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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The condensed consolidated balance sheetssheet as of June 30, 2017 and December 31, 2016,2018, the condensed consolidated statements of operationsincome and comprehensive income for the three and six months ended June 30, 20172018 and 20162017 and the condensed consolidated statements of cash flows for the six months ended June 30, 20172018 and 20162017 have been prepared by RELM Wireless CorporationBK Technologies, Inc. (the “Company”), and are unaudited. In the opinion of management, all adjustments, which include normal recurring adjustments, necessary for a fair presentation have been made. The condensed consolidated balance sheet at December 31, 20162017 has been derived from the Company’s audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, as filed with the Securities and Exchange Commission. The results of operations for the three and six months ended June 30, 20172018 are not necessarily indicative of the operating results for a full year.

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, and available-for-saleinvestment in securities, accounts payable, accrued expenses and other liabilities. As of June 30, 2017,2018 and December 31, 2016,2017, the carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and other liabilities approximated their respective fair value due to the short-term nature and maturity of these instruments.

Investments reported on the June 30, 2017 and December 31, 20162017 balance sheets consistsheet consisted of marketable equity securities of a publicly held company. As of June 30, 2017, and December 31, 2016,2017, the investment cost was $2,944$2,402. On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments,” which amended the guidance in U.S. GAAP regarding the classification and $3,242, respectively. Management intendsmeasurement of financial instruments. Changes to hold such securitiesthe prior guidance primarily affected the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. Upon its adoption, the Company applied the amendments by means of a sufficientcumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which to realize a reasonable return, which periods may range between one to several years, although there is no assurance that positive returns will be realized or that such securities will not be liquidatedthe guidance was effective. On January 1, 2018, the Company recognized approximately $4,300 of net unrealized gain in a shorter-than-expected time frame to accommodate future liquidity requirements.its accumulated deficit balance. During the three months ended June 30, 2017, the Company’s Boardfirst quarter of Directors authorized the sale of up to $3 million of available-for-sale securities. Thereafter,2018, the Company sold a portion1,317,503 shares of its available-for-sale securitiesIteris, Inc. (Nasdaq: ITI), which cost $2,402, for approximately $897$8,335 of proceeds and realizedreported a gainloss on the sales of approximately $617. Accordingly, available-for sale-securities totaling approximately $2.1 million were classified as current assets as of June 30, 2017, while the remainder were classified as non-current assets. Investments are marked to market at each measurement date, with changes in net unrealized gains or losses presented as adjustments to accumulated other comprehensive income or loss.

Other comprehensive income consists of net income and unrealized gain on available-for-sale securities, net of taxes.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)ASU 2014-09 on “Revenue from Contracts with Customers,” which providesprovided for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. In August 2015, the FASB issued ASU 2015-14, which delays the effective date of ASU 2014-09 by one year. The guidance, isbecame effective for annual and interim periods beginning on or after December 15, 2017, and will replacereplaced most existing revenue recognition guidance under U.S. GAAP when it becomes effective.GAAP. This ASU requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgements and estimates and changes in those estimates. It permits the use of either a modified retrospective or cumulative effect transition method. The Company adopted ASU 2014-09 in the first quarter of 2018 and applied the modified retrospective approach. Because the Company’s primary source of revenues is from shipments of products, the Company does not expect the impact on its consolidated financial statements to be material.

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments,” which amendsamended the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affectaffected the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifiesclarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard isbecame effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except forThe Company adopted the provision to record fair value changes for financial liabilities undernew guidance, which had a material impact on its retained earnings, as the fair value option resulting from instrument-specific credit riskCompany reclassified approximately $4,300 of unrealized gain on investment securities that was previously classified in other comprehensive income. The Company has not yet determined the potential effects of the adoption of ASU 2016-01 on its consolidated financial statements.

InOn June 2017,26, 2018, the Company changed its capital return program, authorizingannounced that it received orders totaling approximately $4.5 million for BK Radio-brand KNG-series portable and mobile radios, and related accessories that will be deployed by a California State public safety agency. The orders were partially fulfilled in the repurchasesecond quarter of 500,000 shares2018, and the remainder are anticipated to be fulfilled during the third quarter of the Company's common stock in addition2018.

Pursuant to the 500,000 shares originally authorized, for a total repurchase authorization of 1 million shares, pursuant to a stock repurchase plan in conformity with the provisions of Rule 10b5-1 and Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The repurchase program has no termination date.  In addition, pursuant to theCompany’s capital return program, the Company’s Board of Directors declared a quarterly dividend of $0.02 per share of the Company'sCompany’s common stock on June 14, 20174, 2018 to shareholdersstockholders of record as of June 30, 2017.July 2, 2018. These dividends were paid on July 17, 2017.16, 2018.

OnEffective on June 15, 2017,4, 2018, the Company changed its name from “RELM Wireless Corporation” to “BK Technologies, Inc.” The Company’s shareholdersstock began trading on the NYSE American stock exchange under the new ticker symbol “BKTI” on June 5, 2018. Stockholders approved the 2017 incentive compensation plan. Undername change at the plan, the Company’s compensation committeeannual meeting of the Board of Directors granted to each non-employee director an award of restricted stock units (“RSUs”) equal to $20, with the number of RSUs calculated basedstockholders held on the Company’s common stock price on the date of grant. The RSUs vest in full twelve months after the grant date, subject to continued service as a director through the vesting date. The shares underlying the RSU awards are not issued until the RSUs vest in full. Upon vesting, each RSU converts into one share of the Company’s common stock.June 4, 2018.

The allowance for doubtful accounts on trade receivables was approximately $50 on gross trade receivables of $5,363$7,033 and $3,498$5,574 at June 30, 20172018 and December 31, 2016,2017, respectively. This allowance is used to state trade receivables at a net realizable value or the amount that the Company estimates will be collected of the Company’s gross trade receivables.

The components of inventories, net of allowances for slow-moving, excess or obsolete inventory, consist of the following:

Allowances for slow-moving, excess, or obsolete inventory are used to state the Company’s inventories at the lower of cost or net realizable value. The allowances were approximately $1,647$758 at June 30, 2017,2018, compared with approximately $1,607$789 at December 31, 2016.2017.

Income tax expense totaling approximately $222$290 and $101$183 has been recorded for the three and six months ended June 30, 2017,2018, respectively, compared with $737$222 and $992,$101, respectively, for the same periods last year.

As of June 30, 2017,2018 and December 31, 2016,2017, the Company’s net deferred tax assets totaled approximately $1,943$3,139 and $3,418,$3,317, respectively, and are primarily composed of net operating loss carryforwards (“NOLs”), and research and development costs and tax credits partially offset by an increase to deferred tax liabilities of $1,374 derived from the unrealized gain on available-for-sale securities.credits.  As of June 30, 2017,2018, these NOLs total approximately $1,629$4,422 for federal and $11,899$13,323 for state purposes, with expirations starting in 2018 through 2030.

In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years to utilize its NOLs prior to their expiration. The Company analyzedanalyzes all positive and negative evidence to determine if, based on the weight of available evidence, the Company is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available, current and anticipated customers, contracts and product introductions, as well as historical operating results and certain tax planning strategies.

Based on management’s analysis of all available evidence, both positive and negative, the Company’s management has concluded that the Company does not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax asset. Management estimated that as of June 30, 2017,2018, it is more likely than not that approximately $129$83 of the Company’s deferred tax asset will not be realized due to the inability to generate sufficient Florida taxable income in the necessary period to fully utilize its Florida NOLs. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. If the Company incurs future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of June 30, 2017.2018.

On July 29, 2016,Affiliates of Fundamental Global Investors, LLC serve as the general partner and the investment manager of FGI 1347 Holdings, LP, and the Company oneis the sole limited partner. As of June 30, 2018, the Company and the affiliates of Fundamental Global Investors, LLC, including without limitation Ballantyne Strong, Inc., beneficially owned in the aggregate 2,639,362 shares of PIH’s common stock, representing approximately 44.1% of PIH’s outstanding shares. Fundamental Global with its affiliates is the largest stockholder of the Company. Mr. Kyle Cerminara, Chairman of the Company’s significant stockholders,Board of Directors, is Chief Executive Officer, Co-Founder and certainPartner of their affiliates, entered into an agreement with Iteris. Pursuant to the agreement, a directorFundamental Global Investors, LLC and serves as Chief Executive Officer and Chairman of the Company, who is an executive, co-founder and partner of the significant stockholder that is party to the agreement, was appointed to the Board of Directors of Iteris.  As of June 30, 2017, the Company and the significant stockholderBallantyne Strong. Mr. Lewis M. Johnson, Co-Chairman of the Company, beneficially own inis President, Co-Founder and Partner of Fundamental Global Investors, LLC and serves as a director of Ballantyne Strong. Messrs. Cerminara and Johnson also serve as Chairman and Co-Chairman, respectively, of the aggregate 2,126,948 sharesBoard of Iteris, which represents approximately 6.5%Directors of Iteris’s outstanding shares.PIH.

The changes in consolidated stockholders’ equity for the six months ended June 30, 20172018 are as follows:

 

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

Approximately 435,000 stock options and 3,768 restricted stock units for the three and six months ended June 30, 2018, and 178,500 stock options and 9,050 restricted stock units granted for the three and six months ended June 30, 2017, were excluded from the calculation because they were anti-dilutive.

The Company has an employee and non-employee director share-based incentive compensation plan. Related to these programs, the Company recorded non-cash share-based employee compensation expense of $14$17 and $16$38 for the three and six months ended June 30, 2017,2018, respectively, compared with $14 and $26,$16, respectively, for the same periods last year. The Company considers its non-cash share-based employee compensation expenses as a component of cost of products and selling, general and administrative expenses. There was no non-cash share-based employee compensation expense capitalized as part of capital expenditures or inventory for the periods presented.

The Company uses the Black-Scholes-Merton option valuation model to calculate the fair value of a stock option grant. The non-cash share-based employee compensation expense recorded in the three and six months ended June 30, 20172018 was calculated using certain assumptions. Such assumptions are described more comprehensively in Note 1110 (Share-Based Employee Compensation) of the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.

A summary of activity under the Company’s stock option plans during the six months ended June 30, 20172018 is presented below:

On June 4, 2018, the Company granted to each non-employee director restricted stock units with a grant fair value of $20 per award (resulting in total aggregate grant-date fair value of $140), which will vest on June 4, 2019, subject to continued service through such vesting date. On June 15, 2017, the Company granted to each non-employee director RSUsrestricted stock units with a grant fair value of $20 per award (resulting in total aggregate grant-date fair value of $140), which will vestvested on June 15, 2018. The Company recorded non-cash restricted stock unit compensation expense of $39 and $73 for the three and six months ended June 30, 2018, subject to continued service through such vesting date.respectively, compared with $6 and $0 for the same periods last year.

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. On March 28, 2017, The Sales Group, Inc. (“TSG”) purported to filefiled a lawsuit in the U.S. District Court for the Central District of California against the Company. TSG was a sales representative of the Company that the Company terminated in March 2017. TSG has asserted claims against the Company for alleged breach of oral contract, violation of the California and Arizona sales representative statutes and an accounting of alleged unpaid sales commissions. TSG’s complaint seekssought damages in the amount of $6,090 for alleged unpaid past and future sales commissions. On April 3, 2017, counsel for TSG sent the Company a letter outlining additional alleged grounds for recovery against the Company and offering to settle the litigation in exchange for the continued payment of sales commissions to TSG for a negotiated period, a buyout of TSG’s alleged rights for a negotiated sum or reinstatement of TSG for a period of at least 2.5 years with commission rates equal to those in effect at the time of TSG’s termination. The Company believes that TSG’s claim has no merit, thatmatter was mediated on November 14, 2017, during which the parties agreed to a settlement. On December 19, 2017, the Company had the rightentered into a settlement agreement with TSG, pursuant to terminatewhich TSG without the payment of any further sales commissions and intends to defend against this litigation vigorously. The Company filed a motionagreed to dismiss with prejudice its lawsuit filed against the Company. Pursuant to the settlement agreement, the Company agreed to pay an amount of $900 to TSG on or in the alternative, stay the case pending arbitration of the dispute. A hearing on the motion was held on July 24,before December 31, 2017. The Company took the position in briefing andalso agreed to pay to TSG commissions, at the hearing thatrates in effect since February 7, 2013, on all orders for the dispute should be arbitrated.Company’s products received and accepted by the Company from the states of Arizona, California, Nevada and Hawaii from January 1, 2018 through December 31, 2018, other than for (i) sales of the Company’s products to federal government agencies and offices, (ii) sales of the Company’s products to other end-users, excepting state and local government agencies and offices, and (iii) sales of parts or service, including warranty service. In addition, if at any time on or before December 31, 2018, the Company completes a change-in-control transaction, then the Company will pay to TSG an amount equal to $2,000, less the amount of commissions paid by the Company with respect to 2018, as described above. The Court indicated atsettlement agreement settled all claims raised by TSG in its lawsuit against the hearing that it will consider whether arbitration is appropriate after some discovery is conducted. The outcomeCompany. In December 2017, the Company recorded an estimated commission amount of this matter cannot presently be determined; accordingly, no related provision has been madeapproximately $536. For the six months ended June 30, 2018, the Company paid $231 in commissions to TSG. As of June 30, 2018, the Condensed Consolidated Financial Statements.Company estimated and recorded an additional commission amount of approximately $290 for the remaining six months of 2018.

As of June 30, 2017,2018, the Company had purchase orders to suppliers for inventory of approximately $7,128.$6,380.

Sales to the United States government agencies represented approximately $3,018 (28.0%$4,776 (35.0%) and $5,935 (32.7%$8,769 (34.5%) of the Company’s total sales for the three and six months ended June 30, 2017,2018, respectively, compared with approximately $10,055 (60.3%$3,018 (28.0%) and $16,785 (58.4%$5,935 (32.7%), respectively, for the same periods last year. Accounts receivable from agencies of the United States government were $924$1,260 as of June 30, 2017,2018, compared with approximately $2,765$924 at the same date last year.

The Company has a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $1,000 (subject to a borrowing base) and a maturity date of December 27, 2017.26, 2018. As of June 30, 2017,2018, the Company was in compliance with all covenants under the loan and security agreement, as amended, governing this revolving credit facility. For a description of such covenants and the other terms and conditions of the loan and security agreement, as amended, reference is made to Note 65 (Debt) of the Company’s Consolidated Financial Statementsconsolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. As of June 30, 2017,2018, there were no borrowings outstanding under the revolving credit facility and there was $1,000 of borrowing available under the revolving credit facility.

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 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”prospects. You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” 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, 20162017 and in our subsequent filings with the Securities and Exchange Commission, and include, among others, the following:

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”) are disclosed in millions or as whole dollar amounts.

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statementscondensed consolidated financial statements and notes thereto appearing elsewhere in this report and the MD&A, Consolidated Financial Statementsconsolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.

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 (“APCO Project 25,” or “P-25”). Later in 2018, we plan to introduce the first model in our line of multi-band products to complement our existing KNG products.

We conduct business under the name BK Technologies, Inc. and offer products under two brand names: BK Radio and RELM. Generally, BK Radio-branded products serve the government and public safety market, while RELM-branded products serve the business and industrial market.

Our financial and operating results for the three and six months ended June 30, 2018 improved significantly compared with the same periods last year. Sales grew for both the second quarter and the six month periods of 2018 compared with the same periods last year. Gross profit margins increased during the second quarter of 2017 improved2018 compared with the first quarter of 2017, yielding increases in sales and earnings. Compared with the second quarter last year sales and earnings decreased due to the positive impact in 2016 of sales related to our contractcompared with the U.S. Transportation Security Administration (“TSA”).preceding quarter of 2018. Consequently, we recognized operating income for the first six months of 2018, as compared to an operating loss for the same period last year. Also during the second quarter,first six months of 2018, we declared a dividend of $0.02 per sharegenerated positive cash flow and increased to 1 million the total number of shares authorized under our repurchase program.reduced inventory.

For the three months ended June 30, 2017,second quarter of 2018, our sales totaledincreased 26.9% to approximately $10.8$13.7 million, compared with $16.7approximately $10.8 million for the same quarter last year, and $7.4 million for the preceding quarter. Sales of P-25 digital products for the second quarter of 2017 totaled approximately $7.7 million (71.1% of total sales), compared with approximately $10.5 million (63.0% of total sales) for the second quarter last year.

Gross profit margins as a percentage of sales for the second quarter ended June 30, 2017 totaledof 2018 grew to approximately 41.8%43.1%, compared with 33.6%41.8% for the second quarter last year. For the six monthsmonth period ended June 30, 2017,2018, gross profit margins as a percentage of sales totaled approximately 37.1%increased to 42.2%, compared with approximately 32.8%37.1% for the same period last year. The comparative changes in gross profit margins were attributed primarily to competitive factors associated with last year’s TSA contract and delivery orders.

For the three months ended June 30, 2017,second quarter of 2018, selling, general and administrative expenses (“SG&A”) totaled approximately $3.5$4.6 million (32.7%(33.3% of sales), compared with approximately $3.5 million (21.0%(32.7% of sales) for the same quarter last year. SG&A expenses for the first six months of 2018 totaled approximately $8.6 million (34.0% of sales), compared with approximately $7.0 million (38.4% of sales) for the same period last year.

Operating income for the second quarter ended June 30, 2018, increased 36.8% to approximately $1.3 million, compared with approximately $973,000 for the same quarter last year. For the six months ended June 30, 2017, SG&A expenses totaledmonth period of 2018, operating income increased to approximately $7.0$2.1 million, (38.4% of sales), compared with an operating loss of approximately $6.6 million (22.8% of sales)$233,000 for the same period last year.

For the three and six months ended June 30, 2017, other income2018, we recognized an unrealized loss, totaling $55,000 and $352,000, respectively, on our investment in 1347 Property Insurance Holdings, Inc., made through FGI 1347 Holdings, LP, a consolidated variable interest entity. No comparable loss was incurred for last year’s three and six month periods. Also, for the six months ended June 30, 2018, we recognized a loss on the sale of securities totaling approximately $849,000, compared with a $617,000 gain for the same period last year. Other expense for the three and six months ended June 30, 2018 totaled approximately $0.6 million primarily from gains on sales of Iteris common stock (see Note 6 to$58,000 and $225,000, respectively, compared with approximately $60,000 and $147,000 for the Condensed Consolidated Financial Statements on Page 9 of this report).same periods last year.

Pretax income for the three months ended June 30, 2017,2018, totaled approximately $1.5$1.2 million, compared with approximately $2.1$1.5 million for the same quarter last year. For the six months ended June 30, 20172018, pretax income totaled approximately $151,000,$686,000, compared with approximately $2.9 million$151,000 for the same period last year.

Net income for the three months ended June 30, 20172018 was approximately $1.3 million$947,000 ($0.100.07 per basic and diluted share), compared with approximately $1.4$1.3 million ($0.10 per basic and diluted share) for the same quarter last year. For the six months ended June 30, 2017,2018, net income totaled approximately $50,000,$503,000 ($0.04 per basic and diluted share), compared with approximately $1.9 million$50,000 ($0.00 per basic and diluted share) for the same period last year.

As of June 30, 2017,2018, working capital totaled approximately $24.5$23.4 million, of which approximately $12.8$17.7 million was comprised of cash, cash equivalents and trade receivables. As of December 31, 2016,2017, working capital totaled approximately $23.4$26.7 million, of which approximately $14.4$12.7 million was comprised of cash, cash equivalents and trade receivables.

As an aid to understanding our operating results for the periods covered by this report, the following table shows selected items from our Condensed Consolidated Statementscondensed consolidated statements of Operationsincome expressed as a percentage of sales:

For the second quarter ended June 30, 2017,2018, net sales totaledincreased 26.9% to approximately $10.8$13.7 million, compared with approximately $16.7$10.8 million for the same quarter last year. Sales of P-25 digital products for the quarter totaled approximately $7.7 million (71.1% of total sales), compared with approximately $10.5 million (63.0% of total sales) for the same quarter last year.

The comparative decreaseincrease in total sales and sales of digital products for the threesecond quarter and six-month periods of 2017six months ended June 30, 2018 was attributed primarily to last year’s deliverystate public safety agencies, including orders fromfor the TSA, whichState of California and new state agency customers. Sales to state agencies were not replicated this year. During the second quarter, however, we experienced resurgentsupplemented by demand from somefederal agencies, as well as international customers.

Sales prospects for the remainder of 2018 and into next year appear promising as we look to grow our market share, particularly in the state and federal government agencies aslocal arena. Accordingly, we are investing in additional sales increased approximately 45.8% from the first quarter of 2017. Comparedand marketing resources to last year’s second quarter, sales to agencies other than the TSA increased approximately 34.3%.capitalize on new opportunities.

Gross profit margin as a percentage of sales for the second quarter ended June 30, 2017 was 41.8%2018 increased to 43.1%, compared with 33.6%41.8% for the same quarter last year. For the six months ended June 30, 2017,2018, gross profit margin as a percentage of sales was 37.1%margins increased to 42.2%, compared with 32.8%37.1% for the same period last year.

Our cost of products and gross profit margin are derived primarily from material, labor and overhead costs, product mix, manufacturing volumes and pricing. DuringThe improvement in gross profit margins for both the second quarter of 2017 theand six month period was attributed primarily to increased sales combined with a more favorable mix of product sales improved relative to the first quarter. Also, as a result ofsales. Additionally, increased production volumes weenabled us to more fully utilizedeffectively utilize and absorbedabsorb our base of manufacturing overhead expenses. Forexpenses, and we are realizing benefits associated with manufacturing and quality improvement programs. Comparatively, last year’s second quarterfirst two quarters included certain product enhancement expenses and six-month period, gross profit margins were negatively impacted by competitive factors associated with the TSA business.discontinuation of a product development initiative.

During the quarter, we launched an initiative to evaluate and improve all aspects of our manufacturing, including quality, costs and efficiencies. We believe this initiative will yield benefits in future quarters. We continue to utilize contract manufacturing relationships for production efficiencies and to manage material and labor costs. We anticipate that our current contract manufacturing relationships or comparable alternatives will be available to us in the future. We may encounter product cost and competitive pricing pressures in the future. However, the extent of their impact on gross margins, if any, is uncertain.

SG&A expenses consist of marketing, sales, commissions, engineering, product development, management information systems, accounting, headquarters and non-cash share-based employee compensation expenses.

SG&A expenses for the second quarter ended June 30, 2018 totaled approximately $4.6 million, or 33.3% of 2017 were materially unchanged from the same quarter last year, totalingsales, compared with approximately $3.5 million, or 32.7% and 21.0% of total sales, for 2017 and 2016, respectively.the second quarter last year. For the six months ended June 30, 2017,2018, SG&A expenses totaled approximately $8.6 million, or 34.0% of sales, compared with approximately $7.0 million, (38.4%or 38.4% of sales), compared with $6.6 million (22.8% of sales)sales, for the same period last year.

Engineering and product development expenses for the second quarter of 20172018 totaled approximately $1.2$1.9 million (11.1%(13.8% of total sales), compared with $1.1$1.2 million (6.9%(11.1% of total sales) for the same quarter last year. For the six-month period, engineering and product development expenses totaled approximately $2.1$3.7 million (11.8%(14.6% of sales), compared with approximately $2.0$2.1 million (7.1%(11.6% of sales) for the same period last year. Contributing to theThe increase in engineering expenses werewas driven by costs related to new product development projects.development.

Marketing and selling expenses for the second quarter of 20172018 totaled approximately $1.3$1.6 million (11.7% of sales) compared with approximately $1.5$1.3 million (9.0%(12.0% of sales) for the second quarter last year. For the six-month period, marketing and selling expenses totaled approximately $2.6$2.9 million (14.2%(11.4% of sales), compared with $2.8$2.6 million (9.8%(14.4% of sales) for the same period last year. The decreaseincrease for both periods is attributed primarily to sales commissions and incentive compensation directly related to sales performance. These decreases were partially offset by expenses related to new sales staff.

General and administrative expenses for the second quarter of 20172018 totaled approximately $1.1$1.0 million (9.9%(7.3% of total sales), compared with approximately $861,000 (5.2%$1.1 million (10.2% of total sales) for the same quarter last year. For the six-month period, general and administrative expenses totaled approximately $2.2$2.1 million (12.3%(8.2% of sales), compared with $1.7$2.2 million (5.9%(12.3% of sales) for the same period last year. The increases weredecrease in costs for both periods was attributed primarily to one-time costs incurred last year related to certain headquarters professional fees, as well as approximately $0.4 millionchanges in non-recurring first quartersenior leadership. Those cost decreases were partially offset by expenses associated with changes in senior management.changing the Company’s name.

Operating income for the second quarter ended June 30, 2017 totaled2018 increased 36.8% to approximately $1.0$1.3 million (9.1%(9.7% of sales), compared with approximately $2.1 million (12.6%$973,000 (9.0% of sales) for the same quarter last year. For the six-month period, we recognizedsix months ended June 30, 2018, operating income increased to approximately $2.1 million (8.2% of sales), compared with an operating loss of approximately $233,000 compared with operating income(1.3% of approximately $2.9 millionsales) for the same period last year. The decreaseincrease in operating income for both periodsthe quarter was attributed primarily to the impact of last year’s sales to the TSAgrowth and relatedimproved gross profit margins, which were partially offset by increased product costs as well as certain SG&A expenses, some of which are considered non-recurring.

During the first six months ended June 30, 2018, we sold 1,317,503 shares of Iteris, Inc., which cost approximately $0.6$2.4 million, (See Note 6 to the Condensed Consolidated Financial statements on page 9for approximately $8.3 million, and recognized a loss of this report). There were no comparable gains recorded for the same period last year.approximately $849,000.

For the six-month period of 2017, partially offsettingthree and six months ended June 30, 2018, we recognized other expenses totaling approximately $58,000 and $225,000, respectively, compared with approximately $60,000 and $147,000, respectively, for the aforementioned gain on sale of securities,same periods last year. These expenses were primarily attributed to exchange losses related to sales under a Canadian dollar-denominated contract. Also during last year’s first quarter, we recorded a non-recurring loss of approximately $104,000 on the disposal of assets related to a discontinued product initiative. We also recognized an exchange loss related to sales under a Canadian-dollar-denominated contract. No comparable expenses were incurred during the same period last year.

We recorded income tax expense of approximately $222,000$290,000 and $183,000, respectively, for the second quarterthree and six months ended June 30, 2017,2018, compared with approximately $737,000$222,000 and $101,000, respectively, for the same quarterperiods last year. For the six-month period of 2017 we recorded income tax expense of approximately $101,000 compared with approximately $1.0 million 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 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, its tax expense isdivided by pre-tax book income) from period to period.  For 2018, we generally expects its effective tax rate to decline compared to 2017, primarily non-cash.due to the implementation of the Tax Cuts and Jobs Act enacted in December 2017, which, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%.

As of June 30, 2017,2018, our net deferred tax assets totaled approximately $1.9$3.14 million, and are primarily composed of NOLs, offset by deferred tax liabilities of $1,374 primarily derived from the unrealized gain on available-for-sale securities.NOLs.  These NOLs total $1.6approximately $4.42 million for federal and $11.9$13.32 million for state purposes, with expirations starting in 2018 through 2030.

In order to fully utilize the net deferred tax assets, we will need to generate sufficient taxable income in future years to utilize our NOLs prior to their expiration. 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 asset. Management assertsestimates that as of June 30, 2018, it is more likely than not that approximately $129,000$83,000 of the deferred tax asset will not be realized due to the inability to generate sufficient Florida taxable income in the necessary period to fully utilize the Florida NOLs. 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, 2017.2018.

For the six months ended June 30, 2017,2018, net cash provided by operating activities totaled approximately $711,000, compared with cash used in operating activities totaledof approximately $1.4 million, compared with cash provided by operating activities of approximately $7.1 million for the same period last year.  Cash used inprovided by operating activities was primarily related to trade accounts receivable,net income, adjusted by unrealized loss on investment in securities, and a decrease in inventories, and accrued compensation and related taxeswhich were partially offset by a decrease in accounts payable and accrued warranty expense.an increase in trade accounts receivable.

For the six months ended June 30, 2017,2018, we had net income of approximately $50,000$503,000, compared with net income of approximately $1.9 million$50,000 for the same period last year. Net inventories decreased during the six months ended June 30, 2018 by approximately $1.6 million, compared with an increase of $843,000 for the same period last year. The 2018 decrease was primarily attributed to an increase in sales. The loss on investment in securities for the six months ended June 30, 2018 totaled approximately $1.2 million, compared with a gain of approximately $617,000 for the same period last year. For additional information pertaining to our investment in securities, refer to Notes 1 and 6 to the condensed consolidated financial statements found on pages 7 and 9, respectively, of this report. Accounts receivable increased approximately $1.9$1.5 million during the six months ended June 30, 2017,2018, compared with $1.8$1.9 million for the same period last year, reflecting sales that were consummated later in the respective quarter that had not yet completed their collection cycle. Net inventories increased during the six months ended June 30, 2017 by approximately $843,000 primarily due to material purchases. For the first six months ended June 30, 2016, inventories decreased approximately $320,000. Accrued compensation and related taxes decreased by approximately $838,000 during the first six months of 2017 as performance incentives were paid. For the same period last year, accrued compensation and related taxes increased by approximately $676,000. Accounts payable for the six months ended June 30, 2017 increased2018, decreased approximately $899,000,$2.4 million, compared with $2.3 millionan increase of approximately $899,000 for the same quarterperiod last year, primarily due to timing of payments to material purchases.suppliers. Depreciation and amortization totaled approximately $471,000$439,000 for the six months ended June 30, 2017,2018, compared with approximately $456,000$471,000 for the same period last year.

Cash provided by investing activities for the six months ended June 30, 20172018 totaled approximately $4.0 million, compared with approximately $450,000 which was primarily related to proceeds totaling approximately $897,000for the same period last year. Proceeds from the sale of available-for-sale securities partially offset by purchases of equipment totalingtotaled approximately $447,000. For$8.3 million for the six months ended June 30, 2018, compared with approximately $897,000 for the same period last yearyear. We utilized approximately $481,000$3.7 million for an investment in FGI 1347 Holdings, LP. There was usedno comparable investment for the investment in Iteris common stock (see Note 6 to our Condensed Consolidated Financial Statements in this report),same period last year. For the six months ended June 30, 2018, purchases of property, plant and $962,000 was utilizedequipment totaled approximately $569,000, compared with approximately $447,000 for the purchase of manufacturing and engineering equipment.same period last year.

For the six months ended June 30, 2017,2018, approximately $2.5$1.2 million was used in financing activities, primarily related to our capital return program, which included quarterly dividends totaling approximately $2.5 million$544,000 and stock repurchases totaling approximately $217,000. We$616,000. For the same period last year, approximately $2.5 million was used to pay dividends and approximately $217,000 was used for stock repurchases. For the same period last year, we also received approximately $183,000 provided byfrom the issuance of common stock upon the exercise of stock options. For the same period last year, approximately $1.2 million was used to pay dividends.

We have a secured revolving credit facility with Silicon Valley Bank with maximum borrowing availability of $1.0 million and a maturity date of December 27, 2017.26, 2018. As of June 30, 2017,2018, and the date of this report, we were in compliance with all covenants under the loan and security agreement, as amended, governing the revolving credit facility. For a description of such covenants and the other terms and conditions of the loan and security agreement, as amended, reference is made to Note 65 (Debt) of our Consolidated Financial Statementsconsolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.

As of June 30, 2017,2018, and the date of this report, there were no borrowings outstanding under the revolving credit facility. As of June 30, 2017,2018, and the date of this report, there was $1.0 million of borrowing available under the revolving credit facility.

Our cash and cash equivalents balance at June 30, 20172018 was approximately $7.5$10.7 million.  We believe these funds combined with anticipated cash generated from operations and borrowing availability under our revolving credit facility are sufficient to meet our working capital requirements for the foreseeable future. However, the financial and economic conditions 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, 2016.2017.

In response to the SEC’sSecurities 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, software development 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.  The Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers", and all the related amendments (collectively “Topic 606”) in the first quarter of 2018 and applied the modified retrospective approach.  Under Topic 606, revenue is recognized when control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred.  The adoption of Topic 606 did not have, and is not expected to have, a material effect on the timing or amount of revenue recognized as compared with the Company’s previous revenue recognition practices because the Company’s primary source of revenues is from shipments of products.  

There were no other changes to our critical accounting policies during the quarter ended June 30, 2017,2018, as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Our Chief Executive OfficerPresident (who serves as our principal executive officer) and Chief Financial Officer (who serves as our principal financial and accounting officer) have evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (“Securities Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of June 30, 2017.2018. Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of June 30, 2017.2018.

During the three months ended June 30, 2017,2018, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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