Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were 12,511,96612,536,471 shares of common stock, $0.60 par value, of the registrant outstanding at November 9, 2020.May 7, 2021.

The condensed consolidated balance sheet as of September 30, 2020,March 31, 2021, the condensed consolidated statements of operations for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019, and the condensed consolidated statements of cash flows for the ninethree months ended September 30,March 31, 2021 and 2020, and 2019 have been prepared by BK Technologies Corporation (the “Company” or “we”), and are unaudited. On March 28, 2019, BK Technologies, Inc., the predecessor of BK Technologies Corporation, implemented a holding company reorganization, which resulted in BK Technologies Corporation becoming the direct parent company of, and the successor issuer to, BK Technologies, Inc. For the purpose of this report, references to “we” or the “Company” or its management or business at any period prior to the holding company reorganization (March 28, 2019) refer to those of BK Technologies, Inc. as the predecessor company and its subsidiaries and thereafter to those of BK Technologies Corporation and its subsidiaries, except as otherwise specified or to the extent the context otherwise indicates. In the opinion of management, all adjustments, which include normal, recurring adjustments, necessary for a fair presentation, have been made. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated balance sheet at December 31, 20192020, 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 (“U.S. GAAP”) 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, 2019,2020, as filed with the Securities and Exchange Commission (“SEC”) on March 4, 2020.3, 2021. The results of operations for the three and nine months ended September 30, 2020March 31, 2021, are not necessarily indicative of the operating results for a full year.

The accounts of the Company periodically reviews its revenue recognition procedures to assure that such procedures are in accordance with GAAP. Surcharges collected on certain sales to government customers and remitted to governmental agencies are nothave been included in revenues orthe accompanying consolidated financial statements. All significant intercompany balances and transactions have been eliminated in costs and expenses.

The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a variable interest entity (“VIE”) or a voting interest entity.

VIEs are entities in which (i) the total equity investment at risk is not sufficient to enable the entity to finance its activities independently, or (ii) the at-risk equity holders do not have the normal characteristics of a controlling financial interest. A controlling financial interest in a VIE is present when an enterprise has one or more variable interests that have both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The enterprise with a controlling financial interest is the primary beneficiary and consolidates the VIE.

Voting interest entities lack one or more of the characteristics of a VIE. The usual condition for a controlling financial interest is ownership of a majority voting interest for a corporation or a majority of kick-out or participating rights for a limited partnership.

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.

The Company has an investment in FG Financial Group, Inc. (formerly 1347 Property Insurance Holdings, Inc.), made through FGI 1347 Holdings, LP, a consolidated VIE.

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, investment in securities, accounts payable, accrued expenses, notes payable, credit facilities, and other liabilities. As of September 30, 2020March 31, 2021, and December 31, 2019,2020, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, notes payable, and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments.

The Company uses observable market data assumptions (Level 1 inputs, as defined in accounting guidance) that it believes market participants would use in pricing investment in securities.

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.

Pursuant to the Company’s capital return program, the Company’s Board of Directors declared a quarterly dividend of $0.02 per share of the Company’s common stock on September 17, 2020March 16, 2021, to stockholders of record as of October 5, 2020.April 12, 2021. These dividends were paid on October 19, 2020.

The allowance for doubtful accounts on trade receivables was approximately $50 on gross trade receivables of $5,828$4,616 and $4,014$6,516 at September 30, 2020March 31, 2021, and December 31, 2019,2020, respectively. This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross trade receivables.

The components of inventories,Inventories, which are presented net of allowancesallowance for obsolete and slow-moving excess or 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 $511$809 at September 30, 2020,March 31, 2021, compared with approximately $823$520 at December 31, 2019.2020.

The Company has not recorded an income tax expense of $2or benefit for the three months ended September 30, 2020, compared with an income tax benefit of approximately $253 for the same period last year. For the nine months ended September 30, 2020, the Company recorded an income tax expense of $30 of which $28 derived from the change in valuation allowance related to net operating loss carryforwards for the state of Florida that are anticipated to expire unutilized in 2020, compared with an income tax benefit of approximately $454 for the nine months period last year.March 31, 2021 or 2020.

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, 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 September 30, 2020,March 31, 2021, the Company’s net deferred tax assets totaled approximately $4,272$4,300 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 $28 related to state of Florida net operating loss carryforwards that are anticipated to expire unutilized in 2020.$98. 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 September 30, 2020.March 31, 2021.

The Company has an investment in a limited partnership, FGI 1347 Holdings, LP, of which the Company is the sole limited partner. FGI 1347 Holdings, LP (“1347 LP”), was established for the purpose of investing in securities.

As of September 30, 2020,March 31, 2021, the Company and the affiliates of Fundamental Global,FG, including, without limitation, Ballantyne Strong, Inc. (“Ballantyne Strong”), beneficially owned in the aggregate 3,045,5933,052,734 shares of PIH’sFGF’s common stock, including 100,000 shares of common stock subject to a call option, representing approximately 50.2%62% of PIH’sFGF’s outstanding shares. In addition, Capital Wealth Advisors, Inc., an affiliate of Fundamental Global, held 61,250 shares of PIH’s common stock for the accounts of individual investors, which represents approximately 1.0% of PIH’s outstanding shares. Fundamental Global withAdditionally, FG and its affiliates isconstitute the largest stockholder of the Company. Mr. Kyle Cerminara, a directormember of the Company,Company’s Board of Directors, is Chief Executive Officer, Co-Founder and Partner of Fundamental GlobalFG and serves as Chairman of the Board of Directors of Ballantyne Strong, and of PIH.Inc. Mr. Lewis M. Johnson, a director of the Company, is President, Co-Founder and Partner of Fundamental Global andCerminara also serves as Co-ChairmanChairman of the Board of Directors of Ballantyne Strong and of PIH. Mr. John Struble, the Chairman of the Company’s Board of Directors, serves as a consultant to an affiliate of Fundamental Global. FGF.

The changes in condensed consolidated stockholders’ equity for the three and nine months ended September 30,March 31, 2021 and 2020, and 2019 are as follows:

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

Approximately 480,900 and 505,900489,000 stock options and 0 and 147,038122,533 restricted stock units for the three and nine months ended September 30, 2020, respectively,March 31, 2021, and 431,829 and 551,500448,400 stock options and 0 and 101,07385,621 restricted stock units for the three and nine months ended September 30, 2019, respectively,March 31, 2020, were excluded from the calculation because they were anti-dilutive.

The Company has an employee and non-employee director share-based incentive compensation plan. Related to these programs, the Company recorded non-cash share-based employee compensation expense of $34 and $94$32 for the three and nine months ended September 30, 2020, respectively,March 31, 2021, compared with $42 and $110, respectively,$30 for the same periodsperiod 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 and nine months ended September 30, 2020March 31, 2021, 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, 2019.2020.

A summary of activity under the Company’s stock option plans during the ninethree months ended September 30, 2020March 31, 2021, is presented below:

 

On August 24, 2020, the Company granted to each non-employee director restricted stock units with a grant-date fair value of $40 per award (resulting in total aggregate grant-date fair value of $240), which will vest in five equal, annual installments beginning with the first anniversary of the grant date, subject to the director’s continued service through such date, provided that, if the director makes himself available and consents to be nominated by the Company for continued service as a director, but is not nominated for the Board for election by stockholders, other than for good reason, as determined by the Board in its discretion, then the restricted stock units shall vest in full as of the director’s last date of service as a director of the Company.

On April 24, 2020, upon the resignation of former director Ryan Turner, the Company, at the direction of the boardBoard of directors,Directors, accelerated the vesting of Mr. Turner’s unvested restricted stock units granted September 6, 2019, and September 6, 2018, and issued 10,389 and 4,050 shares of common stock.stock, respectively.

 

We believe that it is important to communicate our future expectations to our security holders and to the public. 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 and 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including the statements about our plans, objectives, expectations, and prospects. 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. 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.

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, 20192020, and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:

Some of these factors and risks have been, and may further be, exacerbated by the COVID-19 pandemic. 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, 2019,2020, filed with the SEC on March 4, 2020.3, 2021.

BK Technologies Corporation is a holding company, with a wholly-ownedwholly owned operating subsidiary, BK Technologies, Inc. We design, manufacture and market two-way land mobile radios, repeaters, base stations and related components and subsystems.

Two-way land mobile radios can be hand-held (portable) or installed in vehicles (mobile). Repeaters expand the range of two-way land mobile radios, enabling them to operate over a wider area. Base station components and subsystems are installed at radio transmitter sites to improve performance by enhancing the signal and reducing or eliminating signal interference and enabling the use of one antenna for both transmission and reception. We incorporate both analog and digital technologies in our products. Our digital technology is compliant with the Project 25 standard of the Association of Public-Safety Communications Officials. We offer products primarily under twothe “BK” brand names: BK Radio and RELM.name. Generally, BK Radio-brandedBK-branded products serve the government and public safety market, while RELM-branded products serve the business and industrial market.

On March 28, 2019, we implemented a holding company reorganization. The reorganization created a new holding company, BK Technologies Corporation, which became the new parent company of BK Technologies, Inc. The holding company reorganization was intended to create a more efficient corporate structure and increase operational flexibility. We did not incur any material operational or financial impacts. The holding company reorganization was effectedaffected through a merger transaction that was a tax-free transaction for U.S. federal income tax purposes for our stockholders. No stockholder vote was required to effect the merger transaction.

As part of the holding company reorganization, stockholders of our predecessor, BK Technologies, Inc., became stockholders of BK Technologies Corporation, on a one-for-one basis, with the same number of shares and same ownership percentage of common stock that they held immediately prior to the holding company reorganization. Following the reorganization, BK Technologies Corporation replaced BK Technologies, Inc. as the publicly traded entity, and shares of BK Technologies Corporation were listed on the NYSE American under the symbol “BKTI,” which is the same symbol as previously used by BK Technologies, Inc. In addition, the common stock of BK Technologies Corporation was assigned a new CUSIP Number: 05587G 104. The holding company has the same directors and executive officers as its predecessor, BK Technologies, Inc.

For the purpose of this report, references to “we” or the “Company” or our management or business at any period prior to the holding company reorganization (March 28, 2019) refer to those of BK Technologies, Inc., as the predecessor company and its subsidiaries and thereafter to those of BK Technologies Corporation and its subsidiaries, except as otherwise specified or to the extent the context otherwise indicates.

In December 2019, a novel strain of the coronavirus (COVID-19) surfaced, in Wuhan, China, which spread globally and was declared a pandemic by the World Health Organization in March 2020. The challenges posed by the COVID-19 pandemic on the global economy increased significantly asin the first quarterseveral months of 2020 progressed.2020. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders, and recommendations to practice social distancing. We are considered an “essential business” that is supporting first responders and our manufacturing operations have remained open throughout the pandemic. Accordingly, we haveWe implemented certain policies at our offices in accordance with best practices to accommodate, and at times mandate, social distancing, wearing face masks, and remote work practices. Among other things, we have invested in employee safety equipment, additional cleaning supplies and measures, adjusted production lines and workplaces as necessary and adapted new processes for interactions with our suppliers and customers to safely manage our operations. OneIn 2021 to-date, two staff membermembers at our primary facility in West Melbourne, Florida, tested positive for COVID-19 to date. This employee wasCOVID-19. These employees were quarantined and worked remotely in accordance with accepted safety practices until after passing subsequent testing.

Overall, our financial and operating results for the three and nine months ended September 30, 2020 improved compared with the same periods of last year. Sales for the thirdfirst quarter and nine-month period ended September 30, 2020 increasedMarch 31, 2021, decreased compared with the same periods for the prior year, while cost of sales and selling, general and administrative expenses for both periodsalso decreased. Consequently,Accordingly, our operating incomeloss for the three and nine months ended September 30, 2020 increased significantlyfirst quarter of 2021 was slightly higher, compared with the same periodsfirst quarter last year. Furthermore, during the first nine months of 2020, we reduced inventory by over $5.0 million, or 37.6% from the start of the year, which was a primary factor enabling us to generate positive cash flow from operations.

For the thirdfirst quarter of 2020,2021, our sales increased 8.1% tototaled approximately $12.8$8.6 million, compared with approximately $11.8$10.9 million for the same quarter last year. For the nine months ended September 30, 2020, sales increased 2.6% to approximately $33.6 million, compared with approximately $32.7 million for the same period last year.

Gross profit margins as a percentage of sales for the thirdfirst quarter of 20202021 were approximately 40.8%36.2%, compared with 43.3%35.8% for the thirdfirst quarter last year. For the nine-month period ended September 30, 2020, gross profit margins as a percentage of sales were approximately 40.0%, compared with 40.3% for the same period last year.

Selling, general and administrative expenses (“SG&A”) for the thirdfirst quarter of 20202021 decreased 13.6%16.2% ($770,000) to approximately $4.2$4.0 million, compared with approximately $4.8$4.7 million for the same quarter last year. SG&A expenses for the nine months ended September 30, 2020 decreased 13.0% to approximately $13.3 million, compared with approximately $15.2 million for the nine-month period last year.

For the thirdfirst quarter of 2020,2021, our operating income increased 253.2% toloss was approximately $1.0 million,$877,000, compared with approximately $0.3 million$848,000 for the thirdfirst quarter last year. For the nine-month period ended September 30, 2020, operating income increased to approximately $158,000, compared with an operating loss of approximately $2.0 million for the nine-month period last year.

Outside of our core public safety land mobile radio operations, for the thirdfirst quarter of 2020,2021, we recognized an unrealized lossgain totaling $291,000$205,000 on our investment in 1347 Property Insurance Holdings, Inc. (“PIH”),FGF, made through FGI 1347 Holdings, LP, a consolidated variable interest entity. This compares with an unrealized loss of $258,000$306,000 on the investment for the thirdfirst quarter last year. For the nine-month period ended September 30, 2020, we recognized an unrealized loss of approximately $797,000, compared with an unrealized gain of $186,000 for last year’s nine-month period.2020.

As of September 30, 2020,March 31, 2021, working capital totaled approximately $14.4$13.2 million, of which approximately $12.2$10.9 million was comprised of cash, cash equivalents and trade receivables. As of December 31, 2019,2020, working capital totaled approximately $14.5$15.1 million, of which approximately $8.6$13.3 million was comprised of cash, cash equivalents and trade receivables.

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:

For the thirdfirst quarter ended September 30, 2020,March 31, 2021, net sales increased 8.1% tototaled approximately $12.8$8.6 million, compared with approximately $11.8$10.9 million for the same quarter last year. Sales for the nine months ended September 30, 2020 increased 2.6% to approximately $33.6 million, compared with approximately $32.7 million for the nine-month period last year.

The increasedecrease in sales for the three and nine months ended September 30, 2020March 31, 2021, was attributed primarily to new customers and demanda delay in anticipated orders from certain existing federal customers. We believe these remain viable prospective sales opportunities and state customers as well as dealers. Also, last year’s nine-month period was adversely impacted by the federal government shutdown early in the year.are continuing to pursue them for future quarters. Although the precise impact to sales cannot be quantified, procurement activities of some customers were likely affected by the COVID-19 pandemic during the nine-month periodfirst quarter ended September 30, 2020. Despite any such impact, we realized sales increases for the third quarter and nine-month periods, compared with the same periods last year.March 31, 2021.

DuringIn the third quartersecond half of 2020, we launched the BKR 5000, the first model in theour new BKR Series of APCO Project 25 land mobile radio products and solutions.solutions, the BKR 5000. The BKR Series is envisioned as a comprehensive line of new products with additional new models planned for nextlater this year, including products with multi-band capability. The timing of developing additional BKR Series products and bringing them to market could be impacted by various factors, including potential impacts related to the COVID-19 pandemic. BKR Series products, we believe, should increase our addressable market by expanding the number of federal and other public safety customers that may purchase our products. 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 COVID-19 pandemic 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 business,sales, operations, and financial results.

Gross profit margins as a percentage of sales for the thirdfirst quarter ended September 30, 2020March 31, 2021, were approximately 40.8%36.2%, compared with 43.3%35.8% for the same quarter last year. For the nine-month period ended September 30, 2020, gross profit margins were approximately 40.0%, compared with 40.4% 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. GrossWhile gross profit margins for the thirdfirst quarter of 2020 decreased compared2021 were materially consistent with the same periodquarter last year, primarily duethey were adversely impacted by approximately 3.3% for one-time inventory reserves related to a less favorable mix of sales revenues. Forour legacy product line, the nine months ended September 30, 2020,KNG series. Absent this impact, gross profit margins decreased slightly compared with the nine-month period last year, having been impacted primarily byfor the first quarter during which more customer orders were fulfilled with on-hand inventory in concert with our inventory reduction program resulting in lower manufacturing volumes and suboptimal utilization and absorption of manufacturing and support expenses.

We utilize a combination of internal manufacturing capabilities and contract manufacturing relationships for production efficiencies and to manage material and labor costs, andcosts. While we anticipate continuing to do so in the future.future, we have increased, and are continuing to increase, our utilization of U.S.-based resources, which provides greater security and control over our production. We believe that our current manufacturing capabilities and contract relationships or comparable alternatives will continue to be available to us. Although in the future we may encounter new product cost and competitive pricing pressures, the extent of their impact on gross margins, if any, is uncertain.

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 thirdfirst quarter ended September 30, 2020March 31, 2021, decreased by $653,000,$770,000, or 13.6%16.2%, to approximately $4.2$4.0 million (32.6%(46.4% of sales), compared with approximately $4.8$4.7 million (40.8%(43.6% of sales) for the same quarter last year. For the nine months ended September 30, 2020, SG&A expenses decreased by $2.0 million, or 13.0%, to approximately $13.3 million (39.5% of sales), compared with approximately $15.2 million (46.6% of sales), for the nine-month period last year. Consistent with employment and expense reductions in our manufacturing operations, during the second quarter of 2020, we reduced SG&A employment, by approximately 15%, as well as other expenses in sales, go-to-market, engineering, and headquarters. These reductions impacted SG&A expenses for the first quarter of 2021 but were made subsequent to last year’s first quarter.

Engineering and product development expenses for the thirdfirst quarter of 20202021 decreased $359,000,$219,000, or 15.1%10.7%, to approximately $2.0$1.8 million (15.8%(21.3% of sales), compared with approximately $2.4$2.0 million (20.1%(18.8% of sales) for the same quarter of last year. For the nine months ended September 30, 2020, engineering and product development expenses decreased $1.6 million (20.4%) to approximately $6.1 million (18.1% of sales), compared with approximately $7.6 million (23.3% of sales) for the nine-month period last year. Product development expensesExpenses related to an anticipatedthe design and development of the BKR series, a new line of portable and mobile radios, with enhanced features, the BKR Series, continued to decreasedecreased as certain project phases were completed and most ongoing development activities migrated to our internal engineering team and away from external resources to our new internal engineering team. This team is primarily involved with developmentresources. Development of the BKR Series, including our planned multiband product.product, is the primary focus of our engineering team. The precise date for developing and introducing new products is uncertain and can be impacted by, among other things, the potential effects of the COVID-19 pandemic in coming months.

Marketing and selling expenses for the thirdfirst quarter of 20202021 declined by approximately $436,000,$562,000, or 32.1%37.4%, to approximately $922,000 (7.3%$939,000 (11.0% of sales), compared with approximately $1.4$1.5 million (11.5%(13.8% of sales) for the thirdfirst quarter last year. For the nine months ended September 30, 2020, marketing and selling expenses declined approximately $654,000, or 16.2%, to approximately $3.4 million (10.1% of sales), compared with approximately $4.0 million (12.3% of sales). The decreases are attributed to reductions in sales and go-to-market employment, as well as other sales, marketing, and marketinggo-to-market related expenses.

Other general and administrative expenses for the thirdfirst quarter 20202021 totaled approximately $1.2 million (9.6%(14.1% of sales), and were materially consistent compared with approximately $1.1$1.2 million (9.1%(11.0% of sales) for the same quarter last year. For the nine months ended September 30, 2020, general and administrative expenses totaled approximately $3.8 million (11.4% of sales), compared with approximately $3.6 million (11.0% of sales) for the nine-month period last year. Decreases in employment and other headquarters expenses were more than offset by non-recurring severance costs recognized in the second quarter of 2020 related to our reduction in employment.

Operating incomeOur operating loss for the thirdfirst quarter ended September 30, 2020 increasedMarch 31, 2021, was approximately $747,000 (253.2%$877,000 (10.2%) to approximately $1.0 million (8.2% of sales), compared with $295,000 (2.5%a loss of $848,000 (7.8% of sales) for last year’s thirdfirst quarter. For the nine months ended September 30, 2020, our operating income of approximately $158,000 (0.5% of sales) improved 107.8% from anThe operating loss of $2.0 million (6.1% of sales) for the nine-month period last year. The improved operating income for the nine months ended September 30, 2020 was primarily attributed tofirst quarter of 2021 reflects a decrease in sales growth combine with reduced employment and other operating expenses.gross profit margins, which were partially offset by SG&A expense reductions.

We recorded net interest expense of approximately $6,000$4,000 for the thirdfirst quarter ended September 30, 2020,of 2021, compared with net interest income of approximately $33,000$9,000 for the thirdfirst quarter last year. For the nine months ended September 30, 2020, net interest expense totaled approximately $4,000, compared with net interest income of approximately $134,000 for the nine-month period last year. Reduced interest income wasyear, primarily theas a result of financing the purchase of manufacturing equipment, combined with lower interest rates.rates and cash balances.

We recorded an income tax expense of $2,000 for the three months ended September 30, 2020, compared with anno income tax benefit of approximately $253,000or expense for the same period last year. For the nine months ended September 30, 2020, we recorded an income tax expensefirst quarter of $30,000 of which $28,000 derived from the change in valuation allowance related to net operating loss carryforwards for the state of Florida that are anticipated to expire unutilized in 2020, compared with an income tax benefit of approximately $454,000 for the nine-month period last year.2021 or 2020.

Our 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, 2020,March 31, 2021, our net deferred tax assets totaled approximately $4.3 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.asset. Accordingly, we established a valuation allowance of $28,000 related to state of Florida NOLs that are anticipated to expire unutilized in 2020.$98,000. We cannot presently estimate what, if any, changes to the valuation of our deferred tax assets may be deemed appropriate in the future. If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of September 30, 2020.March 31, 2021.

For the nine monthsfirst quarter ended September 30, 2020,March 31, 2021, net cash provided by operating activities totaled approximately $3.5 million,$39,000, compared with cash used in operating activities of approximately $1.0 million$915,000 for the same period of last year.year’s first quarter. Cash provided by operating activities for the nine monthsfirst quarter ended September 30, 2020,March 31, 2021, was primarily related to a decrease in inventory, combined with increases incollections of accounts receivable, increased accounts payable, and depreciation and amortization, and deferred revenue, as well as an unrealized loss on our investment in PIH. These itemswhich were partially offset by aour net loss, increasesincreased inventories and a decrease in accounts receivable,accrued compensation and decreases in accounts payable, and accrued warranty expenses.related taxes.

For the nine months ended September 30, 2020,first quarter of 2021, we had a net loss of approximately $0.8$0.7 million, compared with approximately $1.3$1.2 million for the same period last year. Net inventoriesAccounts receivable decreased approximately $1.4 million during the nine months ended September 30,first quarter of 2021 due primarily to collections. For the first quarter of 2020, byaccounts receivable increased approximately $5.0 million, compared with an increase of approximately $3.1 million for the same period last of year. The decrease$626,000. Accounts payable for the first nine monthsquarter of 2020 was2021 increased approximately $299,000, compared with a decrease of approximately $474,000 for the first quarter last year, primarily attributabledue to product sales combined with our inventory reduction program.purchases from suppliers. Depreciation and amortization totaled approximately $1.0 million$298,000 for the nine months ended September 30, 2020,first quarter of 2021, compared with approximately $0.9 million$320,000 for the same periodfirst quarter last year,year. Depreciation and amortization are primarily due to capital expenditures related to manufacturing and engineering equipment. Deferred revenueGross inventories increased during the first quarter of 2021 by approximately $1.4 million, compared with a decrease of approximately $2.5 million for the nine months ended September 30, 2020 increasedfirst quarter last year. The increase for the first quarter of 2021 was primarily attributable to lower product sales combined with extended supplier lead-times. Accrued compensation and related taxes decreased by approximately $566,000,$315,000 for the first quarter of 2021, compared with approximately $924,000a decrease of $226,000 for the same periodfirst quarter last year, which was attributedyear. The decreases were primarily related to the salespayment of extended warranties.employee incentives. Unrealized lossesgains on securities for the nine months ended September 30, 2020first quarter of 2021 totaled approximately $797,000,$205,000, compared with gainslosses of approximately $186,000$306,000 for last year’s nine-month period.first quarter. For additional information pertaining to our investment in securities, refer to Notes 1 (Condensed Consolidated Financial Statements) and 6 (Investment in Securities) to the condensed consolidated financial statements included in this report. The increase in accounts receivable was attributable to the timing of sales later during the quarter that had not yet completed their collection cycle. Accounts payable for the nine months ended September 30, 2020, decreased approximately $2.2 million, compared with an increase of approximately $1.3 million for the same period last year, primarily due to payments to suppliers. Accrued warranty expenses for the nine months ended September 30, 2020 decreased approximately $337,000, compared with approximately $156,000 for the same period last year. The decreases are attributed primarily to manufacturing operations and quality improvements.

Cash used in investing activities for the nine months ended September 30, 2020first quarter of 2021 totaled approximately $742,000 and was attributed to purchases of property, plant and$1.0 million, primarily for manufacturing equipment. For the same period last year,first quarter of 2020, cash used in investing activities totaled approximately $2.3 million,$131,000, primarily for engineering and was also attributed to purchases of property, plant andmanufacturing related equipment.

For the nine months ended September 30, 2020,first quarter of 2021, cash of approximately $1.1 million$529,000 was used inprovided by financing activities. During the periodfirst quarter we received proceeds totalingof approximately $2.2 million under the PPP, which were repaid in full within the same period. We also used cash for our capital return program, which included quarterly dividends totaling approximately $752,000 and stock repurchases totaling approximately $269,000. Our stock repurchase program terminated in April 2020 and was not renewed. For the nine-month period last year, approximately $765,000 was used$800,000 related to pay dividends and approximately $803,000 was used for stock repurchases. For last year’s nine-month period, we received $0.4 million from U.S. Bank Equipment Finance forfinancing the purchase of manufacturing equipment items, pursuantequipment. We used cash of approximately $250,000 to pay quarterly dividends in both the Master Loan Agreement, described below.first quarter of 2021 and 2020. During the first quarter of 2020, we also used approximately $243,000 for stock repurchases. We used approximately $21,000 and $19,000, for the repayment of debt during the first quarter of 2021 and 2020, respectively.

Borrowings under the Credit Agreement will bear interest at a rate per annum equal to one-month LIBOR (or zero if the LIBOR is less than zero) plus a margin of 1.90%. The line of credit is to be repaid in monthly payments of interest only, payable in arrears, commencing on February 1, 2020, with all outstanding principal and interest to be payable in full at maturity.

The Credit Agreement contains certain customary restrictive covenants, including restrictions on liens, indebtedness, loans and guarantees, acquisitions and mergers, sales of assets, and stock repurchases by BK Technologies, Inc. The Credit Agreement contains one financial covenant requiring BK Technologies, Inc., to maintain a tangible net worth of at least $20.0$20 million at any fiscal quarter end.

The Credit Agreement provides for customary events of default, including: (1) failure to pay principal, interest or fees under the Credit Agreement when due and payable; (2) failure to comply with other covenants and agreements contained in the Credit Agreement and the other documents executed in connection therewith; (3) the making of false or inaccurate representations and warranties; (4) defaults under other agreements with JPMC or under other debt or other obligations of BK Technologies, Inc.; (5) money judgments and material adverse changes; (6) a change in control or ceasing to operate business in the ordinary course; and (7) certain events of bankruptcy or insolvency. Upon the occurrence of an event of default, JPMC may declare the entire unpaid balance immediately due and payable and/or exercise any and all remedial and other rights under the Credit Agreement.

BK Technologies, Inc. was in compliance with all covenants under the Credit Agreement as of September 30, 2020March 31, 2021, and the date of filing this report. As of September 30, 2020March 31, 2021, and the date of filing this report, thereapproximately $800,000 in borrowings were no borrowings outstanding under the Credit Agreement and there was approximately $2.8 million of borrowing available under the Credit Agreement.

Our cash and cash equivalents balance at September 30, 2020March 31, 2021, was approximately $6.4 million.  We believe these funds, combined with our cost-saving initiatives, anticipated cash generated from operations and borrowing availability under our Credit Agreement, are sufficient to meet our working capital requirements for the foreseeable future. We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in public or private offerings of equity or debt securities to increase our capital resources. However, financial and economic conditions, including those resulting from the COVID-19 pandemic, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all. We also face other risks that could impact our business, liquidity, and financial condition. For a description of these risks, see “Item 1A. Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020, and “Item 1A. Risk Factors” below in this report.

In response to the Securities and Exchange Commission’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. 

There were no changes to our critical accounting policies during the quarter ended September 30, 2020,March 31, 2021, as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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 President (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 President (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 President 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.

During the three months ended September 30, 2020,March 31, 2021, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020, includes a detailed discussion of the Company’s risk factors. There have been no material changes to the risk factors as disclosed in our Annual Report, except as set forth below. However, many of the risk factors disclosed in Item 1A of our Annual Report have been, and we expect will continue tomay be further heightened or exacerbated by the impact of the COVID-19 pandemic.

Further, our current and potential customers’ businesses could be disrupted or they could seek to limit spending, including shifting purchases to lower-priced or other perceived value offerings or reducing their purchases and inventories due to decreased budgets, reduced access to credit or various other factors, any of which could negatively impact the willingness or ability of such customers to place new, or any, orders with us and ultimately adversely affect our revenues, as well as negatively impact the payment of accounts receivable and collections and potentially lead to write-downs or write-offs.

Exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index below.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.