BK Technologies Corp

Condensed Consolidated Balance Sheets

(In thousands, except share data)(Unaudited)

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data) (Unaudited)

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended September 30, 2024 and 2023

Unaudited

(In thousands, except share and per share data and percentages or as otherwise noted)

Note1. Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated balance sheet as of* September 30, 2024*, the condensed consolidated statements of operations for thethree andnine months ended* September 30, 2024*, and2023, and the condensed consolidated statements of cash flows for thenine months ended* September 30, 2024*, and2023, have been prepared by BK Technologies Corporation (the “Company,” “we,” “us,” “our”), and are unaudited but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The condensed consolidated balance sheet as of* December 31, 2023*, has been derived from the Company’s audited consolidated financial statements at that date.

These condensed consolidated financial statements have been prepared in accordance with the requirements of Article8 of Regulation S-X and the instructions to Form10-Q. Accordingly, 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 Form10-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 thethree* andnine months ended* September 30, 2024*, and2023, arenot 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 doesnot 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 between20% to50%), the Company’s investment is accounted for under the equity method of accounting. If the Company doesnot 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.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, investments, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities. As of* September 30, 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 Note7,* the Company recorded the investment according to guidance provided by ASC820 “Fair Value Measurement,” as the Company didnot 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 the 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 Fundamental Global Inc. (Nasdaq: FGF) held by FG Holdings LLC, plus uninvested cash, less liabilities, further adjusted through allocations based on distribution preferences, as defined in the operating agreement of FG Holdings LLC. The NAV was used as a practical expedient and hasnot been classified within the fair value hierarchy.

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On* January 25, 2024,the Company redeemed its Series B common membership interests (the “Interests”) in FG Holdings LLC and withdrew from FG Holdings LLC. In exchange for the 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 thefirst* quarter of2024. 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

On* November 22, 2022,the Company’s wholly owned 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 aone-year line of credit with total maximum funding up to $15 million (the “Line of Credit”). On November 22, 2023,the IPSA was renewed forone more year. The Company used funds obtained from the Line of Credit to replace the JPMC Credit Agreement (defined below) (see Note12*). The IPSA was paid off in* September 2024.On October 30, 2024,the Company entered into a new line of credit agreement with Fifth Third Bank, N.A. (see Note14*).

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 aone* (1)-for-five (5) reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $0.60 per share (the “Common Stock”), and on* April 4, 2023,*the Company filed with the Secretary of State of the State of Nevada a Certificate of Change to its Articles of Incorporation to effect the Reverse Stock Split.

The Company executed the Reverse Stock Split, which became effective at5:00 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 doesnot discuss recent pronouncements that arenot anticipated to have a material impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

In* November 2023,the FASB issued Accounting Standards Update (ASU)2023-07 Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The new standard is effective for annual periods beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

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Note2. 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 exclusivethird*-party manufacturer of the Company’s radio product line under athree-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 for the30 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 afive-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 extentnot 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 Section4(a)(2) of the Securities Act of1933, as amended.

Note3. Allowance for Credit Losses

The allowance for credit losses on trade receivables was approximately $122 and $50 on gross trade receivables of $9,467 and $7,952 as of* September 30, 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 creditworthiness, and 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* September 30, 2024* and* December 31, 2023* is adequate.

Note4. Inventories, Net

Inventories, which are presented net of allowance for slow moving, excess, and obsolete inventory, consisted of the following:

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 $1,354 as of* September 30, 2024*, compared with approximately $1,838 as of* December 31, 2023*.

Note5. Income Taxes

The Company has recorded $247 and $488 tax expense for thethree andnine months ended* September 30, 2024*, respectively. The Company recordedno tax expense or benefit for the same periods last year.

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.

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As of* September 30, 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. The utilization of net operating loss carryforwards in a given year is limited.

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 thannot 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 doesnot 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 $4,365 and $4,398 as of* September 30, 2024,and December 31, 2023,respectively. If the Company incurs future losses, it maybe necessary to record additional valuation allowance related to the deferred tax assets recognized as of September**30,* 2024.

Note6. 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 Topic350-30, “* 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 Topic350*-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 periodsnot exceedingten years, based on future revenue of the product. Capitalized product development costs are $321 and $751 for thethree andnine months ended* September 30, 2024*, respectively.

Note7. 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 thefirst* quarter of2024. 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 ASC820 Fair Value Measurement and hasnot been classified within the fair value hierarchy. Prior to the redemption, FG Holdings LLC invested in the common and preferred stock of Fundamental Global Inc. (Nasdaq: FGF) (“FGF”). FG Holdings LLC’s structure provided for Series A preferred interests, which accrued a return ofeight 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 received 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 received an additional return equal to 1.5 times the Series A of positive profits described above. There wasno defined redemption frequency, and the Company couldnot 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 didnot 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 Holdings LLC and its affiliates constituted 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.

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Note8. 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 Note1*). All share and per share information in this Quarterly Report on Form10-Q have been retroactively adjusted to reflect the Reverse Stock Split.

The changes in condensed consolidated stockholders’ equity for thethree andnine months ended* September 30, 2024*, and2023, are as follows:

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Note9. Income (Loss) Per Share

The following table sets forth the computation of basic and diluted income (loss) per share:

Approximately 21,700 stock options and 20,435 restricted stock units for thethree andnine months ended* September 30, 2024,and 168,600 and 224,600 stock options and 28,569 and 29,381 restricted stock units for thethree* andnine months ended* September 30, 2023,*respectively, were excluded from the calculation because they were anti-dilutive.

Note10. 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 $78 and $210 for thethree andnine months ended* September 30, 2024*, respectively, compared with $44 and $163 for the same periods last year. The Company considers its non-cash share-based employee compensation expenses as a component of cost of products and selling, general and administrative expenses. There wasno 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 thethree andnine months ended* September 30, 2024*, was calculated using certain assumptions. Such assumptions are described more comprehensively in Note10 (Share-Based Employee Compensation) of the Notes to the Company’s consolidated financial statements included in its Annual Report on Form10-K for the fiscal year ended* December 31, 2023*.

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A summary of activity under the Company’s stock option plans during thenine months ended* September 30, 2024*, is presented below:

Restricted Stock Units

The Company recorded non-cash restricted stock unit compensation expense of $146 and $415 for thethree andnine months ended* September 30, 2024*, compared with $641 and $773 for the same periods last year.

A summary of non-vested restricted stock under the Company’s non-employee director share-based incentive compensation plan is as follows:

Note11. Commitments and Contingencies

Legal Matters

From time to time, the Company* maybe 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 maybe increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss isnot* probable or the amount of the loss isnot estimable, the Company doesnot accrue legal reserves, consistent with applicable accounting guidance. There wereno pending material claims or legal matters as of* September 30, 2024*.

Purchase Commitments

As of* September 30, 2024*, the Company had purchase commitments for inventory totaling approximately $7,285.

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Significant Customers

Sales to United States government agencies represented approximately $7,896 (39.1%) and $23,879 (40.7%) of the Company’s net total sales for thethree andnine months ended* September 30, 2024*, respectively, compared with approximately $12,142 (60.5%) and $29,571 (51.2%), for the same periods last year. Accounts receivable from agencies of the United States government were $1,997 as of* September 30, 2024*, compared with approximately $4,280 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 for2023, 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.

Note12. 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 aone-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 10.10% as of September 30, 2024*. Interest and related servicing fees for thethree andnine months ended* September 30, 2024*, were approximately $18 and $356, respectively. Under the arrangement, the Company* maytransfer 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 thethree andnine months ended* September 30, 2024*, the Company transferred receivables having an aggregate face value of $19.5 and $54.9, respectively, to the conduit and received proceeds of approximately $17.4 and $46.4, respectively, which also includes draws on available inventory funding. There wereno losses incurred on these transfers during thethree andnine months ended* September 30, 2024*.

As of* September 30, 2024*, there wereno outstanding borrowings under the IPSA and the outstanding principal amount of receivables transferred under the IPSA amounted to $7.9 million. On* October 30, 2024,the Company entered into a new Line of Credit agreement with Fifth Third Bank, N.A (see Note14*) and terminated the Alterna IPSA Line of Credit.

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 was collateralized by the equipment purchased using the proceeds. The Master Loan Agreement was payable in 60 equal monthly principal and interest payments of approximately $8 beginning on October 25, 2019,was scheduled to mature on September 25, 2024,and bore a fixed interest rate of 5.11%. This note payable was paid in full on June 24, 2024.*

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Note13. Leases

The Company accounts for its leasing arrangements in accordance with Topic842, “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 donot 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* June**30,* 2027. The lease terms include an option to extend the lease agreement for an additionalfive (5) year term. 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 NW136th* 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 thefirst* year, increasing by approximately 3% for each subsequent12-month period.

Lease costs consisted of the following:

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Supplemental cash flow information related to leases was as follows:

Other information related to operating leases was as follows:

Maturity of lease liabilities as of* September 30, 2024*, were as follows:

14. Subsequent Events

On* October 30, 2024,BK Technologies, Inc., a wholly owned subsidiary of the Company, as the borrower, entered into a new credit facility with Fifth Third Bank, National Association, as the lender (the “Fifth Third Credit Agreement”). The Fifth Third Credit Agreement provides for aone-year revolving line of credit with a maximum commitment of $6 million, with an accordion feature, if certain conditions are met, for up to an additional $4 million of borrowing capacity, totaling a maximum commitment of $10 million. Each advance shall accrue interest on the outstanding principal amount thereof at a rate of SOFR plus 2.5% per annum. Each advance maybe prepaid at any time without penalty and the entire line of credit commitment maybe permanently terminated by BK Technologies, Inc. at any time upon10* days’ prior written notice to the lender without penalty.

BK Technologies, Inc.’s repayment obligations under the credit facility are guaranteed by the Company and RELM Communications, Inc. and secured by a pledge of essentially all of the assets of BK Technologies, Inc., the Company and RELM Communications, Inc. (collectively, the “Loan Parties”).

The Loan Parties are subject to customary negative covenants, including with respect to their ability to incur additional indebtedness, encumber and dispose of their assets and enter into affiliate transactions. BK Technologies, Inc. must also comply with a maximum total funded debt ratio of 2.00 to1.00 and a minimum fixed charge coverage ratio of 1.20 to1.00, each measured at the end of every fiscal quarter.

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