BK Technologies(BKTI) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for BK Technologies Corporation Item 1. Financial Statements Presents BK Technologies Corporation's unaudited condensed consolidated financial statements and notes for September 30, 2023 Condensed Consolidated Financial Statements Provides key financial data from the balance sheets, statements of operations, and cash flows for the specified periods Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $36,712 | $36,217 | | Total Assets | $49,068 | $48,832 | | Total Current Liabilities | $22,873 | $22,970 | | Total Liabilities | $30,454 | $28,697 | | Total Stockholders' Equity | $18,614 | $20,135 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $20,069 | $11,917 | $57,786 | $30,612 | | Operating income (loss) | $594 | $(2,391) | $(1,177) | $(9,515) | | Net income (loss) | $90 | $(2,402) | $(2,520) | $(10,672) | | Net income (loss) per share-basic | $0.03 | $(0.71) | $(0.74) | $(3.16) | | Net income (loss) per share-diluted | $0.03 | $(0.71) | $(0.74) | $(3.16) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $3,940 | $(6,858) | | Net cash used in investing activities | $(1,835) | $(959) | | Net cash provided by financing activities | $43 | $1,271 | | Net change in cash and cash equivalents | $2,148 | $(6,546) | | Cash and cash equivalents, end of period | $4,066 | $4,034 | Notes to Condensed Consolidated Financial Statements Details significant accounting policies, transactions, and events impacting the financial statements, including a reverse stock split and debt agreements - The company executed a one-for-five reverse stock split, effective April 21, 2023. All share and per-share amounts in the financial statements have been retroactively adjusted to reflect this split[43][68] - On November 22, 2022, the company entered into an Invoice Purchase and Security Agreement (IPSA) with Alterna Capital Solutions for a one-year line of credit up to $15 million, which was used to replace the previous JPMC Credit Agreement[42][84] - As of September 30, 2023, the company had net deferred tax assets of approximately $4.1 million, but has established a valuation allowance of $4.2 million as it concluded it is not more likely than not that the full benefit will be realized[74][191] - Sales to U.S. government agencies constituted 60.5% of net sales for Q3 2023 and 51.2% for the first nine months of 2023, a significant increase from 35.2% and 36.4% in the respective periods of the prior year[104] - Subsequent to the quarter end, on November 6, 2023, the company entered into a Master Service Agreement with East West Manufacturing for the production of LMR products. As part of the agreement, East West purchased $1 million of the company's common stock and received a warrant to purchase additional shares[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant financial improvements in Q3 and 9M 2023, driven by strong sales, improved gross margins, and a shift to net income Executive Summary & Business Overview Outlines the company's business units, product focus, and significant progress in fulfilling its radio unit backlog - The company operates two business units: Radio, which designs and markets American-made two-way LMRs for public safety and government markets, and SaaS, which focuses on public safety smartphone applications[7][123][144] - Strong customer demand in 2022 led to a significant backlog of approximately 13,000 radio units as of December 31, 2022. The company successfully fulfilled about 83% of this backlog during the first nine months of 2023[14][151] - The backlog of unshipped customer orders was approximately $21.8 million as of September 30, 2023, down from $27.0 million at year-end 2022, reflecting the fulfillment of prior orders[145] Results of Operations Analyzes the company's sales, gross profit, operating income, and net income performance for Q3 and nine months ended September 30, 2023 Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $20,069 | $11,917 | $8,152 | +68.4% | | Gross Profit | $6,406 | $2,241 | $4,165 | +185.9% | | Gross Margin | 31.9% | 18.8% | +13.1 pts | - | | Operating Income (Loss) | $594 | $(2,391) | $2,985 | Turnaround | | Net Income (Loss) | $90 | $(2,402) | $2,492 | Turnaround | Nine Months 2023 vs 2022 Performance (in thousands) | Metric | 9M 2023 | 9M 2022 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $57,786 | $30,612 | $27,174 | +88.8% | | Gross Profit | $16,504 | $5,437 | $11,067 | +203.6% | | Gross Margin | 28.6% | 17.8% | +10.8 pts | - | | Operating Loss | $(1,177) | $(9,515) | $8,338 | Improvement | | Net Loss | $(2,520) | $(10,672) | $8,152 | Improvement | - The increase in sales was primarily driven by the BKR 5000 portable radio and the new BKR 9000, which achieved FCC compliance and first sales in Q2 2023[181] - SG&A expenses increased by 18.3% for the nine-month period, primarily due to higher staffing, travel, and go-to-market activities supporting new product launches and anticipated sales growth[184][185] Liquidity and Capital Resources Assesses the company's cash flow, working capital, and ability to meet future operational and capital requirements - Net cash provided by operating activities was $3.9 million for the first nine months of 2023, a significant turnaround from the $6.9 million used in the same period of 2022. This was mainly due to reduced accounts receivable and inventories, and an increase in deferred revenues[192] Working Capital (in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Working Capital | $13,839 | $13,247 | | Cash & Receivables | $13,176 | $12,534 | - Management believes that the current cash balance of $4.1 million, combined with anticipated cash from operations and borrowing availability, is sufficient to meet working capital requirements for the foreseeable future[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company, as a "smaller reporting company," is not required to provide the disclosure under this item - As a "smaller reporting company" as defined by Regulation S-K, the Company is not required to include disclosure under this item[198] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter. There were no material changes in internal control over financial reporting during the period - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[206] - There were no changes in the company's internal control over financial reporting during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls[201] PART II - OTHER INFORMATION This section covers other required disclosures, including risk factors, equity security sales, and a list of exhibits Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - There have been no material changes to the Risk Factors included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, authorized for up to $5 million. No shares were repurchased during the third quarter of 2023 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Still be Purchased Under the Plan | | :--- | :--- | :--- | :--- | | July 2023 | — | — | $5,000,000 | | August 2023 | — | — | $5,000,000 | | September 2023 | — | — | $5,000,000 | | Total Q3 2023 | — | — | $5,000,000 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002, as well as XBRL Interactive Data Files[211] Special Note Concerning Forward-Looking Statements Provides a cautionary note regarding forward-looking statements, outlining inherent risks and uncertainties that could affect actual results Forward-Looking Statements Disclaimer Cautions that the report contains forward-looking statements subject to risks like competition, supplier reliance, government sales, and economic conditions - The report contains forward-looking statements identified by words such as "may," "believe," "plan," "project," and "expect"[94] - Key factors that could cause actual results to differ from forward-looking statements include: - Competition in the LMR industry - Reliance on contract manufacturers and suppliers - Heavy reliance on sales to U.S. Government agencies - Successful introduction of new products like the BKR Series and SaaS solutions - General economic conditions, including inflation and supply-chain constraints[96][118][142] - The company assumes no obligation to publicly update or revise any forward-looking statements after the date of the report[13]