What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 93 added, 124 removed, 146 unchanged (60% of the section changed)

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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 federal, state, and local government budget deficits and spending limitations;

the availability, terms and deployment of capital;

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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.

and the effect on our stock price and ability to raise capital through 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.

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changes or advances in technology;

the success of our LMR product line;

our business is dependent on U.S.

Government contracts, which are highly regulated and subject to terminations and oversight audits by U.S.

Government representatives that could result in adverse findings and negatively impact our business;

we depend on the success of our LMR product line;

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

competition in the LMR industry;

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

Government, and the ongoing effects of inflation, rising interest rates, bank failures, supply-chain constraints, ongoing geopolitical conflicts and related sanctions;

engaged in a highly competitive industry;

general economic and business conditions, including federal, state and local government budget deficits and spending limitations, and the ongoing effects of inflation, rising interest rates, bank failures, supply-chain constraints, ongoing geopolitical conflicts, and related sanctions;

the availability, terms, and deployment of capital;

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risks associated with fixed-price contracts;

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;

changes in U.S.

trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us;

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;

operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflicts in Russia, Ukraine, and the Middle East.

Our business, financial condition, and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from such conflicts or any other geopolitical tensions;

our ability to comply with changes in U.S.

federal, state, and local and foreign tax law could adversely affect our business and financial condition;

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

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Government and foreign governments’ trade and tariff policies, as well as any further impact resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts, and related sanctions;

cyber-attacks and other security threats and disruptions could have a material adverse effect on our business;

our inventory and debt levels;

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availability of adequate insurance coverage;

maintenance of our NYSE American listing;

risks related to being a holding company;

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

Some of these factors and risks have been, and may further be, exacerbated by general economic conditions, including the ongoing military conflict in Ukraine, such as inflationary pressures and disruptions in the global supply chain.

we may not be able to maintain our NYSE American listing;

as a holding company, BK Technologies Corporation is dependent on the operations and funds of its subsidiaries;

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

We assume no obligation to publicly update or revise any forward-looking statements made in this report, whether as a result of new information, future events, changes in assumptions, or otherwise after the date of this report.

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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 83% of these radio units during the first nine months of 2023.

Our backlog of unshipped customer orders was approximately $21.8 million and $27.0 million as of September 30, 2023, and December 31, 2022, respectively.

Customer demand and orders for our products were strong during 2022 and 2023 and continued during the first quarter 2024.

Our backlog of unshipped customer orders was approximately $19.0 million and $16.0 million as of March 31, 2024, and December 31, 2023, respectively.

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

For the three months ended September 30, 2023, sales grew approximately 68.4% to approximately $20.1 million, compared with $11.9 million for the prior year period.

The growth was attributed primarily to the BKR 5000 and BKR 9000 products and the fulfillment of the 2022 backlog described above.

Gross profit margins as a percentage of sales for the three months ended September 30, 2023, were 31.9%, compared with 18.8% for the prior comparative quarter, generally reflecting higher production volumes and improvement in material, component and freight costs.

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2023, totaled approximately $5.8 million (29.0% of sales), compared with $4.6 million (38.9% of sales) in the same period of last year.

We recognized operating income for the three months ended September 30, 2023, of approximately $0.6 million, compared with an operating loss of approximately $2.4 million for the same period for the prior year.

For the three months ended September 30, 2023, we recognized other expenses, net totaling approximately $0.5 million, primarily attributed to net unrealized losses from our investment in Holdings LLC.

and interest expense on our Line of Credit.

This compares with other expenses, net totaling $11,000 for the same period last year, which included an unrealized gain on the investment in FG Holdings LLC that was offset by interest and other expenses.

For the three months ended September 30, 2023, the pretax income totaled approximately $90,000, compared with pretax loss of approximately $2.4 million for same period of the prior year.

For the nine months ended September 30, 2023, the pretax loss totaled approximately $2.5 million, compared with pretax loss of approximately $10.7 million for same period of the prior year.

We recognized no tax expense for the three and nine-month periods ended September 30, 2023, and for the same periods of the prior year.

The net income for the three months ended September 30, 2023, totaled approximately $90,000 ($0.03 per basic and diluted share), compared with a net loss of approximately $2.4million ($0.71 per basic and diluted share) for the same period last year.

The primary factors for the improvement for the three months ended September 30, 2023, compared to the same period last year, were higher production volumes and lower raw material and freight costs related to electronic component shortages from supply chain disruptions.

The net loss for the nine months ended September 30, 2023, totaled approximately $2.5 million ($0.74 per basic and diluted share), compared with net loss of approximately $10.7 million ($3.16 per basic and diluted share) for the nine-month period last year.

The primary factors for the improvement for the nine months ended September 30, 2023, compared to the same period last year were higher production volumes and lower raw material and freight costs.

As of September 30, 2023, working capital totaled approximately $13.8 million, of which $13.2 million was comprised of cash, cash equivalents and trade receivables.

For the three months ended March 31, 2024, sales decreased approximately 2.6% to approximately $18.2 million, compared with $18.7 million for the prior year period.

The decrease was attributed primarily to the $27.0 million backlog as of December 31, 2022, carried into 2023, due to the 2022 supply chain disruptions.

Gross profit margins as a percentage of sales for the three months ended March 31, 2024, were 34.5%, compared with 26.1% for the prior comparative quarter, generally reflecting improvement in material, component, and freight costs.

Selling, general, and administrative (“SG&A”) expenses for the three months ended March 31, 2024, totaled approximately $5.3 million (29.1% of sales), compared with $5.9 million (31.4% of sales) in the same period of last year.

We recognized operating income for the three months ended March 31, 2024, of approximately $1.0 million, compared with an operating loss of approximately $1.0 million for the same period for the prior year.

For the three months ended March 31, 2024, we recognized other expenses, net totaling approximately $0.3 million, primarily attributed to interest expense on our Line of Credit and a net realized loss from our investment in FG Holdings LLC.

This compares with other expenses, net totaling $0.3 million for the same period last year, which included interest expense and an unrealized loss on the investment in FG Holdings LLC.

For the three months ended March 31, 2024, the pretax income totaled approximately $0.7 million, compared with pretax loss of approximately $1.3 million for same period of the prior year.

We recognized a tax expense of $21,000 for the three-month period ended March 31, 2024, and no tax expense for the same periods of the prior year.

The net income for the three months ended March 31, 2024, totaled approximately $0.7 million ($0.19 per basic and diluted share), compared with a net loss of approximately $1.3 million ($0.37 per basic and diluted share) for the same period last year.

The primary factors for the improvement for the three months ended March 31, 2024, compared to the same period last year, were lower raw material and freight costs related to easing of electronic component shortages from supply chain disruptions.

As of March 31, 2024, working capital totaled approximately $18.4 million, of which $14.8 million was comprised of cash, cash equivalents, and trade receivables.

This compares with working capital totaling approximately $16.8 million at 2023 year-end, which included $11.4 million of cash, cash equivalents, and trade receivables.

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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 .

Third Quarter and Nine Months Summary

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.

We may also experience fluctuations in our quarterly results, in part, due to our sales to federal and state agencies that participate in wildland fire-suppression efforts, which may be greater during the summer season when forest fire activity is heightened.

In some years, these factors may cause an increase in sales for the second and third quarters, compared with the first and fourth quarters of the same fiscal year.

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

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

Customer demand and orders for our products continued to be strong during the three months ended September 30, 2023.

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 in the year ended December 31, 2022 .

While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders, we have experienced some delays and longer delivery times within our supply chain in the year ended December 31, 2022.

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.

These supply chain constraints and material shortages 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 83% of these radio units during the nine months ended September 30, 2023.

Overall, our revenues for the three months ended September 30, 2023, increased compared with the same period of last year.

For the third quarter 2023, sales increased 68.4% to approximately $20.1 million, compared with approximately $11.9 million of sales for the third quarter last year.

Sales for the nine months ended September 30, 2023, increased 88.8% compared to the same nine-month period last year.

Gross profit margin as a percentage of sales for the third quarter of 2023 was approximately 31.9%, compared with 18.8% for the same period of last year, generally reflecting improvements in increased production volumes and improvements in supply chain material costs and freight compared to the third quarter last year.

Gross profit margin as a percentage of sales for the nine months ended September 30, 2023, was approximately 28.6%, compared with 17.8% for the same period of last year, generally reflecting improvements in supply chain material and freight costs and increased production volumes.

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2023 totaled approximately $5.8 million, which was 25.5% higher than the SG&A expenses of approximately $4.6 million for the third quarter last year, while SG&A expenses for the nine-month period ended September 30, 2023, increased 18.3% compared to the same period last year.

The increase in SG&A expenses is attributed primarily to sales and engineering costs related to the BKR 9000 product introduction.

These factors yielded operating income of approximately $0.6 million for the three-month period ended September 30, 2023, compared with an operating loss of approximately $2.4 million for the same quarter last year, which improved primarily due to higher production volumes and reduced supply chain material challenges compared to the same period last year.

For the third quarter of 2023, we recognized a net unrealized loss totaling approximately $0.3 million on our investment in FG Holdings LLC.

This compares with net realized and unrealized gains of approximately $0.1 million, for the third quarter of last year.

For the nine months ended September 30, 2023, we recognized a net unrealized loss totaling approximately $0.8 million on our investment in FG Holdings LLC.

compared with a recognized net realized and unrealized losses of approximately $1.0 million, for last year’s nine-month period.

Net income for the three months ended September 30, 2023, was approximately $90,000 ($0.03 per basic and diluted share), compared with a net loss of approximately $2.4 million ($0.71 per basic and diluted share) for the same quarter last year.

For the nine months ended September 30, 2023, our net loss totaled approximately $2.5 million ($0.74 per basic and diluted share), compared with a net loss of approximately $10.7 million ($3.16 per basic and diluted share) for the same period last year.

As of September 30, 2023, working capital totaled approximately $13.8 million, of which approximately $13.2 million was comprised of cash, cash equivalents and trade receivables.

First Quarter Summary

Customer demand and new orders for our products of $22.3 million continued to be strong during the three months ended March 31, 2024, compared to $13.8 million for the same period of the prior year.

Overall, for the first quarter 2024, sales decreased 2.6% to approximately $18.2 million, compared with approximately $18.7 million of sales for the first quarter last year.

Gross profit margin as a percentage of sales for the first quarter of 2024 was approximately 34.5%, compared with 26.1% for the same period of last year, generally reflecting improvements in supply chain material costs and freight compared to the first quarter last year.

Selling, general, and administrative (“SG&A”) expenses for the first quarter of 2024 totaled approximately $5.3 million, which was 9.8% lower than the SG&A expenses of approximately $5.9 million for the first quarter last year.

The decrease in SG&A expenses is attributed primarily to development and marketing initiatives for the BKR 9000 product in the first quarter of 2023.

These factors yielded an operating income of approximately $1.0 million for the three-month period ended March 31, 2024, compared with an operating loss of approximately $1.0 million for the same quarter last year, with improvement primarily due to material costs related to supply chain challenges for the same period last year.

For the first quarter of 2024, we recognized a net realized loss totaling approximately $0.1 million on our investment in FG Holdings, LLC.

This compares with an unrealized loss of approximately $0.1 million on the investment in FG Holdings, LLC, for the first quarter of last year.

Net income for the three months ended March 31, 2024, was approximately $0.7 million ($0.19 per basic and diluted share), compared with a net loss of approximately $1.3 million ($0.37 per basic and diluted share) for the same quarter last year.

As of March 31, 2024, working capital totaled approximately $18.4 million, of which approximately $14.8 million was comprised of cash, cash equivalents and trade receivables.

As of December 31, 2023, working capital totaled approximately $16.8 million, of which approximately $11.4 million was comprised of cash, cash equivalents and trade receivables.

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Three Months Ended

Percentage of Sales

Nine Months Ended

Sept 30, 2023

Sept 30, 2022

Sept 30, 2023

Sept 30, 2022

March 31, 2024

March 31, 2023

Cost of products

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Income (loss) before income taxes

Income tax (expense) benefit

Income tax (expense)

Net income (loss)

For the third quarter ended September 30, 2023, net sales increased 68.4% to approximately $20.1 million, compared with approximately $11.9 million for the same quarter last year.

Sales for the nine months ended September 30, 2023, totaled approximately $57.8 million, compared with approximately $30.6 million for the nine-month period 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 83% of the radio units in backlog as of December 31, 2022, during the first nine months of this year.

The supply chain issues experienced in 2022 have diminished 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 third quarter ended September 30, 2023, were attributed primarily to federal wildland fire related agencies and certain state and local public safety opportunities.

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

The BKR Series is envisioned as a comprehensive line of new products, which includes new models such as the BKR 9000, which achieved FCC P25 compliance testing and its first sales in the second quarter of 2023.

For the first quarter ended March 31, 2024, net sales decreased 2.6% to approximately $18.2 million, compared with approximately $18.7 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, as well as BKR 9000 product introduced in 2023.

The supply chain issues experienced in 2022 and to a lesser extent in 2023 have diminished significantly, but the precise impact on sales and shipments for 2024 cannot be quantified.

Sales for the first quarter ended March 31, 2024, were attributed primarily to federal wildland fire-related agencies and certain state and local public safety opportunities.

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 includes new models such as the BKR 9000, which achieved first sales in the second quarter of 2023.

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.

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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 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.

While the potential impacts of 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, 2023, were approximately 31.9% compared with 18.8% for the same quarter last year.

For the nine-month period ended September 30, 2023, gross profit margins were approximately 28.6%, compared with 17.8% for the same period last year.

Gross profit margins as a percentage of sales for the first quarter ended March 31, 2024, were approximately 34.5% compared with 26.1% 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 and nine months ended September 30, 2023, increased compared with the same periods 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.

Gross profit margins for the quarter ended March 31, 2024, increased compared with the same period last year, primarily due to improvement in material costs, including electronic components and to a lesser degree, easing of escalated freight costs.

During the year ended December 31, 2023, worldwide shortages of materials, including semiconductors and integrated circuits resulted in limited supplies, which in turn, extended lead times and resulted in higher costs for certain components used in our products.

Accordingly, we experienced delivery delays and increased costs within our supply chain.

While the progression and duration of these shortages is not known with certainty, we monitored a number of critical components for product cost improvement and have experienced improvement to pre-pandemic levels.

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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, 2023, totaled approximately $5.8 million (29.0% of sales), compared with approximately $4.6 million (38.9% of sales) for the same quarter last year.

For the nine months ended September 30, 2023, SG&A expenses increased by $2.7 million, or 18.3%, to approximately $17.7 million (30.6% of sales), compared with approximately $15.0 million (48.8% of sales), for the nine-month period last year.

Engineering and product development expenses for the third quarter of 2023 totaled approximately $2.5 million (12.5% of sales), compared with approximately $2.1 million (17.9% of sales) for the same quarter of last year.

For the nine months ended September 30, 2023, engineering and product development expenses totaled approximately $7.5 million (13.0% of sales), compared with approximately $6.7 million (22.0% of sales) for the nine-month period last year.

The increase in engineering expenses is attributed primarily to ongoing product design and development activities, particularly for the new BKR 9000 series radio introduced during the second quarter 2023.

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.

SG&A expenses for the quarter ended March 31, 2024, totaled approximately $5.3 million (29.1% of sales), compared with approximately $5.9 million (31.4% of sales) for the same quarter last year.

Engineering and product development expenses for the first quarter of 2024 totaled approximately $2.1 million (11.4% of sales), compared with approximately $2.4 million (12.9% of sales) for the same quarter of last year.

The decrease in engineering expenses is attributed primarily to product design and development activities in the first quarter of 2023, particularly for the new BKR 9000 series radio introduced during the second quarter 2023.

Most of these activities are being performed by our internal engineering team and are their primary focus, combined with sustaining engineering support for 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 certain component lead times in coming months and quarters.

Marketing and selling expenses for the third quarter of 2023 totaled approximately $1.5 million (7.5% of sales), compared with approximately $1.1 million (8.9% of sales) for the third quarter last year.

For the nine months ended September 30, 2023, marketing and selling expenses increased approximately $1.4 million, or 46.0%, to approximately $4.6 million (7.9% of sales), compared with approximately $3.1 million (10.2% of sales) for the same period last year.

The increases for the quarter and nine-month period ended September 30, 2023, primarily reflect increases in staffing, travel and go-to-market activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the third quarter 2023 totaled approximately $1.8 million (9.0% of sales), compared with approximately $1.4 million (12.1% of sales) for the same quarter last year.

For the nine months ended September 30, 2023, general and administrative expenses totaled approximately $5.6 million (9.7% of sales), compared with approximately $5.1 million (16.6% of sales) for the nine-month period last year.

The increase in general and administrative expenses for the quarter and nine months ended September 30, 2023, is attributed primarily to corporate and headquarters staffing in support of strategic initiatives.

Marketing and selling expenses for the first quarter of 2024 totaled approximately $1.5 million (8.4% of sales), compared with approximately $1.5 million (8.2% of sales) for the first quarter last year.

Other general and administrative expenses for the first quarter of 2024 totaled approximately $1.7 million (9.3% of sales), compared with approximately $1.9 million (10.3% of sales) for the same period last year.

The decrease in general and administrative expenses for the three months ended March 31, 2024, is attributed primarily to non-recurring nature of corporate expenses related to the at-the-market capital raise (ATM) and reverse stock split strategic initiatives during the first quarter of 2023.

Operating Income (Loss)

The operating income for the third quarter ended September 30, 2023, totaled approximately $0.6 million (2.9% of sales), compared with an operating loss of approximately $2.4 million (20.1% of sales) for last year’s third quarter.

For the nine months ended September 30, 2023, our operating loss totaled approximately $1.2 million (2.0% of sales), compared with approximately $9.5 million (31.1% of sales) for the nine-month period last year.

The operating loss for the quarter and nine months ended September 30, 2022, is somewhat attributed to lower than historical gross profit margins related to operating costs and increased product introduction and strategic initiative costs.

The operating income for the quarter ended March 31, 2024, totaled approximately $1.0 million (5.4% of sales), compared with an operating loss of approximately $1.0 million (5.3% of sales) for last year’s first quarter.

The operating income for the three months ended March 31, 2023, is attributed to higher gross profit margins related to improved material costs due to cost reduction efforts and supply chain improvements.

Other (Expense) Income

We recorded net interest expense of approximately $131,000 for the third quarter ended September 30, 2023, compared with approximately $30,000 for the third quarter of last year.

For the nine months ended September 30, 2023, net interest expense totaled approximately $429,000, compared with net interest expense of approximately $70,000 for the nine-month period last year.

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

For the third quarter ended September 30, 2023, we recognized an unrealized loss of approximately $0.3 million on our investment in FG Holdings LLC, compared with a realized and unrealized gain of approximately $0.1 million on our investment in FGF made through 1347 LP for the third quarter last year.

For the nine months ended September 30, 2023, we recognized an unrealized loss of approximately $0.8 million on our investment compared with a realized and unrealized loss of approximately $1.0 million for the same period last year.

We recorded no tax expense or benefit for the quarter and nine months ended September 30, 2023, compared with no income tax provision for the third quarter and nine-month period last year.

We recorded net interest expense of approximately $174,000 for the quarter ended March 31, 2024, compared with approximately $144,000 for the first quarter of last year.

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

On January 25, 2024, the Company redeemed its Series B common membership interests (the “Interests”) of FG Holdings LLC and withdrew from FG Holdings LLC.

In exchange for its Interests, the Company received 52,000 shares of the Company’s Common Stock, with an approximate fair value of $650,000 on the date of the transaction and recorded a realized loss of $91,000 on the investment during the first quarter of 2024, compared to an unrealized loss of $113,000 for the first quarter of 2023.

The shares received by the Company are held as treasury stock, increasing the total number of treasury shares held by the Company to 342,080.

We recorded a tax expense of $21,000 for the three months ended March 31, 2024, compared with no income tax provision for the same period last year.

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

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As a result, we may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period.

As of September 30, 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.

As of March 31, 2024, 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 $4.2 million and $3.4 million as of September 30, 2023, and December 31, 2022, respectively.

Accordingly, we established a valuation allowance of $4.4 million as of March 31, 2024, and December 31, 2023, respectively.

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, 2023.

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, 2024.

Liquidity and Capital Resources

For the nine months ended September 30, 2023, net cash provided by operating activities totaled approximately $3.9 million, compared with cash used by operating activities of approximately $6.9 million for the same period last year.

Cash provided by operating activities for the nine months ended September 30, 2023, was primarily related to a reduction in accounts receivable and inventories, and an increase in deferred revenues, which was partially offset by decrease in accounts payable.

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 a realized and unrealized losses in marketable securities.

For the first nine months of 2023, we had a net loss of approximately $2.5 million, compared with a net loss of approximately $10.7 million for the same period last year.

Accounts receivable decreased approximately $1.5 million during the nine months ended September 30, 2023, compared with a decrease of approximately $2.9 million for the same period last year.

Accounts payable for the nine months ended September 30, 2023, decreased approximately $1.1 million, compared with an increase of approximately $7.4 million for the first nine months last year, primarily due to delays and shortages within our supply chain for the same period of 2022.

Gross inventories decreased during the nine months ended September 30, 2023, by approximately $0.6 million compared with an increase of approximately $9.4 million for the same period last year.

The increases for both inventories and accounts payable during the first nine months of 2022 were attributed primarily to material and component availability combined with extended supplier lead times.

Deferred revenues increased during the nine months ended September 30, 2023, by approximately $2.7 million compared with an increase of approximately $0.2 million for the same period last year.

Prepaid expenses increased during the first nine months of 2023 by approximately $0.4 million compared with an increase of $0.1 million for the same period last year.

Depreciation and amortization totaled approximately $1.2 million for the nine months ended September 30, 2023, compared with approximately $1.1 million for the same period last year.

For the three months ended March 31, 2024, net cash used in operating activities totaled approximately $0.8 million, compared with cash provided by operating activities of approximately $0.6 million for the same period last year.

Cash used in operating activities for the three months ended March 31, 2024, was primarily related to an increase in accounts receivable and decrease in accounts payable offset by reductions in inventory and net income.

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

For the first quarter of 2024, we had a net income of approximately $0.7 million, compared with a net loss of approximately $1.3 million for the same period last year.

Accounts receivable increased approximately $3.6 million during the first quarter ended March 31, 2024, compared with an increase of approximately $0.2 million for last year’s first quarter, primarily due to timing of customer collections in the first quarter of 2024.

Inventories decreased during the quarter ended March 31, 2024, by approximately $1.4 million compared with an increase of approximately $0.6 million for the same quarter last year.

Accounts payable for the quarter ended March 31, 2024, decreased approximately $0.8 million, compared with an increase of approximately $1.2 million for last year’s first quarter, primarily due to material purchases.

The decreases in inventories and accounts payable were attributed primarily to improvement of supply chain challenges from fiscal year 2022 and early fiscal 2023.

Prepaid expenses increased during the first quarter by approximately $0.1 million compared with a decrease of $0.2 million for last year’s first quarter.

Depreciation and amortization totaled approximately $0.4 million for the first quarter ended March 31, 2024, compared with approximately $0.4 million for last year’s first quarter.

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

The unrealized loss on investments for the nine months ended September 30, 2023, totaled approximately $0.8 million, compared with a realized and unrealized losses of approximately $1.0 million for the same period last year.

The realized loss on investments for the first quarter ended March 31, 2024, totaled approximately $0.1 million, compared with an unrealized loss of approximately $0.1 million for the first quarter last year.

For additional information pertaining to our investments, refer to Note 1 (Condensed Consolidated Financial Statements) and Note 7 (Investments) to the condensed consolidated financial statements included in this report.

Cash used in investing activities for the nine months ended September 30, 2023, totaled approximately $1.8 million, compared with approximately $1.0 million for the same period last year.

Cash used in investing activities for the quarter ended March 31, 2024, totaled approximately $0.2 million, compared with approximately $0.6 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, 2023, cash of approximately $43,000 was provided by financing activities, compared with cash provided by financing activities of approximately $1.3 million for the same period last year.

During the first nine months of 2023, we received cash of approximately $58.9 million from debt, net of repayments totaling approximately $58.9 million, while for the same period last year, we received proceeds of approximately $3.0 million from our revolving credit facility with Alterna and notes payable partially offset by loan and revolving credit facility repayments of approximately $0.2 million and paid quarterly dividends of approximately $1.5 million.

Our cash and cash equivalents balance on September 30, 2023, was approximately $4.1 million.

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

For the quarter ended March 31, 2024, cash of approximately $0.8 million was provided by financing activities, compared with cash provided by financing activities of approximately $0.9 million for last year’s first quarter.

During the first quarter of 2024 we received cash of approximately $15.0 million from debt, net of repayments totaling approximately $14.2 million, while for last year’s first quarter, we received cash of approximately $20.8 million from debt, net of repayments totaling approximately $19.9 million.

Our cash and cash equivalents balance on March 31, 2024, was approximately $3.3 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.

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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 three months ended September 30, 2023.

During the first quarter of 2024, the Company began development of the BKR series LMR multi-band mobile radio product.

The Company accounts for the costs of LMR multi-band development in accordance with ASC Topic 350-30, “ Intangibles – Goodwill and Other”.

Upon the general release of the LMR multi-band mobile radio product currently in development to customers, development costs for that product will be amortized over periods not exceeding ten years, based on future revenue of the product.

There were no other changes to our critical accounting policies during the three months ended March 31, 2024.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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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-Q

Item 2. Management’s Discussion and Analysis