BLONDER TONGUE LABORATORIES INC - 10-Q Quarterly Report

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, 2004,

[_]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________.

Commission file number 1-14120

BLONDER TONGUE LABORATORIES, INC.
(Exact name of registrant as specified in its charter)

Delaware		52-1611421

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Jake Brown Road, Old Bridge, New Jersey		08857

(Address of principal executive offices)		(Zip Code)

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

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 November 15, 2004: 8,002,406.

The Exhibit Index appears on page 18.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

	(unaudited)

	Sept. 30,			Dec. 31,
	2004			2003*

Assets (Note 4)
Current assets:
Cash	$	146		$	195
Accounts receivable, net of allowance for doubtful
accounts of $519 and $1,192 respectively		5,494			5,682
Inventories (Note 3)		9,239			9,482
Notes receivable (Note 6)		9			627
Income tax receivable		319			679
Prepaid pension benefit costs		631			631
Prepaid and other current assets		559			695
Deferred income taxes		960			960

Total current assets		17,357			18,951
Inventories non-current (net) (Note 3)		9,365			11,106
Notes receivable (Note 6)		--			216
Property, plant and equipment, net of accumulated
depreciation and amortization		6,226			6,652
Patents, net		2,337			2,649
Rights-of-Entry, net (Note 5)		1,035			1,300
Other assets, net		1,132			851
Investment in Blonder Tongue Telephone LLC (Note 5)		1,916			2,043
Deferred income taxes		4,222			4,222

	$	43,590		$	47,990

Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt (Note 4)	$	6,048		$	3,201
Accounts payable		1,259			2,731
Accrued compensation		1,022			560
Other accrued expenses (Note 7)		415			868

Total current liabilities		8,744			7,360

Long-term debt (Note 4)		3,696			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, 8,452 and 8,445
shares issued		8			8
Paid-in capital		24,165			24,145
Retained earnings		12,432			12,187
Treasury stock, at cost, 449 shares		(5,455	)		(5,455	)

Total stockholders’ equity		31,150			30,885

	$	43,590		$	47,990

*See Note 3 regarding reclassifications in amounts previously reported

See accompanying notes to consolidated financial statements.

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,

	2004			2003			2004			2003

Net sales	$	11,215		$	9,195		$	30,661		$	26,331
Cost of goods sold		7,635			6,230			21,060			18,532

Gross profit (Note 6)		3,580			2,965			9,601			7,799

Operating expenses:
Selling		1,047			947			3,185			2,898
General and administrative		1,488			1,397			4,444			4,568
Research and development		385			433			1,187			1,449

		2,920			2,777			8,816			8,915

Earnings (loss) from operations		660			188			785			(1,116	)

Other Expense:
Interest expense		(215	)		(272	)		(713	)		(827	)
Equity in loss of Blonder Tongue
Telephone, LLC		(126	)		--			(126	)		--

Interest and other income (Note 6)		87			--			299			--

		(254	)		(272	)		(540	)		(827	)

Earnings (loss) before income taxes		406			(84	)		245			(1,943	)
Provision (benefit) for income taxes		--			(19	)		--			(730	)

Net (loss) earnings	$	406		$	(65	)	$	245		$	(1,213	)

Basic earnings (loss) per share	$	0.05		$	(0.01	)	$	0.03		$	(0.16	)

Basic weighted average shares outstanding		8,002			7,577			7,995			7,539

Diluted earnings (loss) per share	$	0.05		$	(0.01	)	$	0.03		$	(0.16	)

Diluted weighted average shares outstanding		8,026			7,577			8,033			7,539

See accompanying notes to consolidated financial statement

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

	Nine Months Ended September 30,

	2004			2003

Cash Flows From Operating Activities:
Net income (loss)	$	245		$	(1,213	)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Equity in loss from Blonder Tongue Telephone, LLC		127			--
Depreciation		789			872
Amortization		517			564
Gain on sale of rights of entry		(54	)		--
Allowance for doubtful accounts		2			277
Provision for inventory reserves		300			39
Deferred income taxes		--			41
Changes in operating assets and liabilities:
Accounts receivable		186			841
Inventories		1,684			2,532
Prepaid and other current assets		(65	)		(170	)
Other assets		(80	)		37
Income taxes		360			(626	)
Accounts payable, accrued compensation and other accrued expenses		(1,463	)		1,047

Net cash provided by operating activities		2,548			4,241

Cash Flows From Investing Activities:
Capital expenditures		(388	)		(878	)
Acquisition of rights-of-entry		(12	)		(165	)
Proceeds from sale of rights of entry		151			--
Collection of note receivable		834			477
Investment in Blonder Tongue Telephone, LLC		--			(975	)

Net cash provided by (used in) investing activities		585			(1,541	)

Cash Flows From Financing Activities:
Borrowings of debt		10,400			8,186
Repayments of debt		(13,602	)		(10,982	)
Proceeds from exercise of stock options		20			--
Acquisition of treasury stock		--			(116	)

Net cash used in financing activities		(3,182	)		(2,912	)

Net decrease in cash		(49	)		(212	)

Cash, beginning of period		195			258

Cash, end of period	$	146		$	46

Supplemental Cash Flow Information:
Cash paid for interest	$	689		$	753
Cash paid for income taxes	$	--		$	--
Non Cash Inventory and Financing Activities:
Investment in Blonder Tongue Telephone LLC using treasury stock	$	--		$	1,030

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 third quarter and nine months of 2004 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, 2004. Certain information and footnote disclosures 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/A for the year ended December 31, 2003.

The Company reclassified the December 31, 2003 balance sheet to reflect certain inventories, related reserves and deferred tax asset as non-current (see Note 3).

Note 2 – 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. During 2004 and 2003, the following weighted average assumptions were used for grants: expected lives of 9.5 years, no dividend yield, volatibility of 76% and risk free interest rate of 3.2%.

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):

	Three Months Ended Sept. 30,					Nine Months Ended Sept. 30,

	2004		2003			2004		2003

Net earnings (loss) as reported	$	406	$	(65	)	$	245	$	(1,213	)
Adjustment for fair value of stock options,
net of tax		51		81			152		243

Pro forma	$	355	$	(146	)	$	93	$	(1,456	)

Net earnings (loss) per share basic and
diluted:
As reported	$	0.05	$	(0.01	)	$	0.03	$	(0.16	)

Pro forma	$	0.04	$	(0.02	)	$	0.01	$	(0.19	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)

Note 3 – Inventories

Inventories, net of reserves, are summarized as follows:

	Sept. 30,			Dec. 31,
	2004			2003

Raw Materials	$	11,843		$	11,379
Work in process		1,442			1,746
Finished Goods		9,091			10,935

		22,376			24,060
Less current inventory		(9,239	)		(9,482	)

		13,137			14,578
Less reserve for excess inventory		(3,772	)		(3,472	)

	$	9,365		$	11,106

The Company periodically analyzes anticipated product sales based on historical results, current backlog and marketing plans. Based on these analyses and a change in market factors in 2003, the Company determined that as of December 31, 2003 certain products would not be sold during the next twelve months. Inventories that are not anticipated to be sold in the twelve months, have been classified as non-current. Accordingly, $11,106 has been reclassified from current assets to non-current and current deferred income tax assets of $1,390 (related to the reserve for excess inventory) have also been reclassified to non-current as of December 31, 2003.

Over 60% of the non-current inventories are comprised of raw materials. 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 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. The Company believes reserves are adequate and inventories are reflected at net realizable value.

Note 4 – Debt

On March 20, 2002, the Company entered into a credit agreement with Commerce Bank, N.A. for a credit facility, originally 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, (ii) a $9,000 term loan which bore interest at a rate of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging from 6.50% to 7.25% to reset quarterly depending on the calculation of certain financial covenants 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 was March 20, 2004. The term loan required 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.

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 began to accrue interest at the prime rate plus 1.5%, with a floor of 5.5% (6.0% at September 30, 2004), and the term loan began 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)

In March 2004, the Company's credit agreement with Commerce Bank was amended to (i) extend the maturity date of the line of credit until April 1, 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. The full $500 was paid during the six months ended June 30, 2004.

The Company is in compliance with all such covenants under its credit agreement, as amended. The Company anticipates that it will either conclude negotiations with its bank and obtain a renewal of its current credit facilities, or enter into new credit facilities with another bank prior to April 1, 2005.

At September 30, 2004, there was $3,331, $3,013 and $2,936 outstanding under the revolving line of credit, term loan and mortgage loan, respectively.

Note 5 – Acquisition (Subscribers and passings in whole 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”), 90% of the outstanding capital stock of which is owned by the Company, acquired the Systems, which are comprised of approximately 3,070 existing MDU cable television subscribers and approximately 7,520 passings. BDR Broadband paid approximately $1,880 for the Systems, subject to adjustment, which constitutes a purchase price of approximately $.575 per subscriber. The final closing date for the transaction was on October 1, 2002. The Systems were cash flow positive beginning in the first year. To date, the Systems have been upgraded with approximately $904 of interdiction and other products of the Company. It is planned that the Systems will be upgraded with approximately $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 was allocated $1,524 to rights-of-entry and $391 to fixed assets. The rights-of-entry are being amortized over a five 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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)

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 pays 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. The Company accounts for its investments in NetLinc and BTT using the equity method.

Note 6 – 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 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, and collectibility is assured. The Company collected $1,355 during the first nine months of 2004 and recorded $832 as a reduction in the note receivable balance, $301 of gross margin and $222 of interest income. The balance of the notes are expected to be collected during 2004 and an additional $181 of gross margin and $134 of interest income is expected to be recognized.

Note 7 – Related 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 2004 was $675. 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 received from the Company interest on the outstanding balance at the margin interest rate he incurred for borrowing the funds from his lenders and is entitled to receive from the Company 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 and a final accounting of the transaction has been concluded. In April 2004, the President of the Company acquired $75 of used equipment inventory, which was subsequently sold by him to the Company on a consignment basis. Payment by the Company for the goods become due upon the sale thereof by the Company and collection of the accounts receivable generated by such sales. In connection with the transaction, the Company agreed to pay the President cost plus 25% of the gross profit derived from the sale of such inventory. At September 30, 2004, the aggregate remaining outstanding balance due to the President from the foregoing transactions was approximately $117 and was included in other accrued expenses.

In March, 2003, the Company entered into a series of agreements, pursuant to which the Company acquired a 20% minority interest in NetLinc and a 35% minority interest in BTT. During September, 2003, the parties restructured the terms of their business arrangement which included increasing Blonder Tongue’s economic ownership in NetLinc from 20% to 50% and in 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 was paid in full by

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(unaudited)

the Company to BTT in October, 2003. As the non-cash component of the purchase price, the Company issued 500 shares of Common Stock to BTT, 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 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 the Company as collateral to secure BTT’s obligation. Under the restructured arrangement, the Company pays certain future royalties to NetLinc and BTT upon the sale of telephony products. During 2004, the total royalties to NetLinc and BTT were $5 and $36, respectively. Through this telephony venture, BTT offers primary voice service to MDUs and the Company offers for sale a line of telephony equipment to complement the voice service.

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/A for the year ended December 31, 2003 (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, 90% of the outstanding capital stock of which is owned by the Company, acquired the Systems, which are comprised of approximately 3,070 existing MDU cable television subscribers and approximately 7,520 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. The Systems were cash flow positive beginning in the first year. To date, the Systems have been upgraded with approximately $890,000 of interdiction and other products of the Company. It is planned that the Systems will be upgraded with approximately $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 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, the Company is currently seeking and assessing various opportunities to acquire additional rights-of-entry via venture arrangements with third parties that would market and operate the systems. As of the date hereof, however, the Company does not have any binding commitments or agreements for any such acquisitions. Moreover, even if attractive opportunities arise, the Company may need financing to acquire the rights-of-entry for such cable systems. Given that financing may not be available on acceptable terms or at all, 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. 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 pays 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 associated with its direct sales of the telephony products, the Company also anticipates 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 resulted in a delay in the Company’s anticipated 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 first quarter of 2005.

During September 2002, the Company sold inventory at a cost of approximately $1,447,000 to a private cable operator for approximately $1,929,000 in exchange for which the Company received notes receivable in the principal amount of approximately $1,929,000. The notes are payable by the customer in 48 monthly principal and interest (at 11.5%) installments of approximately $51,000 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 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, and collectibility is assured. The Company collected $1,355,000 during the first nine months of 2004 and recorded $832,000 as a reduction in the note receivable balance, $301,000 of gross margin and $222,000 of interest income. The balance of the notes are expected to be collected during 2004 and a total of approximately $482,000 of gross margin and $356,000 of interest income is expected to be recognized.

Third three months of 2004 Compared with third three months of 2003.

Net Sales. Net sales increased $2,020,000, or 22.0%, to $11,215,000 in the third three months of 2004 from $9,195,000 in the third three months of 2003. The increase in sales is primarily attributed to an increase in capital spending by cable system operators and improved overall economic conditions and the recognition of

$458,000 of sales attributable to the note receivable described above. As a result, the Company experienced higher headend product sales. Included in net sales are revenues from BDR Broadband of $355,000 and $303,000 for the third three months of 2004 and 2003, respectively.

Cost of Goods Sold. Cost of goods sold increased to $7,635,000 for the third three months of 2004 from $6,230,000 for the third three months of 2003 and increased as a percentage of sales to 68.1% from 67.8%. The increase as a percentage of sales was caused primarily by a higher portion of sales during the period being comprised of lower margin products.

Selling Expenses. Selling expenses increased to $1,047,000 for the third three months of 2004 from $947,000 in the third three months of 2003, but decreased as a percentage of sales to 9.3% for the third three months of 2004 from 10.3% for the third three months of 2003. The $100,000 increase was primarily due to an increase in salaries and fringe benefits of $84,000 due to an increase in headcount.

General and Administrative Expenses. General and administrative expenses increased to $1,488,000 for the third three months of 2004 from $1,397,000 for the third three months of 2003, but decreased as a percentage of sales to 13.3% for the third three months of 2004 from 15.2% for the third three months of 2003. The $91,000 increase can be primarily attributed to an increase in operating expenses of BDR Broadband of $139,000 offset by a decrease in legal expenses of $35,000.

Research and Development Expenses. Research and development expenses decreased to $385,000 in the third three months of 2004 from $433,000 in the third three months of 2003, primarily due to a decrease in salaries and fringe benefits of $19,000 due to a headcount reduction and a decrease in consulting fees of $10,000. Research and development expenses, as a percentage of sales, decreased to 3.4% in the third three months of 2004 from 4.7% in the third three months of 2003.

Operating Income. Operating income of $660,000 for the third three months of 2004 represents an increase from $188,000 for the third three months of 2003. Operating income as a percentage of sales increased to 5.9% in the third three months of 2004 from 2.0% in the third three months of 2003.

Other Expense. Interest expense decreased to $215,000 in the third three months of 2004 from $272,000 in the third three months of 2003. The decrease is the result of lower average borrowing. Other income increased $87,000 in the third three months of 2004 compared to zero in the third three months of 2003 primarily due to the recognition of $85,000 of interest income on the note receivable described above.

Income Taxes. The provision for income taxes for the third three months of 2004 was zero compared to a benefit of $19,000 for the third three months of 2003. As a result of the Company’s losses in prior periods, a 100% valuation allowance was recorded against the taxable loss in 2003 and the first quarter of 2004. The provision in the third three months of 2004 has been offset by the reversal of an equal amount of the valuation allowance.

First nine months of 2004 Compared with first nine months of 2003

Net Sales. Net sales increased $4,330,000, or 16.4%, to $30,661,000 in the first nine months of 2004 from $26,331,00 in the first nine months of 2003. The increase in sales is primarily attributed to an increase in capital spending by cable system operators, improved overall economic conditions and the recognition of $1,203,000 of sales attributable to the note receivable described above. As a result, the Company experienced higher headend and data product sales. Included in net sales are revenues from BDR Broadband of $1,094,000 and $744,000 for the first nine months of 2004 and 2003, respectively.

Cost of Goods Sold. Cost of goods sold increased to $21,060,000 for the first nine months of 2004 from $18,532,000 for the first nine months of 2003, primarily due to increased volume, and decreased as a percentage of sales to 68.7% from 70.4%. 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.

Selling Expenses. Selling expenses increased to $3,185,000 for the first nine months of 2004 from $2,898,000 in the first nine months of 2003, but decreased as a percentage of sales to 10.4% for the first nine months

of 2004 from 11.0% for the first nine months of 2003. This $287,000 increase is primarily attributable to an increase in wages and fringe benefits of $266,000,due to an increase in headcount.

General and Administrative Expenses. General and administrative expenses decreased to $4,444,000 for the first nine months of 2004 from $4,568,000 for the first nine months of 2003 and decreased as a percentage of sales to 14.5% for the first nine months of 2004 from 17.4% for the first nine months of 2003. The $126,000 decrease can be primarily attributed to a decrease in the allowance for bad debts of $268,000 as a result of improved collection efforts, a decrease in salary and fringe benefits of $129,000 due to the temporary reduction of salaries for certain executive officers, offset by an increase in operating expenses of BDR Broadband of $208,000.

Research and Development Expenses. Research and development expenses decreased to $1,187,000 in the first nine months of 2004 from $1,449,000 in the first nine months of 2003. This $262,000 decrease was primarily due to a decrease in wages and fringe benefits of $170,000 due to a reduction in headcount. Research and development expenses, as a percentage of sales, decreased to 3.9% in the first nine months of 2004 from 5.5% in the first nine months of 2003.

Operating Income (Loss). Operating income was $785,000 for the first nine months of 2004 compared to a loss of $1,116,000 for the first nine months of 2003.

Other Expense. Interest expense decreased to $713,000 in the first nine months of 2004 from $827,000 in the first nine months of 2003. The decrease is the result of lower average borrowing. Other income increased to $299,000 in the first nine months of 2004 compared to zero for the first nine months of 2003 primarily due to the recognition of $222,000 of interest income on the note receivable described above.

Income Taxes. The benefit for income taxes for the first nine months of 2004 was zero compared to a benefit of $730,000 for the first nine months of 2003 due to a valuation allowance of $93,000 since the realization of the deferred tax benefit is not considered more likely than not.

Liquidity and Capital Resources

As of September 30, 2004 and December 31, 2003, the Company’s working capital was $8,814,000 and $11,591,000, respectively. The decrease in working capital is attributable primarily to an increase in the current portion of debt of $3,331,000 due to the reclassification of the revolving line of credit to current.

The Company’s net cash provided by operating activities for the nine-month period ended September 30, 2004 was $2,548,000, compared to net cash provided by operating activities for the nine-month period ended September 30, 2003, which was $4,241,000.

Cash provided by investing activities was $585,000, which was primarily attributable to an $834,000 collection of a note receivable offset by capital expenditures for new equipment and upgrades to the BDR Broadband Systems of $388,000.

Cash used in financing activities was $3,182,000 for the first nine months of 2004 primarily comprised of $13,602,000 of repayments of debt offset by $10,400,000 of borrowings.

On March 20, 2002, the Company entered 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, (ii) a $9,000,000 term loan which bore interest at a rate of 6.75% through September 30, 2002, and thereafter at a fixed rate ranging from 6.50% to 7.25% to reset quarterly depending on the calculation of certain financial covenants 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 was March 20, 2004. The term loan required 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.

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 began to accrue interest at the prime rate plus 1.5%, with a floor of 5.5% (6.0% at September 30, 2004), and the term loan began 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.

In March 2004, the Company's credit agreement with Commerce Bank was amended to (i) extend the maturity date of the line of credit until April 1, 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. The full $500,000 was paid during the six months ended June 30, 2004.

At September 30, 2004, there was $3,331,000, $3,013,000 and $2,936,000 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, during 2004, the Company will incur additional obligations related to royalties, if any, in connection with its $1,167,000 cash investments 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 maximum amount available under such line of credit. These expenditures, coupled with the March 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 is exploring various alternatives to enhance its working capital, including inventory-related pricing and product reengineering efforts, as well as restructuring its long-term debt with Commerce Bank or seeking alternative financing. During 2003, BDR Broadband had positive cash flow, which has continued in the first nine months of 2004. As such, BDR Broadband is not presently anticipated to adversely impact the Company’s working capital.

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, 2004 and 2003 the principal amount of the Company’s aggregate outstanding variable rate indebtedness was $3,331,000 and $4,621,000, respectively. A hypothetical 100 basis point increase in interest rates would have had an annualized unfavorable impact of approximately $33,000 and $46,000, respectively, on the Company’s earnings and cash flows based upon these quarter-end debt levels. At September 30, 2004, the Company did not have any derivative financial instruments.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of its principal executive officer and principal financial officer, the Company evaluated the design and operation of the Company’s disclosure controls and procedures as of September 30, 2004. Based upon the evaluation at the time it was performed, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information required to be included in the Company’s periodic SEC reports. In October, 2004, subsequent to such evaluation, the Company identified an error in

accounting for inventories received that were not correctly recorded. This error resulted in a vendor’s account payable balance being understated and the related understatement of cost of goods sold. As a result, the Company concluded that its previously reported financial statements for each of the three years ended December 31, 2001, 2002 and 2003 should be restated to reflect the increase in accounts payable and related increase to cost of goods sold and deferred income taxes. Additionally, the Company concluded that the unaudited financial statements for the first quarter ended March 31, 2004 and second quarter ended June 30, 2004 should be restated to reflect the increase in accounts payable and decrease in stockholders’ equity.

In connection with the completion of its audit of the issuance of the Company’s restated consolidated financial statements for the fiscal years ended December 31, 2001, 2002 and 2003, the Company’s independent auditors, BDO Seidman, LLP (“BDO”), communicated to the Company’s Audit Committee that the following matters involving the Company’s internal controls and operations were considered to be “reportable conditions,” as defined under standards established by the American Institute of Certified Public Accountants or AICPA:

• Lack of reconciliation of accounts payable balances to vendor accounts.

• Inadequate review of details of accounts payable.

• Inadequate review of slow moving inventories.

Reportable conditions are matters coming to the attention of the independent auditors that in their judgment, relate to significant deficiencies in the design or operation of internal controls and could adversely affect the Company's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. In addition, BDO has advised the Company that they consider these matters, which are listed above, to be a “material weaknesses” that may increase the possibility that a material misstatement in the Company’s financial statements might not be prevented or detected by its employees in the normal course of performing their assigned functions.

To remediate these weaknesses, in August, 2004 the Company instituted procedures to review inventory quantities against sales projections and in November, 2004 the Company instituted procedures to reconcile accounts payable to vendor accounts and also modified certain accounts payable and inventory related policies and procedures, provided education regarding such policies and procedures to relevant staff members and has implemented enhanced monitoring of such policies and procedures and related accounting policies. In connection with restating the Company’s financial statements for the years ended December 31, 2001, 2002 and 2003, and the unaudited financial statements for the quarters ended March 31, 2004 and June 30, 2004, the Company, under the supervision and with the participation of its principal executive officer and principal financial officer, has concluded that, as a result of the foregoing modifications to certain policies and procedures, the Company believes the deficiencies have been remediated. The Company’s principal executive officer and principal financial officer did not note any other deficiencies in the Company’s disclosure controls and procedures during their evaluation. Other than the matters discussed above, the Company’s principal executive officer and principal financial officer have determined that the Company’s disclosure controls and procedures were effective as of September 30, 2004 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, other than as noted above, the Company’s disclosure controls and procedures were effective at a reasonable assurance level. The Company continues to monitor the effectiveness of its disclosure controls and procedures on an ongoing basis.

In addition, the Company reviewed its internal control over financial reporting during the fiscal quarter covered by this report. During this quarter, the Company instituted procedures to review inventory quantities against sales projections as described above. During this quarter, there have been no other changes in the Company’s internal control over financial reporting, to 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. After the end of the third fiscal quarter of 2004, in November, 2004 the Company made a change in the accounts payable reconciliation procedures as described above.

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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

The exhibits are listed in the Exhibit Index appearing at page 18 herein.

SIGNATURES

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

		BLONDER TONGUE LABORATORIES, INC.


Date:	November 22, 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)

EXHIBIT INDEX

Exhibit #	Description	Location


3.1	Restated Certificate of Incorporation of Blonder	Incorporated by reference from Exhibit 3.1
	Tongue Laboratories, Inc.	to S-1 Registration Statement No. 33-98070
		originally filed October 12, 1995, as
		amended.

3.2	Restated Bylaws of Blonder Tongue Laboratories,	Incorporated by reference from Exhibit 3.2
	Inc.	to S-1 Registration Statement No. 33-98070
		originally filed October 12, 1995, as
		amended.

31.1	Certification of James A. Luksch pursuant to	Filed herewith.
	Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Eric Skolnik pursuant to Section	Filed herewith.
	302 of the Sarbanes-Oxley Act of 2002.

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