SPECIAL 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 and any impact from a prolonged
shutdown of the U.S. Government; 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 equity capital of 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.
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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, 2022, and in our subsequent filings with the
Securities and Exchange Commission, and include, among others, the following:
· changes or advances in technology;
· the success of our land mobile radio product line;
· successful introduction of new products and technologies, including our
ability to successfully develop and sell our anticipated new multiband
product and other related products in the planned new BKR Series product
line and our announced SaaS solution;
· competition in the land mobile radio industry;
· general economic and business conditions, including federal, state and
local government budget deficits and spending limitations, any impact from
a prolonged shutdown of the U.S. Government, and the ongoing effects of
the COVID-19 pandemic, inflation, 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;
· 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 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
the COVID-19 pandemic, inflation, ongoing geopolitical conflicts and
related sanctions, on the companies in which we hold investments;
· 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, as well as any further impact resulting from the COVID-19
pandemic, inflation, ongoing geopolitical conflicts and related sanctions;
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· 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,
such as the COVID-19 pandemic;
· 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 equity capital through
future sales of shares of our common stock.
Some of these factors and risks have been, and may further be,
exacerbated by the COVID-19 pandemic and general economic conditions, including
the ongoing military conflict in Ukraine, such as inflationary pressures and
disruptions in the global supply chain. 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, 2022, filed with the SEC on March 16, 2023.
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 American-made wireless
communications products consisting of two-way land mobile radios ("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.
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The SaaS business unit focuses on delivering innovative, public safety
smartphone applications that operate ubiquitously over public cellular networks.
Our BKRplay branded smartphone application will offer 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 2022. Supply
chain constraints limited our ability to manufacture the quantities needed to
ship and fulfill all the orders during 2022. Consequently, approximately 13,000
radio units were carried in backlog as of December 31, 2022, and we fulfilled
approximately 66% of these radio units during the first quarter of 2023.
Our backlog of unshipped customer orders was approximately $22.9 million and
$27.0 million as of March 31, 2023, and December 31, 2022, respectively.
Changes in the backlog are attributed primarily to the timing of orders and
their fulfillment.
For the three months ended March 31, 2023, sales grew approximately 184.3% to
approximately $18.7 million, compared with $6.6 million for the prior year
period. The growth was attributed primarily to the BKR 5000 product and the
fulfillment of the 2022 backlog described above. Gross profit margins as a
percentage of sales for the three months ended March 31, 2023, were 26.1%,
compared with 22.4% for the same period of the prior year, generally reflecting
improvement in material, component and freight costs. Selling, general and
administrative ("SG&A") expenses for the three months ended March 31, 2023,
totaled approximately $5.9 million (31.4% of sales), compared with $4.9 million
(74.7% of sales) last year. We recognized an operating loss for the three months
ended March 31, 2023, of approximately $1.0 million, compared with an operating
loss of approximately $3.4 million for the same period for the prior year.
For the three months ended March 31, 2023, we recognized other expenses, net
totaling approximately $0.3 million, primarily attributed to interest expense on
our Line of Credit and net unrealized losses from our investment in FG Financial
Group, Inc. This compares with other expenses, net totaling $0.5 million for the
same period last year, which was also primarily related to an unrealized loss
from the investment in FG Financial Group, Inc.
For the three months ended March 31, 2023, the pretax loss totaled approximately
$1.3 million, compared with pretax loss of approximately $3.9 million for same
period of the prior year.
We recognized no tax expense for the three months ended March 31, 2023, and for
the same period of the prior year.
The net loss for the three months ended March 31, 2023, totaled approximately
$1.3 million ($0.07 per basic and diluted share), compared with net loss of
approximately $3.9 million ($0.23 per basic and diluted share) for the same
period last year. The primary factor for the improvement for the three months
ended March 31, 2023, compared to the same period last year was due to
production issues experienced last year related to electronic component
shortages from supply chain disruptions.
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As of March 31, 2023, working capital totaled approximately $12.5 million, of
which $13.6 million was comprised of cash, cash equivalents and trade
receivables. This compares with working capital totaling approximately $13.2
million at 2022 year-end, which included $12.5 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 U.S. Securities and Exchange Commission (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.
Impact of COVID-19 Pandemic and Supply Chain
We received record customer orders of approximately $70 million in 2022.
Worldwide shortages of materials, particularly semiconductors and integrated
circuits, resulting in part from the impact of COVID-19 have resulted in limited
supplies, extended lead times, and increased our costs and inventory levels for
certain components used in our products. While, generally, we have been able to
procure the material necessary to manufacture our products and fulfill customer
orders in 2022, we have experienced some delays and longer delivery times within
our supply chain. While the progression and duration of these shortages is not
known with certainty, they may last for several quarters or years. The impact
on our operations of such shortages, or additional shortages that may surface,
is uncertain, but could potentially impact our future sales, manufacturing
operations and financial results. Continued progression of these circumstances
could result in a decline in customer orders, as our customers could shift
purchases to lower-priced or other perceived value offerings or reduce their
purchases and inventories due to decreased budgets, reduced access to credit or
various other factors, and impair our ability to manufacture our products, which
could have a material adverse impact on our results of operations and cash
flow. While the current impacts of COVID-19 are reflected in our results of
operations, we cannot at this time separate the direct COVID-19 impacts from
other factors that cause our performance to vary from quarter to quarter. The
ultimate duration and impact of the COVID-19 pandemic on our business, results
of operations, financial condition and cash flows is dependent on future
developments, including the duration and severity of the pandemic, and the
related length of its impact on the global economy, which are uncertain and
cannot be predicted at this time. Our results of operations in future periods
may continue to be adversely impacted by the COVID-19 pandemic and its negative
effects on global economic conditions.
We may experience fluctuations in our quarterly results, in part, due to
governmental customer spending patterns that are influenced by government fiscal
year-end budgets and appropriations. We may also experience fluctuations in our
quarterly results, in part, due to our sales to federal and state agencies that
participate in wildland fire-suppression efforts, which may be greater during
the summer season when forest fire activity is heightened. In some years, these
factors may cause an increase in sales for the second and third quarters,
compared with the first and fourth quarters of the same fiscal year. Such
increases in sales may cause quarterly variances in our cash flow from
operations and overall financial condition.
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First Quarter Summary
Customer demand and orders for our products continued to be strong during the
three months ended March 31, 2023. Supply chain constraints limited our ability
to manufacture the quantities needed to ship and fulfill all of the orders that
we received in 2022. Consequently, we had approximately 13,000 radio units that
were carried in backlog as of December 31, 2022, and we fulfilled approximately
66% of these radio units during the three months ended March 31, 2023.
Overall, our revenues for the three months ended March 31, 2023, increased
significantly compared with the same period of last year. For the first quarter
2023, sales increased 184.3% to approximately $18.7 million, compared with
approximately $6.6 million of sales for the first quarter last year. Gross
profit margin as a percentage of sales for the first quarter of 2023 was
approximately 26.1%, compared with 22.4% for the same period of last year,
generally reflecting improvements in supply chain material costs and freight,
and increased production volumes compared to the first quarter last
year. Selling, general and administrative ("SG&A") expenses for the first
quarter of 2023 totaled approximately $5.9 million, which was 19.7% higher than
the SG&A expenses of approximately $4.9 million for the first quarter last
year. The increase in SG&A expenses is attributed primarily to sales staffing
and strategic and marketing initiatives. These factors yielded an operating loss
of approximately $1.0 million for the three-month period ended March 31, 2023,
compared with an operating loss of approximately $3.4 million for the same
quarter last year, which improved primarily due to reduced supply chain material
challenges compared to the same period last year.
For the first quarter of 2023, we recognized a net unrealized loss totaling
approximately $0.1 million on our investment in FG Financial Group, Inc. made
through FG Holdings, LLC. This compares with an unrealized loss of approximately
$0.5 million on the investment in FG Financial Group, Inc. made through FG 1347
Holdings, LP, for the first quarter of last year.
Net loss for the three months ended March 31, 2023, was approximately $1.3
million ($0.07 per basic and diluted share), compared with a net loss of
approximately $3.9 million ($0.23 per basic and diluted share) for the same
quarter last year.
As of March 31, 2023, working capital totaled approximately $12.5 million, of
which approximately $13.6 million was comprised of cash, cash equivalents and
trade receivables. As of December 31, 2022, working capital totaled
approximately $13.2 million, of which approximately $12.5 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
March 31,
2023 March 31, 2022
Sales 100.0 % 100.0 %
Cost of products (73.9 ) (77.6 )
Gross margin 26.1 22.4
Selling, general and administrative expenses (31.4 ) (74.7 )
Other (expense) income (1.5 ) (7.5 )
(Loss) income before income taxes (6.8 ) (59.8 )
Income tax (expense) benefit (0.0 ) (0.0 )
Net (loss) income (6.8 ) (59.8 )
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Net Sales
For the first quarter ended March 31, 2023, net sales increased 184.3% to
approximately $18.7 million, compared with approximately $6.6 million for the
same quarter last year.
Customer demand and orders for our products continued to be strong, reflecting
the acceptance by the marketplace for our BKR 5000 product. We were able to
fulfill approximately 66% of the radio units in backlog as of December 31, 2022,
during the first quarter of this year. The supply chain issues experienced in
2022 have improved significantly, but the precise impact on sales and shipments
for the remainder of 2023 cannot be quantified, hence we anticipate maintaining
an elevated level of inventory.
Sales for the three months ended March 31, 2023, were attributed primarily to
the backlog carried over from 2022 (described above) to certain state and local
public safety opportunities, as well as federal wildland fire related
agencies. From a product perspective, the primary contributor to orders and
shipments during the first quarter was our BKR 5000 portable radio and related
accessories. The BKR Series is envisioned as a comprehensive line of new
products, which will include new models in coming quarters. 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. 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 material shortages, lead-times, the COVID-19
pandemic, 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 first quarter ended March
31, 2023, were approximately 26.1% compared with 22.4% for the same quarter last
year.
Our cost of products and gross profit margins are primarily derived from
material, labor and overhead costs, product mix, manufacturing volumes and
pricing. Gross profit margins for the quarter ended March 31, 2023, increased
compared with the same period last year, primarily due to improvement in
production volumes related to supply shortages, material costs, including
electronic components, and to a lesser degree, easing of escalated freight
costs.
During recent quarters, worldwide shortages of materials, including
semiconductors and integrated circuits, have resulted in limited supplies, which
in turn, extended lead times and resulted in higher costs for certain components
used in our products. Accordingly, we have experienced delivery delays and
increased costs within our supply chain. While the progression and duration of
these shortages is not known with certainty, we are monitoring a number of
critical components for product cost improvement, but the shortages may last for
several quarters for a small number of components. The impact on our operations
of such shortages and increased product costs is uncertain, but could
potentially impact our future sales, gross profit margins, manufacturing,
operations and financial results. We utilize a combination of internal
manufacturing capabilities and contract manufacturing relationships for
production efficiencies and to manage material and labor costs. While we
anticipate continuing to do so in the 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. 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.
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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 first quarter ended March 31, 2023, totaled approximately
$5.9 million (31.4% of sales), compared with approximately $4.9 million (74.7%
of sales) for the same quarter last year.
Engineering and product development expenses for the first quarter of 2023
totaled approximately $2.4 million (12.9% of sales), compared with approximately
$2.3 million (35.1% of sales) for the same quarter of last year. The increase in
engineering expenses is attributed primarily to ongoing product design and
development activities, particularly prototyping, for the new BKR series
radios. Most of these activities are being performed by our internal engineering
team and are their primary focus, combined with sustaining engineering support
of our existing products. 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 first quarter of 2023 totaled
approximately $1.5 million (8.2% of sales), compared with approximately $1.0
million (14.8% of sales) for the first quarter last year. The increase for the
three-month period ended March 31, 2023, is primarily attributable to increases
in activities in support of anticipated sales growth from new products and
customers.
Other general and administrative expenses for the first quarter 2023 totaled
approximately $1.9 million (10.3% of sales), compared with approximately $1.6
million (24.8% of sales) for the same quarter last year. The increase in
general and administrative expenses for the three months ending March 31, 2023,
is attributed primarily to corporate and headquarters staffing in support of
strategic initiatives.
Operating Loss
The operating loss for the first quarter ended March 31, 2023, totaled
approximately $1.0 million (5.3% of sales), compared with approximately $3.4
million (52.3% of sales) for last year's first quarter. The operating loss for
the quarter ended March 31, 2023, is attributed to lower gross profit margins
related to operating costs and somewhat to increased strategic initiative
costs.
Other (Expense) Income
We recorded net interest expense of approximately $144,000 for the first quarter
ended March 31, 2023, compared with approximately $15,000 for the first quarter
of last year. Net interest expense was primarily the result our Line of Credit
and equipment financing.
For the first quarter ended March 31, 2023, we recognized an unrealized loss of
approximately $0.1 million on our investment in FG Holdings, compared with an
unrealized loss of approximately $0.5 million in FG Financial Group, Inc. made
through FG 1347 Holdings, LP for the first quarter last year.
Income Taxes
We recorded no tax expense or benefit for the quarter ended March 31, 2023,
compared with no income tax provision for the first quarter last year.
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.
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As of March 31, 2023, our net deferred tax assets totaled approximately $4.1
million, and were primarily derived from research and development tax credits,
operating loss carryforwards and deferred revenue.
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 $3.4 million as
of both March 31, 2023 and December 31, 2022. 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 March 31, 2023.
Liquidity and Capital Resources
For the three months ended March 31, 2023, net cash provided by operating
activities totaled approximately $0.6 million, compared with cash used by
operating activities of approximately $3.3 million for the same period last
year. Cash provided by operating activities for the three months ended March 31,
2023, was primarily related to a net loss which was offset by increased accounts
payable and deferred revenues.
For the first quarter of 2023, we had a net loss of approximately $1.3 million,
compared with a net loss of approximately $3.9 million for the same quarter last
year. Gross inventories increased during the quarter ended March 31, 2023, by
approximately $0.6 million compared with approximately $4.2 million for the same
quarter last year. Accounts payable for the quarter ended March 31, 2023,
increased approximately $1.2 million, compared with an increase of approximately
$1.4 million for last year's first quarter, primarily due to increased material
and component purchases related to the increased production volumes for 2023 and
to delays and shortages within our supply chain for the same period of 2022. The
increases for both inventories and accounts payable were attributed primarily to
material and component availability combined with extended supplier lead times
and planned new product introductions. Accounts receivable increased
approximately $0.2 million during the first quarter ended March 31, 2023,
compared with a decrease of approximately $3.5 million for last year's first
quarter. The increase was primarily due to higher sales in 2023 and customer
collections combined with decreased sales during the first quarter of
2022. Prepaid expenses decreased during the first quarter by approximately $0.2
million compared with an increase of $0.9 million for last year's first
quarter. The increases in prepaid expenses for the first quarter last year were
attributed primarily to supply chain material availability combined with
extended supplier lead times. Depreciation and amortization totaled
approximately $0.4 million for the first quarter ended March 31, 2023, compared
with approximately $0.3 million for last year's first quarter. Depreciation and
amortization are primarily related to manufacturing and engineering
equipment. The unrealized loss on securities for the first quarter ended March
31, 2023, totaled approximately $0.1 million, compared with an unrealized loss
of approximately $0.5 million for the first quarter last year. For additional
information pertaining to our investment in securities, refer to Note 1
(Condensed Consolidated Financial Statements) and Note 6 (Investments) to the
condensed consolidated financial statements included in this report.
Cash used in investing activities for the quarter ended March 31, 2023, totaled
approximately $0.6 million, compared with approximately $0.3 million for last
year's first quarter. The cash used for both periods was attributed primarily to
the purchase of engineering and manufacturing related equipment.
For the quarter ended March 31, 2023, cash of approximately $0.9 million was
provided by financing activities, compared with cash used in financing
activities of approximately $0.6 million for last year's first quarter. During
the first quarter of 2023 we received cash of approximately $20.8 million from
debt, net of repayments totaling approximately $19.9 million, while for last
year's first quarter, we paid a quarterly dividend of approximately $0.5 million
and repayment of debt of $0.1 million.
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Our cash and cash equivalents balance on March 31, 2023, was approximately $2.8
million. We believe these funds, combined with anticipated cash generated from
operations and borrowing availability under our ISPA Agreement, are sufficient
to meet our working capital requirements for the foreseeable future. We may,
depending on a variety of factors, including market conditions for capital
raises, the trading price of our common stock and opportunities for uses of any
proceeds, engage in public or private offerings of equity or debt securities to
increase our capital resources. However, financial and economic conditions,
which could be impacted by the current inflationary environment, COVID-19
pandemic 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 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 three
months ended March 31, 2023.
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BK TECHNOLOGIES CORPORATION 
