BK Technologies Corp 10-Q

Item 1. FINANCIAL STATEMENTS BK TECHNOLOGIES CORPORATION Condensed Consolidated Balance Sheets ( In thousands, except share data) September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,066 $ 1,918 Trade accounts receivable, net 9,110 10,616 Inventories, net 21,573 22,105 Prepaid expenses and other current assets 1,963 1,578 Total current assets 36,712 36,217 Property, plant and equipment, net 5,501 4,884 Right-of-use (ROU) assets 1,669 1,991 Investments 650 1,481 Deferred tax assets, net 4,116 4,116 Other assets 420 143 Total assets $ 49,068 $ 48,832 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 11,763 $ 12,898 Accrued compensation and related taxes 1,555 1,143 Accrued warranty expense 736 591 Accrued other expenses and other current liabilities 642 700 Short-term lease liabilities 514 485 Credit facility 6,459 5,854 Notes payable-current portion 94 277 Deferred revenue 1,110 1,022 Total current liabilities 22,873 22,970 Notes payable, net of current portion — 329 Long-term lease liabilities 1,396 1,785 Deferred revenue 6,185 3,613 Total liabilities 30,454 28,697 Commitments and contingencies Stockholders’ equity: Preferred stock; $ 1.00 par value; 1,000,000 authorized shares; none issued or outstanding — — Common stock; $ 0.60 par value; 10,000,000 authorized shares; 3,722,970 and 3,686,939 issued and 3,432,890 and 3,396,859 outstanding shares as of September 30, 2023, and December 31, 2022, respectively 2,234 2,212 Additional paid-in capital 46,281 45,304 Accumulated deficit ( 24,499 ) ( 21,979 ) Treasury stock, at cost, 290,080 shares as of September 30, 2023, and December 31, 2022, respectively ( 5,402 ) ( 5,402 ) Total stockholders’ equity 18,614 20,135 Total liabilities and stockholders’ equity $ 49,068 $ 48,832 See Accompanying Notes to Condensed Consolidated Financial Statements. 1 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Operations ( In thousands, except share and per share data ) ( Unaudited ) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Sales, net $ 20,069 $ 11,917 $ 57,786 $ 30,612 Expenses Cost of products 13,663 9,676 41,282 25,175 Selling, general and administrative expenses 5,812 4,632 17,681 14,952 Total operating expenses 19,475 14,308 58,963 40,127 Operating income (loss) 594 ( 2,391 ) ( 1,177 ) ( 9,515 ) Other (expense) income: Net interest expense ( 131 ) ( 30 ) ( 429 ) ( 70 ) Gain (Loss) on investments ( 342 ) 76 ( 831 ) ( 1,021 ) Other expense ( 31 ) ( 57 ) ( 83 ) ( 66 ) Total other expense, net ( 504 ) ( 11 ) ( 1,343 ) ( 1,157 ) Income (loss) before income taxes 90 ( 2,402 ) ( 2,520 ) ( 10,672 ) Provision for income tax — — — — Net income (loss) $ 90 $ ( 2,402 ) $ ( 2,520 ) $ ( 10,672 ) Net income (loss) per share-basic $ 0.03 $ ( 0.71 ) $ ( 0.74 ) $ ( 3.16 ) Net income (loss) per share-diluted $ 0.03 $ ( 0.71 ) $ ( 0.74 ) $ ( 3.16 ) Weighted average shares outstanding-basic 3,411,813 3,390,097 3,404,395 3,377,911 Weighted average shares outstanding-diluted 3,445,022 3,390,097 3,404,395 3,377,911 See Accompanying Notes to Condensed Consolidated Financial Statements. 2 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Cash Flows ( In thousands ) ( Unaudited ) Nine Months Ended September 30, 2023 2022 Operating activities Net loss $ ( 2,520 ) $ ( 10,672 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Inventories allowances ( 61 ) 48 Amortization of deferred finance and other assets 113 — Depreciation and amortization 1,218 1,061 Share-based compensation expense-stock options 163 205 Share-based compensation expense-restricted stock units 773 367 Loss on investments 831 1,021 Changes in operating assets and liabilities: Trade accounts receivable 1,506 2,850 Inventories 593 ( 9,402 ) Prepaid expenses and other current assets ( 385 ) ( 77 ) Other assets ( 277 ) ( 46 ) ROU assets and lease liabilities ( 38 ) ( 27 ) Accounts payable ( 1,135 ) 7,374 Accrued compensation and related taxes 412 362 Accrued warranty expense 145 54 Deferred revenue 2,660 190 Accrued other expenses and other current liabilities ( 58 ) ( 166 ) Net cash provided by (used in) operating activities 3,940 ( 6,858 ) Investing activities Purchases of property, plant, and equipment ( 1,835 ) ( 959 ) Net cash used in investing activities ( 1,835 ) ( 959 ) Financing activities Proceeds from common stock issuance 63 — Cash dividends paid — ( 1,519 ) Proceeds from the credit facility and notes payable 58,896 2,988 Repayment of the credit facility and notes payable ( 58,916 ) ( 198 ) Net cash provided by financing activities 43 1,271 Net change in cash and cash equivalents 2,148 ( 6,546 ) Cash and cash equivalents, beginning of period 1,918 10,580 Cash and cash equivalents, end of period $ 4,066 $ 4,034 Supplemental disclosure Cash paid for interest $ 487 $ 93 Non-cash financing activity Common stock issued under restricted stock units $ 556 $ 364 See Accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents BK TECHNOLOGIES CORPORATION Notes to Condensed Consolidated Financial Statements Three and Nine Months Ended September 30, 2023, and 2022 Unaudited (In thousands, except share and per share data and percentages or as otherwise noted) 1. Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, and 2022, and the condensed consolidated statements of cash flows for the three and nine months ended September 30, 2023, and 2022, have been prepared by BK Technologies Corporation (the “Company,” “we,” “us,” “our”), and are unaudited. The condensed consolidated balance sheet as of December 31, 2022, has been derived from the Company’s audited consolidated financial statements at that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 16, 2023. The results of operations for the three and nine months ended September 30, 2023, and 2022, are not necessarily indicative of the operating results for a full year. Principles of Consolidation The accounts of the Company and its subsidiaries have been included in the accompanying condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity (“VIE”) or a voting interest entity. VIEs are entities in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities independently, or (ii) the at-risk equity holders do not have the normal characteristics of a controlling financial interest. A controlling financial interest in a VIE is present when an enterprise has one or more variable interests that have both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The enterprise with a controlling financial interest is the primary beneficiary and consolidates the VIE. Voting interest entities lack one or more of the characteristics of a VIE. The usual condition for a controlling financial interest is ownership of a majority voting interest for a corporation or a majority of kick-out or participating rights for a limited partnership. When the Company does not have a controlling financial interest in an entity but exerts significant influence over the entity’s operating and financial policies (generally defined as owning a voting or economic interest of between 20 % to 50 %), the Company’s investment is accounted for under the equity method of accounting. If the Company does not have a controlling financial interest in, or exert significant influence over, an entity, the Company accounts for its investment at fair value, if the fair value option was elected or at cost. Through September 30, 2022, the Company was the sole limited partner in FGI 1347 Holdings, LP (“1347 LP”), a consolidated VIE. The Company ceased to be the limited partner of 1347 LP as of September 30, 2022. 4 Table of Contents Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, investments, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities. As of September 30, 2023, and December 31, 2022, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments. Prior to September 14, 2022, the Company held an investment in the common stock of FG Financial Group, Inc. (Nasdaq: FGF) (“FGF”), which investment was held by the Company in 1347 LP. The Company used observable market data assumptions (Level 1 inputs, as defined in accounting guidance) that it believes market participants would use in pricing its investment in FGF. Effective September 14, 2022, the Company has an investment in Series B common membership interests of FG Financial Holdings, LLC (“FG Holdings LLC”). As further discussed in Note 6, the Company records the investment according to guidance provided by ASC 820 “Fair Value Measurement”, as the Company does not have a controlling financial interest in, nor exerts significant influence over the activities of FG Holdings LLC. The investment in Series B common membership interests of FG Holdings LLC is reported using net asset value (“NAV”) of interests held by the Company at period-end. The NAV is calculated using the observable fair value of the underlying stock of FGF held by FG Holdings LLC, plus uninvested cash, less liabilities, further adjusted through allocations based on distribution preferences, as defined in operating agreement of FG Holdings LLC. The NAV is used as a practical expedient and has not been classified within the fair value hierarchy. Liquidity The Company incurred operating losses during 2023 and 2022 and reported negative cash flows from operations during 2022. The Company’s operating results have been negatively impacted by the worldwide shortages of materials, in particular semiconductors and integrated circuits, extended lead times, and increased costs and inventory levels for certain components. On November 22, 2022, the Company’s subsidiaries, BK Technologies, Inc. and RELM Communications, Inc. (the “Subsidiaries”), entered into an Invoice Purchase and Security Agreement (“IPSA”) with Alterna Capital Solutions, LLC (“Alterna”), providing for a one-year line of credit with total maximum funding up to $ 15 million (the “Line of Credit”). The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement (defined below) (see Note 11). Management believes that cash and cash equivalents currently available, combined with anticipated cash to be generated from operations, and borrowing ability are sufficient to meet the Company’s working capital requirements in the foreseeable future. The Company generally relies on cash from operations, commercial debt, and equity offerings to the extent available, to satisfy its liquidity needs and to meet its payment obligations. The Company may engage in public or private offerings of equity or debt securities to maintain or increase its liquidity and capital resources. However, financial and economic conditions, including those resulting from the current inflationary environment and current geopolitical tension, could impact our ability to raise capital or debt financing, if needed, on acceptable terms or at all. Reverse Stock Split On March 23, 2023, the board of directors (the “Board”) of the Company approved a one (1)-for-five (5) reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $ 0.60 per share (the “Common Stock”), and on April 4, 2023, the Company filed with the Secretary of State of the State of Nevada a Certificate of Change to its Articles of Incorporation to effect the Reverse Stock Split. The Company executed the Reverse Stock Split, which became effective at 5:00 p.m. Eastern Time on April 21, 2023. Shares of Common Stock underlying outstanding stock options and restricted stock units were proportionately reduced, and the respective exercise prices were proportionately increased in accordance with the terms of the agreements governing such securities. Accordingly, all shares and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the Reverse Stock Split. 5 Table of Contents Recent Accounting Pronouncements The Company does not discuss recent pronouncements that are not anticipated to have a material impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures. 2. Significant Events and Transactions On January 31, 2023, the Company entered into a sales agreement (the “Sales Agreement”) with ThinkEquity LLC (the “Sales Agent”), relating to the sale of shares of our Common Stock. In accordance with the terms of the Sales Agreement, we may offer and sell shares of our Common Stock from time to time up to an aggregate offering price of $ 15,000,000 through or to the Sales Agent, acting as sales agent or principal. After adjusting for the Reverse Stock Split, the number of shares issuable under the terms of the Sales Agreement is 845,070 shares of our Common Stock. The Company intends to use the net proceeds from the offering primarily for general corporate purposes, which may include working capital, capital expenditures, operational purposes, strategic investments and potential acquisitions in complementary businesses. 3. Allowance for Doubtful Accounts The allowance for doubtful accounts on trade receivables was approximately $ 50 on gross trade receivables of $ 9,160 and $ 10,666 as of September 30, 2023, and December 31, 2022, respectively. This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross trade receivables. 4. Inventories, Net Inventories, which are presented net of allowance for slow moving, excess, and obsolete inventory, consisted of the following: September 30, 2023 December 31, 2022 Finished goods $ 4,271 $ 2,965 Work in process 7,042 7,313 Raw materials 10,260 11,827 $ 21,573 $ 22,105 Allowances for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or net realizable value. The allowances were approximately $ 1,186 as of September 30, 2023, compared with approximately $ 1,247 as of December 31, 2022. 5. Income Taxes The Company has recorded no tax expense or benefit for the three and nine months ended September 30, 2023 and 2022. The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision (benefit) in any period will be affected by, among other things, permanent, as well as temporary, differences in the deductibility of certain items, changes in the valuation allowance related to net deferred tax assets, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period. 6 Table of Contents As of September 30, 2023, the Company’s net deferred tax assets totaled approximately $ 4,116 and were primarily derived from research and development tax credits, deferred revenue, and net operating loss carryforwards. In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years. The Company analyzed all positive and negative evidence to determine if, based on the weight of available evidence, it is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available and current and anticipated customers, contracts, and product introductions, as well as historical operating results and certain tax planning strategies. Based on the analysis of all available evidence, both positive and negative, the Company has concluded that it does not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, the Company established a valuation allowance of $ 4,212 and $ 3,356 as of September 30, 2023, and December 31, 2022, respectively. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2023. 6. Investments Through September 30, 2022, the Company was the sole limited partner of 1347 LP. Affiliates of Fundamental Global GP, LLC, (“FG”), a significant stockholder of the Company, served as the general partner and investment manager of 1347 LP. 1347 LP was established for the purpose of investing in securities, and its sole asset was shares of common stock of FGF. These shares were purchased in March and May 2018 for approximately $ 3,741 . On September 14, 2022, FG contributed all of the shares of common stock of FGF held by 1347 LP to Holdings LLC, with an approximate value of $ 945 , based on the published price of FGF stock at the time of contribution, in exchange for Series B common membership interests of FG Holdings LLC, with an equivalent value. The investment in the Series B common membership interests of FG Holdings LLC is measured using the NAV practical expedient in accordance with ASC 820 Fair Value Measurement and has not been classified within the fair value hierarchy. FG Holdings LLC invests in the common and preferred stock of FGF. FG Holdings LLC’s structure provides for Series A preferred interests, which accrue a return of eight percent per annum and receive 20 % of positive profits with respect to the total return in the capital provided by the holders of Series A preferred membership interests. The Series B common membership interests receive cumulative distributions equal to the aggregate capital contributions by the Series B common membership interest equal to the total return on capital provided by the Series B common membership interests. Series B common membership interests also receive an additional return equal to 1.5 times the Series A of positive profits described above. There is no defined redemption frequency, and the Company cannot redeem or transfer its investment without the prior written consent of FG Holdings LLC' managers, who are FG affiliates. Distributions may be made to members at such times and amounts as determined by the managers, and shall be based on the most recent NAV. The Company does not have any unfunded commitments related to this investment. As of September 30, 2023, the members and affiliates of FG Holdings LLC beneficially owned in the aggregate 5,666,111 shares of FGF’s common stock, representing approximately 55 % of FGF’s outstanding shares. Additionally, FG and its affiliates constitute the largest stockholder of the Company. Mr. Kyle Cerminara, Chairman of the Board, is Chief Executive Officer, Co-Founder and Partner of FG and serves as chairman of the board of directors of FG Group Holdings Inc., the entity that is a manager and majority Series B member in FG Holdings LLC. Mr. Cerminara also serves as chairman of the board of directors of FGF. 7 Table of Contents 7. Stockholders’ Equity Effective on April 21, 2023, the Company filed a Certificate of Change to the Articles of Incorporation to effect the Reverse Stock Split (see Note 1). All share and per share information in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Reverse Stock Split. As of November 6, 2023, there were 3,745,579 shares of common stock issued and 3,455,499 outstanding, and no shares of preferred stock outstanding. The changes in condensed consolidated stockholders’ equity for the three and nine months ended September 30, 2023, and 2022, are as follows: Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance as of December 31, 2022 3,686,939 $ 2,212 $ 45,304 $ ( 21,979 ) $ ( 5,402 ) $ 20,135 Common stock issued 858 1 14 — — 15 Common stock issued under restricted stock units 1,920 1 ( 1 ) — — — Share-based compensation expense-stock options — — 58 — — 58 Share-based compensation expense-restricted stock units — — 69 — — 69 Net loss — — — ( 1,270 ) — ( 1,270 ) Balance as of March 31, 2023 3,689,717 2,214 45,444 ( 23,249 ) ( 5,402 ) 19,007 Common stock issued 2,661 2 33 — — 35 Common stock issued under restricted stock units 1,920 1 ( 1 ) — — — Share-based compensation expense-stock options — — 61 — — 61 Share-based compensation expense-restricted stock units — — 63 — — 63 Net loss — — — ( 1,340 ) — ( 1,340 ) Balance as of June 30, 2023 3,694,298 2,217 45,600 ( 24,589 ) ( 5,402 ) 17,826 Common stock issued 1,254 1 12 — — 13 Common stock issued under restricted stock units 27,418 16 (16 ) — — — Share-based compensation expense-stock options — — 44 — — 44 Share-based compensation expense-restricted stock units — — 641 — — 641 Net income — — — 90 — 90 Balance as of September 30, 2023 3,722,970 $ 2,234 $ 46,281 $ ( 24,499 ) $ ( 5,402 ) $ 18,614 8 Table of Contents Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance as of December 31, 2021 3,659,800 $ 2,196 $ 44,645 $ ( 8,821 ) $ ( 5,402 ) $ 32,618 Common stock issued under restricted stock units 3,200 2 ( 2 ) — — — Share-based compensation expense-stock options — — 85 — — 85 Share-based compensation expense-restricted stock units — — 70 — — 70 Net loss — — — ( 3,936 ) — ( 3,936 ) Balance as of March 31, 2022 3,663,000 2,198 44,798 ( 12,757 ) ( 5,402 ) 28,837 Common stock issued under restricted stock units 10,773 6 ( 6 ) — — — Share-based compensation expense-stock options — — 51 — — 51 Share-based compensation expense-restricted stock units — — 171 — — 171 Common stock dividends ($0.03 per share) — — — ( 1,014 ) — ( 1,015 ) Net loss — — — ( 4,334 ) — ( 4,334 ) Balance as of June 30, 2022 3,673,773 2,204 45,014 ( 18,105 ) ( 5,402 ) 23,711 Common stock issued under restricted stock units 13,166 8 ( 8 ) — — — Share-based compensation expense-stock options — — 69 — — 69 Share-based compensation expense-restricted stock units — — 126 — — 126 Common stock dividends ($0.03 per share) — — — ( 511 ) — ( 511 ) Net loss — — — ( 2,402 ) — ( 2,402 ) Balance as of September 30, 2022 3,686,939 $ 2,212 $ 45,201 $ ( 21,018 ) $ ( 5,402 ) $ 20,993 8. Income (Loss) Per Share The following table sets forth the computation of basic and diluted income (loss) per share: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net income (loss) for basic and diluted earnings per share $ 90 $ ( 2,402 ) $ ( 2,520 ) $ ( 10,672 ) Denominator for basic income (loss) per share weighted average shares 3,411,813 3,390,097 3,404,395 3,377,911 Effect of dilutive securities: Options and restricted stock units 33,209 — — — Denominator for diluted loss per share weighted average shares 3,445,022 3,390,097 3,404,395 3,377,911 Basic income (loss) per share $ 0.03 $ ( 0.71 ) $ ( 0.74 ) $ ( 3.16 ) Diluted income (loss) per share $ 0.03 $ ( 0.71 ) $ ( 0.74 ) $ ( 3.16 ) Approximately 168,600 and 224,600 stock options and 28,569 and 29,381 restricted stock units for the three and nine months ended September 30, 2023, respectively, and 220,300 stock options and 41,129 restricted stock units for the three and nine months ended September 30, 2022, were excluded from the calculation because they were anti-dilutive. 9 Table of Contents 9. Non-Cash Share-Based Employee Compensation Stock Options The Company has an employee and non-employee director share-based incentive compensation plans. Related to these programs, the Company recorded non-cash share-based employee compensation expense of $ 44 and $ 163 for the three and nine months ended September 30, 2023, respectively, compared with $ 69 and $ 205 , for the same periods last year. The Company considers its non-cash share-based employee compensation expenses as a component of cost of products and selling, general and administrative expenses. There was no non-cash share-based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented. The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of stock option grants under this plan. The non-cash share-based employee compensation expense recorded in the three and nine months ended September 30, 2023, was calculated using certain assumptions. Such assumptions are described more comprehensively in Note 10 (Share-Based Employee Compensation) of the Notes to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022. A summary of activity under the Company’s stock option plans during the nine months ended September 30, 2023, is presented below: Stock Options Wgt. Avg. Exercise Price ($) Per Share Wgt. Avg. Remaining Contractual Life (Years) Wgt. Avg. Grant Date Fair Value ($) Per Share Aggregate Intrinsic Value ($) As of January 1, 2023 Outstanding 200,300 15.48 7.87 5.64 460,925 Vested 86,846 17.83 6.73 6.57 101,090 Nonvested 113,454 13.68 8.74 4.93 359,835 Period activity Issued 28,600 11.51 — 6.57 — Exercised — — — — — Forfeited 2,300 13.58 — 4.97 — Expired 2,000 11.15 — 7.02 — As of September 30, 2023 Outstanding 224,600 15.03 7.49 5.75 60,410 Vested 135,913 16.27 6.87 5.89 19,789 Nonvested 88,687 13.13 8.45 5.54 40,621 Restricted Stock Units The Company recorded non-cash restricted stock unit compensation expense of $ 641 and $ 773 for the three and nine months ended September 30, 2023, compared with $ 126 and $ 367 for the same periods last year. A summary of non-vested restricted stock under the Company’s non-employee director share-based incentive compensation plan is as follows: Number of Shares Weighted Average Grant Date Price per Share Unvested as of January 1, 2023 41,129 $ 13.20 Granted 45,412 12.37 Vested and issued 25,497 13.18 Vested-to be issued 31,663 11.87 Cancelled/forfeited - - Unvested as of September 30, 2023 29,381 $ 13.37 10 Table of Contents 10. Commitments and Contingencies Legal Matters From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of its business. On a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, it records a liability in its consolidated financial statements. These legal accruals may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, the Company does not accrue legal reserves, consistent with applicable accounting guidance. There were no pending material claims or legal matters as of September 30, 2023. Purchase Commitments As of September 30, 2023, the Company had purchase commitments for inventory totaling approximately $ 13,134 . Significant Customers Sales to United States government agencies represented approximately $ 12,142 ( 60.5 %) and $ 29,571 ( 51.2 %) of the Company’s net total sales for the three and nine months ended September 30, 2023, respectively, compared with approximately $ 4,196 ( 35.2 %) and $ 11,161 ( 36.4 %), for the same periods last year. Accounts receivable from agencies of the United States government were $ 4,280 as of September 30, 2023, compared with approximately $ 1,545 at the same date last year. 11. Debt Credit Facilities On November 22, 2022, the Subsidiaries entered into the IPSA with Alterna. On November 28, 2022, the Subsidiaries and Alterna entered into a rider to the IPSA, to modify the IPSA to, among other things, provide a credit facility for up to 75% of net orderly liquidation value of inventory, not to exceed 100% of the eligible accounts receivable balance . The IPSA, which provides for a one-year Line of Credit with a maximum capacity of up to $ 15 million, is scheduled to be renewed in November 2023, unless canceled by either party, as provided in the agreement. The Line of Credit bears an interest rate of Prime plus 1.85 %. The effective borrowing rate under the IPSA was 10.35 % as of September 30, 2023. Interest and related servicing fees for the three months and nine months ended September 30, 2023, were approximately $ 153 and $ 476 , respectively. Under the arrangement, the Company may transfer eligible short-term trade receivables to the conduit, with full recourse, on a daily basis in exchange for cash. Generally, at the transfer date, the Company may receive cash equal to approximately 85 % of the value of the transferred receivables. The Company accounts for the transfers of receivables as a secured borrowing due to the Company’s continuing involvement with the accounts receivable. The Company used approximately $ 4.5 million of IPSA funding to repay the outstanding balance of the credit facility with JP Morgan Chase Bank, N.A. (“JPMC”), which subsequently expired on January 31, 2023 . During the three and nine months ended September 30, 2023, the Company transferred receivables having an aggregate face value of $17.5 and $52.5 million, respectively, to the conduit and received proceeds of $18.2 and $58.9 million, respectively, which also include draws on available inventory funding. There were no losses incurred on these transfers during the three and nine months ended September 30, 2023 . As of September 30, 2023, the outstanding borrowings under the IPSA were approximately $ 6.5 million and the outstanding principal amount of receivables transferred under the IPSA amounted to $ 7.0 million. 11 Table of Contents Notes Payable On April 6, 2021, BK Technologies, Inc., a wholly owned subsidiary of the Company, and JPMC, as a lender, entered into a Master Loan Agreement in the amount of $ 743 to finance various items of manufacturing equipment (the “JPMC Credit Agreement”). The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement. This note payable was paid in full on June 27, 2023. On September 25, 2019, BK Technologies, Inc., a wholly owned subsidiary of the Company, and U.S. Bank Equipment Finance, a division of U.S. Bank National Association, as a lender, entered into a Master Loan Agreement in the amount of $ 425 to finance various items of manufacturing equipment. The loan is collateralized by the equipment purchased using the proceeds. The Master Loan Agreement is payable in 60 equal monthly principal and interest payments of approximately $ 8 beginning on October 25, 2019 , matures on September 25, 2024 , and bears a fixed interest rate of 5.11 %. The following table summarizes the notes payable principal repayments subsequent to September 30, 2023: September 30, 2023 Remaining three months of 2023 $ 23 2024 71 Thereafter — Total payments $ 94 12. Leases The Company accounts for its leasing arrangements in accordance with Topic 842, “Leases”. The Company leases manufacturing and office facilities and equipment under operating leases and determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company has lease agreements with lease and non-lease components, which are accounted for separately. The Company leases approximately 54,000 square feet (not in thousands) of industrial space in West Melbourne, Florida, under a non-cancellable operating lease. The lease has the expiration date of September 30, 2027 . Annual rental, maintenance and tax expenses for the facility are approximately $ 491 . In February 2020, the Company entered into a lease for 6,857 square feet (not in thousands) of office space at Sawgrass Technology Park, 1619 NW 136th Avenue in Sunrise, Florida, for a period of 64 months commencing July 1, 2020. Annual rental, maintenance and tax expenses for the facility will be approximately $ 196 for the first year, increasing by approximately 3 % for each subsequent 12-month period. 12 Table of Contents Lease costs consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 , 2022 Operating lease cost $ 135 $ 136 $ 407 $ 408 Short-term lease cost — — — — Variable lease cost 33 33 99 99 Total lease cost $ 168 $ 169 $ 506 $ 507 Supplemental cash flow information related to leases was as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows (fixed payments) $ 149 $ 147 $ 445 $ 435 Operating cash flows (liability reduction) $ 123 $ 114 $ 360 $ 331 ROU assets obtained in exchange for lease obligations: Operating leases $ — $ — $ — $ — Other information related to operating leases was as follows: September 30, 2023 Weighted average remaining lease term (in years) 3.50 Weighted average discount rate 5.50 % Maturity of lease liabilities as of September 30, 2023, were as follows: September 30, 2023 Remaining three months of 2023 $ 150 2024 608 2025 618 2026 479 2027 242 Thereafter — Total payments 2,097 Less: imputed interest ( 187 ) Total present value of lease liability $ 1,910 13 Table of Contents 13. Subsequent Events On October 12, 2023, the Company’s President, Timothy A. Vitou, retired. In connection with Mr. Vitou’s retirement, the Company and Mr. Vitou entered into a Separation Agreement and General Release (“Separation Agreement”). Pursuant to the Separation Agreement, the Company will pay to Mr. Vitou $283,250, which amounts to twelve months of compensation at Mr. Vitou’s current normal base pay rate, less taxes, social security and other required withholdings, to be paid in bi-weekly increments in accordance with the Company’s regular payroll practices . Pursuant to the Separation Agreement, Mr. Vitou granted a general release to the Company from any and all claims (known or unknown), rights, or demands that Mr. Vitou has or may have against the Company and other released parties described in the Separation Agreement. On October 13, 2023, the Company granted 1,920 restricted stock units to Joshua Horowitz, third party, for strategic advisory service compensation. These restricted stock units were fully vested and settled on the date of grant. On November 6, 2023, the Company entered into a Master Service Agreement (the “EW MSA”) with East West Manufacturing, LLC, a Georgia limited liability company (“EW”), for the manufacturing production of certain land mobile radio (“LMR”) products and accessories. In connection with the EW MSA, the Company and EW also entered into a Transition Services Agreement to govern the transition of manufacturing production to EW. Also in connection with the EW MSA, the Company and EW entered into a Stock Purchase Agreement, pursuant to which EW purchased 77,520 shares of Common Stock with a value equal to $ 1,000,000 . The number of shares of stock was determined based upon a price per share of $ 12.90 , which is equal to the average of the closing price of the Common Stock on the NYSE American exchange for the 30 most recent trading days prior to November 6, 2023, rounded up to the nearest whole number of shares. Additionally, EW purchased a warrant (“Warrant”), with a five-year term to purchase up to 135,300 shares of Common Stock at an exercise price per share of $ 15.00 . 14 Table of Contents