion to dismiss, or in the alternative, stay the case pending arbitration of the dispute. A hearing on the motion was held on July 24, 2017. The Company took the position in briefing and at the hearing that the dispute should be arbitrated. The Court indicated at the hearing that it will consider whether arbitration is appropriate after some discovery is conducted. This matter is scheduled for mediation on November 14, 2017. The outcome of this matter cannot presently be determined; accordingly, no related provision has been made in the Condensed Consolidated Financial Statements.
Purchase Commitments
As of SeptemberJune 30, 2017,2023, the Company had purchase orders to supplierscommitments for inventory oftotaling approximately $11,352.
Significant Customers
Sales to the United States government agencies represented approximately $5,210 (43.7%$8,785 (46.2%) and $11,145 (36.5%$17,429 (46.2%) of the Company’s net total sales for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, compared with approximately $9,227 (62.0%$5,316 (43.9%) and $26,012 (59.2%$6,965 (37.3%), respectively, for the same periods last year. Accounts receivable from agencies of the United States government were $2,977$2,412 as of SeptemberJune 30, 2017,2023, compared with approximately $3,475$2,554 at the same date last year.
11.
Credit Facilities
On November 22, 2022, the Company’s subsidiaries, BK Technologies, Inc. and RELM Communications, Inc. (the “Subsidiaries”), entered into an accounts receivable financing arrangement via an Invoice Purchase and Security Agreement (“IPSA”) with Alterna Capital Solutions, LLC (“Alterna”). On November 28, 2022, the Subsidiaries and Alterna entered into a rider to the IPSA, to modify the agreement to, among other things, provide a credit facility for up to 75% of net orderly liquidation value of inventory, not to exceed 100% of the eligible accounts receivable balance. The IPSA, which provides for a one-year line of credit with a maximum capacity of up to $15 million (the “Line of Credit”), is scheduled to be renewed in November 2023, unless canceled by either party, as provided in the agreement. The Line of Credit bears an interest rate of Prime plus 1.85%. The effective borrowing rate under the IPSA was 10.1% as of June 30, 2023. Interest and related servicing fees for the three months and six months ended June 30, 2023, were approximately $173 and $322, respectively. Under the arrangement, the Company may transfer eligible short-term trade receivables to the conduit, with full recourse, on a daily basis in exchange for cash. Generally, at the transfer date, the Company may receive cash equal to approximately 85% of the value of the transferred receivables. The Company accounts for the transfers of receivables as a secured borrowing due to the Company’s continuing involvement with the accounts receivable.
The Company used approximately $4.5 million of IPSA funding to repay the outstanding balance of the credit facility with JP Morgan Chase Bank, N.A., which subsequently expired on January 31, 2023.
During the three and six months ended June 30, 2023, the Company transferred receivables having an aggregate face value of $18.0 and $35.0 million, respectively, to the conduit in exchange for net proceeds of $19.8 and $40.6 million, respectively, of which $20.2 and $40.1 million, respectively, were funded by re-invested collections. There were no losses incurred on these transfers during the three and six months ended June 30, 2023. The IPSA matures on November 22, 2023.
At June 30, 2023, the outstanding borrowings under this credit facility were approximately $6.6 million and the outstanding principal amount of receivables transferred under this facility amounted to $7.2 million.
| 13 |
| Table of Contents |
Notes Payable
On April 6, 2021, BK Technologies, Inc., a wholly owned subsidiary of the Company, and JPMC, as a lender, entered into a Master Loan Agreement in the amount of $743 to finance various items of manufacturing equipment (the “JPMC Credit Agreement”). The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement. This note payable was paid in full on June 27, 2023.
On September 25, 2019, BK Technologies, Inc., a wholly owned subsidiary of the Company, 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 manufacturing equipment. The loan is collateralized by the equipment purchased using the proceeds. The Master Loan Agreement is payable in 60 equal monthly principal and interest payments of approximately $8 beginning on October 25, 2019, matures on September 25, 2024, and bears a fixed interest rate of 5.11%.
The following table summarizes the notes payable principal repayments subsequent to June 30, 2023:
|
| June 30, 2023 |
| |
Remaining six months of 2023 |
| $ | 46 |
|
2024 |
|
| 71 |
|
Thereafter |
|
| — |
|
Total payments |
| $ | 117 |
|
12. Leases
The Company accounts for its leasing arrangements in accordance with Topic 842, “Leases”. 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.
The Company leases approximately 54,000 square feet (not in thousands) of industrial space in West Melbourne, Florida, under a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $1,000 (subject to a borrowing base) and a maturitynon-cancellable operating lease. The lease has the expiration date of December 27, 2017. As of September 30, 2017,2027. Annual rental, maintenance and tax expenses for the facility are approximately $491.
In February 2020, the Company wasentered into a lease for 6,857 square feet (not in compliance with all covenants underthousands) of office space at Sawgrass Technology Park, 1619 NW 136th Avenue in Sunrise, Florida, for a period of 64 months commencing July 1, 2020. Annual rental, maintenance and tax expenses for the loan and security agreement, as amended, governing this revolving credit facility. For a description of such covenants andfacility will be approximately $196 for the other terms and conditionsfirst year, increasing by approximately 3% for each subsequent 12-month period.
| 14 |
| Table of Contents |
Lease costs consisted of the loan and security agreement,following:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Operating lease cost |
| $ | 136 |
|
| $ | 136 |
|
| $ | 272 |
|
| $ | 272 |
|
Short-term lease cost |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Variable lease cost |
|
| 33 |
|
|
| 33 |
|
|
| 66 |
|
|
| 65 |
|
Total lease cost |
| $ | 169 |
|
| $ | 169 |
|
| $ | 338 |
|
| $ | 337 |
|
Supplemental cash flow information related to leases was as amended, reference is madefollows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating cash flows (fixed payments) |
| $ | 147 |
|
| $ | 144 |
|
| $ | 295 |
|
| $ | 288 |
|
Operating cash flows (liability reduction) |
| $ | 119 |
|
| $ | 109 |
|
| $ | 237 |
|
| $ | 218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Other information related to Note 6 (Debt)operating leases was as follows:
June 30, 2023 | ||||
Weighted average remaining lease term (in years) | 3.74 | |||
Weighted average discount rate | 5.50 | % | ||
Maturity of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Aslease liabilities as of SeptemberJune 30, 2017, there2023, were no borrowings outstanding under the revolving credit facility and there was $1,000 of borrowing available under the revolving credit facility.
|
| June 30, 2023 |
| |
Remaining six months of 2023 |
| $ | 300 |
|
2024 |
|
| 608 |
|
2025 |
|
| 618 |
|
2026 |
|
| 479 |
|
2027 |
|
| 242 |
|
Thereafter |
|
| — |
|
Total payments |
|
| 2,247 |
|
Less: imputed interest |
|
| (215 | ) |
Total present value of lease liability |
| $ | 2,032 |
|
| 15 |
| Table of Contents |
Item 2
.SPECIAL NOTE CONCERNING
FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, including any information incorporated by reference in 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 Securities Exchange Act, of 1934, 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”“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. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others. Forward-looking statements include, but are not limited to, the following: changes or advances in technology; the success of our SaaS and Radio business lines and the products offered thereunder; successful introduction of new products and technologies, including our ability to successfully develop and sell our anticipated SaaS products, and our new multiband radio 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.
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| Table of Contents |
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022, and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:
· | changes or advances in technology; | |
· | the success of our land mobile radio 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 and our SaaS solution; | |
· | competition in the land mobile radio industry; | |
· | general economic and business conditions, including federal, state and local government budget deficits and spending limitations, any impact from a prolonged shutdown of the U.S. Government, and the ongoing effects of inflation, rising interest rates, bank failures, supply-chain constraints, ongoing geopolitical conflicts and related sanctions; | |
· | the availability, terms and deployment of capital; | |
· | reliance on contract manufacturers and suppliers; | |
· | risks associated with fixed-price contracts; | |
· | 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 and consummate acquisition, disposition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation; | |
· | the impact of general business conditions, including those resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts and related sanctions, on the companies in which we hold investments; | |
· | 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, as well as any further impact resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts and related sanctions; |
| 17 |
| Table of Contents |
· | 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, public health crises, 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 through future sales of shares of our common stock. |
Some of these factors and risks have been, and may further be, exacerbated by general economic conditions, including the ongoing military conflict in technology;
Reported dollar amounts in the management’s discussion and analysis (“MD&A”) section of this report are disclosed in millions or as whole dollar amounts.
The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statementscondensed consolidated financial statements and notes thereto appearing elsewhere in this report and the MD&A, Consolidated Financial Statementsconsolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Executive Overview
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 public safety grade communications products and marketservices which make first responders safer and more efficient. All operating activities described herein are undertaken by our operating subsidiary.
In business for over 70 years, BK operates two business units through its operating subsidiary, BK Technologies, Inc.: Radio and SaaS.
The Radio business unit designs, manufactures and markets American-made wireless communications products consisting of two-way land mobile radios repeaters, base stations, and related components and subsystems.
Generally, BK Radio-brandedTechnologies-branded products serve the government andmarkets, including but not limited to, emergency response, public safety, market, while RELM-brandedhomeland security and military customers of federal, state and municipal government agencies, as well as various industrial and commercial enterprises. We believe that our products serveand solutions provide superior value by offering a high specification, ruggedized, durable, reliable, feature rich, Project 25-compliant radio at a lower cost relative to comparable offerings.
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| Table of Contents |
The SaaS business unit focuses on delivering innovative, public safety smartphone applications that operate ubiquitously over public cellular networks. Our BKRplay branded smartphone application will offer multiple services that make first responders safer and more efficient. When tethered to our radios, the businesscombined solution will offer a unique capability which increases the sales reach of our radios.
We were incorporated under the laws of the State of Nevada on October 24, 1997. We are the corporation resulting 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.”
Our principal executive offices are located at 7100 Technology Drive, West Melbourne, Florida 32904 and industrial market.
Customer demand and operating resultsorders for our products were strong during 2022. Supply chain constraints limited our ability to manufacture the third quarterquantities needed to ship and fulfill all the orders during 2022. Consequently, approximately 13,000 radio units were carried in backlog as of 2017 reflected sales growthDecember 31, 2022, and increasing cash compared withwe fulfilled approximately 76% of these radio units during the first two quartershalf of 2017. Compared with the third quarter last year, sales2023.
Our backlog of unshipped customer orders was approximately $24.0 million and earnings decreased, which reflects the positive impact in 2016 of sales related to our contract with the U.S. Transportation Security Administration (“TSA”). During the third quarter, we declared a dividend of $0.02 paid on October 16, 2017 to shareholders of record$27.0 million as of October 2, 2017.
For the three months ended SeptemberJune 30, 2017, our2023, sales totaledgrew approximately $11.856.9% to approximately $19.0 million, compared with approximately $14.7$12.1 million for the same quarter lastprior year period. The growth was attributed primarily to the BKR 5000 product and $10.8 million for the preceding quarter. Salesfulfillment of P-25 digital products for the third quarter of 2017 totaled approximately $8.2 million (69.7% of total sales), compared with approximately $9.7 million (65.7% of total sales) for the third quarter last year.
For the three months ended SeptemberJune 30, 2017, selling, general2023, we recognized other expenses, net totaling approximately $0.6 million, primarily attributed to net unrealized losses from our investment in FG Financial Holdings, LLC. and administrativeinterest expense on our Line of Credit. This compares with other expenses, (“SG&A”) totaled approximately $3.7 million (30.9% of sales), compared with approximately $3.5 million (24.1% of sales) for the same quarter last year. For the nine months ended September 30, 2017, SG&A expenses totaled approximately $10.6 million (35.4% of sales), compared with approximately $10.1 million (23.3% of sales) for the same period last year.
For the three months ended SeptemberJune 30, 2017, we recognized income tax expense totaling2023, the pretax loss totaled approximately $252,000,$1.3 million, compared with $365,000pretax loss of approximately $4.3 million for same period of the same quarter lastprior year. For the ninesix months ended SeptemberJune 30, 2017, income2023, the pretax loss totaled approximately $2.6 million, compared with pretax loss of approximately $8.3 million for same period of the prior year.
We recognized no tax expense totaled approximately $353,000, compared with approximately $1.4 millionfor the three and six-month periods ended June 30, 2023, and for the same period lastof the prior year. Our income tax expense is largely non-cash due to utilization of our
The net operating loss carryforwards (“NOLs”).
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| Table of Contents |
As of June 30, 2023, working capital totaled approximately $12.4 million, of which $11.9 million was comprised of cash, cash equivalents and trade receivables. This compares with working capital totaling approximately $13.2 million at 2022 year-end, which included $12.5 million of cash, cash equivalents and trade receivables.
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 by submitting a written request to bktechnologies@imsinvestorrelations.com or calling (203) 972-9200. Additional information regarding our investor relations department can be found on our website. All reports that the Company files with or furnishes to the SEC are also available free of charge via the SEC’s website at http://www.sec.gov.
Second Quarter and Six Months Summary
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.
We received record customer orders of approximately $70 million in 2022. Customer demand and orders for our products continued to be strong during the three months ended June 30, 2023. Worldwide shortages of materials, particularly semiconductors and integrated circuits, resulting in part from the impact of COVID-19 have resulted in limited supplies, extended lead times, and increased our costs and inventory levels for certain components used in our products. While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders, we have experienced some delays and longer delivery times within our supply chain in the year ended December 31, 2022. The impact on our operations of such shortages, or additional shortages that may surface, is uncertain, but could potentially impact our future sales, manufacturing operations and financial results. Continued progression of these circumstances could result in a decline in customer orders, as our customers could shift purchases to lower-priced or other perceived value offerings or reduce their purchases and inventories due to decreased budgets, reduced access to credit or various other factors, and impair our ability to manufacture our products, which could have a material adverse impact on our results of operations and cash flow. These supply chain constraints and material shortages limited our ability to manufacture the quantities needed to ship and fulfill all of the orders that we received in 2022. Consequently, we had approximately 13,000 radio units that were carried in backlog as of December 31, 2022, and we fulfilled approximately 76% of these radio units during the six-months ended June 30, 2023.
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| Table of Contents |
Overall, our revenues for the three months ended June 30, 2023, increased compared with the same period of last year. For the second quarter 2023, sales increased 56.9% to approximately $19.0 million, compared with approximately $12.1 million of sales for the second quarter last year. The improvement in sales for the six-months ended June 30, 2023, increased 101.7% compared to the same six-month period last year. Gross profit margin as a percentage of sales for the second quarter of 2023 was approximately 27.4%, compared with 14.2% for the same period of last year, generally reflecting improvements in increased production volumes and improvements in supply chain material costs and freight compared to the second quarter last year. Gross profit margin as a percentage of sales for the six months ended June 30, 2023, was approximately 26.8%, compared with 17.1% for the same period of last year, generally reflecting improvements in supply chain material and freight costs and increased production volumes. Selling, general and administrative (“SG&A”) expenses for the second quarter of 2023 totaled approximately $6.0 million, which was 10.8% higher than the SG&A expenses of approximately $5.4 million for the second quarter last year, while SG&A expenses for the six-month period ended June 30, 2023, increased 15.0% compared to the same period last year. The increase in SG&A expenses is attributed primarily to sales and engineering costs related to the BKR 9000 product introduction. These factors yielded an operating loss of approximately $0.8 million for the three-month period ended June 30, 2023, compared with an operating loss of approximately $3.7 million for the same quarter last year, which improved primarily due to higher production volumes and reduced supply chain material challenges compared to the same period last year.
For the second quarter of 2023, we recognized a net unrealized loss totaling approximately $0.4 million on our investment in FG Financial Holdings, LLC., or “FG Holding”. This compares with an unrealized loss of approximately $0.6 million on the investment in FG Financial Group, Inc. made through FG 1347 Holdings, LP, for the second quarter of last year. For the six months ended June 30, 2023, we recognized a net unrealized loss totaling approximately $0.5 million on our investment in FG Financial Holdings, LLC. compared with an unrealized loss of approximately $1.1 million on the investment in FG Financial Group, Inc. made through FG 1347 Holdings, LP, for last year’s six-month period.
Net loss for the three months ended June 30, 2023, was approximately $1.3 million ($0.39per basic and diluted share), compared with a net loss of approximately $4.3 million ($1.28 per basic and diluted share) for the same quarter last year. For the ninesix months ended SeptemberJune 30, 2017,2023, our net incomeloss totaled approximately $650,000$2.6 million ($0.050.77 per basic and diluted share), compared with a net loss of approximately $2.6$8.3 million ($0.192.45 per basic and diluted share) for the same period last year.
As of SeptemberJune 30, 2017,2023, working capital totaled approximately $24.5$12.4 million, of which approximately $16.0$11.9 million was comprised of cash, cash equivalents and trade receivables. As of December 31, 2016,2022, working capital totaled approximately $23.4$13.2 million, of which approximately $14.4$12.5 million was comprised of cash, cash equivalents and trade receivables.
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| Table of Contents |
Results of Operations
As an aid to understanding our operating results for the periods covered by this report, the following table shows selected items from our Condensed Consolidated Statementscondensed consolidated statements of Operationsoperations expressed as a percentage of sales:
Percentage of SalesThree Months Ended | Percentage of SalesNine Months Ended | |||
September 30,2017 | September 30,2016 | September 30,2017 | September 30,2016 | |
| Sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of products | (67.7) | (68.6) | (64.8) | (67.7) |
| Gross margin | 32.3 | 31.4 | 35.2 | 32.3 |
| Selling, general and administrative expenses | (30.9) | (24.1) | (35.4) | (23.3) |
| Other income (expense) | 5.8 | 0.0 | 3.6 | 0.0 |
| Income before income taxes | 7.2 | 7.3 | 3.4 | 9.0 |
| Income tax expense | (2.1) | (2.5) | (1.2) | (3.0) |
| Net income | 5.1% | 4.8% | 2.2% | 6.0% |
|
| Percentage of Sales Three Months Ended |
|
| Percentage of Sales Six Months Ended |
| ||||||||||
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of products |
|
| (72.6 | ) |
|
| (85.8 | ) |
|
| (73.2 | ) |
|
| (82.9 | ) |
Gross margin |
|
| 27.4 |
|
|
| 14.2 |
|
|
| 26.8 |
|
|
| 17.1 |
|
Selling, general and administrative expenses |
|
| (31.5 | ) |
|
| (44.6 | ) |
|
| (31.5 | ) |
|
| (55.2 | ) |
Other income (expense) |
|
| (3.0 | ) |
|
| (5.4 | ) |
|
| (2.2 | ) |
|
| (6.1 | ) |
Loss before income taxes |
|
| (7.1 | ) |
|
| (35.8 | ) |
|
| (6.9 | ) |
|
| (44.2 | ) |
Income tax (expense) benefit |
|
| -- |
|
|
| -- |
|
|
| -- |
|
|
| -- |
|
Net loss |
|
| (7.1 | )% |
|
| (35.8 | )% |
|
| (6.9 | )% |
|
| (44.2 | )% |
Net Sales
For the thirdsecond quarter ended SeptemberJune 30, 2017,2023, net sales totaledincreased 56.9% to approximately $11.8$19.0 million, compared with approximately $14.7$12.1 million for the same quarter last year. Sales of P-25 digital products for the quartersix months ended June 30, 2023, totaled approximately $8.2 million (69.7% of total sales), compared with approximately $9.7 million (65.7% of total sales) for the same quarter last year.
Customer demand and orders for our products continued to be strong, reflecting the acceptance by the marketplace for our BKR 5000 product. We were able to fulfill approximately 76% of P-25 digital productsthe radio units in backlog as of December 31, 2022, during the first six months of this year. The supply chain issues experienced in 2022 have improved significantly, but the precise impact on sales and shipments for the period totaled approximately $21.4 million (71.3%remainder of total sales), compared with approximately $28.1 million (64.6%2023 cannot be quantified, hence we anticipate maintaining an elevated level of total sales)inventory.
Sales for the same period last year.
While the TSA, which were not replicated this year. Duringpotential impacts of material shortages, lead-times, the third quarter, however, demand from other federal, statecurrent inflationary environment and international public safety agencies strengthened fromongoing geopolitical conflict and related sanctions in coming months and quarters remain uncertain, such effects have the first half of 2017 and from last year’s third quarter. Comparedpotential to last year’s third quarter, sales to agencies other than the TSA increased approximately 15.4%.
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Cost of Products and Gross Profit Margin
Gross profit marginmargins as a percentage of sales for the thirdsecond quarter ended SeptemberJune 30, 2017 was 32.3%,2023, were approximately 27.4% compared with 31.4%14.2% for the same quarter last year. For the nine monthssix-month period ended SeptemberJune 30, 2017,2023, gross profit margin as a percentage of sales was 35.2%margins were approximately 26.8%, compared with 32.3%17.1% for the same period last year.
Our cost of products and gross profit marginmargins are primarily derived primarily from material, labor and overhead costs, product mix, manufacturing volumes and pricing. For the third quarter and nine month periods, sales were more heavily weighted toward lower margin products, and were sold using promotional pricing designed to drive sales growth. Gross profit margins were also adversely impacted by incremental product costs associated with addressing customer requirements. For last year’s thirdfor the quarter and nine-month periods, gross profit margins were negatively affected by competitive factors associatedended June 30, 2023, increased compared with the TSA business.
During the year ended December 31, 2022, worldwide shortages of materials, including semiconductors and integrated circuits resulted in limited supplies, which in turn, extended lead times and resulted in higher costs for certain components used in our manufacturingproducts. Accordingly, we experienced delivery delays and increased costs efficiencywithin our supply chain. While the progression and quality were initiated earlier this year and are continuing. We are optimistic thatduration of these programs will yieldshortages is not known with certainty, we monitored a number of critical components for product cost improvement and gross profit margin benefits in coming quarters.
Selling, General and Administrative Expenses
SG&A expenses consist of marketing, sales, commissions, engineering, product development, management information systems, accounting, headquarters, and non-cash share-based employee compensation expenses.
SG&A expenses for the thirdsecond quarter of 2017ended June 30, 2023, totaled approximately $3.7$6.0 million or 30.9%(31.5% of sales,sales), compared with approximately $3.5$5.4 million or 24.1%(44.6% of sales, for the third quarter last year. For the nine months ended September 30, 2017, SG&A expenses totaled approximately $10.6 million, or 35.4% of sales, compared with $10.1 million, or 23.3% of sales, for the same period last year.
Engineering and product development expenses for the second quarter of 2023 totaled approximately $2.6 million (13.7% of sales), compared with approximately $2.3 million (12.1% of sales) for the same quarter of last year. For the six months ended June 30, 2023, engineering and product development expenses totaled approximately $3.4$5.0 million (11.2%(13.3% of sales), compared with approximately $3.2$4.6 million (7.3%(24.6% of sales) for the samesix month period last year. Contributing to theThe increase in engineering expenses were costs relatedis attributed primarily to ongoing product design and development activities, particularly for the new product development projects.
Marketing and selling expenses for the thirdsecond quarter of 2017 decreased to2023 totaled approximately $1.4$1.5 million (12.0%(8.0% of sales), compared with approximately $1.5$1.1 million (10.6%(5.8% of sales) for the thirdsecond quarter last year. For the nine-month period,six months ended June 30, 2023, marketing and selling expenses decreasedincreased approximately $1.0 million, or 47.5%, to approximately $4.0$3.1 million (13.4%(8.1% of sales), compared with $4.4approximately $2.1 million (10.0% of sales) for the same period last year. The decrease for both periods is attributed primarily to commissions and incentive compensation directly related to sales performance. These decreases were partially offset by expenses related to new sales staff.
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Other general and administrative expenses for the second quarter 2023 totaled approximately $156,000 (1.3%$1.9 million (9.8% of sales), compared with approximately $1.1$2.0 million (7.3%(10.5% of sales) for the same quarter last year. For the nine-monthsix months ended June 30, 2023, general and administrative expenses totaled approximately $3.8 million (10.1% of sales), compared with approximately $3.6 million (19.4% of sales) for the six month period last year. The increase in general and administrative expenses for the quarter and six months ended June 30, 2023, is attributed primarily to corporate and headquarters staffing in support of strategic initiatives.
Operating Loss
The operating loss for the second quarter ended June 30, 2023, totaled approximately $0.8 million (4.1% of sales), compared with approximately $3.7 million (30.4% of sales) for last year’s second quarter. For the six months ended June 30, 2023, our operating loss totaled approximately $1.8 million (4.7% of sales), compared with approximately $7.1 million (38.1% of sales) for the six month period last year. The operating loss for the quarter and six months ended June 30, 2023, is somewhat attributed to lower than historical gross profit margins related to operating costs and increased product introduction and strategic initiative costs.
Other (Expense) Income
We recorded net interest expense of approximately $155,000 for the second quarter ended June 30, 2023, compared with approximately $24,000 for the second quarter of last year. For the six months ended June 30, 2023, net interest expense totaled approximately $298,000, compared with net interest expense of approximately $39,000 for the six month period last year. Net interest expense was primarily the result our Line of Credit and equipment financing.
For the second quarter ended June 30, 2023, we recognized an operatingunrealized loss of approximately $76,000$0.4 million on our investment in FG Holdings, compared with operating incomean unrealized loss of approximately $3.9$0.6 million in FG Financial Group, Inc. made through FG 1347 Holdings, LP for the second quarter last year. For the six months ended June 30, 2023, we recognized an unrealized loss of approximately $0.5 million on our investment compared with an unrealized loss of approximately $1.1 million for the same period last year.
Income Taxes
We recorded no tax expense or benefit for the quarter and six months ended June 30, 2023, compared with no income tax provision for the second quarter and six month period last year.
Our income tax provision is based on management’s estimate of the effective tax rate for the full year. The decreasetax provision (benefit) in operating income for both periods was attributed primarily to the impact of last year’s sales to the TSA and related product costsany period will be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain SG&A expenses, some of which are considered non-recurring.
As of SeptemberJune 30, 2017,2023, our net deferred tax assets totaled approximately $1.7$4.1 million, and are primarily composed of NOLs, offset by deferred tax liabilities of $1.3 millionwere primarily derived from the unrealized gain on available-for-sale securities. These NOLs total $626,000 for federalresearch and $11.5 million for state purposes, with expirations starting in 2018 through 2030.
In order to fully utilize the net deferred tax assets, we will need to generate sufficient taxable income in future years to utilize our NOLs prior to their expiration.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 do not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax asset. Management asserts that it is more likely than not that approximately $129,000assets. Accordingly, we established a valuation allowance of the deferred tax asset will not be realized due to the inability to generate sufficient Florida taxable income in the necessary period to fully utilize the Florida NOLs.$4.1 million as of both June 30, 2023, and December 31, 2022. 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 SeptemberJune 30, 2017.
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Liquidity and Capital Resources
For the ninesix months ended SeptemberJune 30, 2017,2023, net cash provided by operating activities totaled approximately $1.5 million, compared with cash used by operating activities of approximately $5.3 million for the same period last year. Cash provided by operating activities for the six months ended June 30, 2023, was primarily related to a reduction in accounts receivable and an increase in deferred revenues, which was partially offset by decrease in accounts payable. Cash used in operating activities totaledfor the six months ended June 30, 2022, was primarily related to a net loss and increased inventory, which were partially offset by increased accounts payable, a decrease in accounts receivable and an unrealized loss in marketable securities.
For the first six months of 2023, we had a net loss of approximately $245,000,$2.6 million, compared with cash provided by operating activitiesa net loss of approximately $8.3 million for the same period last year. Cash used in operating activities was primarily related to trade accountsAccounts receivable inventories, and accrued compensation and related taxes, offset by accounts payable, accrued warranty expense and depreciation.
Cash used in investing activities for the six months ended June 30, 2023, totaled approximately $0.9 million, compared with approximately $0.7 million for the same period last year. The cash used for both periods was attributed primarily to the purchase of engineering and manufacturing related equipment.
For the six months ended June 30, 2023, cash of approximately $0.1 million was provided by financing activities, compared with cash provided by financing activities of approximately $1.3 million for the same period last year. During the first six months of 2023, we received cash of approximately $40.7 million from debt, net of repayments totaling approximately $40.6 million, while for the same period last year, due to material purchases. Depreciation and amortization totaledwe received proceeds of approximately $727,000 for the nine months ended September 30, 2017, compared with approximately $718,000 for the same period last year.
Our cash and cash equivalents balance at Septemberon June 30, 20172023, was approximately $8.9$2.7 million. We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our revolving credit facilitythe IPSA, are sufficient to meet our working capital requirements for the foreseeable future. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in public or private offerings of equity or debt securities to increase our capital resources. However, the financial and economic conditions, which could be impacted by the current inflationary environment and current geopolitical tension, 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 “Item 1A. Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
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Critical Accounting Policies
In response to the SEC’sSecurities and Exchange Commission’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for disclosure our revenue recognition process and our accounting processes involving significant judgments, estimates and assumptions. These processes affect our reported revenues and current assets and are, therefore, critical in assessing our financial and operating status. We regularly evaluate these processes in preparing our financial statements. The processes for revenue recognition, allowance for collection of trade receivables, allowance for excess or obsolete inventory software development and income taxes involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances. These estimates and assumptions, if incorrect, could adversely impact our operations and financial position.
There were no changes to our critical accounting policies during the quarterthree months ended SeptemberJune 30, 2017,2023.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a “smaller reporting company” as described indefined by Item 7229.10(f)(1) of our Annual Report on Form 10-K forRegulation S-K, the fiscal year ended December 31, 2016.
Item 4.
CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (who serves as our principal executive officer) and Chief Financial Officer (who serves as our principal financial and accounting officer) have evaluated, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (“Securities Exchange Act”) Rules 13a-15(e) and 15d-15(e)) under the Exchange Act), as of September 30, 2017.the end of the period covered by this Quarterly Report. Based on thisupon that evaluation, they haveour Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2017.
Changes in Internal Control over Financial Reporting
During the three months ended SeptemberJune 30, 2017,2023, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHERII - OTHER INFORMATION
Item 1.
As of the Company’s Condensed Consolidated Financial Statementsdate of this filing, except as set forth herein, there have been no material changes to the Risk Factors included elsewherein our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 16, 2023. The Risk Factors set forth in the 2022 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this report forQuarterly Report on Form 10-Q. Any of the information required by this Item.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSPeriod | 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) |
| 07/01/17-07/31/17 | 19,000 | $3.79 | 19,000 | 904,478(2) |
| 08/01/17-08/31/17 | 18,007 | $3.62 | 18,007 | 886,471 |
| 09/01/17-09/30/17 | 13,281 | $3.86 | 13,281 | 873,190 |
| Total | 50,288 | $3.76 | 50,288 |
Share Repurchase Program
On May 19, 2016,December 21, 2021, the Company announced that the Board has authorized a share repurchase program which permits the Company to purchase up to an aggregate of $5 million of its common shares. The program does not have an expiration date. Any repurchases would be funded using cash on May 18, 2016, itshand and cash from operations. The actual timing, manner and number of shares repurchased under the program will be determined by management and the Board of Directors approvedat their discretion, and will depend on several factors, including the repurchase of up to 500,000 sharesmarket price of the Company’s common shares, general market and economic conditions, alternative investment opportunities, and other business considerations in accordance with applicable securities laws and exchange rules. The authorization of the share repurchase program does not require BK Technologies to acquire any particular number of shares and repurchases may be suspended or terminated at any time at the Company’s discretion. The following table provides information about purchases made by us of our common stock 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 Securities Exchange Act of 1934, as amended (the “Repurchase Program”). The Repurchase Program has no termination date. On June 15, 2017, the Company announced that its Board of Directors approved the increasefor each month included in the Repurchase Program from 500,000 to 1,000,000 sharessecond quarter of the Company’s common stock.
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid Per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Still be Purchased Under the Plans or Programs |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
April 1–30, 2023 |
|
| — |
|
|
|
|
| — |
|
| $ | 5,000,000 |
|
May 1–31, 2023 |
|
| — |
|
|
|
|
| — |
|
| $ | 5,000,000 |
|
June 1–30, 2023 |
|
| — |
|
|
|
|
| — |
|
| $ | 5,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2023 |
| $ | — |
|
|
|
|
| — |
|
| $ | 5,000,000 |
|
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Item 6.
EXHIBITSExhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index below.
Exhibit Index
Exhibit Number | Description | |||
Exhibit 101.INS | XBRL Instance Document | |||
Exhibit 101.SCH | XBRL Taxonomy Extension Schema Document | |||
Exhibit 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
Exhibit 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
Exhibit 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||
Exhibit 101.DEF | XBRL Taxonomy Definition Linkbase Document | |||
Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) (filed herewith) | |||
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SIGNATURES
Pursuant to the requirements 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 | |||
(The “Registrant”) | |||
Date: | By: | /s/ | |
John M. Suzuki Chief Executive Officer (Principal executive officer and duly authorized officer) | |||
Date: | By: | By:/s/ | |
Scott A. Malmanger Chief Financial Officer (Principal financial and accounting officer and duly authorized officer) | |||
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