Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 Securities Exchange Act of 1934, as amended (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 Solutions and Radio product groups and the products offered thereunder; successful introduction of new products and technologies, including our ability to successfully develop and sell our current and anticipated Solutions products, and our new multiband radio product and other related products in the BKR Series product line; competition in the LMR industry; general economic and business conditions, including the impact of high inflation, fluctuating high interest rates, tariffs and other trade barriers and restrictions, labor and supply shortages and disruptions, federal, state and local government budget deficits and spending limitations, any impact from a prolonged shutdown of the U.S. Government, the effects of natural disasters, changes in climate, severe weather events, geopolitical events, acts of war or terrorism, global health crises and other catastrophic events, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments, including a potential U.S. or global downturn or recession; 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 for, and to consummate, acquisition, disposition or investment transactions, impact of our capital allocation strategy; risks related to maintaining our brand and reputation; impact of government regulation; impact of rising health care costs; our business with manufacturers located in other countries, including the effects of changes in the U.S. Government and foreign governments' trade and tariff policies, such as recent increases in tariffs by the U.S. and the imposition of increased tariffs and other trade barriers and retaliatory measures by foreign governments; our inventory and debt levels; our ability to comply with the terms, including financial covenants, of our outstanding debt, including fluctuating interest rates; protection of our intellectual property rights; fluctuation in our operating results and stock price; any infringement claims; data security breaches, cyber-attacks and other factors impacting our technology systems or third-party information technology systems upon which we rely; widespread outages, interruptions or other failures of operational, communication, or other systems; availability of adequate insurance coverage; environmental, social and governance matters; maintenance of our NYSE American listing; risks related to being a holding company; our ability to maintain effective internal control over financial reporting; and the effect on our stock price and ability to raise capital through future sales of shares of our common stock or otherwise.

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, many of which are outside of our control, 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 "Part I-Item 1A. Risk Factors" and elsewhere in this report and in our subsequent filings with the SEC. 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.

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 designed to 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 key product group offerings: Radio and Solutions.

The Radio product group designs, manufactures and markets wireless communications products and related accessories 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 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 high specification, ruggedized, durable, reliable, feature rich, Project 25 ("P25") compliant radio products at a lower cost relative to comparable offerings.

The Solutions product group focuses on delivering innovative products and smartphone applications which operate ubiquitously over public cellular networks. Our BK ONE branded solutions are designed to provide advanced field applications that enhance situational awareness, decision-making and interagency coordination that enable the first responder to be safer and more efficient. Our BK ONE portfolio provides law enforcement improved safety and productivity, fire incident first responders more situational awareness and EMS first responders with enhanced patient safety and advanced care measures. When tethered to our radios, the combined solution offers an enhanced user experience with more 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 resulting corporation 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."

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. BK Technologies Corporation's only significant assets are the outstanding equity interests in BK Technologies, Inc. and any other future subsidiaries of BK Technologies Corporation. The holding company reorganization was intended to create a more efficient corporate structure and increase operational flexibility.

Our principal executive offices are located at 7100 Technology Drive, West Melbourne, Florida 32904 and our telephone number is (321) 984-1414.

The Company continues to monitor the impacts of various macroeconomic trends, such as inflationary pressure, changes in monetary policy, decreasing consumer confidence and spending, the introduction of or changes in tariffs or trade barriers, supply chain and labor disruptions, materials shortages, political and social unrest, geopolitical conflicts, and global or local recession. Such changes in domestic and global macroeconomic conditions may lead to increased costs for the business. Additionally, these macroeconomic trends could adversely affect the Company's customers, which could impact their willingness to spend on the Company's products and services, or their ability to make payments, which could harm the collection of accounts receivable and financial results. The world's financial markets remain susceptible to significant stresses, resulting in reductions in available credit and government spending, economic downturn or recession, foreign currency fluctuations and volatility in the valuations of securities generally. As a result, the Company's ability to access capital markets and other funding sources in the future may not be available on commercially reasonable terms, if at all. The rapid development and fluidity of these situations precludes any prediction as to the ultimate impact they will have on the Company's business, financial condition, results of operation and cash flows, which will depend largely on future developments

Customer demand and orders for our products were strong during 2024 and 2025. The increase in sales for the year ended December 31, 2025, was primarily attributed to sales of the BKR9000 portable LMR products to federal, state and municipal public safety agencies, some of which were new customers.

For 2025, sales grew approximately 12.5% to approximately $86.1 million, compared with $76.6 million for the prior year. Gross profit margins as a percentage of sales in 2025 were 48.8%, compared with 37.9% for the prior year, generally reflecting product sales mix for the BKR9000 Series radios and the full year impact of efficiencies from the transition of production to East West Manufacturing, LLC and cost reduction efforts in 2024. Selling, general and administrative ("SG&A") expenses for 2025 totaled approximately $26.0 million (30.2% of sales), compared with $21.2 million (27.7% of sales) last year. We recognized an operating income of approximately $16.0 million in 2025, which was attributed primarily to increased gross margins related to the product mix and transition of production of our radio products to East West Manufacturing, LLC described above. For the year ended December 31, 2024 we recognized an operating profit of approximately $7.8 million.

In 2025 we recognized other income, net totaling approximately $0.1 million, primarily attributed to net interest income somewhat offset by other net realized losses. This compares with other expense of $0.5 million last year, which was primarily related to interest expenses and a realized loss from an investment in FG Financial Holdings, LLC ("FG Holdings LLC").

For 2025 the pretax income totaled approximately $16.1 million, compared with a pretax income of approximately $7.4 million for 2024.

We recognized a tax expense of $2.6 million in 2025 and a tax benefit of $1.0 million in 2024.

The net income for 2025 totaled approximately $13.5 million ($3.69 per basic and $3.44 per diluted share), compared with net income of approximately $8.4 million ($2.35 per basic and $2.25 per diluted share) for 2024.

As of December 31, 2025, working capital totaled approximately $37.3 million, of which $30.0 million was comprised of cash, cash equivalents and trade receivables. This compares with working capital totaling approximately $23.0 million at 2024 year-end, which included $14.4 million of cash, cash equivalents and trade receivables.

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. The Company's guidance reflects our current understanding of the potential impact of tariffs and the current administration's efforts to reduce federal expenditures, and to the extent it can be calculated, the estimated amount of the impacts are included in current guidance.

Results of Operations

As an aid to understanding our operating results, the following table shows items from our consolidated statements of operations expressed as a percentage of sales:

		Percent of Sales
		for Years Ended December 31,
		2025				2024
Sales			100.0	%			100.0	%
Cost of products			(51.2	)			(62.1	)
Gross margin			48.8				37.9
Selling, general and administrative expenses			(30.2	)			(27.7	)
Other income (expense), net			0.1				(0.6	)
Income before income taxes			18.7				9.6
Income tax benefit (expense)			(3.0	)			1.3
Net income			15.7	%			10.9	%

Fiscal Year 2025 Compared with Fiscal Year 2024

Sales, net

For 2025, net sales increased approximately $9.5 million to approximately $86.1 million, compared with approximately $76.6 million for the prior year.

Customer demand and orders for our products were $80.1 million and $84.6 million in 2025 and 2024, respectively. The decrease in orders for the year ended December 31, 2025, was primarily attributed to a decrease in orders to wildland fire customers somewhat offset by an increase in orders for the BKR9000 portable LMR products to federal, state and municipal public safety agencies, some of which were new customers.

The BKR Series is envisioned as a comprehensive line of new products, which will include additional models in future years. The timing of developing additional BKR Series products and bringing them to market could be impacted by various factors, including potential impacts related to our supply chain, labor shortages, wage pressures, high inflation, and other force majeure events. We believe 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 we will be able to develop additional BKR Series products on the anticipated timelines, or at all, or that sales will occur under particular contracts, or that our sales prospects will otherwise be realized.

As of the end of 2025, our current backlog of customer orders and the funnel of sales prospects is healthy and includes potential new customers in federal, state, and local public safety agencies. We believe the BKR Series products, our expanded sales force, and our sales funnel, position us well to capture new sales opportunities moving forward.

Cost of Products and Gross Profit Margin

Gross profit margins as a percentage of sales for 2025 were approximately 48.8%, compared with 37.9% for 2024.

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 year ended December 31, 2025, increased compared with last year primarily due to product sales mix and the full year impact of efficiencies from the transition of production of our radio products to East West Manufacturing LLC, as well as material cost improvements related to cost reduction efforts.

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 contract manufacturing resources, which provides increased flexibility for our production capacity to meet increased demand. We completed the transition of our main manufacturing activities to East West Manufacturing, LLC's facilities during the third quarter of 2024. 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 costs and competitive pricing pressures, the extent of their impact on gross margins, if any, is uncertain.

Worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies and extended lead times for certain components used in our products related to ongoing supply chain issues since 2021. 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.

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 year ended December 31, 2025, totaled approximately $26.0 million (30.2% of sales), compared with approximately $21.2 million (27.7% of sales) for the prior year.

Engineering and product development expenses for 2025 totaled approximately $10.6 million (12.3% of sales), compared with approximately $7.8 million (10.2% of sales) for the prior year. For 2025, the Company also capitalized approximately $2.1 million of costs related to the development of the all-band BKR9500 mobile radio, compared to $1.3 million in 2024. Engineering and product development expenses are primarily related to the continued design and development of BKR Series, a new line of portable and mobile radios. These development activities are the main focus of our engineering team. The precise date for developing and introducing new products is uncertain and can be impacted by, among other things, supply chain shortages and the potential economic effects of changes in U.S. trade legislation and regulations, including increased tariffs, and the imposition of governmental economic sanctions on countries in which we do business.

Marketing and selling expenses for the year ended December 31, 2025, totaled approximately $7.6 million (8.8% of sales), compared with approximately $6.2 million (8.1% of sales) for 2024. Marketing and selling expenses for 2025 increased $1.4 million compared to 2024 levels reflecting increases in staff-related and marketing projects to promote and accelerate the adoption rate of the BKR9000.

General and administrative expenses for the year ended December 31, 2025, totaled approximately $7.9 million (9.2% of sales), compared with approximately $7.2 million (9.4% of sales) for 2024. General and administrative expenses for 2025 were consistent with the prior year and were primarily attributed to corporate management and headquarters-related expenses. A LMR general manager position was added mid-year 2025, to enhance the leadership of the daily operations.

Operating income

For the year ended December 31, 2025, our operating income totaled approximately $16.0 million (18.6% of sales), compared with operating income of approximately $7.8 million (10.2% of sales), for 2024. The improvement in operating income for the year was primarily attributed to increased gross margins, related to product sales mix, as well as the full year impact of the transition of manufacturing production to East West Manufacturing LLC throughout 2024 and material cost improvements related to cost reduction efforts.

Other Income (Expense)

Interest Income (Expense)

We recorded net interest income of approximately $265,000 for the year ended December 31, 2025, compared with net interest expense of approximately $266,000 for 2024. Net interest income in 2025 was the result of increasing cash balances during 2025, compared to net interest expenses primarily attributed to the outstanding debt on our credit facility in 2024.

Loss on Investments

For the year ended December 31, 2024, we recognized a realized loss of approximately $91,000 on our investment in FG Holdings LLC. On January 25, 2024, the Company redeemed its interests in FG Holdings LLC and withdrew from FG Holdings LLC and recorded a realized loss on the investment.

Income Tax (Expense) Benefit

We recorded approximately $2.6 million income tax expense and $1.0 million income tax benefit for the years ended December 31, 2025 and 2024, respectively.

Our income tax provision is based on the effective tax rate for the year. The tax expense in any period may 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 fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period.

As of December 31, 2025, our net deferred tax assets totaled approximately $5.2 million compared to $6.8 million in 2024 and were primarily derived from capitalized research and development expenses 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, except for the capital loss carryforward of approximately $851,000, we will have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets. Accordingly, we recorded a decrease in the valuation allowance of approximately $3,596,000 as of December 31, 2024. 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 December 31, 2025.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework, and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company does not anticipate the bill will have a material impact on the financial statements.

Liquidity and Capital Resources

For the year ended December 31, 2025, net cash provided by operating activities totaled approximately $19.4 million, compared with cash provided by operating activities of approximately $12.8 million for the prior year. Cash provided by operating activities for 2025 was primarily related to net income, depreciation and amortization and non-cash share-based compensation expense, which were partially offset by decreases in accounts payable and other accrued expenses and other current liabilities.

For 2025, we had a net income of $13.5 million, compared with net income of approximately $8.4 million for the prior year. Accounts payable for the year ended December 31, 2025, decreased approximately $1.5 million, compared with a decrease of approximately $3.5 million for 2024, primarily due to the reduction in purchases of materials for production in 2025. Non-cash share-based compensation was approximately $1.9 million for the year ended December 31, 2025, as compared to $0.8 million for the year ended December 31,2024. The increase in 2025 was primarily due to Executive Long-Term Incentive agreements executed in July 2025 and Restricted Stock Units related to the BKR9000 radio product issued in 2023 that vested in August 2025. Prepaid expenses and other current assets decreased $1.6 million for the year ended December 31, 2025 compared to an increase of $3.0 million for 2024. The decrease in the year ended December 31, 2025, was primarily due to a reversal of a contractual deposit payment to East West Manufacturing LLC in the year ended December 31, 2024 as a result of the transition of the production of our products. Net inventories decreased during the year ended December 31, 2025, by approximately $0.9 million, compared with a decrease of approximately $5.9 million for the year ended December 31, 2024. The decrease in 2025 was primarily attributed to decreases in raw materials and work-in-process, somewhat offset by increases in finished goods. The decrease in inventories in 2024 was primarily attributable to reductions in work in progress and raw materials related to the transition of production to East West Manufacturing, LLC. Depreciation and amortization totaled approximately $1.8 million for the year ended December 31, 2025, compared with approximately $1.7 million for the year ended December 31, 2024. Depreciation and amortization are primarily related to manufacturing and engineering equipment.

Cash used in investing activities for the year ended December 31, 2025, totaled approximately $3.1 million, compared to $2.6 million for the year ended December 31, 2024. Capitalization of software and systems integration costs for 2025 were $2.1 million compared to $1.3 million for the year ended December 31, 2024, related to the development of the BKR multi-band mobile product.For 2025, cash used for purchases of property, plant and equipment totaled approximately $1.0 million compared to $1.2 million for 2024, primarily for purchases of engineering and manufacturing related equipment.

For the year ended December 31, 2025, cash of approximately $0.6 million was used in financing activities. During the year, we received proceeds of approximately $0.6 million from the issuance of stock options, that was offset by repurchases of the Company's common stock of approximately $1.2 million. Cash used in financing activities of $6.6 million for the year ended December 31, 2024, were the result of credit facility proceeds of approximately $46.4 million from our IPSA (as defined below) revolving credit facility with Alterna Capital Solutions, LLC., offset by repayments of $52.9 million and equipment loan repayments of approximately $71,000.

On October 30, 2024, the Company's subsidiary, BK Technologies, Inc. entered into a Revolving Loan Commitment (as amended, the "RLC") with Fifth Third Bank, National Association ("Fifth Third") The Fifth Third RLC previously provided for a one-year revolving line of credit with a maximum commitment of $6 million, with an accordion feature, if certain conditions are met, for up to an additional $4 million of borrowing capacity, totaling a maximum commitment of $10 million. On October 30, 2025, the subsidiary entered into an amendment to the RLC, which provided for a three-year extension of the agreement and revised the availability under the $6 million RLC, if certain conditions are met, to increase the accordion feature for a maximum commitment of $14 million, among other things. Each advance shall accrue interest on the outstanding principal amount thereof at a range of SOFR plus 1.75% to 2.25% per annum, based on certain total debt coverage ratios. Each advance may be prepaid at any time without penalty and the entire line of credit commitment may be permanently terminated by BK Technologies, Inc. at any time upon 10 days' prior written notice to the lender without penalty. There were no borrowings under the RLC agreement as of December 31, 2025, and as of the date of filing this report.

BK Technologies, Inc.'s repayment obligations under the RLC are guaranteed by the Company and are secured by a pledge of essentially all of the assets of the Company and BK Technologies, Inc. BK Technologies Inc. and the Company are subject to customary negative covenants, including with respect to their ability to incur additional indebtedness, encumber and dispose of their assets and enter into affiliate transactions. BK Technologies, Inc. must also comply with: (i) a maximum total funded debt ratio of 2.00 to 1.00; (ii) a fixed charge coverage ratio of 1.2 to 1.0 as measured on a rolling twelve-month basis, each measured at the end of each fiscal quarter; and (iii) a requirement that the outstanding principal balance under the credit facility will be $0 for at least 30 consecutive days during each annual period ending on October 30.

The Fifth Third RLC agreement provided for customary events of default, including: (1) failure to pay principal, interest or fees under the RLC when due and payable; (2) failure to comply with other covenants and agreements contained in the Revolving Loan Commitment agreement and the other documents executed in connection therewith; (3) the making of false or inaccurate representations and warranties; (4) defaults 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, Fifth Third may declare the entire unpaid balance immediately due and payable and/or exercise any and all remedial and other rights under the RLC agreement.

On November 22, 2022, the Company's subsidiaries (BK Technologies, Inc. and RELM Communications, Inc.) entered into an Invoice Purchase and Security Agreement (the "IPSA") with Alterna Capital Solutions, LLC ("Alterna") for a one-year line of credit with total maximum funding up to $15 million, with an interest rate of Prime plus 1.85% and other monthly administrative fees. In November 2023, the IPSA was extended for one year. The IPSA line of credit was an accounts receivable and inventory financing facility, with the borrowing base of up to 85% of eligible accounts receivable and up to 75% of net orderly liquidation value of inventory, not to exceed 100% of eligible accounts receivable. The IPSA was paid in full in September 2024 and terminated in October 2024.

On September 25, 2019, BK Technologies, Inc., a wholly owned subsidiary of BK Technologies Corporation, and U.S. Bank Equipment Finance, a division of U.S. Bank National Association, as a lender, entered into a Master Loan Agreement in the amount of $425,000 to finance various items of equipment. The loan was collateralized by the equipment purchased using the proceeds. The Master Loan Agreement was payable in 60 monthly principal and interest payments of approximately $8,000 beginning on October 25, 2019 and maturing on September 25, 2024, and bore a fixed interest rate of 5.11%. This note payable was paid in full onJune 24, 2024.

For additional information regarding the Company's debt, see Note 6 of the accompanying consolidated financial statements.

Our cash and cash equivalents balance at December 31, 2025, was approximately $22.8 million. We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our Fifth Third RLC, 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 supply chain delays or interruptions, labor shortages, wage pressures, inflation, tariffs and other trade barriers and restrictions, geopolitical events, and other force majeure events, 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 this report.

Recent Accounting Pronouncements

The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands the disclosures required for income taxes. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendment should be applied on a prospective basis while retrospective application is permitted. The Company has adopted the ASU on a prospective basis and has made the applicable disclosure, as required, in its Annual Report Form 10-K for the year ended December 31, 2025. The adoption of ASU 2023-09 did not have a material effect on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, an accounting standard update to improve income statement expenses disclosures. The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement's expense caption, as applicable. This authoritative guidance can be applied prospectively or retrospectively and will be effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company does not expect the adoption of ASU 2024-03 to have a material effect on its consolidated financial statements.

Critical Accounting Policies and Estimates

Our critical accounting policies include 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 determining the allowance for credit losses on 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 twelve months ended December 31, 2025.

Revenue Recognition

The Company recognizes revenues in accordance with FASB ASU 2014-09, "Revenue from Contracts with Customers" and the additional related ASUs ("ASC 606"). ASC 606 provides that sales revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company generally satisfies performance obligations upon shipment of the product or service to the customer. This is consistent with the time in which the customer obtains control of the product or service. For extended warranties, sales revenue associated with the warranty is deferred at the time of sale and later recognized on a straight-line basis over the extended warranty period. Some contracts include installation services, which are completed in a short period of time and the revenue is recognized when the installation is complete. Currently, the Company does not have any contracts where revenue is recognized, but the customer payment is contingent on a future event.

Allowance for Credit Losses

The allowance for credit losses was approximately $50,000 on gross trade receivables of approximately $7.3 million as of December 31, 2025, as compared with $50,000 on gross trade receivables of approximately $7.4 million as of December 31, 2024. The Company records an allowance for credit losses for its financial instruments, which are primarily composed of trade accounts receivable. The measurement and recognition of credit losses involves the use of judgment and represents management's estimate of expected lifetime credit losses based on historical experience and trends, current conditions, and forecasts. The Company's assessment of expected credit losses includes consideration of historical credit loss experience, the aging of account balances, customer concentrations, customer credit-worthiness, current and expected economic, market and industry factors affecting the Company's customers, including their financial condition. The Company evaluates its experience with historical losses and then applies this historical loss ratio to financial assets with similar characteristics. The Company may also establish an allowance for credit losses for specific receivables when it is probable that the receivable will not be collected and the loss can be reasonably estimated. If the Company's actual collections experience changes, revisions to the allowance may be required. Amounts are written off against the allowance when all attempts to collect a receivable have failed, and reversals of previously reserved amounts are recognized if a specifically reserved item is settled for an amount exceeding the previous estimate. Based on information available, management believes the allowance for credit losses as of December 31, 2025 and 2024 is adequate.

Slow Moving, Excess or Obsolete Inventory

The allowance for slow moving, excess or obsolete inventory was approximately $1.1 million and $1.7 million at December 31, 2025 and 2024, respectively.

The allowance for slow-moving, excess and obsolete inventory is used to state our inventories at the lower of cost or net realizable value. Because the amount of inventory that we will actually recoup through sales cannot be known with certainty at any particular time, we rely on past sales experience, future sales forecasts and our strategic business plans. Generally, in analyzing our inventory levels, we classify inventory as having been used or unused during the past year and establish an allowance based upon several factors, including, but not limited to, business forecasts, inventory quantities and historical usage profile. Supplemental to the aforementioned analysis, specific inventory items are reviewed individually by management. Based on the review, considering business levels, future prospects, new products and technology changes, management, using its business judgment, may adjust the valuation of specific inventory items to reflect an accurate valuation estimate. Management also performs a determination of net realizable value for all finished goods with a selling price below cost. For all such items, the inventory is valued at not more than the selling price less cost, if any, to sell.

Allowance for Product Warranty

We offer two-year or five-year standard warranties to our customers, depending on the specific product and terms of the customer purchase agreement. Our typical warranties require us to repair and replace defective products during the warranty period at no cost to the customer. At the time the product revenue is recognized, we record a liability for estimated costs under our warranties. The costs are estimated based on historical experience. We periodically assess the adequacy of our recorded liability for product warranties and adjust the amount as necessary.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized. The effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of operations in the period in which the change is recognized. Valuation allowances are provided to the extent that it is more likely than not that some portion, or all, of deferred tax assets will not be realized. In determining whether a tax asset is realizable, we consider, among other things, estimates of future earnings based on information currently available, current and anticipated customers, contracts and new product introductions, as well as recent operating results and certain tax planning strategies. If we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets, we may be required to increase the valuation allowance related to our deferred tax assets in the future.

The Company recognizes a position in its financial statements when that tax position, based solely on its technical merit, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statutes of limitations. Derecognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained.