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, 2019.
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
Jersey |
|
08857 |
(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 class |
|
Trading symbol(s) |
|
Name of each exchange on
which registered |
Common Stock, par value
$.001 |
|
BDR |
|
NYSE 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 x 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 x No ¨
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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 November 6, 2019:
9,634,163
The Exhibit Index appears on page
21
PART I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
|
|
(unaudited) |
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2019 |
|
|
2018 |
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
|
$ |
369 |
|
|
$ |
559 |
|
Accounts receivable, net of allowance for doubtful accounts of $27
and $53 as of September 30, 2019 and December 31,2018,
respectively |
|
|
2,272 |
|
|
|
2,654 |
|
Inventories, current |
|
|
8,462 |
|
|
|
6,172 |
|
Prepaid benefit costs |
|
|
288 |
|
|
|
288 |
|
Deferred loan costs |
|
|
40 |
|
|
|
149 |
|
Prepaid and other current assets |
|
|
648 |
|
|
|
555 |
|
Total current assets |
|
|
12,079 |
|
|
|
10,377 |
|
Inventories, net non-current |
|
|
- |
|
|
|
551 |
|
Property, plant and equipment, net |
|
|
377 |
|
|
|
2,890 |
|
License agreements, net |
|
|
23 |
|
|
|
12 |
|
Intangible assets, net |
|
|
1,141 |
|
|
|
1,269 |
|
Goodwill |
|
|
493 |
|
|
|
493 |
|
Right
of use assets, net |
|
|
3,575 |
|
|
|
- |
|
Other assets, net |
|
|
815 |
|
|
|
9 |
|
|
|
$ |
18,503 |
|
|
$ |
15,601 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Line of credit |
|
$ |
803 |
|
|
$ |
2,603 |
|
Current portion of long-term debt |
|
|
30 |
|
|
|
3,075 |
|
Current portion of lease liability |
|
|
754 |
|
|
|
- |
|
Accounts payable |
|
|
2,563 |
|
|
|
1,523 |
|
Accrued compensation |
|
|
254 |
|
|
|
332 |
|
Income taxes payable |
|
|
11 |
|
|
|
28 |
|
Other accrued expenses |
|
|
252 |
|
|
|
702 |
|
Total current liabilities |
|
|
4,667 |
|
|
|
8,263 |
|
|
|
|
|
|
|
|
|
|
Subordinated convertible debt with related parties |
|
|
- |
|
|
|
139 |
|
Lease
liability, net of current portion |
|
|
2,774 |
|
|
|
- |
|
Long-term debt, net of current portion |
|
|
45 |
|
|
|
32 |
|
Total liabilities |
|
|
7,486 |
|
|
|
8,434 |
|
Commitments and contingencies |
|
|
- |
|
|
|
- |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; authorized 5,000 shares; no
shares outstanding as of September 30, 2019 and December 31,
2018 |
|
|
- |
|
|
|
- |
|
Common stock, $.001 par value; authorized 25,000 shares 9,656 and
9,508 shares issued, 9,634 and 9,335 shares outstanding as of
September 30, 2019 and December 31, 2018, respectively |
|
|
10 |
|
|
|
9 |
|
Paid-in capital |
|
|
28,023 |
|
|
|
27,910 |
|
Accumulated deficit |
|
|
(16,078 |
) |
|
|
(19,178 |
) |
Accumulated other comprehensive loss |
|
|
(832 |
) |
|
|
(832 |
) |
Treasury stock, at cost, 22 and 173 shares as of September 30, 2019
and December 31, 2018, respectively |
|
|
(106 |
) |
|
|
(742 |
) |
Total stockholders’ equity |
|
|
11,017 |
|
|
|
7,167 |
|
|
|
$ |
18,503 |
|
|
$ |
15,601 |
|
See accompanying notes to
unaudited condensed 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,
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Net sales |
|
$ |
5,278 |
|
|
$ |
5,626 |
|
|
$ |
14,797 |
|
|
$ |
16,266 |
|
Cost of goods sold |
|
|
3,747 |
|
|
|
3,213 |
|
|
|
10,170 |
|
|
|
9,439 |
|
Gross profit |
|
|
1,531 |
|
|
|
2,413 |
|
|
|
4,627 |
|
|
|
6,827 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
|
781 |
|
|
|
683 |
|
|
|
2,253 |
|
|
|
1,894 |
|
General
and administrative |
|
|
1,185 |
|
|
|
1,102 |
|
|
|
3,978 |
|
|
|
3,135 |
|
Research and development |
|
|
848 |
|
|
|
672 |
|
|
|
2,291 |
|
|
|
1,972 |
|
|
|
|
2,814 |
|
|
|
2,457 |
|
|
|
8,522 |
|
|
|
7,001 |
|
Loss
from operations |
|
|
(1,283 |
) |
|
|
(44 |
) |
|
|
(3,895 |
) |
|
|
(174 |
) |
Other
Expense - net |
|
|
(51 |
) |
|
|
(155 |
) |
|
|
(180 |
) |
|
|
(423 |
) |
Gain on building sale |
|
|
|
|
|
|
- |
|
|
|
7,175 |
|
|
|
- |
|
(Loss)
earnings before income taxes |
|
|
(1,334 |
) |
|
|
(199 |
) |
|
|
3,100 |
|
|
|
(597 |
) |
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net (loss) earnings |
|
$ |
(1,334 |
) |
|
$ |
(199 |
) |
|
$ |
3,100 |
|
|
$ |
(597 |
) |
Basic net (loss) earnings per share |
|
$ |
(0.14 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.32 |
|
|
$ |
(0.07 |
) |
Diluted net (loss) earnings per share |
|
$ |
(0.14 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.31 |
|
|
$ |
(0.07 |
) |
Basic weighted averages shares outstanding |
|
|
9,631 |
|
|
|
9,270 |
|
|
|
9,583 |
|
|
|
8,836 |
|
Diluted weighted averages shares outstanding |
|
|
9,631 |
|
|
|
9,270 |
|
|
|
9,971 |
|
|
|
8,836 |
|
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 |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Loss |
|
|
Stock |
|
|
Total |
|
Balance at January 1, 2019 |
|
|
9,508 |
|
|
$ |
9 |
|
|
$ |
27,910 |
|
|
$ |
(19,178 |
) |
|
$ |
(832 |
) |
|
$ |
(742 |
) |
|
$ |
7,167 |
|
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,325 |
|
|
|
- |
|
|
|
- |
|
|
|
5,325 |
|
Conversion of subordinated convertible debt |
|
|
260 |
|
|
|
- |
|
|
|
140 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
140 |
|
Stock-based Compensation |
|
|
- |
|
|
|
- |
|
|
|
149 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
149 |
|
Balance at March 31, 2019 |
|
|
9,768 |
|
|
$ |
9 |
|
|
$ |
28,199 |
|
|
$ |
(13,853 |
) |
|
$ |
(832 |
) |
|
$ |
(742 |
) |
|
$ |
12,781 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(891 |
) |
|
|
- |
|
|
|
- |
|
|
|
(891 |
) |
Shares issued from treasury stock |
|
|
(45 |
) |
|
|
- |
|
|
|
(196 |
) |
|
|
- |
|
|
|
- |
|
|
|
258 |
|
|
|
62 |
|
Stock-based Compensation |
|
|
- |
|
|
|
- |
|
|
|
168 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
168 |
|
Balance at June 30, 2019 |
|
|
9,723 |
|
|
$ |
9 |
|
|
$ |
28,171 |
|
|
$ |
(14,744 |
) |
|
$ |
(832 |
) |
|
$ |
(484 |
) |
|
$ |
12,120 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,334 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,334 |
) |
Shares issued from treasury stock |
|
|
(67 |
) |
|
|
1 |
|
|
|
(310 |
) |
|
|
- |
|
|
|
- |
|
|
|
378 |
|
|
|
69 |
|
Stock-based Compensation |
|
|
- |
|
|
|
- |
|
|
|
162 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
162 |
|
Balance at September 30, 2019 |
|
|
9,656 |
|
|
$ |
10 |
|
|
$ |
28,023 |
|
|
$ |
(16,078 |
) |
|
$ |
(832 |
) |
|
$ |
(106 |
) |
|
$ |
11,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018 |
|
|
8,465 |
|
|
$ |
8 |
|
|
$ |
26,920 |
|
|
$ |
(17,821 |
) |
|
$ |
(854 |
) |
|
$ |
(840 |
) |
|
$ |
7,413 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
|
|
- |
|
|
|
- |
|
|
|
(63 |
) |
Stock-based Compensation |
|
|
- |
|
|
|
- |
|
|
|
84 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
84 |
|
Balance at March 31, 2018 |
|
|
8,465 |
|
|
$ |
8 |
|
|
$ |
27,004 |
|
|
$ |
(17,884 |
) |
|
$ |
(854 |
) |
|
$ |
(840 |
) |
|
$ |
7,434 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(335 |
) |
|
|
- |
|
|
|
- |
|
|
|
(335 |
) |
Conversion of subordinated convertible debt |
|
|
842 |
|
|
|
1 |
|
|
|
454 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
455 |
|
Stock-based Compensation |
|
|
475 |
|
|
|
- |
|
|
|
147 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
147 |
|
Balance at June 30, 2018 |
|
|
9,782 |
|
|
$ |
9 |
|
|
$ |
27,605 |
|
|
$ |
(18,219 |
) |
|
$ |
(854 |
) |
|
$ |
(840 |
) |
|
$ |
7,701 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(199 |
) |
|
|
- |
|
|
|
- |
|
|
|
(199 |
) |
Stock-based Compensation |
|
|
132 |
|
|
|
- |
|
|
|
163 |
|
|
|
- |
|
|
|
- |
|
|
|
16 |
|
|
|
179 |
|
Balance at September 30, 2018 |
|
|
9,914 |
|
|
$ |
9 |
|
|
$ |
27,768 |
|
|
$ |
(18,418 |
) |
|
$ |
(854 |
) |
|
$ |
(824 |
) |
|
$ |
7,681 |
|
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, |
|
|
|
2019 |
|
|
2018 |
|
Cash Flows From Operating
Activities: |
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
3,100 |
|
|
$ |
(597 |
) |
Adjustments to reconcile net earnings (loss) to cash (used in)
provided by operating activities: |
|
|
|
|
|
|
|
|
Gain on building sale |
|
|
(7,175 |
) |
|
|
- |
|
Stock based compensation expense |
|
|
479 |
|
|
|
393 |
|
Depreciation |
|
|
133 |
|
|
|
235 |
|
Amortization |
|
|
158 |
|
|
|
160 |
|
Recovery of bad debt expense |
|
|
(26 |
) |
|
|
(126 |
) |
Amortization of deferred loan costs |
|
|
109 |
|
|
|
108 |
|
Non cash interest expense |
|
|
1 |
|
|
|
32 |
|
Amortization of right of use assets |
|
|
(47 |
) |
|
|
- |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
408 |
|
|
|
39 |
|
Inventories |
|
|
(1,739 |
) |
|
|
(272 |
) |
Prepaid and other current assets |
|
|
(93 |
) |
|
|
(315 |
) |
Other assets |
|
|
(806 |
) |
|
|
2 |
|
Income taxes payable |
|
|
(17 |
) |
|
|
- |
|
Accounts payable, accrued compensation and other accrued
expenses |
|
|
512 |
|
|
|
437 |
|
Net cash (used in) provided by operating activities |
|
|
(5,003 |
) |
|
|
96 |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(205 |
) |
|
|
(72 |
) |
Proceeds on sale of building |
|
|
9,765 |
|
|
|
- |
|
Acquisition of licenses |
|
|
(41 |
) |
|
|
(20 |
) |
Net cash provided by (used in) investing activities |
|
|
9,519 |
|
|
|
(92 |
) |
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Net (repayments) proceeds of line of credit |
|
|
(1,800 |
) |
|
|
95 |
|
Repayments of long-term debt |
|
|
(3,037 |
) |
|
|
(189 |
) |
Proceeds from exercise of stock options |
|
|
131 |
|
|
|
18 |
|
Net cash used in financing activities |
|
|
(4,706 |
) |
|
|
(76 |
) |
Net decrease in cash |
|
|
(190 |
) |
|
|
(72 |
) |
Cash, beginning of period |
|
|
559 |
|
|
|
168 |
|
Cash, end of period |
|
$ |
369 |
|
|
$ |
96 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
100 |
|
|
$ |
273 |
|
Non cash investing and financing activities: |
|
|
|
|
|
|
|
|
Capital expenditures financed by notes payable |
|
$ |
5 |
|
|
$ |
15 |
|
Conversion of subordinated convertible debt to common stock |
|
$ |
140 |
|
|
$ |
455 |
|
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)
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 cable markets the Company
serves, including the multi-dwelling unit market, the
lodging/hospitality market and the institutional market, including
hospitals, prisons 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 balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated interim financial
statements as of September 30, 2019 and for the three and nine
months ended September 30, 2019 and 2018 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,
2018 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, 2018 and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December
31, 2018, which was filed with the SEC on April 1, 2019. The
results of the three and nine months ended September 30, 2019 are
not necessarily indicative of results to be expected for the year
ending December 31, 2019 or for any future interim period.
Note
2- Summary of Significant Accounting Policies
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) |
Earnings (loss) Per
Share |
Earnings (loss) per share is
calculated in accordance with ASC Topic 260 “Earnings Per Share,”
which provides for the calculation of “basic” and “diluted”
earnings (loss) per share. Basic earnings (loss) per share includes
no dilution and is computed by dividing net earnings (loss) by the
weighted average number of common shares outstanding for the
period. Diluted earnings (loss) per share reflect, in periods in
which they have a dilutive effect, the effect of potential
issuances of common shares.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
The following table shows the
calculation of diluted shares using the treasury stock
method:
|
|
Three months ended
September 30 |
|
|
Nine months ended
September 30 |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Weighted average shares used in computation of basic earnings
(loss) per shares |
|
|
9,631 |
|
|
|
9,270 |
|
|
|
9,583 |
|
|
|
8,836 |
|
Total dilutive effect of stock options |
|
|
- |
|
|
|
- |
|
|
|
388 |
|
|
|
- |
|
Weighted average shares used in computation of diluted earnings
(loss) per share |
|
|
9,631 |
|
|
|
9,270 |
|
|
|
9,971 |
|
|
|
8,836 |
|
The diluted share base excludes
the following potential common shares due to their antidilutive
effect:
|
|
Three months ended
September 30 |
|
|
Nine months ended
September 30 |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Stock options |
|
|
3,021 |
|
|
|
1,152 |
|
|
|
2,544 |
|
|
|
1,032 |
|
Warrants |
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Convertible debt |
|
|
- |
|
|
|
374 |
|
|
|
- |
|
|
|
374 |
|
|
|
|
3,121 |
|
|
|
1,626 |
|
|
|
2,644 |
|
|
|
1,506 |
|
|
(c) |
Adoption of Recent
Accounting Pronouncements |
In June 2018, the FASB issued ASU
No. 2018-07, Compensation – Stock Compensation
(“Topic 718”): Improvements to Nonemployee
Share-Based Payment Accounting. The guidance in this ASU
expands the scope of ASC Topic 718 to include all share-based
payment arrangements related to the acquisition of goods and
services from both nonemployees and employees. This amendment will
be effective for annual and interim periods beginning after
December 31, 2018. The adoption of ASU 2018-07 did not have a
material effect on the Company’s financial position, results of
operations or financial statement disclosure.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842), which establishes a new
lease accounting model for lessees. The updated guidance requires
an entity to recognize assets and liabilities arising from a lease
for both financing and operating leases, along with additional
qualitative and quantitative disclosures. In June 2018, the FASB
issued ASU No. 2018-10, Codification Improvements to Topic 842,
Leases, which further clarifies how to apply certain aspects of
the new lease standard. In July 2018, the FASB issued ASU No.
2018-11, Leases – Targeted Improvements, which provides another
transition method that allows entities to apply the new lease
standard at the adoption date and recognize a cumulative-effect
adjustment to the opening balance of retained earnings in the
period of adoption. This transition method option is in addition to
the existing transition method of using a modified retrospective
transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. Topic 842 is effective for fiscal years, and
interim periods within those years, beginning after December 15,
2018, with early adoption permitted. The Company adopted Topic 842
on January 1, 2019, using a transition method option approach as
applied to leases existing as of or entered into after the adoption
date. Topic 842 provides a number of optional practical expedients
and accounting policy elections. The Company elected the package of
practical expedients requiring no reassessment of whether any
expired or existing contracts are or contain leases, the lease
classification of any expired or existing leases, or initial direct
costs for any existing leases. Upon adoption of Topic 842, the
Company recognized additional right of use assets and corresponding
lease liabilities pertaining to its operating leases on its
unaudited condensed consolidated balance sheets. The Company
recognized approximately $290 of a right of use asset and liability
under current operating leases at January 1, 2019. The Company
recognized approximately $3,627 of a right of use asset and lease
liability in connection with the lease described in Note 10.
Operating lease liabilities are based on the net present value of
the remaining lease payments over the lease term. In determining
the present value of lease payment, the Company used its
incremental borrowing rate based on the information available at
the date of adoption of Topic 842. As of September 30, 2019, the
weighted average remaining lease term is 4.33 years and the
weighted average discount rate used to determine the operating
lease liabilities was 6.5%. The adoption of the new standard did
not have a significant impact on the Company’s results of
operations and cash flows.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
|
(d) |
Accounting Pronouncements
Issued But Not Yet Effective |
In January 2017, the FASB issued
ASU 2017-04, Intangibles—Goodwill and Other
(“Topic 350”)
Simplifying the Test for Goodwill Impairment. This standard
simplifies the accounting for goodwill impairment. The guidance
removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. Goodwill impairment will
now be the amount by which a reporting unit’s carrying value
exceeds its fair value, not to exceed the carrying amount of
goodwill. The revised guidance will be applied prospectively and is
effective for calendar year-end SEC filers for its annual or any
interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company is currently evaluating the effect
this new standard will have on its financial position, results of
operations or financial statement disclosure.
In June 2016, the FASB issued ASU
No. 2016-13, Financial Instruments – Credit Losses
(“Topic 326”). ASU 2016-13 changes the impairment
model for most financial assets and will require the use of an
expected loss model in place of the currently used incurred loss
method. Under this model, entities will be required to estimate the
lifetime expected credit loss on such instruments and record an
allowance to offset the amortized cost basis of the financial
asset, resulting in a net presentation of the amount expected to be
collected on the financial asset. The update to the standard is
effective for interim and annual periods beginning after December
15, 2019. The Company is currently evaluating the effect this new
standard will have on its financial position, results of operations
or financial statement disclosure.
As of September 30, 2019 and December 31, 2018, the Company’s
working capital was $7,412 and $2,114, respectively. The increase
in working capital was primarily due to the receipt of proceeds
from the sale of the Old Bridge Facility after paying off the Term
Loan and paying down the Revolver under the Sterling Facility.
During the nine months ended September 30, 2019, the Company
experienced an increase in expenses that, together with the decline
in sales and buildup of inventory for our new products, resulted in
the Company using $5,003 in its operations. Management is currently
reviewing alternatives to address these issues by making
adjustments to operating expenses so as to better align expenses
with the Company’s sales expectations and focusing on new product
sales initiatives. In addition, the Company believes that the terms
of the new credit agreement which was entered into in October 2019
will provide greater flexibility to finance current and planned
operations. Although the Company has a history of cash used in
operating activities which may raise doubt about our ability to
continue as a going concern, we believe that the new product
introductions described above, the ability to reduce operating
expenses and the additional liquidity provided under the new credit
agreement mitigate this risk While the Company currently believes
that its efforts to control expenses and increase sales will
improve the Company’s liquidity, there can no assurances that our
efforts will be successful and/or that the financing available
under the new facility or other financing the Company may pursue
will be sufficient to allow the Company to continue implementing
its business strategy.
Note 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 following table presents the
Company’s disaggregated revenues by revenue source:
|
|
Three months ended
September 30 |
|
|
Nine months ended
September 30 |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Digital video headend products |
|
$ |
1,292 |
|
|
$ |
2,814 |
|
|
$ |
5,482 |
|
|
$ |
7,899 |
|
Set
top boxes |
|
|
1,498 |
|
|
|
- |
|
|
|
2,691 |
|
|
|
- |
|
Data
products |
|
|
884 |
|
|
|
1,112 |
|
|
|
1,989 |
|
|
|
3,566 |
|
HFC
distribution products |
|
|
645 |
|
|
|
843 |
|
|
|
1,872 |
|
|
|
2,345 |
|
Analog
video headend products |
|
|
366 |
|
|
|
411 |
|
|
|
1,249 |
|
|
|
1,234 |
|
NeXgen |
|
|
91 |
|
|
|
- |
|
|
|
535 |
|
|
|
- |
|
Contract manufactured products |
|
|
319 |
|
|
|
227 |
|
|
|
393 |
|
|
|
606 |
|
Other |
|
|
183 |
|
|
|
219 |
|
|
|
586 |
|
|
|
616 |
|
|
|
$ |
5,278 |
|
|
$ |
5,626 |
|
|
$ |
14,797 |
|
|
$ |
16,266 |
|
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
All of the Company’s sales are to
customers located primarily throughout the United States and
Canada.
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. Digital video headend products (including encoders)
are used by a system operator for acquisition, processing,
compression, encoding and management of digital video. Data
products give service providers, integrators, and premises owners a
means to deliver data, video, and voice-over-coaxial in locations
such as hospitality, MDU’s, and college campuses, using IP
technology. HFC distribution products are used to transport signals
from the headend to their ultimate destination in a home, apartment
unit, hotel room, office or other terminal location along a fiber
optic, coax or HFC distribution network. Analog video headend
products are used by a system operator for signal acquisition,
processing and manipulation to create an analog channel lineup for
further transmission. Contract-manufactured products provides
manufacturing, research and development and product support
services for other companies’ products. Set top boxes are used by
cable operators to provide video delivery to customers using IP
technology. NeXgen is a two-way forward looking platform that is
used to deliver next generation entertainment services in both
enterprise and residential locations. The Company also provides
technical services, including hands-on training, system design
engineering, on-site field support and complete system verification
testing.
Note 4 – Inventories
Inventories are summarized as
follows:
|
|
September 30,
2019 |
|
|
December 31,
2018 |
|
Raw Materials |
|
$ |
3,022 |
|
|
$ |
2,581 |
|
Work
in process |
|
|
3,435 |
|
|
|
1,573 |
|
Finished Goods |
|
|
2,005 |
|
|
|
2,569 |
|
|
|
|
8,462 |
|
|
|
6,723 |
|
Less current inventories |
|
|
(8,462 |
) |
|
|
(6,172 |
) |
|
|
$ |
- |
|
|
$ |
551 |
|
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 $863 during the nine months ended
September 30, 2019.
Note
5 – Debt
On December 28, 2016, the Company
entered into a Loan and Security Agreement (the “Sterling
Agreement”) with Sterling
National Bank (“Sterling”). The Sterling Agreement provided the
Company with a credit facility in an aggregate amount of $8,500
(the “Sterling Facility”) consisting of a $5,000 asset-based
revolving line of credit (the “Revolver”) and, prior to entering into the Consent
(defined below), a $3,500 amortizing term loan (the “Term
Loan”). The Sterling Facility
matures in December 2019. Interest on the Revolver is variable,
based upon the 30-day LIBOR rate (2.02% and 2.26% at September 30,
2019 and 2018, respectively) plus a margin of 4.00%. Interest on
the Term Loan also is variable, based upon the 30-day LIBOR rate
(2.02% and 2.26% at September 30, 2019 and 2018, respectively) plus
a margin of 4.50%. The Term Loan amortized at the rate of $19 per
month. On March 30, 2017, the Company and Sterling entered into a
certain First Amendment to Loan and Security Agreement (the
“First Amendment”),
pursuant to which, among other things, the parties amended the
definitions of certain items used in the calculation of the fixed
charge coverage ratio, deferred the first measurement period of the
financial covenants contemplated by the Sterling Agreement, from
December 31, 2016 to January 31, 2017, and modified certain terms
relating to permitted investments by the Company.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
On February 1, 2019, in
connection with the completion of the sale of the Old Bridge
Facility and entry into the Lease (as further described in Note
10), the Company entered into a Consent Under Loan and Security
Agreement (the “Consent”) with Sterling, pursuant to which, in
consideration for Sterling’s consent to the Company’s sale of the
Old Bridge Facility and Sterling’s further agreement to execute and
deliver a Discharge of Mortgage and Assignment of Leases and Rents
(the “Discharge”)
to effect the discharge of Sterling’s mortgage thereon, the Company
was required to apply the proceeds of the sale of the Old Bridge
Facility to fully pay, satisfy and discharge the Term Loan and to
pay down the Revolver balance to zero (with no reduction in the
Revolver commitment by Sterling). The Company paid approximately
$3,014 to pay off the Term Loan in connection with the Discharge.
In addition, the Company paid down the outstanding balance under
the Revolver of approximately $2,086. On March 29, 2019, the
Company and Sterling entered into a certain Second Amendment to
Loan and Security Agreement (the “Second
Amendment”), which replaced
the existing fixed charge coverage ratio covenant with a minimum
liquidity covenant. That covenant obligates the Company to not
permit the sum of its unrestricted cash (as described in the Second
Amendment) plus availability under the Revolver to drop below
$2,000,000 at any time. The outstanding balances under the Revolver
were $803 and $2,603 at September 30, 2019 and December 31, 2018,
respectively. All outstanding indebtedness under the Sterling
Agreement is secured by all of the assets of the Company and its
subsidiaries.
On September 19, 2019, the Company
and Sterling entered into a certain Third Amendment to Loan and
Security Agreement (the “Third Amendment”), which, among
other things, adds certain definitions to Section 1.1 of the
Amended Loan Agreement to permit certain bill-and-hold arrangements
with one of the Company’s customers, and makes related changes to
the definition of “Eligible Accounts” and the provisions
restricting sales of inventory on a bill-and-hold basis.
The Sterling Agreement contains customary covenants, including
restrictions on the incurrence of additional indebtedness,
encumbrances on the Company’s assets, the payment of cash dividends
or similar distributions, the repayment of any subordinated
indebtedness and the sale or other disposition of the Company’s
assets. In addition, the Company must maintain (i) the minimum
liquidity described above and (ii) a leverage ratio of not more
than 2.0 to 1.0 for any fiscal month (determined as of the last day
of each fiscal month, as calculated for the Company and its
consolidated subsidiaries). The Company was not in compliance with
the fixed charge coverage ratio covenant under the Sterling
Agreement at December 31, 2018 and January 31, 2019. Sterling
waived this non-compliance in the Second Amendment. The Company was
in compliance with its financial covenants as of September 30,
2019. On October 25, 2019, all outstanding obligations under the
Sterling Facility were paid in full and the Sterling Agreement was
terminated. See Note 11.
Note 6 – Subordinated Convertible Debt with Related Parties
On March 28, 2016, the Company
and RLD as borrowers and Robert J. Pallé, as agent (in such
capacity “Agent”)
and as a lender, together with Carol M. Pallé, Steven Shea and
James H. Williams as lenders (collectively, the
“Subordinated Lenders”) entered into a certain Amended and
Restated Senior Subordinated Convertible Loan and Security
Agreement (the “Subordinated Loan
Agreement”), pursuant to
which the Subordinated Lenders agreed to provide the Company with a
delayed draw term loan facility of up to $750
(“Subordinated Loan Facility”), under which individual advances in
amounts not less than $50 could be drawn by the Company. Interest
on the outstanding balance under the Subordinated Loan Facility
from time to time, accrued at 12% per annum (subject to increase
under certain circumstances) and was 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 was permitted to pay
interest in cash on any interest payment date, in lieu of PIK
Interest. The Subordinated Lenders had the option of converting the
principal balance of the loan, in whole (unless otherwise agreed by
the Company), into shares of the Company’s common stock at a
conversion price of $0.54 per share (subject to adjustment under
certain circumstances). This conversion right was subject to
stockholder approval as required by the rules of the NYSE MKT,
which approval was obtained on May 24, 2016 at the Company’s annual
meeting of stockholders. The obligations of the Company and RLD
under the Subordinated Loan Agreement were secured by substantially
all of the Company’s and RLD’s assets, including by a mortgage
against the Old Bridge Facility (the “Subordinated
Mortgage”). The Subordinated
Loan Agreement had 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 Subordinated
Lenders and Sterling entered into a Subordination Agreement (the
“Subordination Agreement”), pursuant to which the rights of the
Subordinated Lenders under the Subordinated Loan Agreement and the
Subordinated Mortgage were subordinated to the rights of Sterling
under the Sterling Agreement and related security documents. The
Subordination Agreement precluded the Company from making cash
payments of interest in lieu of PIK Interest, in the absence of the
prior written consent of Sterling.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
On April 17, 2018, Robert J.
Pallé and Carol Pallé exercised their conversion rights and
converted $455 ($350 principal and $105 of accrued interest) of
their loan (representing the entire amount of principal and
interest outstanding and held by Mr. and Mrs. Pallé on that date)
into 842 shares of the Company’s common stock.
On October 9, 2018, James H.
Williams exercised his conversion right and converted $67 ($50
principal and $17 of accrued interest) of his loan (representing
the entire amount of principal and interest outstanding and held by
Mr. Williams on that date) into 125 shares of the Company’s common
stock.
In connection with the
anticipated completion of the sale of the Old Bridge Facility (as
described in Note 10), on January 24, 2019, the Company and RLD, as
Borrower, the Lenders and the Agent entered into a Debt Conversion
and Lien Termination Agreement (the “Conversion and
Termination Agreement”). As
of the date of the Conversion and Termination Agreement, the
Borrower was indebted to Steven L. Shea
(“Shea”) for the
principal and accrued interest relating to a $100 loan advanced by
Shea under the Subordinated Loan Agreement (the “Shea
Indebtedness”). In addition,
as of the date of the Conversion and Termination Agreement Robert
J. Pallé and Carol M. Pallé (collectively, “Initial
Lenders”), remained subject
to a commitment to lend Borrower up to an additional $250 (the
“Additional Commitment”). The Conversion and Termination Agreement
provided for (i) the full payment of the Shea Indebtedness (unless
such amounts were converted into shares of common stock prior to
repayment), (ii) the termination of the Additional Commitment, and
(iii) the release and termination of all liens and security
interests in the collateral under the Subordinated Loan Documents,
including with respect to the Subordinated Mortgages, each to
become effective as of the closing of the sale of the Old Bridge
Facility. In connection with the execution and delivery of the
Conversion and Termination Agreement, Shea provided the Company
with a notice of conversion, and upon completion of the sale of the
Old Bridge Facility was issued 260 shares of the Company’s common
stock in full satisfaction of the Shea Indebtedness.
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 and nine month periods ended September 30, 2019
and 2018, this law firm billed the Company approximately $123,
$398, $225 and $626, respectively for legal services provided by
this firm. Included in accounts payable on the accompanying
unaudited condensed balance sheet at September 30, 2019 is
approximately $92 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 ending September 30, 2019 and
2018, respectively and as a percentage of accounts receivable as of
September 30, 2019 and December 31, 2018, respectively:
|
|
Net
sales |
|
|
|
|
|
|
|
|
|
Three months
ended |
|
|
Nine months
ended |
|
|
Accounts
receivable |
|
|
|
September
30,
2019 |
|
|
September
30,
2018 |
|
|
September
30,
2019 |
|
|
September
30,
2018 |
|
|
September
30,
2019 |
|
|
December
31,
2018 |
|
Customer
A |
|
|
17 |
% |
|
|
- |
|
|
|
12 |
% |
|
|
- |
|
|
|
28 |
% |
|
|
- |
|
Customer
B |
|
|
11 |
% |
|
|
23 |
% |
|
|
12 |
% |
|
|
25 |
% |
|
|
- |
|
|
|
22 |
% |
Customer
C |
|
|
- |
|
|
|
11 |
% |
|
|
10 |
% |
|
|
13 |
% |
|
|
- |
|
|
|
14 |
% |
Customer
D |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13 |
% |
|
|
- |
|
Customer
E |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
% |
|
|
- |
|
Customer
F |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11 |
% |
Note
9 – Commitments and Contingencies
Leases
The Company leases certain real estate, factory, and office
equipment under non-cancellable operating leases at various dates
through January 2024. Lease costs and cash paid for the three month
period ended September 30, 2019 were $160 and $220, respectively.
Lease costs and cash paid for the nine month period ended September
30, 2019 were $381 and $524, respectively.
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
Maturities of the lease
liabilities are as follows:
For the year ended December
31, |
|
Amount |
|
Amount remaining year ending December 31, 2019 |
|
$ |
180 |
|
2020 |
|
|
768 |
|
2021 |
|
|
809 |
|
2022 |
|
|
809 |
|
2023 |
|
|
885 |
|
Thereafter |
|
|
77 |
|
Lease liability |
|
$ |
3,528 |
|
Litigation
The Company from time to time is
a party to certain proceedings incidental to the ordinary course of
its business, none of which, in the opinion of management, is
likely to have a material adverse effect on the Company’s business,
financial condition, results of operations, or cash
flows.
Note
10 – Building Sale and Leaseback
On February 1, 2019, the Company
completed the sale of the Old Bridge Facility to Jake Brown Road,
LLC (the “Buyer”).
In addition, 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 will continue to occupy, and continue to
conduct its manufacturing, engineering, sales and administrative
functions in the Old Bridge Facility.
The sale of the Old Bridge
Facility was made pursuant to an Agreement of Sale dated as of
August 3, 2018 as amended and extended (collectively, the
“Sale Agreement”).
Pursuant to the Sale Agreement, at closing, the Buyer paid the
Company $10,500. In addition, at closing, the Company advanced to
the Buyer the sum of $130, representing a preliminary estimate of
the Company’s share (as a tenant of the Old Bridge Facility
following closing) of property repairs, as contemplated by the Sale
Agreement. The Company recognized a gain of approximately $7,175 in
connection with the sale.
The Lease has an initial term of
five years and allows the Company to extend the term for an
additional five years following the initial term. The Company is
obligated to pay base rent of approximately $837 for the first year
of the Lease with the amount of base rent adjusted for each
subsequent year to equal 102.5% of the preceding year’s base rent.
The Lease was accounted for under Topic 842 as a sale and leaseback
as described in Note 2.
Note
11 – Subsequent Events
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%, 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.
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 must maintain
minimum availability of $500 initially with the minimum
availability to be reduced to $400 upon the deliverance of an
inventory appraisal satisfactory to MidCap.
The MidCap Facility replaces the Sterling Facility and the Sterling
Agreement, which has been terminated.
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and
analysis of the Company’s historical results of operations and
liquidity and capital resources should be read in conjunction with
the unaudited consolidated financial statements of the Company and
notes thereto appearing elsewhere herein. The following discussion
and analysis also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of various factors. See “Forward Looking Statements,”
below.
Forward-Looking Statements
In addition to historical
information this Quarterly Report contains forward-looking
statements regarding future events relating to such matters as
anticipated financial performance, business prospects,
technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation
Reform Act of 1995, the Securities Act of 1933 and the Securities
Exchange Act of 1934 provide safe harbors for forward-looking
statements. In order to comply with the terms of these safe
harbors, the Company notes that a variety of factors could cause
the Company’s actual results and experience to differ materially
and adversely from the anticipated results or other expectations
expressed in the Company’s forward-looking statements. The risks
and uncertainties that may affect the operation, performance,
development and results of the Company’s business include, but are
not limited to, those matters discussed herein in the section
entitled Item 2 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations. The words “believe,” “expect,”
“anticipate,” “project,” “target,” “intend,” “plan,” “seek,”
“estimate,” “endeavor,” “should,” “could,” “may” and similar
expressions are intended to identify forward-looking statements. In
addition, any statements that refer to projections for our future
financial performance, our ability to extend or refinance our debt
obligations, our anticipated growth trends in our business and
other characterizations of future events or circumstance are
forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect
management’s analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the
date hereof. Readers should carefully review the risk factors
described in other documents the Company files from time to time
with the Securities and Exchange Commission, including without
limitation, the Company’s Annual Report on Form 10-K for the year
ended December 31, 2018, filed with the Securities and Exchange
Commission on April 1, 2019 (See 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).
General
The Company was incorporated in
November 1988, under the laws of Delaware as GPS Acquisition Corp.
for the purpose of acquiring the business of Blonder-Tongue
Laboratories, Inc., a New Jersey corporation, which was founded in
1950 by Ben H. Tongue and Isaac S. Blonder to design, manufacture
and supply a line of electronics and systems equipment principally
for the private cable industry. Following the acquisition, the
Company changed its name to Blonder Tongue Laboratories, Inc. The
Company completed the initial public offering of its shares of
Common Stock in December 1995.
Today, the Company is a
technology-development and manufacturing company that delivers a
wide range of products and services to the cable entertainment and
media industry. For 65 years, Blonder Tongue/Drake products have
been deployed in a long list of locations, including
lodging/hospitality, multi-dwelling units/apartments, broadcast
studios/networks, education universities/schools, healthcare
hospitals/fitness centers, government facilities/offices, prisons,
airports, sports stadiums/arenas, entertainment venues/casinos,
retail stores, and small-medium businesses. These applications are
variously described as commercial, institutional and/or enterprise
environments and will be referred to herein collectively as
“CIE”. The
customers we serve include business entities installing private
video and data networks in these environments, whether they are the
largest cable television operators, telco or satellite providers,
integrators, architects, engineers or the next generation of
Internet Protocol Television (“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 CIE
environments described above (e.g., hotels, hospitals, prisons,
schools, etc.), 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 SD and HD video content) and have a high
performance-to-cost ratio.
During 2019, the Company
introduced a line of Android TV set top boxes. These products were
designed to help transition cable subscribers coming from
traditional PayTV services onto a modern IPTV platform combining
access to Over the Top (“OTT”) and PayTV video services. The Company
expects growth in this business during 2019 and in future
years.
During 2019, the Company
introduced a line of products known as NeXgen
(“NXG”). NXG is a
two-way forward looking platform that is used to deliver next
generation entertainment services in both enterprise and
residential locations. The Company expects growth in this business
during 2019 and in future years.
The Company has seen a continuing
long-term shift in product mix from analog products to digital
products and expects this shift to continue. Sales of digital video
headend products were $1,292,000 and $2,814,000 in the third three
months of 2019 and 2018, respectively and $5,482,000 and $7,899,000
in the first nine months of 2019 and 2018, respectively. Sales of
analog video headend products were $366,000 and $411,000 in the
third three months of 2019 and 2018, respectively and $1,249,000
and $1,234,000 in the first nine months of 2019 and 2018,
respectively. Any substantial decrease in sales of analog products
without a related substantial increase in digital products could
have a material adverse effect on the Company’s results of
operations, financial condition and cash flows.
The Company’s manufacturing is
allocated primarily between its facility in Old Bridge, New Jersey
the (“Old Bridge Facility”) and a key contract manufacturer located in
the People’s Republic of China (“PRC”). The Company currently manufactures most
of its digital products, including the latest encoder and EdgeQAM
collections at the Old Bridge Facility. Since 2007, the Company has
been manufacturing certain high volume, labor intensive products,
including many of the Company’s analog products, in the PRC,
pursuant to a manufacturing agreement that governs 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 PRC for manufacture, the Company may
do so if business and market conditions make it advantageous to do
so. Manufacturing products both at the Company’s Old Bridge
Facility as well as in the PRC, enables the Company to realize cost
reductions while maintaining a competitive position and
time-to-market advantage.
The Company may, from time to
time, provide manufacturing, research and development and product
support services for other companies’ products. In 2015, the
Company entered into an agreement with VBrick Systems, Inc.
(“VBrick”) to
provide procurement, manufacturing, warehousing and fulfillment
support to VBrick for a line of high end encoder products and
sub-assemblies. Sales to VBrick of encoder products were
approximately $319,000 and $227,000 in the third three months of
2019 and 2018, respectively and $393,000 and $606,000 in the first
nine months of 2019 and 2018, respectively.
Results of Operations
Third three months of 2019
Compared with third three months of 2018
Net Sales. Net sales
decreased $348,000, or 6.2%, to $5,278,000 in the third three
months of 2019 from $5,626,000 in the third three months of 2018.
The decrease is primarily attributed to a decrease in sales of data
products and digital video headend products, offset by an increase
in set top box products. Sales of data products were $884,000 and
$1,112,000, digital video headend products were $1,292,000 and
$2,814,000 and set top boxes were $1,498,000 and zero in the third
three months of 2019 and 2018, respectively.
Cost of Goods Sold. Cost of goods sold increased to
$3,747,000 for the third three months of 2019 from $3,213,000 for
the third three months of 2018 and increased as a percentage of
sales to 71.0% from 57.1%. The increase and the increase as a
percentage of sales was primarily attributed to an unfavorable
change in product mix. As a result of the Company’s growth of set
top box sales, which carry a higher cost of goods sold than the
Company’s more traditional product lines, the cost of goods sold as
a percentage of sales is higher than historical trends. The Company
anticipates additional growth in sales of set top boxes and, as a
result, the Company expects that cost of goods sold as a percentage
of sales will remain at this higher level for the foreseeable
future.
Selling Expenses. Selling expenses increased to $781,000 for
the third three months of 2019 from $683,000 in the third three
months of 2018, and increased as percentage of sales to 14.8% for
the third three months of 2019 from 12.1% for the third three
months of 2018. The $98,000 increase was primarily the result of an
increase in salaries and fringe benefits due to an increase in head
count and salary adjustments of $125,000.
General and Administrative
Expenses. General and administrative expenses increased to
$1,185,000 for the third three months of 2019 from $1,102,000 for
the third three months of 2018 and increased as a percentage of
sales to 22.5% for the third three months of 2019 from 19.6% for
the third three months of 2018. The $83,000 increase was primarily
the result of a bad debt recovery in 2018 of $76,000 which was not
in 2019 and an increase in salaries and fringe benefits due to an
increase in head count and salary adjustments of $44,000, offset by
a decrease in legal expense of $50,000.
Research and Development
Expenses. Research and development expenses increased to
$848,000 in the third three months of 2019 from $672,000 in the
third three months of 2018 and increased as a percentage of sales
to 16.1% for the third three months of 2019 from 11.9% for the
third three months of 2018. This $176,000 increase is primarily the
result of an increase in consulting fees of $110,000 and an
increase in department supplies of $55,000.
Operating Loss. Operating
loss of $1,283,000 for the third three months of 2019 represents an
increase from operating loss of $44,000 for the third three months
of 2018. Operating loss as a percentage of sales was (24.3)% in the
third three months of 2019 compared to (0.8)% in the third three
months of 2018.
Interest Expense. Interest
expense decreased to $51,000 in the third three months of 2019 from
$155,000 in the third three months of 2018. The decrease is
primarily the result of lower average borrowing.
First nine months of 2019
Compared with first nine months of 2018
Net Sales. Net sales
decreased $1,469,000, or 9.0%, to $14,797,000 in the first nine
months of 2019 from $16,266,000 in the first nine months of 2018.
The decrease is primarily attributed to a decrease in sales of data
products and digital video headend products, offset by an increase
in sales of set top box products. Sales of data products were
$1,989,000 and $3,566,000, digital video headend products were
$5,482,000 and $7,899,000 and set top box products were $2,691,000
and zero in the first nine months of 2019 and 2018,
respectively.
Cost of Goods Sold. Cost
of goods sold increased to $10,170,000 for the first nine months of
2019 from $9,439,000 for the first nine months of 2018 and
increased as a percentage of sales to 68.7% from 58.0%. The
increase was primarily due to an increase in the write down of
inventories to net realizable value of $778,000. The increase as a
percentage of sales was primarily attributed to the above as well
as an unfavorable product mix. Had the write down not occurred,
cost of goods sold as a percentage of sales would have been 63.5%
for the nine months ended September 30, 2019. As a
result of the Company’s growth of set top box sales, which carry a
higher cost of goods sold than the Company’s more traditional
product lines, the cost of goods sold as a percentage of sales is
higher than historical trends. The Company anticipates additional
growth in sales of set top boxes and, as a result, the Company
expects that cost of goods sold as a percentage of sales will
remain at this higher level for the foreseeable future.
Selling Expenses. Selling
expenses increased to $2,253,000 for the first nine months of 2019
from $1,894,000 in the first nine months of 2018 and increased as
percentage of sales to 15.2% for the first nine months of 2019 from
11.6% for the first nine months of 2018. The $359,000 increase was
primarily the result of an increase in salaries and fringe benefits
due to an increase in head count and salary adjustments of
$346,000.
General and Administrative
Expenses. General and administrative expenses increased to
$3,978,000 for the first nine months of 2019 from $3,135,000 for
the first nine months of 2018 and increased as a percentage of
sales to 26.9% for the first nine months of 2019 from 19.3% for the
first nine months of 2018. The $843,000 increase was primarily the
result of an increase in salaries and fringe benefits due to an
increase in head count and salary adjustments of $458,000, an
increase in consulting fees of $223,000 related to IT outsourcing
and bad debt recovery in 2018 of $126,000 which was not in
2019.
Research and Development
Expenses. Research and development expenses increased to
$2,291,000 in the first nine months of 2019 from $1,972,000 in the
first nine months of 2018 and increased as a percentage of sales to
15.5% for the first nine months of 2019 from 12.1% for the first
nine months of 2018. This $319,000 increase is primarily the result
of an increase in consulting fees of $213,000 and an increase in
occupancy costs of $68,000 related to the Old Bridge
lease.
Operating Loss. Operating
loss of $3,895,000 for the first nine months of 2019 represents an
increase from operating loss of $174,000 for the first nine months
of 2018. Operating loss as a percentage of sales was (26.3)% in the
first nine months of 2019 compared to (1.1)% in the first nine
months of 2018.
Interest Expense. Interest
expense decreased to $180,000 in the first nine months of 2019 from
$423,000 in the first nine months of 2018. The decrease is
primarily the result of lower average borrowing.
Liquidity and Capital Resources
As of September 30, 2019 and
December 31, 2018, the Company’s working capital was $7,412,000 and
$2,114,000, respectively. The increase in working capital was
primarily due to the receipt of proceeds from the sale of the Old
Bridge Facility after paying off the Term Loan and paying down the
Revolver under the Sterling Facility.
The Company’s net cash used in
operating activities for the nine-month period ended September 30,
2019 was $5,003,000, primarily due to non-cash adjustments of
$(6,368,000) and an increase in inventories of $1,739,000, offset
by net earnings of $3,100,000. The Company’s net cash provided by
operating activities for the nine-month period ended September 30,
2018 was $96,000 primarily due to an increase in accounts payable,
accrued compensation and other accrued expenses of $437,000 offset,
in part, by a net loss of $597,000.
Cash provided by investing
activities for the nine-month period ended September 30, 2019 was
$9,519,000, of which $9,765,000 was attributable to proceeds on the
sale of the Old Bridge Facility, offset by $41,000 attributable to
additional license fees and $205,000 attributable to capital
expenditures. Cash used in investing activities for the nine-month
period ended September 30, 2018 was $92,000, of which $72,000 was
attributable to capital expenditures and $20,000 was attributable
to additional license fees.
Cash used in financing activities
was $4,706,000 for the first nine months of 2019, which was
comprised of net repayments of borrowings on the Revolver under the
Sterling Facility of $1,800,000, repayments of long-term debt of
$3,037,000 offset by proceeds from the exercise of stock options of
$131,000. Cash used in financing activities was $76,000 for the
first nine months of 2018, which was comprised of repayments of
debt of $189,000 offset by net borrowings under the line of credit
of $95,000, and proceeds from the exercise of stock options of
$18,000.
For a full description of the Company’s secured indebtedness under
the Sterling Facility and the Company’s senior subordinated
convertible indebtedness under the Subordinated Loan Facility, and
their respective effects upon the Company’s condensed consolidated
financial position and results of operations, see Note 5 – Debt and
Note 6 – Subordinated Convertible Debt with Related Parties, of the
Notes to Condensed Consolidated Financial Statements. For a full
description of the Company’s secured indebtedness under the MidCap
Facility, which became effective as of October 25, 2019, see Note
11 – Subsequent Events, 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 and amounts available under the Sterling Facility and
the Subordinated Loan Facility. In
connection with the completion of the sale of the Old Bridge
Facility, as described below, the Subordinated Loan Facility was
terminated. In connection with the Company’s entry into the MidCap
Facility, the Sterling Facility was terminated. On a going-forward
basis, the Company expects its primary sources of liquidity will be
its existing cash balances (including amounts the Company received
upon completion of the sale of the Old Bridge Facility, as
described below), cash generated from operations and amounts
available under the MidCap Facility.
Although the Company had considered
seeking to extend the Sterling Facility, the Company completed its
negotiations of an alternative financing arrangement and 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 $5,000,000 revolving line of credit
(the “MidCap Facility”), which matures in three years.
Interest on the amounts outstanding under the MidCap Facility is
variable, based upon the three-month LIBOR rate plus a margin of
4.75%, subject to re-set each month, and all outstanding
indebtedness is secured by all of the assets of the Company and its
subsidiaries. The terms of the MidCap Facility include customary
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 must maintain
minimum availability of $500,000 initially with the minimum
availability to be reduced to $400,000 upon the delivery of a
satisfactory inventory appraisal to MidCap. A portion of the
proceeds of the MidCap Facility were used to fully pay, satisfy and
discharge the Sterling Facility.
The Company anticipates subleasing to a third party up to 40,000
square feet of the Old Bridge Facility (the “Sublease
Space”), the rental proceeds from which will inure to the
benefit of the Company. The Company’s ability to sublease all or
part of the Sublease Space, the specific terms of any sublease of
the Sublease Space and the amount of rent that will be derived
therefrom cannot be predicted at this time. The landlord agreed to
provide the Company with up to six months of free rent for the
Sublease Space, as the Company undertook to identify a suitable
tenant or tenants therefor. The provision of free rent for the
Sublease Space expired on July 31, 2019. The Company has not as yet
been successful in identifying a tenant or tenants for the Sublease
Space.
The Company’s primary long-term
obligations are for payment of interest and principal on amounts
outstanding under the MidCap Facility. 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
$205,000 and $81,000 in the nine months ended September 30,
2019 and the year ended December 31, 2018, respectively.
The Company expects to use cash
generated from operations, amounts available under the MidCap
Facility and purchase-money financing to meet any anticipated
long-term capital expenditures.
As noted above, the Company’s working capital increased
significantly during the first nine months of 2019, primarily due
to the receipt of proceeds from the sale of the Old Bridge Facility
after paying off amounts under the Sterling Facility. However,
during the nine months ended September 30, 2019 we have experienced
an increase in expenses that, together with the decline in sales
and buildup of inventory for our new products, have resulted in our
use of much the proceeds of the sale of the Old Bridge Facility to
finance our expenses and losses resulting from the decline in sales
and the costs to introduce new products. Management is currently
reviewing alternatives to address these issues by making
adjustments to operating expenses so as to better align expenses
with the Company’s sales expectations and focusing on new product
sales initiatives, including with respect to IPTV set top box and
NeXgen Gateway products. In addition, the Company believes that the
terms of the MidCap Facility provide greater flexibility to finance
current and planned operations. Although the Company has a history
of cash used in operating activities which may raise doubt about
our ability to continue as a going concern, we believe that the new
product introductions described above, the ability to reduce
operating expenses and the additional liquidity provided under the
MidCap facility mitigate this risk While the Company currently
believes that its efforts to control expenses and increase sales
will improve the Company’s liquidity, there can no assurances that
our efforts will be successful and/or that the financing available
under the MidCap facility or other financing the Company may pursue
will be sufficient to allow the Company to continue implementing
its business strategy.
Critical Accounting Estimates
See the Notes to Condensed
Consolidated Financial Statements for a description of where
estimates are required.
Recent Accounting Pronouncements
See Notes 2(d) and (e) of the
Notes to Condensed Consolidated Financial Statements for a full
description of recent accounting pronouncements, including the
anticipated dates of adoption and the effects on the Company’s
consolidated financial position and results of
operations.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to smaller
reporting companies.
ITEM
4. CONTROLS AND PROCEDURES
The Company maintains a system of
disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in the
Company’s reports filed or submitted pursuant to 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, 2019.
During the quarter ended
September 30, 2019, there have been no changes in the Company’s
internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The Company is a party to certain
proceedings incidental to the ordinary course of its business, none
of which, in the current opinion of management, is likely to have a
material adverse effect on the Company’s business, financial
condition, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
In addition to the other
information set forth in this report, you should carefully consider
the factors discussed in “Risk Factors” included in the Company’s
Form 10-K for the year ended December 31, 2018. There are no
material changes from the risk factors included in Form 10-K for
the year ended December 31, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During the third quarter of 2019, the Company issued an aggregate
of 12,447 shares of its common stock to its executive officers and
directors pursuant to the Company's Executive Stock Purchase Plan
and Amended and Restated Director Stock Purchase Plan. Under the
Executive Stock Purchase Plan, an executive may elect to purchase
shares of the Company's common stock in lieu of receiving a portion
of such executive’s salary. Under the Amended and Restated Director
Stock Purchase Plan, a non-employee director may elect to purchase
shares of the Company's common stock in lieu of receiving a portion
of such director’s salary. The issue price of such shares ranges
from $0.685 to $0.95 (in each case, the issue price represents the
quotient of (i) the portion of salary or director fee allocated to
acquisition of the shares divided by (ii) the average of the high
and low trading price reported on the effective date of the
officer’s or director’s purchase. The issuances of the shares was
exempt from registration pursuant to Section 4(a) (2) of the
Securities Act as a transaction by an issuer not involving a public
offering.
ITEM 5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
The exhibits are listed in the
Exhibit Index appearing at page 21 herein.
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: November 8,
2019 |
By: |
/s/ Robert J.
Pallé |
|
|
Robert J.
Pallé |
|
|
Chief Executive
Officer |
|
|
(Principal
Executive Officer) |
|
|
|
|
By: |
/s/ Eric
Skolnik |
|
|
Eric
Skolnik |
|
|
Senior Vice
President and Chief Financial Officer |
|
|
(Principal
Financial Officer) |
EXHIBIT INDEX
20
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