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 September 30, 2017 and December 31, 2016,2018, the condensed consolidated statements of operationsincome and comprehensive income for the three and nine months ended September 30, 20172018 and 20162017 and the condensed consolidated statements of cash flows for the nine months ended September 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.Commission (“SEC”). The results of operations for the three and nine months ended September 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 September 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 September 30, 2017 and December 31, 20162017 balance sheets consistsheet consisted of marketable equity securities of a publicly held company. As of September 30, 2017, and December 31, 2016,2017, the investment cost was $2,674$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. In June 2017, the Company’s Board of Directors authorized the sale of up to $3 million of available-for-sale securities.its accumulated deficit balance. During the three months ended June 30, 2017first quarter of 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. In September 2017, the Company sold additional shares of its available-for-sale securities for approximately $922 and realized a gain on the sales of approximately $670. As a result, available-for sale-securities totaling approximately $1,180 were classified as current assets as of September 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 replacesreplaced 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 shouldwas required to 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 adoption of ASU 2016-01 may have a significant impact on the Company’s consolidated financial statements.

In March 2016,August 2018, the FASB issued ASU 2016-09, “ImprovementsSEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to Employee Share-Based Payment Accounting.” The guidancethe ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective for annual reporting periodsall filings made on or after November 5, 2018. Given the effective date and the proximity to most filers’ quarterly reports, the SEC is not objecting to filers deferring the presentation of interim changes in stockholders’ equity in their Forms 10-Q until the quarter that begins after the date of adoption, November 5, 2018. We intend to present interim changes in stockholders’ equity beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The Company has adoptedour quarterly report on Form 10-Q for the new guidance with no material impact on its consolidated financial statements.first quarter of 2019

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 June 2017,On September 27, 2018, the Company changedannounced that it was selected as a supplier under the Subscriber Unit Radio and Accessory Contract (“SURAC”) issued by the U.S. Army, and received its first task orders under the contract totaling approximately $800. The task orders were for the Company’s UHF portable radios and related accessories, which are anticipated to be delivered during the fourth quarter of 2018. The SURAC contract is intended to serve as the U.S. Army’s primary contract vehicle for procuring Project 25 standard of the Association of Public-Safety Communications Officials (P-25) digital communications equipment. The Company was one of five companies selected by the U.S. Army. The maximum total value of the contract is $495,000 over a five-year period that commenced on June 18, 2018, and ends on June 18, 2023. The contract does not specify purchase dates or quantities of equipment from any particular named supplier, and there is no assurance that the Company will receive any additional orders.

Pursuant to the Company’s capital return program, authorizing the repurchase of 500,000 shares of the Company's common stock in addition 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. Pursuant to the capital return program,on September 6, 2018, the Company’s Board of Directors declared a quarterly dividend of $0.02 per share of the Company'sCompany’s common stock on September 18, 2017 to shareholdersstockholders of record as of October 2, 2017.1, 2018. These dividends were paid on October 16, 2017.

The allowance for doubtful accounts on trade receivables was approximately $50 on gross trade receivables of $7,082$7,457 and $3,498$5,574 at September 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 $661$758 at September 30, 2017,2018, compared with approximately $1,607$789 at December 31, 2016. During the three months ended September 30, 2017, the Company disposed of excess and obsolete inventory for which reserves had been previously established. The impact to the Company’s balance sheet and statement of operations was not material.2017.

Income tax expense totaling approximately $252$17 and $353$200 has been recorded for the three and nine months ended September 30, 2017,2018, respectively, compared with $365$252 and $1,355,$353, respectively, for the same periods last year.

As of September 30, 2017,2018 and December 31, 2016,2017, the Company’s net deferred tax assets totaled approximately $1,701$3,122 and $3,418,$3,317, respectively, and arewere 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 $1,360 derived from the unrealized gain on available-for-sale securities.credits.  As of September 30, 2017,2018, these NOLs totaltotaled approximately $626$5,216 for federal and $11,460$12,766 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 September 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 September 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 September 30, 2018, the Company and the affiliates of Fundamental Global Investors, LLC, including without limitation Ballantyne Strong, Inc., beneficially owned in the aggregate 2,714,362 shares of PIH’s common stock, representing approximately 45.4% 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 September 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 1,746,743 sharesBoard of Iteris, which represents approximately 5.4%Directors of Iteris’s outstanding shares.

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

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

Approximately 434,500 stock options for the three and nine months ended September 30, 2018, and 328,500 stock options granted for the three and nine months ended September 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 $19$28 and $34$66 for the three and nine months ended September 30, 2017,2018, respectively, compared with $16$19 and $42,$34, 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 nine months ended September 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 Statementsconsolidated 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 nine months ended September 30, 20172018 is presented below:

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 $38 and $111 for the three and nine months ended September 30, 2018, subject to continued service through such vesting date.respectively, compared with $35 and $41 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. This matter is scheduledCompany. In December 2017, the Company recorded an estimated commission amount of approximately $536. For the nine months ended September 30, 2018, the Company paid $682 in commissions to TSG. In June 2018, the Company estimated and recorded an additional commission amount of approximately $290 for mediation on November 14, 2017. The outcomethe remainder of this matter cannot presently be determined; accordingly, no related provision has been made in2018. No additional commission amounts were estimated for the Condensed Consolidated Financial Statements.three months ended September 30, 2018.

As of September 30, 2017,2018, the Company had purchase orders to suppliers for inventory of approximately $11,352.$6,924.

Sales to the United States government agencies represented approximately $5,210 (43.7%$7,110 (53.5%) and $11,145 (36.5%$15,879 (41.0%) of the Company’s total sales for the three and nine months ended September 30, 2017,2018, respectively, compared with approximately $9,227 (62.0%$5,210 (43.7%) and $26,012 (59.2%$11,145 (36.5%), respectively, for the same periods last year. Accounts receivable from agencies of the United States government were $2,977$3,440 as of September 30, 2017,2018, compared with approximately $3,475$2,977 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 September 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 September 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.

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 names RELM Wireless Corporation andname 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 nine months ended September 30, 2018 were improved from the comparable periods last year. Sales grew for both the third quarter and the nine month periods of 2017 reflected sales growth and increasing cash2018 compared with the first two quarters of 2017. Compared withsame periods last year. Gross profit margins increased during the third quarter and nine month periods of 2018 versus the same periods last year, salesyear. Consequently, operating income for the three and earnings decreased, which reflectsnine months ended September 30, 2018 increased significantly from the comparable periods last year. For the nine month period, we also generated positive impact in 2016 of sales related to our contract with the U.S. Transportation Security Administration (“TSA”). During the third quarter, we declared a dividend of $0.02 paid on October 16, 2017 to shareholders of record as of October 2, 2017.cash flow and reduced inventory.

For the three months ended September 30, 2017,third quarter of 2018, our sales totaledincreased 12.4% to approximately $11.8$13.3 million, compared with approximately $14.7$11.8 million for the same quarter last year, and $10.8 million for the preceding quarter. Sales of P-25 digital products for the third quarter of 2017 totaled approximately $8.2 million (69.7% of total sales), compared with approximately $9.7 million (65.7% of total sales) for the third quarter last year.

Gross profit margins as a percentage of sales for the third quarter ended September 30, 2017 totaledof 2018 grew to approximately 32.3%41.1%, compared with 31.4%32.3% for the third quarter last year. For the nine monthsmonth period ended September 30, 2017,2018, gross profit margins as a percentage of sales totaled approximately 35.2%increased to 41.8%, compared with approximately 32.3%35.2% for the same period last year.

For the three months ended September 30, 2017,third quarter of 2018, selling, general and administrative expenses (“SG&A”) totaled approximately $3.7$4.6 million (30.9%(34.5% of sales), compared with approximately $3.5$3.7 million (24.1%(30.9% of sales) for the same quarter last year. SG&A expenses for the first nine months of 2018 totaled approximately $13.2 million (34.2% of sales), compared with approximately $10.6 million (35.4% of sales) for the same period last year.

Operating income for the third quarter ended September 30, 2018, increased by approximately $721,000 (459.2%) to approximately $878,000, compared with approximately $157,000 for the same quarter last year. For the nine months ended September 30, 2017, SG&A expenses totaledmonth period of 2018, operating income increased by approximately $10.6$3.0 million (35.4% of sales),to approximately $3.0 million, compared with an operating loss of approximately $10.1 million (23.3% of sales)$76,000 for the same period last year.

For the three and nine months ended September 30, 2017,2018, we recognized an unrealized loss, totaling approximately $191,000 and $543,000, 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 nine month periods. Also, for the nine months ended September 30, 2018, we recognized a loss on the sale of securities totaling approximately $849,000, compared with a $1.3 million gain for the same period last year. For the three months ended September 30, 2018, we recognized other expenses totaling approximately $48,000, compared with other income of approximately $1,000 for the same period last year. For the nine months ended September 30, 2018, other expense totaled approximately $0.7 million and $1.1 million, respectively, primarily from gains on sales of Iteris common stock (see Note 6 to$274,000, compared with approximately $146,000 for the Condensed Consolidated Financial Statements on Page 9 of this report).same period last year.

Pretax income for the three months ended September 30, 2017,2018, totaled approximately $852,000,$667,000, compared with approximately $1.0 million$852,000 for the same quarter last year. For the nine months ended September 30, 20172018, pretax income totaled approximately $1.1$1.4 million, compared with approximately $4.0$1.0 million for the same period last year.

Net income for the three months ended September 30, 20172018 was approximately $600,000$650,000 ($0.040.05 per basic and diluted share), compared with approximately $719,000$600,000 ($0.050.04 per basic and diluted share) for the same quarter last year. For the nine months ended September 30, 2017,2018, net income totaled approximately $650,000$1.2 million ($0.050.09 per basic and diluted share), compared with approximately $2.6 million$650,000 ($0.190.05 per basic and diluted share) for the same period last year.

As of September 30, 2017,2018, working capital totaled approximately $24.5$23.6 million, of which approximately $16.0$18.8 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 third quarter ended September 30, 2017,2018, net sales totaledincreased 12.4% to approximately $11.8$13.3 million, compared with approximately $14.7$11.8 million for the same quarter last year. Sales of P-25 digital productsNet sales totaled approximately $38.7 million for the quarter totaled approximately $8.2 million (69.7%nine months ended September 30, 2018, which was 29.1% greater than the comparable period last year, and 98.2% of total sales), compared with approximately $9.7 million (65.7% of total sales)net sales for the same quarter last year.full year of 2017.

The increase in total sales for the third quarter was attributed primarily to demand from both new and longstanding federal customers, particularly wildland fire suppression agencies, supplemented by certain state and Canadian public safety agencies. For the nine months ended September 30, 2017,2018, the increase in net sales totaled approximately $30.0 million, compared with approximately $43.5 million for the same period last year. Sales of P-25 digital products for the period totaled approximately $21.4 million (71.3% of total sales), compared with approximately $28.1 million (64.6% of total sales) for the same period last year.

Gross profit margin as a percentage of sales for the third quarter ended September 30, 2017 was 32.3%2018 increased to 41.1%, compared with 31.4%32.3% for the same quarter last year. For the nine months ended September 30, 2017,2018, gross profit margin as a percentage of sales was 35.2%margins increased to 41.8%, compared with 32.3%35.2% 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. ForThe improvement in gross profit margins for both the third quarter and nine month periods,nine-month period was attributed primarily to increased sales werecombined with a more heavily weighted toward lower margin products,favorable mix of product sales. Increased production volumes enabled us to more effectively utilize and were sold using promotional pricing designed to drive sales growth. Gross profit margins were also adversely impacted by incremental product costsabsorb our base of manufacturing overhead expenses, and we are realizing benefits associated with addressing customer requirements. Formanufacturing and quality improvement programs. Comparatively, the first three quarters last year’s third quarteryear included certain product enhancement expenses and nine-month periods, gross profit margins were negatively affected by competitive factors associated with the TSA business.discontinuation of a product development initiative.

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 third quarter ended September 30, 2018 totaled approximately $4.6 million, or 34.5% of 2017 totaledsales, compared with approximately $3.7 million, or 30.9% of sales, compared with approximately $3.5 million, or 24.1% of sales, for the third quarter last year. For the nine months ended September 30, 2017,2018, SG&A expenses totaled approximately $10.6$13.2 million, or 35.4%34.2% of sales, compared with $10.1approximately $10.6 million, or 23.3%35.4% of sales, for the same period last year.

Engineering and product development expenses for the third quarter of 20172018 totaled approximately $1.2$2.1 million (10.3%(15.9% of total sales), compared with $1.1approximately $1.2 million (7.8%(10.3% of total sales) for the same quarter last year. For the nine-month period, engineering and product development expenses totaled approximately $3.4$5.8 million (11.2%(15.0% of sales), compared with approximately $3.2$3.4 million (7.3%(11.2% 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.initiatives.

Marketing and selling expenses for the third quarter of 2017 decreased to2018 totaled approximately $1.4 million (12.0%(10.2% of sales) compared with approximately $1.5$1.4 million (10.6%(12.0% of sales) for the third quarter last year. For the nine-month period, marketing and selling expenses decreased tototaled approximately $4.0$4.2 million (13.4%(10.9% of sales), compared with $4.4approximately $4.0 million (10.0%(13.4% of sales) for the same period last year. The decreaseincrease for both periodsthe nine month period 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 third quarter of 20172018 totaled approximately $1.0$1.1 million (8.6%(8.3% of total sales), compared with approximately $855,000 (5.8%$1.0 million (8.6% of total sales) for the same quarter last year. For the nine-month period, general and administrative expenses totaled approximately $3.3$3.2 million (10.9%(8.2% of sales), compared with $2.6approximately $3.3 million (5.9%(10.9% of sales) for the same period last year. The increases wereslight increase for the third quarter was attributed primarily to headquarters expenses, while the decrease in costs for the nine-month period was primarily related to certain headquarters professional fees, as well as approximately $0.4 millionone-time costs incurred last year related to changes in non-recurring first quartersenior leadership. Those cost decreases were partially offset by expenses associated with changes in senior management.

Operating income for the third quarter ended September 30, 2017 totaled2018 increased by approximately $156,000 (1.3%$721,000 (459.2%) to approximately $878,000 (6.6% of sales), compared with approximately $1.1 million (7.3%$157,000 (1.3% of sales) for the same quarter last year. For the nine-month period, we recognizednine months ended September 30, 2018, operating income increased to approximately $3.0 million (7.6% of sales), compared with an operating loss of approximately $76,000 compared with operating income(0.3% of approximately $3.9 millionsales) for the same period last year. The decreaseincrease in operating income for boththe quarter and nine-month periods 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.development expenses.

During the first quarter of 2018, we sold 1,317,503 shares of Iteris, Inc., which cost approximately $2.4 million, for approximately $8.3 million, and recognized a loss of approximately $849,000.

For the three months ended September 30, 2017,2018, we sold 148,281 shares of Iteris, realizing a gain on the salesrecognized other expenses totaling approximately $48,000, compared with other income of approximately $670,000 (See Note 6 to the Condensed Consolidated Financial statements on page 9 of this report). There were no comparable gains recorded$1,000 for the same period last year. For the nine months ended September 30, 2017,2018, we sold 311,502 shares of Iteris, realizingrecognized other expenses totaling approximately $274,000, compared with approximately $146,000 in expenses for the same period last year. These expenses were primarily attributed to exchange losses related to sales under a gain on the sales of approximately $1.3 million.

We recorded income tax expense of approximately $252,000$17,000 and $200,000, respectively, for the third quarterthree and nine months ended September 30, 2017,2018, compared with approximately $365,000$252,000 and $353,000, respectively, for the same quarterperiods last year. For the nine-month period of 2017, we recorded income tax expense of approximately $353,000, compared with approximately $1.4 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, tax expense isdivided by pre-tax book income) from period to period.  For 2018, we generally expect our 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 September 30, 2017,2018, our net deferred tax assets totaled approximately $1.7$3.1 million, and arewere primarily composed of NOLs, offset by deferred tax liabilities of $1.3 million primarily derived from the unrealized gain on available-for-sale securities.NOLs.  These NOLs total $626,000totaled approximately $5.2 million for federal and $11.5$12.7 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 September 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 September 30, 2017.2018.

For the nine months ended September 30, 2017,2018, net cash provided by operating activities totaled approximately $2.6 million, compared with cash used in operating activities totaledof approximately $245,000 compared with cash provided by operating activities of approximately $8.3 million for the same period last year.  Cash used inprovided by operating activities was primarily related to net income, adjusted by unrealized loss on investment in securities, and a decrease in inventories, which were partially offset by a decrease in accounts payable and an increase in trade accounts receivable, inventories, and accrued compensation and related taxes, offset by accounts payable, accrued warranty expense and depreciation.receivable.

For the nine months ended September 30, 2017,2018, we had net income of approximately $650$1.2 million, compared with net incomeapproximately $650,000 for the same period last year. Net inventories decreased during the nine months ended September 30, 2018 by approximately $3.7 million, compared with an increase of approximately $2.6$1.3 million 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 nine months ended September 30, 2018 totaled approximately $1.4 million, compared with a gain of approximately $1.3 million 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 included in this report. Accounts receivable increased approximately $3.6$1.9 million during the nine months ended September 30, 2017,2018, compared with $2.1$3.6 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 nine months ended September 30, 2017 by approximately $1.3 million primarily due to material purchases. For last year’s nine month period, inventories decreased approximately $2.9 million. Accrued compensation and related taxes decreased by approximately $943,000 during the first nine months of 2017 as performance incentives were paid. For the same period last year, accrued compensation and related taxes increased by approximately $803,000. Accounts payable for the nine months ended September 30, 2017 increased2018, decreased approximately $2.5 million, compared with an increase of approximately $3.8 million compared with $526,000 for the same period last year, primarily due to timing of payments to material purchases.suppliers. Depreciation and amortization totaled approximately $727,000$702,000 for the nine months ended September 30, 2017,2018, compared with approximately $718,000$727,000 for the same period last year.

Cash provided by investing activities for the nine months ended September 30, 20172018 totaled approximately $3.5 million, compared with approximately $1.2 million which was primarily related to proceeds totaling approximately $1.8 millionfor the same period last year. Proceeds from the sale of available-for-sale securities partially offset by purchases of equipment totalingtotaled approximately $572,000. For$8.3 million for the nine months ended September 30, 2018, compared with approximately $1.8 million 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 nine months ended September 30, 2018, purchases of property, plant and $1.3equipment totaled approximately $1.1 million, was utilizedcompared with approximately $572,000 for the purchase of manufacturing and engineering equipment.same period last year.

For the nine months ended September 30, 2017,2018, approximately $3.0$2.0 million was used in financing activities, primarily related to our capital return program, which included quarterly dividends totaling approximately $2.8 million$815,000 and stock repurchases totaling approximately $405,000. We$1.2 million. For the same period last year, approximately $2.8 million was used to pay dividends and approximately $405,000 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 $2.5 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 September 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 September 30, 2017,2018, and the date of this report, there were no borrowings outstanding under the revolving credit facility. As of September 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 September 30, 20172018 was approximately $8.9$11.3 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 September 30, 2017,2018, as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.

Our President (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 September 30, 2017.2018. Based on this evaluation, they have concluded that our disclosure controls and procedures were effective as of September 30, 2017.2018.

During the three months ended September 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.