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 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" that precedes Item 1 above.

Overview

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 encoding, 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. The technology requirements of these markets change rapidly and the Company is continually developing and adding new products. Recently, the Company has focused on the development of products for digital signal generation and transmission and, during 2008, the Company entered into various agreements for technologies in concert with the new digital encoder line of products. As a result, the Company has significantly expanded its digital product line. The evolution of the Company's product lines will focus on the increased needs created in the digital space by IPTV, digital video and HDTV signals and the transport of these signals over state of the art broadband networks.

In 2008 the Company also took advantage of the FCC's mandated transition to digital broadcasts which requires that all analog broadcasts are to cease in 2009. The original date for such termination was February 17, 2009, however this date was extended to June 12, 2009. In connection with this transition, the Company heavily marketed its digital products to its customer base and, in addition to trade shows, the Company offered "Back to School" classes on making the transition to digital.

The Company's product lines continue to include equipment and innovative solutions for the high-speed transmission of data and the provision of telephony services in multiple dwelling unit applications. The Company's products are used to acquire, distribute and protect the broad range of communications signals carried on fiber optic, twisted pair, coaxial cable and wireless distribution systems. These products are sold to customers providing an array of communications services, including television, high-speed data (Internet) and telephony, to single family dwellings, multiple dwelling units ("MDUs"), the lodging industry and institutions such as hospitals, prisons, schools and marinas. The Company's principal customers are cable system operators (both franchise and private cable), as well as contractors that design, package, install and in most instances operate, upgrade and maintain the systems they build, including institutional and lodging/hospitality operators.

A key component of the Company's strategy is to leverage its reputation across a broad product line, offering one-stop shop convenience to cable, broadcast, and professional markets and delivering products having a high performance-to-cost ratio. The Company continues to expand its core product lines, including digital and analog products (headend and distribution), to maintain its ability to provide all of the electronic equipment necessary to build small cable systems and much of the equipment needed in larger systems for the most efficient operation and highest profitability in high density applications. The Company has also divested its interests in certain non-core business as part of its strategy to focus on the efficient operation of its core businesses.

One of the Company's recent initiatives is to manufacture products in the People's Republic of China ("PRC") in order to reduce the Company's manufacturing costs and allow a more aggressive marketing program in the private cable market. The Company's manufacturing initiative in the PRC entails a combination of contract manufacturing agreements and purchasing agreements with key PRC manufacturers that can most fully meet the Company's needs. In early 2007, the Company entered into a manufacturing agreement with a core contract manufacturer in the PRC that will govern its production of certain of the Company's products upon the receipt of purchase orders from the Company. The Company anticipates that high volume, labor intensive products will be the primary products being manufactured in the PRC, including many of the Company's analog products. On the other hand, the Company's expects that proprietary products and those requiring less labor will continue to be manufactured at the New Jersey facility, including most of the Company's digital products. The Company expects this ongoing transition will continue to be implemented in phases over the next several years with the goal that it will ultimately relate to products representing a significant portion (but less than a majority) of the Company's net sales. The first products were produced in the PRC during the fourth quarter of 2007.

In December 2007, the Company entered into an agreement to provide manufacturing, research and development and product support to Buffalo City Center Leasing, LLC ("Buffalo City") for an electronic on-board recorder that Buffalo City is producing for Turnpike Global Technologies, LLC. The three-year agreement is anticipated to provide up to $4,000,000 in revenue to the Company. The Company received $1,369,000 and $81,000 in revenue from Buffalo City in 2008 and 2007, respectively. A director of the Company is also the managing member and a vice president of Buffalo City and may be deemed to control the entity which owns fifty percent (50%) of the membership interests of Buffalo City.

The Company made the decision in April 2008 to cease the operations of its wholly-owned subsidiary, Hybrid Networks, LLC ("Hybrid"), and liquidate its assets. Hybrid's business activities consisted of the operation of video, high-speed data and/or telephony systems ("Systems") at four multi-dwelling unit communities under

certain right-of-entry agreements ("ROE Agreements"). As part of the Company's on-going implementation of its strategic plan, management has continued to evaluate the impact and long-term viability of non-core business activities, including the continued operation of the Systems. The decision of the Board of Directors to discontinue Hybrid's operations was based upon such evaluation and the cash flow and operating losses of Hybrid. Hybrid had revenues of $148,000 and $177,000 and net losses of $249,000 and $368,000 in 2007 and 2006, respectively. The results of operations of Hybrid are reflected as discontinued operations in the consolidated statement of operations included in this Annual Report on Form 10-K.

Based on this decision, in 2008 the Company recognized net loss on disposal of approximately $290,000 related to the Hybrid fixed assets, which includes the ROE Agreements and the equipment necessary to operate the Systems, substantially all of which is installed at the applicable property locations. While the Company has wound down almost all of the operations of Hybrid, it continues to perform certain basic administrative services which provide an immaterial amount of positive cash flow and are not expected to have a negative effect on net income.

The Federal Communications Commission (FCC) mandated that all analog broadcasts are to cease by February 17, 2009, however, this date has been extended to June 12, 2009. In anticipation of this analog shut down, the FCC also granted second licenses to all broadcasters to begin simulcasting digital signals. As a result, the Company expects to see a continuing shift in product mix from analog products to digital products. Accordingly, any substantial decrease in sales of analog products without a related increase in digital products could have a material adverse effect on the Company's results of operations, financial condition and cash flows.

Results of Operations

The following table sets forth, for the fiscal periods indicated, certain consolidated statement of earnings data from continuing operations as a percentage of net sales. In 2008, the Company decided to exit from the Hybrid business. The amounts previously reported below in the results of operations for the year ended December 31, 2007 have been changed to reflect Hybrid Networks, LLC as a discontinued operation.

                                                           Year Ended December 31,
                                                              2008            2007

Net sales                                                   100.0%          100.0%
Costs of goods sold                                          67.1            65.8
Gross profit                                                 32.9            34.2
Selling expenses                                             12.4            14.4
General and administrative expenses                          14.0            13.7
Research and development expenses                             5.6             5.4
Earnings from operations                                      0.9             0.7
Other expense, net                                            1.1             1.4
Loss from continuing operations before income taxes          (0.2)           (0.7)
Provision (benefit) for income taxes                            -               -

2008 Compared with 2007

Net sales. Net sales increased $2,308,000 or 7.0% to $35,320,000 in 2008 from $33,012,000 in 2007. The increase is primarily attributed to an increase in sales of digital headend and contract manufactured products offset by a decrease in analog headend and distribution products. Digital headend product sales were $10,940,000 and $5,837,000, contract manufactured product sales were $1,369,000 and $81,000, analog headend product sales were $13,827,000 and $16,170,000 and distribution product sales were $5,587,00 and $6,670,000 in 2008 and 2007, respectively.

Cost of Goods Sold. Costs of goods sold increased to $23,713,000 for 2008 from $21,713,000 in 2007 and increased as a percentage of sales to 67.1% from 65.8% . The increase is primarily attributed to a increase in net sales. The increase as a percentage of sales is primarily attributed to an increase in the inventory reserve of $799,000 in 2008 as compared to an increase in the inventory reserve of $314,000 in 2007. The change in the inventory reserve is primarily attributed to fully reserving items for which there was no usage in 2008.

Selling Expenses. Selling expenses decreased to $4,377,000 for 2008 from $4,751,000 in 2007 and decreased as a percentage of sales to 12.4% for 2008 from 14.4% for 2007. This $374,000 decrease is primarily attributable to a decrease in salaries of $386,000 due to reduced head count.

General and Administrative Expenses. General and administrative expenses increased to $4,935,000 in 2008 from $4,538,000 for 2007 and increased as a percentage of sales to 14.0% for 2008 from 13.7% in 2007. This $397,000 increase is primarily attributable to a decrease in recoveries of bad debts previously written off of $238,000 and an increase in salaries of $130,000 due to increased head count.

Research and Development Expense. Research and development expenses increased to $1,989,000 in 2008 from $1,797,000 in 2007 and increased as a percentage of sales to 5.6% in 2008 from 5.4% in 2007. This $192,000 increase is primarily attributable to an increase in salaries of $150,000 due to increased head count.

Operating Income. Operating income of $306,000 for 2008 represents an increase of $93,000 from a operating income of $213,000 in 2007. Operating income as a percentage of sales increased to 0.9% in 2008 from 0.7% in 2007.

Interest expense. Interest expense decreased to $409,000 in 2008 from $466,000 in 2007. The decrease is the result of lower average borrowings and a reduced interest rate.

Income Taxes. The provision for income taxes remained at zero for 2008 and 2007. The provision is zero as a result of an increase in the deferred tax assets due to net operating loss carry forwards being offset by an increase in the valuation allowance of $101,000 and $297,000 in 2008 and 2007, respectively, since the realization of the entire deferred tax benefit is not considered more likely than not. The Company believes its current projected taxable income over the next five years as well as certain tax strategies are adequate to the realization of the remaining deferred tax benefit.

Inflation and Seasonality

Inflation and seasonality have not had a material impact on the results of operations of the Company. Fourth quarter sales in 2008 as compared to other quarters were slightly impacted by fewer production days. The Company expects sales each year in the fourth quarter to be impacted by fewer production days.

Liquidity and Capital Resources

As of December 31, 2008 and 2007, the Company's working capital was $12,213,000 and $7,902,000, respectively. The increase in working capital is attributable primarily to the refinance of current to long term debt of $1,442,000 along with an increase in cash of $2,199,000. The increase in cash is attributable primarily to cash provided by operations along with proceeds received in the financing of the Term Loan (as defined below).

The Company's net cash provided by operating activities for the year ended December 31, 2008 was $1,281,000 primarily due to an increase of non cash adjustments to net income of $1,626,000 compared to net cash provided by operating activities for the year ended December 31, 2007 of $2,095,000.

Cash used in investing activities was $496,000, which was attributable primarily to capital expenditures of $374,000 and acquisition of licenses of $159,000.

Cash provided by financing activities was $1,414,000 for the period ended December 31, 2008, comprised primarily of repayment of debt of $22,571,000 offset by $24,013,000 in additional borrowings of debt.

On August 6, 2008, the Company entered into a Revolving Credit, Term Loan and Security Agreement with Sovereign Business Capital ("Sovereign"), a division of Sovereign Bank ("Sovereign Agreement"), pursuant to which the Company obtained an $8,000,000 credit facility from Sovereign (the "Sovereign Financing"). The Sovereign Financing consists of (i) a $4,000,000 asset-based revolving credit facility ("Revolver") and (ii) a $4,000,000 term loan facility ("Term Loan"), each of which has a three-year term. The amounts which may be borrowed under the Revolver are based on certain percentages of Eligible Receivables and Eligible Inventory, as such terms are defined in the Sovereign Agreement. The obligations of the Company under the Sovereign Agreement are secured by substantially all of the assets of the Company.

Under the Sovereign Agreement, the Revolver bears interest at a rate per annum equal to the prime lending rate announced from time to time by Sovereign ("Prime") plus 0.25% . The Term Loan bears interest at a rate per annum equal to Prime plus 0.50% .

The Revolver terminates on August 5, 2011, at which time all outstanding borrowings under the Revolver are due. The Term Loan matures on August 5, 2011 and requires equal monthly principal payments of approximately $17,000 each, plus interest, with the remaining balance due at maturity. The loans are subject to a prepayment penalty if satisfied in full prior to the second anniversary of the effective date of the loans.

The Sovereign Agreement contains customary representations and warranties as well as affirmative and negative covenants, including certain financial covenants. The Sovereign Agreement contains customary events of default, including, among others, non-payment of principal, interest or other amounts when due.

Proceeds from the Term Loan were used to refinance the Company's credit facility with National City Business Credit, Inc. and National City Bank, to pay transaction costs, to provide working capital and for other general corporate purposes. As of December 31, 2008 and March 26, 2009, the Company has not drawn any funds under the Revolver.

The fair value of the debt approximates the recorded value based on the borrowing rates currently available to the Company for loans with similar terms and maturities.

The average amount outstanding on the Company's lines of credit during 2008 was $992,000 at a weighted average interest rate of 8.0% . The maximum amount outstanding on the lines of credit during 2008 was $2,088,000.

The Company anticipates that the cash generated from operations, existing cash balances and amounts available under its credit facility with Sovereign, will be sufficient to satisfy its foreseeable working capital needs.

Critical Accounting Estimates

The 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 1 to the financial statements for further discussion of significant accounting policies.

Revenue Recognition

The Company records revenue when products are shipped. Legal title and risk of loss with respect to the products pass to customers at the point of shipment. Customers do not have a right to return products shipped. Products carry a three year warranty, which amount is not material to the Company's operations.

Inventory and Obsolescence

The Company periodically analyzes anticipated product sales based on historical results, current backlog and marketing plans. Based on these analyses, the Company estimates and projects those products that are unlikely to be sold during the next twelve months. Inventories that are not anticipated to be sold in the next twelve months, have been classified as non-current. This procedure has been applied to the December 31, 2008 and 2007 inventories and, accordingly, $4,392,000 and $5,868,000, respectively, have been classified to non-current assets.

Approximately 58% of the non-current inventories are comprised of finished goods. The Company has established a program to use interchangeable parts in its various product offerings and to modify certain of its finished goods to better match customer demands. In addition, the Company has instituted additional marketing programs to dispose of the slower moving inventories.

The Company continually analyzes its slow-moving, excess and obsolete inventories. Based on historical and projected sales volumes for finished goods, historical and projected usage of raw materials, and anticipated

selling prices, the Company establishes reserves. If the Company does not meet its sales expectations these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. During 2008 and 2007, the Company recorded an increase to its reserve of $799,000 and $314,000, respectively. The increases in the inventory reserve during 2008 and 2007 were primarily the result of an increase in certain obsolete raw materials. The Company believes reserves are adequate and inventories are reflected at net realizable value.

Accounts Receivable and Allowance for Doubtful Accounts

Management periodically performs a detailed review of amounts due from customers to determine if accounts receivable balances are impaired based on factors affecting the collectibility of those balances. Management's estimates of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowances and net earnings. As these factors are difficult to predict and are subject to future events that may alter management assumptions, these allowances may need to be adjusted in the future.

Long-Lived Assets

On a periodic basis, management assesses whether there are any indicators that the value of the Company's long-lived assets may be impaired. An asset's value may be impaired only if management's estimate of the aggregate future cash flows, on an undiscounted basis, to be generated by the asset are less than the carrying value of the asset.

If impairment has occurred, the loss shall be measured as the excess of the carrying amount of the asset over the fair value of the long-lived asset. The Company's estimates of aggregate future cash flows expected to be generated by each long-lived asset are based on a number of assumptions that are subject to economic and market uncertainties. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved.

Valuation of Deferred Tax Assets

Management periodically evaluates its ability to recover the reported amount of its deferred income tax assets considering several factors, including the estimate of the likelihood that it will generate sufficient taxable income in future years in which temporary differences reverse. Due to the uncertainties related to, among other things, the extent and timing of future taxable income, which indicated that it was more likely than not that the Company would not realize the benefits related to the deferred tax assets, the Company recorded a valuation allowance equal to a significant portion of the net deferred tax assets as of December 31, 2008 and 2007.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS No. 157 establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurements, and requires new disclosures of assets and liabilities measured at fair value based on their level in the hierarchy. This statement applies under other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued Staff Positions ("FSPs") No. 157-1 and No. 157-2, which, respectively, remove leasing transactions from the scope of SFAS No. 157 and defer its effective date for one year relative to certain nonfinancial assets and liabilities. As a result, the application of the definition of fair value and related disclosures of SFAS No. 157 (as impacted by these two FSPs) was effective for the Company beginning January 1, 2008 on a prospective basis with respect to fair value measurements of (a) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company's financial statements on a recurring basis (at least annually) and (b) all financial assets and liabilities. This adoption did not have a material impact on the Company's consolidated results of operations or financial condition. The remaining aspects of SFAS No. 157 for which the effective date was deferred under FSP No. 157-2 are currently being evaluated by the Company. Areas impacted by the deferral relate to nonfinancial assets and liabilities that are measured at fair value, but are recognized or disclosed at fair value on a nonrecurring basis. This deferral applies to such items as nonfinancial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) or nonfinancial long-lived asset groups measured at fair value for an impairment assessment. The effects of these remaining aspects of SFAS No. 157 are to be

applied to fair value measurements prospectively beginning January 1, 2009. The Company does not expect them to have a material impact on the Company's consolidated results of operations or financial condition.

In December 2007, the FASB issued SFAS No. 141R, "Business Combinations" which replaces SFAS No. 141, "Business Combinations." SFAS 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including noncontrolling interests, contingent consideration, and certain acquired contingencies. SFAS 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. SFAS 141R will be applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R would have an impact on accounting for any businesses acquired after the effective date of this pronouncement.

In March 2008, the FASB issued SFAS No. 161 "Disclosures about Derivative Instruments and Hedging Activities - an amendment of SFAS No. 133." SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. The guidance in SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. At this time, management is evaluating the implications of SFAS 161 and has not yet determined its impact on the Company's financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles. The guidance in SFAS 162 replaces that prescribed in Statement on Auditing Standards No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles," and becomes effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's auditing amendments . . .