What changed in this filing

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Item 1A. Risk Factors

2024-03-14 compared with 2023-03-16 · 88 added, 48 removed, 283 unchanged (32% of the section changed)

10 unchanged sentences

A decline in the price of and/or demand for LMR products, as a result of competition, technological change, the introduction of new products by us or others or a failure to manage product transitions successfully, could have a material adverse effect on our business, financial condition and results of operations.

In addition, our future success will largely depend on the successful introduction and sale of our BKR Series product line, including our initial multiband product, which has been delayed from initial projections and which we may be unable to successfully complete in a timely manner, or at all.

Even if we successfully develop and launch the BKR Series product line, or any other new products, the development of which is a complex and uncertain process requiring innovation and investment, such products may not achieve market acceptance, which could have a material adverse effect on us.

In addition, our future success will largely depend on the successful introduction and sale of additional products to our BKR Series product line, including additional multiband products, which we may be unable to successfully complete in a timely manner.

Even if we successfully develop and launch additional products to the BKR Series product line, or any other new products, the development of which is a complex and requires innovation and investment, such products may not achieve market acceptance, which could have a material adverse effect on us.

We are engaged in a highly competitive industry.

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P-25 products have been brought to the market by an increasing number of our competitors.

Our first P-25 portable radio was brought to market in 2003, and in recent years we introduced two new lines of P-25 products, the KNG and KNG2 Series.

We are currently developing a new line of P-25 digital products, the BKR Series.

Bringing such products to market and achieving a significant market penetration for them will continue to require time and expenditures of funds, and we may be unable to successfully do so.

Our first P-25 portable radio was brought to market in 2003, and in recent years we introduced a new line of P-25 products, the BKR Series.

Bringing such products to market and achieving a significant market penetration for them will continue to require time and expenditure of funds, and we may be unable to successfully do so.

We may be unsuccessful in developing and marketing, on a timely basis, fully functional product enhancements or new products that respond to these and other technological advances, and our new products may not be accepted by customers.

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Any of these events could have a material adverse effect on our business, financial condition and results of operations.

Our business is partially dependent on U.S.

Our business is dependent on U.S.

Government contracts, which are highly regulated and subject to terminations and oversight audits by U.S.

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Failure to comply with these laws could cost us opportunities to seek certain government sales opportunities or even result in fines, prosecution or debarment.

Changes in U.S.

trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us.

may continue to alter its approach to international trade, which may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

has imposed tariffs on certain foreign goods and may increase tariffs or impose new ones, and certain foreign governments have retaliated and may continue to do so.

We derive a majority of our revenues from international sales, which makes us especially vulnerable to increased tariffs.

Changes in U.S.

trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions governments will or will not take with respect to tariffs or other international trade agreements and policies.

Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.

Our business is subject to the economic, political, and other risks of manufacturing products in foreign countries.

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Our business, financial condition and operating results may be materially and adversely affected by, among other things, changes in the general political, social, health and economic conditions in foreign countries in which we maintain sourcing relationships, unfavorable changes in U.S.

trade legislation and regulations, the imposition of governmental economic sanctions on countries in which we do business or other trade barriers, threats of war, terrorism or governmental instability, labor disruptions, the impact of public health epidemics on employees and the global economy, such as the coronavirus currently impacting China, which may cause our manufacturers or suppliers to temporarily suspend operations in the affected region, potentially negatively impacting our product launch timing and shipments, currency controls, fluctuating exchange rates with respect to contracts not denominated in U.S.

trade legislation and regulations, the imposition of governmental economic sanctions on countries in which we do business or other trade barriers, threats of war, terrorism or governmental instability, labor disruptions, the impact of public health epidemics on employees and the global economy, which may cause our manufacturers or suppliers to temporarily suspend operations in the affected region, potentially negatively impacting our product launch timing and shipments, currency controls, fluctuating exchange rates with respect to contracts not denominated in U.S.

dollars, and unanticipated or unfavorable changes in government policies with respect to laws and regulations, anti-inflation measures and method of taxation.

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Any of these events could interrupt our manufacturing process and cause operational disruptions, increase prices for manufacturing, reduce our sales or otherwise have an adverse effect on our operating performance.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine.

Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine.

On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.

Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from conflicts in Ukraine, the Middle-East or any other geopolitical tensions.

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflict between Russia and Ukraine and Israel and Palestinian state.

Although the length and impact of the ongoing military conflicts is highly unpredictable, the conflict in both of these regions could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

We are continuing to monitor the situations in Ukraine, Israel and globally to assess its potential impact, if any, on our business.

Additionally, Russia’s prior annexation of Crimea, recent recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system.

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Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.

Cyber-attacks and other security threats and disruptions could have a material adverse effect on our business.

As a supplier of LMR products to federal, state and municipality agencies, we face a multitude of security threats, including cybersecurity threats ranging from attacks common to most industries, such as ransomware and denial-of-service, to attacks from more advanced and persistent, highly organized adversaries, including nation state actors, which target the defense contractors and other critical infrastructure sectors.

The sophistication of the threats continue to evolve and grow, including the risk associated with the use of emerging technologies, such as artificial intelligence and quantum computing, for nefarious purposes.

In addition to cybersecurity threats, we face threats to the security of our facilities and employees from sabotage or other disruptions, any of which could adversely affect our business.

The improper conduct of our employees or others working on behalf of us who have access to sensitive information could also adversely affect our business and reputation.

Our customers, suppliers, subcontractors and manufacturing partners experience similar security threats.

If we are unable to protect sensitive information, including complying with evolving information security, data protection and privacy regulations, our customers or governmental authorities could investigate the adequacy of our threat mitigation and detection processes and procedures;

and could bring actions against us for noncompliance with applicable laws and regulations.

Moreover, depending on the severity of an incident, our customers’ data, our employees’ data, our intellectual property (including trade secrets and research, development and engineering know-how), and other third-party data (such as subcontractors, suppliers and vendors) could be compromised, which could adversely affect our business.

LMR products we provide to customers also carry cybersecurity risks, including risks that they could be breached or fail to detect, prevent or combat attacks, which could result in losses to our customers and claims against us, and could harm our relationships with our customers and financial results.

Given the persistence, sophistication, volume and novelty of threats we face, we may not be successful in preventing or mitigating an attack that could have a material adverse effect on us and the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.

The public safety aspects of our business and much of the data we protect increase and create different risks relative to other industries.

Changes in U.S.

federal, state and local and foreign tax law could adversely affect our business and financial condition.

The laws, rules, and regulations dealing with U.S.

federal, state and local and foreign income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S.

Treasury Department.

Changes to tax laws (which changes may have immediate and/or retroactive application) could adversely affect us or the holders of our common stock.

In recent years, many changes have been made to applicable tax laws and changes are likely to continue to occur in the future.

It cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.

Any outbreak or worsening of an outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations, financial condition and results of operations.

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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, particularly customer orders, is not known with any certainty.

However, we received record customer orders of approximately $71 million in 2022.

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.

In planning for the possible disruption of our business, we took steps to reduce expenses and control costs throughout the Company in 2022.

During 2022, worldwide shortages of materials, particularly semiconductors and integrated circuits, resulted in limited supplies, extended lead times, and increased our costs and inventory levels for certain components used in our products.

While, generally, we were able to procure the material necessary to manufacture our products and fulfill customer orders, there were delays and longer delivery times within our supply chain that reached a peak in 2022.

The impact on our operations of such shortages significantly impacted our 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.

The impact of any future outbreak of contagious disease, or a worsening or resurgence of COVID-19, is not readily ascertainable, is uncertain and cannot be predicted, but could have an adverse impact on the Company’s business, financial condition and results of operations.

While the impacts of COVID-19 are reflected in our results of operations for 2023 and 2022 respectively, we cannot 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 supply chain and geopolitical factors to our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration and severity of the geopolitical factors on the global economy, which are uncertain and cannot be predicted at this time.

Furthermore, the extent to which our mitigation efforts for these uncertainties are successful, if at all, is not presently ascertainable, but could have an adverse impact on the Company’s business, financial condition and results of operations.

We carry substantial quantities of inventory, and inaccurate estimates of necessary inventory could materially harm our business, financial condition and operating results.

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We may invest part of our cash balances in public companies.

For example, as of December 31, 2022, we held an investment interest in the equity of FG Financial Group, Inc.

FGF) (“FGF”).

through FG Financial Holdings, LLC (“FG Holdings”).

For example, as of December 31, 2023, we held an investment in the Series B common interests of FG Financial Holdings, LLC (“FG Holdings LLC”).

These types of investments carry more risk than holding our cash balances as bank deposits or, for example, such conservative investments as treasury bonds or money market funds.

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We may lose all or part of our investment relating to such companies if their value decreases as a result of their financial performance or for any other reason.

If our interests differ from those of other investors in companies over which we do not have control, we may be unable to effect any change at those companies.

If our interests differ from those of other investors in companies over which we do not have control, we may be unable to affect any change at those companies.

We are not required to meet any diversification standards, and our investments may become concentrated.

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As of December 31, 2023, FG and its affiliates, owners and managers together hold approximately 15% of the Company’s outstanding shares of common stock.

Kyle Cerminara, Chief Executive Officer, Co-Founder, and Partner of FG, is a member of our Board of Directors.

Kyle Cerminara, Chief Executive Officer, Co-Founder, and Partner of FG, was Chairman of our Board of Directors until December 14, 2023.

As a result of its ownership position FG could exert influence over matters submitted for stockholder approval, including the election of our directors and other corporate actions such as significant stock issuances, reorganizations, mergers and asset sales, and over our business, operations and management, including our strategic plans for the business.

FG may have interests that differ from those of our other stockholders and may vote in a way with which our other stockholders disagree, and which may be adverse to their interests.

FG may have interests that differ from those of our other stockholders and may vote in a way with which our other stockholders disagree and which may be averse to their interests.

FG’s ownership position may also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.

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Damage to our reputation could also arise from actual or perceived legal violations or product safety issues, cybersecurity breaches, actual or perceived poor employee relations, actual or perceived poor service, actual or perceived poor privacy practices, operational or sustainability issues, actual or perceived ethical issues or other events within or outside of our control that generate negative publicity with respect to us.

Any event that has the potential to negatively impact our reputation could lead to lost sales, loss of new opportunities and retention and recruiting difficulties.

Any event that has the potential to negatively impact on our reputation could lead to lost sales, loss of new opportunities and retention and recruiting difficulties.

If we fail to promote and maintain our brand and reputation successfully, our business, results of operations and prospects could be materially harmed.

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These challenging economic conditions could materially and adversely impact our business, liquidity and financial condition in a number of ways, including:

Inflation could adversely affect our profitability:

We sometimes enter into firm fixed-price contracts.

In an inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which can have an adverse impact on our business or financial results.

We are taking steps that we expect will enable us to maintain acceptable operating margins despite the inability to raise prices.

However, it is possible that those steps will not be successful, and that the combination of inflation and reduced demand for our LMR products will adversely affect our profitability.

Potential deferment or reduction of purchases by customers :

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From time to time, we also have cash in financial institutions in excess of federally insured limits, which funds might be at risk of loss should such financial institutions face financial difficulties.

The terms of the credit agreement with Alterna Capital Solutions, LLC contains restrictive covenants that may limit our operating flexibility or that of our subsidiaries.

The terms of the credit agreement with Alterna Capital Solutions, LLC contain restrictive covenants that may limit our operating flexibility or that of our subsidiaries.

On November 22, 2022, our subsidiaries, BK Technologies, Inc.

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(the “Subsidiaries”), entered into an Invoice Purchase and Security Agreement (“IPSA”) with Alterna Capital Solutions, LLC (“Alterna”) for a one-year line of credit with total maximum funding up to $15 million, with an interest rate of Prime plus 1.85%, and other monthly administrative fees.

In November 2023, the IPSA was extended for one year.

The IPSA line of credit is an accounts receivable and inventory financing facility, with the borrowing base of up to 85% of eligible accounts receivable and up to 75% of net orderly liquidation value of inventory, not to exceed 100% of eligible accounts receivable.

The Company used funds obtained from the IPSA line of credit to replace the existing JPMC Credit Agreement and for working capital for the business.

The Company used funds obtained from the IPSA line of credit to replace the existing JPMC Credit Agreement (the “JPMC Credit Agreement”) and for working capital for the business.

The IPSA also has covenants concerning additional financing and indebtedness restrictions.

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In addition, our dependence on limited and sole source suppliers of components involves several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality.

Approximately 61% of our material, subassembly and product procurements in 2022 were sourced from nine suppliers.

Approximately 95% of our material, subassembly, and product procurements in 2023 were sourced from twelve suppliers.

We place purchase orders from time to time with these suppliers and have no guaranteed supply arrangements.

Disruption or termination of the supply of these components could delay shipments of our products.

The lead-time required for some of our components is up to as six months.

The lead-time required for some of our proprietary components is up to as long as twelve to eighteen months.

If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our products.

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If we are unable to manage and integrate our expanding operations effectively, our business, results of operations and financial condition could be materially and adversely affected.

If our products contain defects or otherwise fail to perform as expected, we could be liable for damages and incur unanticipated warranty, recall and other related expenses, our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could suffer.

Our products rely on complex electronic circuits, capacitors, sensors, user-friendly interfaces and tightly integrated electromechanical designs to accomplish their missions.

Our products may contain defects or experience failures due to any number of issues in design, materials, manufacture, deployment and/or use.

If any of our products contain a defect, compatibility or interoperability issue or other error, we may have to devote significant time and resources to find and correct the issue.

Such efforts could divert the attention of our management team and other relevant personnel from other important tasks.

A product recall or a significant number of product returns could (i) be expensive;

(ii) damage our reputation and relationships with utilities and other third-party vendors;

(iii) result in the loss of business to competitors;

and (iv) result in litigation against us.

Costs associated with field replacement labor, hardware replacement, re-integration with third-party products, handling charges, correcting defects, errors and bugs, or other issues could be significant and could materially harm our financial results.

Environmental, social and governance matters may impact our business and reputation.

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However, in light of investors’ increased focus on ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role.

This could lead to risk of litigation or reputational damage relating to our ESG policies or performance.

This could lead to the risk of litigation or reputational damage relating to our ESG policies or performance.

Further, possible actions to address ESG issues may not maximize short-term financial results and may yield financial results that conflict with the market’s expectations.

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Our success is also dependent upon our ability to hire and retain qualified operations, development and other personnel.

Competition for qualified personnel in our industry is intense, and we may be unable to hire or retain necessary personnel.

Competition for qualified personnel in our industry is intense, and we may be unable to hire or retain the necessary personnel.

The inability to attract and retain qualified personnel could have a material adverse effect on our business, financial condition and results of operations.

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We rely on a combination of contract, trademark and trade secret laws to protect our intellectual property rights, and failure to effectively utilize or successfully assert these rights could negatively impact us.

Currently, we have two approved and four pending applications for US patents.

Currently, we have four approved and four pending applications for US patents.

We have several trademarks related to the names “BK Technologies,” “BK Radio” and “Radios for Heroes”.

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sales of our common stock.

In addition, the stock market is subject to price and volume fluctuations affecting the market price for the stock of many companies generally, which fluctuations often are unrelated to operating performance.

In addition, the stock market is subject to price and volume fluctuations affecting the market price for the stock of many companies generally, which often are unrelated to operating performance.

During the period from January 1, 2020 to December 31, 2023, the trading price of our common stock ranged from $8.30 to $23.05.

Many factors may cause our stock price to fluctuate, including those discussed above, variations in quarterly results;

the hiring or departure of key personnel;

acquisitions or strategic alliances involving us or our competitors;

market conditions in our industry;

and the global macroeconomic and geopolitical environment.

Broad market fluctuations may adversely affect our stock price.

When the market price of a company’s stock drops significantly, stockholders often institute securities litigation against that company.

Any such litigation could cause us to incur significant expenses defending against the claim, divert the time and attention of our management and result in significant damages.

Natural disasters, acts of war or terrorism and other catastrophic events beyond our control could have a material adverse effect on our operations and financial condition.

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We, therefore, remain potentially vulnerable to additional known or yet unknown threats, as in some instances, we, our distributors, manufacturers, suppliers and other partners, may be unaware of an incident or its magnitude and effects.

We also face the risk that we expose our customers or partners to cybersecurity attacks.

In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shutdown our information technology systems.

We also face the risk of exposing our customers or partners to cybersecurity attacks.

In addition, from time to time, we implement updates to our information technology systems and software, which can disrupt or shut down our information technology systems.

We may not be able to successfully integrate and launch these new systems as planned without disruption to our operations.

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Our products are regulated by the FCC and otherwise subject to a wide range of global laws.

As a public company, we are also subject to regulations of the SEC and the stock exchange on which we are listed.

As a public company, we are also subject to the regulations of the SEC and the stock exchange on which we are listed.

These laws and regulations are complex, change frequently, have tended to become more stringent over time and increase our cost of doing business.

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tax laws, could subject us to future costs or liabilities, impact our production capabilities, constrict our ability to sell, expand or acquire facilities, restrict what products and services we can offer, and generally impact our financial performance.

Failure to comply with or to respond to changes in these requirements and regulations could result in penalties on us, such as fines, restrictions on operations or a temporary or permanent closure of our facility.

Failure to comply with or to respond to changes in these requirements and regulations could result in penalties on us, such as fines, restrictions on operations or the temporary or permanent closure of our facility.

These penalties could have a material adverse effect on our business, operating results and financial condition.

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As a result, we may incur the costs of a holding company structure without realizing the anticipated benefits, which could adversely affect our reputation, financial condition, and results of operations.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors