What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-04 · 145 added, 164 removed, 113 unchanged (73% of the section changed)

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We believe that it is important to communicate our future expectations to our security holders and to the public.

This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including the statements about our plans, objectives, expectations, and prospects.

You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “should,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “are encouraged” and other similar expressions.

This report, including any information incorporated by reference in this report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Exchange Act, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “should,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “are encouraged” and other similar expressions.

Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement.

We also may make forward-looking statements in other documents that are filed or furnished with the SEC.

In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.

Forward-looking statements include, but are not limited to, the following:

changes or advances in technology;

the success of our SaaS and Radio business lines and the products offered thereunder;

successful introduction of new products and technologies, including our ability to successfully develop and sell our anticipated SaaS products, and our new multiband radio product and other related products in the planned new BKR Series product line;

competition in the LMR industry;

general economic and business conditions, including federal, state and local government budget deficits and spending limitations and any impact from a prolonged shutdown of the U.S.

the availability, terms and deployment of capital;

reliance on contract manufacturers and suppliers;

risks associated with fixed-price contacts;

heavy reliance on sales to agencies of the U.S.

Government and our ability to comply with the requirements of contracts, laws and regulations related to such sales;

allocations by government agencies among multiple approved suppliers under existing agreements;

our ability to comply with U.S.

tax laws and utilize deferred tax assets;

our ability to attract and retain executive officers, skilled workers and key personnel;

our ability to manage our growth;

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

impact of our capital allocation strategy;

risks related to maintaining our brand and reputation;

impact of government regulation;

rising health care costs;

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

Government and foreign governments’ trade and tariff policies;

our inventory and debt levels;

protection of our intellectual property rights;

fluctuation in our operating results and stock price;

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

any infringement claims;

data security breaches, cyber-attacks and other factors impacting our technology systems;

availability of adequate insurance coverage;

maintenance of our NYSE American listing;

risks related to being a holding company;

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

Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.

Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made.

We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws.

You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:

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Reported dollar amounts in the management’s discussion and analysis (“MD&A”) section of this report are disclosed in millions or as whole dollar amounts.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report and the MD&A, consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 17, 2022, as amended by filing Form 10-K/A with the SEC on April 29, 2022.

Executive Overview

Executive Summary

BK Technologies Corporation (NYSE American:

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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, United States Department of Agriculture, United States Department of 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.

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-compliant radio at a lower cost relative to comparable offerings.

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

Our BKRplay branded smartphone application will offer multiple services that make first responders safer and more efficient.

When tethered to our radios, the combined solution will offer a 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.

We are the corporation resulting 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 and manufacturing facility are located at 7100 Technology Drive, West Melbourne, Florida 32904 and our telephone number is (321) 984-1414.

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

Customer demand and orders for our products were strong during 2022.

Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all the orders during 2022.

Consequently, approximately 13,000 radio units were carried in backlog as of December 31, 2022, and we fulfilled approximately 66% of these radio units during the first quarter of 2023.

Our backlog of unshipped customer orders was approximately $22.9 million and $27.0 million as of March 31, 2023, and December 31, 2022, respectively.

Changes in the backlog are attributed primarily to the timing of orders and their fulfillment.

For the three months ended March 31, 2023, sales grew approximately 184.3% to approximately $18.7 million, compared with $6.6 million for the prior year period.

The growth was attributed primarily to the BKR 5000 product and the fulfillment of the 2022 backlog described above.

Gross profit margins as a percentage of sales for the three months ended March 31, 2023, were 26.1%, compared with 22.4% for the same period of the prior year, generally reflecting improvement in material, component and freight costs.

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2023, totaled approximately $5.9 million (31.4% of sales), compared with $4.9 million (74.7% of sales) last year.

We recognized an operating loss for the three months ended March 31, 2023, of approximately $1.0 million, compared with an operating loss of approximately $3.4 million for the same period for the prior year.

For the three months ended March 31, 2023, we recognized other expenses, net totaling approximately $0.3 million, primarily attributed to interest expense on our Line of Credit and net unrealized losses from our investment in FG Financial Group, Inc.

This compares with other expenses, net totaling $0.5 million for the same period last year, which was also primarily related to an unrealized loss from the investment in FG Financial Group, Inc.

For the three months ended March 31, 2023, the pretax loss totaled approximately $1.3 million, compared with pretax loss of approximately $3.9 million for same period of the prior year.

We recognized no tax expense for the three months ended March 31, 2023, and for the same period of the prior year.

The net loss for the three months ended March 31, 2023, totaled approximately $1.3 million ($0.07 per basic and diluted share), compared with net loss of approximately $3.9 million ($0.23 per basic and diluted share) for the same period last year.

The primary factor for the improvement for the three months ended March 31, 2023, compared to the same period last year was due to production issues experienced last year related to electronic component shortages from supply chain disruptions.

As of March 31, 2023, working capital totaled approximately $12.5 million, of which $13.6 million was comprised of cash, cash equivalents and trade receivables.

This compares with working capital totaling approximately $13.2 million at 2022 year-end, which included $12.5 million of cash, cash equivalents and trade receivables.

Available Information

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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

In December 2019, a novel strain of the coronavirus (COVID-19) surfaced, which spread globally and was declared a pandemic by the World Health Organization in March 2020.

In response to the COVID-19 pandemic, we implemented certain policies at our offices in accordance with best practices to accommodate, and at times mandate, social distancing, wearing face masks, and remote work practices.

Among other things, we have invested in employee safety equipment, additional cleaning supplies and measures, adjusted production lines and workplaces as necessary and adapted new processes for interactions with our suppliers and customers to safely manage our operations.

Any employees that test positive for COVID-19 are quarantined and, if possible, work remotely in accordance with accepted safety practices until after passing subsequent testing.

Additionally, U.S.

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.

Furthermore, 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.

Additional potential sanctions and penalties have also been proposed and/or threatened.

Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.

The impact to our business in 2022, particularly customer orders, is not known with certainty.

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.

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

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

Impact of COVID-19 Pandemic and Supply Chain

We received record customer orders of approximately $70 million in 2022.

Worldwide shortages of materials, particularly semiconductors and integrated circuits, resulting in part from the impact of COVID-19 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 in 2022, we have experienced 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.

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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 and ongoing geopolitical conflicts and related sanctions are reflected in our results of operations, we cannot at this time separate the direct impacts of these matters from other factors that cause our performance to vary from quarter to quarter.

The ultimate duration and impact of the COVID-19 pandemic, the ongoing geopolitical conflicts and related sanctions on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration and severity of the pandemic, the duration of the ongoing conflict in Ukraine and additional sanctions related thereto, and the related length of the impact on the global economy, which are uncertain and cannot be predicted at this time.

Even after the COVID-19 pandemic has subsided and geopolitical tensions subside, we may continue to experience an adverse impact to our business as a result of the 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, the ongoing geopolitical conflict and related sanctions, and their negative effects on global economic conditions.

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.

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.

We may experience fluctuations in our quarterly results, in part, due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations.

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

Third Quarter and Nine Months Summary

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

Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all the orders.

The State of Florida and our headquarters location in West Melbourne, Florida, was also impacted by hurricane Ian in the last week of September, which impacted our ability to ship product to our customers.

Consequently, these orders were carried in backlog, and we anticipate fulfilling many of these orders during subsequent quarters.

Overall, our revenues for the three months ended September 30, 2022, declined somewhat compared with the same period of last year.

For the third quarter 2022, sales decreased 5.6% from the third quarter last year and 1.6% from the immediately preceding quarter.

The decline in sales for the third quarter brought sales for the nine-months ended September 30, 2022, within 5.9% of the same nine-month period last year.

Gross profit margins as a percentage of sales for the third quarter and nine-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 certain electronic component shortages.

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2022 were 2.8% higher than the SG&A expenses for the third quarter last year, while SG&A expenses for the nine-month period ended September 30, 2022, increased 14.7% 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 nine month periods ended September 30, 2022, that increased primarily due to supply chain material challenges compared to the same periods last year.

For the third quarter of 2022, our sales decreased 5.6% to approximately $11.9 million, compared with approximately $12.6 million for the same quarter last year.

For the nine months ended September 30, 2022, sales totaled approximately $30.6 million, compared with approximately $32.5 million for the same period last year.

Gross profit margins as a percentage of sales for the third quarter of 2022 were approximately 18.8%, compared with 32.8% for the third quarter last year.

For the nine-month period ended September 30, 2022, gross profit margins as a percentage of sales were approximately 17.8%, compared with 35.7% when compared to the same periods last year.

SG&A expenses for the third quarter of 2022 totaled approximately $4.6 million, compared with approximately $4.5 million for the same quarter last year.

SG&A expenses for the first nine months of 2022 increased 14.7% to approximately $15.0 million, compared with approximately $13.0 million for the same period last year.

For the third quarter of 2022, we recognized an operating loss of approximately $2.4 million, compared with an operating loss of approximately $0.4 million for the same quarter last year.

For the nine-month period ended September 30, 2022, our operating loss totaled approximately $9.5 million, compared with approximately $1.4 million for the same period last year.

For the third quarter of 2022, we recognized a net realized and unrealized gain totaling approximately $76 thousand on our investment in FG Financial Group, Inc.

made through FG Financial Holdings, LLC.

First Quarter Summary

Customer demand and orders for our products continued to be strong during the three months ended March 31, 2023.

Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all of the orders that we received in 2022.

Consequently, we had approximately 13,000 radio units that were carried in backlog as of December 31, 2022, and we fulfilled approximately 66% of these radio units during the three months ended March 31, 2023.

Overall, our revenues for the three months ended March 31, 2023, increased significantly compared with the same period of last year.

For the first quarter 2023, sales increased 184.3% to approximately $18.7 million, compared with approximately $6.6 million of sales for the first quarter last year.

Gross profit margin as a percentage of sales for the first quarter of 2023 was approximately 26.1%, compared with 22.4% for the same period of last year, generally reflecting improvements in supply chain material costs and freight, and increased production volumes compared to the first quarter last year.

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2023 totaled approximately $5.9 million, which was 19.7% higher than the SG&A expenses of approximately $4.9 million for the first quarter last year.

The increase in SG&A expenses is attributed primarily to sales staffing and strategic and marketing initiatives.

These factors yielded an operating loss of approximately $1.0 million for the three-month period ended March 31, 2023, compared with an operating loss of approximately $3.4 million for the same quarter last year, which improved primarily due to reduced supply chain material challenges compared to the same period last year.

For the first quarter of 2023, we recognized a net unrealized loss totaling approximately $0.1 million on our investment in FG Financial Group, Inc.

made through FG Holdings, LLC.

This compares with an unrealized loss of approximately $0.5 million on the investment in FG Financial Group, Inc.

made through FG 1347 Holdings, LP for the third quarter last year.

For the nine-month period ended September 30, 2022, we recognized net realized and unrealized losses of approximately $1.0 million, compared with an unrealized gain of $310 thousand for last year’s nine-month period.

Net loss for the three months ended September 30, 2022, was approximately $2.4 million ($0.14 per basic and diluted share), compared with a net loss of approximately $2.6 million ($0.15 per basic and diluted share) for the same quarter last year.

For the nine months ended September 30, 2022, our net loss totaled approximately $10.7 million ($0.63 per basic and diluted share), compared with a net loss of approximately $1.4 million ($0.10 per basic and diluted share) for the same period last year.

As of September 30, 2022, working capital totaled approximately $14.6 million, of which approximately $9.4 million was comprised of cash, cash equivalents and trade receivables.

made through FG 1347 Holdings, LP, for the first quarter of last year.

Net loss for the three months ended March 31, 2023, was approximately $1.3 million ($0.07 per basic and diluted share), compared with a net loss of approximately $3.9 million ($0.23 per basic and diluted share) for the same quarter last year.

As of March 31, 2023, working capital totaled approximately $12.5 million, of which approximately $13.6 million was comprised of cash, cash equivalents and trade receivables.

As of December 31, 2022, working capital totaled approximately $13.2 million, of which approximately $12.5 million was comprised of cash, cash equivalents and trade receivables.

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As an aid to understanding our operating results for the periods covered by this report, the following table shows selected items from our condensed consolidated statements of operations expressed as a percentage of sales:

Percentage of Sales Three Months Ended

Percentage of Sales Nine Months Ended

Sept 30, 2022

Sept 30, 2021

Sept 30, 2022

Sept 30, 2021

Percentage of Sales

Three Months Ended

March 31, 2022

Cost of products

Selling, general and administrative expenses

Other income (expense), net

Loss before income taxes

Other (expense) income

(Loss) income before income taxes

Income tax (expense) benefit

For the third quarter ended September 30, 2022, net sales decreased 5.6% to approximately $11.9 million, compared with approximately $12.6 million for the same quarter last year.

Sales for the nine months ended September 30, 2022, totaled approximately $30.6 million, compared with approximately $32.5 million for the nine-month period last year.

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

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

Consequently, unshipped orders were carried in backlog, and we anticipate fulfilling a portion of the orders in backlog during fourth quarter this year.

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 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 September 30, 2022 were 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 third quarter was our BKR 5000 portable radio and related accessories.

Net (loss) income

For the first quarter ended March 31, 2023, net sales increased 184.3% to approximately $18.7 million, compared with approximately $6.6 million for the same quarter last year.

Customer demand and orders for our products continued to be strong, reflecting the acceptance by the marketplace for our BKR 5000 product.

We were able to fulfill approximately 66% of the radio units in backlog as of December 31, 2022, during the first quarter of this year.

The supply chain issues experienced in 2022 have improved significantly, but the precise impact on sales and shipments for the remainder of 2023 cannot be quantified, hence we anticipate maintaining an elevated level of inventory.

Sales for the three months ended March 31, 2023, were attributed primarily to the backlog carried over from 2022 (described above) 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.

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 to various electronic component suppliers.

The timing of developing additional BKR Series products and bringing them to market could be impacted by various factors, including potential impacts on our supply chain as a result of various electronic component suppliers.

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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Accordingly, we cannot assure that sales will occur under particular contracts, or that our sales prospects will otherwise be realized.

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.

While the potential impacts of material shortages, lead-times, the COVID-19 pandemic, the current inflationary environment 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, gross profit margins, operations, and financial results.

Cost of Products and Gross Profit Margin

Gross profit margins as a percentage of sales for the third quarter ended September 30, 2022 were approximately 18.8%, compared with 32.8% for the same quarter last year.

For the nine-month period ended September 30, 2022, gross profit margins were approximately 17.8%, compared with 35.7% for the same period last year.

Gross profit margins as a percentage of sales for the first quarter ended March 31, 2023, were approximately 26.1% compared with 22.4% for the same quarter 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 quarter ended September 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.

Gross profit margins for the quarter ended March 31, 2023, increased compared with the same period last year, primarily due to improvement in production volumes related to supply shortages, material costs, including electronic components, and to a lesser degree, easing of escalated freight costs.

During recent quarters, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies, which in turn, extended lead times and resulted in 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, 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, gross profit margins, manufacturing, operations and financial results.

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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 third quarter ended September 30, 2022, totaled approximately $4.6 million (38.9% of sales), compared with approximately $4.5 million (35.7% of sales) for the same quarter last year.

For the nine months ended September 30, 2022, SG&A expenses increased by $2.0 million, or 14.6%, to approximately $15.0 million (48.9% of sales), compared with approximately $13.0 million (40.1% of sales), for the nine-month period last year.

Engineering and product development expenses for the third quarter of 2022 totaled approximately $2.1 million (17.9% of sales), compared with approximately $2.0 million (16.1% of sales) for the same quarter of last year.

For the nine months ended September 30, 2022, engineering and product development expenses totaled approximately $6.7 million (22.0% of sales), compared with approximately $6.2 million (18.9% of sales) for the nine-month period last year.

SG&A expenses for the first quarter ended March 31, 2023, totaled approximately $5.9 million (31.4% of sales), compared with approximately $4.9 million (74.7% of sales) for the same quarter last year.

Engineering and product development expenses for the first quarter of 2023 totaled approximately $2.4 million (12.9% of sales), compared with approximately $2.3 million (35.1% of sales) for the same quarter of 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.

Most of these activities are being performed by our internal engineering team and are their primary focus, combined with sustaining engineering support of our existing products.

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 third quarter of 2022 totaled approximately $1.1 million (8.7% of sales), compared with approximately $1.0 million (8.2% of sales) for the third quarter last year.

For the nine months ended September 30, 2022, marketing and selling expenses increased approximately $0.1 million, or 2.4%, to approximately $3.1 million (10.2% of sales), compared with approximately $3.0 million (9.3% of sales).

The increase for the nine-month period ended September 30, 2022 are primarily reflecting increases in reflect activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the third quarter 2022 totaled approximately $1.4 million (12.2% of sales), compared with approximately $1.4 million (11.4% of sales) for the same quarter last year.

For the nine months ended September 30, 2022, general and administrative expenses totaled approximately $5.1 million (16.6% of sales), compared with approximately $3.8 million (11.8% of sales) for the nine-month period last year.

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

The precise date for developing and introducing new products is uncertain and can be impacted by, among other things, supply chain shortages and certain component lead times in coming months and quarters.

Marketing and selling expenses for the first quarter of 2023 totaled approximately $1.5 million (8.2% of sales), compared with approximately $1.0 million (14.8% of sales) for the first quarter last year.

The increase for the three-month period ended March 31, 2023, is primarily attributable to increases in activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the first quarter 2023 totaled approximately $1.9 million (10.3% of sales), compared with approximately $1.6 million (24.8% of sales) for the same quarter last year.

The increase in general and administrative expenses for the three months ending March 31, 2023, is attributed primarily to corporate and headquarters staffing in support of strategic initiatives.

Operating Loss

The operating loss for the third quarter ended September 30, 2022, totaled approximately $2.4 million (20.1% of sales), compared with approximately $370 thousand (2.9% of sales) for last year’s third quarter.

For the nine months ended September 30, 2022, our operating loss totaled approximately $9.5 million (31.1% of sales), compared with approximately $1.4 million (4.4% of sales) for the nine-month period last year.

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

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

The operating loss for the first quarter ended March 31, 2023, totaled approximately $1.0 million (5.3% of sales), compared with approximately $3.4 million (52.3% of sales) for last year’s first quarter.

The operating loss for the quarter ended March 31, 2023, is attributed to lower gross profit margins related to operating costs and somewhat to increased strategic initiative costs.

Other (Expense) Income

We recorded net interest expense of approximately $30,000 for the third quarter ended September 30, 2022, compared with approximately $19,000 for the third quarter of last year.

For the nine months ended September 30, 2022, net interest expense totaled approximately $70,000, compared with net interest expense of approximately $37,000 for the nine-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 third quarter ended September 30, 2022, we recognized a net realized and unrealized gain of approximately $0.1 million on our investment in FG Financial, compared with an unrealized loss of approximately $2.2 million in FG Financial Group, Inc.

made through FG 1347 Holdings, LP for the third quarter last year.

For the nine months ended September 30, 2022, we recognized realized and unrealized losses of approximately $1.0 million on our investment, compared with an unrealized gain of approximately $0.3 for the same period last year.

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

We recorded net interest expense of approximately $144,000 for the first quarter ended March 31, 2023, compared with approximately $15,000 for the first quarter of last year.

Net interest expense was primarily the result our Line of Credit and equipment financing.

For the first quarter ended March 31, 2023, we recognized an unrealized loss of approximately $0.1 million on our investment in FG Holdings, compared with an unrealized loss of approximately $0.5 million in FG Financial Group, Inc.

made through FG 1347 Holdings, LP for the first quarter last year.

We recorded no tax expense or benefit for the quarter ended March 31, 2023, compared with no income tax provision for the first quarter 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 September 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.

As of March 31, 2023, 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 $3.0 million and $0.6 million as of September 30, 2022 and December 31, 2021.

Accordingly, we established a valuation allowance of $3.4 million as of both March 31, 2023 and December 31, 2022.

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 September 30, 2022.

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, 2023.

Liquidity and Capital Resources

For the nine months ended September 30, 2022, net cash used in operating activities totaled approximately $6.9 million, compared with cash used by operating activities of approximately $3.6 million for the same period last year.

Cash used in operating activities for the nine months ended September 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 nine months of 2022, we had a net loss of approximately $10.7 million, compared with a net loss of approximately $1.4 million for the same period last year.

Gross inventories increased during the nine months ended September 30, 2022 by approximately $9.4 million, compared with approximately $6.0 million 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 increased during the nine months ended September 30, 2022 by approximately $77,000, compared with an increase of $63,000 for the same period last year.

Accounts receivable decreased approximately $2.9 million during the nine months ended September 30, 2022, compared with an increase of approximately $1.2 million for the same period last year.

The decrease was primarily due to lower revenues and higher customer collections during the nine months ended September 30, 2022.

Accounts payable for the nine months ended September 30, 2022, increased approximately $7.4 million, compared with an increase of approximately $2.4 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 $1.1 million for the nine months ended September 30, 2022, compared with approximately $1.0 million for the same period last year.

For the three months ended March 31, 2023, net cash provided by operating activities totaled approximately $0.6 million, compared with cash used by operating activities of approximately $3.3 million for the same period last year.

Cash provided by operating activities for the three months ended March 31, 2023, was primarily related to a net loss which was offset by increased accounts payable and deferred revenues.

For the first quarter of 2023, we had a net loss of approximately $1.3 million, compared with a net loss of approximately $3.9 million for the same quarter last year.

Gross inventories increased during the quarter ended March 31, 2023, by approximately $0.6 million compared with approximately $4.2 million for the same quarter last year.

Accounts payable for the quarter ended March 31, 2023, increased approximately $1.2 million, compared with an increase of approximately $1.4 million for last year’s first quarter, primarily due to increased material and component purchases related to the increased production volumes for 2023 and to delays and shortages within our supply chain for the same period of 2022.

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

Accounts receivable increased approximately $0.2 million during the first quarter ended March 31, 2023, compared with a decrease of approximately $3.5 million for last year’s first quarter.

The increase was primarily due to higher sales in 2023 and customer collections combined with decreased sales during the first quarter of 2022.

Prepaid expenses decreased during the first quarter by approximately $0.2 million compared with an increase of $0.9 million for last year’s first quarter.

The increases in prepaid expenses for the first quarter last year were attributed primarily to supply chain material availability combined with extended supplier lead times.

Depreciation and amortization totaled approximately $0.4 million for the first quarter ended March 31, 2023, compared with approximately $0.3 million for last year’s first quarter.

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

The loss on investments for the nine months ended September 30, 2022, totaled approximately $1.0 million, compared with an unrealized gain of approximately $310 thousand for same period last year.

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

Cash used in investing activities for the nine months ended September 30, 2022, totaled approximately $1.0 million, compared with approximately $1.9 million for the same period last year.

The unrealized loss on securities for the first quarter ended March 31, 2023, totaled approximately $0.1 million, compared with an unrealized loss of approximately $0.5 million for the first quarter last year.

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

Cash used in investing activities for the quarter ended March 31, 2023, totaled approximately $0.6 million, compared with approximately $0.3 million for last year’s first quarter.

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

For the nine months ended September 30, 2022, cash of approximately $1.3 million was provided by financing activities, compared with cash provided by financing activities of approximately $12.8 million for the same period last year.

During the nine months ended September 30, 2022 we paid quarterly dividends, utilizing approximately $1.5 million, while for the same period last year, we paid a quarterly dividend of approximately $0.8 million.

During the nine months ended September 30, 2022, we received proceeds of approximately $3.0 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 $0.2 million for the nine months ended September 30, 2022 compared to $1.5 million for the same period last year.

For the nine months ended September 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.

BK Technologies, Inc., our wholly owned subsidiary, entered into the $5 million Credit Agreement with JPMC.

The Credit Agreement provides for a revolving line of credit of up to $5 million, with availability under the line of credit subject to a borrowing base calculated as a percentage of accounts receivable and inventory.

Proceeds of borrowings under the Credit Agreement may be used for general corporate purposes.

The line of credit is collateralized by a blanket lien on all personal property of BK Technologies, Inc.

pursuant to the terms of the Continuing Security Agreement with JPMC.

BK Technologies Corporation and each subsidiary of BK Technologies, Inc., are guarantors of the obligations under the Credit Agreement, in accordance with the terms of the Continuing Guaranty.

Borrowings under the Credit Agreement will bear interest at the secured overnight financing rate plus a margin of 2.0%.

The line of credit, 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).

The Credit Agreement contains certain customary restrictive covenants, including restrictions on liens, indebtedness, loans and guarantees, acquisitions and mergers, sales of assets, and stock repurchases by BK Technologies, Inc.

The Credit Agreement contains one financial covenant requiring BK Technologies, Inc., to maintain a tangible net worth of at least $20 million at any fiscal quarter end.

The Credit Agreement provides for customary events of default, including:

(1) failure to pay principal, interest or fees under the Credit Agreement when due and payable;

(2) failure to comply with other covenants and agreements contained in the Credit Agreement and the other documents executed in connection therewith;

(3) the making of false or inaccurate representations and warranties;

(4) defaults under other agreements with JPMC or under other debt or other obligations of BK Technologies, Inc.;

(5) money judgments and material adverse changes;

(6) a change in control or ceasing to operate business in the ordinary course;

and (7) certain events of bankruptcy or insolvency.

Upon the occurrence of an event of default, JPMC may declare the entire unpaid balance immediately due and payable and/or exercise any and all remedial and other rights under the Credit Agreement.

BK Technologies, Inc.

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

As of September 30, 2022, the Company had an outstanding balance of approximately $4,458 and a net balance availability of approximately $542 under the Credit Agreement.

As of the date of filing this report, the Company had an outstanding balance of approximately $4,458, and a net balance availability of approximately $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%.

Our cash and cash equivalents balance at September 30, 2022, was approximately $4.0 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.

For the quarter ended March 31, 2023, cash of approximately $0.9 million was provided by financing activities, compared with cash used in financing activities of approximately $0.6 million for last year’s first quarter.

During the first quarter of 2023 we received cash of approximately $20.8 million from debt, net of repayments totaling approximately $19.9 million, while for last year’s first quarter, we paid a quarterly dividend of approximately $0.5 million and repayment of debt of $0.1 million.

Our cash and cash equivalents balance on March 31, 2023, was approximately $2.8 million.

We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our ISPA Agreement, are sufficient to meet our working capital requirements for the foreseeable future.

We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in public or private offerings of equity or debt securities to increase our capital resources.

However, financial and economic conditions, including those resulting from the COVID-19 pandemic, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all.

We also face other risks that could impact our business, liquidity, and financial condition.

For a description of these risks, see “Item 1A.

Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and “Item 1A.

Risk Factors” below in this report.

However, financial and economic conditions, which could be impacted by the current inflationary environment, COVID-19 pandemic and current geopolitical tension, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all.

Critical Accounting Policies

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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 nine months ended September 30, 2022.

There were no changes to our critical accounting policies during the three months ended March 31, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis