What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-12 · 127 added, 97 removed, 155 unchanged (59% of the section changed)

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the success of our land mobile radio 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 and our announced SaaS solutions;

competition in the land mobile radio industry;

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our ability to manage our growth;

our ability to identify potential candidates and to consummate acquisition, disposition or investment transactions, and risks incumbent with being a noncontrolling interest stockholder in a corporation;

the impact of general business conditions, including those resulting from the COVID-19 pandemic, ongoing geopolitical conflicts and related sanctions, on the companies in which we hold investments;

our ability to identify potential candidates and consummate acquisition, disposition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation;

the impact of general business conditions, including those resulting from the COVID-19 pandemic, inflation, ongoing geopolitical conflicts and related sanctions, on the companies in which we hold investments;

impact of our capital allocation strategy;

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our business with manufacturers located in other countries, including changes in the U.S.

Government and foreign governments’ trade and tariff policies, as well as any further impact resulting from the COVID-19 pandemic, ongoing geopolitical conflicts and related sanctions;

Government and foreign governments’ trade and tariff policies, as well as any further impact resulting from the COVID-19 pandemic, inflation, ongoing geopolitical conflicts and related sanctions;

our inventory and debt levels;

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fluctuation in our operating results and stock price;

acts of war or terrorism, natural disasters and other catastrophic events;

acts of war or terrorism, natural disasters and other catastrophic events, such as the COVID-19 pandemic;

any infringement claims;

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the effect on our stock price and ability to raise equity capital through future sales of shares of our common stock.

Some of these factors and risks have been, and may further be, exacerbated by the COVID-19 pandemic.

Some of these factors and risks have been, and may further be, exacerbated by the COVID-19 pandemic and general economic conditions such as inflation.

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.

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Executive Overview

BK Technologies Corporation is a holding company, with a wholly owned operating subsidiary, BK Technologies, Inc.

We design, manufacture and market two-way land mobile radios, repeaters, base stations and related components and subsystems.

Two-way land mobile radios can be hand-held (portable) or installed in vehicles (mobile).

Repeaters expand the range of two-way land mobile radios, enabling them to operate over a wider area.

Base station components and subsystems are installed at radio transmitter sites to improve performance by enhancing the signal and reducing or eliminating signal interference and enabling the use of one antenna for both transmission and reception.

We incorporate both analog and digital technologies in our products.

Our digital technology is compliant with the Project 25 standard of the Association of Public-Safety Communications Officials.

We offer products primarily under the “BK” brand name.

Generally, BK-branded products serve the government and public safety market.

We also recently launched our business unit dedicated to the development of software-as-a-service (SaaS) solutions.

Holding Company Reorganization

On March 28, 2019, we implemented a holding company reorganization.

The reorganization created a new holding company, BK Technologies Corporation, which became the new parent company of BK Technologies, Inc.

The holding company reorganization was intended to create a more efficient corporate structure and increase operational flexibility.

We did not incur any material operational or financial impacts.

The holding company reorganization was effected through a merger transaction that was a tax-free transaction for U.S.

federal income tax purposes for our stockholders.

No stockholder vote was required to effect the merger transaction.

As part of the holding company reorganization, stockholders of our predecessor, BK Technologies, Inc., became stockholders of BK Technologies Corporation, on a one-for-one basis, with the same number of shares and same ownership percentage of common stock that they held immediately prior to the holding company reorganization.

Following the reorganization, BK Technologies Corporation replaced BK Technologies, Inc.

as the publicly traded entity, and shares of BK Technologies Corporation were listed on the NYSE American under the symbol “BKTI,” which is the same symbol as previously used by BK Technologies, Inc.

In addition, the common stock of BK Technologies Corporation was assigned a new CUSIP Number:

For the purpose of this report, references to “we” or the “Company” or our management or business at any period prior to the holding company reorganization (March 28, 2019) refer to those of BK Technologies, Inc., as the predecessor company and its subsidiaries and thereafter to those of BK Technologies Corporation and its subsidiaries, except as otherwise specified or to the extent the context otherwise indicates.

BK Technologies Corporation (NYSE American:

BKTI) (together with its wholly owned subsidiaries, “BK,” the “Company,” “we” or “us”) is a holding company that, through BK Technologies, Inc., its operating subsidiary, provides public safety grade communications products and services which make first responders safer and more efficient.

All operating activities described herein are undertaken by our operating subsidiary.

In business for over 70 years, BK operates two business units through its operating subsidiary, BK Technologies, Inc.;

Radio and SaaS.

The Radio business unit designs, manufactures and markets American-made wireless communications products consisting of two-way land mobile radios (“LMRs”).

Two-way LMRs can be radios that are hand-held (portable) or installed in vehicles (mobile).

Generally, BK Technologies-branded products serve the government markets including but not limited to emergency response, public safety, homeland security and military customers of federal, state and municipal government agencies, as well as various industrial and commercial enterprises.

We believe that our products and solutions provide superior value by offering a high specification, ruggedized, durable, reliable, feature rich, Project 25 (P25) compliant radio at a lower cost relative to comparable offerings.

The SaaS business unit focuses on delivering innovative, public safety smartphone applications which operate ubiquitously over the public cellular networks.

Our BKRPlay branded smartphone application will offer multiple services which make the first responder safer and more efficient.

When tethered to our radios, the combined solution will offer more unique capability which increases the sales reach of our radios.

We were incorporated under the laws of the State of Nevada on October 24, 1997.

We are the resulting corporation from the reincorporation merger of our predecessor, Adage, Inc., a Pennsylvania corporation, which reincorporated from Pennsylvania to Nevada effective as of January 30, 1998.

Effective on June 4, 2018, we changed our corporate name from “RELM Wireless Corporation” to “BK Technologies, Inc.”

Our principal executive offices are located at 7100 Technology Drive, West Melbourne, Florida 32904 and our telephone number is (321) 984-1414.

Available Information

Our Internet website address is www.bktechnologies.com.

We make available on our Internet website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to these reports as soon as practicable after we file such material with, or furnish it to, the U.S.

Securities and Exchange Commission (the “SEC”).

In addition, our Code of Business Conduct and Ethics, Code of Ethics for the CEO and Senior Financial Officers, Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter and other corporate governance policies are available on our website, under “Investor Relations.” The information contained on our website is not incorporated by reference in this report.

A copy of any of these materials may be obtained, free of charge, upon request from our investor relations department by submitting a written request to bktechnologies@imsinvestorrelations.com or calling (203) 972-9200.

Additional information regarding our investor relations department can be found at our website.

All reports that the Company files with or furnishes to the SEC also are available free of charge via the SEC’s website at http://www.sec.gov.

Impact of COVID-19 Pandemic and Recent Capital markets Disruption

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The impact to our business in 2022, 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.

Recently, worldwide shortages of materials, particularly semiconductors and integrated circuits, have resulted in limited supplies, extended lead times, and increased 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 delays and long delivery times within our supply chain.

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Such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition.

First Quarter Summary

Customer demand and orders for our products continued to be strong during the three months ended March 31, 2022.

Second Quarter and Six Months Summary

Customer demand and orders for our products continued to be strong during the three and six months ended June 30, 2022.

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 subsequent quarters this year.

For the first quarter 2022, sales decreased approximately $2.0 million (23.1%), compared with the first quarter last year.

While customer orders were strong during the quarter, factors within our supply chain and manufacturing operations, including component availability and extended lead-times, limited our ability to convert orders into shipments and revenue recognition.

Additionally, gross profit margins as a percentage of sales for the first quarter of 2022 decreased compared with the same periods of last year, generally reflecting cost increases in materials and freight, and lower manufacturing volumes.

Selling, general and administrative (“SG&A”) expenses for the three-month period ended March 31, 2022, increased approximately $0.9 million (23.7%) compared with the same quarter last year.

For the first quarter of 2022, our sales totaled approximately $6.6 million, compared with approximately $8.6 million for the same quarter last year.

Gross profit margins as a percentage of sales for the first quarter of 2022 were approximately 22.4%, compared with 36.4% (as adjusted) for the first quarter last year.

SG&A expenses for the first quarter of 2022 totaled approximately $4.9 million, compared with approximately $4.0 million for the same quarter last year.

For the first quarter of 2022, we recognized an operating loss of approximately $3.4 million, compared with approximately $853,000 (as adjusted) for the same quarter last year.

For the first quarter of 2022, we recognized an unrealized loss totaling approximately $0.5 million on our investment in FGF Financial (formerly 1347 Property Insurance Holdings, Inc.), made through FGI 1347 Holdings, LP, a consolidated variable interest entity.

This compares with an unrealized gain of approximately $205,000 on the investment for the first quarter last year.

Net loss for the three months ended March 31, 2022, was approximately $3.9 million ($0.23 per basic and diluted share), compared with approximately $670,000 ($0.05 per basic and diluted share) (as adjusted), for the same quarter last year.

As of March 31, 2022, working capital totaled approximately $21.7 million, of which approximately $11.1 million was comprised of cash, cash equivalents and trade receivables.

Overall, our revenues for the three months ended June 30, 2022, improved compared with the same period of last year.

For the second quarter 2022, sales increased 6.8% from the second quarter last year and 83.9% from the immediately preceding quarter.

The improvement in sales for the second quarter brought sales for the six-months ended June 30, 2022, within 6.0% of the same six-month period last year.

Gross profit margins as a percentage of sales for the second quarter and six-month periods of 2022 decreased compared with the same periods of last year, generally reflecting cost increases in materials and freight, and lower production volumes due to material shortages.

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2022 were 18.7% higher than the SG&A expenses for the second quarter last year, while SG&A expenses for the six-month period ended June 30, 2022, increased 21.1% compared to the same period last year.

The increase in general and administrative expenses is attributed primarily to corporate and headquarters staffing and strategic initiatives.

These factors yielded operating losses for the three and six month periods ended June 30, 2022, that increased primarily due to supply chain material challenges comparable to the same periods last year.

During the second quarter of 2021 we closed a public offering of our common stock, raising net proceeds of approximately $11.6 million with the issuance of approximately 4.2 million common shares.

For the second quarter of 2022, our sales increased 6.8% to approximately $12.1 million, compared with approximately $11.3 million for the same quarter last year.

For the six months ended June 30, 2022, sales totaled approximately $18.7 million, compared with approximately $19.9 million for the same period last year.

Gross profit margins as a percentage of sales for the second quarter of 2022 were approximately 14.2%, compared with 38.4% for the second quarter last year, as adjusted.

For the six-month period ended June 30, 2022, gross profit margins as a percentage of sales were approximately 17.1%, compared with 37.6% when compared to the same periods last year, as adjusted.

SG&A expenses for the second quarter of 2022 totaled approximately $5.4 million, compared with approximately $4.6 million for the same quarter last year.

SG&A expenses for the first six months of 2022 increased 21.1% to approximately $10.3 million, compared with approximately $8.5 million for the same period last year.

For the second quarter of 2022, we recognized an operating loss of approximately $3.7 million, compared with approximately $0.2 million for the same quarter last year, as adjusted.

For the six-month period ended June 30, 2022, our operating loss totaled approximately $7.1 million, compared with approximately $1.1 million for the same period last year, as adjusted.

For the second quarter of 2022, we recognized an unrealized loss totaling approximately $0.6 million on our investment in FG Financial made through FGI 1347 Holdings, LP, a consolidated variable interest entity.

This compares with an unrealized gain of approximately $2.3 million on the investment for the second quarter last year.

For the six-month period ended June 30, 2022, we recognized an unrealized loss of approximately $1.1 million, compared with an unrealized gain of $2.5 million for last year’s six-month period.

Net loss for the three months ended June 30, 2022, was approximately $4.3 million ($0.26 per basic and diluted share), compared with a net income of approximately $1.8 million ($0.14 per basic and $0.13 diluted share) for the same quarter last year, as adjusted.

For the six months ended June 30, 2022, our net loss totaled approximately $8.3 million ($0.49 per basic and diluted share), compared with a net income of approximately $1.2 million ($0.09 per basic and diluted share) for the same period last year, as adjusted.

As of June 30, 2022, working capital totaled approximately $17.4 million, of which approximately $12.4 million was comprised of cash, cash equivalents and trade receivables.

As of December 31, 2021, working capital totaled approximately $25.2 million (as adjusted), of which approximately $18.8 million was comprised of cash, cash equivalents and trade receivables.

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Three Months Ended

Percentage of Sales

Six Months Ended

June 30, 2022

June 30, 2021*

June 30, 2022

June 30, 2021*

Cost of products

Selling, general and administrative expenses

Other (expense) income

(Loss) income before income taxes

Other income (expense)

Income (loss) before income taxes

Income tax (expense) benefit

Net (loss) income

* The amounts for 2021 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to Condensed Financial Statements.

For the first quarter ended March 31, 2022, net sales totaled approximately $6.6 million, compared with approximately $8.6 million for the same quarter last year.

Customer demand and orders for our products continued to be strong, driving record bookings for the first quarter of 2022.

* The amounts for 2021 have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 4 to Condensed Consolidated Financial Statements.

For the second quarter ended June 30, 2022, net sales increased 6.8% to approximately $12.1 million, compared with approximately $11.3 million for the same quarter last year.

Sales for the six months ended June 30, 2022, totaled approximately $18.7 million, compared with approximately $19.9 million for the six-month period last year.

Customer demand and orders for our products continued to be strong, driving record bookings for the second quarter of 2022.

Supply chain constraints limited our ability to manufacture the quantities needed to convert the orders into shipments and sales revenue.

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We are taking steps to manage delays in the supply chain, including carrying additional inventory of material and components with limited supplies.

Although supply chain factors may continue to impact shipments during the next several quarters, we anticipate being able to fulfill customer requirements.

The precise impact to sales and shipments for future quarters, however, cannot be quantified.

Sales for the three months ended March 31, 2022, was attributed primarily to certain state and local public safety opportunities, as well as federal wildland fire related agencies.

From a product perspective, the primary contributor to orders and shipments during the first quarter was our BKR 5000 portable radio and related accessories.

Although supply chain factors may continue to impact shipments during the next quarter, we anticipate being able to fulfill customer requirements.

The precise impact to sales and shipments for the remainder of 2022, however, cannot be quantified.

Sales for the three months ended June 30, 2022, was attributed primarily to certain state and local public safety opportunities, as well as federal wildland fire related agencies.

From a product perspective, the primary contributor to orders and shipments during the second quarter was our BKR 5000 portable radio and related accessories.

The BKR Series is envisioned as a comprehensive line of new products, which will include new 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.

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While the potential impacts of material shortages, lead-times, the COVID-19 pandemic, and ongoing geopolitical conflict and related sanctions in coming months and quarters remain uncertain, such effects have the potential to adversely impact our customers and our supply chain.

Such negative effects on our customers and suppliers could adversely affect our future sales, operations, and financial results.

Such negative effects on our customers and suppliers could adversely affect our future sales, gross profit margins, operations, and financial results.

Cost of Products and Gross Profit Margin

Gross profit margins as a percentage of sales for the first quarter ended March 31, 2022, were approximately 22.4%, compared with 36.4% (as adjusted) for the same quarter last year.

Gross profit margins as a percentage of sales for the second quarter ended June 30, 2022 were approximately 14.2%, compared with 38.4% for the same quarter last year.

For the six-month period ended June 30, 2022, gross profit margins were approximately 17.1%, compared with 37.6% for the same period last 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 first quarter ended March 31, 2022, decreased compared with the same period last year primarily due to increased material costs, including electrical components, as well as escalated freight costs, combined with a decline in overall manufacturing volumes, which yielded sub-optimal absorption of manufacturing overhead costs.

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.

Gross profit margins for the quarter ended June 30, 2022, decreased compared with the same period last year primarily due to increased material costs, including electronic components, as well as escalated freight costs, which yielded sub-optimal absorption of manufacturing overhead costs.

During recent quarters, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies, extended lead times and higher costs for certain components used in our products.

Accordingly, we have experienced delivery delays 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.

While the progression and duration of these shortages is not known with certainty, we are monitoring a number of critical components for product cost improvement, but the shortages may last for several quarters.

The impact on our operations of such shortages and increased product costs is uncertain, but could potentially impact our future sales, manufacturing operations and financial results.

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.

However, we may encounter new product cost and competitive pricing pressures in the future and the extent of their impact on gross margins, if any, is uncertain.

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 first quarter ended March 31, 2022, totaled approximately $4.9 million (74.7% of sales), compared with approximately $4.0 million (46.4% of sales) for the same quarter last year.

Engineering and product development expenses for the first quarter of 2022 totaled approximately $2.3 million (35.1% of sales), compared with approximately $1.8 million (21.3% of sales) for the same quarter of last year.

SG&A expenses for the second quarter ended June 30, 2022, totaled approximately $5.4 million (44.6% of sales), compared with approximately $4.6 million (40.2% of sales) for the same quarter last year.

For the six months ended June 30, 2022, SG&A expenses increased by $1.8 million, or 21.1%, to approximately $10.3 million (55.2% of sales), compared with approximately $8.5 million (42.8% of sales), for the six-month period last year.

Engineering and product development expenses for the second quarter of 2022 totaled approximately $2.3 million (18.9% of sales), compared with approximately $2.3 million (20.3% of sales) for the same quarter of last year.

For the six months ended June 30, 2022, engineering and product development expenses totaled approximately $4.6 million (24.6% of sales), compared with approximately $4.1 million (20.7% of sales) for the six-month period last year.

The increase in engineering expenses is attributed primarily to ongoing product design and development activities, particularly prototyping, for the new BKR series radios.

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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 and quarters.

Marketing and selling expenses for the first quarter of 2022 totaled approximately $1.0 million (15.2% of sales), compared with approximately $0.9 million (11.0% of sales) for the first quarter last year, primarily reflecting increases in staffing, travel and go-to-market activities in support of anticipated sales growth from new products and customers.

General and administrative expenses for the first quarter 2022 totaled approximately $1.6 million (24.3% of sales), compared with approximately $1.2 million (14.1% of sales) for the same quarter last year.

The increase in general and administrative expenses for the quarter is attributed primarily to corporate and headquarters staffing and strategic initiatives.

Marketing and selling expenses for the second quarter of 2022 totaled approximately $1.1 million (9.1% of sales), compared with approximately $1.1 million (9.4% of sales) for the second quarter last year, primarily reflecting increases in staffing, travel and go-to-market activities in support of anticipated sales growth from new products and customer.

For the six months ended June 30, 2022, marketing and selling expenses increased approximately $0.1 million, or 3.6%, to approximately $2.1 million (11.1% of sales), compared with approximately $2.0 million (10.1% of sales).

The increases for the six-month period ended June 30, 2022 are primarily reflecting increases in staffing, travel and go-to-market activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the second quarter 2022 totaled approximately $2.0 million (16.4% of sales), compared with approximately $1.2 million (10.5% of sales) for the same quarter last year.

For the six months ended June 30, 2022, general and administrative expenses totaled approximately $3.6 million (19.4% of sales), compared with approximately $2.6 million (12.5% of sales) for the six-month period last year.

The increase in general and administrative expenses for the three and six month period ending June 30, 2022 is attributed primarily to corporate and headquarters staffing and strategic initiatives.

Operating Loss

The operating loss for the first quarter ended March 31, 2022, totaled approximately $3.4 million (52.3% of sales), compared with approximately $853,000 (10.0% of sales), (as adjusted), for last year’s first quarter.

The operating loss for the first quarter is attributed primarily to a decrease in sales combined with increased product costs, which adversely impacted gross profit margins, and increased operating expenses.

The operating loss for the second quarter ended June 30, 2022, totaled approximately $3.7 million (30.4% of sales), compared with approximately $0.2 million (1.8% of sales) for last year’s second quarter, as adjusted.

For the six months ended June 30, 2022, our operating loss totaled approximately $7.1 million (38.1% of sales), compared with approximately $1.1 million (5.3% of sales) for the six-month period last year, as adjusted.

The operating loss for the quarter ended June 30, 2022 is attributed primarily to increased product costs, which adversely impacted gross profit margins and increased operating expenses.

The operating loss for the six months ended June 30, 2022 is primarily attributed to increased product costs and a decrease in sales, which adversely impacted gross profit margins and increased operating expenses.

Other (Expense) Income

We recorded net interest expense of approximately $15,000 for the first quarter ended March 31, 2022, compared with approximately $4,000 for the first quarter of last year.

We recorded net interest expense of approximately $24,000 for the second quarter ended June 30, 2022, compared with approximately $14,000 for the second quarter of last year.

For the six months ended June 30, 2022, net interest expense totaled approximately $39,000, compared with net interest income of approximately $18,000 for the six-month period last year.

Net interest expense was primarily the result of equipment financing, our revolving credit facility and lower average cash balances.

For the first quarter ended March 31, 2022, we recognized an unrealized loss of approximately $496,000 on our investment in FGF, compared with an unrealized gain of approximately $205,000 for the first quarter last year.

We recorded no tax provision or benefit for the first quarter ended March 31, 2022 or 2021.

For the second quarter ended June 30, 2022, we recognized an unrealized loss of approximately $0.6 million on our investment in FGF, compared with an unrealized gain of approximately $2.3 million for the second quarter last year.

For the six months ended June 30, 2022, we recognized an unrealized loss of approximately $1.1 million on our investment in FGF, compared with an unrealized gain of approximately $2.5 for the same period last year.

We recorded no tax provision or benefit for the quarter ended and for the six months ended June 30, 2022, compared with an income tax expense of $184,000 for the quarter and the same six month period last year.

Our income tax provision is based on management’s estimate of the effective tax rate for the full year.

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As a result, we 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, 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.

As of June 30, 2022, 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.

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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 $1.48 million and $610,000 as of March 31, 2022 and December 31, 2021.

Accordingly, we established a valuation allowance of $2.69 million and $0.6 million as of June 30, 2022 and December 31, 2021.

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 March 31, 2022.

If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of June 30, 2022.

Liquidity and Capital Resources

For the three months ended March 31, 2022, net cash used in operating activities totaled approximately $3.3 million, compared with cash provided by operating activities of approximately $39,000 (as adjusted) for the same quarter last year.

Cash used in operating activities for the three months ended March 31, 2022, was primarily related to a net loss, increased inventory and increased prepaid expenses, which were partially offset by decreased accounts receivable, increased accounts payable.

For the first quarter of 2022, we had a net loss of approximately $3.9 million, compared with a net loss of approximately $670,000 (as adjusted) for the same quarter last year.

Gross inventories increased during the quarter ended March 31, 2022, by approximately $4.2 million, compared with approximately $1.4 million (as adjusted) for the same quarter last year.

Prepaid expenses increased during the first quarter by approximately $904,000, compared with a decrease of $57,000 for last year’s first quarter.

The increases for both inventories and prepaid expenses were attributed primarily to limited material and component availability combined with extended supplier lead-times and planned new product introductions.

Accounts receivable decreased approximately $3.5 million during the first quarter ended March 31, 2022, compared with a decrease of approximately $1.9 million for last year’s first quarter.

The decrease was primarily due to customer collections combined with decreased sales during the first quarter.

Accounts payable for the first quarter ended March 31, 2022, increased approximately $1.4 million, compared with an increase of approximately $299,000 for the last year’s first quarter, primarily due to increased material and component purchases from suppliers related in-part to delays and shortages within our supply chain.

Depreciation and amortization totaled approximately $342,000 for the first quarter ended March 31, 2022, compared with approximately $298,000 for last year’s first quarter.

For the six months ended June 30, 2022, net cash used in operating activities totaled approximately $5.3 million, compared with cash used by operating activities of approximately $2.8 million (as adjusted) for the same period last year.

Cash used in operating activities for the six months ended June 30, 2022, was primarily related to a net loss and increased inventory, which were partially offset by increased accounts payable, a decrease in accounts receivable and an unrealized loss in marketable securities.

For the first six months of 2022, we had a net loss of approximately $8.3 million, compared with a net income of approximately $1.2 million (as adjusted) for the same period last year.

Gross inventories increased during the six months ended June 30, 2022 by approximately $5.6 million, compared with approximately $3.2 million (as adjusted) for the same period last year.

The increases for inventories were attributed primarily to increased purchases to account for the limited material and component availability combined with extended supplier lead-times and planned new product introductions.

Prepaid expenses decreased during the six months ended June 30, 2022 by approximately $0.4 million, compared with a decrease of $12,000 for the same period last year.

Accounts receivable decreased approximately $1.7 million during the six months ended June 30, 2022, compared with an increase of approximately $0.7 million for the same period last year.

The decrease was primarily due to customer collections during the six months ended June 30, 2022.

Accounts payable for the six months ended June 30, 2022, increased approximately $3.9 million, compared with an increase of approximately $1.2 million for the same period last year, primarily due to increased material and component purchases from suppliers related in-part to delays and shortages within our supply chain.

Depreciation and amortization totaled approximately $0.7 million for the six months ended June 30, 2022, compared with approximately $0.7 million for the six same period last year.

Depreciation and amortization are primarily related to manufacturing and engineering equipment.

The unrealized loss on securities for the first quarter ended March 31, 2022, totaled approximately $496,000, compared with an unrealized gain of approximately $205,000 for the first quarter last year.

The unrealized loss on securities for the six months ended June 30, 2022, totaled approximately $1.1 million, compared with an unrealized gain of approximately $2.5 million for same period last year.

For additional information pertaining to our investment in securities, refer to Note 1 (Condensed Consolidated Financial Statements) and Note 6 (Investment in Securities) to the condensed consolidated financial statements included in this report.

Cash used in investing activities for the first quarter ended March 31, 2022, totaled approximately $345,000, compared with approximately $1.0 million for last year’s first quarter.

Cash used in investing activities for the six months ended June 30, 2022, totaled approximately $0.7 million, compared with approximately $1.5 million for the same period last year.

The cash used for both periods was attributed primarily to the purchase of engineering and manufacturing related equipment.

For the first quarter ended March 31, 2022, cash of approximately $583,000 was used in financing activities, compared with cash provided by financing activities of approximately $529,000 for last year’s first quarter.

During the first quarter of 2022 we paid a quarterly dividend, utilizing approximately $505,000, while for last year’s first quarter, we paid a quarterly dividend of approximately $250,000, and we received cash of approximately $779,000 from debt, net of repayments totaling approximately $21,000.

For the six months ended June 30, 2022, cash of approximately $1.3 million was provided by financing activities, compared with cash provided by financing activities of approximately $13.2 million for the same period last year.

During the six months ended June 30, 2022 we paid quarterly dividends, utilizing approximately $1.0 million, while for the same period last year, we paid a quarterly dividend of approximately $0.5 million.

During the six months ended June 30, 2022, we received proceeds of approximately $2.5 million from our revolving credit facility and notes payable compared to $3.5 million for the same period last year.

This was partially offset by loan and revolving credit facility repayments of approximately $0.1 million for the six months ended June 30, 2022 compared to $1.4 million for the same period last year.

For the six months ended June 30, 2021, we closed a public offering of our common stock, generating net proceeds of approximately $11.6 million.

On January 31, 2022, our revolving credit facility, which originated on January 30, 2020, was extended for one year, through January 31, 2023.

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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.

was in compliance with all covenants under the Credit Agreement as of June 30, 2022, and the date of filing this report.

As of June 30, 2022, the Company had an outstanding balance of $3,958, and a net balance availability of $1,042 under the Credit Agreement.

As of the date of filing this report, the Company had an outstanding balance of $3,958, and a net balance availability of $1,042 under the Credit Agreement.

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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 March 31, 2022, was approximately $6.4 million.

Our cash and cash equivalents balance at June 30, 2022, was approximately $5.9 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.

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Risk Factors” below in this report.

Critical Accounting Policies and Estimates

Critical Accounting Policies

In response to the Securities and Exchange Commission’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for disclosure our revenue recognition process and our accounting processes involving significant judgments, estimates and assumptions.

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These estimates and assumptions, if incorrect, could adversely impact our operations and financial position.

There were no changes to our critical accounting policies during the quarter ended March 31, 2022.

There were no changes to our critical accounting policies during the six months ended June 30, 2022.

Change in Accounting Principle During 2021

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This change resulted in a net increase of approximately $1.3 million in inventory and retained earnings 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.

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 June 30, 2022.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting company, the Company is not required to include the disclosure under this Item.

As a “smaller reporting company” as defined by Item 229.10(f)(1) of Regulation S-K, the Company is not required to include the disclosure under this Item.

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-Q

Item 2. Management’s Discussion and Analysis