BK Technologies Corp 10-K/A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Summary BK Technologies Corporation is a holding company, with a wholly-owned operating subsidiary, BK Technologies, Inc. We design, manufacture and market American-made two-way land mobile radios, repeaters, base stations and related components and subsystems. All operating activities are undertaken by BK Technologies, Inc. Customer demand and orders for our products were strong during 2021. Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all the orders. Consequently, these orders were carried in backlog, and we anticipate fulfilling many of these orders during the first half of 2022. For 2021, sales grew approximately 2.8% to approximately $45.4 million, compared with $44.1 million for the prior year. The growth was attributed primarily to state and local public safety agencies as well as the first model in our BKR line of products. Gross profit margins as a percentage of sales in 2021 were 35.8%, compared with 40.8% (as adjusted) for the prior year, generally reflecting increases in material, component and freight costs. Selling, general and administrative (“SG&A”) expenses for 2021 totaled approximately $17.5 million (38.5% of sales), compared with $17.0 million (38.6% of sales) last year. We recognized an operating loss in 2021 of approximately $1.2 million, which was attributed primarily to increased product costs and operating expenses. For the prior year we recognized operating income of approximately $994,000 (as adjusted). In 2021 we recognized other expenses, net totaling approximately $318,000, primarily attributed to an unrealized loss from our investment in FGF, made through FGI 1347 Holdings, LP, a consolidated variable interest entity. This compares with other expense of $797,000 last year, which was also primarily related to an unrealized loss from the investment in FGF. For 2021 the pretax loss totaled approximately $1.5 million, compared with pretax income of approximately $197,000 (as adjusted) for the prior year. We recognized a tax expense of approximately $187,000 for 2021, compared with approximately $3,000 for the prior year. Our income tax expense for both years was largely non-cash as a result of deferred items. The net loss for 2021 totaled approximately $1.7 million ($0.11 per basic and diluted share), compared with net income of approximately $194,000 ($0.02 per basic and diluted share) (as adjusted) last year. 24 Table of Contents As of December 31, 2021, working capital totaled approximately $25.2 million, of which $18.8 million was comprised of cash, cash equivalents and trade receivables. This compares with working capital totaling approximately $16.2 million (as adjusted) at 2020 year-end, which included $13.3 million of cash, cash equivalents and trade receivables. During 2021, we paid four quarterly dividends, utilizing cash of approximately $1.2 million. Impact of COVID-19 Pandemic and Supply Chain In December 2019, a novel strain of the coronavirus (COVID-19) surfaced, which spread globally and was declared a pandemic by the World Health Organization in March 2020. The challenges posed by the COVID-19 pandemic on the global economy increased significantly in the first several months of 2020. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders, and recommendations to practice social distancing. We are considered an “essential business” that is supporting first responders and our manufacturing operations have remained open throughout the pandemic. We implemented certain policies at our offices in accordance with best practices to accommodate, and at times mandate, social distancing, wearing face masks, and remote work practices. Among other things, we have invested in employee safety equipment, additional cleaning supplies and measures, adjusted production lines and workplaces as necessary and adapted new processes for interactions with our suppliers and customers to safely manage our operations. Any employees that test positive for COVID-19 are quarantined and, if possible, work remotely in accordance with accepted safety practices until after passing subsequent testing. In planning for the possible disruption of our business, we took steps to reduce expenses throughout the Company. This included suspending all Company travel for a period of time, as well as our participation in trade shows and other business meetings, instituting strict inventory control and decreasing expenditures. We also implemented workforce reductions during the third quarter of 2020 and suspended the employer’s 401K match. The impact to our business in 2021, particularly customer orders, is not known with any certainty. Recently, worldwide shortages of materials, particularly semiconductors and integrated circuits, 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, there have been some delays and longer delivery times within our supply chain. While the progression and duration of these shortages is not known with certainty, they may last for several quarters or years. 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. While the current impacts of COVID-19 are reflected in our results of operations, we cannot at this time separate the direct COVID-19 impacts from other factors that cause our performance to vary from quarter to quarter. The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration and severity of the pandemic, and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its national and, to some extent, global economic impact. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable. However, our results of operations in future periods may continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions. For additional risks relating to the COVID-19 pandemic, see Item 1A. Risk Factors in Part II of this report. 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. 25 Table of Contents Results of Operations As an aid to understanding our operating results, the following table shows items from our consolidated statements of operations expressed as a percentage of sales: Percent of Sales for Years Ended December 31, 2021 2020 (as adjusted) Sales 100.0 % 100.0 % Cost of products (64.2 ) (59.2 ) Gross margin 35.8 40.8 Selling, general and administrative expenses (38.5 ) (38.6 ) Other (expense) income, net (0.7 ) (1.8 ) (Loss) income before income taxes (3.3 ) 0.4 Income tax expense (0.4 ) (0.0 ) Net Income (loss) (3.7 )% 0.4 % Fiscal Year 2021 Compared With Fiscal Year 2020 Sales, net For 2021, net sales increased approximately $1.2 million to approximately $45.4 million, compared with approximately $44.1 million last year. Customer demand and orders for our products were strong in 2021. Supply chain constraints limited our ability to manufacture the quantities needed to convert the orders into shipments and sales revenue. Accordingly, as of December 31, 2021, these orders were carried in backlog, and we anticipate fulfilling many of them during the first half of 2022. Although supply chain factors may continue to create delays during the next several quarters, we anticipate being able to fulfill customer requirements. The precise impact to sales and shipments in any particular quarter, however, cannot be quantified. Sales for the year ended December 31, 2021, were attributed primarily to federal, state and municipal public safety agencies, some of which were new customers. Also, 2021 was the first full year for the sale of the BKR 5000, the first model in our new BKR Series of APCO Project 25 land mobile radio products and solutions that was launched in the second half of 2020. The BKR Series is envisioned as a comprehensive line of new products, which will include additional models in coming quarters. The timing of developing additional BKR Series products and bringing them to market could be impacted by various factors, including potential impacts related to our supply chain and the COVID-19 pandemic. BKR Series products, we believe, should increase our addressable market by expanding the number of federal and other public safety customers that may purchase our products. However, the timing and size of orders from agencies at all levels can be unpredictable and subject to budgets, priorities, and other factors. Accordingly, we cannot assure that sales will occur under particular contracts, or that our sales prospects will otherwise be realized. As of the end of 2021, our current backlog of customer orders and the funnel of sales prospects is healthy and includes potential new customers in federal, state, and local public safety agencies. We believe the BKR series products, our expanded sales force, and our sales funnel, position us well to capture new sales opportunities moving forward. 26 Table of Contents The impacts of material shortages, lead-times and the COVID-19 pandemic in coming months and quarters is uncertain. Such effects have the potential to adversely impact our customers and our supply chain, which could adversely affect our future sales, operations, and financial results. Cost of Products and Gross Profit Margin Gross profit margins as a percentage of sales for 2021, were approximately 35.8%, compared with 40.8% (as adjusted) for the prior year. Our cost of products and gross profit margins are primarily derived from material, labor and overhead costs, product mix, manufacturing volumes and pricing. Gross profit margins for the year ended December 31, 2021, decreased compared with the same period last year primarily due to increased material, component and freight costs related primarily to supply chain factors, as well as one-time inventory reserves related to our legacy product line, the KNG series. We utilize a combination of internal manufacturing capabilities and contract manufacturing relationships for production efficiencies and to manage material and labor costs. While we anticipate continuing to do so in the future, we have increased, and are continuing to increase, our utilization of U.S.-based resources, which provides greater security and control over our production. We believe that our current manufacturing capabilities and contract relationships or comparable alternatives will continue to be available to us. Although in the future we may encounter new product cost and competitive pricing pressures, the extent of their impact on gross margins, if any, is uncertain. During recent quarters, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies and extended lead times 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, there have been delays, extended lead times and increased costs within our supply chain. While the progression and duration of these shortages is not known with certainty, they may last for several quarters or years. 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. 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 year ended December 31, 2021, totaled approximately $17.5 million (38.5% of sales), compared with approximately $17.0 million (38.6% of sales) for the prior year. Engineering and product development expenses for 2021 totaled approximately $8.1 million (17.9% of sales), compared with approximately $7.9 million (17.8% of sales) for the prior year. Engineering and product development expenses are primarily related to the continued design and development of BKR series, a new line of portable and mobile radios. These development activities are the main focus of our engineering team. The precise date for developing and introducing new products is uncertain and can be impacted by, among other things, supply chain shortages and the potential effects of the COVID-19 pandemic in coming months. Marketing and selling expenses for the year ended December 31, 2021, totaled approximately $4.0 million (8.9% of sales), compared with approximately $4.2 million (9.5% of sales) for the prior year. The decrease in marketing and selling expenses for the year are attributed to staff-related and other sales and go-to-market expenses, which were partially offset by increased commissions. General and administrative expenses for the year ended December 31, 2021, totaled approximately $5.4 million (11.7% of sales), compared with approximately $4.9 million (11.2% of sales) for the prior year. The increase in general and administrative expenses for the year is attributed primarily to corporate management and headquarters related expenses. 27 Table of Contents Operating (Loss) Income For the year ended December 31, 2021, our operating loss totaled approximately $1.2 million (2.6% of sales), compared with operating income of approximately $1.0 million (2.3% of sales), (as adjusted), for the prior year. The operating loss for the year is attributed primarily to increased material and other cost of sales, which adversely impacted gross profit margins, and increased general and administrative expenses. Other (Expense) Income Interest (Expense) Income We recorded net interest expense of approximately $53,000 for the year ended December 31, 2021, compared with approximately $8,000 for the prior year. Net interest expense was attributed primarily to equipment financing and our revolving credit facility. Gain/Loss on Investment in Securities For the year ended December 31, 2021, we recognized an unrealized loss of approximately $220,000 on our investment in FGF, compared with an unrealized loss of approximately $620,000 for the prior year. Income Tax/(Expense) Benefit We recorded an income tax expense of $187,000 for the year ended December 31, 2021, compared with income tax expense of $3,000 for the prior year. Our income tax provision is based on the effective tax rate for the year. The tax expense in any period may be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, we may experience fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period. As of December 31, 2021, our net deferred tax assets totaled approximately $4.1 million, and were primarily derived from research and development tax credits, operating loss carryforwards and deferred revenue. In order to fully utilize the net deferred tax assets, we will need to generate sufficient taxable income in future years. We analyze all positive and negative evidence to determine if, based on the weight of available evidence, we are more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon our conclusions regarding, among other considerations, estimates of future earnings based on information currently available and current and anticipated customers, contracts, and product introductions, as well as historical operating results and certain tax planning strategies. Based on our analysis of all available evidence, both positive and negative, we have concluded that we do not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, we established a valuation allowance of $610,000. We cannot presently estimate what, if any, changes to the valuation of our deferred tax assets may be deemed appropriate in the future. If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of December 31, 2021. Liquidity and Capital Resources For the year ended December 31, 2021, net cash used in operating activities totaled approximately $6.3 million, compared with cash provided by operating activities of approximately $4.4 million (as adjusted) for the prior year. Cash used in operating activities for the year was primarily related to a net loss, increased inventory, and increases in accounts receivable, which were partially offset by increased accounts payable and depreciation and amortization. 28 Table of Contents For 2021, we had a net loss of approximately $1.7 million, compared with net income of approximately $194,000 (as adjusted) for the prior year. Net inventories increased during the year ended December 31, 2021, by approximately $6.4 million (as adjusted), compared with a decrease of approximately $4.1 million (as adjusted) for the prior year. The increase was primarily attributable to extended supply-chain lead times, which impacted material purchases and sales shipments, as well as material for planned new product introductions. Accounts receivable increased approximately $1.8 million during the year ended December 31, 2021, primarily due to the timing of sales that were consummated later in the year that had not yet completed their collection cycle. For the same period last year, accounts receivable increased approximately $2.5 million. Accounts payable for the year ended December 31, 2021, increased approximately $0.8 million, compared with a decrease of approximately $191,000 for the prior year, primarily due to the timing of purchases from suppliers. Depreciation and amortization totaled approximately $1.4 million for the year ended December 31, 2021, compared with approximately $1.3 million for the prior year. Depreciation and amortization are primarily related to manufacturing and engineering equipment. Cash used in investing activities for the year ended December 31, 2021, totaled approximately $2.3 million, primarily for manufacturing and engineering related equipment. For the prior year, cash used in investing activities totaled approximately $946,000, primarily for engineering and manufacturing related equipment. For the year ended December 31, 2021, cash of approximately $12.4 million was provided by financing activities. In June we closed a public offering of our common stock, generating net proceeds of approximately $11.6 million. During the year, we received proceeds of approximately $5.7 million from our revolving credit facility and from financing related to the purchase of manufacturing equipment. This was partially offset by loan repayments of approximately $3.7 million. For the same period last year, we received proceeds totaling approximately $2.2 million under the Paycheck Protection Program, which were repaid in full within the same period. We used cash of approximately $1.2 million and $1.0 million to pay quarterly dividends for the years ended December 31, 2021 and 2020, respectively. During the first quarter of 2020, we also used approximately $269,000 for stock repurchases. On January 31, 2022, our revolving credit facility, which originated on January 30, 2020, was extended for one year, through January 31, 2023. BK Technologies, Inc., our wholly owned subsidiary, entered into the $5 million Credit Agreement with JPMC. The Credit Agreement provides for a revolving line of credit of up to $5 million, with availability under the line of credit subject to a borrowing base calculated as a percentage of accounts receivable and inventory. Proceeds of borrowings under the Credit Agreement may be used for general corporate purposes. The line of credit is collateralized by a blanket lien on all personal property of BK Technologies, Inc. pursuant to the terms of the Continuing Security Agreement with JPMC. BK Technologies Corporation and each subsidiary of BK Technologies, Inc., are guarantors of the obligations under the Credit Agreement, in accordance with the terms of the Continuing Guaranty. Borrowings under the Credit Agreement will bear interest at the secured overnight financing rate plus a margin of 2.0%. The line of credit is to be repaid in monthly payments of interest only, payable in arrears, with all outstanding principal and interest to be payable in full at maturity. The Credit Agreement contains certain customary restrictive covenants, including restrictions on liens, indebtedness, loans and guarantees, acquisitions and mergers, sales of assets, and stock repurchases by BK Technologies, Inc. The Credit Agreement contains one financial covenant requiring BK Technologies, Inc., to maintain a tangible net worth of at least $20 million at any fiscal quarter end. The Credit Agreement provides for customary events of default, including: (1) failure to pay principal, interest or fees under the Credit Agreement when due and payable; (2) failure to comply with other covenants and agreements contained in the Credit Agreement and the other documents executed in connection therewith; (3) the making of false or inaccurate representations and warranties; (4) defaults under other agreements with JPMC or under other debt or other obligations of BK Technologies, Inc.; (5) money judgments and material adverse changes; (6) a change in control or ceasing to operate business in the ordinary course; and (7) certain events of bankruptcy or insolvency. Upon the occurrence of an event of default, JPMC may declare the entire unpaid balance immediately due and payable and/or exercise any and all remedial and other rights under the Credit Agreement. 29 Table of Contents BK Technologies, Inc. was in compliance with all covenants under the Credit Agreement as of December 31, 2021, and the date of filing this report. As of December 31, 2021, and the date of filing this report, approximately $1.5 million in borrowings were outstanding under the Credit Agreement. On April 6, 2021, BK Technologies, Inc., a wholly owned subsidiary of BK Technologies Corporation, and JPMC, as a lender, entered into a Master Loan Agreement in the amount of $743,000 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 48 equal monthly principal and interest payments of approximately $16,000 beginning on May 8, 2021, matures on April 8, 2025, and bears a fixed interest rate of 3.0%. Our cash and cash equivalents balance at December 31, 2021, was approximately $10.6 million. We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our Credit Agreement, 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, financial and economic conditions, including those resulting from supply chain delays or interruptions and the COVID-19 pandemic, 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 this report. Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the removal of certain disclosure requirements. The amendments in the ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption was permitted upon issuance of the ASU. The Company adopted this guidance as of January 1, 2020, and the adoption did not have an impact on its consolidated financial statements. Recent Accounting Pronouncements The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. Critical Accounting Policies and Estimates Our revenue recognition process and our more subjective accounting estimation processes affect our reported revenues and current assets and are, therefore, critical in assessing our financial and operating status. The processes for determining the allowance for collection of trade receivables, allowance for slow-moving, excess and obsolete inventory, allowance for product warranty, and income taxes involve certain assumptions that, if incorrect, could create an adverse impact on our operations and financial position. Allowance for Doubtful Accounts The allowance for doubtful accounts was approximately $50,000 on gross trade receivables of approximately $8.3 million as of December 31, 2021, as compared with $50,000 on gross trade receivables of approximately $6.5 million as of December 31, 2020. This allowance is used to state trade receivables at a net realizable value or the amount that we estimate will be collected on our gross receivables as of December 31, 2021 and 2020. Because the amount that we will actually collect on the receivables outstanding as of December 31, 2021 and 2020 cannot be known with certainty, we rely on prior experience. Our historical collection losses have typically been infrequent, with write-offs of trade receivables being significantly less than 1% of sales during past years. Accordingly, we have maintained a general allowance of up to approximately 5% of the gross trade receivables balance in order to allow for future collection losses that arise from customer accounts that do not indicate the inability to pay but turn out to have such an inability. Currently, our general allowance on trade receivables is approximately 0.6% of gross receivables. As revenues and total receivables increase, the allowance balance may also increase. We also maintain a specific allowance for customer accounts that we know may not be collectible due to various reasons, such as bankruptcy and other customer liquidity issues. We analyze our trade receivables portfolio based on the age of each customer’s invoice. In this way, we can identify those accounts that are more likely than not to have collection problems. We may reserve a portion or all of the customer’s balance. As of December 31, 2021 and 2020, we had no specific allowance on trade receivables. 30 Table of Contents Slow-moving, Excess and Obsolete Inventory The allowance for slow-moving, excess and obsolete inventory was approximately $1.3 million and $588,000 (as adjusted) at December 31, 2021 and 2020, respectively. The allowance for slow-moving, excess, and obsolete inventory is used to state our inventories at the lower of cost or net realizable value. Because the amount of inventory that we will actually recoup through sales cannot be known with certainty at any particular time, we rely on past sales experience, future sales forecasts and our strategic business plans. Generally, in analyzing our inventory levels, we classify inventory as having been used or unused during the past year and establish an allowance based upon several factors, including, but not limited to, business forecasts, inventory quantities and historical usage profile. Supplemental to the aforementioned analysis, specific inventory items are reviewed individually by management. Based on the review, considering business levels, future prospects, new products and technology changes, management, using its business judgment, may adjust the valuation of specific inventory items to reflect an accurate valuation estimate. Management also performs a determination of net realizable value for all finished goods with a selling price below cost. For all such items, the inventory is valued at not more than the selling price less cost, if any, to sell. Allowance for Product Warranty We offer two-year standard warranties to our customers, depending on the specific product and terms of the customer purchase agreement. Our typical warranties require us to repair and replace defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, we record a liability for estimated costs under our warranties. The costs are estimated based on historical experience. We periodically assess the adequacy of our recorded liability for product warranties and adjust the amount as necessary. Income Taxes We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized. The effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of operations in the period in which the change is recognized. Valuation allowances are provided to the extent that it is more likely than not that some portion, or all, of deferred tax assets will not be realized. In determining whether a tax asset is realizable, we consider, among other things, estimates of future earnings based on information currently available, current and anticipated customers, contracts and new product introductions, as well as recent operating results and certain tax planning strategies. If we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets, we may be required to increase the valuation allowance related to our deferred tax assets in the future. 31 Table of Contents Forward-Looking Statements We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Exchange Act, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “should,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “are encouraged” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Forward-looking statements include, but are not limited to, the following: changes or advances in technology; the success of our LMR product line; successful introduction of new products and technologies, including our ability to successfully develop and sell our anticipated new multiband product and other related products in the planned new BKR Series product line; competition in the LMR industry; general economic and business conditions, including federal, state and local government budget deficits and spending limitations and any impact from a prolonged shutdown of the U.S. Government; the availability, terms and deployment of capital; reliance on contract manufacturers and suppliers; risks associated with fixed-price contacts; heavy reliance on sales to agencies of the U.S. Government and our ability to comply with the requirements of contracts, laws and regulations related to such sales; allocations by government agencies among multiple approved suppliers under existing agreements; our ability to comply with U.S. tax laws and utilize deferred tax assets; our ability to attract and retain executive officers, skilled workers and key personnel; our ability to manage our growth; our ability to identify potential candidates for, and consummate, acquisition, disposition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation; impact of our capital allocation strategy; risks related to maintaining our brand and reputation; impact of government regulation; rising health care costs; our business with manufacturers located in other countries, including changes in the U.S. Government and foreign governments’ trade and tariff policies; our inventory and debt levels; protection of our intellectual property rights; fluctuation in our operating results and stock price; acts of war or terrorism, natural disasters and other catastrophic events; any infringement claims; data security breaches, cyber attacks and other factors impacting our technology systems; availability of adequate insurance coverage; maintenance of our NYSE American listing; risks related to being a holding company; and the effect on our stock price and ability to raise equity capital of future sales of shares of our common stock. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in “Part I-Item 1A. Risk Factors” and elsewhere in this report and in our subsequent filings with the SEC. We assume no obligation to publicly update or revise any forward-looking statements made in this report, whether as a result of new information, future events, changes in assumptions or otherwise, after the date of this report. Readers are cautioned not to place undue reliance on these forward-looking statements. 32 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.