BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

The following table presents the computation of basic and diluted net income per share for the six months ended June 30, 2021:

The diluted share base excludes the following potential common shares due to their antidilutive effect:

The Company accounts for the amortization of the debt discount utilizing the effective interest method.

In May 2014,December 2019, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”2019-12, Simplifying the Accounting for Income Taxes (“Topic 740”). ASU 2014-09 supersededThe list of changes is comprehensive; however, the revenue recognition requirements in ASC Topic 604 “Revenue Recognition” and some cost guidance included in ASC Subtopic: 05-35, “Revenue Recognition – Construction-Type and Production-Type Contracts.” The core principlechanges will not significantly impact the Company due to the full valuation allowance that is recorded against the Company’s deferred tax assets. Early adoption of ASU 2014-092019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that revenue is recognized whenelects to early adopt the transfer of goods or services to customers occursamendments in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readersinterim period should reflect any adjustments as of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to apply ASU 2014-09 to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, “which was issued byannual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the FASB in August 2015 and extended the original effective date by one year. In preparation for the adoption of the new standardamendments in the fiscal year beginning January 2019, the Company continues to evaluate contract terms and potential impacts of the five-step model specified by the new guidance. That five-step model includes: (1) determination of whether a contract-an agreement between two or more parties that creates legally enforceable rights and obligations-exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied.same period. The Company anticipates adopting the standard using the modified retrospective approach at adoption.adopted ASU 2019-12 in 2021. The Company is currently evaluating individual customer contracts and will be documenting changes, as needed, to its accounting policies and controls as the Company continues to evaluate the impact of the adoption of this standard. The results of its procedures to date indicate that the adoption of thisnew standard willdid not have a material impact on its net income; however,the Company’s financial position, results of operations or financial statement disclosure.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 21, 2020, the Governor of New Jersey declared a health emergency and issued an order to close all nonessential businesses until further notice. As a maker of telecommunication equipment, the Company continuesis deemed to evaluatebe an essential business. Nonetheless, out of concern for our workers and pursuant to the government order, the Company reduced the scope of its operations and where possible, certain workers are telecommuting from their homes. In June 2021, the Governor of New Jersey rescinded the public health emergency. While the Company expects this matter to continue to negatively impact its results of operations, cash flows and financial position, the related impact cannot be reasonably estimated at this time.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

As disclosed in the Company’s most recent Annual Report on Form 10-K, the Company experienced a decline in sales, a reduction in working capital, a loss from operations and net cash used in operating activities, in conjunction with liquidity constraints. The above factors raised substantial doubt about the Company’s ability to continue as a going concern. As of June 30, 2021, certain of these factors still exist. Accordingly, there still exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the adoption on related financial statement disclosures.recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

ThereIn response to lower than expected sales due to a slowdown in market activities experienced during 2019, exacerbated by the outbreak of the novel coronavirus during the early part of 2020, the Company has continued a multi-phase operational cost-reduction program, which included adjustments to our staffing (in the form of furloughs and both temporary and permanent layoffs) and strategically timed reductions in manufacturing activities, which we believe will improve our ability to continue our operations and meet our obligations to customers.

The Company’s primary sources of liquidity have been four new ASUs issued amending certain aspectsits existing cash balances, cash generated from operations, amounts available under the MidCap Facility (see Note 5 below), amounts available under the Subordinated Loan Facility (see Note 6 below) and cash generated from the private placement of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and Licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers — Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedientscommon stock, as well as funds made available to the guidanceCompany through participation in ASU 2014-09several federal government financial assistance programs implemented pursuant to the Coronavirus Aid, Relief, and Economic Security Act, including the Paycheck Protection Program and the Employee Retention Tax Credit. As of June 30, 2021, the Company had approximately $1,633 outstanding under the MidCap Facility and $487 of additional availability for borrowing under the MidCap Facility.

If anticipated operating results are not achieved and/or the Company is unable to obtain additional financing, it may be required to take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations, which measures could have a material adverse effect on the Company’s ability to achieve its intended business objectives and may be insufficient to enable the Company to continue as a going concern.

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any additional recognized or non-recognized subsequent events that would require adjustment to or disclosure in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of usingcondensed consolidated financial statements.

Note 3 – Revenue Recognition

The Company recognizes revenue when it satisfies a performance obligation by transferring the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and makes other technical corrections and improvementsproduct or service to the standard. With its evaluationcustomer, typically at a point in time.

Disaggregation of the impactRevenue

The Company is a technology-development and manufacturing company that delivers a wide range of ASU 2014-09, the Company will also consider the impact on its financial statements relatedproducts and services to the updated guidance providedcable entertainment and media industry. Digital video headend products (including encoders) are used by these four new ASUs.a system operator for acquisition, processing, compression, encoding and management of digital and internet protocol (IP) video. DOCSIS data products give service providers, integrators, and premises owners a means to deliver data, video, and voice-over-coaxial in locations such as hospitality, MDU’s, and college campuses, using IP technology. HFC distribution products are used to transport signals from the headend to their ultimate destination in a home, apartment unit, hotel room, office or other terminal location along a fiber optic, coax or HFC distribution network. Analog video headend products are used by a system operator for signal acquisition, processing and manipulation to create an analog channel lineup for further transmission. Contract-manufactured products provide manufacturing, research and development and product support services for other companies’ products. CPE products are used by cable operators to provide video delivery to customers using IP technology. NXG is a two-way forward-looking IP digital video signal processing platform that is used to deliver next-generation entertainment services in both enterprise and residential locations. Transcoders convert video streams from one format to another to allow the video to be viewed across different platforms and devices. The Company also provides technical services, including hands-on training, system design engineering, on-site field support and complete system verification testing.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In May 2017,thousands, except per share data)

(unaudited)

The following table presents the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting (“ASU 2017-09”). This ASU clarifies which changes to the terms or conditions of a share-based payment award require an entry to apply modification accounting in Topic 718. The standard is effective for the Company on January 1, 2018, with early adoption permitted. The impact of this new standard will depend on the extent and nature of future changes to the termsCompany’s disaggregated revenues by revenue source:

All of the Company’s share-based payment awards.sales are to customers located primarily throughout the United States and Canada.

Note 4 – Inventories

Inventories, net of reserves, are summarized as follows:

Inventories are stated at the lower of net realizable value or cost, determined by the first-in, first-out (“FIFO”FIFO”) method.method, or net realizable value.

The Company periodically analyzes anticipated product sales based on historical results, current backlog and marketing plans. Based on these analyses, the Company anticipates that certain products will not be sold during the next twelve months. Inventories that are not anticipated to be sold in the next twelve months have been classified as non-current.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

Approximately 59% and 68% of the non-current inventories were comprised of finished goods at September 30, 2017 and December 31, 2016, respectively. The Company has established a program to use interchangeable parts in its various product offerings and to modify certain of its finished goods to better match customer demands. In addition, the Company has instituted additional marketing programs to dispose of the slower moving inventories.

The Company continually analyzes its slow-moving and excess inventories. Based on historical and projected sales volumes for finished goods, historical and projected usage of raw materials and anticipated selling prices, the Company establishes reserves. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net realizable value.

The Company recorded a provision to reduce the carrying amounts of inventories to their net realizable value in the amount of zero during both of the three months ended June 30, 2021 and 2020, respectively and 0 and $255 during the six months ended June 30, 2021 and 2020, respectively.

Note 5 – Debt

Line of Credit

On December 28, 2016,October 25, 2019, the Company entered into a Loan and Security Agreement (All Assets) (the “SterlingLoan Agreement”) with Sterling National BankMidCap Business Credit LLC (“SterlingMidCap”). The SterlingLoan Agreement provides the Company with a credit facility in an aggregate amount of $8,500 (the “Sterling Facility”) consisting ofcomprising a $5,000 asset-based revolving line of credit (the “Revolver”) and a $3,500 amortizing term loan (the “Term LoanMidCap Facility”). The SterlingMidCap Facility matures in December 2019.following the third anniversary of the Loan Agreement. Interest on the Revolveramounts outstanding under the Loan Agreement is variable, based upon the 30-daythree-month LIBOR rate (1.23% at September 30, 2017) plus a margin of 4.00%. Interest on the Term Loan also is variable, based upon the 30-day LIBOR rate (1.23%4.75% (4.85% at SeptemberJune 30, 2017) plus a margin of 4.50%. The Term Loan will amortize at the rate of $19 per2021), subject to re-set each month. On March 30, 2017, the Company and Sterling entered into a certain First Amendment to Loan and Security Agreement (the “First Amendment”), pursuant to which, among other things, the parties amended the definitions of certain items used in the calculation of the fixed charge coverage ratio, deferred the first measurement period of the financial covenants contemplated by the Sterling Agreement, from December 31, 2016 to January 31, 2017, and modified certain terms relating to permitted investments by the Company. At September 30, 2017, the outstanding balances under the Revolver and the Term Loan were $2,427 and $3,344, respectively. All outstanding indebtedness under the SterlingLoan Agreement is secured by all of the assets of the Company and its subsidiaries.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

The SterlingLoan Agreement contains customary covenants, including restrictions on the incurrence of additional indebtedness, encumbrances on the Company’s assets, the payment of cash dividends or similar distributions, the repayment of any subordinated indebtedness and the encumbrance, sale or other disposition of the Company’s assets. In addition, the Company must maintain (i)has a fixed charge coverage ratiominimum availability block of not less than 1.1$400.

On April 7, 2020, the Company entered into a certain Consent and Amendment to 1.0 for any fiscalLoan Agreement and Loan Documents with Midcap (the “MidCap First Amendment”), which amended the MidCap Facility to, among other things, remove the existing $400 availability block, subject to the same being re-imposed at the rate of approximately $7 per month (determinedcommencing June 1, 2020. The operative provisions relating to the removal of the availability block under the MidCap First Amendment became effective on April 8, 2020, following the consummation by the Company of the transactions contemplated by the Subordinated Loan Facility (See Note 6).

On January 8, 2021, the parties entered into a Second Amendment to Loan Agreement (the “Second Amendment”), which amendment, revised the Loan Agreement to, among other things, modify the Loan Agreement’s definition of “Minimum EBITDA Covenant Trigger Event.” The Second Amendment amends the definition, retroactive to and as of December 1, 2020, and also includes certain additional non-substantive changes.

On June 14, 2021, the last dayparties entered into a Third Amendment to Loan Agreement (the “Third Amendment”), which amendment, revised the Loan Agreement to, among other things, modify the Loan Agreement’s definition of each fiscal month on“Minimum EBITDA Covenant Trigger Event.” The Third Amendment amends the definition, retroactive to and as of June 1, 2021, and also includes certain additional non-substantive changes.

On July 30, 2021, the parties entered into a rolling twelve-month basis,Fourth Amendment to Loan Agreement (the “Fourth Amendment”), which amendment, revised the Loan Agreement to, among other things, modify the Loan Agreement’s definition of “Minimum EBITDA Covenant Trigger Event.” The Fourth Amendment amends the definition, retroactive to and as calculated forof July 1, 2021, and also includes certain additional non-substantive changes.

Long-Term Debt

On April 10, 2020, the Company received loan proceeds of approximately $1,769 (“PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business. The PPP Loan and accrued interest are forgivable after twenty-four weeks (the “Covered Period”) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its consolidated subsidiaries) and (ii)payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the Covered Period.

The PPP Loan was evidenced by a leverage ratio of not more than 2.0 to 1.0 for any fiscal month (determinedpromissory note, dated as of the last day of each fiscal month, as calculated forApril 5, 2020 (the “Note”), between the Company, as Borrower, and its consolidated subsidiaries)JPMorgan Chase Bank, N.A., as Lender (the “Lender”). By virtueThe interest rate on the Note was 0.98% per annum, with interest accruing on the unpaid principal balance computed on the basis of the First Amendment, compliance withactual number of days elapsed in a year of 360 days. No payments of principal or interest were due during the foregoing financial covenantsten-month period beginning on the date after the Covered Period.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

On June 22, 2021, the Company applied to the SBA for full forgiveness of the PPP Loan. On June 30, 2021, the Company received notification that the forgiveness was tested commencinggranted. The Company recorded the $1,769 forgiveness as of January 31, 2017.a gain on debt forgiveness during the three and six month periods ended June 30, 2021, respectively.

Note 6 – Subordinated Convertible Debt with Related Parties

On March 28, 2016,April 8, 2020, the Company, as borrower, together with Livewire Ventures, LLC (wholly owned by the Company’s Chief Executive Officer, Edward R. Grauch), MidAtlantic IRA, LLC FBO Steven L. Shea IRA (an IRA account for the benefit of the Company’s Chairman of the Board, Steven Shea), Carol M. Pallé and its wholly-owned subsidiary, R.L. Drake Holdings, LLC (“Drake”)Robert J. Pallé (Company Director and employed as Managing Director-Strategic Accounts) , Anthony J. Bruno (Company Director), and Stephen K. Necessary (Company Director) , as borrowerslenders (collectively, the “Initial Lenders”) and Robert J. Pallé, as agentAgent for the Lenders (in such capacity, “Agent”) and as a lender, together with Carol M. Pallé, Steven Shea and James H. Williams as lenders (collectively, the “Subordinated LendersAgent”) entered into a certain Amended and Restated Senior Subordinated Convertible Loan and Security Agreement (the “Subordinated Loan Agreement”), pursuant to which the Subordinated Lenders agreedlenders from time to time party thereto were permitted to provide up to $1,500 of loans to the Company with a delayed draw term loan facility of up to $750 (“(the “Subordinated Loan Facility”), under which individual advances in amounts not less than $50 may be drawn by the Company.. Interest accrues on the outstanding balanceamounts advanced under the Subordinated Loan Facility from time to time, accrues at the rate of 12% per annum, (subject to increase under certain circumstances)compounded and is payable monthly, in-kind, by the automatic increase of the principal amount of the loan on each monthly interest payment date, by the amount of the accrued interest payable at that time (“PIK Interest”); provided, however, that at the option of the Company, it may pay interest in cash on any interest payment date, in lieu of PIK Interest.

On April 8, 2020, the Initial Lenders agreed to provide the Company with a Tranche A term loan facility of $800 of which $600 was advanced to the Company on April 8, 2020, $100 was advanced to the Company on April 17, 2020 and $100 was advanced to the Company on January 12, 2021. The SubordinatedInitial Lenders participating in the Tranche A term loan facility have the option of converting the principal balance of the loan held by each of them, in whole (unless otherwise agreed by the Company), into shares of the Company’s common stock at a conversion price equal to the volume weighted average price of $0.54 per share (subject to adjustment under certain circumstances). Thisthe Common Stock as reported by the NYSE American, during the five trading days preceding April 8, 2020 (the “Tranche A Conversion Price”) which was calculated at $0.593. The conversion right was subject to stockholder approval as required by the rules of the NYSE MKT,American, which was obtained on June 11, 2020.

On April 24, 2020, the Company, the Initial Lenders, Ronald V. Alterio (the Company’s Senior Vice President-Engineering, Chief Technology Officer) and certain additional unaffiliated investors (the “Additional Lenders,” and, together with the Initial Lenders, the “Lenders”) entered into the First Amendment to Senior Subordinated Convertible Loan and Security Agreement and Joinder (the “Amendment”). The Amendment provides for the funding of $200 of additional loans under the Subordinated Loan Facility as a Tranche B term loan established under the Subordinated Loan Agreement, with such loans being provided by the Additional Lenders. The Amendment also sets the conversion price of $0.55 (the “Tranche B Conversion Price”) with respect to the right of the Additional Lenders to convert the accreted principal balance of the loans held by each of them into shares of the Company’s common stock. The terms and conditions of the conversion rights applicable to the Initial Lenders and the Additional Lenders are otherwise identical in all material respects, including the terms restricting conversion to an aggregate amount of shares of common stock that would not result in the Company’s non-compliance with NYSE American rules requiring stockholder approval of issuances or potential issuances of shares in excess of the percentage limits specified therein or in an amount that may be deemed to constitute a change of control under such rules. These restrictions were eliminated when the requisite stockholder approval was obtained on June 11, 2020.

On October 29, 2020, the additional unaffiliated investors as described above, submitted irrevocable notices of conversion under the Tranche B Term Loan. As a result, $175 of original principal and $11 of PIK interest outstanding under the Tranche B Term Loan were converted into 338 shares of Company common stock in full satisfaction of their indebtedness.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

On January 28, 2021, the Company entered into the Third Amendment to Senior Subordinated Convertible Loan and Security Agreement and Joinder (the “LSA Third Amendment”) with the Tranche A Parties, the Tranche B Parties (that had not previously converted the loans attributable to each of them into shares of Common Stock), the Agent and certain other investors (the “Tranche C Parties”). Pursuant to the LSA Third Amendment, the parties agreed to increase the aggregate loan limit from $1,500 to $1,600 and the Tranche C Parties agreed to provide the Company with a commitment for a $600 term loan facility, all of which was advanced to the Company on January 29, 2021 (the “Tranche C Loans”). As is the case with the loans provided by the Tranche A Parties and Tranche B Parties, interest on the Tranche C Loans accrues at 12% per annum and is payable monthly in-kind, by the automatic increase of the principal amount of the loans on each monthly interest payment date, by the amount of the accrued interest payable at that time. The Company, at its option, may pay any interest due on the Tranche C Loans in cash on any interest payment date in lieu of PIK Interest. The Tranche C Parties also have the option, following the stockholder approval described in the next sentence, of converting the accreted principal balance of the Tranche C Loans attributable to each of them into shares of the Company’s common stock at a conversion price of $1.00. The conversion rights are subject to the terms and conditions applicable to the Tranche C Parties restricting conversion of the Tranche C Loans to an aggregate amount of shares of common stock that would not result in the Company’s non-compliance with NYSE American rules requiring stockholder approval of issuances or potential issuances of shares in excess of the percentage limits specified therein. These restrictions were eliminated when the requisite stockholder approval was obtained on March 4, 2021. As the stock price was $1.31 on March 4, 2021, the Company recorded a discount of $186 relating to the difference in stock price due to the beneficial conversion feature. The Company issued 42 warrants at an exercise price of $1.00 to a placement agent in connection with the Tranche C Loans. The warrants have a five-year term from January 28, 2021.

On March 15, 2021, one of the Tranche C Parties submitted an irrevocable notice of conversion under the Tranche C Loans. As a result, $100 of original principal and $1 of PIK interest outstanding under the Tranche C Loans were converted into 101 shares of Company common stock in partial satisfaction of their indebtedness.

On April 6, 2021, the same Tranche C Party submitted an irrevocable notice of conversion under the Tranche C Loans. As a result, $50 of original principal and $1 of PIK interest outstanding under the Tranche C Loans were converted into 51 shares of Company common stock in partial satisfaction of their indebtedness.

On May 24, 2016 at2021, the Company’s annual meetingsame Tranche C Party submitted an irrevocable notice of stockholders. conversion under the Tranche C Loans. As a result, $50 of original principal and $2 of PIK interest outstanding under the Tranche C Loans were converted into 52 shares of Company common stock in complete satisfaction of their indebtedness.

The obligations of the Company and Drake under the Subordinated Loan Agreement are guaranteed by Drake and are secured by substantially all of the Company’s and Drake’s assets, including by a mortgage against the Old Bridge Property (the “Subordinated Mortgage”).assets. The Subordinated Loan Agreement terminateshas a maturity date three years from the date of closing, at which time the accreted principal balance of the loan (by virtue of the PIK Interest) plus any other accrued unpaid interest, willwould be due and payable in full.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

In connection with the Subordinated Loan Agreement, the Company, Drake, the Subordinated Lenders and SterlingMidCap entered into a Subordination Agreement (the “Subordination Agreement”), pursuant to which the rights of the Subordinated Lenders under the Subordinated Loan Agreement and the Subordinated Mortgage are subordinatewere subordinated to the rights of SterlingMidCap under the SterlingMidCap Agreement and related security documents. The Subordination Agreement precludes the Company from making cash payments of interest in lieu of PIK Interest, in the absence of the prior written consent of Sterling.

AsMidCap or unless the Company is able to meet certain predefined conditions precedent to the making of September 30, 2017,any such payments of interest (or principal), as more fully described in the Subordination Agreement. The Company accrued $41 and $23 of PIK Interest with respect to the Subordinated Lenders advanced $500 toLoan Facility during the Company. In addition, $18three-months ended June 30, 2021 and $522020, respectively and $77 and $23 of PIK interest was accrued in the three months and nineInterest six months ended SeptemberJune 30, 2017,2021 and 2020, respectively. The Company evaluated the conversion option embedded in the Subordinated Loan Agreement issued in December 2016 in accordance with the provisionsrecorded $39 and $78 of ASC Topic 815,Derivatives and Hedging, and determined that the conversion option had all of the characteristics of a derivative in its entirety and did not qualify for an exception to the derivative accounting rules. Specifically, prior to the adoption of the First Sub-Debt Amendment, pursuant to Section 4.4(e)(ii) of the Subordinated Debt Agreement, the exercise price of the conversion option entitled the Subordinated Lenders to an adjustment of the exercise price in the event that the Company subsequently issued equity securities or equity linked securities at prices more favorable to a new investor than the exercise price of the conversion option embedded in the Subordinated Loan Agreement (the “Price Protection Provision”). Accordingly, the conversion option was not indexed to the Company’s own stock. Due to the derivative treatment of the conversion option, the Company recorded $260 derivative liability at December 31, 2016. On March 21, 2017, the Company, Drake, and the Subordinated Lenders entered into a certain First Amendment to Amended and Restated Convertible Loan and Security Agreement (the “First Sub-Debt Amendment”), pursuant to which the Subordinated Loan Agreement was amended to eliminate the Price Protection Provision, effective as of such date. The First Sub-Debt Amendment also eliminated certain defined termsinterest expense related to the Price Protection Provision. As a resultamortization of the First Sub-Debt Amendment,debt discount during the first quarter of 2017, the Company recorded a change in the derivative liability (expense) of $142, the fair value of the liability at the date of the modificationthree and reclassified the aggregate value of the derivative liability at the date of modification in the amount of $402 to additional paid-in capital. In addition, during the ninesix months ended SeptemberJune 30, 2017 and 2016, the Company incurred interest of $229 and $37, respectively, related to these loans. The Company computed the fair value of the derivative liability at the date of modification using the Black-Scholes Model, which approximates a binomial lattice model with the following assumptions: stock price of $0.65, conversion price of $0.54, volatility of 104%, expected term of two years, risk free rate of 1.30% and dividend yield 0%.2021, respectively.

Note 7 – Legal ProceedingsRelated Party Transactions

A director and shareholder of the Company is a partner of a law firm that serves as outside legal counsel for the Company. During the three-month periods ended June 30, 2021 and 2020, this law firm billed the Company approximately $152 and $341, respectively and during the six-month periods ended June 30, 2021 and 2020, this law firm billed the Company approximately $348 and $493, respectively for legal services provided by the firm. Included in accounts payable on the accompanying unaudited condensed balance sheet at June 30, 2021 and December 31, 2020 is approximately $241 and $183 owed to this law firm.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

Note 8 – Concentration of Credit Risk

The following table summarizes credit risk with respect to customers as percentage of sales for the three and six month periods ended June 30, 2021 and 2020:

The following table summarizes credit risk with respect to customers as percentage of accounts receivable:

The following table summarizes credit risk with respect to vendors as percentage of purchases for the three-month and six-month periods ended June 30, 2021 and 2020:

The following table summarizes credit risk with respect to vendors as percentage of accounts payable:

Note 9 – Commitments and Contingencies

Leases

The Company leases certain real estate, factory, and office equipment under non-cancellable operating leases at various dates through January 2024. Lease costs and cash paid for the three-month period ended June 30, 2021 were $198 and $196, respectively. Lease costs and cash paid for the three-month period ended June 30, 2020 were $187 and $187, respectively. Lease costs and cash paid for the six-month period ended June 30, 2021 were $391 and $390, respectively. Lease costs and cash paid for the six-month period ended June 30, 2020 were $377 and $375, respectively.

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

Maturities of the lease liabilities are as follows:

As of June 30, 2021, the weighted average remaining lease term is 2.82 years and the weighted average discount rate used to determine the operating lease liabilities was 6.5%.

Litigation

The Company from time to time is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the opinion of management, is likely to have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

Note 810 – Subsequent EventsOther Income

In June 2021 and March 2021, the Company accrued payroll tax credits of $608 and $577 through the Employee Retention Tax Credit (“ERTC”) for the second and first quarter of 2021, respectively. The amount was recorded as other income and included in prepaid and other current assets as of the applicable quarter end date. The Company has evaluated subsequent eventsreceived the first quarter of 2021 ERTC in April and expects to receive the second quarter of 2021 in October 2021. The ERTC was initially established as part of the CARES Act of 2020 and subsequently amended by the Consolidated Appropriation Act (“CAA”) of 2021 and the American Rescue Plan Act (“ARPA”) of 2021. The CAA and ARPA amendments to the ERTC program provide eligible employers with a tax credit in an amount equal to 70% of qualified wages (including certain health care expenses) that eligible employers pay their employees after January 1, 2021 through December 31, 2021. The maximum amount of qualified wages taken into account with respect to each employee for each calendar quarter is $10,000, so that the filingmaximum credit that an eligible employer may claim for qualified wages paid to any employee is $7,000 per quarter. For purposes of its consolidated financial statementsthe amended ERTC, an eligible employer is defined as having experienced a significant (20% or more) decline in gross receipts during each 2021 calendar quarter when compared with the SEC.same quarter in 2019. The credit is taken against the Company’s share of Social Security Tax when the Company’s payroll provider files the applicable quarterly tax filings on Form 941.

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

The following discussion and analysis of the Company’s historical results of operations and liquidity and capital resources should be read in conjunction with the unaudited consolidated financial statements of the Company and notes thereto appearing elsewhere herein. The following discussion and analysis also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Forward Looking Statements,” below.

Forward-Looking Statements

In addition to historical information this Quarterly Report contains forward-looking statements regarding future events relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities Exchange Act of 1934 provide safe harbors for forward-looking statements. In order to comply with the terms of these safe harbors, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially and adversely from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the Company’s business include, but are not limited to, those matters discussed herein in the section entitled Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. The words “believe,” “expect,” “anticipate,” “project,” “target,” “intend,” “plan,” “seek,” “estimate,” “endeavor,” “should,” “could,” “may” and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections for our future financial performance, our ability to extend or refinance our debt obligations, our anticipated growth trends in our business and other characterizations of future events or circumstance are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 20162020, filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2021 (See Part I – Item 1 – Business; Item 1A – Risk Factors; Item 3 – Legal Proceedings and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations) and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 13, 2021 (See Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations; and Part II – Item 1 Legal Proceedings and Item 1A – Risk Factors).

General

The Company was incorporated in November 1988, under the laws of Delaware as GPS Acquisition Corp., for the purpose of acquiring the business of Blonder-Tongue Laboratories, Inc., a New Jersey corporation, which was founded in 1950 by Ben H. Tongue and Isaac S. Blonder to design, manufacture and supply a line of electronics and systems equipment principally for the private cable industry. Following the acquisition, the Company changed its name to Blonder Tongue Laboratories, Inc. The Company completed the initial public offering of its shares of Common Stock in December 1995.

Today, the Company is a technology-development and manufacturing company that delivers a wide range of products and services to the telecommunications, cable entertainment and media industry. For 65more than 70 years, Blonder Tongue/Drake products have been deployed in a long list of locations, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, education universities/schools, healthcare hospitals/healthcare/hospitals, fitness centers, government facilities/offices, prisons, airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses. These applications are variously described as commercial, institutional and/or enterprise environments and will be referred to herein collectively as “CIE”. The customers we serve include business entities installing private video and data networks in these environments, whether they are the largest cable television operators, telco or satellite providers, integrators, architects, engineers or the next generation of Internet Protocol Television (“IPTVIPTV”)”) streaming video providers. The technology requirements of these markets change rapidly, and the Company’s research and development team is continually delivering high performance-lower cost solutions to meet customers’ needs.

The Company’s strategy is focused on providing a wide range of products to meet the needs of the CIE environments described above, (e.g., hotels, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, schools, etc.),airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses, and to provide offerings that are optimized for an operator’s existing infrastructure, as well as the operator’s future strategy. A key component of this growth strategy is to provide products that deliver the latest technologies (such as IPTV and digital SD4K, UHD, HD and HDSD video content) and have a high performance-to-cost ratio.

In 2019, the Company initiated a consumer premise equipment (“CPE”) sales initiative. The CPE products sold in 2019 comprise primarily Android-based IPTV set top boxes targeted to the Tier 2 and Tier 3 cable and telecommunications service providers. This strategic initiative was designed to secure an in-home position with the Company’s product offerings, more intimate, direct relationships with a wide range of service providers, and increased sales of the Company’s CIE products by the Company’s Premier Distributors to those same service providers. In its first year, the CPE Product initiative achieved sales to over 45 different telco, municipal fiber and cable operators and accounted for approximately 20% of the Company’s 2019 revenues. During 2020, the CPE Product initiative achieved sales to 56 different telco, municipal fiber and cable operators and accounted for approximately 25% of the Company’s revenues. Although the CPE product initiative has had a material contribution to the Company’s net sales, it has not had a material impact on the Company’s overall performance, in large measure due to the relatively low gross margins associated with these sales. The Company expects sales of CPE products to continue to trend lower than in prior periods as the Company, consistent with its business plan, transitions those products into a higher margin but lower revenue services, fulfillment, and support business model, and works to promote an expanded array of distribution, content delivery and processing technologies to those service provider customers.

The CompanyLike many businesses throughout the United States and the world, we have been affected by the COVID-19 outbreak. Because there are daily developments regarding the outbreak, we are continually assessing the current and anticipated future effects on our business, including how these developments are impacting or may impact our customers, employees and business partners. In our core CIE business, we have experienced a noticeable decline in sales, as many of our customers have significantly reduced their business operations. In our CPE business we have experienced a more substantial reduction in sales, again as a result of our customers’ significant decrease in their business activities. With uncertainties surrounding the extent to which the COVID-19 outbreak will affect the economy generally, and our customers and business partners in particular, it is impossible for us to predict when conditions will improve to the point that we can reasonably forecast when our sales might return to historical levels. In addition, as has seenbeen widely-reported by news outlets, there has been and continues to be a continuing long-term shiftglobal semiconductor microchip shortage. Many of our products include one or multiple microchips as critical product components. We have recently experienced difficulties in product mix from analogsourcing microchips in amounts necessary to produce certain products to digital products and expects this shift to continue. Sales of digital video headend products were $2,100,000 and $2,763,000 in the third three monthsvolumes we believe are required to meet customer demand. If we are unable to source a sufficient amount of 2017microchips, we may not be able to meet customer demand and 2016, respectivelyour sales will be adversely affected and $7,330,000our customer relationships also may be damaged. In addition, the shortage has resulted in higher prices for microchips. If the price of microchips used in our products increases and $8,889,000 in the first nine months of 2017we are unable to pass those additional costs on to our customers through end-product price increases, our margins and 2016, respectively. Sales of analog video headend products were $324,000 and $559,000 in the third three months of 2017 and 2016, respectively and $1,360,000 and $1,789,000 in the first nine months of 2017 and 2016, respectively. Any substantial decrease in sales of analog products without a related increase in digital products could have a material adverse effect on the Company’sour financial results of operations, financial condition and cash flows.will be adversely affected.

The Company’s manufacturing is allocated primarily between its facility in Old Bridge, New Jersey the (“Old Bridge Facility”) and a key contract manufacturermanufacturing located offshore in the People’s Republic of China (“PRC”)., South Korea, and Taiwan (the “Far East”) and domestically, in Ohio. The Company currently manufactures most of its digital products, including the NXG product line and latest encoder, transcoder and EdgeQAM collections at the Old Bridge Facility. Since 2007 the Company has been manufacturingtransitioned and continues to manufacture certain high volume, labor intensive products, including many of the Company’s analog and other products, in the PRC,Far East, pursuant to a manufacturing agreementagreements that governsgovern the production of products that may from time to time be the subject of purchase orders submitted by (and in the discretion of) the Company. Although the Company does not currently anticipate the transfer of any additional products to the PRCFar East or other countries for manufacture, the Company may do so if business and market conditions make it advantageous to do so. Manufacturing products both at the Company’s Old Bridge Facility as well as in the PRC,Far East and Ohio, enables the Company to realize cost reductions while maintaining a competitive position and time-to-market advantage.

The Company may, from time to time, provide manufacturing, research and development and product support services for other companies’ products. In 2015, the Company entered into an agreement with VBrick Systems, Inc. (“VBrick”) to provide procurement, manufacturing, warehousing and fulfillment support to VBrick for a lineResults of high end encoder products and sub-assemblies. VBrick purchases of these products were approximately $244,000 and $465,000 in the thirdOperations

Second three months of 2017 and 2016, respectively and $599,000 and $994,000 in the first nine months of 2017 and 2016, respectively.

Results of Operations

Third2021 Compared with second three months of 2017 Compared with third2020

Net Sales. Net sales increased $507,000, or 13.2%, to $4,338,000 in the second three months of 2016

Net Sales.Net sales increased $144,000, or 2.7%, to $5,576,0002021 from $3,831,000 in the thirdsecond three months of 2017 from $5,432,000 in the third three months of 2016.2020. The increase is primarily attributedattributable to an increase in sales of datatranscoder products, NXG products and digital video headend products, offset by a decrease in digital video headend products, analog headend products, HFC distributionsales of DOCSIS data products and contract manufacturedCPE products. Sales of datatranscoder products were $1,782,000$1,337,000 and $315,000,$279,000, NXG products were $470,000 and $285,000, digital video headend products were $2,100,000$968,000 and $2,763,000, analog headend$745,000, DOCSIS data products were $324,000$327,000 and $559,000, HFC distribution$701,000, and CPE products were $838,000$288,000 and $1,046,000 and contract manufactured products were $244,000 and $465,000$1,026,000 in the thirdsecond three months of 20172021 and 2016,2020, respectively. The Company expects sales of transcoder products to continue to increase as market acceptance increases. In addition, the Company expects sales of DOCIS data products to increase in the near term as hospitality market purchases begin to return to prior levels post COVID-19. The Company expects sales of CPE products to continue to trend lower than in prior periods as the Company, consistent with its business plan, moves away from lower-margin product lines.

Cost of Goods Sold.Cost of goods sold decreasedincreased to $3,399,000$2,733,000 for the thirdsecond three months of 20172021 from $3,531,000$2,596,000 for the thirdsecond three months of 2016 and2020, but decreased as a percentage of sales to 61.0%63.0% from 65.0%67.8%. The decrease was$137,000 increase is primarily dueattributable to a more favorable product mix. Thehigher sales, while the decrease as a percentage of sales wasis primarily attributedattributable to an overall reduction in the amount of manufacturing overhead capitalized,higher margins relating to favorable product mix, as well as a more favorable product mix.reduced overhead costs.

Selling Expenses. Selling expenses decreasedincreased to $631,000$634,000 for the thirdsecond three months of 20172021 from $645,000$574,000 in the thirdsecond three months of 2016, and2020 but decreased as percentage of sales to 11.3%14.6% for the thirdsecond three months of 20172021 from 11.9%15.0% for the thirdsecond three months of 2016.2020. The $14,000 decrease$60,000 increase was primarily the result of a decreasean increase in salary expense (includingsalaries and fringe benefits) of $36,000benefits due to a decreasean increase in headcounthead count of $38,000, an increase in consulting fees of $21,000 and a decrease in royalty expense of $39,000 offset by an increase in department supplies of $23,000$20,000 offset by a decrease in advertising and an increase in sales commissionstrade shows of $29,000.$27,000.

General and Administrative Expenses. General and administrative expenses decreased to $956,000$965,000 for the thirdsecond three months of 20172021 from $959,000$1,161,000 for the thirdsecond three months of 20162020 and decreased as a percentage of sales to 17.1%22.3% for the thirdsecond three months of 20172021 from 17.7%30.3% for the thirdsecond three months of 2016.2020. The $3,000$196,000 decrease was primarily the result of a decrease in professional fees of $110,000, a decrease in bank fees of $34,000 and a decrease in consulting fees of $28,000.

Research and Development Expenses. Research and development expenses increased to $623,000 in the second three months of 2021 from $608,000 in the second three months of 2020, but decreased as a percentage of sales to 14.4% for the second three months of 2021 from 15.9% for the second three months of 2020. This $15,000 increase is primarily the result of an increase in legal expensessalaries and fringe benefits of $37,000,$11,000 due to increased head count.

Operating Loss. Operating loss of $(617,000) for the second three months of 2021 represents a decrease (or improvement) of $491,000 from the operating loss of $(1,108,000) for the second three months of 2020. Operating loss as a percentage of sales was (14.2) % in the second three months of 2021 compared to (28.9) % in the second three months of 2020.

Other income. Other income increased to $608,000 in the second three months of 2021 from zero in the second three months of 2020. The increase is the result of the accrual of the payroll tax credit through the Employee Retention Tax Credit for the second quarter of 2021.

Interest Expense. Interest expense increased to $134,000 in the second three months of 2021 from $86,000 in the second three months of 2020. The increase is primarily the result of the PIK interest and the accretion of the debt discount under the subordinated convertible debt.

First six months of 2021 Compared with first six months of 2020

Net Sales. Net sales decreased $292,000, or 3.7%, to $7,589,000 in the first six months of 2021 from $7,881,000 in the first six months of 2020. The decrease is primarily attributable to a decrease in sales of DOCSIS data products, digital video headend products, HFC distribution products and CPE products, offset by an increase in salary expense (including fringe benefits)sales of $27,000 duetranscoder products and NXG products. Sales of DOCSIS data products were $355,000 and $1,572,000, digital video headend products were $1,511,000 and $1,802,000, HFC distribution products were $923,000 and $1,170,000, CPE products were $983,000 and $1,672,000, transcoder products were $2,073,000 and $394,000 and NXG products were $891,000 and $481,000 in the first six months of 2021 and 2020, respectively. The Company expects sales of transcoder products to ancontinue to increase as market acceptance increases. In addition, the Company expects sales of DOCIS data products to increase in headcount,the near term as hospitality market purchases begin to return to prior levels post COVID-19. The Company expects sales of CPE products to continue to trend lower than in prior periods as the Company, consistent with its business plan, moves away from lower-margin product lines.

Cost of Goods Sold. Cost of goods sold decreased to $4,599,000 for the first six months of 2021 from $6,093,000 for the first six months of 2020 and principallydecreased as a percentage of sales to 60.6% from 77.3%. The $1,494,000 decrease is primarily attributable lower sales, offset by higher margins relating to favorable product mix and the decrease as a percentage of sales is primarily attributable to higher margins relating to favorable product mix, as well as reduced overhead costs.

Selling Expenses. Selling expenses decreased to $1,165,000 for the first six months of 2021 from $1,302,000 in the first six months of 2020 and decreased as percentage of sales to 15.4% for the first six months of 2021 from 16.5% for the first six months of 2020. The $137,000 decrease was primarily the result of a decrease in building reconfiguration expensessalaries and fringe benefits due to a decrease in head count of $58,000, amongst other decreases.

$45,000 and a decrease in advertising and trade shows of $75,000.

General and Administrative Expenses. General and administrative expenses decreased to $2,044,000 for the first six months of 2021 from $2,348,000 for the first six months of 2020 and decreased as a percentage of sales to 26.9% for the first six months of 2021 from 29.8% for the first six months of 2020. The $304,000 decrease was primarily the result of a decrease in professional fees of $200,000 and a decrease in rent of $64,000.

Research and Development Expenses. Research and development expenses decreased to $605,000$1,261,000 in the third threefirst six months of 20172021 from $711,000$1,265,000 in the third threefirst six months of 2016 and decreased2020 but increased as a percentage of sales to 10.9%16.6% for the third threefirst six months of 20172021 from 13.1%16.1% for the third threefirst six months of 2016.2020. This $106,000$4,000 decrease is primarily the result of a decrease in amortization expenseconsulting fees of $69,000 relating to certain license fees becoming fully amortized, a decrease$54,000 offset by an increase in depreciationsalaries and fringe benefits of $15,000, and a decrease of salary expense (including fringe benefits) of $21,000$41,000 due to reduced headcount.increased head count.

Operating Loss. Operating loss of $15,000$(1,480,000) for the third threefirst six months of 20172021 represents a reductiondecrease (or improvement) of $1,647,000 from the operating loss of $414,000$(3,127,000) for the third threefirst six months of 2016.2020. Operating loss as a percentage of sales was (0.3%)(19.5) % in the third threefirst six months of 20172021 compared to (7.6%)(39.7) % in the third threefirst six months of 2016.2020.

Other income. Other income increased to $1,185,000 in the first six months of 2021 from zero in the first six months of 2020. The increase is the result of the accrual of the payroll tax credit through the Employee Retention Tax Credit for the first and second quarters of 2021.

Interest Expense. Interest expense increased to $138,000 in the third three months of 2017 from $107,000 in the third three months of 2016. The increase is attributable to amortization of loan fees of approximately $35,000 offset by a decrease in borrowings under the Revolver.

First nine months of 2017 Compared with first nine months of 2016

Net Sales. Net sales increased $656,000, or 3.9%, to $17,713,000$262,000 in the first ninesix months of 20172021 from $17,057,000$147,000 in the first ninesix months of 2016. The increase is primarily attributed to an increase in sales of data products offset by a decrease in digital video headend products, analog headend products and contract manufactured products. Sales of data products were $5,168,000 and $1,592,000, digital video headend products were $7,330,000 and $8,889,000, analog video headend products were $1,360,000 and $1,789,000 and contract manufactured products were $599,000 and $994,000 in the first nine months of 2017 and 2016, respectively.

Cost of Goods Sold. Cost of goods sold increased to $11,010,000 for the first nine months of 2017 from $10,471,000 for the first nine months of 2016 and increased as a percentage of sales to 62.2% from 61.4%. The increase as a percentage of sales was primarily attributed to an overall reduction in the amount of manufacturing overhead capitalized, as well as a less favorable product mix, whereby the data products yield a lower gross margin.

Selling Expenses. Selling expenses decreased to $1,941,000 for the first nine months of 2017 from $1,961,000 in the first nine months of 2016, and decreased as percentage of sales to 11.0% for the first nine months of 2017 from 11.5% for the first nine months of 2016. The $20,000 decrease was primarily the result of a decrease in salary expense (including fringe benefits) of $77,000 due to a decrease in headcount and a decrease in royalty expense of $68,000 offset by an increase in department supplies of $108,000.

General and Administrative Expenses. General and administrative expenses decreased to $2,802,000 for the first nine months of 2017 from $2,906,000 for the first nine months of 2016 and decreased as a percentage of sales to 15.8% for the first nine months of 2017 from 17.0% for the first nine months of 2016. The $104,000 decrease was primarily the result of an increase in legal fees of $112,000 and an increase in salaries (including fringe benefits) of $32,000, offset by decreased travel and entertainment expense of $66,000 due to decreased business travel and a decrease in building reconfiguration expenses of $64,000 amongst other cost containment measures.

Research and Development Expenses. Research and development expenses decreased to $1,877,000 in the first nine months of 2017 from $2,098,000 in the first nine months of 2016 and decreased as a percentage of sales to 10.6% for the first nine months of 2017 from 12.3% for the first nine months of 2016. This $221,000 decrease is primarily the result of a decrease in amortization expense of $150,000 relating to certain license fees becoming fully amortized, a decrease in depreciation of $43,000 and a decrease in salaries (including fringe benefits) of $32,000 due to a decrease in headcount.

Operating Income (Loss). Operating income of $83,000 for the first nine months of 2017 represents an improvement from the operating loss of $379,000 for the first nine months of 2016. Operating income as a percentage of sales was 0.5% in the first nine months of 2017 compared to a loss of (2.2%) in the first nine months of 2016.

Interest Expense. Interest expense increased to $581,000 in the first nine months of 2017 from $281,000 in the first nine months of 2016.2020. The increase is primarily the result of the PIK interest and the accretion of the debt discount related tounder the former derivative liability of $177,000 and $105,000 of amortization of deferred loan fees both non-cash expenses.

subordinated convertible debt.

Liquidity and Capital Resources

As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company’s working capital was $4,113,000$1,598,000 and $3,464,000,$570,000, respectively. The increase in working capital iswas primarily due to improved operations, an increase in prepaid and other current assets.

The Company’s net cash provided by operating activities for the six-month period ended June 30, 2021 was $126,000 primarily due to net income of inventories of $426,000 and$1,212,000, an increase in accounts receivablepayable and accrued expenses of $353,000.

$512,000, offset by an increase in prepaid and other current assets of $942,000 and adjustments to reconcile net income to cash used in operating activities of $483,000. The Company’s net cash used in operating activities for the nine-monthsix-month period ended SeptemberJune 30, 20172020 was $250,000$2,029,000 primarily due to a net loss of $640,000, an increase of$3,274,000 offset by a decrease in inventories of $426,000 and an increase in accounts receivable of $353,000 offset by non cash adjustments of $1,246,000.$1,277,000.

Cash used in investing activities for the nine-monthsix-month period ended SeptemberJune 30, 20172021 was $160,000,$63,000, of which $60,000$8,000 was attributable to capital expenditures and $55,000 was attributable to additional license fees and $100,000fees. Cash used in investing activities for the six-month period ended June 30, 2020 was $150,000, of which $130,000 was attributable to capital expenditures.expenditures and $20,000 was attributable to additional license fees.

Cash provided by financing activities was $141,000$212,000 for the first ninesix months of 2017,2021, which was comprised of net borrowings on the Revolverborrowing of $307,000line of credit of $512,000 and repayments of debt of $26,000 offset by repaymentsborrowings under the subordinated convertible debt facility of $700,000, the proceeds of the exercise of stock options of $4,000 and the proceeds of the exercise of stock warrants of $46,000. Cash provided by financing activities was $2,072,000 for the first six months of 2020, which was comprised of proceeds from long term debt of $166,000.$1,769,000 and proceeds from the Subordinated Loan Facility (as described below) of $900,000 offset by net repayments of the line of credit of $579,000 and repayments of debt of $18,000.

For a full description of the Company’s senior secured indebtedness under the SterlingMidCap Facility and the Company’s senior subordinated convertible indebtedness under the Subordinated Loan Facility, and their respective effectsits effect upon the Company’s condensed consolidated financial position and results of operations, see Note 5 – Debt of the Notes to Condensed Consolidated Financial Statements.

The Company’s primary sources of liquidity have been its existing cash balances, cash generated from operations, amounts available under the MidCap Facility, amounts available under the Subordinated Loan Facility and cash generated from the private placement of common stock, as well as funds made available to the Company through participation in several federal government financial assistance programs implemented pursuant to the Coronavirus Aid, Relief, and Economic Security Act, including the Paycheck Protection Program and the Employee Retention Tax Credit. At June 30, 2021, the Company had $487,000 available under the MidCap Facility.

As previously disclosed in the Company’s 10-K for the year ended December 31, 2020 (“10-K”), on February 1, 2019, the Company completed the sale of its Old Bridge Facility to Jake Brown Road, LLC (the “Buyer”) and, in connection with the completion of the sale, the Company and the Buyer (as landlord) entered into a lease (the “Lease”), pursuant to which the Company continues to occupy, and conduct its manufacturing, engineering, sales and administrative functions, in the Old Bridge Facility. Also as previously disclosed in the 10-K, certain disagreements have arisen between the Company and the landlord with respect to the parties’ interpretation of elements of the Lease, including with respect to amounts being held in escrow by the landlord, which the Company believes should either be refunded to the Company or credited against future lease payments, and the landlord’s claim that the Company is obligated to pay management fees to the landlord under the Lease. Without prejudice to the Company’s positions regarding these matters, and without creating any inference that the Company agrees with any of the landlord’s claims or waiving any rights available to the Company under the Lease or otherwise, on May 5, 2021, the Company made payment to the landlord of $139,550.62, representing all amounts that the landlord then claimed were due. Notwithstanding the continuing disagreements with the landlord’s monthly payment demands, the Company is meeting these demands on a current basis, but continues to reserve its rights regarding the same. The Company intends to continue to discuss these matters with the landlord in an attempt to negotiate a resolution of these disagreements. The Company, however, cannot assure you that these matters will be resolved in a manner that is favorable to the Company or that litigation might not result if a negotiated resolution is not forthcoming.

As disclosed in the Company’s most recent Annual Report on Form 10-K, the Company experienced a decline in sales, a reduction in working capital, a loss from operations and net cash used in operating activities, in conjunction with liquidity constraints. These factors raised substantial doubt about the Company’s ability to continue as a going concern. As of June 30, 2021, the above factors still exist. Accordingly, there still exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Beginning in the middle of 2019, the Company experienced a significant decline in its net sales of core or legacy products, which while not recovering to historical norms, stabilized during the early part of the first quarter of 2020. Beginning in February 2020, however, as the prospects of an ever-worsening outbreak of COVID-19 took hold, the Company began to experience adverse impacts to revenues across all of its product lines. The Company does not anticipate that sales will recover to historical norms during 2021, although the Company is optimistic that as the roll out of vaccines continues and the impact of the pandemic begins to lessen, improvements in the market may occur. In light of these developments and as detailed below, the Company has taken significant steps during the past year, implemented in several phases, in order to manage operations through what has been a period of diminished sales levels.

As part of its efforts to improve liquidity and provide operating capital, on April 7, 2020, the Company entered into a certain Consent and Amendment to Loan Agreement and Loan Documents with Midcap (the “MidCap First Amendment”), which amended the MidCap Facility to, among other things, remove the existing $400,000 availability block, subject to the same being re-imposed at the rate of approximately $7,000 per month commencing June 1, 2020. The operative provisions relating to the removal of the availability block under the MidCap First Amendment became effective on April 8, 2020, following the consummation by the Company of the transactions contemplated by the Subordinated Loan Facility (defined below).

On April 8, 2020, the Company, as borrower, together with Livewire Ventures, LLC (wholly owned by the Company’s Chief Executive Officer, Edward R. Grauch), MidAtlantic IRA, LLC FBO Steven L. Shea IRA (an IRA account for the benefit of the Company’s Chairman of the Board, Steven Shea), Carol M. Pallé and Robert J. Pallé, Anthony J. Bruno, and Stephen K. Necessary, as lenders (collectively, the “Initial Lenders”) and Robert J. Pallé, as Agent for the Lenders (in such capacity, the “Agent”) entered into a certain Senior Subordinated Convertible Loan and Security Agreement (the “Subordinated Loan Agreement”), pursuant to which the lenders from time to time party thereto were permitted to provide up to $1,500,000 of loans to the Company (the “Subordinated Loan Facility”). Interest accrues on the outstanding amounts advanced under the Subordinated Loan Facility at the rate of 12% per annum, compounded and payable monthly, in-kind, by the automatic increase of the principal amount of the loan on each monthly interest payment date, by the amount of the accrued interest payable at that time (“PIK Interest”); provided, however, that at the option of the Company, it may pay interest in cash on any interest payment date, in lieu of PIK Interest.

On April 8, 2020, the Initial Lenders agreed to provide the Company with a Tranche A term loan facility of $800,000, of which $600,000 was advanced to the Company on April 8, 2020, $100,000 was advanced to the Company on April 17, 2020 and $100,000 was advanced to the Company on January 12, 2021. The Initial Lenders participating in the Tranche A term loan facility have the option of converting the principal balance of the loan held by each of them, in whole (unless otherwise agreed by the Company), into shares of the Company’s common stock, at a conversion price equal to the volume weighted average price of the Common Stock as reported by the NYSE American, during the five trading days preceding April 8, 2020 (the “Tranche A Conversion Price”) which was calculated at $0.593. The conversion right was subject to stockholder approval as required by the rules of the NYSE American, and was obtained on June 11, 2020 at the Company’s annual meeting of stockholders.

On April 24, 2020, the Company, the Initial Lenders and Ronald V. Alterio (the Company’s Senior Vice President-Engineering, Chief Technology Officer) and certain additional unaffiliated investors (the “Additional Lenders,” and, together with the Initial Lenders, the “Lenders”) entered into the First Amendment to Senior Subordinated Convertible Loan and Security Agreement and Joinder (the “Amendment”). The Amendment provides for the funding of $200,000 of additional loans as a Tranche B term loan under the Subordinated Loan Facility established under the Subordinated Loan Agreement, with such loans being provided by the Additional Lenders. The Amendment also sets the conversion price of $0.55 (the “Tranche B Conversion Price”) with respect to the right of the Additional Lenders to convert the accreted principal balance of the loans held by each of them into shares of the Company’s common stock. The terms and conditions of the conversion rights applicable to the Initial Lenders and the Additional Lenders are otherwise identical in all material respects, including the terms restricting conversion to an aggregate amount of shares of common stock that would not result in the Company’s non-compliance with NYSE American rules requiring stockholder approval of issuances or potential issuances of shares in excess of the percentage limits specified therein or in an amount that may be deemed to constitute a change of control under such rules. These restrictions were eliminated when the requisite stockholder approval was obtained on June 11, 2020 at the Company’s annual meeting of stockholders.

On April 10, 2020, the Company received loan proceeds of approximately $1,769,000 (“PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business. The PPP Loan and accrued interest are forgivable after twenty-four weeks (the “Covered Period”) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness would be reduced if the borrower terminated employees or reduced salaries during the eight-week period.

The PPP Loan was evidenced by a promissory note, dated as of April 5, 2020 (the “Note”), between the Company, as Borrower, and JPMorgan Chase Bank, N.A., as Lender (the “Lender”). The interest rate on the Note was 0.98% per annum, with interest accruing on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. No payments of principal or interest were due during the ten-month period beginning after the Covered Period (the “Deferral Period”).

On June 22, 2021, the Company applied to the SBA for full forgiveness of the PPP Loan. On June 30, 2021, the Company received notification that the forgiveness was granted. The Company recorded the $1,769,000 forgiveness as a gain on debt forgiveness during the three and six month periods ended June 30, 2021, respectively.

On October 29, 2020, the unaffiliated Additional Investors, as described in Note 6 – Subordinated Convertible Debt with Related Parties of the Notes to Condensed Consolidated Financial Statements.

The Company’s primary sourcesStatements, submitted irrevocable notices of liquidity are its existing cash balances, cash generated from operations and amounts availableconversion under the Sterling FacilityTranche B Term Loan. As a result, approximately $175,000 of original principal and $11,000 of PIK interest outstanding under the Tranche B Term Loan were converted into 338,272 shares of Company common stock in full satisfaction of the underlying indebtedness.

On December 14, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) for the sale and issuance by the Company to the Purchasers of (i) an aggregate of 1,429,000 shares (the “Shares”) of the Company’s common stock and (ii) warrants (the “Purchaser Warrants”) to purchase an aggregate of up to 714,000 shares of common stock (the “Purchaser Warrant Shares”), for aggregate gross proceeds to the Company of $1,000, before deducting placement agent fees and offering expenses payable by the Company. The Company also agreed to issue to the placement agents and certain persons affiliated with the placement agents, as additional compensation, (a) fully-vested warrants (the “Placement Agent Warrants”) to purchase an aggregate of up to 100,000 shares (the “Placement Agent Warrant Shares”) of common stock and (b) contingent warrants (the “Placement Agent Contingent Warrants”) to purchase an aggregate of up to an additional 50,000 shares (the “Placement Agent Contingent Warrant Shares”) of common stock. The transaction closed on December 15, 2020.

The Purchase Agreement also includes terms that give the Purchasers certain price protections, providing for adjustments of the number of shares of common stock held by them in the event of certain future dilutive securities issuances by the Company for a period not to exceed 18 months following the closing of the private placement, or such earlier date on which all of the Purchaser Warrants have been exercised. In addition, the Purchase Agreement provides the Purchasers with a right to participate in certain future Company financings, up to 30% of the amount of such financings, for a period of 24 months following the closing of the private placement. The Purchase Agreement also required the Company to register the resale of the Shares and the Purchaser Warrant Shares pursuant to the terms of a Registration Rights Agreement between the Company and the Purchasers, dated as of December 14, 2020, as further described below. The Company filed a registration statement with the SEC on January 14, 2021 to register the resale of the Shares and the Purchaser Warrant Shares, which registration statement was declared effective by the SEC on January 21, 2021.

The Purchaser Warrants have an exercise price of $1.25 per share, are exercisable beginning on December 15, 2020, and have a term of three years. The exercise price and the number of shares of common stock issuable upon exercise of each Purchaser Warrant is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. The fair value of the Purchaser Warrants is $643,000.

In certain circumstances, upon the occurrence of a fundamental transaction, a holder of Purchaser Warrants is entitled to receive, upon any subsequent exercise of the Purchaser Warrant, for each Purchaser Warrant Share that would have been issuable upon such exercise of the Purchaser Warrant immediately prior to the fundamental transaction, at the option of the holder, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of the fundamental transaction by a holder of the number of shares of common stock of the Company for which the Purchaser Warrant is exercisable immediately prior to the fundamental transaction. If holders of the Company’s common stock are given any choice as to the securities, cash or property to be received in a fundamental transaction, then the Holder shall be given the choice as to the additional consideration it receives upon any exercise of the Purchaser Warrant following the fundamental transaction.

The Placement Agent Warrants have an exercise price of $0.70 per share, a term of five years from December 14, 2020, and became exercisable upon the Company obtaining the stockholder approval described above. The exercise price and the number of shares of common stock issuable upon exercise of each Placement Agent Warrant is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. The Placement Agent Warrants also provide the holders with certain “piggyback” registration rights, permitting the holders to request that the Company include the Placement Agent Warrant Shares for sale in certain registration statements filed by the Company. The fair value of the Placement Agent Warrants is $121,000.

The Placement Agent Contingent Warrants have an exercise price of $1.25 per share, a term of five years from December 14, 2020, and become exercisable if, and to the extent, holders of the Purchaser Warrants exercise such Purchaser Warrants. In no event, however, will the Placement Agent Contingent Warrants become exercisable unless and until Stockholder Approval has been obtained. The exercise price and the number of shares of common stock issuable upon exercise of each Placement Agent Contingent Warrant is subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. The Placement Agent Contingent Warrants also provide the holders with certain “piggyback” registration rights, permitting the holders to request that the Company include the Placement Agent Contingent Warrant Shares for sale in certain registration statements filed by the Company. The fair value of the Placement Agent Contingent Warrants is $56,000.

On January 28, 2021, the Company entered into the Third Amendment to Senior Subordinated Convertible Loan and Security Agreement and Joinder (the “LSA Third Amendment”) with the Tranche A Parties, the Tranche B Parties (that had not previously converted the loans attributable to each of them into shares of Common Stock), the Agent and certain other investors (the “Tranche C Parties”). Pursuant to the LSA Third Amendment, the parties agreed to increase the aggregate loan limit under the Subordinated Loan Agreement from $1,500,000 to $1,600,000 and the Tranche C Parties agreed to provide the Company with a commitment for a $600,000 term loan facility, all of which was advanced to the Company on January 29, 2021 (the “Tranche C Loans”). As is the case with the loans provided by the Tranche A Parties and Tranche B Parties, interest on the Tranche C Loans accrues at 12% per annum and is payable monthly in-kind, by the automatic increase of the principal amount of the loans on each monthly interest payment date, by the amount of the accrued interest payable at that time. The Company, at its option, may pay any interest due on the Tranche C Loans in cash on any interest payment date in lieu of PIK Interest. The Tranche C Parties also have the option, following Stockholder Approval (defined below) of converting the accreted principal balance of the Tranche C Loans attributable to each of them into shares of the Company’s Common Stock at a conversion price of $1.00. The Company issued 42,000 warrants at an exercise price of $1.00 to a placement agent in connection with the Tranche C Loans. The warrants have a five-year term from January 28, 2021.

Both the Purchase Agreement and the Subordinated Loan Facility. As of September 30, 2017,Agreement (as amended by the LSA Third Amendment) obligated the Company had approximately $2,427,000to call a special meeting of its stockholders to seek stockholder approval of the issuance of shares of its Common Stock issuable in connection with the transactions contemplated by the Securities Purchase Agreement and the LSA Third Amendment, in excess of 19.99% of the Company’s outstanding undershares of Common Stock, in accordance with the Revolver and $813,000requirements of additional availability for borrowing underSection 713(a) of the Revolver, as well as $605,000 outstandingNYSE American Company Guide. Stockholder approval of the foregoing was obtained on March 4, 2021. As the stock price was $1.31 on March 4, 2021, the Company recorded a discount of $186,000 relating to the difference in stock price due to the beneficial conversion feature.

The obligations of the Company under the Subordinated Loan FacilityAgreement are guaranteed by Drake and $250,000are secured by substantially all of additional availability for borrowingthe Company’s and Drake’s assets. The Subordinated Loan Agreement has a maturity date three years from the date of closing, at which time the accreted principal balance of the loan (by virtue of the PIK Interest) plus any other accrued unpaid interest, would be due and payable in full. In connection with the Subordinated Loan Agreement, the Company, Drake, the Lenders and MidCap entered into a Subordination Agreement (the “Subordination Agreement”), pursuant to which the rights of the Lenders under the Subordinated Loan Facility.

PriorAgreement were subordinated to 2016,the rights of MidCap under the MidCap Agreement and related security documents. The Subordination Agreement precludes the Company incurredfrom making cash payments of interest in lieu of PIK Interest, in the absence of the prior written consent of MidCap or unless the Company is able to meet certain predefined conditions precedent to the making of any such payments of interest (or principal), as more fully described in the Subordination Agreement.

On March 15, 2021, one of the Tranche C Parties submitted an irrevocable notice of conversion under the Tranche C Loans. As a result, $100,000 of original principal and $1,000 of PIK interest outstanding under the Tranche C Loans were converted into 100,987 shares of Company common stock in partial satisfaction of the indebtedness to that Tranche C Party.

On April 6, 2021, the same Tranche C Party submitted an irrevocable notice of conversion under the Tranche C Loans. As a result, $50,000 of original principal and $1,000 of PIK interest outstanding under the Tranche C Loans were converted into 51,260 shares of Company common stock in partial satisfaction of the indebtedness to that Tranche C Party.

On May 24, 2021, the same Tranche C Party submitted an irrevocable notice of conversion under the Tranche C Loans. As a result, $50,000 of original principal and $2,000 of PIK interest outstanding under the Tranche C Loans were converted into 52,277 shares of Company common stock in complete satisfaction of their indebtedness.

In June 2021 and March 2021, the Company accrued $608,000 and $577,000 payroll tax credits through the Employee Retention Tax Credit (“ERTC”) for the second and first quarters of 2021, respectively. The Company received the first quarter credit in April 2021 and expects to receive the second quarter credit in October 2021. The ERTC was initially established as part of the CARES Act of 2020 and subsequently amended by the Consolidated Appropriation Act (“CAA”) of 2021 and the American Rescue Plan Act (“ARPA”) of 2021. The CAA and ARPA amendments to the ERTC program provide eligible employers with a tax credit in an amount equal to 70% of qualified wages (including certain health care expenses) that eligible employers pay their employees after January 1, 2021 through December 31, 2021. The maximum amount of qualified wages taken into account with respect to each employee for each calendar quarter is $10,000 so that the maximum credit that an eligible employer may claim for qualified wages paid to any employee is $7,000 per quarter. For purposes of the amended ERTC, an eligible employer is defined as having experienced a significant operating losses(20% or more) decline in gross receipts during each 2021 calendar quarter when compared with the same quarter in 2019. The credit is taken against the Company’s share of Social Security Tax when the Company’s payroll provider files the applicable quarterly tax filings on Form 941. The receipt of the tax credit is expected to improve the Company’s liquidity due to the effects of the credit. Although the Company currently anticipates receiving credits pursuant to the terms of the ERTC for each quarter of 2021, there can be no assurances that the Company will continue to meet the requirements subsequent to the second quarter of 2021 (including the requirements relating to declines in gross receipts) or that changes in the ERTC program, including changes in guidance provided by the IRS with respect to the implementation and didoperation of the ERTC program, will not havebe adopted that could reduce or eliminate the necessary financing arrangements in placebenefits the Company may receive.

In other efforts to support its capital resource needs. These factors contributedalleviate the liquidity pressures and reposition the Company to generate positive cash flow at a lower level of net sales, since August 2019, the Company has implemented a multi-phase cost-reduction program which reduced cash expenses during 2019 by approximately $200,000 per month and which provided annualized cash savings of approximately $2,400,000 during 2020, compared to the Company’s substantial doubt of its ability to continuecosts as a going concern, which were set forth in its Form 10-K for the fiscal year ended December 31, 2015 and in subsequent quarterly reports on Form 10-Qthey existed prior to consummationthe commencement of the Sterling Facility. During 2016, management addressed going concern remediation through entering into the Sterling Facility (a long term obligation due in December 2019), which refinanced its prior Santander Agreement (which was due to expire in December 2016). In addition, the Company reduced operating expenses to approximately $9,028,000 in 2016 from approximately $10,555,000 in 2015. Net losses were reduced dramatically and cash flows from operations also improved, as cash generated from operating activities was approximately $771,000 in 2016 compared to cash used in operating activities of approximately $(798,000) in 2015. At December 31, 2016 and September 30, 2017, the Company had approximately $3,464,000 and $4,113,000 of working capital, respectively. As a result of continued improvements in the Company’s operations, liquidity, capital resources and working capital,cost reduction program. Although the Company believes it has made and will continue to make progress under these programs and the abilityfunding provided under the Subordinated Loan Agreement and available as a result of the release of the availability block under the MidCap Facility, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that our planned improvements will be successful.

Additionally, beginning during the last week of February 2020 and extending currently, the Company has been experiencing specific COVID-19 related reductions in sales due to sustain its operationscustomers requesting to delay specific purchases and/or previously anticipated purchase orders and satisfy its obligationsshipments. A portion of the Company’s customers are either fully or partially closed or operating with reduced staffing levels due in part to a range of government mandates or corporate policies such as shelter-in-place, the closure of non-essential businesses, and other restrictions. This reduction in sales began in the normalrange of 15% to 30% week by week deviations from expected/forecasted levels in March 2020 and then grew to a range of 45% to 55% deviations from expected/forecasted levels during the April to August 2020 time period. It is possible that sales may continue to decline further in future periods during 2021 and beyond, as upticks in cases of COVID-19 continue to be reported around the country, which may result in renewed closures and governmental mandates restricting or further delaying efforts to return to business as usual. While the majority of the Company’s customers remain open for business and have informed the Company of their current intentions to remain open through the current circumstances, and despite a portion of the Company’s customers having reopened during Q3 2020, subsequent spikes in reported COVID-19 cases have resulted in certain customers deferring or delaying previously planned meetings and business discussions. The Company has reacted to these unprecedented circumstances, as many enterprises have had to do over the course of businessMarch through December 2020 (and continuing today), with a range of actions designed to compensate for at least one year fromanticipated temporary revenue shortfalls, manage the issuance dateCompany’s working capital and minimize the overall financial impact of this filing.disruption, including implementation of exceptional short-term operating expense reductions, such as temporary manufacturing shut-downs, employee furloughs and supplier payment renegotiations. The Company has finalized several supplier renegotiations and is still in process with other suppliers to allow for alterations of shipment and receive dates of incoming parts and inventory in other cases.

The Company’s primary long-term obligations are for payment of interest and principal on the SterlingMidCap Facility, which expires on December 28, 2019, and the Subordinated Loan Facility, which expires on March 28, 2019. Repayment of the Subordinated Loan Facility is subject to the prior payment, satisfaction and discharge of the Sterling Facility.October 25, 2022. The Company expects to use cash generated from operations to meet its long-term debt obligations. The Company also expects to make financed and unfinanced long-term capital expenditures from time to time in the ordinary course of business, which capital expenditures were $100,000$284,000 and $37,000$175,000 in the ninesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016,2020, respectively. The Company expects to use cash generated from operations, amounts available under the SterlingMidCap Facility, andamounts available under the Subordinated Loan Facility, and purchase-money financing to meet any anticipated long-term capital expenditures.

NewCritical Accounting PronouncementsEstimates

See the Notes to Condensed Consolidated Financial Statements for a description of where estimates are required.

Recent Accounting Pronouncements

See Note 32(d) of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including the anticipated dates of adoption and the effects on the Company’s consolidated financial position and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at SeptemberJune 30, 2017.2021.

During the quarter ended SeptemberJune 30, 2017,2021, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II -– OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the current opinion of management, is likely to have a material adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” included in the Company’s Form 10-K for the year ended December 31, 2020. The below is a material change from the risk factors included in Form 10-K for the year ended December 31, 2020.

Our common stock has experienced and may continue to experience price and volume fluctuations, which could cause you to lose a significant portion of your investment.

Stock markets are subject to significant price and volume fluctuations that may be unrelated to the operating performance of particular companies, and accordingly the market price of our common stock may frequently and meaningfully change. The market prices and trading volume of our common stock have recently experienced, and may continue to experience, significant fluctuations, which could cause purchasers of our common stock to incur substantial losses. For example, during 2021 to date, the closing market price of our common stock has fluctuated from a low of $1.00 per share on April 20, 2021 to a high of $2.22 on February 9, 2021, with an intraday high of $2.33 per share on February 1, 2021 and an intraday low of $0.97 per share on April 20, 2021. The last reported sale price of our common stock on the NYSE American on August 9, 2021 was $1.53 per share. The daily trading volume in shares of our common stock has also experienced significant fluctuation. During 2021, through August 9, 2021, daily trading volume ranged from approximately 34,700 shares to 25,998,623 shares. We have not had any recent change in our financial condition or results of operations that we believe are consistent with recent fluctuations in our stock price or trading volume. Although we believe that the recent fluctuations in our stock price and trading volume reflect market and trading dynamics that appear to be unrelated to our underlying business, or to macro or industry fundamentals, we cannot be certain of the reasons for these fluctuations, nor can we predict how long these dynamics will last. These factors heighten the risk of an investment in our common stock, and the timing of your purchase of our common stock relative to fluctuations in its trading price may result in you losing all or a significant portion of your investment.

Significant fluctuations in the market price of our common stock may be the result of strong and substantially increased retail investor interest, including on social media and online forums. The market price and trading volume fluctuations and trading patterns we have experienced create several risks for investors, including the following:

We may continue to experience rapid and significant changes in our stock price and/or trading volume in the foreseeable future that may not coincide in timing with our disclosure of news or developments affecting us and our business. Accordingly, the market price of our shares of common stock may fluctuate dramatically, and may decline rapidly, regardless of any developments in our business. If the market price of our common stock declines and or trading volume is reduced, you may be unable to resell your shares at or above the price at which you acquired them.

There are also a variety of other factors, some of which are beyond our control, that could negatively affect the market price of our common stock or result in fluctuations in the price or trading volume of our common stock, including:

In the past, following periods of volatility in the market price of a company’s stock, class action securities litigation has often been instituted against such companies. Litigation may arise out of facts and circumstances, or disclosure relating thereto, that we do not currently regard as material. Such volatility may entice stockholders to challenge our disclosure, whether or not they are correct. Any litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which would interfere with our ability to execute our business plan and otherwise materially adversely affect our business, financial condition and operating results.

We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common stock would likely be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject our common stock to additional trading restrictions.

Our common stock is currently listed on NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public shareholders. In addition to these objective standards, NYSE American may delist the securities of any issuer for other reasons involving the judgment of NYSE American. On June 10, 2020 we received written notification from NYSE American that we were not in compliance with the continued listing standard under Section 1003(a)(iii) of the NYSE American Company Guide (“Company Guide”), which requires a listed company to have stockholders’ equity of at least $6 million if it has reported losses from continuing operations and/or net losses in its five most recent fiscal years. In accordance with NYSE American requirements, we submitted a plan addressing how we intend to regain compliance with Section 1003(a)(iii) by December 10, 2021, the deadline for us to regain compliance.

On August 27, 2020, we received notice that our plan to regain compliance with Section 1003(a)(iii) of the Company Guide had been accepted and that we had been granted a plan period through December 10, 2021. As a result, the listing of our common stock on NYSE American is being continued during the plan period pursuant to an extension. However, during the plan period we are subject to periodic review by NYSE Regulation staff, including quarterly monitoring, to determine if we are making progress consistent with the plan.

On December 9, 2020, we received an additional written notification from NYSE American that we were not in compliance with the continued listing standard set forth in Section 1003(a)(ii) of the Company Guide, which requires a listed company to have stockholders’ equity of at least $4 million if it has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years.

On April 2, 2021, we received an additional written notification from NYSE American that we were not in compliance with the continued listing standard set forth in Section 1003(a)(i) of the Company Guide, which requires a listed company to have stockholders’ equity of at least $2 million if it has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years.

If we are not in compliance with all of these continued listing standards by December 10, 2021, or if NYSE Regulation determines that we are not making sufficient progress consistent with our plan, delisting proceedings will be instituted against us, as appropriate.

Due largely to the continuing effects of the COVID-19 pandemic, we did not meet certain elements of the near-term milestones we had included as part of the compliance plan we submitted to the NYSE American. As a result, it is possible that NYSE Regulation will determine that we are not making sufficient progress consistent with our plan and may request that we submit a revised plan or may initiate delisting proceedings against us. We cannot assure you that we will make sufficient progress to regain compliance with these listing standards by December 10, 2021 under our initial plan or any revision we make to such plan or that NYSE Regulation will accept any revisions we propose to make to our initial plan, or that delisting proceedings may not be instituted against us based on our not meeting certain elements of the near-term milestones we had included as part of the compliance plan we submitted. If delisting proceedings are instituted against us, we would have the right to appeal any delisting determination.

If NYSE American delists our common stock from trading on the exchange and we are not able to list our securities on another national securities exchange, we expect our common stock would qualify to be quoted on an over-the-counter market. If this were to occur, we could experience a number of adverse consequences, including: