What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-14 compared with 2023-03-16 · 107 added, 102 removed, 177 unchanged (54% of the section changed)

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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.

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

Government, the effects of natural disasters, changes in climate, severe weather events, geopolitical events, acts of war or terrorism, global health epidemics or pandemics (such as the COVID-19 pandemic) and catastrophic events, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments;

the availability, terms and deployment of capital;

reliance on contract manufacturers and suppliers;

risks associated with fixed-price contacts;

risks associated with fixed-price contracts;

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

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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;

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

impact of natural disasters, changes in climate, severe weather events, geopolitical events, acts of war or terrorism, global health epidemics or pandemics (such as the COVID-19 pandemic) and catastrophic events on the companies in which the Company holds investments;

impact of our capital allocation strategy;

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impact of government regulation;

rising health care costs;

impact of rising health care costs;

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

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fluctuation in our operating results and stock price;

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

any infringement claims;

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

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

In business for over 70 years, BK has operated two business units through its operating subsidiary, BK Technologies, Inc.:

Radio and SaaS.

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

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

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

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

Generally, BK Technologies-branded products serve 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, 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.

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

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

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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.

Consequently, these orders were carried in backlog, and we anticipate fulfilling many of these orders during the first half of 2023.

Customer demand and orders for our products were strong during 2022 and 2023.

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

Consequently, approximately $27 million customer orders were carried in backlog, and we fulfilled approximately 76% of those orders during the first half of 2023 and most of the remainder as of December 31, 2023.

For 2023, sales grew approximately 45.4% to approximately $74.1 million, compared with $51.0 million for the prior year.

The growth was attributed primarily to state and local public safety agencies, as well as the first model in our BKR line of products.

Gross profit margins as a percentage of sales in 2022 were 19.3%, compared with 35.8% for the prior year, generally reflecting increases in material, component and freight costs.

The growth was attributed primarily to the backlog described above, as well as the launch of the first model in our BKR line of products.

Gross profit margins as a percentage of sales in 2023 were 30.0%, compared with 19.3% for the prior year, generally reflecting decreases in material, component and freight costs related to supply chain challenges experienced in 2022.

Selling, general and administrative (“SG&A”) expenses for 2023 totaled approximately $23.0 million (31.1% of sales), compared with $20.9 million (41.1% of sales) last year.

We recognized an operating loss in 2022 of approximately $11.1 million, which was attributed primarily to increased product costs and operating expenses.

We recognized an operating loss in 2023 of approximately $0.8 million, which was attributed primarily to increased operating expenses related to the introduction of the BKR9000 multi-band portable radio product.

For the prior year we recognized an operating loss of approximately $11.1 million.

In 2022 we recognized other expenses, net totaling approximately 553,000, primarily attributed to net realized and unrealized losses from our investment in FG Financial Group, Inc.

This compares with other expense of $318,000 last year, which was also primarily related to an unrealized loss from the investment in FG Financial Group, Inc.

In 2023 we recognized other expenses, net totaling approximately $1.4 million, primarily attributed to net unrealized losses from our investment in FG Financial Holdings, LLC and net interest expense.

This compares with other expense of $0.6 million last year, which was also primarily related to an unrealized loss from the investment in FG Financial Group, Inc.

and net interest expense.

For 2023 the pretax loss totaled approximately $2.2 million, compared with pretax loss of approximately $11.6 million for the prior year.

We recognized no tax expense in 2022, compared with approximately $187,000 for the prior year.

Our income tax expense for 2021 was largely non-cash as a result of deferred items.

We recognized $54,000 and no tax expense in 2023 and 2022, respectively.

The net loss for 2023 totaled approximately $2.2 million ($0.65 per basic share), compared with net loss of approximately $11.6 million ($3.44 per basic share) last year.

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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.

The challenges posed by the COVID-19 pandemic on the global economy increased significantly in the first several months of 2020.

In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders, and recommendations to practice social distancing.

We are considered an “essential business” that is supporting first responders and our manufacturing operations have remained open throughout the 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.

In planning for the possible disruption of our business, we took steps to reduce expenses throughout the Company.

This included suspending all Company travel for a period of time, as well as our participation in trade shows and other business meetings, instituting strict inventory control and decreasing expenditures.

We also implemented workforce reductions during the third quarter of 2020 and suspended the employer’s 401K match.

The impact to our business in 2021, particularly customer orders, is not known with any certainty However, we received record customer orders of approximately $70 million in 2022.

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

While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders in 2022, there have been some delays and longer delivery times within our supply chain.

While the progression and duration of these shortages is not known with certainty, they may last for several quarters or years.

The impact on our operations of such shortages, or additional shortages that may surface, is uncertain, but could potentially impact our future sales, manufacturing operations and financial results.

Continued progression of these circumstances could result in a decline in customer orders, as our customers could shift purchases to lower-priced or other perceived value offerings or reduce their purchases and inventories due to decreased budgets, reduced access to credit or various other factors, and impair our ability to manufacture our products, which could have a material adverse impact on our results of operations and cash flow.

While the current impacts of COVID-19 are reflected in our results of operations, we cannot at this time separate the direct COVID-19 impacts from other factors that cause our performance to vary from quarter to quarter.

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

Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its national and, to some extent, global economic impact.

Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable.

However, our results of operations in future periods may continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions.

For additional risks relating to the COVID-19 pandemic, see Item 1A.

The challenges posed by the COVID-19 pandemic on the global economy increased significantly in the first several months of 2020, and have since diminished, though there are lingering effects as noted below.

Coming out of the COVID-19 pandemic, we received record customer orders of approximately $70 million in 2022.

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

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

During 2023, we were able to achieve incremental improvement for the COVID-19 supply chain disruption challenges to that of more normal pre-pandemic experience.

While the 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.

For additional risks relating to the COVID-19 pandemic and geopolitical conflicts in Ukraine and Israel, see Item 1A.

Risk Factors in Part II of this report.

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Income tax expense

Net Income (loss)

Fiscal Year 2023 Compared with Fiscal Year 2022

For 2023, net sales increased approximately $23.1 million to approximately $74.1 million, compared with approximately $51.0 million last year.

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

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

Accordingly, as of December 31, 2022, these orders were carried in backlog, and we anticipate fulfilling many of them during the first half of 2023.

Although supply chain factors may continue to create delays for certain components during the next few quarters, we anticipate being able to fulfill customer requirements.

The precise impact to sales and shipments in any particular quarter, however, cannot be quantified.

Sales for the year ended December 31, 2022, were attributed primarily to federal, state and municipal public safety agencies, some of which were new customers.

The sale of the BKR 5000, the first model in our new BKR Series of APCO P25 land mobile radio products and solutions was launched in the second half of 2020 and significantly impacted sales in 2021.

The BKR Series is envisioned as a comprehensive line of new products, which will include additional 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, labor shortages, wage pressures, rising inflation, and other force majeure events, such as the COVID-19 pandemic.

Customer demand and orders for our products were strong in 2023 and 2022.

Supply chain constraints limited our ability to manufacture the quantities needed to convert the orders into shipments and sales revenue in 2022.

Accordingly, as of December 31, 2022, these orders were carried in backlog, and we fulfilled 76% of them during the first half of 2023.

Although supply chain factors continued to impact production costs for certain components during 2023, we have been able to achieve incremental improvement and fulfill customer requirements.

The increase in sales for the year ended December 31, 2023, was attributed primarily to the BKR5000 portable LMR product to federal, state and municipal public safety agencies, some of which were new customers.

The BKR Series is envisioned as a comprehensive line of new products, which will include additional models in coming quarters and years.

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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We believe the BKR Series products, our expanded sales force, and our sales funnel, position us well to capture new sales opportunities moving forward.

The impacts of material shortages, lead-times, labor shortages, wage pressures, rising inflation, the ongoing military conflict between Russia and Ukraine and other geopolitical events, and the COVID-19 pandemic in coming months and quarters is uncertain.

The impacts of material shortages, lead-times, labor shortages, wage pressures, rising inflation, the ongoing military conflicts in Ukraine and the Middle East and other geopolitical events in coming months and quarters is uncertain.

Such effects have the potential to adversely impact our customers and our supply chain, which could adversely affect our future sales, operations, and financial results.

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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 year ended December 31, 2022, decreased compared with the same period last year primarily due to increased material, component and freight costs related primarily to supply chain factors, as well as one-time inventory adjustment related to certain components of our BKR product line.

Gross profit margins for the year ended December 31, 2023, increased compared with the same period last year primarily due to decreased material, component and freight costs related primarily to improvement in supply chain factors.

We utilize a combination of internal manufacturing capabilities and contract manufacturing relationships for production efficiencies and to manage material and labor costs.

While we anticipate continuing to do so in the future, we have increased, and are continuing to increase, our utilization of U.S.-based resources, which provides greater security and control over our production.

While we anticipate continuing to do so in the future, we have increased, and are continuing to increase, our utilization of contract manufacturing resources, which provides increased flexibility for our production capacity to meet increased demand.

We believe that our current manufacturing capabilities and contract relationships or comparable alternatives will continue to be available to us.

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

During recent quarters, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies and extended lead times 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, extended lead times and increased costs within our supply chain.

While the progression and duration of these shortages is not known with certainty, they may have a lesser impact our operations for the next few quarters.

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

During the last two years, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies and extended lead times for certain components used in our products.

While we have generally been able to procure the material necessary to manufacture our products and fulfill customer orders, there have been delays, extended lead times and increased costs within our supply chain.

While the progression and duration of these shortages is not known with certainty, they have had a lesser impact on our operations for the last twelve months.

The impact on our operations of such shortages, or additional shortages that may surface, is uncertain, but could potentially impact our future sales, manufacturing operations and financial results.

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Engineering and product development expenses for 2023 totaled approximately $9.3 million (12.6% of sales), compared with approximately $9.6 million (18.8% of sales) for the prior year.

The engineering expense of $9.6 million for 2022, includes a one-time write-off of $646,000 of new product development components that were not included in the final design of the BKR 9000 radio.

The engineering expense of $9.6 million for 2022, included a one-time write-off of $646,000 of new product development components that were not included in the final design of the BKR 9000 radio.

Engineering and product development expenses are primarily related to the continued design and development of BKR Series, a new line of portable and mobile radios.

These development activities are the main focus of our engineering team.

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.

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 economic effects of the conflicts in Ukraine and Israel in coming quarters.

Marketing and selling expenses for the year ended December 31, 2023, totaled approximately $6.1 million (8.2% of sales), compared with approximately $4.4 million (8.6% of sales) for the prior year.

The increase in marketing and selling expenses for the year are attributed to staff-related and other sales and go-to-market expenses, which were partially offset by decreased commissions.

The increase in marketing and selling expenses for the year are attributed to staff-related and other sales and go-to-market expenses for the BKR9000 product.

General and administrative expenses for the year ended December 31, 2023, totaled approximately $7.6 million (10.3% of sales), compared with approximately $6.9 million (13.6% of sales) for the prior year.

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For the year ended December 31, 2023, our operating loss totaled approximately $0.8 million (1.0% of sales), compared with operating loss of approximately $11.1 million (21.7% of sales), for the prior year.

The operating loss for the year is attributed primarily to increased material and product development costs, which adversely impacted gross profit margins, and increased general and administrative expenses.

The operating loss for the year is attributed primarily to increased engineering and administrative expenses, related to the introduction of the BKR9000 product.

Other (Expense) Income

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We recorded net interest expense of approximately $575,000 for the year ended December 31, 2023, compared with approximately $144,000 for the prior year.

Net interest expense was attributed primarily to our credit facility and equipment financing.

Gain/Loss on Investment

For the year ended December 31, 2022, we recognized a realized and unrealized loss of approximately $313,000 on our investment in FG Financial Group, Inc., compared with an unrealized loss of approximately $219,000 for the prior year.

Net interest expenses were attributed primarily to our credit facility and equipment financing.

Gain/Loss on Investments

For the year ended December 31, 2023, we recognized an unrealized loss of approximately $740,000 on our investment in FG Financial Holdings, LLC compared with an unrealized loss on investments of approximately $313,000 for the prior year.

Income Tax/(Expense) Benefit

We recorded no income tax expense for the year ended December 31, 2022, compared with income tax expense of $187,000 for the prior year.

We recorded $54,000 and no income tax expense for the years ended December 31, 2023 and 2022, respectively.

Our income tax provision is based on the effective tax rate for the year.

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Liquidity and Capital Resources

For the year ended December 31, 2022, net cash used in operating activities totaled approximately $9.0 million, compared with cash used by operating activities of approximately $6.3 million for the prior year.

Cash used in operating activities for the year was primarily related to a net loss, increased inventory, and increases in accounts receivable, which were partially offset by increased accounts payable and depreciation and amortization.

For 2022, we had a net loss of approximately $11.6 million, compared with net loss of approximately $1.7 million for the prior year.

For the year ended December 31, 2023, net cash provided by operating activities totaled approximately $1.7 million, compared with cash used by operating activities of approximately $9.0 million for the prior year.

Cash provided by operating activities for the year was primarily related to an increase in deferred revenues, a decrease in accounts receivable and depreciation and amortization, which were partially offset by decreases in accounts payable, increases in inventories, and the net loss.

For 2023, we had a net loss of $2.2 million, compared with net loss of approximately $11.6 million for the prior year.

Net inventories increased during the year ended December 31, 2023, by approximately $2.4 million, compared with an increase of approximately $5.1 million for the prior year.

The increase was primarily attributable to extended supply-chain lead times, which impacted material purchases and sales shipments, as well as material for planned new product introductions.

Accounts receivable increased approximately $2.4 million during the year ended December 31, 2022, primarily due to the timing of sales that were consummated later in the year that had not yet completed their collection cycle.

The increase was primarily attributable to material for new product introductions as well as extended supply-chain lead times on certain components encountered in 2022.

Accounts receivable decreased approximately $2.7 million during the year ended December 31, 2023, primarily due to the timing of sales that were consummated later in the year in 2022 that had not yet completed their collection cycle.

For the same period last year, accounts receivable increased approximately $2.4 million.

Accounts payable for the year ended December 31, 2022, increased approximately $7.0 million, compared with an increase of approximately $0.8 million for the prior year, primarily due to the timing of purchases and longer lead times for materials from suppliers.

Accounts payable for the year ended December 31, 2023, decreased approximately $3.1 million, compared with an increase of approximately $7.0 million for the prior year, primarily due to the timing of purchases and longer lead times for materials from suppliers in 2022.

Depreciation and amortization totaled approximately $1.6 million for the year ended December 31, 2023, compared with approximately $1.4 million for the prior year.

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For the year ended December 31, 2023, cash of approximately $2.0 million was provided by financing activities.

During the year, we received proceeds of approximately $9.7 million from the IPSA with Alterna, This was partially offset by credit facility repayments of $5.3 million and loan repayments of approximately $277,000.

For the same period last year, we closed a public offering of our common stock, generating net proceeds of approximately $11.6 million.

During the year, we received proceeds of approximately $5.7 million from our revolving credit facility and from financing related to the purchase of manufacturing equipment, that was partially offset by loan repayments of approximately $3.7 million.

We used cash of approximately $2.0 million and $1.2 million to pay quarterly dividends for the years ended December 31, 2022 and 2021, respectively.

During the year, we received proceeds of approximately $74.9 million from the IPSA with Alterna Capital Solutions LLC described below.

This was partially offset by credit facility repayments of $74.4 million and loan repayments of approximately $535.

For the prior year, we received proceeds of approximately $9.7 million from our IPSA revolving credit facility with Alterna Capital Solutions, LLC and the Credit Agreement with JPMC described below, that was partially offset by credit facility repayments of $5.3 and loan repayments of approximately $277,000.

We discontinued the quarterly dividend program in 2023 and used cash of approximately $2.0 million to pay quarterly dividends for the year ended December 31, 2022.

On November 6, 2023, we entered into a Master Service Agreement with East West Manufacturing, LLC (EWMSA), that included a private offering of 77,520 shares of our common stock, generating net proceeds of $1.0 million.

As a part of the EWMSA, the Company also issued warrants for the purchase of an additional 135,300 shares of our common stock for $15.00 per share.

The warrants have a five (5) year exercise term.

Net proceeds for the issuance of the 135,300 warrants generated $1.0 million, which was paid by a $950,000 reduction in accounts payable and $50,000 in cash.

On November 22, 2022, the Company’s Subsidiaries (BK Technologies, Inc.

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

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

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

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

On January 13, 2020, BK Technologies, Inc., our wholly owned subsidiary, entered into the $5 million Credit Agreement with JPMC.

The Credit Agreement provided 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 have or were used for general corporate purposes.

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

The JPMC Credit Agreement provided 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 JPMC Credit Agreement were used for general corporate purposes.

The line of credit was 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., were guarantors of the obligations under the Credit Agreement, in accordance with the terms of the Continuing Guaranty.

As noted above, all amounts owed under the Credit Agreement with JPMC were paid in full with proceeds from the IPSA.

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

The outstanding balance of this credit facility was paid in full in November 2022, once the Company received the new IPSA funding.

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

The line of credit was to be repaid in monthly payments of interest only, payable in arrears, with all outstanding principal and interest to be payable in full at maturity.

The line of credit is to be repaid in monthly payments of interest only, payable in arrears, with all outstanding principal and interest to be payable in full at maturity.

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

The JPMC Credit Agreement provided for customary events of default, including:

(1) failure to pay principal, interest or fees under the JPMC 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 have declared the entire unpaid balance immediately due and payable and/or exercise any and all remedial and other rights under the Credit Agreement.

The IPSA provides for the payment of fees by the Subsidiaries and includes customary representations and warranties, indemnification provisions, covenants and events of default.

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The Subsidiaries entered into a cross-guarantee, guaranteeing each other’s obligations under the IPSA, and BK also provided a guaranty of the Subsidiaries’ obligations under the IPSA.

As of December 31, 2022, and the date of filing this report, approximately $6.0 million and $5.6 in borrowings were outstanding under the IPSA, respectively.

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 $743,000 to finance various items of manufacturing equipment.

As of December 31, 2023, and the date of filing this report, approximately $6.5 million and $6.6 million, respectively, in borrowings were outstanding under the IPSA.

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 “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 BK Technologies Corporation, 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 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 $16,000 beginning on May 8, 2021, matures on April 8, 2025, and bears a fixed interest rate of 3.0%.

The Master Loan Agreement is payable in 60 monthly principal and interest payments of approximately $8 beginning on October 25, 2019 and maturing on September 25, 2024, and bears a fixed interest rate of 5.11%

Our cash and cash equivalents balance at December 31, 2023, was approximately $3.5 million.

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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 supply chain delays or interruptions, labor shortages, wage pressures, rising inflation, geopolitical events, and other force majeure events, such as 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.

However, financial and economic conditions, including those resulting from supply chain delays or interruptions, labor shortages, wage pressures, rising inflation, geopolitical events, and other force majeure events, 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.

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The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.

ASU 2016-13 introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including financial assets arising from revenue transactions, such as accounts receivable.

The new expected credit loss methodology, which is based on a combination of historical experience, current conditions and reasonable and supportable forecasts, replaced the incurred loss model for measuring and recognizing expected credit losses.

This ASU is effective for the Company for 2023, and management incorporated this guidance into its methodology for estimating its accounts receivable allowances.

Based on historical trends, the financial condition of the Company’s customers and management’s expectations of economic and industry factors affecting the Company’s customers, the adoption of ASU 2016-13 did not have a material effect on the Company’s consolidated financial statements.

Critical Accounting Policies and Estimates

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We regularly evaluate these processes in preparing our financial statements.

The processes for determining the allowance for collection of trade receivables, allowance for excess or obsolete inventory, and income taxes involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances.

The processes for determining the allowance for credit losses on trade receivables, allowance for excess or obsolete inventory, and income taxes involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances.

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 twelve months ended December 31, 2022.

Allowance for Collection of Trade Receivables

The allowance for doubtful accounts was approximately $50,000 on gross trade receivables of approximately $10.7 million as of December 31, 2022, as compared with $50,000 on gross trade receivables of approximately $8.3 million as of December 31, 2021.

This allowance is used to state trade receivables at a net realizable value or the amount that we estimate will be collected on our gross receivables as of December 31, 2022 and 2021.

Because the amount that we will actually collect on the receivables outstanding as of December 31, 2022 and 2021 cannot be known with certainty, we rely on prior experience.

Our historical collection losses have typically been infrequent, with write-offs of trade receivables being significantly less than 1% of sales during past years.

Accordingly, we have maintained a general allowance of up to approximately 5% of the gross trade receivables balance in order to allow for future collection losses that arise from customer accounts that do not indicate the inability to pay but turn out to have such an inability.

Currently, our general allowance on trade receivables is approximately 0.5% of gross receivables.

As revenues and total receivables increase, the allowance balance may also increase.

We also maintain a specific allowance for customer accounts that we know may not be collectible due to various reasons, such as bankruptcy and other customer liquidity issues.

We analyze our trade receivables portfolio based on the age of each customer’s invoice.

In this way, we can identify those accounts that are more likely than not to have collection problems.

We may reserve a portion or all of the customer’s balance.

As of December 31, 2022 and 2021, we had no specific allowance on trade receivables.

There were no changes to our critical accounting policies during the twelve months ended December 31, 2023, other than the adoption of ASU 2016-13 described above.

Allowance for Credit Losses

The allowance for credit losses was approximately $50,000 on gross trade receivables of approximately $7.9 million as of December 31, 2023, as compared with $50,000 on gross trade receivables of approximately $10.7 million as of December 31, 2022.

The Company records an allowance for credit losses for its financial instruments, which are primarily composed of trade accounts receivable.

The measurement and recognition of credit losses involves the use of judgment and represents management’s estimate of expected lifetime credit losses based on historical experience and trends, current conditions, and forecasts.

The Company’s assessment of expected credit losses includes consideration of historical credit loss experience, the aging of account balances, customer concentrations, customer credit-worthiness, current and expected economic, market and industry factors affecting the Company’s customers, including their financial condition.

The Company evaluates its experience with historical losses and then applies this historical loss ratio to financial assets with similar characteristics.

The Company may also establish an allowance for credit losses for specific receivables when it is probable that the receivable will not be collected and the loss can be reasonably estimated.

If the Company’s actual collections experience changes, revisions to the allowance may be required.

Amounts are written off against the allowance when all attempts to collect a receivable have failed, and reversals of previously reserved amounts are recognized if a specifically reserved item is settled for an amount exceeding the previous estimate.

Based on information available, management believes the allowance for credit losses as of December 31, 2023 and 2022 is adequate.

Slow Moving, Excess or Obsolete Inventory

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Allowance for Product Warranty

We offer two-year standard warranties to our customers, depending on the specific product and terms of the customer purchase agreement.

We offer two-year or five-year standard warranties to our customers, depending on the specific product and terms of the customer purchase agreement.

Our typical warranties require us to repair and replace defective products during the warranty period at no cost to the customer.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis