BK Technologies(BKTI) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, showing significant improvement in net income and gross margin driven by higher sales and better cost management Condensed Consolidated Balance Sheets As of June 30, 2025, total assets increased to $60.4 million from $51.5 million at year-end 2024, with total stockholders' equity growing significantly to $36.8 million from $29.8 million | Balance Sheet Items (In thousands) | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $11,853 | $7,075 | | Trade accounts receivable, net | $11,542 | $7,349 | | Inventories, net | $17,167 | $17,636 | | Total current assets | $44,833 | $36,941 | | Total Assets | $60,426 | $51,499 | | Current Liabilities | | | | Accounts payable | $9,835 | $6,327 | | Total current liabilities | $15,920 | $13,974 | | Total Liabilities | $23,663 | $21,668 | | Total Stockholders' Equity | $36,763 | $29,831 | Condensed Consolidated Statements of Operations For Q2 2025, sales increased to $21.2 million from $20.3 million year-over-year, with gross margin improving to 47.4% from 37.3%, leading to net income more than doubling to $3.7 million or $0.96 per diluted share | Income Statement (In thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $21,165 | $20,254 | $40,219 | $38,485 | | Gross margin | $10,035 | $7,547 | $18,985 | $13,835 | | Operating income | $3,997 | $2,025 | $6,913 | $3,008 | | Net income | $3,741 | $1,664 | $5,873 | $2,345 | | Net income per share-diluted | $0.96 | $0.47 | $1.51 | $0.66 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $6.0 million for the first six months of 2025, contributing to a rise in cash and cash equivalents to $11.9 million | Cash Flow (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,002 | $3,311 | | Net cash used in investing activities | ($1,465) | ($848) | | Net cash provided by (used in) financing activities | $241 | ($2,938) | | Net change in cash and cash equivalents | $4,778 | ($475) | | Cash and cash equivalents, end of period | $11,853 | $2,981 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, the expansion of the BK ONE Solutions business, a new $6 million credit facility, customer concentration, and subsequent events including stock option grants - The company is expanding its Solutions business unit under the new brand, BK ONE, which includes SaaS solutions like InteropONE and other future software and hardware applications[37] - Sales to U.S. government agencies were 11.5% of total net sales for the first six months of 2025, down from 41.5% in the same period last year, while two commercial customers accounted for 26.6% of net sales in the first half of 2025[62] - The company entered into a new one-year revolving line of credit for up to $6 million with Fifth Third Bank in October 2024, with no borrowings under this facility as of June 30, 2025[38][64] - Subsequent to the quarter end, the company granted performance-based stock options for executives and issued shares related to RSU grants upon achieving revenue milestones for the BKR9000 radio[75][76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2025 financial results, highlighting a 4.5% YoY sales increase to $21.2 million, significant gross margin improvement to 47.4%, and nearly doubled operating income, alongside improved liquidity and an undrawn $6.0 million credit facility Executive Summary Q2 2025 sales rose 4.5% YoY to $21.2 million, driven by BKR series radio shipments, with gross margin expanding significantly to 47.4% and net income increasing substantially to $3.7 million or $0.96 per diluted share - The backlog of unshipped customer orders was approximately $16.0 million as of June 30, 2025, compared to $21.8 million as of December 31, 2024[89] | Key Metrics (Q2 2025 vs Q2 2024) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | ~$21.2M | ~$20.3M | +4.5% | | Gross Profit Margin | 47.4% | 37.3% | +10.1 ppt | | Operating Income | ~$4.0M | ~$2.0M | +100% | | Net Income | ~$3.7M | ~$1.7M | +118% | | Diluted EPS | $0.96 | $0.47 | +104% | Results of Operations Net sales for Q2 2025 increased by 4.5% to $21.2 million due to strong BKR series radio sales, while gross profit margin rose to 47.4% reflecting favorable product mix and manufacturing cost improvements, leading to doubled operating income - The increase in gross profit margins for Q2 and H1 2025 was attributed to a better radio product and accessories sales mix and material cost improvements from transitioning manufacturing to East West Manufacturing, LLC[108] - SG&A expenses increased by 11.5% for the six-month period, primarily due to higher engineering and product development costs for the BKR multi-band mobile radio and increased marketing and selling expenses[111][112][113] Liquidity and Capital Resources The company's liquidity strengthened with cash and cash equivalents reaching $11.9 million at June 30, 2025, driven by $6.0 million in net cash from operations for the first six months, and an undrawn $6 million revolving credit facility - Net cash provided by operating activities totaled approximately $6.0 million for the first six months of 2025, compared to $3.3 million for the same period in 2024[123] - The company's cash and cash equivalents balance was approximately $11.9 million on June 30, 2025[127] - A Revolving Loan Commitment with Fifth Third Bank provides for a one-year, $6 million line of credit (expandable to $10 million), which was unused as of the report date[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," the company is not required to provide disclosure under this item - As a "smaller reporting company," the Company is not required to include disclosures about market risk[133] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to an un-remediated material weakness in internal control over the income tax provision - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective as of the end of the reporting period[135] - The ineffectiveness is due to a material weakness in internal control related to the proper design and implementation of controls over the income tax provision[136] - Management has engaged in implementing a remediation plan, including using third-party assistance and enhancing review processes for complex accounting transactions[138][139] PART II - OTHER INFORMATION Item 1A. Risk Factors The company highlights a new risk concerning potential adverse effects of changes in U.S. trade policy, including tariffs, which could increase costs, impact the supply chain, and reduce demand due to reliance on foreign electronic components - A specific risk factor has been added regarding changes in U.S. trade policy and tariffs, which could materially affect the business due to its reliance on electronic components from foreign sources[146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of 89,248 common shares via cashless warrant exercise on May 2, 2025, and confirms no shares were repurchased under the $5 million share repurchase program during Q2 2025 - On May 2, 2025, the Company issued 89,248 shares of common stock upon the cashless exercise of a warrant[148] - No shares were repurchased during the second quarter of 2025 under the company's $5 million share repurchase program authorized in December 2021[148][150] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including corporate governance documents, incentive compensation plans, employment agreement amendments, and CEO/CFO certifications - The report includes exhibits such as the 2025 Incentive Compensation Plan, Employee Stock Purchase Plan, amendments to executive employment agreements, and CEO/CFO certifications[155]