SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003,MARCH 31, 2004,
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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
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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- --------- ----
Number of shares of common stock, par value $.001, outstanding as of NovemberMay 14,
2003: 7,995,4062004: 8,002,406
The Exhibit Index appears on page 15.16.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September(unaudited)
-----------
March 31 December 30,31
2004 2003 31, 2002
-------- --------
Assets (Note 4)5)
Current assets:
Cash ................................................................ $ 46113 $ 258195
Accounts receivable, net of allowance for doubtful
accounts of $1,003$1,257 and $715$1,192 respectively ............................ 5,595 6,713.......................... 5,592 5,682
Inventories, net (Note 3)4) ........................................... 22,189 24,76021,465 20,588
Notes receivable (Note 6)7) ........................................... 459 459454 627
Income tax receivable ............................................... 796 170307 679
Prepaid benefit costs ............................................... 631 631
Prepaid and other current assets .................................... 726 5561,000 695
Deferred income taxes ............................................... 1,982 1,8582,279 2,279
-------- --------
Total current assets ............................................ 31,793 34,77431,841 31,376
Notes receivable (Note 6)7) ................................................ 542 1,019-- 216
Property, plant and equipment, net of accumulated
depreciation and amortization ........................................ 6,837 6,8316,485 6,652
Patents, net ............................................................. 2,765 3,1202,533 2,649
Rights-of-Entry, net (Note 5)6) ............................................ 1,352 1,3961,230 1,300
Other assets, net ........................................................ 914 951807 851
Investment in Blonder Tongue Telephone LLC (Note 7)6) ...................... 2,005 --2,043 2,043
Deferred income taxes .................................................... 3,746 3,9112,903 2,903
-------- --------
$ 49,95447,842 $ 52,00247,990
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt (Note 4)5) .......................... $ 13,7583,213 $ 2,6323,201
Accounts payable .................................................... 1,574 8882,116 1,676
Accrued compensation ................................................ 759 514
Accrued benefit liability ........................................... 196 1961,098 560
Other accrued expenses .............................................. 343 227(Note 8) ..................................... 1,351 868
-------- --------
Total current liabilities ....................................... 16,630 4,4577,778 6,305
-------- --------
Long-term debt (Note 4)5) .................................................. 356 14,2788,501 9,745
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000 shares;
no shares outstanding ............................................... -- --
Common stock, $.001 par value; authorized 25,000 shares, 8,445 shares
Issued .............................................................. 8 8
Paid-in capital ..................................................... 24,14524,165 24,145
Retained earnings ................................................... 14,778 15,991
Accumulated other comprehensive loss ................................ (508) (508)12,845 13,242
Treasury stock, at cost, 449 shares and 879 shares, respectively ..................................... (5,455) (6,369)(5,455)
-------- --------
Total stockholders' equity ...................................... 32,968 33,26731,563 31,940
-------- --------
$ 49,95447,842 $ 52,00247,990
======== ========
See accompanying notes to consolidated financial statements.
2
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales .................................. $ 9,195 $ 13,171 $ 26,331 $ 35,318
Cost of goods sold ......................... 6,230 9,394 18,532 25,174
-------- -------- -------- --------
Gross profit ............................ 2,965 3,777 7,799 10,144
-------- -------- -------- --------
Operating expenses:
Selling ................................. 947 951 2,898 3,150
General and administrative .............. 1,397 1,108 4,568 3,476
Research and development ................ 433 500 1,449 1,466
-------- -------- -------- --------
2,777 2,559 8,915 8,092
-------- -------- -------- --------
Earnings (loss) from operations ............ 188 1,218 (1,116) 2,052
-------- -------- -------- --------
Interest expense ........................... (272) (277) (827) (763)
-------- -------- -------- --------
Earnings (loss) before minority interest and
income taxes ............................... (84) 941 (1,943) 1,289
Minority interest .......................... -- 3 -- 3
Provision (benefit) for income taxes ....... (19) 402 (730) 534
-------- -------- -------- --------
Earnings (loss) before cumulative effect ... (65) 536 (1,213) 752
Cumulative effect of change in accounting
principle, net of tax ................... -- -- -- (6,886)
-------- -------- -------- --------
Net (loss) earnings ........................ $ (65) $ 536 $ (1,213) $ (6,134)
======== ======== ======== ========
Basic earnings (loss) per share before
cumulative effect ....................... $ (0.01) $ 0.07 $ (0.16) $ 0.10
Cumulative effect of change in accounting
principle, net of tax ................... -- -- -- (0.90)
-------- -------- -------- --------
Basic earnings (loss) per share ............ $ (0.01) $ 0.07 $ (0.16) $ (0.80)
======== ======== ======== ========
Basic weighted average shares outstanding .. 7,577 7,608 7,539 7,611
======== ======== ======== ========
Diluted earnings (loss) per share before
cumulative effect ....................... $ (0.01) $ 0.07 $ (0.16) $ 0.10
Cumulative effect of change in accounting
principle, net of tax ................... -- -- -- $ (0.90)
-------- -------- -------- --------
Diluted earnings (loss) per share .......... $ (0.01) $ 0.07 $ (0.16) $ (0.80)
======== ======== ======== ========
Diluted weighted average shares outstanding 7,577 7,613 7,539 7,611
======== ======== ======== ========
Three Months Ended
March 31,
------------------
2004 2003
------- -------
Net sales ........................................... $ 8,529 $ 8,602
Cost of goods sold .................................. 5,588 6,443
------- -------
Gross profit .................................... 2,941 2,159
------- -------
Operating expenses:
Selling ......................................... 1,045 998
General and administrative ...................... 1,607 1,564
Research and development ........................ 411 548
------- -------
3,063 3,110
------- -------
Loss from operations ................................ (122) (951)
------- -------
Interest expense ................................ (275) (273)
------- -------
Loss before income taxes ............................ (397) (1,224)
Benefit for income taxes ............................ -- (466)
------- -------
Net loss ............................................ $ (397) $ (758)
======= =======
Basic and diluted loss per share .................... $ (0.05) $ (0.10)
======= =======
Basic and diluted weighted average shares outstanding 7,997 7,539
======= =======
See accompanying notes to consolidated financial statements.
3
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
NineThree Months Ended
September 30,
--------------------March 31,
------------------
2004 2003
2002
-------- --------------- -------
Cash Flows From Operating Activities:
Net loss ............................................................................................................. $ (1,213)(397) $ (6,134)(758)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Cumulative effect of change in accounting principle .......... -- 6,886
Depreciation ................................................. 872 954................................................ 264 285
Amortization ................................................. 564 320
Provision................................................ 186 191
Allowance for doubtful accounts .............................. 277 158
Provision for inventory reserves ............................. 39 --90 90
Deferred income taxes ........................................ 41 (93)
Minority interest ................................................................................... -- 310
Changes in operating assets and liabilities:
Accounts receivable .......................................... 841 1,662....................................... -- (417)
Inventories .................................................. 2,532 1,028............................................... (877) 1,126
Other current assets ......................................... (170) 290...................................... (305) 36
Other assets ................................................. 37 (231).............................................. 43 3
Income taxes ................................................. (626) 421.............................................. 372 (191)
Accounts payable, accrued compensation and accrued expenses .. 1,047 (4,078)
-------- --------1,462 484
------- -------
Net cash provided by operating activities expenses ......... 4,241 1,186
-------- --------................. 838 859
------- -------
Cash Flows From Investing Activities:
Capital expenditures ........................................... (878) (219)
Acquisition.......................................... (97) (323)
Collection of rights-of-entry ................................. (165) (250)
Receipt from note receivable ................................... 477 --................................. 389 162
Investment in Blonder Tongue Telephone, LLC .................... (975)................... -- -------- --------(200)
Acquisition of rights-of-entry ................................ -- (150)
------- -------
Net cash used inprovided by (used in) investing activities .......................... (1,541) (469)
-------- --------........... 292 (511)
------- -------
Cash Flows From Financing Activities:
Borrowings of long-term debt ................................... 8,186 29,204.................................. 2,945 2,430
Repayments of long-term debt ................................... (10,982) (30,771).................................. (4,177) (2,935)
Proceeds from exercise of stock options ............................................... 20 -- 2
Acquisition of treasury stock .................................. (116) (26)
-------- --------................................. -- (69)
------- -------
Net cash used in financing activities .......................... (2,912) (1,591)
-------- --------................... (1,212) (574)
------- -------
Net decrease in cash ........................................... (212) (874)
-------- --------............................................... (82) (226)
Cash, beginning of period .................................................................................. 195 258
942
-------- --------------- -------
Cash, end of period .............................................................................................. $ 46113 $ 68
======== ========32
======= =======
Supplemental Cash Flow Information:
Cash paid for interest ................................................................................. $ 753278 $ 746187
Cash paid for income taxes ......................................................................... -- $ 206
Non-Cash Investing and Financing Activities:
Inventory sold for note receivable ............................. --
$ 1,447
Investment in Blonder Tongue Telephone, LLC
using treasury stock .......................................... $ 1,030 --======= =======
See accompanying notes to consolidated financial statements.
4
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in(In thousands)
(unaudited)
Note 1 - Company and Basis of Presentation
Blonder Tongue Laboratories, Inc. (the "Company") is a designer,
manufacturer and supplier of electronics and systems equipment for the cable
television industry, primarily throughout the United States. The consolidated
financial statements include the accounts of Blonder Tongue Laboratories, Inc.
and subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The results for the thirdfirst quarter and nine months of 20032004 are not necessarily indicative of
the results to be expected for the full fiscal year and have not been audited.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting primarily of normal recurring
accruals, necessary for a fair statement of the results of operations for the
period presented and the consolidated balance sheet at September 30, 2003.March 31, 2004. Certain
information and footnote disclosuredisclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the SEC rules and regulations. These financial
statements should be read in conjunction with the financial statements and notes
thereto that were included in the Company's latest annual report on Form 10-K
for the year ended December 31, 2002.2003.
Note 2 - New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"). FIN 46 addresses the consolidation by business enterprises of variable
interest entities, as defined in the Interpretation. FIN 46 expands existing
accounting guidance regarding when a company should include in its financial
statements the assets, liabilities, and activities of another entity. Many
variable interest entities have commonly been referred to as special-purpose
entities or off-balance sheet structures. In December 2003, the FASB issued
Interpretation No. 46R ("FIN 46R"), a revision to FIN 46. FIN 46R clarifies some
of the provisions of FIN 46 and exempts certain entities from its requirements.
FIN 46R is effective at the end of the first interim period ending after March
15, 2004. The Company believes that the adoption of FIN 46 will not have a
material impact on the Company's financial position, results of operations or
cash flows.
In July 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for Certain Financial Instruments With Characteristics of
Both Liabilities and Equity ("SFAS 150"). SFAS 150 requires the shares that are
mandatorily redeemable for cash or other assets at a specified or determinable
date or upon an event certain to occur to be classified as liabilities, not as
part of shareholders' equity. This pronouncement does not currently impact the
Company's financial position, results of operations or cash flows.
Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables," is effective for revenue arrangements entered into
in fiscal periods beginning after June 15, 2003. The EITF addresses the
accounting for revenue generating arrangements involving multiple deliverables.
This EITF does not currently apply to the Company.
Note 3 - Stock Options
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans.
Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for
Stock-Based Compensation, requires the Company to provide pro forma information
regarding net income (loss) and net (loss) income per common share as if
compensation cost for stock options granted under the plans, if applicable, had
been determined in accordance with the fair value based method prescribed in FAS
123. The Company does not plan to adopt the fair value based method prescribed
by FAS 123.
The Company estimates the fair value of each stock option grant by using
the Black-Scholes option-pricing model withmodel. No options were granted during either of
the following weighted average
assumptions used for grants: expected lives of 9.5 years, no dividend yield,
volatility at 73%, and risk free interest rate of 3.2% for the ninethree months ended September 30, 2002; expected lives of 9.2 years, no dividend yield, volatility
at 73%, and risk free interest rate of 3.67% for the nine months ended September
30,March 31, 2004 or 2003.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)
Under accounting provisions of FAS 123, the Company's net loss to common
shareholders and net loss per common share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share data):
NineThree Months
Ended September 30
------------------March 31
----------------
2004 2003
2002
------- ------------- ------
Net loss as reported ................................. $(1,213) $(6,134)$ (397) $(758)
Adjustment for fair value of stock options,
net of tax ......................................... 243 443
------- -------41 78
------ ------
Pro forma ....................................... $(1,456) $(6,577)
======= =======$ (438) ($836)
====== ======
Net loss per share basic and diluted:
As reported ..................................... $ (0.16) $ (0.80)
======= =======$(0.05) $(0.10)
====== ======
Pro forma ....................................... $ (0.19) $ (0.86)
======= =======
5
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(unaudited)$(0.06) $(0.11)
====== ======
Note 34 - Inventories
Inventories net of reserves are summarized as follows:
Sept. 30,March 31, Dec. 31,
2004 2003
2002
------- --------------- --------
Raw Materials .............. $10,552 $11,054................... $ 11,451 $ 11,379
Work in process ............ 1,519 1,660................. 1,327 1,746
Finished Goods ............. 10,118 12,046
------- -------
$22,189 $24,760
======= =======.................. 12,159 10,935
-------- --------
.................................. 24,937 24,060
Less Reserve for excess
inventory ..................... (3,472) (3,472)
-------- --------
$ 21,465 $ 20,588
======== ========
Note 45 - Debt
On March 20, 2002 the Company executedentered into a credit agreement with Commerce
Bank, N.A. for a $19,500 credit facility, comprised of (i) a $7,000 revolving
line of credit under which funds may be borrowed at LIBOR, plus a margin ranging
from 1.75% to 2.50%, in each case depending on the calculation of certain
financial covenants, with a floor of 5% through March 19, 2003, (5% at September
30, 2003), (ii) a $9,000
term loan which bore interest at a rate of 6.75% through September 30, 2002, and
thereafter bears interest at a fixed rate ranging from 6.50% to 7.25% to reset quarterly
depending on the calculation of certain financial covenants (6.75% at September 30, 2003) and (iii) a $3,500
mortgage loan bearing interest at 7.5%. Borrowings under the revolving line of
credit are limited to certain percentages of eligible accounts receivable and
inventory, as defined in the credit agreement. The credit facility is
collateralized by a security interest in all of the Company's assets. The
agreement also contains restrictions that require the Company to maintain
certain financial ratios as well as restrictions on the payment of cash
dividends. The initial maturity date of the line of credit with Commerce Bank
is April
1,was March 20, 2004. The term loan requiresrequired equal monthly principal payments of
$187 and matures on April 1, 2006. The mortgage loan requires equal monthly
principal payments of $19 and matures on April 1, 2017. The mortgage loan is
callable after five years at the lender's option.
At September 30, 2003, there was $4,621, $5,813 and $3,169 outstanding
under the revolving line of credit, term loan and mortgage loan, respectively.
In November 2003, the Company's credit agreement with Commerce Bank was
amended to modify the interest rate and amortization schedule for certain of the
loans thereunder, as well as to modify one of the financial covenants. Beginning
November 1, 2003, the revolving line of credit will bearbegan to accrue interest at the
prime rate plus 1.5%, with a floor of 5.5% (5.5% at March 31, 2004), and the
term loan will bearbegan to accrue interest at a fixed rate of 7.5%. Beginning December
1, 2003, the term loan requires equal monthly principal payments of $193 plus
interest with a final payment on April 1, 2006 of all remaining unpaid principal
and interest.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)
At March 31, 2003, June 30, 2003, and September 30, 2003 and December 31, 2003,
the Company was unable to meet one of its financial covenants required under its
credit agreement with Commerce Bank, which non-compliance was waived by the Bank
effective as of each such date.
The Company anticipates that it will either
obtain a renewalIn March 2004, the Company's credit agreement with Commerce Bank was
amended to (i) extend the maturity date of its currentthe line of credit or enter into new credit
facilities with another bank, prior tountil April 1,
2004.2005, (ii) reduce the maximum amount that may be borrowed under the line of
credit to $6,000, (iii) suspend the applicability of the cash flow coverage
ratio covenant until March 31, 2005, (iv) impose a new financial covenant
requiring the Company to achieve certain levels of consolidated pre-tax income
on a quarterly basis commencing with the fiscal quarter ended March 31, 2004,
and (v) require that the Company make a prepayment against its outstanding term
loan to the Bank equal to 100% of the amount of any prepayment received by the
Company on its outstanding note receivable from a customer, up to a maximum
amount of $500.
Note 6
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars- Acquisition (Subscribers and passings in thousands)
(unaudited)
Note 5 - Rights of Entry Acquisitionwhole numbers)
During June, 2002, the Company formed a venture with Priority Systems, LLC
and Paradigm Capital Investments, LLC for the purpose of acquiring the
rights-of-entry for certain multiple dwelling unit ("MDU") cable television
systems (the "Systems") owned by affiliates of Verizon Communications, Inc. The
venture entity, BDR Broadband, LLC ("BDR Broadband"), 80%90% of the outstanding
capital stock of which is owned by the Company, acquired the Systems, which are
comprised of approximately 3,270 then-existing3,070 existing MDU cable television subscribers and
approximately 7,3407,520 passings. BDR Broadband paid approximately $1,880 for the
Systems, subject to adjustment, which constitutes a purchase price of $.575 per
subscriber. The final closing date for the transaction was on October 1, 2002
and BDR Broadband has been reflected in the consolidated results of the Company
since that date. Excluding capital expenditures associated with System upgrades,
the2002.
The Systems were cash flow positive beginning in the first year. To date, the
Systems have been upgraded with approximately $833$890 of interdiction and other
products of the Company. It is planned that the Systems will be further upgraded with
approximately $433$500 of additional interdiction and other products of the Company
over the course of operation. During July 2003, the Company purchased the 10%
interest in BDR Broadband that had been originally owned by Paradigm Capital
Investments, LLC, for an aggregate purchase price of $35, resulting in an
increase in the Company's stake in BDR Broadband from 80% to 90%.
The purchase price (excluding transaction costs) was allocated $1,489$1,524 to rights-of-entry and $391 to
fixed assets. The rights-of-entry are being amortized over a five-yearfive year period.
In consideration for its majority interest in BDR Broadband, the Company
advanced to BDR Broadband $250, which was paid to the sellers as a down payment
against the final purchase price for the Systems. The Company had also agreed to
guaranty payment of the aggregate purchase price for the Systems by BDR
Broadband. The approximately $1,630 balance of the purchase price was paid by
the Company on behalf of BDR Broadband on November 30, 2002 pursuant to the
terms and in satisfaction of certain promissory notes executed by BDR Broadband
in favor of the sellers.
In March, 2003, the Company entered into a series of agreements, pursuant
to which the Company acquired a 20% minority interest in NetLinc Communications,
LLC ("NetLinc") and a 35% minority interest in Blonder Tongue Telephone, LLC
("BTT") (to which the Company has licensed its name). The aggregate purchase
price consisted of (i) up to $3,500 payable over a minimum of two years, plus
(ii) 500 shares of the Company's common stock. NetLinc owns patents, proprietary
technology and know-how for certain telephony products that allow Competitive
Local Exchange Carriers ("CLECs") to competitively provide voice service to
MDUs. Certain distributorship agreements were also concurrently entered into
among NetLinc, BTT and the Company pursuant to which the Company ultimately
acquired the right to distribute NetLinc's telephony products to private and
franchise cable operators as well as to all buyers for use in MDU applications.
BTT partners with CLECs to offer primary voice service to MDUs, receiving a
portion of the line charges due from the CLECs' telephone customers, and the
Company offers for sale a line of telephony equipment to complement the voice
service.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)
As a result of NetLinc's inability to retain a contract manufacturer to
manufacture and supply the products in a timely and consistent manner in
accordance with the requisite specifications, in September, 2003 the parties
agreed to restructure the terms of their business arrangement entered into in
March, 2003. The restructured business arrangement was accomplished by amending
certain of the agreements previously entered into and entering into certain new
agreements. Some of the principal terms of the restructured arrangement include
increasing the Company's economic ownership in NetLinc from 20% to 50% and in
BTT from 35% to 50%, all at no additional cost to the Company. The cash portion
of the purchase price in the venture was decreased from $3,500 to $1,167 and the
then outstanding balance of $342 was paid in installments of $50 per week until
it was paid in full in October, 2003. BTT has an obligation to redeem the $1,167
cash component of the purchase price to the Company via preferential
distributions of cash flow under BTT's limited liability company operating
agreement. In addition, of the 500 shares of common stock issued to BTT as the
non-cash component of the purchase price (fair valued at $1,030), one-half (250
shares) have been pledged to the Company as collateral. Under the restructured
arrangement, the Company can purchase similar telephony products directly from
third party suppliers other than NetLinc and, in connection therewith, the
Company would pay certain future royalties to NetLinc and BTT from the sale of
these products by the Company. While the distributorship agreements among
NetLinc, BTT and the Company have not been terminated, the Company does not
anticipate purchasing products from NetLinc in the near term. NetLinc, however,
continues to own intellectual property, which may be further developed and used
in the future to manufacture and sell telephony products under the
distributorship agreements.
Note 67 - Notes Receivable
During September 2002, the Company sold inventory at a cost of
approximately $1,447 to a private cable operator for approximately $1,929 in
exchange for which the Company received notes receivable in the principal amount
of approximately $1,929. The notes are payable by the customer in 48 monthly
principal and interest (at 11.5%) installments of approximately $51 commencing
January 1, 2003. The customer's payment obligations under the notes are
collateralized by purchase money liens on the inventory sold and blanket second
liens on all other assets of the customer. The Company has recorded the notes
receivable at the inventory cost and will not recognize any revenue or gross
profit on the transaction until a substantial amount of the cost has been
recovered.recovered, and collectibility is assured. The Company collected $389 during the
first quarter of 2004 and recorded the receipts as a reduction in the note
receivable balance. The balance of the notes are expected to be collected during
2004 and approximately $482 of gross margin and $268 of interest income is
expected to be recognized.
Note 78 - AcquisitionRelated Party Transactions
The President of the Company lent the Company 100% of the purchase price of
certain used-equipment inventory purchased by the Company in October through
November of 2003. The inventory was purchased at a substantial discount to
market price. While the aggregate cost to purchase all of the inventory was
approximately $950, the maximum amount of indebtedness outstanding to the
President at any one time during the first quarter of 2004 was $675. At March
31, 2004, the remaining outstanding balance due to the President was $518 and
was included in other accrued expenses. The President made the loan to the
Company on a non-recourse basis, secured solely by a security interest in the
inventory purchased by the Company and the proceeds resulting from the sale of
the inventory. In consideration for the extension of credit on a non-recourse
basis, the President will receive from the Company interest on the outstanding
balance at the margin interest rate he incurs for borrowing the funds from his
lenders (approximately 3.97% as of March 31, 2004) plus 25% of the gross profit
derived from the Company's resale of such inventory, which amounts will not be
paid to the President until the outstanding balance of the indebtedness has been
paid in full. Through March 31, 2004, accrued interest on the loan payable to
the President was $10, and the share of gross profit payable to the President
was $88.
In March, 2003, the Company entered into a series of agreements, pursuant
to which the Company acquired a 20% minority interest in NetLinc Communications,
LLC ("NetLinc") and a 35% minority interest in Blonder Tongue Telephone, LLC
("BTT") (to which the Company has licensed its name). The aggregate purchase
price consisted of (i) up to $3,500 payable over a minimum of two years, plus
(ii) 500 shares of the Company's common stock. Of the $3,500 payable under the
agreements, the Company's obligation to pay $2,500 was contingent upon BTT
achieving specified targeted monthly earnings objectives. During September, 2003, the parties agreed to restructurerestructured the terms of their
business arrangement entered into in March, 2003 by amending certain of
the agreements previously entered into and entering into certain new agreements.
Some of the principal terms of the restructured arrangement includewhich included increasing Blonder Tongue's economic
ownership in NetLinc from 20% to 50% and in
8
BTT from 35% to 50%, all at no additional cost to Blonder Tongue. The cash
portion of the purchase price in the venture was decreased from $3,500 to
$1,167, and 7
the then-outstanding balance of $342 was paid in installments of $50 per week
until paid in full by the Company to BTT in October, 2003. As of September 30, 2003, $975 of the
purchase price had been paid. In addition, of the 500,000 shares of Blonder
Tongue common stock issued to BTT as the
non-cash component of the purchase price, (fair valued at $1,030), one-half (250,000 shares) have been pledgedthe Company issued 500 shares of
Common Stock to Blonder Tongue as collateralBTT, resulting in BTT becoming the owner of greater than 5% of
the outstanding Common Stock of the Company. The Company will receive
preferential distributions equal to secure BTT's obligation to repay the $1,167 cash component of the purchase
price from the cash flows of BTT. One-half of such Common Stock (250 shares) has
been pledged to Blonder Tongue via preferential distributions
of cash flow underthe Company as collateral to secure BTT's limited liability company operating agreement.obligation. Under the
restructured arrangement, the requirement to purchase equipment exclusively
from NetLinc has been eliminated. Blonder Tongue will also payCompany pays certain future royalties to NetLinc
and BTT upon the sale of telephony products. During 2003, the total accrued
royalties to NetLinc and BTT were $14 and $22, respectively, which will be paid
to them by the Company in 2004. In addition, during 2003 the Company paid
certain expenses of BTT totaling approximately $95. Through this telephony
venture, BTT offers primary voice service to MDUs and Blonder Tonguethe Company offers for
sale a line of telephony equipment to complement the voice service. In addition to receiving incremental revenues and profits
associated with its direct sales of the telephony products, Blonder Tongue also
expects to receive a portion of BTT's voice-service revenues through its 50%
stake in BTT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains
forward-looking statements 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 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially 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" and similar expressions identify
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, 20022003 (See Item 1 - Business; Item 3
- - Legal Proceedings; and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations).
General
During June, 2002, the Company formed a venture with Priority Systems, LLC
and Paradigm Capital Investments, LLC for the purpose of acquiring the
rights-of-entry for certain multiple dwelling unit cable television systems (the
"Systems") owned by affiliates of Verizon Communications, Inc. The venture
entity, BDR Broadband, 80%90% of the outstanding capital stock of which is owned by
the Company, acquired the Systems, which are comprised of approximately 3,270
then-existing3,070
existing MDU cable television subscribers and approximately 7,3407,520 passings. BDR
Broadband paid approximately $1,880,000 for the Systems, subject to adjustment,
which constitutes a purchase price of $575 per subscriber. The final closing
date for the transaction was on October 1, 2002. Excluding capital
expenditures associated with System upgrades, theThe Systems were cash flow
positive beginning in the first year. To date, the Systems have been upgraded
with approximately $833,000$890,000 of interdiction and other products of the Company.
It is planned that the Systems will be upgraded with approximately $433,000$500,000 of
additional interdiction and other products of the Company over the course of
operation. During July, 2003, the Company purchased the 10% interest in BDR
Broadband that had been originally owned by Paradigm Capital Investments, LLC,
for an aggregate purchase price of $35,000, resulting in an increase in the
Company's stake in BDR Broadband from 80% to 90%.
In consideration for its majority interest in BDR Broadband, the Company
advanced to BDR Broadband $250,000, which was paid to the sellers as a down
payment against the final purchase price for the Systems. The Company also
agreed to guaranty payment of the aggregate purchase price for the Systems by
BDR Broadband. The approximately $1,630,000 balance of the purchase price was
paid by the Company on behalf of BDR
89
Broadband on November 30, 2002, pursuant to the terms and in satisfaction of
certain promissory notes (the "Seller Notes") executed by BDR Broadband in favor
of the sellers.
The Company believes that similar opportunities currently exist to acquire
additional rights-of-entry for multiple dwelling unit cable television systems
at historically low prices. The Company also believes that the model it devised
for acquiring and operating the Systems will be successful and can be replicated
for other transactions with the same or new venture partners. Accordingly,While the Company
is currentlynot actively seeking and assessing various opportunities to acquire additional rights-of-entry via venture arrangements with third parties that
would market and operateat
the systems. As of the date hereof, however, the
Company does not have any binding commitments or agreements for anypresent time, if such
acquisitions. Moreover, even if attractive opportunities arise, the Company may
need financing to acquire the rights-of-entry for such cable systems.would evaluate and
consider them. Given that financing may not be available on acceptable terms or
at all, even if attractive opportunities arise, the Company may be unable to
pursue these opportunities.
In March, 2003, the Company entered into a series of agreements, pursuant
to which the Company acquired a 20% minority interest in NetLinc Communications,
LLC ("NetLinc") and a 35% minority interest in Blonder Tongue Telephone, LLC
("BTT") (to which the Company has licensed its name). The aggregate purchase
price consisted of (i) up to $3,500,000 payable over a minimum of two years,
plus (ii) 500,000 shares of the Company's common stock. NetLinc owns patents,
proprietary technology and know-how for certain telephony products that allow
Competitive Local Exchange Carriers ("CLECs") to competitively provide voice
service to MDUs. Certain distributorship agreements were also concurrently
entered into among NetLinc, BTT and the Company pursuant to which the Company
ultimately acquired the right to distribute NetLinc's telephony products to
private and franchise cable operators as well as to all buyers for use in MDU
applications. BTT partners with CLECs to offer primary voice service to MDUs,
receiving a portion of the line charges due from the CLECs' telephone customers,
and the Company offers for sale a line of telephony equipment to complement the
voice service.
As a result of NetLinc's inability to retain a contract manufacturer to
manufacture and supply the products in a timely and consistent manner in
accordance with the requisite specifications, in September, 2003 the parties
agreed to restructure the terms of their business arrangement entered into in
March, 2003. The restructured business arrangement was accomplished by amending
certain of the agreements previously entered into and entering into certain new
agreements. Some of the principal terms of the restructured arrangement include
increasing the Company's economic ownership in NetLinc from 20% to 50% and in
BTT from 35% to 50%, all at no additional cost to the Company. The cash portion
of the purchase price in the venture was decreased from $3,500,000 to $1,166,667
and the then outstanding balance of $342,000 was paid in installments of $50,000
per week until it was paid in full in October, 2003. As of September 30, 2003, the
Company had paid $975,000 of the purchase price. In addition, of the 500,000
shares of common stock issued to BTT as the non-cash component of the purchase
price (fair valued at $1,030,000), one-half (250,000 shares) have been pledged
to the Company as collateral to secure BTT's obligation to repay the $1,167,667
cash component of the purchase price to the Company via preferential
distributions of cash flow under BTT's limited liability company operating
agreement. Under the restructured arrangement, the Company can purchase similar
telephony products directly from third party suppliers other than NetLinc and,
in connection therewith, the Company would pay certain future royalties to
NetLinc and BTT from the sale of these products by the Company. While the
distributorship agreements among NetLinc, BTT and the Company have not been
terminated, the Company does not anticipate purchasing products from NetLinc in
the near term. NetLinc, however, continues to own intellectual property, which
may be further developed and used in the future to manufacture and sell
telephony products under the distributorship agreements.
In addition to receiving incremental revenues and profits associated with its direct
sales of the telephony products, the Company also expects to receiveanticipates receiving a
portion of BTT's net income derived from voice-service revenues through its 50%
stake in BTT. While the events related to the restructuring have resulted in a delay
in the Company's anticipated 2003 revenue stream from the sale of telephony
products, the Company believes that these revised terms are beneficial and will
result in the Company enjoying higher gross margins on telephony equipment unit
sales as well as an incrementally higher proportion of telephony service
revenues. Material incremental revenues associated with the sale of telephony
products are not presently anticipated to be received until at least the fourththird
quarter of 2003.
9
Third2004.
First three months of 20032004 Compared with thirdfirst three months of 2002.2003
Net Sales. Net sales decreased $3,976,000,$73,000 or 30.2%,0.9% to $9,195,000$8,529,000 in the thirdfirst
three months of 20032004 from $13,171,000$8,602,000 in the thirdfirst three months of 2002.2003. The
decrease in sales is primarily attributed to a decrease in capital spending by
cable system operators and weak overall economic conditions. As a result, the
Company experienced
10
lower interdiction and digital product sales. Net sales included approximately
$999,000$677,000 and $874,000$1,190,000 of interdiction and digital equipment for the thirdfirst
three months of 20032004 compared to approximately $770,000$775,000 and $1,780,000$1,336,000 for the
thirdfirst three months of 2002.2003. Included in net sales are revenues from BDR
Broadband of $346,000 and $202,000 for the first three months of 2004 and 2003,
respectively.
Cost of Goods Sold. Cost of goods sold decreased to $6,230,000$5,588,000 for the
thirdfirst three months of 2004 from $6,443,000 for the first three months of 2003,
from $9,394,000 for the third three months of 2002primarily due to decreased volume, and decreased as a percentage of sales to
67.8%65.5% from 71.3%. The decrease as a
percentage of sales was caused primarily by a higher proportion of sales during
the period being comprised of higher margin products.
Selling Expenses. Selling expenses decreased to $947,000 for the third
three months of 2003 from $951,000 in the third three months of 2002 but
increased as a percentage of sales to 10.3% for the third three months of 2003
from 7.2% for the third three months of 2002. The $4,000 decrease was primarily
due to a $27,000 decrease in consulting fees, a $27,000 decrease in travel and
entertainment, both due to cost containment initiatives, offset by an increase
in salaries and fringe benefits of $67,000.
General and Administrative Expenses. General and administrative expenses
increased to $1,397,000 for the third three months of 2003 from $1,108,000 for
the third three months of 2002 and increased as a percentage of sales to 15.2%
for the third three months of 2003 from 8.4% for the third three months of 2002.
The $289,000 increase can be primarily attributed to a $198,000 increase in
expenses related to BDR Broadband and a $90,000 increase in bad debt expense.
Research and Development Expenses. Research and development expenses
decreased to $433,000 in the third three months of 2003 from $500,000 in the
third three months of 2002, a decrease of $67,000 primarily due to a decrease in
salaries and fringe benefits of $65,000. Research and development expenses, as a
percentage of sales, increased to 4.7% in the third three months of 2003 from
3.8% in the third three months of 2002.
Operating Income. Operating income of $188,000 for the third three months
of 2003 represents a decrease of $1,030,000 from operating income of $1,218,000
for the third three months of 2002. Operating income as a percentage of sales
decreased to 2.0% in the third three months of 2003 from 9.2% in the third three
months of 2002.
Interest Expense. Interest expense decreased to $272,000 in the third three
months of 2003 from $277,000 in the third three months of 2002. The decrease is
the result of lower average borrowing.
Income Taxes. The provision for income taxes for the third three months of
2003 decreased to a benefit of $19,000 from a provision of $402,000 for the
third three months of 2002 as a result of a decrease in taxable income.
First nine months of 2003 Compared with first nine months of 2002
Net Sales. Net sales decreased $8,987,000, or 25.5%, to $26,331,000 in the
first nine months of 2003 from $35,318,000 in the first nine months of 2002. The
decrease is attributed to a decrease in capital spending by cable system
operators and weak overall economic conditions. As a result, the Company
experienced lower digital product sales. Net sales included approximately
$2,896,000 and $2,428,000 of interdiction and digital equipment for the first
nine months of 2003 compared to approximately $2,650,000 and $5,091,000 for the
first nine months of 2002.
Cost of Goods Sold. Cost of goods sold decreased to $18,532,000 for the
first nine months of 2003 from $25,174,000 for the first nine months of 2002 and
decreased as a percentage of sales to 70.4% from 71.2%74.9%. The decrease as a percentage of sales was caused primarily by
a higher portion of sales during the period being comprised of higher margin
products.
10
product.
Selling Expenses. Selling expenses decreasedincreased to $2,898,000$1,045,000 for the first
ninethree months of 2004 from $998,000 in the first three months of 2003 from $3,150,000 in the first nine months of 2002 butand
increased as a percentage of sales to 11.0%12.3% for the first ninethree months of 20032004
from 8.9%11.6% for the first ninethree months of 2002.2003. This $252,000 decrease$47,000 increase is
primarily attributable to a increase in wages and fringe benefits of $64,000 due
to an increase in headcount, offset by a reduction in advertising of $73,000 achieved through
implementation of expense control programs and a reduction of freight of $84,000$24,000 and
commissions of $61,000$17,000 due to reduced sales levels.
General and Administrative Expenses. General and administrative expenses
increased to $4,568,000$1,607,000 for the first ninethree months of 20032004 from $3,476,000$1,564,000 for
the first ninethree months of 20022003 and increased as a percentage of sales to 17.4%18.8%
for the first ninethree months of 20032004 from 9.8%18.2% for the first ninethree months of
2002.2003. The $1,092,000$43,000 increase can be primarily attributed to an increase in
professional feesoperating expenses of $167,000, $90,000 in bad debt expense and $837,000 of
operating expenses$31,000, related to BDR Broadband.
Research and Development Expenses. Research and development expenses
decreased to $1,449,000$411,000 in the first ninethree months of 20032004 from $1,466,000$548,000 in the
first ninethree months of 2002. The $17,0002003. This $137,000 decrease iswas primarily due to a
decrease in salarieswages and fringe benefits of $72,000$103,000 due to a reduction in
head count
offset by an increase in licensing fees of $35,000 and consulting fees of
$30,000.headcount. Research and development expenses, as a percentage of sales,
increaseddecreased to 5.5%4.8% in the first ninethree months of 20032004 from 4.2%6.4% in the first ninethree
months of 2002.2003.
Operating Income (Loss).Loss. Operating loss of $1,116,000was $122,000 for the first ninethree months of
2003 represents a decrease of $3,168,000 from operating income of
$2,052,0002004 compared to $951,000 for the first ninethree months of 2002. Operating income (loss) as a
percentage of sales decreased to (4.2%) in the first nine months of 2003 from
5.8% in the first nine months of 2002.2003.
Interest Expense. Interest expense increased to $827,000$275,000 in the first ninethree
months of 20032004 from $763,000$273,000 in the first ninethree months of 2002.2003. The increase is
the result of higher average borrowing .and higher effective interest rates.
Income Taxes. The provisionbenefit for income taxes for the first ninethree months of
2003 decreased2004 was zero compared to a benefit of $730,000 from an expense of $534,000$466,000 for the first ninethree months of
20022003 as a result of a decrease in taxable income.
Cumulative Effectloss. The benefit for the current year
loss has been subject to a valuation allowance of Change in Accounting Principle. During$151,000 since the first three
months of 2002, the Company implemented FAS 142, which resulted in the write off
of $10,760,000realization
of the net book value of goodwill, offset by the futuredeferred tax benefit thereof in the amount of $3,874,000. The net cumulative effect of this
change in accounting principles was a one-time non-recurring $6,886,000 charge
against earnings in the first three months of 2002.is not considered more likely than not.
Liquidity and Capital Resources
As of September 30, 2003March 31, 2004 and December 31, 2002,2003, the Company's working capital
was $15,163,000$24,063,000 and $30,317,000,$25,071,000, respectively. The decrease in working capital
is attributable primarily to an increasea decrease in borrowings under the
revolving line of credit and the corresponding reclassification of certain long term debt to current liabilities due to its maturity date and failure to meet
certain financial covenants, along with reductions of inventory and accounts
receivable in the respective amounts of $2,532,000, and $841,000, and an
increase in accounts payable of $686,000.$1,232,000.
The Company's net cash provided by operating activities for the nine-monththree-month
period ended September 30, 2003March 31, 2004 was $4,241,000,$838,000, compared to $1,186,000net cash provided by
operating activities for the nine-monththree-month period ended September 30, 2002. The increase in net cash is
primarily due to a decrease in inventory of $2,532,000 along with an increase in
accounts payable and accrued expenses of $1,047,000.March 31, 2003, which was
$859,000.
Cash used inprovided by investing activities was $1,541,000 for the first nine months
of 2003,$292,000, which was primarily attributable
to capital expenditures for new equipment and upgrades to the BDR Broadband
Systems of $878,000$97,000 and a $975,000
investment in BTT.$389,000 collection of a note receivable.
Cash used in financing activities was $2,912,000$1,212,000 for the first ninethree months
of 20032004 primarily comprised of $8,186,000$2,945,000 of borrowings offset by $10,982,000$4,177,000 of
repayments of long term debt.
11
On March 20, 2002 the Company executedentered into a credit agreement with Commerce
Bank, N.A. for a $19,500,000 credit facility, comprised of (i) a $7,000,000
revolving line of credit under which funds may be borrowed at LIBOR, plus a
margin ranging from 1.75% to 2.50%, in each case depending on the calculation of
certain financial covenants, with a floor of 5% through March 19, 2003, (5% at
September 30, 2003), (ii) a
$9,000,000 term loan which bore interest at a rate of 6.75% through September
30, 2002, and thereafter bears interest at a fixed rate ranging from 6.50% to 7.25% to reset
quarterly depending on the calculation of certain financial covenants (6.75% at September 30, 2003) and (iii)
a $3,500,000 mortgage loan bearing interest at 7.5%. Borrowings under the
revolving line of credit are limited to certain percentages of eligible accounts
receivable and inventory, as defined in the credit agreement. The credit
facility is collateralized by a security interest in all of the Company's
assets. The agreement also contains restrictions that require the Company to
maintain certain financial ratios as well as restrictions on the payment of cash
dividends. The initial maturity date of the line of credit with Commerce Bank
is April
1,was March 20, 2004. The term loan requiresrequired equal monthly principal payments of
$187,000 and matures on April 1, 2006. The mortgage loan requires equal monthly
principal payments of $19,000 and matures on April 1, 2017. The mortgage loan is
callable after five years at the lender's option.
At September 30, 2003, there was $4,621,000, $5,813,000 and $3,169,000
outstanding under the revolving line of credit, term loan and mortgage loan,
respectively.
In November 2003, the Company's credit agreement with Commerce Bank was
amended to modify the interest rate and amortization schedule for certain of the
loans thereunder, as well as to modify one of the financial covenants. Beginning
November 1, 2003, the revolving line of credit will bearbegan to accrue interest at the
prime rate plus 1.5%, with a floor of 5.5% (5.5% at March 31, 2004), and the
term loan will bearbegan to accrue interest at a fixed rate of 7.5%. Beginning December
1, 2003, the term loan requires equal monthly principal payments of $193,000
plus interest with a final payment on April 1, 2006 of all remaining unpaid
principal and interest.
At March 31, 2003, June 30, 2003, and September 30, 2003 and December 31, 2003,
the Company was unable to meet one of its financial covenants required under its
credit agreement with Commerce Bank, which non-compliance was waived by the Bank
effective as of each such date.
The Company anticipates that it will either
obtain a renewalIn March 2004, the Company's credit agreement with Commerce Bank was
amended to (i) extend the maturity date of its currentthe line of credit or enter into new credit
facilities with another bank, prior tountil April 1,
2004.2005, (ii) reduce the maximum amount that may be borrowed under the line of
credit to $6,000,000, (iii) suspend the applicability of the cash flow coverage
ratio covenant until March 31, 2005, (iv) impose a new financial covenant
requiring the Company to achieve certain levels of consolidated pre-tax income
on a quarterly basis commencing with the fiscal quarter ended March 31, 2004,
and (v) require that the Company make a prepayment against its outstanding term
loan to the Bank equal to 100% of the amount of any prepayment received by the
Company on its outstanding note receivable from a customer, up to a maximum
amount of $500,000.
At March 31, 2004, there was $3,531,000, $4,668,000 and $3,033,000
outstanding under the revolving line of credit, term loan and mortgage loan,
respectively.
The Company has from time to time experienced short-term cash requirement
issues. In 2002, the Company paid approximately $1,880,000 in connection with
acquiring its majority interest in BDR Broadband and paying off the Seller Notes
for BDR Broadband. In addition, the Company paid $975,000 and will incur additional obligations
related to royalties, if any, in connection with its $1,167,000 cash investments
during 2003, in NetLinc and BTT. While the Company's existing lender agreed to
allow the Company to fund both the BDR Broadband obligations and the NetLinc/BTT
obligations using its line of credit, such lender did not agree to increase the
Company'smaximum amount available under such line of credit. This has and may hereafter decreaseThese expenditures, coupled
with the amount of funds otherwise availableMarch 2004 amendment to the Company's credit agreement with Commerce
Bank described above, and certain near-term funding requirements relating to the
purchase of a large quantity of high-speed data products, will reduce the
Company's working capital. The Company foris exploring various alternatives to
enhance its working capital, purposes. Accordingly, ifincluding inventory-related pricing and product
reengineering efforts, as well as restructuring its long-term debt with Commerce
Bank or seeking alternative financingfinancing. During 2003, BDR Broadband had positive
cash flow, which is expected to continue in 2004. As such, BDR Broadband is not
obtainedpresently anticipated to adversely impact the Company's working capital.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN
46"). FIN 46 addresses the consolidation by business enterprises of variable
interest entities, as defined in the Interpretation. FIN 46 expands existing
accounting guidance regarding
12
when a company should include in its financial statements the assets,
liabilities, and activities of another entity. Many variable interest entities
have commonly been referred to as special-purpose entities or off-balance sheet
structures. In December 2003, the FASB issued Interpretation No. 46R ("FIN
46R"), a revision to FIN 46. FIN 46R clarifies some of the provisions of FIN 46
and exempts certain entities from its requirements. FIN 46R is effective at the
end of the first interim period ending after March 15, 2004. The Company
believes that the adoption of FIN 46 will not have a material impact on the
Company's financial position, results of operations or cash flows.
In July 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, Accounting for BDR
Broadband and/Certain Financial Instruments With Characteristics of
Both Liabilities and Equity ("SFAS 150"). SFAS 150 requires the shares that are
mandatorily redeemable for cash or NetLinc/BTT,other assets at a specified or determinable
date or upon an event certain to occur to be classified as liabilities, not as
part of shareholders' equity. This pronouncement does not currently impact the
Company may eventually needCompany's financial position, results of operations or cash flows.
Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables," is effective for revenue arrangements entered into
in fiscal periods beginning after June 15, 2003. The EITF addresses the
accounting for revenue generating arrangements involving multiple deliverables.
This EITF does not currently apply to seek to
increase the amount of its line of credit or find an alternative financing
source.Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At September 30,March 31, 2004 and 2003 and 2002 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $4,621,000$3,531,000 and $2,500,000,$5,595,000,
respectively. A hypothetical 100 basis point increase in interest rates would
have had an annualized unfavorable impact of approximately $46,000$35,000 and $25,000,$56,000,
respectively, on the Company's earnings and cash flows based upon these
quarter-end debt levels. TheAt March 31, 2004, the Company did not have any
derivative financial instruments in the periods presented.instruments.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of its principal executive officer and principal financial
officer, of the effectiveness 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 are effective in timely alerting them to material information
required to be included in the Company's periodic SEC reports. It should be
noted that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote; however, the Company's principal
executive officer and principal financial officer have concluded that the
Company's disclosure controls and procedures are effective at a reasonable
assurance level.
In addition, the Company reviewed its internal control over financial
reporting and there have been no changes during the fiscal quarter covered by
this report in the Company's internal control over financial reporting, to 12
the
extent that elements of internal control over financial reporting are subsumed
within disclosure controls and procedures, that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
13
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, or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the Capital Contribution Agreement dated as of March 26, 2003
among Blonder Tongue Telephone, LLC ("BTT"), Resource Investment Group , LLC, H.
Tyler Bell, NetLinc Communications, LLC and Blonder Tongue Laboratories, Inc, as
amended on September 11, 2003, the Company issued 500,000 shares of its common
stock on September 16, 2003 to BTT as partial consideration for the Company's
50% economic ownership stake in BTT. These shares were issued in a private
transaction exempt from registration under Section 4(2) of the Securities Act of
1933, as amended.None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits are listed in the Exhibit Index appearing at page 1516 herein.
(b) Reports on Form 8-K
On August 14, 2003,March 31, 2004, the Company filed a Form 8-K relating to Item 912 of such
Form. The information under Item 912 related to the Company's August 14, 2003March 31, 2004
press release announcing its unaudited financial results for the secondfourth quarter and
year ended June 30, 2003 (as required by Item 12 of Form 8-K).
13December 31, 2003.
14
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 14, 2003May 17, 2004 By: /s/ James A. Luksch
-------------------------------------
James A. Luksch
Chief Executive Officer
By: /s/ Eric Skolnik
-------------------------------------
Eric Skolnik
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
1415
EXHIBIT INDEX
-------------
Exhibit # Description Location
- --------- ----------- --------
3.1 Restated Certificate of Incorporated by reference
Incorporation of Blonder from Exhibit
of Incorporation of 3.1 to S-1
Tongue Laboratories, Inc. Registration Statement
No.
Blonder Tongue 33-98070 originally
filed October 12,
Laboratories, Inc. 1995,
as amended.
3.2 Restated Bylaws of Blonder Incorporated by reference
Tongue Laboratories, Inc. from Exhibit
Blonder Tongue 3.2 to S-1
Registration Statement
No.
Laboratories, Inc. 33-98070 originally
filed October 12, 1995,
as amended.
10.1 Second Amendment and Waiver to Capital Filed herewith.
ContributionLoan and Security Agreement
and Termination of
Letter Agreement
among Blonder Tongue
Telephone, LLC,
Resource Investment
Group, LLC, H. Tyler
Bell, NetLinc
Communications, LLC
andbetween Blonder Tongue
Laboratories, Inc and Commerce
Bank, N.A., dated as of September
11, 2003.March 29,
2004.
31.1 Certification of James A. Filed herewith.
James A.
Luksch pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Eric Skolnik Filed herewith.
Eric Skolnik
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Filed herewith.
pursuant to
Section 906 of Sarbanes-Oxley
Act of 2002.
1516