BK Technologies(BKTI) - 2020 Q4 - Annual Report

Part I Business The company designs and manufactures two-way land mobile radio (LMR) equipment for the public safety and government sectors - The company provides two-way land mobile radios (LMRs), repeaters, and base stations for the government, public safety, and commercial markets[7] - In August 2020, the company introduced the BKR 5000 portable radio, the first model in its new BKR Series of APCO Project 25 products[10][21] Sales by Market Segment (FY 2020 vs. FY 2019) | Market Segment | 2020 Sales (%) | 2019 Sales (%) | | :--- | :--- | :--- | | Government and Public Safety | 92% | 93% | | Business and Industrial | 8% | 7% | - Sales to the U.S. Government constituted approximately 51% of total sales in 2020, up from 49% in 2019[26] - The backlog of unshipped customer orders was approximately $5.9 million as of December 31, 2020, a decrease from $7.2 million at the end of 2019[27] Engineering & Development Expenses | Year | Expense (in millions) | | :--- | :--- | | 2020 | $7.9 | | 2019 | $9.8 | Risk Factors The company faces risks from product line dependency, intense competition, government contracts, and supply chain vulnerabilities - The company's success is highly dependent on its LMR products and the market acceptance of its new BKR Series product line[38] - The company faces intense competition from larger suppliers like Motorola Solutions, Inc., which has a dominant market share[39] - Approximately 51% of 2020 sales were to the U.S. Government, creating risk associated with government spending and budget processes[42] - The COVID-19 pandemic could materially adversely affect business through supply chain disruptions and reduced customer spending[45] - The company relies on a limited number of suppliers, with 65% of material procurements in 2020 sourced from six suppliers[57] - The largest stockholder, FG and its affiliates, holds approximately 34.3% of the company's common stock, giving it significant influence[51] Unresolved Staff Comments The company reports no unresolved staff comments - None[73] Properties The company leases all its facilities and does not own any real estate - The company leases all its facilities, including its primary 54,000 sq. ft. industrial space in West Melbourne, Florida[74] Legal Proceedings The company had no pending material claims or legal actions as of year-end 2020 - There were no pending material claims or legal matters as of December 31, 2020[75] Mine Safety Disclosures This item is not applicable to the company - Not applicable[75] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE American, pays a quarterly dividend, and completed its repurchase program in April 2020 - The company's common stock is traded on the NYSE American under the symbol "BKTI"[79] - The company pays quarterly cash dividends, with four dividends of $0.02 per share paid in 2020[10][82] Issuer Purchases of Equity Securities (Jan-Apr 2020) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | Jan 2020 | 36,155 | 2.94 | | Feb 2020 | 20,963 | 2.72 | | Mar 2020 | 44,695 | 1.72 | | Apr 2020 | 16,129 | 1.63 | | Total | 117,942 | 2.25 | - The stock repurchase program was completed in April 2020[84] Selected Financial Data This section is not required as the company is a smaller reporting company - Not required for smaller reporting companies[85] Management's Discussion and Analysis of Financial Condition and Results of Operations The company achieved a significant turnaround in 2020 with 10.1% sales growth and a return to profitability Financial Performance Summary (FY 2020 vs. FY 2019) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Sales | $44.1M | $40.1M | +10.1% | | Gross Profit Margin | 41.0% | 39.0% | +2.0 p.p. | | SG&A Expenses | $17.0M | $20.0M | -15.0% | | Operating Income (Loss) | $1.0M | ($4.4M) | +$5.4M | | Net Income (Loss) | $0.25M | ($2.6M) | +$2.85M | | EPS (diluted) | $0.02 | ($0.21) | +$0.23 | - Sales growth in 2020 was primarily attributed to orders from federal and state public safety agencies and initial sales from the new BKR 5000 radio[87][92] - The company implemented cost-reduction measures, including an 18% workforce reduction in Q2 2020, which incurred approximately $221,000 in severance costs[89][102] - In April 2020, the company received a $2.2 million PPP loan but repaid it in full the same month out of caution[12][102] - Cash provided by operating activities was $4.4 million in 2020, a significant improvement from $2.5 million used in 2019, largely due to a $4.1 million decrease in inventory[100] - The company renewed its $5.0 million revolving line of credit, with no borrowings outstanding as of year-end 2020[102][104] Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company is a smaller reporting company - Not required for smaller reporting companies[116] Financial Statements and Supplementary Data This item refers to the Consolidated Financial Statements and auditor's report included in the filing - Refers to the Consolidated Financial Statements included in the report[116] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None[204] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[205] - Management assessed internal control over financial reporting using the COSO framework (2013) and concluded it was effective as of December 31, 2020[206] Other Information A board member resigned in March 2021 with no reported disagreements - Lewis M. Johnson, a board member, resigned effective March 2, 2021, with no reported disagreement with the company[208] Part III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2021 annual stockholders' meeting[210] Executive Compensation Executive compensation details are incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2021 annual stockholders' meeting[212] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2021 annual stockholders' meeting[213] Certain Relationships and Related Transactions, and Director Independence Related party transaction information is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2021 annual stockholders' meeting[214] Principal Accounting Fees and Services Information on accounting fees is incorporated by reference from the 2021 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2021 annual stockholders' meeting[215] Part IV Exhibits and Financial Statement Schedules This section lists all documents filed with the report, omitting inapplicable financial schedules - Lists all exhibits filed with the Form 10-K, including corporate governance documents, incentive plans, and material agreements[218][219] - All financial statement schedules have been omitted because they are inapplicable or the information is included elsewhere[226] Form 10-K Summary The company did not provide a Form 10-K summary - None[227] Financial Statements Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion with two critical audit matters identified - The auditor issued an unqualified (clean) opinion on the consolidated financial statements[119] - Critical Audit Matters identified were: 1) Allowance for slow-moving and obsolete inventory, and 2) Assessment of realizability of deferred tax assets[123][124][127] Consolidated Balance Sheets Total assets were $37.5 million, with a significant inventory reduction offset by increased cash and receivables Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $6,826 | $4,676 | | Inventories, net | $9,441 | $13,513 | | Total current assets | $24,611 | $23,886 | | Total assets | $37,490 | $37,940 | | Liabilities & Equity | | | | Accounts payable | $5,119 | $5,310 | | Total current liabilities | $9,466 | $9,376 | | Total liabilities | $14,966 | $14,664 | | Total stockholders' equity | $22,524 | $23,276 | Consolidated Statements of Operations The company achieved net income of $248,000 in 2020, a turnaround from a $2.6 million loss in 2019 Consolidated Statement of Operations (in thousands, except per share data) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Sales, net | $44,139 | $40,100 | | Cost of products | $26,055 | $24,449 | | Selling, general and administrative | $17,036 | $20,036 | | Operating income (loss) | $1,048 | ($4,385) | | (Loss) gain on investment in securities | ($620) | $716 | | Income (loss) before income taxes | $251 | ($3,623) | | Net income (loss) | $248 | ($2,636) | | Net income (loss) per share-diluted | $0.02 | ($0.21) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased to $22.5 million due to dividends and stock repurchases offsetting net income Changes in Stockholders' Equity for FY 2020 (in thousands) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2019 | $23,276 | | Net income | $248 | | Dividends declared | ($1,002) | | Repurchase of common stock | ($269) | | Share-based compensation & other | $271 | | Balance at Dec 31, 2020 | $22,524 | Consolidated Statements of Cash Flows Net cash from operations was $4.4 million, driving a $2.15 million increase in total cash and cash equivalents Consolidated Statement of Cash Flows (in thousands) | Cash Flow Category | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,444 | ($2,486) | | Net cash used in investing activities | ($946) | ($2,455) | | Net cash used in financing activities | ($1,348) | ($1,651) | | Net change in cash and cash equivalents | $2,150 | ($6,592) | | Cash and cash equivalents, end of year | $6,826 | $4,676 |