UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021.MARCH 31, 2022.

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE TRANSITION PERIOD FROM _______ TO _______..

Commission file number 1-14120

BLONDER TONGUE LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

Delaware 52-1611421
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
One Jake Brown Road, Old Bridge, New Jersey08857
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (732) 679-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbol(s)Name of each exchange on which
registered
Common Stock, par value $.001BDRNYSE American

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

Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐ 

Yes  ☒   No  ☐

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

Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock, par value $.001, outstanding as of October 19, 2021: 12,397,765
May 4, 2022: 13,325,864

 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1.

ITEM 1. FINANCIAL STATEMENTS

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

 (unaudited)    
 Mar 31, Dec 31, 
 (unaudited)
Sept 30,
2021		 Dec 31,
2020		  2022  2021 
Assets          
Current assets:          
Cash $271  $69  $110  $274 
Accounts receivable, net of allowance for doubtful accounts of $275 as of both September 30, 2021 and December 31,2020, respectively  1,770   1,741 
Accounts receivable, net of allowance for doubtful accounts of $240 as of both March 31, 2022 and December 31,2021, respectively  1,385   1,765 
Inventories  4,081   4,063   4,967   4,854 
Prepaid and other current assets  1,517   231   1,077   785 
Total current assets  7,639   6,104   7,539   7,678 
Property, plant and equipment, net  622   429   256   290 
License agreements, net  29   10   4   7 
Intangible assets, net  798   927   741   755 
Goodwill  493   493   493   493 
Right of use assets, net  1,859   2,411   1,782   1,984 
Other assets, net  690   756   719   703 
 $12,130  $11,130 
         $11,534  $11,910 
Liabilities and Stockholders’ Equity                
Current liabilities:                
Line of credit $2,058  $2,145  $2,180  $2,400 
Current portion of long-term debt  71   28   70   71 
Current portion of lease liability  811   794   844   826 
Accounts payable  2,149   2,014   3,060   2,264 
Accrued compensation  489   370   478   298 
Accrued benefit pension liability  17   17   16   16 
Income taxes payable  20   28   34   34 
Other accrued expenses  25   138   117   151 
Total current liabilities  5,640   5,534   6,799   6,060 
Subordinated convertible debt with related parties, net  1,314   791   1,368   1,372 
Lease liability, net of current portion  1,205   1,771   773   993 
Long-term debt, net of current portion  216   1,797   183   200 
Total liabilities  8,375   9,893   9,123   8,625 
Commitments and contingencies  -   -   -   - 
Stockholders’ equity:                
Preferred stock, $.001 par value; authorized 5,000 shares, no shares outstanding  -   -   -   - 
Common stock, $.001 par value; authorized 25,000 shares, 12,388 and 11,558 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively  12   12 
Common stock, $.001 par value; authorized 25,000 shares, 13,272 and 13,011 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.  13   13 
Paid-in capital  31,078   29,571   31,793   31,513 
Accumulated deficit  (26,383)  (27,394)  (28,464)  (27,310)
Accumulated other comprehensive loss  (952)  (952)  (931)  (931)
Total stockholders’ equity  3,755   1,237   2,411   3,285 
 $12,130  $11,130  $11,534  $11,910 

See accompanying notes to the consolidated financial statements.


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

 Three Months Ended
September 30,		 Nine Months Ended
September 30,		  Three Months Ended
March 31,		 
 2021 2020 2021 2020  2022 2021 
Net sales $4,172  $4,171  $11,761  $12,052  $3,341  $3,251 
Cost of goods sold  2,673   3,436   7,272   9,529   2,402   1,866 
Gross profit  1,499   735   4,489   2,523   939   1,385 
Operating expenses:                        
Selling  642   614   1,807   1,916   506   531 
General and administrative  900   1,203   2,944   3,551   913   1,079 
Research and development  660   600   1,921   1,865   541   638 
  2,202   2,417   6,672   7,332   1,960   2,248 
Loss from operations  (703)  (1,682)  (2,183)  (4,809)  (1,021)  (863)
Gain on debt forgiveness  -   -   1,769   - 
Other Income (Note 10)  619   -   1,804   - 
Other Income  -   577 
Interest Expense  (117)  (105)  (379)  (252)  (133)  (128)
(Loss) income before income taxes  (201)  (1,787)  1,011   (5,061)
Loss before income taxes  (1,154)  (414)
Provision for income taxes  -   -   -   -   -   - 
Net (loss) income $(201) $(1,787) $1,011  $(5,061)
                
Basic net (loss) income per share $(0.02) $(0.18) $0.08  $(0.52)
                
Diluted net (loss) income per share $(0.02) $(0.18) $0.08  $(0.52)
                
Basic weighted average shares outstanding  12,227   9,771   11,956   9,767 
                
Diluted weighted average shares outstanding  12,227   9,771   15,311   9,767 
Net loss $(1,154) $(414)
Basic and diluted net loss per share $(0.09) $(0.04)
Basic and diluted weighted average shares outstanding  13,126   11,650 

See accompanying notes to unaudited condensed consolidated financial statements.


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(unaudited)

 Common Stock  Paid-in  Accumulated  Accumulated
Other
Comprehensive		     Common Stock Paid-in Accumulated Accumulated  
Other
Comprehensive		  
 Shares  Amount  Capital  Deficit  Loss  Total  Shares Amount Capital Deficit Loss Total 
For the three and nine months ended September 30, 2021             
Balance at January 1, 2022  13,011  $13  $31,513  $(27,310) $(931) $3,285 
Net loss  -   -   -   (1,154)  -   (1,154)
Stock-based Compensation  -   -   121   -   -   121 
Conversion of convertible subordinated debt  104   -   62   -   -   62 
Stock awards for employee compensation  157   -   97   -   -   97 
Balance at March 31, 2022  13,272  $13  $31,793  $(28,464) $(931) $2,411 
                        
Balance at January 1, 2021  11,558  $12  $29,571  $(27,394) $(952) $1,237   11,558  $12  $29,571  $(27,394) $(952) $1,237 
Net loss  -   -   -   (414)  -   (414)  -   -   -   (414)  -   (414)
Subordinated convertible debt discount          186           186           186           186 
Stock-based Compensation  -   -   130   -   -   130   -   -   130   -   -   130 
Conversion of convertible subordinated debt  101   -   101   -   -   101   101   -   101   -   -   101 
Stock awards for directors’ fees and employee compensation  172   -   261   -   -   261   172   -   261   -   -   261 
Exercised stock options  43   -   4   -   -   4   43   -   4   -   -   4 
Balance at March 31, 2021  11,874   12   30,253   (27,808)  (952)  1,505   11,874  $12  $30,253  $(27,808) $(952) $1,505 
Net income              1,626       1,626 
Stock-based Compensation  -   -   159   -   -   159 
Conversion of convertible subordinated debt  104   -   103   -   -   103 
Stock awards for directors’ fees and employee compensation  35   -   51   -   -   51 
Exercised stock options  4   -   -   -   -   - 
Exercised stock warrants  65   -   46   -   -   46 
Balance at June 30, 2021  12,082   12   30,612   (26,182)  (952)  3,490 
Net loss              (201)      (201)
Stock-based Compensation  -   -   138   -   -   138 
Stock issuances  239   -   257   -   -   257 
Stock awards for directors’ fees and employee compensation  37   -   50   -   -   50 
Exercised stock options  8   -   6   -   -   6 
Exercised stock warrants  22   -   15   -   -   15 
Balance at September 30, 2021  12,388  $12  $31,078  $(26,383) $(952) $3,755 
                        
For the three and nine months ended September 30, 2020                        
Balance at January 1, 2020  9,766  $10  $28,158  $(19,920) $(885) $7,363 
Net loss  -   -   -   (2,080)  -   (2,080)
Stock-based Compensation  -   -   118   -   -   118 
Balance at March 31, 2020  9,766   10   28,276   (22,000)  (885)  5,401 
Net loss              (1,194)      (1,194)
Stock-based Compensation          93           93 
Balance at June 30, 2020  9,766   10   28,369   (23,194)  (885)  4,300 
Net loss              (1,787)      (1,787)
Exercise of stock options  16       3           3 
Stock-based Compensation  -   -   98           98 
Balance at September 30, 2020  9,782  $10  $28,470  $(24,981) $(885) $2,614 

See accompanying notes to unaudited condensed consolidated financial statements.


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 Nine Months Ended
September 30,		  Three Months Ended
March 31,		 
 2021 2020  2022 2021 
Cash Flows From Operating Activities:             
Net Income (loss) $1,011  $(5,061)
Adjustments to reconcile net income (loss) to cash used in operating activities:        
Gain on debt forgiveness  (1,769)  - 
Net loss $(1,154) $(414)
Adjustments to reconcile net loss to cash provided by operating activities:        
Stock based compensation expense  427   309   121   130 
Depreciation  95   103   36   33 
Amortization  165   159   19   59 
Amortization of deferred loan costs  45   45   15   15 
Amortization of subordinated debt discount  94   -   16   39 
Non cash interest expense  119   51   42   37 
Amortization of right of use assets  590   563   202   193 
Fair value adjustment of stock awards  160   -   (52)  190 
Loss on disposal of right of use assets  3   - 
Changes in operating assets and liabilities:                
Accounts receivable  (29)  496   380   667 
Inventories  (18)  3,245   (113)  20 
Prepaid and other current assets  (1,286)  (265)  (292)  (954)
Other assets  21   141   (31)  (3)
Change in lease liability  (590)  (562)  (202)  (194)
Accounts payable, accrued compensation and other accrued expenses  335   (1,373)  1,091   416 
Net cash used in operating activities  (627)  (2,149)
Net cash provided by operating activities  78   234 
Cash Flows From Investing Activities:                
Purchases of property and equipment  (12)  (138)  (2)  - 
Acquisition of licenses  (55)  (25)  (2)  (36)
Net cash used in investing activities  (67)  (163)  (4)  (36)
Cash Flows From Financing Activities:                
Net repayments of line of credit  (87)  (828)  (220)  (907)
Proceeds from long-term debt  -   1,769 
Proceeds from subordinated convertible debt  700   900 
Proceeds from exercise of stock options  10   3   -   4 
Proceeds from exercise of stock warrants  61   - 
Proceeds from stock issuances  257   - 
Borrowings of subordinated convertible debt  -   700 
Repayments of long-term debt  (45)  (29)  (18)  (8)
Net cash provided by financing activities  896   1,815 
Net increase (decrease) in cash  202   (497)
Net cash used in financing activities  (238)  (211)
Net decrease in cash  (164)  (13)
Cash, beginning of period  69   572   274   69 
Cash, end of period $271  $75  $110  $56 
Supplemental Cash Flow Information:                
Cash paid for interest $123  $169  $60  $41 
Cash paid for income taxes $8   - 
Non cash investing and financing activities:                
Capital expenditures financed by notes payable $276  $10 
Conversion of subordinated convertible debt to common stock $204  $-  $62  $101 
Right of use assets obtained by lease obligations $60  $- 
Stock paid to employees in lieu of cash $97  $- 

See accompanying notes to unaudited condensed consolidated financial statements.


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

Note 1 - Company and Basis of Consolidation

Blonder Tongue Laboratories, Inc. (together with its consolidated subsidiaries, the “Company”) is a technology-development and manufacturing company that delivers television signal encoding, transcoding, digital transport, and broadband product solutions to the markets the Company serves, including the telecommunications, fiber optic and cable service operatorprovider markets, the Company serves, including the multi-dwelling unit (“MDU”)MDU market, and small and medium sized businesses (“SMB”) that include the lodging/hospitality market and the institutional property markets;market, including campuses, hospitals, prisons government entities and schools, primarily throughout the United States and Canada. The consolidated financial statements include the accounts of Blonder Tongue Laboratories, Inc. and its wholly-owned subsidiaries. Significant intercompany balancesaccounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated interim financial statements as of September 30, 2021March 31, 2022 and for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed consolidated interim financial statements include all adjustments, consisting primarily of normal recurring adjustments, which the Company considers necessary for a fair presentation of the condensed consolidated financial position, operating results, changes in stockholders’ equity and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 20202021 has been derived from audited consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP for complete financial statements have been condensed or omitted pursuant to SEC rules and regulations. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 20202021 and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, which was filed with the SEC on March 25, 2021.31, 2022. The results of the three and nine months ended September 30, 2021March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 20212022 or for any future interim period.

Note 2 -2- Summary of Significant Accounting Policies

(a)Use of Estimates

(a) Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include stock-based compensation and reserves related to accounts receivable, inventories and deferred tax assets. Actual results could differ from those estimates.

(b)Net income (loss) Per Share

Net income (loss)(b) Loss Per Share

Loss per share is calculated in accordance with Accounting Standards Codification (“ASC”) ASC Topic 260 “Earnings Per Share,” which provides for the calculation of “basic” and “diluted” net income (loss)loss per share. Basic net income (loss)loss per share includes no dilution and is computed by dividing net income (loss)loss by the weighted average number of common shares outstanding for the period. Diluted net income (loss)loss per share reflect, in periods in which they have a dilutive effect, the effect of potential issuances of common shares. The Company calculates diluted net income per share using the treasury stock method for warrants and options and the if converted method for convertible debt.

 


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 nine months ended September 30, 2021:

  Income
(Numerator)		  Shares
(Denominator)		  Per-Share
Amount		 
Basic EPS $1,011   11,956  $0.08 
Effect of dilutive securities            
Convertible debt  213   2,079     
Warrants      48     
Options      1,228     
Diluted EPS $1,224   15,311  $0.08 

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

 Three months ended
March 31		 
 Three months ended
September 30		 Nine months ended
September 30		  2022 2021 
 2021 2020 2021 2020      
Stock options  4,221   1,157   491   1,264   4,217   3,982 
Warrants  841   929 
Convertible debt  2,079   1,682   -   1,682   2,099   2,060 
Warrants  45   5   -   - 
  6,345   2,844   491   2,946   7,157   6,971 

(c)Amortization of Debt Discount


BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

(c) Amortization of Debt Discount

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

(d)Adoption of Recent Accounting Pronouncements

(d) Adoption of Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“Topic 740”). The list of changes is comprehensive; however, the changes 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 2019-12 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 elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company adopted ASU 2019-12 in 2021. The adoption of this new standard did not have a material impact on the Company’s financial position, results of operations or financial statement disclosure.

(e)Liquidity and Ability to Continue as a Going Concern

In March 2020,(e) Going Concern and COVID-19

Our business has been materially and adversely affected by the outbreak of the Coronavirus or COVID-19. COVID-19, which has been declared by the World Health Organization to be a “pandemic,” has spread to many countries, including the United States, and is impacting domestic and worldwide economic activity. Since being declared a “pandemic”, COVID-19 interfered with our ability to meet with certain customers during 2020 and continued into the first half of 2021. In addition, the COVID-19 outbreak has affected the supply chain for many types of products and materials, particularly those being manufactured in China and other countries where the outbreak has resulted in significant disruptions to ongoing business activities. Beginning in the second quarter of 2021 and continuing into the first quarter of 2022, we experienced a novel coronavirus (COVID-19)material disruption in our supply chain as it relates to the procurement of certain sole source and other multiple source components utilized in a pandemic which continues to spread throughoutmaterial portion of several product lines. There are frequent developments regarding the United States. On March 21, 2020, the Governor of New Jersey declared a health emergencyCOVID-19 outbreak that may impact our customers, employees and issued an order to close all nonessential businesses until further notice.business partners. As a maker of telecommunication equipment,result, it is not possible at this time to estimate the Company is deemed to be an essential business. Nonetheless, out of concern for our workers and pursuant to the government order, the Company reducedduration or the scope of the impact COVID-19 could have on the Company's business. The Company has experienced and is continuing to experience a significant reduction in sales as a result of its operations andinability to procure parts necessary to manufacture products due to the supply chain issues related to the COVID-19 outbreak. It remains unclear when or whether our supply chain partners will resume their activities at a level 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 matterour sales will return to continue to negatively impact its results of operations, cash flows and financial position, the related impact cannot be reasonably estimated at this time.historical levels.

 


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 September 30, 2021,March 31, 2022, 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 recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

In 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 its existing cash balances, cash generated from operations, amounts available under the MidCap Facility (see Note 5 below), and amounts available under the Subordinated Loan Facility (see Note 6 below) and cash generated from sales 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.. As of September 30, 2021,March 31, 2022, the Company had approximately $2,058$2,180 outstanding under the MidCap Facility (as defined in Note 5 below) and $516$243 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.

(f)Subsequent Events

(f) Subsequent Events

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 condensed consolidated financial statements.statements except as disclosed in Note 5.


BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

Note 3 –3– Revenue Recognition

The Company recognizes revenue when it satisfies a performance obligation by transferring the product or service to the customer, typically at a point in time.

Disaggregation of Revenue

The Company is a technology-development and manufacturing company that delivers a wide range of products and services to the cable entertainment and media industry. Encoder/transcoder products are used by a system operator for encoding and transcoding of digital video. Encoders accept various input sources (analog and/or digital) and output digitally encoded 4K, UHD, HD or SD video in various output formats. Transcoders convert video files from one codec compression format to another to allow the video to be viewed across different platforms and devices. NXG is a two-way forward-looking platform that is used to deliver next-generation entertainment services in both enterprise and residential locations. Coax 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 coax distribution network. CPE products are used by cable operators to provide video delivery to customers using IP technology. Digital video headendmodulation products (including encoders) are used by a system operator for acquisition, processing, compression, encoding and management of digital video. Analog modulation products are used by a system operator for signal acquisition, processing and internet protocol (IP) video.manipulation to create an analog channel lineup for further transmission. 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,MDU's, and college campuses, using IP technology. HFC distributiontechnology Service agreements and design includes hands-on training, system design engineering, on-site field support, remote support and troubleshooting and complete system verification testing. Fiber optic 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

The following table presents the Company’s disaggregated revenues by revenue source. Some of the product categories shown for March 31, 2021 have been reclassified to reflect the Company’s current product categories:

  Three months ended
March 31,		 
  2022  2021 
Encoder and Transcoder products $1,518  $1,167 
NXG IP video signal processing products  501   421 
Coax distribution products  129   353 
CPE products  27   695 
Digital modulation products  377   121 
Analog modulation products  99   244 
DOCSIS data products  454   24 
Service agreements and design  141   70 
Fiber optic products  44   79 
Other  51   77 
  $3,341  $3,251 

All of the Company’s sales 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 serviceslocated 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.North America.

Note 4 – Inventories

Inventories are summarized as follows:

  March 31,
2022		  December 31,
2021		 
Raw Materials $2,842  $1,824 
Work in process  1,866   2,730 
Finished Goods  259   300 
  $4,967  $4,854 

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

The following table presents the Company’s disaggregated revenues by revenue source:

  Three months ended
September 30		  Nine months ended
September 30		 
  2021  2020  2021  2020 
Digital video headend products $837  $801  $2,348  $2,603 
CPE  113   1,379   1,096   3,051 
DOCSIS data products  326   235   681   1,807 
HFC distribution products  404   599   1,327   1,769 
Analog video headend products  176   323   657   838 
NXG  420   89   1,311   570 
Contract manufactured products  72   28   90   101 
Transcoders  1,732   543   3,805   937 
Other  92   174   446   376 
  $4,172  $4,171  $11,761  $12,052 

All of the Company’s sales are to customers located primarily throughout the United States and Canada.

Note 4 – Inventories

Inventories, net of reserves, are summarized as follows:

  September 30,
2021		  December 31,
2020		 
Raw Materials $1,786  $1,706 
Work in process  1,887   1,144 
Finished Goods  408   1,213 
  $4,081  $4,063 

Inventories are stated at the lower of cost, determined by the first-in, first-out (“FIFO”) 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 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$56 and $91zero during the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively and zero and $346 during the nine months ended September 30, 2021 and 2020, respectively.

Note 5 – Debt

Line of Credit

On October 25, 2019, the Company entered into a Loan and Security Agreement (All Assets) (the “Loan Agreement”) with MidCap Business Credit LLC (“MidCap”). The Loan Agreement provides the Company with a credit facility comprising a $5,000 revolving line of credit (the “MidCap Facility”). The MidCap Facility matures following the third anniversary of the Loan Agreement. Interest on the amounts outstanding under the Loan Agreement is variable, based upon the three-month LIBOR rate plus a margin of 4.75% (4.88%(5.71% at September 30, 2021)March 31, 2022), subject to re-set each month. All outstanding indebtedness under the Loan 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 Loan Agreement contains customary covenants, including restrictions on the incurrence of additional indebtedness, the payment of cash dividends or similar distributions, the repayment of any subordinated indebtedness and the encumbrance, sale or other disposition of assets. In addition, the Company has awas initially required to maintain minimum availability block of $400.$500, with the minimum availability to be reduced to $400 upon the deliverance of an inventory appraisal satisfactory to MidCap, which occurred during the fourth quarter 2019.

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 availability block, subject to the same being re-imposed at the rate of approximately $7 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 (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’sAgreement'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 parties 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’sAgreement's definition of “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 Fourth Amendment to Loan Agreement (the “"Fourth Amendment”"), which amendment, revised the Loan Agreement to, among other things, modify the Loan Agreement’sAgreement's definition of “Minimum EBITDA Covenant Trigger Event.” The Fourth Amendment amends the definition, retroactive to and as of July 1, 2021, and also includes certain additional non-substantive changes.

On August 26, 2021, the parties entered into a Fifth Amendment to Loan Agreement (the “"Fifth Amendment”"), which amendment, revised the Loan Agreement to, among other things, (i) provide for an over-advance facility in the maximum amount of $400, (ii) defer the monthly incremental increase to the existing availability block and (iii) modify the Loan Agreement’sAgreement's definition of “Minimum EBITDA Covenant Trigger Event.” The Fifth Amendment amends the definition, retroactive to and as of August 1,


BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(unaudited)

On December 16, 2021, the parties entered into a Sixth Amendment to Loan Agreement (the “Sixth Amendment”), which amendment, revised the Loan Agreement to, among other things modify the Loan Agreement's definition of "Borrowing Base" (with such amendment retroactive to and effective as of December 15, 2021), and also includes certain additional non-substantive changes.

On February 11, 2022, the parties entered into a Seventh Amendment to Loan Agreement (the “Seventh Amendment”), which amendment, revised the Loan Agreement to, among other things modify the Loan Agreement's definition of "Borrowing Base" and “Availability Block,” and also includes certain additional non-substantive changes.

On March 3, 2022, the parties entered into an Eighth Amendment to Loan Agreement (the “Eighth Amendment”), which amendment, revised the Loan Agreement to, among other things modify the Loan Agreement's definition of "Borrowing Base" and “Availability Block,” and also includes certain additional non-substantive changes.

On April 5, 2022, the Company entered into a Ninth Amendment to Loan Agreement (the “Ninth Amendment”). Among other things, the amendment modified the Loan Agreement's definition of "Borrowing Base" so as to provide for an over-advance facility (the “2022 Over-Advance Facility”) in an aggregate amount of up to $1,000. MidCap's agreement to enter into the Ninth Amendment was conditioned, in part, on the entry into a participation agreement between MidCap and Robert J. Pallé, a Director, and an affiliate of Mr. Pallé (the “Pallé Parties”). The terms of the Ninth Amendment and the participation agreement contemplate that any advances made by Midcap pursuant to the 2022 Over-Advance Facility would be funded by the Pallé Parties under the participation agreement. Advances under the 2022 Over-Advance Facility are subject to the discretion of MidCap and the Pallé Parties. On April 5, 2022, pursuant to the 2022 Over-Advance Facility and the participation agreement, the Pallé Parties funded an initial advance of $200 that was provided to the Company. Since April 5, 2022, a total of $800 was made by Midcap to the Company, which was funded by the Pallé Parties. Further advances may be made to the Company upon its request, subject to the discretion of MidCap and the Pallé Parties, in minimum amounts of not less than $100 per tranche, unless a lesser amount is agreed to by the parties. The amount advanced in each tranche will bear an interest rate of 1% per month.

On May 5, 2022, the parties entered into a Tenth Amendment to Loan Agreement (the "Tenth Amendment"), which amendment, revised the Loan Agreement to, among other things, modify the Loan Agreement's definition of “Minimum EBITDA Covenant Trigger Event.” The Tenth Amendment amends the definition, retroactive to and as of January 1, 2022, 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 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 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 on the date after the Covered 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 forgiveness as a gain on debt forgiveness during the nine month periodyear ended September 30,December 31, 2021.

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

Note 6 – Subordinated Convertible Debt with Related Parties

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 (Company Director and employed as Managing Director-Strategic Accounts), Anthony J. Bruno (Company Director), and Stephen K. Necessary (Company Director), 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 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 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 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 Stockcommon 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, 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.

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)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.

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

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, 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 $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.

On January 21, 2022, one of the Tranche A Parties submitted an irrevocable notice of conversion under the Tranche A Loans. As a result, $50 of original principal and $12 of PIK interest outstanding under the Tranche A Loans were converted into 104 shares of Company common stock in complete satisfaction of their indebtedness.

The obligations of the Company under the Subordinated Loan Agreement are guaranteed by Drake and are secured by substantially all of the 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 Agreement were subordinated to the rights of MidCap under the MidCap 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 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. The Company accrued $42 and $28$37 of PIK Interest with respect to the Subordinated Loan Facility during the three-months ended September 30, 2021 and 2020, respectively and $119 and $51 of PIK Interest ninethree months ended September 30,March 31, 2022 and 2021, and 2020, respectively. The Company recorded $15$16 and $94$39 of interest expense related to the amortization of the debt discount during the three and nine months ended September 30,March 31, 2022 and 2021, respectively.

Note 7 – Related 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 September 30,March 31, 2022 and 2021, and 2020, this law firm billed the Company approximately $116$218 and $143, respectively and during the nine-month periods ended September 30, 2021 and 2020, this law firm billed the Company approximately $465 and $636,$196, respectively for legal services provided by the firm. Included in accounts payable on the accompanying unaudited condensed balance sheet at September 30, 2021March 31, 2022 and December 31, 20202021 is approximately $235$430 and $183$293 owed to this law firm.

Note 8 – Concentration of Credit Risk

The following table summarizes credit risk with respect to customers as percentage of sales for the three and nine month periods ended September 30, 2021March 31, 2022 and 2020:2021:

 Three months ended
September 30		 Nine months ended
September 30		  Three months ended
March 31,		 
 2021 2020 2021 2020  2022 2021 
Customer A  23%  -   19%  -   20%  12%
Customer B  20%  -   15%  -   13%  - 
Customer C  13%  -   12%  -   10%  12%
Customer D  -   14%  -   -   -   11%
Customer E  -   10%  -   10%
        

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

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

 September 30, December 31,  March 31, December 31, 
 2021 2020  2022 2021 
Customer A  20%  11%  20%  24%
Customer B  23%  13%
Customer E  16%  21%
Customer F  14%  15%  14%  - 
Customer G  12%  - 
Customer H  -   17%

 

The following table summarizes credit risk with respect to vendors as percentage of purchases for the three-month and nine-month periods ended September 30, 2021March 31, 2022 and 2020:2021:

 Three months ended
September 30		 Nine months ended
September 30		  Three months ended
March 31,		 
 2021 2020 2021 2020  2022 2021 
Vendor A  18%  -   19%  -   23%  30%
Vendor B  17%  21%  15%  11%  11%  - 
Vendor C  10%  -   -   -   10%  13%
Vendor D  -   10%  -   18%  -   12%
Vendor E  -   -   -   27%

 

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

  September 30,
2021		  December 31,
2020		 
Vendor A  15%  - 
Vendor B  14%  11%
Vendor E  -   45%
Vendor F  11%  20%
  March 31,  December 31, 
  2022  2021 
Vendor C  23%  28%
Vendor E  -   10%

 

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 JanuaryJune 2024. Lease costs and cash paid for the three-month period ended September 30, 2021March 31, 2022 were $199$202 and $200,$202, respectively. Lease costs and cash paid for the three-month period ended September 30, 2020 were $186 and $187, respectively. Lease costs and cash paid for the nine-month period ended September 30,March 31, 2021 were $590$193 and $590,$194, respectively. Lease costs and cash paid for

Maturities of the nine-month period ended September 30, 2020 were $563 and $562, respectively.lease liabilities are as follows:

For the year ended December 31,

 Amount 
Amount remaining year ending December 31, 2022 $692 
2023  943 
2024  87 
Total  1,722 
Less present value discount  105 
Total operating lease liabilities $1,617 

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)
(unaudited)

(unaudited)

Maturities of the lease liabilities are as follows:

For the year ended December 31, Amount 
Amount remaining year ending December 31, 2021 $229 
2022  922 
2023  943 
2024  87 
Thereafter  - 
Total  2,181 
Less present value discount  165 
Total operating lease liabilities $2,016 

 

As of September 30, 2021,March 31, 2022, the weighted average remaining lease term is 2.581.84 years and the weighted average discount rate used to determine the operating lease liabilities was 6.5%.

Promissory NoteLitigation

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.

Promissory Note

In connection with the fulfillment of certain of the Company’sCompany's purchase orders, the Company is financing expediting fees charged in connection with the purchase orders by delivering a promissory note (the “Note”) to the supplier of the goods, in the principal amount of approximately $630. The Note is unsecured and has an interest rate of 12% per annum. The Company iswas obligated to repay the principal balance of the note beginning in September 2021 and continuing thereafter for an additional five consecutive monthly installments on the 15th day of each successive calendar month, as follows: September 2021, $100, October 2021, $100, November 2021, $100, December 2021, $100, January 2022, $100 and February 2022, $140. Accrued interest will bewas paid concurrently with each principal installment. Upon a default under the Note, including the non-payment of principal or interest, the Company’sCompany's obligations may be accelerated, and the Note holder may pursue its rights under the Note and under applicable law.

Litigation

The Company from time to time is a party to certain proceedings incidental to the ordinary course of its business, none of which,final February 2022 payment was made 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.April 2022.

Note 10 – Other Income

For the three and nine monthsyear ended September 30,December 31, 2021, the Company accrued payroll tax credits of $619 and $1,804, respectively, through the Employee Retention Tax Credit program (“ERTC”). The amount was recorded as other income and included in prepaid and other current assets as of the applicable quarter end date. The Company received $577 of the first quarter of 2021 ERTC in April, $115 towards Q2 in July, $181 towards Q3 in August, and $219 towards Q3 in October.October and $195 towards Q3 in November. 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,September 30, 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 (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. At March 31, 2022, the Company is still owed $517 in ERTC funds which it expects to receive during the second quarter of 2022.

 


 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)

Note 11 – Equity Transactions

During June and July 2021, the Company received approximately $61 as the result of the exercise of certain Placement Agent Warrants, and the Company issued 88 shares of common stock upon exercise.

On August 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent shares of the Company’s common stock, having an aggregate offering price of up to $400.

From August 16, 2021 through September 30, 2021, the Company sold an aggregate of 38 shares under the Sales Agreement at prices ranging from $1.1053 to $1.1390 per share, for aggregate proceeds, net of sales commissions, of approximately $41.

On August 23, 2021, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with an institutional investor providing for the sale by the Company to the investor of 200 shares of the Company’s common stock at a purchase price of $1.08 per share, resulting in aggregate proceeds to the Company of $216. The shares were offered and sold pursuant to the Company’s effective shelf registration statement on Form S-3. The Company’s sale of the shares pursuant to the Purchase Agreement will have the effect of reducing the amount of shares that may be sold pursuant to the Sales Agreement from $400 to $184. Taking into account sales of common stock pursuant to the Stock Purchase Agreement and sales of common stock pursuant to the Sales Agreement to date, the amount available to be sold under the Sales Agreement is currently $143.


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

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 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, 2020,2021, filed with the Securities and Exchange Commission (the “SEC”) on March 25, 202131, 2022 (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), 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) and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed with the SEC on August 12, 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 Stockcommon 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 more 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, universities/schools, 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 small and medium sized businesses in commercial, institutional and/or enterprise environments, and will be referred to herein collectively as “CIESMB”. 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 (“IPTV”) 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 CIESMB environments described above, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, 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 4K, UHD, HD and SD video content) and have a high performance-to-cost ratio.

 


In 2019, the Company initiated a consumer premise equipment (“(CPE“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. ThisAlthough this strategic initiative was designed to secure an in-home position with the Company’s product offerings, more intimate,and direct relationships with a wide range of service providers, and increasedincrease sales of the Company’s CIETelecom and SMB products by the Company’sBT Premier Distributors to those same service providers. In its first year,providers, it was decided in 2021, to de-emphasize this strategy due to the low gross margin of this initiative and global semiconductor supply chain limitations. The CPE Product initiative achieved sales to over 4575 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 fiber7% and cable operators and accounted for approximately 25% of the Company’s revenues. Although the CPE product initiative has had a material2021 and 2020 revenues, respectively, although its contribution to the Company’s net sales, itincome 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.performance.

 

Like many businesses throughout the United States and the world, we havethe Company has been affected by the COVID-19 outbreak.pandemic. Because there are daily, weekly and monthly 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 CIESMB business, we have experienced a noticeable decline in sales, assales. From March 2020 through Q3 of 2021 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.activities coupled with expected supply chain constraints. During and since Q3 2021, the Company has seen our customers, in general, begin to recover their business operations at the same time as the Company began to see global disruptions in semiconductor supply chain, which is a major raw material component of the products the Company designs, manufactures and sells. 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 and product shipments might return to historical levels. In addition, as has been widely-reported by news outlets, there has beenSince 2019, we have taken steps to reduce and continuesare currently taking additional steps to be a global semiconductor microchip shortage. Manysignificantly reduce our expenses, including adjustments in our staffing (in the form of our products include one or multiple microchips as critical product components. We have recently experienced difficultiesfurloughs) and reductions in sourcing microchips in amounts necessary to produce certain products in the volumesmanufacturing activities, which we believe are requiredwill improve our ability to continue our operations at current levels and meet customer demand. These difficulties had a material adverse affect on the Company’s results of operations for the third three months of 2021. If we are unable to source a sufficient amount of microchips, we may not be able to meet customer demand and our sales in future periods will be adversely affected and our customer relationships also may be damaged. In addition, the shortage has resulted in higher prices for microchips. During this third three month period we also experienced unanticipated increases in the cost of certain materials used in certain of our products. While we are able to partially offset the effects of these cost increases by increasing the sale price of certain of our products, these cost increases also had a material adverse effect on our results of operations. If the price of microchips or other materials used in our products increases in the future and we are unable to pass those additional costs onobligations to our customers through end-product price increases, our margins and our financial results will be adversely affected.customers.

The Company’s manufacturing is allocated primarily between its facility in Old Bridge, New Jersey (“Old Bridge Facility”) and key contract manufacturing located offshore in the People’s Republic of China (“PRC”), as well as 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 transitioned and continues to manufacture certain high volume,high-volume, labor intensive products, including many of the Company’s analog and other products, in the Far East,PRC, pursuant to manufacturing agreements that govern 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 Far EastPRC 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 Far EastPRC, South Korea, Taiwan and Ohio enables the Company to realize cost reductions while maintaining a competitive position and time-to-market advantage.


 

Results of Operations

 

ThirdFirst three months of 20212022 Compared with thirdfirst three months of 20202021

 

Net Sales. Net sales increased $1,000,$90,000, or 0.02%2.8%, to $4,172,000$3,341,000 in the thirdfirst three months of 20212022 from $4,171,000$3,251,000 in the thirdfirst three months of 2020.2021. The increase is primarily attributable to an increase in sales of DOCSIS data products, encoder/transcoder products, digital modulation products and NXG IP video signal processing products, offset by a decrease in sales of analog video headend products, CPE products, and HFCcoax distribution products. Sales of transcoder products were $1,732,000 and $543,000, NXG products were $420,000 and $89,000, analog video headend products were $176,000 and $323,000, CPE products were $113,000 and $1,379,000 and HFC distribution products were $404,000 and $599,000 in the third three months of 2021 and 2020, respectively. The Company expects sales of transcoder products to continue to increase as market acceptance increases. 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 $2,673,000 for the third three months of 2021 from $3,436,000 for the third three months of 2020 and decreased as a percentage of sales to 64.1% from 82.4%. The $763,000 decrease is primarily attributable to higher margin products relating to favorable product mix, as well as reduced overhead costs.

Selling Expenses. Selling expenses increased to $642,000 for the third three months of 2021 from $614,000 in the third three months of 2020 and increased as percentage of sales to 15.4% for the third three months of 2021 from 14.7% for the third three months of 2020. The $28,000 increase was primarily the result of an increase in consulting fees of $26,000 and an increase in freight expense of $24,000 offset by a decrease in salaries and fringe benefits of $19,000.

General and Administrative Expenses. General and administrative expenses decreased to $900,000 for the third three months of 2021 from $1,203,000 for the third three months of 2020 and decreased as a percentage of sales to 21.6% for the third three months of 2021 from 28.8% for the third three months of 2020. The $303,000 decrease was primarily the result of a decrease in professional fees of $144,000 and a decrease in salaries and fringe benefits of $122,000 primarily due to the mark to market adjustment on stock compensation.

Research and Development Expenses. Research and development expenses increased to $660,000 in the third three months of 2021 from $600,000 in the third three months of 2020 and increased as a percentage of sales to 15.8% for the third three months of 2021 from 14.4% for the third three months of 2020. This $60,000 increase is primarily the result of an increase in salaries and fringe benefits of $57,000 due to increased head count.

Operating Loss. Operating loss of $(703,000) for the third three months of 2021 represents a decrease (or improvement) of $979,000 from the operating loss of $(1,682,000) for the third three months of 2020. Operating loss as a percentage of sales was (16.9) % in the third three months of 2021 compared to (40.3) % in the third three months of 2020.

Other income. Other income increased to $619,000 in the third three months of 2021 from zero in the third 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 third quarter of 2021.

Interest Expense. Interest expense increased to $117,000 in the third three months of 2021 from $51,000 in the third 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 nine months of 2021 Compared with first nine months of 2020

Net Sales. Net sales decreased $291,000, or 2.4%, to $11,761,000 in the first nine months of 2021 from $12,052,000 in the first nine months of 2020. The decrease is primarily attributable to a decrease in sales of DOCSIS data products, digital video headend products, HFC distribution products, CPE products and analog video headend products, offset by an increase in sales of transcoder products and NXGmodulation products. Sales of DOCSIS data products were $681,000$454,000 and $1,807,000, digital video headend$24,000, encoder/transcoder products were $2,348,000$1,518,000 and $2,603,000, HFC$1,167,000, digital modulation products were $377,000 and $121,000, NXG products were $501,000 and $421,000, CPE products were $27,000 and $695,000, coax distribution products were $1,327,000$129,000 and $1,769,000, CPE$353,000 and analog modulation products were $1,096,000$99,000 and $3,051,000, analog video headend products were $657,00 and $838,000, transcoder products were $3,805,000 and $937,000 and NXG products were $1,311,000 and $570,000$244,000 in the first ninethree months of 2022 and 2021, respectively. The Company experienced a reduction in CPE products due to the continued deemphasis of this product line, which the Company expects to continue during the remainder of 2022. The Company experienced an increase in DOCSIS data products due to the pent up demand caused by the pandemic as these products are used primarily in the hospitality and 2020, respectively.assisted-living environments. The Company expects sales of transcoderthese products may return to more historical levels during 2022. The Company experienced a reduction in analog modulation products due to the continued market shifting away from analog modulation solutions. The Company experienced a reduction in coax distribution products due to the reduced demand for legacy products. The Company expects the sales of the analog modulation and coax distribution products to continue to increase as market acceptance increases. In addition, thedecline during 2022. The Company expects sales of DOCIS data products toexperienced an increase in the near termencoder/transcoder products and NXG IP video signal processing products as hospitality market purchases begin to return to prior levels post COVID-19.these product lines represent newer products and newer technologies with higher demand from customers. The Company expects sales of CPE productsthese product lines to continue to trend lower than in prior periods asremain at these levels or increase during 2022. Although the Company consistent with its business plan, moves away from lower-margin product lines.does not expect overall sales to return to pre pandemic levels during 2022, the Company does expect overall sales to be higher during 2022, due to approximately $10,194,000 of sales backlog at March 31, 2022.


 

 

Cost of Goods Sold. Cost of goods sold decreasedincreased to $7,272,000$2,402,000 for the first ninethree months of 2022 from $1,866,000 for the first three months of 2021 from $9,529,000 for the first nine months of 2020 and decreasedincreased as a percentage of sales to 61.8%71.9% from 79.1%57.4%. The $2,257,000 decreaseincrease is primarily attributable to higherlower margins relating to favorable product mix and the decrease as a percentage of sales is primarily attributable to higher margins relating to favorableunfavorable product mix, as well as reducedincreased overhead costs.costs due to manufacturing inefficiencies caused by previously mentioned supply chain constraints. The Company expects cost of goods sold to decrease during the remaining quarters of 2022 due to product mix since both encoder/transcoder and NXG sales have substantially lower costs of sales. The Company also expects cost of goods sold to decrease during the remainder of 2022 as overhead costs stabilize.

 

Selling Expenses. Selling expenses decreased to $1,807,000$506,000 for the first ninethree months of 20212022 from $1,916,000$531,000 in the first ninethree months of 20202021 and decreased as percentage of sales to 15.4%15.2% for the first ninethree months of 20212022 from 15.9%16.3% for the first ninethree months of 2020.2021. The $109,000$25,000 decrease was primarily the result of a decrease in salaries and fringe benefits due to a decrease in head count of $63,000 and a decrease$49,000, offset by an increase in advertising and trade showsfreight expense of $63,000.$18,000.

 

General and Administrative Expenses. General and administrative expenses decreased to $2,944,000$912,000 for the first ninethree months of 20212022 from $3,551,000$1,079,000 for the first ninethree months of 20202021 and decreased as a percentage of sales to 25.0%27.3% for the first ninethree months of 20212022 from 29.5%33.2% for the first ninethree months of 2020.2021. The $607,000$167,000 decrease was primarily the result of a decrease in professional fees of $344,000, a decrease in salaries and fringe benefits of $107,000$122,000 and a decreasereduction in rentdirectors’ fees of $61,000.$47,000.

 

Research and Development Expenses. Research and development expenses increaseddecreased to $1,921,000$541,000 in the first ninethree months of 2022 from $638,000 in the first three months of 2021 from $1,865,000 in the first nine months of 2020 and increaseddecreased as a percentage of sales to 16.3%16.2% for the first ninethree months of 20212022 from 15.5%19.6% for the first ninethree months of 2020.2021. This $56,000 increase$97,000 decrease is primarily the result of an increasea decrease in salaries and fringe benefits of $98,000$40,000 due to increaseddecreased head count offset byand a decreasereduction in consulting feesdepartment supplies (engineering prototypes) of $37,000.$47,000.

 

Operating Loss. Operating loss of $(2,183,000)$(1,020,000) for the first ninethree months of 20212022 represents a decrease (or improvement) of $2,626,000an increase from the operating loss of $(4,809,000)$(863,000) for the first ninethree months of 2020.2021. Operating loss as a percentage of sales was (18.6)(30.5) % in the first ninethree months of 20212022 compared to (39.9)(26.6) % in the first ninethree months of 2020.2021.

 

Other income. Other income increaseddecreased to $1,804,000 in the first nine months of 2021 from zero in the first ninethree months of 2020.2022 from $577,000 in the first three months of 2021. The increasedecrease is the result of the accrualreceipt of the payroll tax credit through the Employee Retention Tax Credit for the first second andquarter of 2021. This program ended in the third quartersquarter of 2021.

 

Interest Expense. Interest expense increased to $379,000$133,000 in the first ninethree months of 20212022 from $252,000$128,000 in the first ninethree months of 2020.2021. The increase is primarily the result of the PIK interest and the accretion of the debt discounthigher average borrowing under the subordinated convertible debt.MidCap facility.

 

Liquidity and Capital Resources

 

As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company’s working capital was $1,999,000$740,000 and $570,000,$1,618,000, respectively. The increasedecrease in working capital was primarily due to an increase in prepaid and other current assets.accounts payable.

 

The Company’s net cash used inprovided by operating activities for the nine-monththree-month period ended September 30, 2021March 31, 2022 was $627,000$78,000 primarily due to net income of $987,000, an increase in accounts payable and accrued expenses of $342,000,$1,091,000, offset by the net loss of $1,154,000. The Company’s net cash provided by operating activities for the three-month period ended March 31, 2021 was $234,000 primarily due to a decrease in accounts receivable of $667,000 and an increase in accounts payable and accrued expenses of $416,000, offset by an increase in prepaid and other current assets of $1,262,000 and adjustments to reconcile net income to cash used in operating activities of $648,000. The Company’s net cash used in operating activities for the nine-month period ended September 30, 2020 was $2,149,000 primarily due to a net loss of $5,061,000 offset by a decrease in inventories of $3,245,000.$954,000.

 

Cash used in investing activities for the nine-monththree-month period ended September 30, 2021March 31, 2022 was $67,000, of which $12,000 was attributable$4,000 due to capital expenditures of $2,000 and $55,000 was attributable to additional license fees.the acquisition of licenses of $2,000. Cash used in investing activities for the nine-monththree-month period ended September 30, 2020March 31, 2021 was $163,000,$36,000, all of which $138,000 was attributable to capital expenditures and $25,000 was attributable to additional license fees.acquisition of licenses.

 

Cash provided byused in financing activities was $896,000$238,000 for the first ninethree months of 2022, which was comprised of net repayments of the line of credit of $220,000 and repayments of debt of $18,000. Cash used in financing activities was $211,000 for the first three months of 2021, which was comprised of net repayments of the line of credit of $907,000 and repayments of debt of $8,000 offset by borrowings under the subordinated convertible debt facility of $700,000 the net proceeds of stock issuances of $257,000,and the proceeds of the exercise of stock options of $10,000 and the proceeds of the exercise of stock warrants of $61,000 offset by net borrowings of line of credit of $87,000 and repayments of debt of $45,000. Cash provided by financing activities was $1,815,000 for the first nine months of 2020, which was comprised of proceeds from long term debt of $1,769,000, proceeds from the Subordinated Loan Facility (as described below) of $900,000 and proceeds from the exercise of stock options of $3,000 offset by net repayments of the line of credit of $828,000 and repayments of debt of $29,000.$4,000.


 

For a full description of the Company’s senior secured indebtedness under the MidCap Facility and its effect upon the Company’s 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 and amounts available under the Subordinated Loan Facility and cash generated from salesFacility. As of its 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 September 30, 2021,March 31, 2022, the Company had $516,000 availableapproximately $2,180,000 outstanding under the MidCap Facility and $243,000 of additional availability for borrowing under the MidCap Facility.

 

As previously disclosed, in the Company’s most recent Annual Report on Form 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, certain disagreements have arisen between the Company and the landlord with respect to the parties’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’slandlord's claim that the Company is obligated to pay management fees to the landlord under the Lease.  Without prejudice to the Company’sCompany's positions regarding these matters, and without creating any inference that the Company agrees with any of the landlord’slandlord'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 toparties 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.

 

On December 31, 2019, the Company entered into a two-year sublease to a third party for 32,500 square feet of the Old Bridge Facility (the “Sublease Space”) which commenced on March 1, 2020, the rental proceeds from which inure to the benefit of the Company. The sublease also provides for a one-year renewal option, which was exercised in January 2022. The sublease provides rental income approximately $284,000 in the first year, approximately $293,000 in the second year and approximately $301,000 in the third year of the sublease.

In connection with the fulfillment of certain of the Company’sCompany's purchase orders, the Company iswas financing expediting fees charged in connection with the purchase orders by delivering a promissory note (the “Note”) to the supplier of the goods, in the principal amount of approximately $630,000. The Note iswas unsecured and has an interest rate of 12% per annum. The Company iswas obligated to repay the principal balance of the note beginning in September 2021 and continuing thereafter for an additional five consecutive monthly installments on the 15th day of each successive calendar month, as follows: September 2021, $100,000, October 2021, $100,000, November 2021, $100,000, December 2021, $100,000, January 2022, $100,000 and February 2022, $140,000. Accrued interest will bewas paid concurrently with each principal installment. Upon a default under the Note, including the non-payment of principal or interest, the Company’s obligations may be accelerated and the Note holder may pursue its rights under the Note and under applicable law.The final February 2022 payment was made in April 2022.

 

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 September 30, 2021, certain ofMarch 31, 2022, 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. Sales of the Company’s products did not return to historical norms during 2021. The Company still does not anticipate that sales will recover to historical norms during 2021, although2022, due primarily to supply chain shortages related to COVID-19 impacting the Company is optimistic that as the roll out of vaccines continues and the impact of the pandemic beginsCompany’s ability to lessen, improvementssource raw materials used in the market may occur.manufacturing process. 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 5, 2022, the Company entered into a Ninth Amendment to Loan Agreement (the “Ninth Amendment”). Among other things, the amendment modified the Loan Agreement's definition of "Borrowing Base" so as to provide for an over-advance facility (the “2022 Over-Advance Facility”) in an aggregate amount of up to $1,000,000. MidCap's agreement to enter into the Ninth Amendment was conditioned, in part, on the entry into a participation agreement between MidCap and Robert J. Pallé, a Director, and an affiliate of Mr. Pallé (the “Pallé Parties”). The terms of the Ninth Amendment and the participation agreement contemplate that any advances made by Midcap pursuant to the 2022 Over-Advance Facility would be funded by the Pallé Parties under the participation agreement. Advances under the 2022 Over-Advance Facility are subject to the discretion of MidCap and the Pallé Parties. On April 5, 2022, pursuant to the 2022 Over-Advance Facility and the participation agreement, the Pallé Parties funded an initial advance of $200,000 that was provided to the Company. Since April 5, 2022, a total of $800,000 was made by Midcap to the Company, which was funded by the Pallé Parties. Further advances may be made to the Company upon its request, subject to the discretion of MidCap and the Pallé Parties, in minimum amounts of not less than $100,000 per tranche, unless a lesser amount is agreed to by the parties. The amount advanced in each tranche will bear an interest rate of 1% per month.


 

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 tomay 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 Stockcommon 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 whenterminated as 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 nine month periodsyear ended September 30, 2021, respectively.December 31, 2021.


 

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, submitted irrevocable notices of conversion under the Tranche 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’sCompany'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’sCompany'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.

During June and July 2021, the Company received approximately $61,000 as 87,500 of Placement Agent Warrants were exercised.


 

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)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 Stockcommon 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 Agreement (as amended by the LSA Third Amendment) obligated the Company to call a special meeting of its stockholders to seek stockholder approval of the issuance of shares of its Common Stockcommon 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’sCompany's outstanding shares of Common Stock,common stock, in accordance with the requirements of Section 713(a) of the NYSE 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 Agreement are guaranteed by Drake and are secured by substantially all of the 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 Agreement were subordinated to the rights of MidCap under the MidCap 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 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.

 

On January 21, 2022, one of the Tranche A Parties submitted an irrevocable notice of conversion under the Tranche A Loans. As a result, $50,000 of original principal and $12,000 of PIK interest outstanding under the Tranche A Loans were converted into 104,399 shares of Company common stock in complete satisfaction of their indebtedness.

On August 16, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”). In accordance with the terms of the Sales Agreement, the Company may offer and sell from time to time through the Agent shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $400,000.


From August 16, 2021 through September 30, 2021, the Company sold an aggregate of 38,388 shares under the Sales Agreement at prices ranging from $1.1053 to $1.1390 per share, for aggregate proceeds, net of sales commissions, of approximately $41,000.

 

On August 23, 2021, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with an institutional investor providing for the sale by the Company to the investor of 200,000 shares of the Company’s common stock at a purchase price of $1.08 per share, resulting in aggregate proceeds to the Company of $216,000. The shares were offered and sold pursuant to the Company’s effective shelf registration statement on Form S-3. The Company’sCompany's sale of the Shares pursuant to the Purchase Agreement will have the effect of reducing the amount of shares that may be sold pursuant to the Sales Agreement from $400,000 to $184,000. Taking into account sales of common stock pursuant to the Stock Purchase Agreement and sales of common stock pursuant to the Sales Agreement to date, the amount available to be sold under the Sales Agreement is currently $143,000.

 

For the three and nine monthsyear ended September 30,December 31, 2021, the Company accrued payroll tax credits of $619,000 and $1,804,000, respectively, through the Employee Retention Tax Credit program (“ERTC”). The amount was recorded as other income and included in prepaid and other current assets as of the applicable quarter end date. The Company received $577,000 of the first quarter of 2021 ERTC in April, $115,000 towards Q2 in July, $181,000 towards Q3 in August, and $219,000 towards Q3 in October.October and $195,000 towards Q3 in November. 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,September 30, 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 (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. AlthoughAt March 31, 2022, the Company currently anticipates receiving credits pursuantis still owed $517,000 in ERTC funds which it expects to receive during the terms of the ERTC for eachsecond quarter of 2021, there can be no assurances that the Company will continue to meet the requirements subsequent to the third 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 operation of the ERTC program, will not be adopted that could reduce or eliminate the benefits the Company may receive.2022.

 

In other efforts to alleviate 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, with another reduction in 2021 of approximately $110,000 per month and which provided annualized savings of approximately $1,314,000 compared to the Company’s costs as they existed prior to the commencement of the cost reduction program. Although the Company believes it has made and will continue to make progress under these programs and the funding 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

In addition, the last weekCOVID-19 outbreak has affected the supply chain for many types of February 2020products and extending currently,materials, particularly those being manufactured in China and other countries where the Companyoutbreak has been experiencing specific COVID-19 related reductionsresulted in sales duesignificant disruptions to customers requestingongoing business activities. Beginning in the second quarter of 2021 and continuing into the first quarter of 2022, we experienced a material disruption in our supply chain as it relates to delay specific purchases and/or previously anticipated purchase ordersthe procurement of certain sole source and shipments. Aother multiple source components utilized in a material portion of the Company’s customers are either fullyseveral product lines. We believe this disruption may continue beyond 2022. If these or partially closed or operating with reduced staffing levels due in part to a rangeany similar types 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 range 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. Itsupply disruptions continue, it is possible that we will be unable to complete sales may continueof any affected products 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’sour 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. on requested schedules.

The Company has reacted to these unprecedented circumstances, as many enterprises have had to do over the course of March through December 2020 (and continuing today),the pandemic, with a range of actions designed to compensate for anticipated temporary revenue shortfalls, manage the Company’s working capital and minimize the overall financial impact of this disruption, including implementation of exceptional short-term operating expense reductions, such as temporary manufacturing shut-downs and 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.furloughs.


 

The Company’s primary long-term obligations are for payment of interest on the MidCap Facility, which expires on 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 $288,000$2,000 and $175,000$31,000 in the ninethree months ended September 30, 2021March 31, 2022 and the year ended December 31, 2020,2021, respectively. The Company expects to use cash generated from operations, amounts available under the MidCap Facility, amounts available under the Subordinated Loan Facility, and purchase-money financing to meet any anticipated long-term capital expenditures.

 

Critical Accounting Estimates

 

SeeThe Company prepares its financial statements in accordance with accounting principles generally accepted in the United States. Preparing financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required. You should also review Note 2 — Summary of Significant Accounting Policies in the Notes to our Condensed Consolidated Financial Statements for further discussion of significant accounting policies.

Inventory and Obsolescence

Inventories are stated at the lower of cost, determined by the first-in, first-out (“FIFO”) 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 reserved..

The Company continually analyzes its slow-moving and excess inventories. Based on historical and projected sales volumes 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 descriptionlevel that approximates its estimate of where estimatesfuture demand. Products that are required.determined to be obsolete are written down to net realizable value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to distributors and private cable operators. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances.


Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve based on historical experience, in its overall allowance for doubtful accounts.

Long-Lived Assets

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any intangible asset impairment charges in during the three months ended March 31, 2022 and 2021, respectively.

Valuation of Deferred Tax Assets

The Company accounts for income taxes under the provisions of the FASB ASC Topic 740 “Income Taxes”. Deferred income taxes are provided for temporary differences in the recognition of certain income and expenses for financial and tax reporting purposes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

Recent Accounting Pronouncements

 

See Note 2(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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4.CONTROLS AND PROCEDURES

ITEM 4. CONTROLS AND PROCEDURES

Disclosure 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 September 30, 2021.March 31, 2022.

Changes in Internal Control Over Financial Reporting

 

During the quarter ended September 30, 2021,March 31, 2022, 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

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

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. Material2021. There are no material changes from the risk factors included inwithin the Company’s Form 10-K for the year ended December 31, 2020 are included below.

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 $0.97 per share on October 13, 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 $0.91 per share on October 13, 2021. The last reported sale price of our common stock onrisks described within the NYSE American on October 19,the Company’s Form 10-K for the year ended December 31, 2021 was $1.07 per share. The daily trading volume in shares of our common stock has also experienced significant fluctuation. During 2021, through October 19, 2021, daily trading volume ranged from approximately 34,700 sharesare not the only risks facing us. Additional risks and uncertainties not currently known to 25,998,623 shares. We have not had any recent change in our financial conditionus or results of operations that we currently 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 priceimmaterial also 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:

●increases or decreases in the market price of our common stock may be unrelated to our operating performance or prospects, or macro or industry fundamentals, and inconsistent with the risks and uncertainties that we face;

●factors in the volume of trading our common stock and the price at which the stock trades may include retail investors’ sentiment (including opinions expressed on financial trading and other social media sites and online forums), the direct access of retail investors to broadly available trading platforms, the amount and status of short interest in our securities, access to margin debt, trading in options and other derivatives on our common stock and any related hedging and other trading factors; and

●based on the higher trading prices our shares have experienced recently, our market capitalization has recently reflected, and currently reflects, valuations that diverge significantly from those seen prior to these recent fluctuations, and to the extent these valuations reflect trading dynamics unrelated to our financial performance, prospects or the risks and uncertainties we face, purchasers of our common stock could incur substantial losses if there are declines in market prices driven by a return to earlier valuation levels.

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:

●overall performance of the equity markets and the economy as a whole;

●actual or anticipated changes in our growth rate relative to that of our competitors;

●announcements of technological innovations or new products by us, our competitors or third parties;

●changes in the anticipated size or growth rate of our addressable markets;

●announcements of acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments, by us or by our competitors;

●quarterly variations in our actual or anticipated results of operations;

●failure of revenues or earnings in any quarter to meet the investment community’s expectations;

●market conditions for telecommunications or cable industry stocks in general;

●new laws or regulations or new interpretations of existing laws or regulations applicable to us or our customers;

●sales of significant amounts of our common stock by our officers and directors or the perception that such sales may occur;

●sales of significant amounts of our common stock by us or the perception that such sales may occur;

●health epidemics, such as the COVID-19 pandemic, influenza, and other highly communicable diseases; and

●other events or factors, including those resulting from war, incidents of terrorism (including cyberterrorism), or responses to these events

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 andand/or operating results. See Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements.”

 

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. Had the measurement date for regaining compliance been September 30, 2021, we would not have met the continued listing standards. 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:

●limited availability of market quotations for the common stock;

●reduced liquidity for our securities;

●our common stock being categorized as a “penny stock,” which requires brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common stock; and

●decreased ability to issue additional securities or obtain additional financing in the future.

In addition, the National Securities Markets Improvement Act of 1996 generally preempts the states from regulating the sale of “covered securities.” Our common stock qualifies as “covered securities” because the shares of common stock are listed on NYSE American. If our common stock were no longer listed on NYSE American, our securities would not be “covered securities” and we would be subject to regulation in each state in which we offer our securities.


Our dependence on certain third-party suppliers could create an inability for us to obtain component products not otherwise available or to do so only at increased prices.

We purchase several products from sole suppliers for which alternative sources are not available. Our results of operations and financial condition could be materially adversely affected by:

●an inability to obtain sufficient quantities of these components;

●our receipt of a significant number of defective components;

●an increase in component prices; or

●our inability to obtain lower component prices in response to competitive pressures on the pricing of our products.

In addition, the COVID-19 outbreak has affected the supply chain for many types of products and materials, particularly those being manufactured in China and other countries where the outbreak has resulted in significant disruptions to ongoing business activities. Beginning in the second quarter and continuing into the third quarter of 2021, we experienced a material disruption in our supply chain as it relates to the procurement of certain sole source and other multiple source components utilized in a material portion of several product lines. We believe this disruption may continue beyond 2021. If these or any similar types of supply disruptions continue, it is possible that we will be unable to complete sales of any affected products to our customers on requested schedules.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 5.OTHER INFORMATION

ITEM 5. OTHER INFORMATION

None

 


ITEM 6.EXHIBITS

ITEM 6. EXHIBITS

 

Exhibit #DescriptionDescriptionLocation
3.1Restated Certificate of Incorporation of Blonder Tongue Laboratories, Inc. Incorporated by reference from Exhibit 3.1 to Registrant’s S-1 Registration Statement No. 33-98070 originally filed October 12, 1995, as amended.
3.2Amended and Restated Bylaws of Blonder Tongue Laboratories, Inc. Incorporated by reference from Exhibit 3.1 to Registrant’s Current Report on Form 8-K, filed April 20, 2018.
4.1Form of Placement Agent Common Stock Purchase Warrant.Incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed February 1, 2021.
10.1FourthSeventh Amendment to Loan Agreement, Dated as of July 30, 2021.dated February 11, 2022. Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed  August 2, 2021.February 15, 2022.
10.2Sales Agreement dated August 16, 2021, between Blonder Tongue Laboratories, Inc. and Roth Capital Partners, LLC. Incorporated by reference from Exhibit 1.1Eighth Amendment to the Registrant’s Current Report on Form 8-K, filed August 16, 2021.
10.3Stock PurchaseLoan Agreement, dated as of August 23, 2021, between Blonder Tongue Laboratories, Inc. and Cavalry Fund I LP..March 3, 2022. Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed August 23, 2021.March 4, 2022.
10.410.3FifthNinth Amendment to Loan Agreement, Dated as of August 26, 2021.dated April 5, 2022. Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed August 30, 2021.April 8,2022.
10.4 Tenth Amendment to Loan Agreement, dated May 5, 2022. Incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed May 5,2022.
31.1Certification of Edward R. Grauch pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2Certification of Eric Skolnik pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

Filed herewith.

32.1Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002. Filed herewith.

101.INS

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document Filed herewith.
101.SCH

Inline XBRL Taxonomy Extension Schema Document

 Filed herewith.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.DEF
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith.
101.LAB
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentFiled herewith.
101.PRE
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentFiled herewith.
104
104Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document


 

SIGNATURES

 

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

 

BLONDER TONGUE LABORATORIES, INC.
Date: October 22, 2021May 6, 2022By:/s/ Edward R Grauch
Edward R. Grauch
Chief Executive Officer
(Principal Executive Officer)

By:
By:/s/ Eric Skolnik
Eric Skolnik
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

30

25 

 

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