# BK Technologies Corp: Form 10-Q for the period ended Sep 30, 2024 - Company: [BK Technologies Corp](/companies/bkti.md) (CIK 2186) - Form: 10-Q - Filed: 2024-11-14 - Accepted by EDGAR: Nov 14, 2024, 12:05 ET - Period: 2024-09-30 - Accession: 0001437749-24-035026 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/2186/000143774924035026/bkti20240930_10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/2186/000143774924035026/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-07-01 to 2024-09-30 | $20.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Revenue | 9 months, 2024-01-01 to 2024-09-30 | $58.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $12.3m | us-gaap:CostOfGoodsAndServicesSold | | Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $37.0m | us-gaap:CostOfGoodsAndServicesSold | | Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $5.2m | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $16.1m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2024-07-01 to 2024-09-30 | $2.6m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2024-01-01 to 2024-09-30 | $5.6m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $1.0k | us-gaap:InterestExpenseNonoperating | | Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $281.0k | us-gaap:InterestExpenseNonoperating | | Income tax | 3 months, 2024-07-01 to 2024-09-30 | $247.0k | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2024-01-01 to 2024-09-30 | $488.0k | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-07-01 to 2024-09-30 | $2.4m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2024-01-01 to 2024-09-30 | $4.7m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.63 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.30 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.67 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $1.33 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 3,751,073 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 3,623,241 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $8.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $871.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2024-09-30 | $4.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2024-09-30 | $34.9m | us-gaap:AssetsCurrent | | Total assets | at 2024-09-30 | $46.4m | us-gaap:Assets | | Current liabilities | at 2024-09-30 | $12.2m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2024-09-30 | $20.4m | us-gaap:Liabilities | | Shareholders' equity | at 2024-09-30 | $26.0m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 38,847 characters. ### CAUTIONARY NOTE CONCERNING ### FORWARD-LOOKING STATEMENTS We believe that it is important to communicate our future expectations to our security holders and to the public. This report, including any information incorporated by reference in this report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Exchange Act, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “should,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek,” “are encouraged,” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. We also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, we may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others. Forward-looking statements include, but are not limited to, the following: changes or advances in technology; the success of our SaaS and Radio business lines and the products offered thereunder; successful introduction of new products and technologies, including our ability to successfully develop and sell our anticipated SaaS products, and our new multiband radio product and other related products in the planned new BKR Series product line; competition in the LMR industry; general economic and business conditions, including federal, state, and local government budget deficits and spending limitations; the availability, terms and deployment of capital; reliance on contract manufacturers and suppliers; risks associated with fixed-price contacts; 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; 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; our ability to attract and retain executive officers, skilled workers, and key personnel; our ability to manage our growth; our ability to identify potential candidates for, and consummate, acquisition, disposition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation; impact of our capital allocation strategy; risks related to maintaining our brand and reputation; impact of government regulation; rising health care costs; our business with manufacturers located in other countries, including changes in the U.S. Government and foreign governments’ trade and tariff policies; our inventory and debt levels; protection of our intellectual property rights; fluctuation in our operating results and stock price; acts of war or terrorism, natural disasters and other catastrophic events; any infringement claims; data security breaches, cyber-attacks and other factors impacting our technology systems; availability of adequate insurance coverage; maintenance of our NYSE American listing; risks related to being a holding company; 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. Any forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K. Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of, and elsewhere in, our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in our subsequent filings with the SEC, and include, among others, the following: - changes or advances in technology; - 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; - changes or advances in technology; - 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; - 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; - reliance on contract manufacturers and suppliers; - risks associated with fixed-price contracts; - 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; - 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; - our ability to manage our growth; - our ability to identify potential candidates and consummate acquisition, disposition, or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation; - the impact of general business conditions, including those resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts, and related sanctions on the companies in which we hold investments; - impact of our capital allocation strategy; 17 - risks related to maintaining our brand and reputation; - impact of government regulation; - rising health care costs; - our business with manufacturers located in other countries, including changes in the U.S. 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; - protection of our intellectual property rights; - fluctuation in our operating results and stock price; - acts of war or terrorism, natural disasters, public health crises, and other catastrophic events; - any infringement claims; - data security breaches, cyber-attacks, and other factors impacting our technology systems; - availability of adequate insurance coverage; - 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; and - 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. Readers are cautioned not to place undue reliance on these forward-looking statements. Reported dollar amounts in the management’s discussion and analysis (“MD&A”) section of this report are disclosed in millions or as whole dollar amounts. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing elsewhere in this report and the MD&A, consolidated financial statements, and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024. ### Executive Summary BK Technologies Corporation (NYSE American: BKTI) (together with its wholly owned subsidiaries, “BK,” the “Company,” “we,” or “us”) is a holding company that, through BK Technologies, Inc., its operating subsidiary, provides public safety-grade communications products and services which make first responders safer and more efficient. All operating activities described herein are undertaken by our operating subsidiary. In business for over 70 years, BK operates two business units through its operating subsidiary, BK Technologies, Inc.: Radio and SaaS. The Radio business unit designs, manufactures, and markets wireless communications products consisting of two-way LMRs. Two-way LMRs can be radios that are hand-held (portable) or installed in vehicles (mobile). Generally, BK Technologies-branded products serve the government markets, including, but not limited to, emergency response, public safety, homeland security, and military customers of federal, state, and municipal government agencies, as well as various industrial and commercial enterprises. We believe that our products and solutions provide superior value by offering a high specification, ruggedized, durable, reliable, feature-rich, Project 25-compliant radio at a lower cost relative to comparable offerings. The SaaS business unit focuses on delivering innovative, public safety smartphone applications that operate ubiquitously over public cellular networks. We presently have one U.S. patent in force and two pending U.S. patent applications. Our BKRplay-branded smartphone application offers multiple services that make first responders safer and more efficient. When tethered to our radios, the combined solution will offer a unique capability which increases the sales reach of our radios. We were incorporated under the laws of the State of Nevada on October 24, 1997. We are the corporation resulting from the reincorporation merger of our predecessor, Adage, Inc., a Pennsylvania corporation, which reincorporated from Pennsylvania to Nevada effective as of January 30, 1998. Effective on June 4, 2018, we changed our corporate name from “RELM Wireless Corporation” to “BK Technologies, Inc.” 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 fiscal year 2023 and continued during the first nine months of 2024. Our backlog of unshipped customer orders was approximately $27.0 million and $16.0 million as of September 30, 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, 2024, sales increased approximately 0.5% to approximately $20.2 million, compared with $20.1 million for the prior year period. The increase was attributed primarily to the shipments of BKR 5000 radio product sales. Gross profit margins as a percentage of sales for the three months ended September 30, 2024, were 38.8%, compared with 31.9% for the prior comparative quarter, generally reflecting radio product and accessories sales mix and material cost improvements related to cost reduction initiatives. Selling, general, and administrative (“SG&A”) expenses for the three months ended September 30, 2024, totaled approximately $5.2 million (25.9% of sales), compared with $5.8 million (29.0% of sales) in the same period last year. We recognized operating income for the three months ended September 30, 2024, of approximately $2.6 million, compared with an operating income of approximately $0.1 million for the same period for the prior year. For the three months ended September 30, 2024, we recognized other expenses, net totaling less than seven thousand dollars. This compares with other expenses, net totaling $0.5 million for the same period last year, which included an unrealized loss on the investment in FG Holdings LLC and interest expense on the Alterna IPSA Line of Credit. For the three months ended September 30, 2024, the pretax income totaled approximately $2.6 million, compared with pretax income of approximately $0.1 million for same period of the prior year. We recognized a tax expense of $247 for the three-month period ended September 30, 2024, and no tax expense for the same period of the prior year. Net income for the three months ended September 30, 2024, totaled approximately $2.4 million ($0.67 per basic and $0.63 per diluted share), compared with a net income of approximately $0.1 million ($0.03 per basic and diluted share) for the same period last year. The primary factors for the improvement for the three months ended September 30, 2024, compared to the same period last year, were radio product and accessories sales mix and lower raw material and freight costs related to cost reduction efforts and easing of electronic component shortages from supply chain disruptions. As of September 30, 2024, working capital totaled approximately $22.7 million, of which $13.5 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. ### Available Information Our Internet website address is www.bktechnologies.com. We make available on our Internet website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to these reports as soon as practicable after we file such material with, or furnish it to, the SEC). In addition, our Code of Business Conduct and Ethics, Code of Ethics for the CEO and Senior Financial Officers, Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter, and other corporate governance policies are available on our website under “Investor Relations.” The information contained on our website is not incorporated by reference in this report. A copy of any of these materials may be obtained, free of charge, upon request from our investor relations department by submitting a written request to bktechnologies@imsinvestorrelations.com or calling (203) 972-9200. Additional information regarding our investor relations department can be found on our website. 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 Customer demand and new orders for our products of $21.8 million continued to be strong during the three months ended September 30, 2024, compared to $19.6 million for the same period of the prior year. Customer demand and orders for our products of $72.4 million continued to be strong during the nine months ended September 30, 2024, compared to $54.1 million for the same period of the prior year. For the third quarter 2024, sales increased 0.5% to approximately $20.2 million, compared with approximately $20.1 million of sales for the third quarter last year. Sales of approximately $58.7 million for the nine-months ended September 30, 2024, increased 1.5% compared with approximately $57.8 million of sales for the same period last year. Gross profit margin as a percentage of sales for the third quarter of 2024 was approximately 38.8%, compared with 31.9% for the same period last year, generally reflecting radio product and accessories sales mix and material cost improvements related to cost reduction initiatives compared to the third quarter last year. Gross profit margin as a percentage of sales for the nine months ended September 30, 2024, was approximately 36.9%, compared with 28.6% for the same period last year, generally reflecting radio product and accessories sales mix and material cost improvements related to cost reduction initiatives. Selling, general, and administrative (“SG&A”) expenses for the third quarter of 2024 totaled approximately $5.2 million, which was 10.1% lower than the SG&A expenses of approximately $5.8 million for the third quarter last year, while SG&A expenses of $16.1 million for the nine-month period ended September 30, 2024, decreased 9.2% compared to the same period last year. The decrease in SG&A expenses is attributed primarily to capitalization of BKR Mobile radio product development costs in 2024 and marketing initiatives for the BKR 9000 product in 2023. These factors yielded operating income of approximately $2.6 million for the three-month period ended September 30, 2024, compared with operating income of approximately $0.1 million for the same period last year. Operating income of approximately $5.6 million for the nine-month period ended September 30, 2024 compares to an operating loss of $1.2 million for the same period last year, related to radio product and accessories sales mix, material cost improvements related to cost reduction initiatives and supply chain challenges for the same period last year. For the third quarter of 2023, we recognized a net unrealized loss of approximately $0.3 million on the investment in FG Holdings, LLC, that was exited during the first quarter of 2024. For the nine months ended September 30, 2024, we recognized a net realized loss totaling approximately $0.1 million on our investment in FG Holdings, LLC. compared with a net unrealized loss of approximately $0.8 million for the same nine-month period last year. For the third quarter of 2024, we recognized net interest expense of one thousand dollars compared to $0.1 million for the same period last year, while for the nine-month period ended September 30, 2024, we recognized net interest expense of $0.3 million compared to $0.4 million for the same period last year. Net income for the three months ended September 30, 2024, was approximately $2.4 million ($0.67 per basic and $0.63 per diluted share), compared with net income of approximately $0.1 million ($0.03 per basic and diluted share) for the same quarter last year. For the nine months ended September 30, 2024, our net income totaled approximately $4.7 million ($1.33 per basic and $1.30 per diluted share), compared with a net loss of approximately $2.5 million ($0.74 per basic and diluted share) for the same period last year. As of September 30, 2024, working capital totaled approximately $22.7 million, of which approximately $13.5 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. ### Results of Operations As an aid to understanding our operating results for the periods covered by this report, the following table shows selected items from our condensed consolidated statements of operations expressed as a percentage of sales: | | Percentage of Sales Three Months Ended September 30, 2024 | September 30, 2023 | Percentage of Sales Nine Months Ended September 30, 2024 | September 30, 2023 | | --- | ---: | ---: | ---: | ---: | | Sales | **100.0%** | 100.0% | **100.0%** | 100.0% | | Cost of products | **(61.2)** | (68.1) | **(63.1)** | (71.4) | | Gross margin | **38.8** | 31.9 | **36.9** | 28.6 | | Selling, general and administrative expenses | **(25.9)** | (29.0) | **(27.4)** | (30.6) | | Other income (expense) | **(0.0)** | (2.5) | **(0.7)** | (2.3) | | Income (loss) before income taxes | **12.9** | 0.4 | **8.8** | (4.3) | | Income tax (expense) | **(1.2)** | — | **(0.8)** | — | | Net income (loss) | **11.7%** | 0.4% | **8.0%** | (4.3)% | ### Net Sales For the third quarter ended September 30, 2024, net sales increased 0.5% to approximately $20.2 million, compared with approximately $20.1 million for the same quarter last year. Sales for the nine months ended September 30, 2024, totaled approximately $58.7 million, compared with approximately $57.8 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, as well as BKR 9000 product introduced in 2023. Sales for the third quarter ended September 30, 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 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 first sales in the third 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. We believe that the BKR Series products should increase our addressable market by expanding the number of federal and other public safety customers that may purchase our products. However, the timing and size of orders from agencies at all levels can be unpredictable and subject to budgets, priorities, and other factors. 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 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, 2024, were approximately 38.8% compared with 31.9% for the same quarter last year. For the nine-month period ended September 30, 2024, gross profit margins were approximately 36.9%, compared with 28.6% for the same period 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, 2024, increased compared with the same period last year, primarily due to product sales mix and 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. 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. We utilize a combination of internal manufacturing capabilities and contract manufacturing relationships for production efficiencies and to manage material and labor costs. We believe that our current manufacturing capabilities and contract relationships or comparable alternatives will continue to be available to us. However, we may encounter new product cost and competitive pricing pressures in the future and the extent of their impact on gross margins, if any, is uncertain. ### Selling, General and Administrative Expenses 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 quarter ended September 30, 2024, totaled approximately $5.2 million (25.9% of sales), compared with approximately $5.8 million (29.0% of sales) for the same quarter last year. For the nine months ended September 30, 2024, SG&A expenses decreased by $1.6 million, or 9.2%, to approximately $16.1 million (27.4% of sales), compared with approximately $17.7 million (30.6% of sales), for the nine-month period last year. Engineering and product development expenses for the third quarter of 2024 totaled approximately $1.9 million (9.2% of sales), compared with approximately $2.5 million (12.5% of sales) for the same quarter last year. For the nine months ended September 30, 2024, engineering and product development expenses totaled approximately $5.9 million (10.1% of sales), compared with approximately $7.5 million (13.0% of sales) for the nine-month period last year. The decrease in engineering expenses is attributed primarily to capitalization of BKR Mobile radio product design and development activities in 2024, and somewhat to development costs in 2023 for the BKR 9000 series radio introduced during the third quarter 2023. Most of these activities were being performed by our internal engineering team and were 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 2024 totaled approximately $1.4 million (7.2% of sales), compared with approximately $1.5 million (7.5% of sales) for the third quarter last year. For the nine months ended September 30, 2024, marketing and selling expenses remained flat at approximately $4.6 million (7.9% of sales), compared with the same period last year. Other general and administrative expenses for the third quarter of 2024 totaled approximately $1.9 million (9.4% of sales), compared with approximately $1.8 million (9.0% of sales) for the same period last year. For the nine months ended September 30, 2024, general and administrative expenses totaled approximately $5.5 million (9.4% of sales), compared with approximately $5.6 million (9.7% of sales) for the nine-month period last year. The decrease in general and administrative expenses for the three and nine months ended September 30, 2024, is attributed primarily to the non-recurring nature of certain corporate expenses related to the At-the-Market (ATM) program and reverse stock split during the nine months ended September 30, 2023. ### Operating Income (Loss) Operating income for the quarter ended September 30, 2024, totaled approximately $2.6 million (12.9% of sales), compared with operating income of approximately $0.6 million (3.0% of sales) for last year’s third quarter. For the nine months ended September 30, 2024, our operating income totaled approximately $5.6 million (9.6% of sales), compared with an operating loss of approximately $1.2 million (2.0% of sales) for the nine-month period last year. The operating income improvement for the three and nine months ended September 30, 2024, compared to the same periods last year, is attributed to higher gross profit margins related to improved product sales mix and lower material costs due to cost reduction efforts and supply chain improvements. ### Other (Expense) Income We recorded net interest expense of approximately one thousand dollars for the quarter ended September 30, 2024, compared with approximately $0.1 million for the third quarter last year. For the nine months ended September 30, 2024, net interest expense totaled approximately $0.3 million, compared with net interest expense of approximately $0.4 million for the nine-month period last year. Net interest expense was primarily the result of our Alterna IPSA 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 our Common Stock, with an approximate fair value of $0.7 million on the date of the transaction and recorded a realized loss of $0.1 million on the investment during the first quarter of 2024. The Company recorded an unrealized loss of $0.3 million and $0.8 million, for the three and nine months ended September 30, 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. ### Income Taxes We recorded $0.2 million and $0.5 million tax expense for the three and nine months ended September 30, 2024, respectively. The Company recorded no 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, in addition to changes in tax legislation. 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, 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. We analyze all positive and negative evidence to determine if, based on the weight of available evidence, we are 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 our 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 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 $4.4 million and $4.4 million as of September 30, 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. ### Liquidity and Capital Resources For the nine months ended September 30, 2024, net cash provided by operating activities totaled approximately $8.2 million, compared with cash provided by operating activities of approximately $3.9 million for the same period last year. Cash provided by operating activities for the nine months ended September 30, 2024, was primarily related to net income of $4.7 million and a $5.3 million reduction in inventory, somewhat offset by a $1.6 million increase in accounts receivable and a $3.9 million decrease in accounts payable. Cash provided by operating activities for the nine months ended September 30, 2023, was primarily related to an increase in deferred revenues and a reduction in accounts receivable, which was partially offset by net loss due to supply chain issues and decrease in accounts payable. For the first nine months of 2024, we had net income of approximately $4.7 million, compared with a net loss of approximately $2.5 million for the same period last year. Accounts receivable increased approximately $1.6 million during the nine months ended September 30, 2024, compared with a decrease of approximately $1.5 million for the same period last year, primarily due to increased sales in the first nine months of 2024. Inventories decreased during the nine months ended September 30, 2024, by approximately $5.3 million compared with a decrease of approximately $0.6 million for the same period last year. Accounts payable for the nine months ended September 30, 2024, decreased approximately $3.9 million, compared with a decrease of approximately $1.1 million for the first nine months last year. 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 and other current assets increased during the first nine months of 2024 by approximately $0.8 million compared with an increase of $0.4 million for the same period last year. Depreciation and amortization totaled approximately $1.3 million for the nine months ended September 30, 2024, compared with approximately $1.2 million for the same period last year. Depreciation and amortization are primarily related to manufacturing and engineering equipment. The realized loss on investments for the nine months ended September 30, 2024, totaled approximately $0.1 million, compared with an unrealized loss of approximately $0.8 million for the same period last year. For additional information pertaining to our investments, refer to Note 1 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, 2024, totaled approximately $0.9 million, compared with approximately $1.8 million for the same period last year. The cash used for the nine-month period ended September 30, 2024, was attributed primarily to the development of the BKR mobile radio product, compared to cash used for the nine-month period ended September 30, 2023, attributed primarily to the purchase of engineering and manufacturing related equipment. For the nine months ended September 30, 2024, approximately $6.6 million was used in financing activities, compared with cash provided by financing activities of approximately $0.1 million for the same period last year. During the first nine months of 2024, we received cash of approximately $46.4 million from our revolving credit facility and notes payable, net of repayments totaling approximately $53.0 million, while for the same period last year, we received proceeds of approximately $58.9 million from our revolving credit facility and notes payable offset by loan and revolving credit facility repayments of approximately $58.9 million. Our cash and cash equivalents balance on September 30, 2024, was approximately $4.2 million. We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our Fifth Third Line of Credit, 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. However, financial and economic conditions, which could be impacted by the current inflationary environment and current geopolitical tension, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all. ### Critical Accounting Policies In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for disclosure our revenue recognition process and our accounting processes involving significant judgments, estimates and assumptions. These processes affect our reported revenues and current assets and are, therefore, critical in assessing our financial and operating status. We regularly evaluate these processes in preparing our financial statements. The processes for revenue recognition, allowance for collection of trade receivables, allowance for excess or obsolete inventory and income taxes involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances. These estimates and assumptions, if incorrect, could adversely impact our operations and financial position. 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 September 30, 2024. ## Market risk As filed, 154 characters. As a “smaller reporting company” as defined by Item 229.10(f)(1) of Regulation S-K, the Company is not required to include the disclosure under this Item. ## Controls and procedures As filed, 2,094 characters. ### Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (who serves as our principal executive officer) and Chief Financial Officer (who serves as our principal financial and accounting officer), as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including each of such officers as appropriate to allow timely decisions regarding required disclosure. ### Changes in Internal Control over Financial Reporting During the three months ended September 30, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 919 characters. As of the date of this filing, except as set forth herein, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 14, 2024. The Risk Factors set forth in the 2023 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2023 Form 10-K could materially adversely affect our business, financial condition, or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. Filed Nov 14, 2024. Source: SEC EDGAR, the filing index for accession 0001437749-24-035026. Last ingested by Listed: Oct 24, 2026, 14:51 ET. No prices; not investment advice.