BKTI BK Technologies Corporation

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 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, 2020, 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, 2020, filed with the SEC on March 3, 2021.

Executive Overview

BK Technologies Corporation is a holding company, with a wholly 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 the “BK” brand name. Generally, BK-branded products serve the government and public safety market.

Holding Company Reorganization

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 effected 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.

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.

Impact of COVID-19 Pandemic

In December 2019, a novel strain of the coronavirus (COVID-19) surfaced, 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 in the first several months of 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. We 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. Any employees that test positive for COVID-19 are quarantined and, if possible, work remotely in accordance with accepted safety practices until after passing subsequent testing.

In planning for the possible disruption of our business, we took steps to reduce expenses throughout the Company. This included suspending all Company travel for a period of time, as well as our participation in trade shows and other business meetings, instituting strict inventory control and decreasing expenditures. We also implemented workforce reductions during the second quarter of 2020 and suspended the employer’s 401K match. For the first six months of 2021, the impact to our business, particularly customer orders, is unknown with any certainty. Recently, worldwide shortages of materials, particularly semiconductors and integrated circuits, have resulted in limited supplies, extended lead times and increased costs 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, there have been 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. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of its national and, to some extent, global economic impact. Furthermore, the extent to which our mitigation efforts are successful, if at all, is not presently ascertainable. However, 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.

Second Quarter and Six Months Summary

Overall, our financial and operating results for the three and six months ended June 30, 2021, improved compared with the same periods of last year. For the second quarter 2021, sales increased 14.1% from the second quarter last year and 32.4% from the immediately preceding quarter. The improvement in sales for the second quarter brought sales for the six-months ended June 30, 2021, within 4.5% of last year’s six month period. Gross profit margins as a percentage of sales for the second quarter and six-month periods of 2021 decreased compared with the same periods of last year, generally reflecting cost increases in materials and freight, and a less favorable sales mix. Selling, general and administrative (“SG&A”) expenses for the second quarter of 2021 were within 4.3% of SG&A expenses for the second quarter last year, while SG&A expenses for the six-month period ended June 30, 2021, decreased 6.4% from the same period last year. These factors yielded operating losses for the three and six months ended June 30, 2021, that increased slightly from the comparable periods last year. During the second quarter we closed a public offering of our common stock, raising net proceeds of approximately $11.6 million with the issuance of approximately 4.2 million common shares.

For the second quarter of 2021, our sales increased 14.1% to approximately $11.3 million, compared with approximately $9.9 million for the same quarter last year. For the six months ended June 30, 2021, sales totaled approximately $19.9 million, compared with approximately $20.8 million for the same period last year.

Gross profit margins as a percentage of sales for the second quarter of 2021 were approximately 37.2%, compared with 43.6% for the second quarter last year. For the six-month period ended June 30, 2021, gross profit margins as a percentage of sales were approximately 36.7%, compared with 39.5% for the same period last year.

SG&A expenses for the second quarter of 2021 totaled approximately $4.6 million, compared with approximately $4.4 million for the same quarter last year. SG&A expenses for the first six months of 2021 decreased 6.4% to approximately $8.5 million, compared with approximately $9.1 million for the same period last year.

For the second quarter of 2021, we recognized an operating loss of approximately $342,000, compared with approximately $36,000 for the same quarter last year. For the six-month period ended June 30, 2021, our operating loss totaled approximately $1.2 million, compared with approximately $0.9 million for the same period last year.

For the second quarter of 2021, we recognized an unrealized gain totaling approximately $2.3 million on our investment in FGF Financial (formerly 1347 Property Insurance Holdings, Inc.), made through FGI 1347 Holdings, LP, a consolidated variable interest entity. This compares with an unrealized loss of approximately $200,000 on the investment for the second quarter last year. For the six-month period ended June 30, 2021, we recognized an unrealized gain of approximately $2.5 million, compared with an unrealized loss of $506,000 for last year’s six-month period.

Net income for the three months ended June 30, 2021, was approximately $1.7 million ($0.13 per basic and $0.12 per diluted share), compared with a net loss of approximately $302,000 ($0.02 per basic and diluted share) for the same quarter last year. For the six months ended June 30, 2021, our net income totaled approximately $1.0 million ($0.08 per basic and diluted share), compared with a net loss of approximately $1.5 million ($0.12 per basic and diluted share) for the same period last year.

As of June 30, 2021, working capital totaled approximately $25.0 million, of which approximately $22.9 million was comprised of cash, cash equivalents and trade receivables, reflecting the cash received from or closed public offering of our common stock. As of December 31, 2020, working capital totaled approximately $15.1 million, of which approximately $13.3 million was comprised of cash, cash equivalents and trade receivables.

Net Sales

For the second quarter ended June 30, 2021, net sales increased 14.1% to approximately $11.3 million, compared with approximately $9.9 million for the same quarter last year. Sales for the six months ended June 30, 2021, totaled approximately $19.9 million, compared with approximately $20.8 million for the six-month period last year.

The increase in sales for the three months ended June 30, 2021, was attributed primarily to certain federal legacy customers combined with demand from western region state public safety agencies. While customer demand during the quarter was strong, second quarter shipments and sales were impacted by supply chain constraints that delayed our ability to convert product orders into shipments. Although these factors may continue to create delays during the next several quarters, we anticipate being able to fulfill customer requirements. The precise impact to sales and shipments for future quarters, however, cannot be quantified.

In the second half of 2020, we launched the first model in our new BKR Series of APCO Project 25 land mobile radio products and solutions, the BKR 5000. The BKR Series is envisioned as a comprehensive line of new products with additional new models planned for later 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 our supply chain and 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.

Last year we reorganized our sales resources to focus more effectively on target markets and customers where we can realize sales success. The current funnel of sales prospects includes potential new customers in federal, state, and local public safety agencies. We believe the reorganization and our sales funnel better positions us to capture new sales opportunities moving forward.

While the potential impacts of material shortages, lead-times and 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 sales, operations, and financial results.

Cost of Products and Gross Profit Margin

Gross profit margins as a percentage of sales for the second quarter ended June 30, 2021 were approximately 37.2%, compared with 43.6% for the same quarter last year. For the six-month period ended June 30, 2021, gross profit margins were approximately 36.7%, compared with 39.5% for the same period last year.

Our cost of products and gross profit margins are primarily derived from material, labor and overhead costs, product mix, manufacturing volumes and pricing. Gross profit margins for the second quarter of 2021 decreased compared with the same period last year primarily due to a less favorable mix of product sales and increased material and freight costs. For the six months ended June 30, 2021, gross profit margins reflect a less favorable mix of product sales compared with the same period last year and were adversely impacted by one-time inventory reserves in the first quarter related to our legacy product line, the KNG series.

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. 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.

During recent quarters, 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. While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders, there have been some delays and extended lead 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.

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 second quarter ended June 30, 2021, totaled approximately $4.6 million (40.2% of sales), compared with approximately $4.4 million (43.9% of sales) for the same quarter last year. For the six months ended June 30, 2021, SG&A expenses decreased by $581,000, or 6.4%, to approximately $8.5 million (42.8% of sales), compared with approximately $9.1 million (43.7% of sales), for the six-month period last year.

Engineering and product development expenses for the second quarter of 2021 totaled approximately $2.3 million (20.3% of sales), compared with approximately $2.0 million (20.2% of sales) for the same quarter of last year. For the six months ended June 30, 2021, engineering and product development expenses totaled approximately $4.1 million (20.7% of sales), compared with approximately $4.1 million (19.5% of sales) for the six-month period last year. The increase in engineering expenses for the second quarter was primarily timing related, as expenses for the six-month period were comparable with the same period last year. Expenses for the design and development of the BKR series, a new line of portable and mobile radios, has continued with most ongoing development being performed by our internal engineering team. Development of the BKR Series, including our planned multiband 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, supply chain shortages and the potential effects of the COVID-19 pandemic in coming months.

Marketing and selling expenses for the second quarter of 2021 totaled approximately $1.1 million (9.5% of sales), compared with approximately $1.0 million (9.7% of sales) for the second quarter last year, primarily reflecting increased commissions attributed to sales growth. For the six months ended June 30, 2021, marketing and selling expenses declined approximately $457,000, or 18.5%, to approximately $2.0 million (10.1% of sales), compared with approximately $2.5 million (11.9% of sales). The decreases for the six-month period are attributed to reductions in sales and go-to-market employment, as well as other sales, marketing, and go-to-market related expenses.

Other general and administrative expenses for the second quarter 2021 totaled approximately $1.2 million (10.5% of sales), compared with approximately $1.4 million (14.0% of sales) for the same quarter last year. For the six months ended June 30, 2021, general and administrative expenses totaled approximately $2.4 million (12.1% of sales), compared with approximately $2.6 million (12.5% of sales) for the six-month period last year. Other general and administrative expenses for both periods last year included severance and expenses related to employment reductions.

Operating Loss

The operating loss for the second quarter ended June 30, 2021, totaled approximately $342,000 (3.0% of sales), compared with approximately $36,000 (0.4% of sales) for last year’s second quarter. For the six months ended June 30, 2021, our operating loss totaled approximately $1.2 million (6.1% of sales), compared with approximately $884,000 (4.2% of sales) for the six-month period last year. The operating loss for the first six months is attributed primarily to sales mix combined with increased material costs, which adversely impacted gross profit margins. These factors were partially offset by SG&A expense reductions.

Other (Expense) Income

We recorded net interest expense of approximately $14,000 for the second quarter ended June 30, 2021, compared with approximately $6,000 for the second quarter of last year. For the six months ended June 30, 2021, net interest expense totaled approximately $18,000, compared with net interest income of approximately $3,000 for the six-month period last year. Net interest expense was primarily the result of lower average cash balances and equipment financing.

For the second quarter ended June 30, 2021, we recognized an unrealized gain of approximately $2.3 million on our investment in FGF, compared with an unrealized loss of approximately $200,000 for the second quarter last year. For the six months ended June 30, 2021, we recognized an unrealized gain of approximately $2.5 million on our investment in FGF, compared with an unrealized loss of approximately $506,000 for the same period last year.

Income Taxes

We recorded an income tax expense of $184 for the six months ended June 30, 2021, compared with an income tax expense of $28 for the same period 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.

As of June 30, 2021, 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 $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 June 30, 2021.

Liquidity and Capital Resources

For the six months ended June 30, 2021, net cash used in operating activities totaled approximately $2.9 million, compared with cash provided by operating activities of approximately $3.6 million for the same period last year. Cash used in operating activities for the six months ended June 30, 2021, was primarily related to increased inventory, increases in accounts receivable, and an unrealized gain on securities, which were partially offset by net income, increased accounts payable and depreciation and amortization.

For the first six months of 2021, we had net income of approximately $1.0 million, compared with a net loss of approximately $1.5 million for the same period last year. Gross inventories increased during the six months ended June 30, 2021, by approximately $3.0 million, compared with a decrease of approximately $3.9 million for the same period last year. The increase for the six-month period was primarily attributable to extended supplier lead-times and planned new product introductions. Accounts receivable increased approximately $744,000 during the six months ended June 30, 2021, primarily due to the timing of sales that were consummated later in the quarter that had not yet completed their collection cycle. For the same period last year, accounts receivable decreased approximately $381,000 as a result of collections. The unrealized gain on securities for the six months ended June 30, 2021, totaled approximately $2.5 million, compared with an unrealized loss of approximately $506,000 for the same period last year. For additional information pertaining to our investment in securities, refer to Note 1 (Condensed Consolidated Financial Statements) and Note 6 (Investment in Securities) to the condensed consolidated financial statements included in this report. Accounts payable for the six months ended June 30, 2021, increased approximately $1.2 million, compared with a decrease of approximately $838,000 for the same period last year, primarily due to purchases from suppliers. Depreciation and amortization totaled approximately $681,000 for the six months ended June 30, 2021, compared with approximately $661,000 for the same period last year. Depreciation and amortization are primarily related to manufacturing and engineering equipment.

Cash used in investing activities for the six months ended June 30, 2021, totaled approximately $1.5 million, primarily for manufacturing equipment. For the same period last year, cash used in investing activities totaled approximately $525,000, primarily for engineering and manufacturing related equipment.

For the six months ended June 30, 2021, cash of approximately $13.2 million was provided by financing activities. In June we closed a public offering of our common stock, generating net proceeds of approximately $11.6 million. During the six months ended June 30, 2021, we received proceeds of approximately $3.5 million from our revolving credit facility and from financing related to the purchase of manufacturing equipment. This was partially offset by loan repayments of approximately $1.4 million. For the same period last year, we received proceeds totaling approximately $2.2 million under the Paycheck Protection Program, which were repaid in full within the same period. We used cash of approximately $501,000 and $502,000 to pay quarterly dividends for the six months ended June 30, 2021 and 2020, respectively. During the first quarter of 2020, we also used approximately $269,000 for stock repurchases.

On January 26, 2021, our revolving credit facility, which originated on January 30, 2020, was extended for one year, through January 31, 2022.

BK Technologies, Inc., our wholly owned subsidiary, entered into the $5 million Credit Agreement with JPMC. The Credit Agreement provides for a revolving line of credit of up to $5 million, with availability under the line of credit subject to a borrowing base calculated as a percentage of accounts receivable and inventory. Proceeds of borrowings under the Credit Agreement may be used for general corporate purposes. The line of credit is collateralized by a blanket lien on all personal property of BK Technologies, Inc. pursuant to the terms of the Continuing Security Agreement with JPMC. BK Technologies Corporation and each subsidiary of BK Technologies, Inc., are guarantors of the obligations under the Credit Agreement, in accordance with the terms of the Continuing Guaranty.

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, 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 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 June 30, 2021, and the date of filing this report. As of June 30, 2021, and the date of filing this report, approximately $1.5 million in borrowings were outstanding under the Credit Agreement.

On April 6, 2021, BK Technologies, Inc., a wholly owned subsidiary of BK Technologies Corporation, and JPMC, as a lender, entered into a Master Loan Agreement in the amount of $743,000 to finance various items of manufacturing equipment. The loan is collateralized by the equipment purchased using the proceeds. The Master Loan Agreement is payable in 48 equal monthly principal and interest payments of approximately $16,000 beginning on May 8, 2021, matures on April 8, 2025, and bears a fixed interest rate of 3.0%.

Our cash and cash equivalents balance at June 30, 2021, was approximately $15.7 million. We believe these funds, combined with 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, 2020, and “Item 1A. Risk Factors” below in this report.

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 quarter ended June 30, 2021, as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.