BK Technologies Corp 10-Q

Item 1. FINANCIAL STATEMENTS BK TECHNOLOGIES CORPORATION Condensed Consolidated Balance Sheets ( In thousands, except share data) March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 3,296 $ 3,456 Trade accounts receivable, net 11,467 7,902 Inventories, net 22,543 23,952 Prepaid expenses and other current assets 1,991 1,892 Total current assets 39,297 37,202 Property, plant and equipment, net 5,174 5,366 Operating lease right-of-use (ROU) assets 1,448 1,560 Investments — 742 Deferred tax assets, net 4,116 4,116 Capitalized product development cost 147 — Other assets 397 422 Total assets $ 50,579 $ 49,408 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,067 $ 9,822 Accrued compensation and related taxes 1,577 1,302 Accrued warranty expense 774 722 Accrued other expenses and other current liabilities 371 363 Short-term operating lease liabilities 536 525 Credit facility 7,338 6,476 Notes payable-current portion 48 71 Deferred revenue 1,239 1,137 Total current liabilities 20,950 20,418 Long-term operating lease liabilities 1,122 1,260 Deferred revenue 6,990 6,419 Total liabilities 29,062 28,097 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; 3,871,792 and 3,867,082 issued and 3,529,712 and 3,577,002 outstanding shares as of March, 31, 2024 and December 31, 2023, respectively 2,323 2,320 Additional paid-in capital 48,775 48,602 Accumulated deficit ( 23,528 ) ( 24,209 ) Treasury stock, at cost, 342,080 and 290,080 shares as of March 31, 2024, and December 31, 2023, respectively ( 6,053 ) ( 5,402 ) Total stockholders’ equity 21,517 21,311 Total liabilities and stockholders’ equity $ 50,579 $ 49,408 See Accompanying Notes to Condensed Consolidated Financial Statements. 3 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Operations ( In thousands, except share and per share data ) ( Unaudited ) Three Months Ended March 31, 2024 March 31, 2023 Sales, net $ 18,231 $ 18,721 Expenses Cost of products 11,943 13,826 Selling, general and administrative 5,305 5,882 Total operating expenses 17,248 19,708 Operating income (loss) 983 ( 987 ) Other (expense) income: Net interest (expense) ( 174 ) ( 144 ) Loss on investments ( 91 ) ( 113 ) Gain on disposal of property, plant and equipment 2 — Other (expense) ( 18 ) ( 26 ) Total other (expense), net ( 281 ) ( 283 ) Income (loss) before income taxes 702 ( 1,270 ) Provision for income tax (expense) ( 21 ) — Net income (loss) $ 681 $ ( 1,270 ) Net income (loss) per share-basic: $ 0.19 $ ( 0.37 ) Net income (loss) per share-diluted: $ 0.19 $ ( 0.37 ) Weighted average shares outstanding-basic: 3,538,507 3,396,949 Weighted average shares outstanding-diluted: 3,554,439 3,396,949 See Accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents BK TECHNOLOGIES CORPORATION Condensed Consolidated Statements of Cash Flows ( In thousands ) ( Unaudited ) Three Months Ended March 31, 2024 March 31, 2023 Operating activities Net income (loss) $ 681 $ ( 1,270 ) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Inventories allowances 6 ( 86 ) Depreciation and amortization 407 378 Share-based compensation expense-stock options 55 58 Share-based compensation expense-restricted stock units 121 69 Loss on investments 91 113 Changes in operating assets and liabilities: Trade accounts receivable ( 3,565 ) ( 174 ) Inventories 1,403 ( 637 ) Prepaid expenses and other current assets ( 100 ) 152 Capitalized product development cost ( 147 ) — Other assets 24 ( 244 ) ROU assets and lease liabilities ( 15 ) ( 12 ) Accounts payable ( 755 ) 1,172 Accrued compensation and related taxes 275 430 Accrued warranty expense 52 78 Deferred revenue 673 820 Accrued other expenses and other current liabilities 8 ( 289 ) Net cash (used in) provided by operating activities ( 786 ) 558 Investing activities Purchases of property, plant, and equipment ( 214 ) ( 592 ) Net cash used in investing activities ( 214 ) ( 592 ) Financing activities Proceeds from common stock issuance — 15 Proceeds from the credit facility and notes payable 15,029 20,809 Repayment of the credit facility and notes payable ( 14,189 ) ( 19,885 ) Net cash provided by financing activities 840 939 Net change in cash and cash equivalents ( 160 ) 905 Cash and cash equivalents, beginning of period 3,456 1,918 Cash and cash equivalents, end of period $ 3,296 $ 2,823 Supplemental disclosure Cash paid for interest $ 202 $ 154 Non-cash financing activity Common stock issued under restricted stock units $ 47 $ 31 See Accompanying Notes to Condensed Consolidated Financial Statements. 5 Table of Contents BK TECHNOLOGIES CORPORATION Notes to Condensed Consolidated Financial Statements Three Months Ended March 31, 2024 and 2023 Unaudited (In thousands, except share and per share data and percentages or as otherwise noted) Note 1. Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations for the three months ended March 31, 2024, and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024, and 2023, have been prepared by BK Technologies Corporation (the “Company,” “we,” “us,” “our”), and are unaudited. The condensed consolidated balance sheet as of December 31, 2023, 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, 2023, as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2024. The results of operations for the three months ended March 31, 2024, and 2023, 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. 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. 6 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 March 31, 2024, and December 31, 2023, 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. Effective September 14, 2022, the Company had an investment in Series B common membership interests of FG Financial Holdings, LLC (“FG Holdings LLC”). As further discussed in Note 7, the Company recorded the investment according to guidance provided by ASC 820 “Fair Value Measurement”, as the Company did not have a controlling financial interest in, nor exerted significant influence over the activities of FG Holdings LLC. The investment in Series B common membership interests of FG Holdings LLC was reported using net asset value (“NAV”) of interests held by the Company at period-end. The NAV was calculated using the observable fair value of the underlying stock of FG Financial Group, Inc. (Nasdaq: 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 was used as a practical expedient and was not classified within the fair value hierarchy. 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 on the date of the transaction and recorded a realized loss of $ 91 on the investment during the first quarter of 2024. 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 . Liquidity The Company incurred operating losses during 2023 and 2022 and reported negative cash flows from operations during 2022. The Company’s operating results were significantly impacted by the worldwide shortages of materials, particularly semiconductors and integrated circuits, extended lead times, and increased costs and inventory levels for certain components in 2022 with improvement to pre-COVID pandemic levels through the fiscal year 2023. 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”). On November 22, 2023, the IPSA was renewed for one more year, and is expected to be renewed in November 2024. The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement (defined below) (see Note 12). 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. 7 Table of Contents 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. 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. 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. Note 2. Significant Events and Transactions On November 6, 2023, the Company entered into a Master Supply Agreement (the “MSA”) and Transition Services Agreement (the “TSA,” and together with the MSA, the “Agreements”) with East West Manufacturing, LLC, a Georgia limited liability company (“East West”). Pursuant to the Agreements, the Company will transition its West Melbourne, Florida manufacturing activities to East West’s facilities, and East West will become the exclusive third-party manufacturer of the Company’s radio product line under a three-year arrangement. In connection with the Agreements, the Company and East West entered into a Stock Purchase Agreement (the “SPA”), pursuant to which East West purchased 77,520 shares of the Company’s common stock (the “BKTI Stock”) for an investment of $ 1,000 . The number of shares of BKTI Stock was determined based upon a price per share of $ 12.90 ,which is equal to the average of the closing price of BKTI 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, East West purchased a warrant (“Warrant”), with a five-year term to purchase up to 135,300 shares of the Company’s common stock at an exercise price per share of $15.00. The consideration for the Warrant is payment equal to (a) One Million Dollars ($1,000) minus (b) (i) the amount of any outstanding accounts payable by Company to East West and (ii) the amount of any excess or obsolete inventory of Company currently held by East West (solely to the extent not otherwise taken into account pursuant to the MSA or any other agreement between the Company and East West). The payment included a $ 950 reduction in accounts payable and $ 50 in cash. The BKTI Stock, the Warrant and the shares issuable upon exercise of the Warrant are deemed to be issued to an accredited investor in a private placement exempt from the registration pursuant to Section 4(a)(2) of the Securities Act of1933, as amended (“Securities Act”). The Company’s reliance upon Section 4(a)(2) of the Securities Act is based in part upon the following factors: (a) the issuance of the securities was in connection with isolated private transactions which did not involve any public offering; (b) there were a limited number of offerees; (c) there will be no subsequent or contemporaneous public offerings of the Warrant or the shares underlying the Warrant by the Company; and (d) the negotiations for the sale of the securities took place directly between East West and the Company. 8 Table of Contents Note 3. Allowance for Credit Losses The allowance for credit losses on trade receivables was approximately $ 50 on gross trade receivables of $ 11,517 and $ 7,952 as of March 31, 2024, and December 31, 2023, respectively. 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. Based on information available, management believes the allowance for credit losses as of March 31, 2024 and December 31, 2023 is adequate. Note 4. Inventories, Net Inventories, which are presented net of allowance for slow moving, excess, and obsolete inventory, consisted of the following: March 31, 2024 December 31, 2023 Finished goods $ 4,042 $ 4,622 Work in process 7,053 8,275 Raw materials 11,448 11,055 $ 22,543 $ 23,952 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 $ 1,333 as of March 31, 2024, compared with approximately $ 1,838 as of December 31, 2023. Note 5. Income Taxes The Company has recorded $ 21 tax expense for the three months ended March 31, 2024. The Company recorded no tax expense or benefit for the three months ended March 31, 2023. 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. As of March 31, 2024, 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 $ 4,398 as of March 31, 2024, and December 31, 2023, 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 March 31, 2024. 9 Table of Contents Note 6. Capitalized Product Development Costs The Company accounts for the costs of Land Mobile Radio (LMR) multi-band development within its products in accordance with ASC Topic 350-30, “ Intangibles – Goodwill and Other ” , under which certain LMR multi-band radio development costs incurred subsequent to the establishment of technological feasibility are capitalized and amortized over the estimated lives of the related products. The Company determined technological feasibility was established for multi-band LMR radio products by the introduction of the BKR9000 multi-band portable product to the market in June 2023, as specified by Topic 350-30. 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. Capitalized product development costs are $ 147 as of March 31, 2024. Note 7. Investments 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 on the date of the transaction and recorded a realized loss of $ 91 on the investment during the first quarter of 2024. 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 . The investment in the Series B common membership interests of FG Holdings LLC was 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 FG Financial Group, Inc. (Nasdaq: FGF) (“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 could not redeem or transfer its investment without the prior written consent of FG Holdings LLC' managers, who were related parties. Distributions could be made to members at such times and amounts as determined by the managers, and were based on the most recent NAV. The Company did not have any unfunded commitments related to this investment. As of December 31, 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, who served as a director of the Company and chairman of the Board of Directors until December 14, 2023, 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 majority Series B member in FG Holdings LLC. Mr. Cerminara also serves as a manager of FG Holdings, LLC and chairman of the board of directors of FGF. 10 Table of Contents Note 8. 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. The changes in condensed consolidated stockholders’ equity for the three months ended March 31, 2024, and 2023, are as follows: Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance at December 31, 2023 3,867,082 $ 2,320 $ 48,602 $ ( 24,209 ) $ ( 5,402 ) $ 21,311 Common stock issued under restricted stock units 4,710 3 ( 3 ) — — — Share-based compensation expense-stock options — — 55 — — 55 Share-based compensation expense-restricted stock units — — 121 — — 121 Treasury shares — — — — ( 651 ) ( 651 ) Net income — — — 681 — 681 Balance at March 31, 2024 3,871,792 $ 2,323 $ 48,775 $ ( 23,528 ) $ ( 6,053 ) $ 21,517 Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Treasury Stock Total Balance at 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 at March 31, 2023 3,689,717 $ 2,214 $ 45,444 $ ( 23,249 ) $ ( 5,402 ) $ 19,007 11 Table of Contents Note 9. Income (Loss) Per Share The following table sets forth the computation of basic and diluted income (loss) per share: Three Months Ended March 31, 2024 March 31, 2023 Numerator: Net income (loss) for basic and diluted earnings per share $ 681 $ ( 1,270 ) Denominator for basic income (loss) per weighted average shares 3,538,507 3,396,949 Effect of dilutive securities: Options and restricted stock units 15,932 — Denominator for diluted income (loss) per weighted average shares 3,554,439 3,396,949 Basic income (loss) per share $ 0.19 $ ( 0.37 ) Diluted income (loss) per share $ 0.19 $ ( 0.37 ) Approximately 255,500 stock options and 0 restricted stock units for the three months ended March 31, 2024, and 198,300 stock options and 41,129 restricted stock units for the three months ended March 31, 2023, were excluded from the calculation because they were anti-dilutive. Note 10. Non-Cash Share-Based Employee Compensation Stock Options The Company has 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 $ 55 for the three months ended March 31, 2024, compared with $ 58 for the same period 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 months ended March 31, 2024, 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, 2023. 12 Table of Contents Note 10. Non-Cash Share-Based Employee Compensation (continued) A summary of activity under the Company’s stock option plans during the three months ended March 31, 2024, 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, 2024 Outstanding 202,600 14.76 7.60 5.94 37,773 Vested 105,313 16.01 6.80 5.78 9,661 Nonvested 97,287 13.41 8.74 6.12 28,112 Period activity Issued 110,900 12.27 — 7.26 — Exercised — — — — — Forfeited 26,000 16.45 — 7.04 — Expired — — — — — As of March 31, 2024 Outstanding 287,500 13.65 8.43 6.35 488,491 Vested 95,660 15.28 6.91 5.27 105,238 Nonvested 191,840 12.83 9.19 6.89 383,253 Restricted Stock Units The Company recorded non-cash restricted stock unit compensation expense of $ 121 for the three months ended March 31, 2024, compared with $ 69 for the same period 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, 2024 19,587 $ 13.22 Granted 41,385 12.01 Vested and issued ( 4,710 ) 10.00 Cancelled/forfeited - - Unvested as of March 31, 2024 56,262 $ 11.66 Note 11. 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. The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings using the latest information available, on a quarterly basis. 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 March 31, 2024. 13 Table of Contents Note 11. Commitments and Contingencies (continued) Purchase Commitments As of March 31, 2024, the Company had purchase commitments for inventory totaling approximately $ 12,308 . Significant Customers Sales to United States government agencies represented approximately $ 9,830 ( 53.9 %) of the Company’s net total sales for the three months ended March 31, 2024, compared with approximately $ 8,644 ( 46.2 %) for the same period last year. Accounts receivable from agencies of the United States government were $ 5,941 as of March 31, 2024, compared with approximately $ 3,412 at the same date last year. Geopolitical Tensions and COVID-19 U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the military conflicts between Russia and Ukraine, and in the Middle East. Although the length and impact of the ongoing military conflicts is highly unpredictable, the conflict in both of these regions could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. While the impacts of COVID-19 are reflected in our results of operations for 2023 and 2022 respectively, we cannot 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 supply chain and geopolitical factors to our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration and severity of the geopolitical factors on the global economy, which are uncertain and cannot be predicted at this time. Note 12. 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, unless canceled by either party, as provided in the agreement, was renewed in November 2023. 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 March 31, 2024. Interest and related servicing fees for the three months ended March 31, 2024, was approximately $ 201 . 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 previous credit facility with JP Morgan Chase Bank, N.A. (“JPMC”), which expired on January 31, 2023 . During the three months ended March 31, 2024, the Company transferred receivables having an aggregate face value of $ 17.5 million to the conduit and received proceeds of $ 15.0 million, which also includes draws on available inventory funding. There were no losses incurred on these transfers during the three months ended March 31, 2024. As of March 31, 2024, the outstanding borrowings under the IPSA were approximately $ 7.3 million and the outstanding principal amount of receivables transferred under the IPSA amounted to $ 11.0 million. 14 Table of Contents Note 12. Debt (continued) 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 March 31, 2024: March 31, 2024 Remaining nine months of 2024 $ 48 Thereafter — Total payments $ 48 Note 13. 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 an 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. 15 Table of Contents Note 13. Leases (continued) Lease costs consisted of the following: Three Months Ended March 31, 2024 March 31, 2023 Operating lease cost $ 135 $ 136 Short-term lease cost — — Variable lease cost 33 33 Total lease cost $ 168 $ 169 Note 13. Leases (continued) Supplemental cash flow information related to leases was as follows: Three Months Ended March 31, 2024 March 31, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows (fixed payments) $ 150 $ 148 Operating cash flows (liability reduction) $ 127 $ 118 ROU assets obtained in exchange for lease obligations: Operating leases $ — $ — Other information related to operating leases was as follows: March 31, 2024 Weighted average remaining lease term (in years) 3.02 Weighted average discount rate 5.50 % Maturity of lease liabilities as of March 31, 2024, were as follows: March 31, 2024 Remaining nine months of 2024 $ 458 2025 618 2026 479 2027 242 Total payments 1,797 Less: imputed interest ( 139 ) Total present value of lease liability $ 1,658 16 Table of Contents