BK Technologies Corp 10-Q

Item 1. FINANCIAL STATEMENTS BK TECHNOLOGIES CORPORATION Condensed Consolidated Balance Sheets ( In thousands, except share data) March 31, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,357 $ 10,580 Trade accounts receivable, net 4,763 8,229 Inventories, net 21,091 16,978 Prepaid expenses and other current assets 2,538 1,634 Total current assets 34,749 37,421 Property, plant and equipment, net 4,559 4,556 Right-of-use (ROU) asset 2,299 2,399 Investment in securities 1,299 1,795 Deferred tax assets, net 4,116 4,116 Other assets 97 98 Total assets $ 47,119 $ 50,385 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 7,254 $ 5,883 Accrued compensation and related taxes 1,450 1,099 Accrued warranty expense 512 533 Accrued other expenses and other current liabilities 551 938 Dividends payable — 505 Short-term lease liability 457 447 Credit facility 1,458 1,470 Notes payable-current portion 269 267 Deferred revenue 1,085 1,045 Total current liabilities 13,036 12,187 Notes payable, net of current portion 537 605 Long-term lease liability 2,151 2,269 Deferred revenue 2,558 2,706 Total liabilities 18,282 17,767 Commitments and contingencies Stockholders’ equity: Preferred stock; $ 1.00 par value; 1,000,000 authorized shares; none issued or outstanding — — Common stock; $.60 par value; 50,000,000 authorized shares; 18,314,999 and 18,298,999 issued and 16,864,599 and 16,848,599 outstanding shares at March 31, 2022, and December 31, 2021, respectively 10,989 10,979 Additional paid-in capital 36,007 35,862 Accumulated deficit ( 12,757 ) ( 8,821 ) Treasury stock, at cost, 1,450,400 shares at March 31, 2022, and December 31, 2021, respectively ( 5,402 ) ( 5,402 ) Total stockholders’ equity 28,837 32,618 Total liabilities and stockholders’ equity $ 47,119 $ 50,385 See notes to condensed consolidated financial statements. 3 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Operations ( In thousands, except share and per share data ) ( Unaudited ) Three Months Ended March 31, 2022 March 31, 2021* Sales, net $ 6,585 $ 8,564 Expenses Cost of products 5,113 5,444 Selling, general and administrative 4,916 3,973 Total operating expenses 10,029 9,417 Operating loss ( 3,444 ) ( 853 ) Other (expense) income: Net interest (expense) ( 15 ) ( 4 ) (Loss) gain on investment in securities ( 496 ) 205 Other income (expense) 19 ( 18 ) Total other (expense) income ( 492 ) 183 Loss before income taxes ( 3,936 ) ( 670 ) Provision for income taxes — — Net loss $ ( 3,936 ) $ ( 670 ) Net loss per share-basic and diluted $ ( 0.23 ) $ ( 0.05 ) Weighted average shares outstanding-basic and diluted 16,848,777 12,517,412 See notes to condensed consolidated financial statements. * The amounts for the three months ended March 31, 2021 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to the Condensed Consolidated Financial Statements. 4 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Cash Flows ( In thousands ) ( Unaudited ) Three Months Ended March 31, 2022 March 31, 2021* Operating activities Net loss $ ( 3,936 ) $ ( 670 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Inventories allowances 48 300 Depreciation and amortization 342 298 Share-based compensation expense-stock options 85 32 Share-based compensation expense-restricted stock units 70 103 Loss (gain) on investment in securities 496 ( 205 ) Changes in operating assets and liabilities: Trade accounts receivable 3,466 1,900 Inventories ( 4,161 ) ( 1,394 ) Prepaid expenses and other current assets ( 904 ) 57 Other assets 1 ( 6 ) ROU asset and lease liabilities ( 8 ) ( 4 ) Accounts payable 1,371 299 Accrued compensation and related taxes 351 ( 315 ) Accrued warranty expense ( 21 ) ( 73 ) Deferred revenue ( 108 ) ( 138 ) Accrued other expenses and other current liabilities ( 387 ) ( 145 ) Net cash (used in) provided by operating activities ( 3,295 ) 39 Investing activities Purchases of property, plant, and equipment ( 345 ) ( 1,031 ) Net cash used in investing activities ( 345 ) ( 1,031 ) Financing activities Cash dividends paid ( 505 ) ( 250 ) Proceeds from the credit facility — 800 Repayment of the credit facility and notes payable ( 78 ) ( 21 ) Net cash (used in) provided by financing activities ( 583 ) 529 Net change in cash and cash equivalents ( 4,223 ) ( 463 ) Cash and cash equivalents, beginning of period 10,580 6,826 Cash and cash equivalents, end of period $ 6,357 $ 6,363 Supplemental disclosure Cash paid for interest $ 15 $ 4 Non-cash financing activity Common stock issued under restricted stock units $ 40 $ 84 See notes to condensed consolidated financial statements. * The amounts for the three months ended March 31, 2021 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to the Condensed Consolidated Financial Statements. 5 Table of Contents BK TECHNOLOGIES CORPORATION Notes to Condensed Consolidated Financial Statements Unaudited (In thousands, except share and per share data and percentages) 1. Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021, have been prepared by BK Technologies Corporation (the “Company,” “we,” “us,” “our”), and are unaudited. The condensed consolidated balance sheet at December 31, 2021, has been derived from the Company’s audited consolidated financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 17, 2022, as amended by filing Form 10-K/A with the SEC on April 29, 2022. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the operating results for a full year. Principles of Consolidation The accounts of the Company and its subsidiaries have been included in the accompanying condensed financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity (“VIE”) or a voting interest entity. VIEs are entities in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities independently, or (ii) the at-risk equity holders do not have the normal characteristics of a controlling financial interest. A controlling financial interest in a VIE is present when an enterprise has one or more variable interests that have both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The enterprise with a controlling financial interest is the primary beneficiary and consolidates the VIE. Voting interest entities lack one or more of the characteristics of a VIE. The usual condition for a controlling financial interest is ownership of a majority voting interest for a corporation or a majority of kick-out or participating rights for a limited partnership. When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity’s operating and financial policies (generally defined as owning a voting or economic interest of between 20% to 50%), the Company’s investment is accounted for under the equity method of accounting. If the Company does not have a controlling financial interest in, or exert significant influence over, an entity, the Company accounts for its investment at fair value, if the fair value option was elected, or at cost. The Company has an investment in FG Financial Group, Inc. (formerly 1347 Property Insurance Holdings, Inc.), made through FGI 1347 Holdings, LP, a consolidated VIE. 6 Table of Contents Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, investment in securities, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities. As of March 31, 2022, and December 31, 2021, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, notes payable, and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments. The Company uses observable market data assumptions (Level 1 inputs, as defined in accounting guidance) that it believes market participants would use in pricing investment in securities. Recent Accounting Pronouncements The Company does not discuss recent pronouncements that are not anticipated to have a material impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. Change in Accounting Principle As disclosed in Note 4, on July 1, 2021, the Company changed its accounting for inventory to burden the material at the time of purchase receipts. Prior to July 1, 2021, the Company applied the material burden at the time the inventory was issued to work in progress. The Company believes that this method improves financial reporting by better reflecting the current value of inventory on the consolidated balance sheets, by providing better matching of revenues and expenses. This change resulted in a net increase of approximately $1,300 in inventory and a net decrease of $1,300 in accumulated deficit as of July 1, 2021. The accounting change did not have a material effect on the loss from operations, net loss, or earnings per share for the three months ended March 31, 2022. 2. Significant Events and Transactions Pursuant to the Company’s capital return program, the Company’s Board of Directors declared a quarterly dividend of $ 0.03 per share of the Company’s common stock on April 6, 2022, to stockholders of record as of May 2, 2022. These dividends will be paid on May 16, 2022. 3. Allowance for Doubtful Accounts The allowance for doubtful accounts on trade receivables was approximately $ 50 on gross trade receivables of $ 4,813 and 8,279 at March 31, 2022, and December 31, 2021, respectively. This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross trade receivables. 4. Inventories, Net On July 1, 2021, the Company changed its accounting for inventory to burden the material at the time of purchase receipts. Prior to July 1, 2021, the Company applied the material burden at the time the inventory was issued to work in progress. 7 Table of Contents 4. Inventories, Net - continued The fiscal 2021 financial statements have been retrospectively adjusted to apply the new inventory change method. The cumulative effect of this change on periods prior to those presented herein resulted in a net decrease in accumulated deficit of approximately $ 1,104 as of January 1, 2021. Inventories, which are presented net of allowance for slow moving, excess, or obsolete, consisted of the following: March 31, 2022 December 31, 2021 Finished goods $ 2,465 $ 2,335 Work in process 6,274 4,527 Raw materials 12,352 10,116 $ 21,091 $ 16,978 Allowances for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or net realizable value. The allowances were approximately $ 1,214 at March 31, 2022, compared with approximately $ 1,288 at December 31, 2021. As a result of the retrospective application of this change in accounting method, the following financial statement line items within the accompanying fiscal 2021 Condensed Consolidated financial statements were adjusted as follows: As Originally Reported ($) Effect of Change ($) As Reported under Change in Accounting Principle ($) Condensed Income Statements Cost of goods sold: Three months ended March 31, 2021 5,468 ( 24 ) 5,444 Loss before income taxes: Three months ended March 31, 2021 (694 ) 24 ( 670 ) Net loss: Three months ended March 31, 2021 (694 ) 24 ( 670 ) Net loss income per share-basic and diluted: Three months ended March 31, 2021 (0.06 ) 0.01 ( 0.05 ) Condensed Statements of Cash Flows Net loss as of March 31, 2021 (694 ) 24 ( 670 ) Inventories allowance 289 11 300 Inventories (1,359 ) ( 35 ) ( 1,394 ) 8 Table of Contents 5. Income Taxes The Company has not recorded income tax provision or benefit for the three months ended March 31, 2022 and 2021. The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision (benefit) in any period will be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain items, changes in the valuation allowance related to net deferred tax assets, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period. As of March 31, 2022, the Company’s net deferred tax assets totaled approximately $ 4,116 and were primarily derived from research and development tax credits, deferred revenue, and net operating loss carryforwards. In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years. The Company analyzed all positive and negative evidence to determine if, based on the weight of available evidence, it is 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 the Company’s 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 the analysis of all available evidence, both positive and negative, the Company has concluded that it does not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, the Company established a valuation allowance of $ 1,480 and $ 610 as of March 31, 2022 and December 31, 2021, respectively. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of March 31, 2022. 6. Investment in Securities 1347 LP The Company has an investment in a limited partnership, FGI 1347 Holdings, LP, of which the Company is the sole limited partner. FGI 1347 Holdings, LP (“1347 LP”), was established for the purpose of investing in securities. Affiliates of Fundamental Global GP, LLC (“FG”), serve as the general partner and the investment manager of 1347 LP, and the Company is the sole limited partner. As the sole limited partner, the Company is entitled to 100% of net assets held by 1347 LP. The general partner of 1347 LP is entitled to reimbursement of certain costs, fees, and expenses arising in connection with 1347 LP’s operations, as provided by the partnership agreement, upon approval by the Company’s Board of Directors. FG Financial Group As of March 31, 2022, the Company indirectly held approximately $ 62 in cash and 477,282 shares of FG Financial Group, Inc. (formerly 1347 Property Insurance Holdings, Inc.) (Nasdaq: FGF) (“FGF”), with fair value of $ 1,299 , through an investment in 1347 LP. These shares were purchased in March and May 2018 for approximately $ 3,741 . For the three months ended March 31, 2022, the Company recognized unrealized loss of $ 496 on the investment, compared with unrealized gain of $ 205 for the same period last year. There have been no costs, fees, and expenses paid to the general partner or its affiliates for any periods, including the three months ended March 31, 2022 and 2021. 9 Table of Contents 6. Investment in Securities -continued As of March 31, 2022, the Company and the affiliates of FG, including, without limitation, Ballantyne Strong, Inc., beneficially owned in the aggregate 3,032,765 shares of FGF’s common stock, representing approximately 60.0 % of FGF’s outstanding shares. Additionally, FG and its affiliates constitute the largest stockholder of the Company. Mr. Kyle Cerminara, a member of the Company’s Board of Directors, is Chief Executive Officer, Co-Founder and Partner of FG and serves as Chairman of the Board of Directors of Ballantyne Strong, Inc. Mr. Cerminara also serves as Chairman of the Board of Directors of FGF. 7. Stockholders’ Equity The changes in condensed consolidated stockholders’ equity for the three months ended March 31, 2022 and 2021*, are as follows: Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance at December 31, 2021 18,298,999 $ 10,979 $ 35,862 $ ( 8,821 ) $ ( 5,402 ) $ 32,618 Common stock issued under restricted stock units 16,000 10 ( 10 ) — — — Share-based compensation expense-stock options — — 85 — — 85 Share-based compensation expense-restricted stock units — — 70 — — 70 Net loss — — — ( 3,936 ) — ( 3,936 ) Balance at March 31, 2022 18,314,999 $ 10,989 $ 36,007 $ ( 12,757 ) $ ( 5,402 ) $ 28,837 Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance at December 31, 2020* 13,962,366 $ 8,377 $ 26,346 $ ( 5,693 ) $ ( 5,402 ) $ 23,628 Common stock issued under restricted stock units 24,505 15 ( 15 ) — — — Share-based compensation expense-stock options — — 32 — — 32 Share-based compensation expense-restricted stock units — — 103 — — 103 Common stock dividends ($0.02 per share) — — — ( 251 ) — ( 251 ) Net loss* — — — ( 670 ) — ( 670 ) Balance at March 31, 2021* 13,986,871 $ 8,392 $ 26,466 $ ( 6,614 ) $ ( 5,402 ) $ 22,842 * The amounts as of December 31, 2020, and for the period ended March 31, 2021, have been adjusted to reflect the change in inventory accounting method as described in Notes 1 and 4 of the Condensed Consolidated Financial Statements. 10 Table of Contents 8. Income (Loss) Per Share The following table sets forth the computation of basic and diluted loss per share: Three Months Ended March 31, 2022 March 31, 2021* Numerator: Net loss for basic and diluted earnings per share $ ( 3,936 ) $ ( 670 ) Denominator for basic loss per share weighted average shares 16,848,777 12,517,412 Effect of dilutive securities: Options and restricted stock units — — Denominator for diluted loss per share weighted average shares 16,848,777 12,517,412 Basic and diluted loss per share $ ( 0.23 ) $ ( 0.05 ) Approximately 909,000 stock options and 137,055 restricted stock units for the three months ended March 31, 2022, respectively, and 489,000 stock options and 122,533 restricted stock units for the three months ended March, 2021, respectively, were excluded from the calculation because they were anti-dilutive. * The amounts for 2021 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1and 4 to Condensed Consolidated Financial Statements. 9. Non-Cash Share-Based Employee Compensation The Company has an employee and non-employee director share-based incentive compensation plan. Related to these programs, the Company recorded non-cash share-based employee compensation expense of $ 85 for the three months ended March 31, 2022, compared with $ 32 for the same period last year. The Company considers its non-cash share-based employee compensation expenses as a component of cost of products and selling, general and administrative expenses. There was no non-cash share-based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented. The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of stock option grants under this plan. The non-cash share-based employee compensation expense recorded in the three months ended March 31, 2022, was calculated using certain assumptions. Such assumptions are described more comprehensively in Note 10 (Share-Based Employee Compensation) of the Notes to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021. 11 Table of Contents 9. Non-Cash Share-Based Employee Compensation - continued A summary of activity under the Company’s stock option plans during the three months ended March 31, 2022, is presented below: Stock Options Wgt. Avg. Exercise Price ($) Per Share Wgt. Avg. Remaining Contractual Life (Years) Wgt. Avg. Grant Date Fair Value ($) Per Share Aggregate Intrinsic Value ($) As of January 1, 2022 Outstanding 676,500 3.68 7.33 1.41 4,500 Vested 361,600 3.80 6.66 1.44 4,500 Nonvested 314,900 3.53 8.10 1.39 — Period activity Issued 237,500 2.38 — 0.78 — Exercised — — — — — Forfeited — — — — — Expired 5,000 4.95 — 1.05 — As of March 31, 2022 Outstanding 909,000 3.33 7.87 1.25 49,050 Vested 461,933 3.67 6.87 1.37 20,833 Nonvested 447,067 2.98 8.89 1.13 28,217 Restricted Stock Units On March 31, 2022, the Company granted 16,000 restricted stock units to Joshua Horowitz for strategic advisory service compensation. These restricted stock units were fully vested on the date of grant. On December 17, 2021, upon the resignation of former director John Struble, the Company, at the direction of the Board of Directors, accelerated the vesting of Mr. Struble’s unvested restricted stock units granted September 6, 2018, September 6, 2019, August 24, 2020, and July 30, 2021, and issued 34,264 shares of common stock to Mr. Struble. On August 24, 2021, the Company granted to each non-employee director restricted stock units with a grant-date fair value of $ 40 per award (resulting in total aggregate grant-date fair value of $ 240 ), which will vest in five equal, annual installments beginning with the first anniversary of the grant date, subject to the director’s continued service through such date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director, but is not nominated for the Board for election by stockholders, other than for good reason, as determined by the Board in its discretion, then the restricted stock units shall vest in full as of the director’s last date of service as a director of the Company. On July 30, 2021, the Company granted to each non-employee director restricted stock units with a grant-date fair value of $ 50 per award (resulting in total aggregate grant-date fair value of $ 250 ), which will vest in five equal, annual installments beginning with the first anniversary of the grant date, subject to the director’s continued service through such date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director, but is not nominated for the Board for election by stockholders, other than for good reason, as determined by the Board in its discretion, then the restricted stock units shall vest in full as of the director’s last date of service as a director of the Company. On March 4, 2021, upon the resignation of former director Lewis Johnson, the Company, at the direction of the Board of Directors, accelerated the vesting of Mr. Johnson’s unvested restricted stock units granted September 6, 2018, September 6, 2019, and August 24, 2021, and issued 24,505 shares of common stock to Mr. Johnson. 12 Table of Contents 9. Non-Cash Share-Based Employee Compensation - continued On April 24, 2020, upon the resignation of former director Ryan Turner, the Company, at the direction of the Board of Directors, accelerated the vesting of Mr. Turner’s unvested restricted stock units granted September 6, 2019, and September 6, 2018, and issued 10,389 and 4,050 shares of common stock, respectively. There were 137,055 restricted stock units outstanding as of March 31, 2022, and December 31, 2021. The Company recorded non-cash restricted stock unit compensation expense of $ 70 for the three months ended March 31, 2022, compared with $ 103 for the same period last year. 10. Commitments and Contingencies Legal Matters From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of its business. On a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, it records a liability in its consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company does not accrue legal reserves, consistent with applicable accounting guidance. There were no pending material claims or legal matters as of March 31, 2022. COVID-19 In December 2019, a novel strain of the coronavirus (COVID-19) surfaced in Wuhan, China, which spread globally and was declared a pandemic by the World Health Organization in March 2020. Although we believe the pandemic has not had a material adverse impact on our business through 2020, it may have the potential of doing so in the future. The extent of the potential impact of the COVID-19 pandemic on our business and financial performance will depend on future developments, which are uncertain and, given the continuing evolution of the COVID-19 pandemic and the global responses to curb its spread, cannot be predicted. In addition, the pandemic has significantly increased economic uncertainty and caused a worldwide economic downturn. 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, including any recession that may occur in the future. Purchase Commitments As of March 31, 2022, the Company had purchase commitments for inventory totaling approximately $ 12,533 . Significant Customers Sales to United States government agencies represented approximately $ 1,650 ( 25.05 %) of the Company’s net total sales for the three months ended March 31, 2022, compared with approximately $ 2,116 ( 24.71 %) for the same period last year. Accounts receivable from agencies of the United States government were $ 1,314 as of March 31, 2022, compared with approximately $ 1,490 at the same date last year. 11. Debt BK Technologies, Inc. (“BK Inc.”), a wholly owned subsidiary of the Company, entered into a $5,000 Credit Agreement and a related Line of Credit Note (the “Note” and collectively with the Credit Agreement, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMC”) on January 30, 2021. The Credit Agreement provides for a revolving line of credit of up to $ 5,000 , 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. The Company and each subsidiary of BK Inc. are guarantors of BK Technologies, Inc.’s obligations under the Credit Agreement, in accordance with the terms of the Continuing Guaranty. On January 31, 2022, our revolving credit facility, which originated on January 30, 2020, was extended for one year, through January 31, 2023. 13 Table of Contents 11. Debt - continued Borrowings under the Credit Agreement will bear interest at the secured overnight financing rate plus a margin of 2.0 %. The line of credit, as modified, is to be repaid in monthly payments of interest only, payable in arrears, commencing on February 1, 2022 , with all outstanding principal and interest to be payable in full at maturity ( January 31, 2023 ). As of March 31, 2022, the interest rate was 2.398 %. 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 $ 20,000 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. BK Technologies, Inc. was in compliance with all covenants under the Credit Agreement as of March 31, 2022, and the date of filing this report. As of March 31, 2022, the Company had an outstanding balance of $ 1,458 , and a net balance availability of $ 2,727 under the Credit Agreement. As of the date of filing this report, the Company had an outstanding balance of $ 2,458 , and a net balance availability of $ 2,542 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 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 beginning on May 8, 2021 , matures on April 8, 2025 , and bears a fixed interest rate of 3.0 %. On September 25, 2019, BK Technologies, Inc., a wholly owned subsidiary of the Company, and U.S. Bank Equipment Finance, a division of U.S. Bank National Association, as a lender, entered into a Master Loan Agreement in the amount of $ 425 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 60 equal monthly principal and interest payments of approximately $ 8 beginning on October 25, 2019 , matures on September 25, 2024 , and bears a fixed interest rate of 5.11 %. 14 Table of Contents 11. Debt - continued Current balances of notes payable at March 31, 2022, and December 31, 2021, are set forth in the table below: March 31, 2022 December 31, 2021 Note payable-US. Bank $ 87 $ 86 Note payable-JP Morgan Chase Bank 182 181 $ 269 $ 267 Long-term balances of notes payable at March 31, 2022, and December 31, 2021, are set forth in the table below: March 31, 2022 December 31, 2021 Note payable-US. Bank $ 139 $ 161 Note payable-JP Morgan Chase Bank 398 444 $ 537 $ 605 12. Leases The Company accounts for its leasing arrangements in accordance with Topic 842, “Leases”. The Company leases manufacturing and office facilities and equipment under operating leases and determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company leases approximately 54,000 square feet (not in thousands) of industrial space in West Melbourne, Florida, under a non-cancellable operating lease. The lease has the expiration date of September 30, 2027 . Annual rental, maintenance and tax expenses for the facility are approximately $ 491 . In February 2021, the Company entered into a lease for 6,857 square feet (not in thousands) of office space at Sawgrass Technology Park, 1619 NW 136th Avenue in Sunrise, Florida, for a period of 64 months commencing July 1, 2021. Annual rental, maintenance and tax expenses for the facility will be approximately $ 196 for the first year, increasing by approximately 3% for each subsequent 12-month period. In March 2021, the Company executed an agreement for the termination of its lease for 8,100 square feet (not in thousands) of office space in Lawrence, Kansas, effective March 31, 2021, and recognized a “Lease Termination” expense of approximately $ 53 . The original term of the lease was through December 31, 2021 . 15 Table of Contents 12. Leases - continued Lease costs consisted of the following: Three Months Ended March 31, 2022 March 31, 2021 Operating lease cost $ 136 $ 166 Short-term lease cost — — Variable lease cost 33 32 Total lease cost $ 169 $ 198 Supplemental cash flow information related to leases was as follows: Three Months Ended March 31, 2022 March 31, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows (fixed payments) $ 143 $ 211 Operating cash flows (liability reduction) $ 108 $ 171 ROU assets obtained in exchange for lease obligations: Operating leases $ — $ 14 Other information related to operating leases was as follows: March 31, 2022 Weighted average remaining lease term (in years) 4.95 Weighted average discount rate 5.50 % Maturities of lease liabilities as of March 31, 2022, were as follows: March 31, 2022 Remaining nine months of 2022 $ 438 2023 595 2024 608 2025 618 2026 479 Thereafter 243 Total payments 2,981 Less: imputed interest ( 373 ) Total present value of lease liabilities $ 2,608 16 Table of Contents