FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003, 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.
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(Exact name of registrant as specified in its charter)
Delaware 52-1611421
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Jake Brown Road, Old Bridge, New Jersey 08857
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 679-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
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Common Stock, Par Value $.001 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes No X
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The aggregate market value of voting stock held by non-affiliates of the
registrant at June 30, 2003: $7,574,835.
Number of shares of common stock, par value $.001, outstanding as of March 19,
2004: 8,002,406.
Documents incorporated by reference:
Certain portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 11, 2004 (which is expected to be
filed with the Commission not later than 120 days after the end of the
registrant's last fiscal year) are incorporated by reference into Part III of
this report.
Forward-Looking Statements
In addition to historical information, this Annual 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 sections entitled Item 1 - Business, Item 3 - Legal
Proceedings, and Item 7 - 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
herein and in other documents the Company files from time to time with the
Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
Introduction
Blonder Tongue Laboratories, Inc. ("Blonder Tongue" or the "Company") is a
designer, manufacturer and supplier of a comprehensive line of electronics and
systems equipment, primarily for the cable television industry (both franchise
and non-franchise, or "private," cable). Over the past year, the Company has
also introduced equipment and innovative solutions for the high-speed
transmission of data and the provision of telephony services in multiple
dwelling unit applications. The Company's products are used to acquire,
distribute and protect the broad range of communications signals carried on
fiber optic, twisted pair, coaxial cable and wireless distribution systems.
These products are sold to customers providing an array of communications
services, including television, high-speed data (Internet) and telephony, to
single family dwellings, multiple dwelling units ("MDUs"), the lodging industry
and institutions such as hospitals, prisons, schools and marinas.
Staying at the forefront of the communications broadband technology
revolution is a continuing challenge. The Company continues to add products to
respond to the changes taking place. Blonder Tongue's most recent additions are
a line of telephony products for the purpose of offering primary telephone
service to MDUs and the MegaPort line of high speed data products to provide
broadband access to lodging and MDU communities. Other product additions over
the past few years include digital satellite receivers, fiber communications
network components, QPSK to QAM transcoders (for DirecTV, Echostar and
Digicipher II MPEG-2 Satellite Services), Digicipher II-compatible QAM set-top
converters, and a broad range of interdiction products.
The Company's principal customers are cable system integrators (both
franchise and private cable operators, as well as contractors) that design,
package, install and in most instances operate, upgrade and maintain the systems
they build.
The Company has historically enjoyed, and continues to enjoy, a dominant
market position in the private cable industry, while progressively making
inroads into the franchise cable market. As the Company has expanded its market
coverage, however, the distinctions between private cable and franchise cable
have become blurred. For example, the most efficient, highest revenue-producing
private cable systems and small franchise cable systems are built with the same
electronic building blocks. Most of the electronics required for these systems
are available from Blonder Tongue.
The Company continues to expand its core product lines (headend and
distribution), to maintain its ability to provide all of the electronic
equipment needed to build small cable systems and much of the equipment needed
in larger systems for the most efficient operation and highest profitability in
high density applications.
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Over the past two years, the Company has expanded beyond its core business
by acquiring a private cable television system (BDR Broadband, LLC ) and by
acquiring an interest in a company offering a private telephone program ideally
suited to multiple dwelling unit applications (Blonder Tongue Telephone, LLC).
BDR Broadband, LLC ("BDR Broadband"), a 90% owned subsidiary of the
Company, acquired the rights-of-entry for certain MDU cable television systems
in August 2002. The systems are comprised of approximately 3,070 existing MDU
cable television subscribers and approximately 7,520 passings. BDR Broadband is
a venture between the Company and Priority Systems, LLC. 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 the Company's stake in BDR Broadband increasing from 80% to
90%. Priority Systems, LLC has expertise in marketing and operating MDU cable
television systems. The Company believes that the model it has devised for
acquiring and operating these systems will be successful and can be replicated.
While the Company is not actively seeking opportunities to acquire additional
rights-of-entry at the present time, if such opportunities arise, the Company
would evaluate and consider them. As of the date hereof, the Company does not
have any binding commitments or agreements for any such acquisitions.
The Company entered into a series of agreements in March, 2003, and
September, 2003 pursuant to which it acquired a 50% economic ownership interest
in NetLinc Communications, LLC and Blonder Tongue Telephone, LLC (to which the
Company has licensed its name). As a result of these acquisitions, the Company
is now involved in providing a proprietary telephone system ideally suited for
MDU deployment in both products and services. The Company receives incremental
revenues associated with its direct sales of the telephony products, and it also
expects to receive a portion of Blonder Tongue Telephone, LLC's net income
derived from voice-service revenues through its 50% stake in Blonder Tongue
Telephone. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview" for a more detailed description of the
investments in the private cable operation and telephone program and the
underlying operations.
The Company was incorporated under the laws of the State of Delaware in
November, 1988.
Industry Overview
The broadband signal distribution industry (involving the high-speed
transmission of television, telephony and internet signals) is currently
dominated by franchise multiple system cable operators, or MSOs. The markets for
wireless, direct-broadcast satellite ("DBS") and digital subscriber lines
("DSL") used for these purposes continue to grow. Within the cable television
market there are an increasing number of metropolitan areas that have awarded
second cable television franchises to create competition with the existing
franchisee. The government has been in favor of competition in this market and
has passed regulations to encourage it. Franchise cable companies carefully
monitor DBS penetration in their franchise areas and react rapidly to
competition, all to the eventual benefit of the consumer. To fight competition,
the operators offer more services and more television channels as well as
discounted prices. The lineup of services typically includes an analog block of
channels from 54 to 550 MHz, high speed data service using high-speed cable
modems, cable telephony either interfacing with switched networks or internet
protocol networks, and digital television in the 550 to 750 MHz range. These
upgraded services are possible in every system that has been rebuilt to 750 MHz
of bandwidth. The standard architecture for these enhanced systems contemplates
a hybrid distribution network with a combination of fiber optic cable to nodes
of 100 to 500 subscribers, with coaxial cable from the node to the customer and
full reverse-path capability for the pay-per-view, data and phone services.
The traditional customer targeted for these expanded services is a
homeowner likely to remain in the same home as a long-term subscriber (i.e. the
single family home). For a variety of reasons, including the transient nature of
the residents of many MDU areas, high levels of theft of service and excessive
cost of replacing lost or stolen converters and modems, affect approximately 35%
of cable television subscribers. Since converters, DBS receivers, digital
converters and modems are offered at very low prices to stimulate sales, the
operational costs in these demographic areas are considered too high to justify
offering the advanced services that are generally made available in the
traditional franchise cable demographic. To retain customers in these areas, a
technology must be used that minimizes the operational losses due to theft and
"churn" while providing a level of video, data and phone service that compares
favorably with single family offerings, DBS, DSL and wireless providers. The
Company believes that its Triple Play of products, which includes QAM delivered
digital video, interdiction to control analog video, as well as high-speed data
and telephone service, is the ideal solution for deployment in these areas.
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The Company is a value-added distributor for Motorola's QAM decoder to the
United States private cable and Canadian franchise cable markets. Coupling this
product with the Company's Digicipher(R) II-compatible MQQT transcoder provides
a low-cost hardware solution for small system operators that want to offer
digital programming from sources such as HITS(R) and Cancom. The Company's
transcoder line has been further enhanced to include the QAM Transcoder Series,
which is intended for use with Dish(TM) Commercial TV from EchoStar.
Cable Television
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Most cable television operators have built fiber optic networks with
various combinations of fiber optic and coaxial cable to deliver television
signal programming, data, and phone services on one drop cable. Cable television
deployment of fiber optic trunk has been completed in many existing systems. The
system architecture being employed to accomplish the combined provision of
television and telephone service is a hybrid fiber coaxial ("HFC") network. In
an HFC network, fiber optic trunk lines connect to nodes which feed 100 to 500
subscribers, using coaxial cable.
The Company believes that most major metropolitan areas will eventually
have complex networks of two or more independent operators interconnecting
homes, while private cable operators will have large networks interconnecting
many multi-dwelling complexes. All of these networks are potential users of
Blonder Tongue headend, digital and interdiction products.
Multiple Dwelling Units (MDUs)
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MDUs, because they represent a large percentage of the private cable
market, have historically been responsible for a large percentage of the
Company's sales. In the early days of cable television MDUs were served by
franchise cable operators. In 1991, when the FCC allocated a designated
frequency band for private cable, the private cable industry became a major
supplier of TV services to MDUs since they could interconnect buildings with 18
GHz over-the-air links and reduce the cost-per-subscriber in building MDU
networks. This type of networking, albeit at a slightly lower frequency,
continues today, however, presently many MDU private cable systems are connected
using fiber optics since it is more reliable, has much greater bandwidth, and
can handle two-way communication which is needed for voice, data and
video-on-demand.
A typical private cable MDU provides 60 to 70 channels of analog signals
utilizing core headend (receivers, modulators, processors, etc.) and
distribution products. MDUs served by franchise cable are also a large revenue
source for Blonder Tongue since they generally fall into the category of
customers where churn, theft of service and converter loss are extremely high.
This makes these areas prime candidates for Blonder Tongue's interdiction
products.
Lodging
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Since the early 1990's, private cable integrators have competed to expand
the lodging market by offering systems with more channels, video-on-demand and
interactivity. These systems have been and continue to be well received in the
market, as property owners have sought additional revenues and guests have
demanded increased in-room conveniences. The leading system integrators in this
market rely upon outside suppliers for their system electronics and most are
Blonder Tongue customers. These companies and others offer lodging
establishments systems that provide true video-on-demand movies with a large
selection of titles. To meet these demands, the typical lodging system headend
will include as many as 20 to 40 receivers and as many as 60 to 80 modulators,
and will be capable of providing the guest with more free channels,
video-on-demand for a broad selection of movie titles, and interactive services
such as remote check-out and concierge services. This is in contrast to the
systems which preceded them, which typically had 10 to 12 receivers and
modulators and provided six to ten free channels and two to five channels of
VCR-based movies running at published scheduled times.
Most of the systems with video-on-demand service were initially in large
hotels, where the economics of high channel capacity systems are more easily
justified. The conversion of hotel pay-per-view systems into video-on-demand is
increasing. Smaller hotels and motels are being provided with video-on-demand as
technology results in reduced headend costs, keeping the market growth
reasonably steady.
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International
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For much of the world, cable television service lags the United States, but
is expanding as technological advancement reduces the cost to consumers. In
addition, economic development in Latin America and Asia has allowed first time
construction of integrated delivery systems that utilize a variety of
electronics and broadband hardware. The pace of growth is difficult to predict,
but as more alternatives become available and television service becomes
increasingly affordable, it is anticipated that more equipment will be placed in
the field. The Company utilizes several distributors in Florida and within Latin
America to serve the Latin American market, although during the last year
international sales have not materially contributed to the Company's revenue
base.
Additional Considerations
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The technological revolution taking place in the communications industry,
which includes DBS, is providing digital television to an increasing number of
homes. Wireless cable systems and DSL over twisted pair phone lines also utilize
digital compression to provide channel capacity which is competitive with cable
television and other television delivery systems. In addition, franchise cable
companies and alternative suppliers are building fiber optic networks to offer
video, data, and telephony. There is also the possibility of convergence of data
and video communications, wherein computer and television systems merge and the
computer monitor replaces the television screen. While it is not possible to
predict with certainty which technology will be dominant in the future, it is
clear that digitized video and advances in the ability to compress the digitized
video signal make both digital television and the convergence of computer,
telephone and television systems technically possible.
Since United States television sets are for the most part analog (not
digital), direct satellite television and other digitally compressed programming
requires headend products or set-top decoding receivers or converters to convert
the digitally transmitted satellite signals back to analog. The replacement of
all television sets with digital sets will be costly and take many years to
complete. The Company believes that for many years to come, program providers
will be required to deliver an analog television signal on standard channels to
subscribers' television sets using headend products at some distribution point
in their networks or employ decoding receivers at each television set. Headend
products are a large segment of Blonder Tongue's business and the Company
believes interdiction is an ideal product for a system operator to use to
control access to the multitude of programming that will be available.
Products
Blonder Tongue's products can be separated, according to function, into the
several categories described below:
o Analog Video Headend Products used by a system operator for signal
acquisition, processing and manipulation for further transmission. Among
the products offered by the Company in this category are satellite
receivers, integrated receiver/decoders, transcoders, demodulators,
modulators, antennas and antenna mounts, amplifiers, equalizers, and
processors. The headend of a television signal distribution system is the
"brain" of the system, the central location where the multi-channel signal
is initially received, converted and allocated to specific channels for
analog distribution. In some cases, where the signal is transmitted in
encrypted form or digitized and compressed, the receiver will also be
required to decode the signal. Blonder Tongue is a licensee of Motorola,
Inc.'s ("Motorola") VideoCipher(R) and DigiCipher(R) encryption
technologies and integrates their decoders into integrated receiver/decoder
products, where required. The Company estimates that Headend Products
accounted for approximately 54% of the Company's revenues in 2003, 66% in
2002, and 58% in 2001.
o Digital Video Headend Products used by a system operator for acquisition,
processing and manipulation of digital video signals. An alternative to
converting signals to analog for distribution is to transcode the satellite
signal's modulation from QPSK (quadrature phase shift key) to QAM
(quadrature amplitude modulation) since one is optimum for satellite
transmission and the other optimum for fiber/coaxial distribution. This
maintains the signal in its digital form. Digital Products continue to
expand in the cable marketplace and bring more advanced technology to
consumers and operators. Blonder Tongue is constantly expanding its Digital
Products offering, which includes a complete line of Transcoders for
economically deploying and adding a digital programming tier to systems,
Digital QAM
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Up-converters for data-over-cable applications and Digital High Definition
Television Processors for delivery of HDTV programming.
o High Speed Data Products used to provide Internet access and data
transfer over a hybrid fiber/coaxial cable system. Products in this
category include standard cable modems and routers, and the new MegaPort
solution for providing broadband Internet access to MDUs. The MegaPort
solution consists of two main components, the Gateway and the Intelligent
Outlets. The Gateway is a broadband ethernet router or bridge that
establishes a network within a building or community. The Intelligent
Outlet serves as the modem, but is permanently installed in the home to
eliminate loss of equipment associated with churn. Each Gateway can
accommodate 64 enabled Outlets. When multiple outlets are installed in a
residence, they can be configured for home networking for an additional
revenue stream for the operator.
o Telephony Products used to provide expanded telephone service to MDU
subscribers. These products are designed to offer carrier class telephone
service to residences using existing twisted pair wires. Service will be
fully transparent to subscribers with advanced calling features such as
911, Caller ID, Call Waiting Plus, and Three-way Calling available and
bundled at a flat rate to subscribers. The Blonder Tongue telephony family
of products includes a T1 concentrator and a multiplexer. The system starts
at a telephone company class 5 switch located at their local central
office. A T1 line is routed from the switch and brought to the LoopXpress
Concentrator. The telephone information is then routed to the LineXpress
Multiplexer which converts the digital format into analog voice frequencies
for transmission to up to 12 independent resident telephone lines. The
existing twisted-pair telephone wiring infrastructure is utilized to
provide dial tone at a resident's premises using any standard telephone.
System operation, including activating and deactivating phone lines, is
achieved through a point-and-click software package. Communication to the
equipment can be performed locally or remotely for increased operating
efficiency and simplified system management. While the Company does not
have a history of sales of telephony products as it only acquired the
distribution rights in 2003, several system trials are underway with a
variety of cable operators. The Company believes that sales of these
telephony products will grow into a significant source of revenue for the
Company.
o Microwave Products used to transmit the output of a cable system headend
to multiple locations using point-to-point communication links in the 18
GHz range of frequencies. Products offered in this category are power
amplifiers, repeaters, receivers, transmitters and compatible accessories.
These products convert the headend output up to the microwave band and
transmit this signal using parabolic antennas. At each receiver site, a
parabolic antenna-receiver combination converts the signal back to normal
VHF frequencies for distribution to subscribers at the receiver site. Due
to a Second Order on Reconsideration adopted by the Federal Communications
Commission ("FCC") in November 2002, coupled with the availability and
inherent superiority of fiber optics in linking adjacent properties in MDU
applications, sales of microwave products have diminished. While microwave
products will continue to be sold to maintain existing systems, the Company
does not anticipate that these products will contribute significantly to
the Company's revenues.
o Fiber Products used to transmit the output of a cable system headend to
multiple locations using fiber optic cable. Among the products offered are
optical transmitters, receivers, couplers, splitters and compatible
accessories. These products convert RF frequencies to light (or infrared)
frequencies and launch them on optical fiber. At each receiver site, an
optical receiver is used to convert the signals back to normal VHF
frequencies for distribution to subscribers. Sales of products in this
category continue to increase as they have become the product of choice in
applications formerly suitable to the use of microwave products.
o Distribution Products used to permit signals to travel from the headend
to their ultimate destination in a home, apartment unit, hotel room, office
or other terminal location along a distribution network of fiber optic or
coaxial cable. Among the products offered by the Company in this category
are line extenders, broadband amplifiers, directional taps, splitters and
wall taps. In cable television systems, the distribution products are
either mounted on exterior telephone poles or encased in pedestals, vaults
or other security devices. In private cable systems the distribution system
is typically enclosed within the walls of the building (if a single
structure) or added to an existing structure using various techniques to
hide the coaxial cable and devices. The non-passive devices within this
category are designed to ensure that the
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signal distributed from the headend is of sufficient strength when it
arrives at its final destination to provide high quality audio/video
images. The Company estimates distribution products accounted for
approximately 19% of the Company's revenues in 2003, 17% in 2002 and 15% in
2001.
o Addressable Subscriber and Interdiction Products used to control access
to programming at the subscriber's location. Among the products offered by
the Company in this category are (i) its VideoMask(TM) addressable signal
jammer, licensed from Philips Electronics North America Corporation and its
affiliate Philips Broadband Networks, Inc. (ii) the SMI Interdiction
product line acquired from Scientific-Atlanta, Inc. as part of its
interdiction business, and (iii) the recently introduced Addressable
Multi-Tap (AMT). Interdiction products limit the availability of programs
to subscribers, through jamming of particular channels. Such products
enable an operator to control subscriber access to premium channels and
other enhanced services through a computer located off-premises. They also
eliminate the necessity of an operator having to make a service call to
install or remove passive traps and eliminate the costs associated with
damage or loss of analog set-top converters in the subscribers' locations.
The Company believes that the reduction in operating costs, programming
piracy, and converter loss which can be obtained through the use of
interdiction can be a significant factor in further product penetration
into the franchise cable market in MDU applications. While it is not
possible to predict the breadth of market acceptance for these products,
the Company believes the potential is substantial in both the private cable
market and franchise cable market as alternatives to, or in conjunction
with, set-top converters and as a viable option for companies and
municipalities who are overbuilding existing cable infrastructures and are
seeking a more consumer-friendly and cost-effective way to compete with the
incumbent franchise cable operator. The Company estimates that Interdiction
products accounted for approximately 11% of the Company's revenues in 2003,
8% in 2002 and 15% in 2001.
o Test Products used for measuring signals in the Headend and Distribution.
Among the products offered by the Company in this category are analog and
digital Spectrum Analyzers, QPSK Analyzers, and hand held Palm Analyzers.
While the Company expects to continue selling test products to meet the
needs of customers, the Company does not anticipate that these products
will contribute significantly to the Company's revenues.
The Company will modify its products to meet specific customer
requirements. Typically, these modifications are minor and do not materially
alter the functionality of the products. Thus, the inability of the customer to
accept such products does not generally result in the Company being otherwise
unable to sell such products to other customers.
Research and Product Development
The markets served by Blonder Tongue are characterized by technological
change, new product introductions, and evolving industry standards. To compete
effectively in this environment, the Company must engage in ongoing research and
development in order to (i) create new products, (ii) expand the frequency range
of existing products in order to accommodate customer demand for greater channel
capacity, (iii) license new technology (such as digital satellite receiver
decoders and high-speed data transmission products), and (iv) acquire products
incorporating technology that could not otherwise be developed quickly enough
using internal resources, to suit the dynamics of the evolving marketplace.
Research and development projects are often initially undertaken at the request
of and in an effort to address the particular needs of the Company's customers
and customer prospects with the expectation or promise of substantial future
orders from such customers or customer prospects. Additional research and
development efforts are also continuously underway for the purpose of enhancing
product quality and engineering to lower production costs. For the acquisition
of new technologies, the Company may rely upon technology licenses from third
parties when the Company believes that it can obtain such technology more
quickly and/or cost-effectively from such third parties than the Company could
otherwise develop on its own, or when the desired technology is proprietary to a
third party. There were 15 employees in the research and development department
of the Company at December 31, 2003.
Marketing and Sales
Blonder Tongue markets and sells its products worldwide to the following
markets: private cable operators, system contractors, franchise cable operators,
the lodging industry, institutions, satellite dealers and
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retailers. Sales are made directly to customers by the Company's internal sales
force, as well as through numerous domestic stocking distributors (which
accounted for approximately 48% of the Company's revenues for fiscal 2003).
These distributors serve multiple markets. Direct sales to private cable
operators and system integrators accounted for approximately 23% of the
Company's revenues for fiscal 2003.
The Company's sales and marketing function is predominantly performed by
its internal sales force. Should it be deemed necessary, the Company may retain
independent sales representatives in particular geographic areas or targeted to
specific customer prospects. The Company's internal sales force consists of 25
employees, which currently includes 11 salespersons (7 salespersons in Old
Bridge, New Jersey, one salesperson in each of North Myrtle Beach, South
Carolina, Cudahy, Wisconsin, Folsom, California, and Miami, Florida) and 14
sales-support personnel at the Company headquarters in Old Bridge, New Jersey.
The Company's standard customer payment terms are 2%-10, net 30 days. From
time to time where the Company determines that circumstances warrant, such as
when a customer agrees to commit to a large blanket purchase order, the Company
extends payment terms beyond its standard payment terms.
The Company has several marketing programs to support the sale and
distribution of its products. Blonder Tongue participates in industry trade
shows and conferences. The Company also publishes technical articles in trade
and technical journals, distributes sales and product literature and has an
active public relations plan to ensure complete coverage of Blonder Tongue's
products and technology by editors of trade journals. The Company provides
system design engineering for its customers, maintains extensive ongoing
communications with many original equipment manufacturer customers and provides
one-on-one demonstrations and technical seminars to potential new customers.
Blonder Tongue supplies sales and applications support, product literature and
training to its sales representatives and distributors. The management of the
Company travels extensively, identifying customer needs and meeting potential
customers.
The Company had approximately $639,000 in purchase orders as of December
31, 2003 and approximately $1.0 million in purchase orders as of December 31,
2002. All of the purchase orders outstanding as of December 31, 2003 are
expected to be shipped prior to December 31, 2004. The purchase orders are for
the future delivery of products and are subject to cancellation by the
customers.
Customers
Blonder Tongue has a broad customer base, which in 2003 consisted of
approximately 600 active accounts. Approximately 43%, 50%, and 39% of the
Company's revenues in fiscal years 2003, 2002, and 2001, respectively, were
derived from sales of products to the Company's five largest customers. In 2003
and 2002, sales to Toner Cable Equipment, Inc. accounted for approximately 21%
and 20% respectively of the Company's revenues. There can be no assurance that
any sales to these entities, individually or as a group, will reach or exceed
historical levels in any future period. However, the Company anticipates that
these customers will continue to account for a significant portion of the
Company's revenues in future periods, although none of them is obligated to
purchase any specified amount of products or to provide the Company with binding
forecasts of product purchases for any future period.
The complement of leading customers may shift as the most efficient and
better financed integrators grow more rapidly than others. The Company believes
that many integrators will grow rapidly, and as such the Company's success will
depend in part on the viability of those customers and on the Company's ability
to maintain its position in the overall marketplace by shifting its emphasis to
those customers with the greatest growth and growth prospects. Any substantial
decrease or delay in sales to one or more of the Company's leading customers,
the financial failure of any of these entities, or the Company's inability to
develop and maintain solid relationships with the integrators which may replace
the present leading customers, would have a material adverse effect on the
Company's results of operations and financial condition.
The Company's revenues are derived primarily from customers in the
continental United States, however, the Company also derives revenues from
customers outside the continental United States, primarily in Canada and to a
more limited extent, in underdeveloped countries. Television service is less
developed in many international markets, particularly Latin America and Asia,
creating opportunity for those participants who offer quality products at a
competitive price. Sales to customers outside of the United States represented
approximately
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2%, 8% and 2% of the Company's revenues in fiscal years 2003, 2002 and 2001
respectively. All of the Company's transactions with customers located outside
of the continental United States are denominated in U.S. dollars, therefore, the
Company has no material foreign currency transactions.
Manufacturing and Suppliers
Blonder Tongue's manufacturing operations are located at the Company's
headquarters in Old Bridge, New Jersey. The Company's manufacturing operations
are vertically integrated and consist principally of the assembly and testing of
electronic assemblies built from fabricated parts, printed circuit boards and
electronic devices and the fabrication from raw sheet metal of chassis and
cabinets for such assemblies. Management continues to implement a significant
number of changes to the manufacturing process to increase production volume and
reduce product cost, including logistics modifications on the factory floor, an
increased use of surface mount, axial lead and radial lead robotics to place
electronic components on printed circuit boards, a continuing program of circuit
board redesign to make more products compatible with robotic insertion equipment
and an increased integration in machining and fabrication. All of these efforts
are consistent with and part of the Company's strategy to provide its customers
with high performance-to-cost ratio products.
Outside contractors supply standard components, etch-printed circuit boards
and electronic subassemblies to the Company's specifications. While the Company
generally purchases electronic parts which do not have a unique source, certain
electronic component parts used within the Company's products are available from
a limited number of suppliers and can be subject to temporary shortages because
of general economic conditions and the demand and supply for such component
parts. If the Company were to experience a temporary shortage of any given
electronic part, the Company believes that alternative parts could be obtained
or system design changes implemented. However, in such situations the Company
may experience temporary reductions in its ability to ship products affected by
the component shortage. On an as-needed basis, the Company purchases several
products from sole suppliers for which alternative sources are not available,
such as the VideoCipher(R) and DigiCipher(R) encryption systems manufactured by
Motorola, which are standard encryption methodologies employed on U.S. C-Band
and Ku-Band transponders and Hughes digital satellite receivers for delivery of
DIRECTV(TM) programming. An inability to timely obtain sufficient quantities of
these components could have a material adverse effect on the Company's operating
results. The Company does not have an agreement with any sole source supplier
requiring the supplier to sell a specified volume of components to the Company.
Blonder Tongue maintains a quality assurance program which tests samples of
component parts purchased, as well as its finished products, on an ongoing basis
and also conducts tests throughout the manufacturing process using commercially
available and in-house built testing systems that incorporate proprietary
procedures. Blonder Tongue performs final product tests on 100% of its products
prior to shipment to customers.
Competition
All aspects of the Company's business are highly competitive. The Company
competes with national, regional and local manufacturers and distributors,
including companies larger than Blonder Tongue which have substantially greater
resources. Various manufacturers who are suppliers to the Company sell directly
as well as through distributors into the franchise and private cable
marketplaces. Because of the convergence of the cable, telecommunications and
computer industries and rapid technological development, new competitors may
seek to enter the principal markets served by the Company. Many of these
potential competitors have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than Blonder Tongue. The
Company expects that direct and indirect competition will increase in the
future. Additional competition could result in price reductions, loss of market
share and delays in the timing of customer orders. The principal methods of
competition are product differentiation, performance and quality, price and
terms, service, and technical and administrative support.
Intellectual Property
The Company currently holds 30 United States patents and 14 foreign patents
covering a wide range of electronic systems and circuits, of which 19 United
States patents and 10 foreign patents were obtained in the Company's acquisition
of Scientific-Atlanta, Inc.'s interdiction business during 1998. Other than
certain of the patents acquired from Scientific-Atlanta, Inc., none of the
Company's patents are considered material to the
9
Company's present operations because they do not relate to high volume
applications. Because of the rapidly evolving nature of the cable television
industry, the Company believes that its market position as a supplier to cable
integrators derives primarily from its ability to develop a continuous stream of
new products which are designed to meet its customers' needs and which have a
high performance-to-cost ratio.
The Company has a registered trademark on "Blonder Tongue(R)" and also on a
"BT(R)" logo. In connection with the transactions pursuant to which the Company
acquired an ownership interest in NetLinc and Blonder Tongue Telephone, the
Company granted Blonder Tongue Telephone a non-exclusive, revocable and
royalty-free license to use these trademarks and certain variations of such
names.
The Company is a licensee of Philips Electronics North America Corporation
and its affiliate Philips Broadband Networks, Inc., Motorola, Hughes and several
smaller software development companies.
Under the Philips License Agreements, the Company is granted a
non-exclusive license for a term which expires in 2010, concurrently with the
last to expire of the relevant patents. The Philips License Agreements provide
for the payment by the Company of a one-time license fee and for the payment by
the Company of royalties based upon unit sales of licensed products.
The Company is a licensee of Motorola relating to Motorola's VideoCipher(R)
encryption technology and is also a party to a private label agreement with
Motorola relating to its DigiCipher(R) technology. Under the VideoCipher(R)
license agreement, the Company is granted a non-exclusive license under certain
proprietary know-how, to design and manufacture certain licensed products to be
compatible with the VideoCipher(R) commercial descrambler module. The
VideoCipher(R) license agreement provides for the payment by the Company of a
one-time license fee for the Company's first model of licensed product and
additional one-time license fees for each additional model of licensed product.
The VideoCipher(R) license agreement also provides for the payment by the
Company of royalties based upon unit sales of licensed products. Under the
DigiCipher(R) private label agreement, the Company is granted the non-exclusive
right to sell DigiCipher(R) II integrated receiver decoders bearing the Blonder
Tongue name for use in the commercial market. The DigiCipher(R) private label
agreement provides for the payment by the Company of a one-time license fee for
the Company's first model of licensed product and additional one-time license
fees for each additional model of licensed product.
During 1996, the Company entered into several software development and
license agreements for specifically designed controller and interface software
necessary for the operation of the Company's Video Central(TM) remote
interdiction control system, which is used for remote operation of VideoMask(TM)
signal jammers installed at subscriber locations. These licenses are perpetual
and require the payment of a one-time license fee and in one case additional
payments, the aggregate of which are not material.
The Company relies on a combination of contractual rights and trade secret
laws to protect its proprietary technologies and know-how. There can be no
assurance that the Company will be able to protect its technologies and know-how
or that third parties will not be able to develop similar technologies and
know-how independently. Therefore, existing and potential competitors may be
able to develop products that are competitive with the Company's products and
such competition could adversely affect the prices for the Company's products or
the Company's market share. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining its competitive position.
Regulation
Private cable, while in some cases subject to certain FCC licensing
requirements, is not presently burdened with extensive government regulations.
Franchise cable operators had been subject to extensive government regulation
pursuant to the Cable Television Consumer Protection and Competition Act of
1992, which among other things provided for rate rollbacks for basic tier cable
service, further rate reductions under certain circumstances and limitations on
future rate increases. The Telecommunications Act of 1996 deregulated many
aspects of franchise cable system operation and opened the door to competition
among cable operators and telephone companies in each of their respective
industries.
10
In June, 2000, the FCC adopted and issued a Final Rule and Order relating
to the re-designation of portions of the 18GHz-frequency band among the various
currently allocated services. The Final Rules regarding this issue provided for
the grandfathering, for a period of ten years, of certain pre-existing
(installed) terrestrial fixed service operators ("TFSOs") and TFSOs that had
made application for a license prior to a certain date. The FCC segmented the
18GHz-frequency band into several sub-bands and provided for varying obligations
and rights as between the TFSOs and Fixed Satellite Service Operators ("FSSOs").
Overall, the Final Rules were complex and placed a measure of uncertainty upon
TFSOs considering the use of microwave gear in new systems. In November 2002,
the FCC issued a Second Order on Reconsideration (the "Second Order"), which
redefined the use of the 18 GHz microwave band. Among other things, the Second
Order changed the permissible band of transmission for future microwave links
from the 18.42 to 18.58 GHz band to the 17.7 GHz to 18.3 GHz band. As a result
of the Second Order, the Company's existing microwave inventory would have to be
modified to function within the new frequency band. While the new 18GHz band
provides additional channel capacity to the private cable operator, because
specialized and expensive equipment will be required to take advantage of this
additional bandwidth, the impact on future sales is uncertain at this time.
These issues, coupled with the recent advances in the use of fiber optic cable
and the inherent superiority in fiber due to its greater bandwidth capability,
have resulted in a shift in customer purchases away from microwave gear and
toward fiber optics.
Environmental Regulations
The Company is subject to a variety of Federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
processes. The Company did not incur in 2003 and does not anticipate incurring
in 2004 material capital expenditures for compliance with Federal, state and
local environmental laws and regulations. There can be no assurance, however,
that changes in environmental regulations will not result in the need for
additional capital expenditures or otherwise impose additional financial burdens
on the Company. Further, such regulations could restrict the Company's ability
to expand its operations. Any failure by the Company to obtain required permits
for, control the use of, or adequately restrict the discharge of, hazardous
substances under present or future regulations could subject the Company to
substantial liability or could cause its manufacturing operations to be
suspended.
The Company presently holds a permit from the New Jersey Department of
Environmental Protection ("NJDEP"), Division of Environmental Quality, Air
Pollution Control Program relating to its operation of certain process
equipment, which permit expires in May, 2007. The Company has held such a permit
for this equipment on a substantially continuous basis since approximately
April, 1989. The Company also has authorization under the New Jersey Pollution
Discharge Elimination System/Discharge to Surface Waters General Industrial
Stormwater Permit, Permit No. NJ0088315. This permit will expire May 31, 2007.
Employees
As of March 8, 2004, the Company employed approximately 269 people,
including 189 in manufacturing, 15 in research and development, 11 in quality
assurance, 10 in production services, 25 in sales and marketing, and 19 in a
general and administrative capacity. 118 of the Company's employees are members
of the International Brotherhood of Electrical Workers Union, Local 2066, which
has a three year labor agreement with the Company expiring in February, 2005.
The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's principal manufacturing, engineering, sales and
administrative facilities consist of one building totaling approximately 130,000
square feet located on approximately 20 acres of land in Old Bridge, New Jersey
(the "Old Bridge Facility") which is owned by the Company. The Old Bridge
Facility is encumbered by a mortgage held by Commerce Bank in the principal
amount of $3,092,000 as of December 31, 2003.
Management believes that the Old Bridge Facility is adequate to support the
Company's anticipated needs in 2004. Subject to compliance with applicable
zoning and building codes, the Old Bridge real property is large enough to
double the size of the plant to accommodate expansion of the Company's
operations should the need arise.
11
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 2003, through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded on the American Stock Exchange
since the Company's initial public offering on December 14, 1995. The following
table sets forth for the fiscal quarters indicated, the high and low sale prices
for the Company's Common Stock on the American Stock Exchange.
Market Information
Fiscal Year Ended December 31, 2003: High Low
---- ---
First Quarter ......................... $1.85 $1.30
Second Quarter......................... 2.31 1.43
Third Quarter ......................... 2.56 1.89
Fourth Quarter ........................ 3.30 1.91
Fiscal Year Ended December 31, 2002: High Low
---- ---
First Quarter ......................... $3.86 $3.20
Second Quarter......................... 3.62 2.70
Third Quarter ......................... 2.70 1.10
Fourth Quarter......................... 2.25 1.09
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "BDR".
Holders
As of March 19, 2004, the Company had approximately 80 holders of record of
the Common Stock. Since a portion of the Company's common stock is held in
"street" or nominee name, the Company is unable to determine the exact number of
beneficial holders.
Dividends
The Company currently anticipates that it will retain all of its earnings
to finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Other
than in connection with certain "S" corporation distributions prior to its
initial public offering, the Company has never declared or paid any cash
dividends on its Common Stock. Any determination to pay dividends in the future
is at the discretion of the Company's Board of Directors and will depend upon
the Company's financial condition, results of operations, capital requirements,
limitations contained in loan agreements and such other factors as the Board of
Directors deems relevant. The Company's loan agreement with Commerce Bank, N.A.
prohibits the payment of cash dividends by the Company on its Common Stock.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data presented below for
each of the years ended December 31, 2003, 2002 and 2001, and the selected
consolidated balance sheet data as of December 31, 2003 and 2002, are derived
from, and are qualified by reference to, the audited consolidated financial
statements of the Company and notes thereto included elsewhere in this Form
10-K. The selected consolidated statement of operations data for the years ended
December 31, 2000 and 1999 and the selected consolidated balance sheet data as
of December 31, 2001, 2000 and 1999 are derived from audited consolidated
financial statements not included herein. The data set forth below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements, notes thereto and other financial and
statistical information appearing elsewhere herein.
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales .................................... $ 35,437 $ 46,951 $ 53,627 $ 70,196 $ 56,805
Cost of goods sold ........................... 25,948 34,195 36,928 46,974 39,074
-------- -------- -------- -------- --------
Gross profit ............................... 9,489 12,756 16,699 23,222 17,731
-------- -------- -------- -------- --------
Operating expenses: ..........................
Selling, general and administrative ........ 9,837 9,060 11,209 13,572 13,598
Research and development ................... 1,833 1,972 2,200 2,125 2,070
-------- -------- -------- -------- --------
Total operating expenses ................... 11,670 11,032 13,409 15,697 15,668
-------- -------- -------- -------- --------
Earnings (loss) from operations .............. (2,181) 1,724 3,290 7,525 2,063
Interest expense, net ........................ 1,105 1,074 1,369 1,938 2,002
Equity in loss of Blonder Tongue
Telephone, LLC................................ 154 -- -- -- --
-------- -------- -------- -------- --------
Earnings (loss) before income taxes .......... (3,440) 650 1,921 5,587 61
Provision (benefit) for income taxes ......... (691) 221 704 2,011 2
-------- -------- -------- -------- --------
Earnings (loss) before cumulative effect of
change in accounting principle ............... (2,749) 429 1,217 3,576 59
Cumulative effect of change in accounting
principle, net of tax (1) .................... -- (6,886) -- -- --
-------- -------- -------- -------- --------
Net (loss) earnings .......................... $ (2,749) $ (6,457) $ 1,217 $ 3,576 $ 59
======== ======== ======== ======== ========
Basic earnings (loss) per share before
cumulative effect of change in accounting
principle..................................... $ (0.36) $ 0.06 $ 0.16 $ 0.47 $ 0.01
Cumulative effect of change in accounting
principle, net of tax ........................ -- (0.90) -- -- --
-------- -------- -------- -------- --------
Basic earnings (loss) per share .............. $ (0.36) $ (0.84) $ 0.16 $ 0.47 $ 0.01
======== ======== ======== ======== ========
Basic weighted average shares outstanding .... 7,654 7,604 7,613 7,620 7,916
Diluted earnings (loss) per share before
cumulative effect of change in accounting
principle..................................... $ (0.36) $ 0.06 $ 0.16 $ 0.47 $ 0.01
Cumulative effect of change in accounting
principle, net of tax ........................ -- (0.90) -- -- --
-------- -------- -------- -------- --------
Diluted earnings (loss) per share ............ $ (0.36) $ (0.84) $ 0.16 $ 0.47 $ 0.01
======== ======== ======== ======== ========
Diluted weighted average shares outstanding .. 7,654 7,604 7,637 7,632 7,958
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Working capital .............................. $ 25,071 $ 30,317 $ 31,254 $ 27,154 $ 25,456
Total assets ................................. 47,990 52,002 64,386 62,834 66,076
Long-term debt (including
current maturities) .......................... 12,946 16,910 16,195 16,184 20,607
Stockholders' equity ......................... 31,940 33,267 39,962 39,096 35,247
- --------------
(1) Effective January 1, 2002, the Company implemented FAS 142, which resulted
in the write off of $10,760 of the net book value of goodwill, offset by
the future tax benefit thereof in the amount of $3,874.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's historical results
of operations and liquidity and capital resources should be read in conjunction
with "Selected Consolidated Financial Data" and the consolidated financial
statements of the Company and notes thereto appearing elsewhere herein.
Overview
The Company was incorporated in November, 1988, under the laws of Delaware
as GPS Acquisition Corp. for the purpose of acquiring the business of
Blonder-Tongue Laboratories, Inc., a New Jersey corporation which was founded in
1950 by Ben H. Tongue and Isaac S. Blonder to design, manufacture and supply a
line of electronics and systems equipment principally for the Private Cable
industry. Following the acquisition, the Company changed its name to Blonder
Tongue Laboratories, Inc.
The Company's success is due in part to management's efforts to leverage
the Company's reputation by broadening its product line to offer one-stop shop
convenience to private cable and franchise cable system integrators and to
deliver products having a high performance-to-cost ratio.
In December, 1995, the Company successfully concluded an initial public
offering of 2,200,000 shares of its Common Stock. Thereafter, in January 1996,
the Company's underwriters exercised their over-allotment option, as a result of
which an additional 181,735 shares of the Company's Common Stock were sold. The
proceeds received by the Company from the sale of its Common Stock in the
offering (including shares sold pursuant to the over-allotment option), net of
expenses of the offering and certain S Corporation distributions to the
Company's principal stockholders, were approximately $14,045,000. These funds
were used to acquire the Company's Old Bridge Facility and to reduce the
Company's outstanding bank debt. The Company has further enhanced its liquidity
through a long-term loan secured by a mortgage against the Old Bridge Facility.
On March 26, 1998, the Company acquired all of the assets and technology
rights, including the SMI Interdiction product line, of the interdiction
business (the "Interdiction Business") of Scientific-Atlanta, Inc.
("Scientific") for a purchase price consisting of (i) $19 million in cash, (ii)
67,889 shares of the Company's common stock, (iii) a warrant to purchase 150,000
additional shares of the Company's common stock at an exercise price of $14.25
per share and (iv) assumption by the Company of certain obligations under
executory contracts with vendors and customers and certain warranty obligations
and other current liabilities of the Interdiction Business. The Company is
utilizing the SMI Interdiction product line acquired from Scientific, which has
been engineered primarily to serve the franchise cable market, as a supplement
to the Company's VideoMask(TM) Interdiction products, which are primarily
focused on the private cable market.
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
14
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. While the Company
is not actively seeking opportunities to acquire additional rights-of-entry at
the present time, if such opportunities arise, the Company would evaluate and
consider them. 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 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 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 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 third
quarter of 2004.
15
Results of Operations
The following table sets forth, for the fiscal periods indicated, certain
consolidated statement of earnings data as a percentage of net sales. The
Company believes that the product sales in 2004 will be slightly better than in
2003, with increases in the telephony and high speed data product lines
accounting for most of the growth. Gross margin, although impossible to predict
due to the dependence on product mix, is expected to remain relatively constant.
Year Ended December 31,
-------------------------
2003 2002 2001
---- ---- ----
Net sales ................................................ 100.0% 100.0% 100.0%
Costs of goods sold ...................................... 73.2 72.8 68.9
Gross profit ............................................. 26.8 27.2 31.1
Selling expenses ......................................... 10.5 8.7 9.3
General and administrative expenses ...................... 17.3 10.6 11.6
Research and development expenses ........................ 5.2 4.2 4.1
Earnings (loss) from operations .......................... (6.2) 3.7 6.1
Other expense, net ....................................... 3.5 2.3 2.5
Earnings (loss) before income taxes and before cumulative
effect of change in accounting principle ................. (9.7) 1.4 3.6
2003 Compared with 2002
Net Sales. Net sales decreased $11,514,000 or 24.5% to $35,437,000 in 2003
from $46,951,000 in 2002. The decrease is attributed to a decrease in capital
spending by cable system operators and weak overall economic conditions. The
decrease in capital spending by cable system operators was, in part, the result
of the bankruptcy of WSNET, which had been a leading provider of programming to
the private cable industry. As a result of this event, demand for the Company's
digital products, particularly its Motorola set-top box and QQQT transcoder
line, were adversely affected. Digital product sales were $3,312,000 in 2003
compared to $6,265,000 in 2002. Included in net sales are revenues from BDR
Broadband of $1,094,000 and $250,000 for 2003 and 2002, respectively.
Cost of Goods Sold. Cost of goods sold decreased to $25,948,000 for 2003
from $34,195,000 for 2002 but increased as a percentage of sales to 73.2% from
72.8%. The increase as a percentage of sales is primarily attributable to an
increase in the inventory reserve of $1,576,000 in 2003 as compared to an
increase in inventory reserve of $500,000 in 2002, offset by a higher portion of
sales during 2003 being comprised of higher margin products.
Selling Expenses. Selling expenses decreased to $3,714,000 for 2003 from
$4,069,000 in 2002 but increased as a percentage of sales to 10.5% for 2003 from
8.7% for 2002. This $355,000 decrease is primarily attributable to a reduction
in advertising of $122,000 achieved through implementation of expense control
programs and a reduction of freight of $145,000 and commissions of $99,000 due
to reduced sales levels.
General and Administrative Expenses. General and administrative expenses
increased to $6,123,000 for 2003 from $4,991,000 for 2002 and increased as a
percentage of sales to 17.3% for 2003 from 10.6% for 2002. The $1,132,000
increase can be primarily attributed to an increase of $180,000 in bad debt
expense and an increase of $1,000,000 in operating expenses related to BDR
Broadband, offset by a decrease in salaries and fringe benefits of $176,000 due
to a reduction in head count.
Research and Development Expenses. Research and development expenses
decreased to $1,833,000 in 2003 from $1,972,000 in 2002. The $139,000 decrease
is primarily due to a decrease in salaries and fringe benefits of $184,000 due
to a reduction in head count, offset by an increase in licensing fees of
$38,000. Research and development expenses as a percentage of sales, increased
to 5.2% in 2003 from 4.2% in 2002.
Operating Income (Loss). Operating loss of $2,181,000 for 2003 represents a
decrease of $3,905,000 from operating income of $1,724,000 for 2002. Operating
income (loss) as a percentage of sales decreased to (6.2%) in 2003 from 3.7% in
2002.
16
Interest Expense. Interest expense increased to $1,105,000 in 2003 from
$1,074,000 in 2002. The increase is the result of higher average borrowing and
higher interest rates.
Income Taxes. The provision (benefit) for income taxes for 2003 decreased
to a benefit of $691,000 from an expense of $221,000 for 2002 as a result of the
current year loss of $3,440,000 as compared to income of $650,000 in 2002. The
benefit for the current year loss has been subject to a valuation allowance of
$655,000 since the realization of the deferred tax benefit is not considered
more likely than not.
Cumulative Effect of Change in Accounting Principle. During the first three
months of 2002, the Company implemented FAS 142, which resulted in the write off
of $10,760,000 of the net book value of goodwill, offset by the future 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.
2002 Compared with 2001
Net sales. Net sales decreased $6,676,000 or 12.5%, to $46,951,000 in 2002
from $53,627,000 in 2001. The decrease in sales is primarily attributed to a
decrease in capital spending by cable system operators and weak overall economic
conditions. The substantially higher sales recorded in the prior fiscal year
were primarily attributable to higher interdiction sales. Net sales included
approximately $3,736,000 of interdiction equipment for 2002 compared to
approximately $7,962,000 in 2001.
Cost of Goods Sold. Cost of goods sold decreased to $34,195,000 for 2002
from $36,928,000 for 2001, primarily due to decreased volume, and increased as a
percentage of sales to 72.8% in 2002 from 68.9% in 2001. The increase as a
percentage of sales was caused primarily by a greater proportion of sales during
the period being comprised of lower margin products, including the Motorola QAM
decoder which was introduced in the fourth quarter of 2001.
Selling Expenses. Selling expenses decreased to $4,069,000 in 2002 from
$5,009,000 in 2001, and decreased as a percentage of sales to 8.7% in 2002 from
9.3% in 2001. The $940,000 decrease is primarily attributable to a decrease in
wages and fringe benefits of $369,000 related to a decrease in headcount, along
with a decrease in advertising of $419,000 achieved through implementation of
expense control programs.
General and Administrative Expenses. General and administrative expenses
decreased to $4,991,000 in 2002 from $6,200,000 in 2001, and decreased as a
percentage of sales to 10.6% in 2002 from 11.6% in 2001. The $1,209,000 decrease
is primarily attributable to a $970,000 reduction in amortization expense due to
the adoption of FAS 142 which required the Company to discontinue amortizing
goodwill, as well as a reduction in bad debts of $180,000.
Research and Development Expenses. Research and development expenses
decreased to $1,972,000 in 2002 from $2,200,000 in 2001, and increased as a
percentage of sales to 4.2% in 2002 from 4.1% in 2001. The $228,000 decrease is
primarily attributable to a $56,000 decrease in licensing fees, a $65,000
decrease in consulting fees, a $34,000 decrease in department supplies, and a
$30,000 decrease in salaries and fringe benefits due to a decrease in headcount.
Earnings from Operations. Earnings from operations decreased 48.4% to
$1,724,000 in 2002 from $3,290,000 in 2001. Earnings from operations as a
percentage of sales decreased to 3.7% in 2002 from 6.1% in 2001.
Other Income (Expense). Other income (expense) consisted of $1,074,000 of
interest expense in 2002. Other income (expense) in 2001 consisted of $1,369,000
of interest expense. The decrease in interest expense is primarily attributable
to a reduction in the Company's long term debt and lower average interest rates.
Income Taxes. The provision for income taxes for 2002 decreased to $221,000
from $704,000 in 2001, as a result of a decrease in taxable income. The
effective tax rate decreased to 34% in 2002 from 36.6% in 2001 due to a writeoff
of overaccrued federal and state taxes.
17
Cumulative Effect. During the year ended December 31, 2002, the Company
implemented FAS 142, which resulted in the write off of $10,760,000 of the net
book value of goodwill, offset by the future tax benefit thereof in the amount
of $3,874,000. The net cumulative effect of this change in accounting principles
was a non-recurring $6,886,000 charge against earnings in the first three months
of 2002.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the results of
operations of the Company. Fourth quarter sales in 2003 as compared to other
quarters were slightly impacted by fewer production days. The Company expects
sales each year in the fourth quarter to be impacted by fewer production days.
Liquidity and Capital Resources
As of December 31, 2003 and 2002, the Company's working capital was
$25,071,000 and $30,317,000, respectively. The decrease in working capital is
attributable primarily to a decrease of long-term debt of $3,964,000 and an
investment in Blonder Tongue Telephone, LLC of $1,167,000.
The Company's net cash provided by operating activities for the year ended
December 31, 2003 was $5,686,000 primarily due to a reduction of $2,596,000 in
inventory and $671,000 in accounts receivable and an increase in accounts
payable and accrued expenses of $1,474,000, compared to net cash provided by
operating activities for the year ended December 31, 2002 of $1,257,000.
Cash used in investing activities was $1,669,000, which was attributable
primarily to capital expenditures for new computers and test equipment of
$954,000 and $1,167,000 cash investment in Blonder Tongue Telephone, LLC, offset
by collection of a note receivable of $630,000. The Company does not have any
present plans or commitments for material capital expenditures for fiscal year
2004, other than anticipated expenditures of approximately $500,000 in
connection with certain upgrades of the BDR Broadband Systems.
Cash used in financing activities was $4,080,000 for the period ended
December 31, 2003, comprised primarily of repayment of long-term debt of
$14,460,000 offset by $10,496,000 in borrowing of long term debt.
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 requires 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 bore interest at the prime rate
plus 1.5%, with a floor of 5.5% (5.5% at December 31, 2003), and the term loan
bore interest at a fixed rate of 7.5%. Beginning December 1, 2003, the term loan
required 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, 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.
18
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.
At December 31, 2003, there was $4,136,000 outstanding under the revolving
line of credit. The Company has the ability to borrow $2,864,000 under its line
of credit, however only $2,167,000 was available at December 31, 2003, based on
the Company's current collateral. This commitment expires on April 1, 2005.
The average amount outstanding on the Company's line of credit during 2003
was $5,269,000 at a weighted average interest rate of 5.0%. The maximum amount
outstanding on the line of credit during 2003 was $6,171,000.
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 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
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 is expected to continue in 2004. As such, BDR Broadband is not
presently anticipated to adversely impact the Company's working capital.
19
Contractual Obligations and Commitments
At December 31, 2003, the Company's contractual obligations and commitments
to make future payments are as follows:
Payment Due by Period
---------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
----------- ----------- ----------- ----------- -----------
Long-Term Debt Obligations $12,473,000 $ 3,043,000 $ 7,039,000 $ 466,000 $ 1,925,000
Capital Lease Obligations 473,000 158,000 315,000 -- --
Operating Leases 120,000 89,000 31,000 -- --
Purchase Commitments (1) 17,489,000 17,489,000 -- -- --
Consulting Agreement 152,000 152,000 -- -- --
Interest on Long-Term Debt and
Capital Lease Obligations 1,999,000 779,000 752,000 324,000 144,000
----------- ----------- ----------- ----------- -----------
Total Contractual Obligations $32,706,000 $21,709,000 $ 8,138,000 $ 790,000 $ 2,069,000
=========== =========== =========== =========== ===========
- ----------
(1) Purchase commitments consist primarily of obligations to purchase certain
raw materials and finished goods inventory to be utilized in the ordinary course
of business.
Critical Accounting Policies
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States. Preparing financial
statements in accordance with generally accepted accounting principles requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The following paragraphs include a
discussion of some critical areas where estimates are required. You should also
review Note 1 to the financial statements for further discussion of significant
accounting policies.
Revenue Recognition
The Company records revenue when products are shipped. Legal title and risk
of loss with respect to the products pass to customers at the point of shipment.
Customers do not have a right to return products shipped.
Inventory and Obsolescence
Inventory is valued at the lower of cost or market. The Company continually
ensures that slow-moving and obsolete inventory is written down to its net
realizable value by reviewing current quantities on hand, actual and projected
sales volumes and anticipated selling prices on products. Generally, the Company
does not experience material issues with obsolete inventory due to the nature of
its products being interchangeable within various product offerings. If the
Company were not able to achieve its expectations of the net realizable value of
the inventory at its current value, the Company would have to adjust its
reserves accordingly. However, from time to time, the Company will reserve for
excess and obsolete inventory. The Company analyzed its current product sales
trends and determined that sales of certain products which were anticipated to
have increased in the latter part of the current year did not materialize. As a
result, during 2003 and 2002 the Company recorded an increase
20
to its reserve of $1,576,000 and $500,000, respectively. As these factors are
difficult to predict and are subject to future events that may alter management
assumptions, these allowances may need to be adjusted in the future.
Accounts Receivable and Allowance for Doubtful Accounts
Management periodically performs a detailed review of amounts due from
customers to determine if accounts receivable balances are impaired based on
factors affecting the collectibility of those balances. Management's estimates
of the allowance for doubtful accounts requires management to exercise
significant judgment about the timing, frequency and severity of collection
losses, which affects the allowances and net income. As these factors are
difficult to predict and are subject to future events that may alter management
assumptions, these allowances may need to be adjusted in the future.
Long-Lived Assets
On a periodic basis, management assesses whether there are any indicators
that the value of the Company's long-lived assets may be impaired. An asset's
value may be impaired only if management's estimate of the aggregate future cash
flows, on an undiscounted basis, to be generated by the asset are less than the
carrying value of the asset.
If impairment has occurred, the loss shall be measured as the excess of the
carrying amount of the asset over the fair value of the long-lived asset. The
Company's estimates of aggregate future cash flows expected to be generated by
each long-lived asset are based on a number of assumptions that are subject to
economic and market uncertainties. As these factors are difficult to predict and
are subject to future events that may alter management's assumptions, the future
cash flows estimated by management in their impairment analyses may not be
achieved.
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.
Additional Factors That May Affect Future Results and Market Price of Stock
Blonder Tongue's business operates in a rapidly changing environment that
involves a number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks, which are not otherwise
addressed elsewhere in this Annual Report. There can be no assurance that the
Company will anticipate the evolution of industry standards in cable television
or the communications industry generally,
21
changes in the market and customer needs, or that technologies and applications
under development by the Company will be successfully developed, or if they are
successfully developed, that they will achieve market acceptance. The
competition to attract and retain highly skilled engineering, manufacturing,
marketing and managerial personnel is intense. Capital spending by cable
operators for constructing, rebuilding, maintaining or upgrading their systems
(upon which the Company's sales and profitability are dependent) is dependent on
a variety of factors, including access to financing, demand for their cable
services, availability of alternative video delivery technologies, and general
economic conditions. Factors such as announcements of technological innovations
or new products by the Company, its competitors or third parties, quarterly
variations in the Company's actual or anticipated results of operations, market
conditions for emerging growth stocks or cable industry stocks in general, or
the failure of revenues or earnings in any quarter to meet the investment
community's expectations, may cause the market price of the Company's Common
Stock to fluctuate significantly. The stock price may also be affected by
broader market trends unrelated to the Company's performance.
ITEM 7A. 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 December 31, 2003 and 2002 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $4,136,000 and $5,650,000,
respectively. A hypothetical 100 basis point adverse change in interest rates
would have had an annualized unfavorable impact of approximately $41,000 and
$57,000, respectively, on the Company's earnings and cash flows based upon these
year-end debt levels. At December 31, 2003, the Company did not have any
derivative financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the consolidated financial statements and
notes thereto of the Company, which are attached hereto beginning on page 29.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. 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 Company's fourth fiscal
quarter 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the Company's directors and executive officers, its
Audit Committee and the Audit Committee's "audit committee financial expert,"
and the procedures by which nominees are recommended
22
to the Board, is incorporated by reference from the discussion under the heading
"Directors and Executive Officers" in the Company's proxy statement for its 2004
Annual Meeting of Stockholders. Information about compliance with Section 16(a)
of the Securities Exchange Act of 1934 is incorporated by reference from the
discussion under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's proxy statement for its 2004 Annual Meeting of
Stockholders.
Each of the Company's directors, officers and employee are required to
comply with the Blonder Tongue Laboratories, Inc. Code of Ethics adopted by the
Company. The Code of Ethics sets forth policies covering a broad range of
subjects and requires strict adherence to laws and regulations applicable to the
Company's business. The Code of Ethics is available on the Company's website at
www.blondertongue.com, under the "Investor Relations-Code of Ethics" captions.
The Company will post to its website any amendments to the Code of Ethics, or
waiver from the provisions thereof for executive officers or directors, under
the "Investor Relations-Code of Ethics" caption.
ITEM 11. EXECUTIVE COMPENSATION
Information about director and executive compensation is incorporated by
reference from the discussion under the headings "Directors' Compensation,"
"Executive Compensation," "Report of Compensation Committee on Executive
Compensation Policies" and "Comparative Stock Performance" in the Company's
proxy statement for its 2004 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's proxy statement for its 2004 Annual Meeting of Stockholders.
EQUITY COMPENSATION PLANS
The following table provides certain summary information as of December 31,
2003, concerning compensation plans (including individual compensation
arrangements) of the Company under which shares of the Company's Common Stock
may be issued.
Equity Compensation Plan Information
Number Of Securities
Number Of Securities Remaining Available For
To Be Issued Upon Weighted-Average Future Issuance Under Equity
Exercise Of Exercise Price Of Compensation Plans (Excluding
Outstanding Options, Outstanding Options, Securities Reflected In
Plan Category Warrants And Rights(#) Warrants And Rights($) The First Column)(#)
------------- ---------------------- ---------------------- --------------------
Equity Compensation Plans Approved 1,219,611 $5.19 161,328(1)
By Securities Holders
Equity Compensation Plans Not 10,000(2) $6.88 0
Approved By Securities Holders
Total 1,229,611 $5.20 161,328
- ----------
(1) Includes 25,000 shares of the Company's Common Stock available for issuance
as restricted stock under the 1995 Long Term Incentive Plan (the "1995
Plan").
(2) In 1996 the Board of Directors granted a non-plan, non-qualified option for
10,000 shares of the Company's Common Stock to Gary P. Scharmett at an
original exercise price of $10.25 per share, which was repriced to $6.88
per share on September 17, 1998. The option expires in 2006. At the time of
the grant, Mr. Scharmett was not a director of the Company.
23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and transactions with related
parties is incorporated by reference from the discussion under the heading
"Certain Relationships and Related Transactions" in the Company's proxy
statement for its 2004 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information about procedures related to the engagement of the independent
auditors and fees and services paid to the independent auditors is incorporated
by reference from the discussion under the headings "Audit and Other Fees Paid
to Independent Auditors" and "Pre-Approval Policy for Services by Independent
Auditors" in the Company's proxy statement for its 2004 Annual Meeting of
Stockholders.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Supplementary Data.
Report of Independent Certified Public Accountants......................30
Consolidated Balance Sheets as of December 31, 2003 and 2002............31
Consolidated Statements of Operations for the Years Ended
December 31, 2003, 2002 and 2001........................................32
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2003, 2002 and 2001............................33
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001........................................34
Notes to Consolidated Financial Statements..............................35
(a)(2) Financial Statement Schedules.
Included in Part IV of this report:
Schedule II. Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
(a)(3) Exhibits
The exhibits are listed in the Index to Exhibits appearing below and are
filed herewith or are incorporated by reference to exhibits previously filed
with the Commission.
(b) On November 12, 2003, the Company filed a Form 8-K relating to Item 12 of
such Form. The information under Item 12 related to the Company's November 10,
2003 press release announcing its unaudited financial results for the third
quarter ended September 30, 2003.
24
(c) Index to Exhibits:
Exhibit # Description Location
- --------- ----------- --------
3.1 Restated Certificate of Incorporated by reference from
Incorporation of Blonder Exhibit 3.1 to Registrant's
Tongue Laboratories, Inc. S-1 Registration Statement No.
33-98070, filed October 12,
1995, as amended.
3.2 Restated Bylaws of Blonder Incorporated by reference from
Tongue Laboratories, Inc. Exhibit 3.2 to Registrant's
S-1 Registration Statement No.
33-98070, filed October 12,
1995, as amended.
4.1 Specimen of stock certificate. Incorporated by reference from
Exhibit 4.1 to Registrant's
S-1 Registration Statement No.
33-98070, filed October 12,
1995, as amended.
10.1 Consulting Agreement, dated Incorporated by reference from
January 1, 1995, between Exhibit 10.3 to Registrant's
Blonder Tongue Laboratories, S-1 Registration Statement No.
Inc. and James H. Williams. 33-98070, filed October 12,
1995, as amended.
10.2 1994 Incentive Stock Option Incorporated by reference from
Plan. Exhibit 10.5 to Registrant's
S-1 Registration Statement No.
33-98070, filed October 12,
1995, as amended.
10.3 1995 Long Term Incentive Plan. Incorporated by reference from
Exhibit 10.6 to Registrant's
S-1 Registration Statement No.
33-98070, filed October 12,
1995, as amended.
10.4 First Amendment to the 1995 Incorporated by reference from
Plan. Exhibit 10.5(a) to
Registrant's Quarterly Report
on Form 10-Q for the period
ended March 31, 1997.
10.5 Second Amendment to the 1995 Incorporated by reference from
Plan. Exhibit 4.3 to S-8
Registration Statement No.
333-52519 originally filed on
May 13, 1998.
10.6 Third Amendment to the 1995 Incorporated by reference from
Plan. Exhibit 4.4 to S-8
Registration Statement No.
333-37670, originally filed
May 23, 2000.
10.7 Fourth Amendment to the 1995 Incorporated by reference from
Plan. Exhibit 4.5 to S-8
Registration Statement No.
33-96993, originally filed
July 24, 2002.
10.8 Amended and Restated 1996 Incorporated by reference from
Director Option Plan. Appendix B to Registrant's
Proxy Statement for its 1998
Annual Meeting of
Stockholders, filed March 27,
1998.
10.9 First Amendment to the Amended Incorporated by reference from
and Restated 1996 Director Exhibit 4.2 to S-8
Option Plan. Registration Statement No.
333-111367, originally filed
on December 19, 2003.
10.10 Form of Indemnification Incorporated by reference from
Agreement entered into by Exhibit 10.10 to Registrant's
Blonder Tongue Laboratories, S-1 Registration Statement No.
Inc. in favor of each of its 33-98070, filed October 12,
Directors and Officers. 1995, as amended.
25
Exhibit # Description Location
- --------- ----------- --------
10.11 VideoCipher(R) IICM Commercial Incorporated by reference from
Descrambler Module Master Exhibit 10.11 to Registrant's
Purchase and License S-1 Registration Statement No.
Agreement, dated August 23, 33-98070, filed October 12,
1990, between Blonder Tongue 1995, as amended.
Laboratories, Inc. and
Cable/Home Communication Corp.
+10.12 Patent License Agreement, Incorporated by reference from
dated August 21, 1995, between Exhibit 10.12 to Registrant's
Blonder Tongue Laboratories, S-1 Registration Statement No.
Inc. and Philips Electronics 33-98070, filed October 12,
North America Corporation. 1995, as amended.
+10.13 Interdiction Technology Incorporated by reference from
License Agreement, dated Exhibit 10.13 to Registrant's
August 21, 1995, between S-1 Registration Statement No.
Blonder Tongue Laboratories, 33-98070, filed October 12,
Inc. and Philips Broadband 1995, as amended.
Networks, Inc.
10.14 Bargaining Unit Pension Plan. Incorporated by reference from
Exhibit 10.22 to S-1
Registration Statement No.
33-98070, filed October 12,
1995, as amended.
10.15 Executive Officer Bonus Plan. Incorporated by reference from
Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q
for the period ended March 31,
1997, filed May 13, 1997.
10.16 Second Amendment to Consulting Incorporated by reference from
and Non-Competition Agreement Exhibit 10.1 to Registrant's
between Registrant and James Quarterly Report on Form 10-Q
H. Williams, dated as of June for the period ended June 30,
30, 2000. 2000, filed August 14, 2000.
10.17 Loan and Security Agreement Incorporated by reference from
dated March 20, 2002 between Exhibit 10.1 to Registrant's
Blonder Tongue Laboratories, Quarterly Report on Form 10-Q
Inc. and Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.18 Revolving Credit Note dated Incorporated by reference from
March 20, 2002 by Blonder Exhibit 10.2 to Registrant's
Tongue Laboratories, Inc. in Quarterly Report on Form 10-Q
favor of Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.19 Term Loan A Note dated March Incorporated by reference from
20, 2002 by Blonder Tongue Exhibit 10.3 to Registrant's
Laboratories, Inc. in favor of Quarterly Report on Form 10-Q
Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.20 Term Loan B Note dated March Incorporated by reference from
20, 2002 by Blonder Tongue Exhibit 10.4 to Registrant's
Laboratories, Inc. in favor of Quarterly Report on Form 10-Q
Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.21 Mortgage, Security Agreement Incorporated by reference from
and Fixture Filing dated March Exhibit 10.5 to Registrant's
20, 2002, between Blonder Quarterly Report on Form 10-Q
Tongue Laboratories, Inc. and for the period ending March
Commerce Bank, N.A. 31, 2002, filed May 15, 2002.
10.22 Assignment of Rents and Leases Incorporated by reference from
made by Blonder Tongue Exhibit 10.6 to Registrant's
Laboratories, Inc. in favor of Quarterly Report on Form 10-Q
Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.23 Patent Security Agreement Incorporated by reference from
dated March 20, 2002 by Exhibit 10.7 to Registrant's
Blonder Tongue Laboratories, Quarterly Report on Form 10-Q
Inc. in favor of Commerce for the period ending March
Bank, N.A. 31, 2002, filed May 15, 2002.
26
Exhibit # Description Location
- --------- ----------- --------
10.24 Trademark Security Agreement Incorporated by reference from
dated March 20, 2002 by Exhibit 10.8 to Registrant's
Blonder Tongue Laboratories, Quarterly Report on Form 10-Q
Inc. in favor of Commerce for the period ending March
Bank, N.A. 31, 2002, filed May 15, 2002.
10.25 Surety Agreement dated March Incorporated by reference from
20, 2002 by Blonder Tongue Exhibit 10.9 to Registrant's
Investment Company in favor of Quarterly Report on Form 10-Q
Commerce Bank, N.A. for the period ending March
31, 2002, filed May 15, 2002.
10.26 Capital Contribution Agreement Incorporated by referenced
between Blonder Tongue from Exhibit 10.1 to
Telephone, LLC, Resource Registrant's Quarterly Report
Investment, LLC, H. Tyler on Form 10-Q for the period
Bell, NetLinc Communications, ending March 31, 2003 and
LLC and Blonder Tongue filed May 15, 2003.
Laboratories, Inc., dated
March 26, 2003.
10.27 Amendment to Capital Incorporated by reference from
Contribution Agreement and Exhibit 10.1 to Registrant's
Termination of Letter Quarterly Report on Form 10-Q
Agreement among Blonder Tongue for the period ending
Telephone, LLC, Resource September 30, 2003, filed
Investment Group, LLC, H. November 14, 2003.
Tyler Bell, NetLinc
Communications, LLC and
Blonder Tongue Laboratories,
Inc., dated as of September
11, 2003.
10.28 Loan and Security Agreement Filed herewith.
dated November 19, 2003
between Blonder Tongue
Laboratories, Inc. and Robert
J. Palle, Jr.
10.29 Non-Recourse Line of Credit Filed herewith.
Note dated November 19, 2003
by Blonder Tongue
Laboratories, Inc. in favor of
Robert J. Palle, Jr.
10.30 First Amendment and Waiver Filed herewith.
to Loan and Security Agreement
between Blonder Tongue
Laboratories, Inc. and Commerce
Bank, N.A., dated November 14,
2003.
10.31 Collateral Pledge Agreement Filed herewith.
between Blonder Tongue
Laboratories, Inc. and
Commerce Bank, N.A., dated
November 14, 2003.
21 Subsidiaries of Blonder Tongue Filed herewith.
Laboratories, Inc.
23 Consent of BDO Seidman, LLP. Filed herewith.
31.1 Certification of James A. Filed herewith.
Luksch pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Eric Skolnik Filed herewith.
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Filed herewith.
Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
+ Certain portions of exhibit have been afforded confidential treatment
by the Securities and Exchange Commission.
Exhibits 10.1 - 10.9, 10.15 and 10.16 represent management contracts
or compensation plans or arrangements.
(d) Financial Statement Schedules:
Report of BDO Seidman, LLP on financial statement schedule is included on
page 51 of this Annual Report on Form 10-K.
27
The following financial statement schedule is included on page 52 of this
Annual Report on Form 10-K:
Schedule II. Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
28
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants..........................30
Consolidated Balance Sheets as of December 31, 2003 and 2002................31
Consolidated Statements of Operations for the Years Ended December
31, 2003, 2002 and 2001.....................................................32
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2003, 2002 and 2001............................................33
Consolidated Statements of Cash Flows for the Years Ended December
31, 2003, 2002 and 2001.....................................................34
Notes to Consolidated Financial Statements..................................35
29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
Old Bridge, New Jersey
We have audited the accompanying consolidated balance sheets of Blonder Tongue
Laboratories, Inc. and subsidiaries as of December 31, 2003 and 2002 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Blonder Tongue
Laboratories, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 2002, Blonder Tongue Laboratories, Inc., and subsidiaries adopted the
provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets."
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
February 27, 2004, except for Note 4
for which the date is March 29, 2004
30
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
--------------------
2003 2002
-------- --------
Assets (Note 4)
Current assets:
Cash ................................................................ $ 195 $ 258
Accounts receivable, net of allowance for doubtful
accounts of $1,192 and $715 respectively (Note 8) ................... 5,682 6,713
Inventories, net (Note 2) ........................................... 20,588 24,760
Notes receivable (Note 14) .......................................... 627 459
Income tax receivable ............................................... 679 170
Prepaid benefit costs (Note 6) ...................................... 631 --
Prepaid and other current assets .................................... 695 556
Deferred income taxes (Note 12) ..................................... 2,279 1,858
-------- --------
Total current assets ............................................ 31,376 34,774
Notes receivable (Note 14) ............................................... 216 1,019
Property, plant and equipment, net of accumulated
depreciation and amortization (Notes 3 and 5) ........................ 6,652 6,831
Patents, net ............................................................. 2,649 3,120
Rights-of-Entry, net (Note 13) ........................................... 1,300 1,396
Other assets, net ........................................................ 851 951
Investment in Blonder Tongue Telephone LLC (Note 13) ..................... 2,043 --
Deferred income taxes (Note 12) .......................................... 2,903 3,911
-------- --------
$ 47,990 $ 52,002
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt (Note 4) .......................... $ 3,201 $ 2,632
Accounts payable .................................................... 1,676 888
Accrued compensation ................................................ 560 514
Accrued benefit liability (Note 6) .................................. -- 196
Other accrued expenses (Note 7) ..................................... 868 227
-------- --------
Total current liabilities ....................................... 6,305 4,457
-------- --------
Long-term debt (Note 4) .................................................. 9,745 14,278
Commitments and contingencies (Notes 5, 6 and 7) ......................... -- --
Stockholders' equity (Notes 6, 9 and 11):
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 ..................................................... 24,145 24,145
Retained earnings ................................................... 13,242 15,991
Accumulated other comprehensive loss ................................ -- (508)
Treasury stock, at cost, 449 shares and 879 shares, respectively .... (5,455) (6,369)
-------- --------
Total stockholders' equity ...................................... 31,940 33,267
-------- --------
$ 47,990 $ 52,002
======== ========
See accompanying notes to consolidated financial statements
31
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Net sales (Note 8) ............................................. $ 35,437 $ 46,951 $ 53,627
Cost of goods sold ............................................. 25,948 34,195 36,928
-------- -------- --------
Gross profit ............................................... 9,489 12,756 16,699
-------- -------- --------
Operating expenses:
Selling expenses ........................................... 3,714 4,069 5,009
General and administrative (Notes 5, 6, and 7) ............. 6,123 4,991 6,200
Research and development ................................... 1,833 1,972 2,200
-------- -------- --------
11,670 11,032 13,409
-------- -------- --------
Earnings (loss) from operations ................................ (2,181) 1,724 3,290
-------- -------- --------
Other expense:
Interest expense, net ...................................... (1,105) (1,074) (1,369)
Equity in loss of Blonder Telephone, LLC (Note 13) ......... (154) -- --
-------- -------- --------
(1,259) (1,074) (1,369)
-------- -------- --------
Earnings (loss) before income taxes ............................ (3,440) 650 1,921
Provision (benefit) for income taxes (Note 12) ................. (691) 221 704
-------- -------- --------
Earnings (loss) before cumulative effect of change in accounting
principle, net of tax .......................................... (2,749) 429 1,217
Cumulative effect of change in accounting
principle, net of tax (Note 1) .............................. -- (6,886) --
-------- -------- --------
Net (loss) earnings ............................................ $ (2,749) $ (6,457) $ 1,217
======== ======== ========
Basic (loss) earnings per share before
cumulative effect (Note 10).................................. $ (0.36) $ 0.06 $ 0.16
Cumulative effect of change in accounting
principle, net of tax ....................................... -- (0.90) --
-------- -------- --------
Basic earnings (loss) per share ................................ $ (0.36) ($ 0.84) $ 0.16
======== ======== ========
Basic weighted average shares outstanding ...................... 7,654 7,604 7,613
======== ======== ========
Diluted earnings (loss) per share before
cumulative effect ........................................... $ (0.36) $ 0.06 $ 0.16
Cumulative effect of change in accounting
principle, net of tax ....................................... -- (0.90) --
-------- -------- --------
Diluted earnings (loss) per share .............................. $ (0.36) $ (0.84) $ 0.16
======== ======== ========
Diluted weighted average shares outstanding .................... 7,654 7,604 7,637
======== ======== ========
See accompanying notes to consolidated financial statements
32
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Accumulated
Common Stock Other
----------------- Paid-in Retained Comprehensive Treasury
Shares Amount Capital Earnings Loss Stock Total
-------- -------- -------- ------- --------- ---------- ---------
Balance at January 1, 2001.............. 8,444 $ 8 $24,143 $21,231 $ -- $ (6,286) $ 39,096
Net earnings........................ -- -- -- 1,217 -- -- 1,217
Unrecognized pension expense, net
of tax (Note 6)..................... -- -- -- -- (351) -- (351)
---------
Comprehensive income................ 866
-------- -------- -------- ------- --------- ---------- ---------
Balance at December 31, 2001............ 8,444 8 24,143 22,448 (351) (6,286) 39,962
Net loss............................ -- -- -- (6,457) -- -- (6,457)
Unrecognized pension expense, net
of tax (Note 6)..................... -- -- -- -- (157) -- (157)
---------
Comprehensive loss.................. (6,614)
Proceeds from exercise of stock
options ............................ 1 -- 2 -- -- -- 2
Acquisition of treasury stock....... -- -- -- -- -- (83) (83)
-------- -------- -------- ------- --------- ---------- ---------
Balance at December 31, 2002............ 8,445 8 24,145 15,991 (508) (6,369) 33,267
Net loss............................ -- -- -- (2,749) -- -- (2,749)
Recognized pre-paid pension cost,
net of tax (Note 6)................. -- -- -- 508 -- 508
---------
Comprehensive loss.................. (2,241)
Issuance of stock to Blonder Tongue
Telephone, LLC (Note 13) ........... -- -- -- -- -- 1,030 1,030
Acquisition of treasury stock....... -- -- -- -- -- (116) (116)
-------- -------- -------- ------- --------- ---------- ---------
Balance at December 31, 2003 8,445 $ 8 $ 24,145 $13,242 $ -- $ (5,455) $ 31,940
======== ======== ======== ======= ========= ========== =========
See accompanying notes to consolidated financial statements
33
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------------
2003 2002 2001
-------- -------- --------
Cash Flows From Operating Activities:
Net earnings (loss) ............................................ $ (2,749) $ (6,457) $ 1,217
Adjustments to reconcile net earnings to cash
provided by operating activities:
Cumulative effect of change in accounting principle ........ -- 6,886 --
Equity in loss from Blonder Tongue Telephone, LLC .......... 154 -- --
Depreciation ............................................... 1,133 1,269 1,310
Amortization ............................................... 750 550 1,502
Provision for inventory reserves ........................... 1,576 500 540
Provision for doubtful accounts ............................ 360 180 307
Deferred income taxes ...................................... -- 308 4
Changes in operating assets and liabilities:
Accounts receivable ...................................... 671 1,640 (1,746)
Inventories .............................................. 2,596 3,509 (4,423)
Prepaid and other current assets ........................ (139) 376 2,054
Other assets ............................................. 101 (366) 43
Income taxes ............................................. (241) (779) (266)
Accounts payable, accrued expenses and accrued
compensation ........................................... 1,474 (6,359) 3,169
-------- -------- --------
Net cash provided by operating activities ............. 5,686 1,257 3,711
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures ........................................... (954) (695) (803)
Collection of note receivable .................................. 635 -- --
Investment in Blonder Tongue Telephone, LLC .................... (1,167) -- --
Acquisition of BDR Broadband assets ............................ (183) (1,880) --
-------- -------- --------
Net cash used in investing activities ................. (1,669) (2,575) (803)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings under revolving line of credit ................. -- -- 2,117
Repayments of long-term debt ................................... (14,460) (34,909) (4,356)
Borrowings of long-term debt ................................... 10,496 35,624 --
Deferred financing costs ....................................... -- -- (90)
Proceeds from exercise of stock options ........................ -- 2 --
Acquisition of treasury stock .................................. (116) (83) --
-------- -------- --------
Net cash provided by (used in) financing activities ... (4,080) 634 (2,329)
-------- -------- --------
Net increase (decrease) in cash ..................................... (63) (684) 579
Cash, beginning of year ............................................. 258 942 363
-------- -------- --------
Cash, end of year ................................................... $ 195 $ 258 $ 942
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for interest ......................................... $ 1,073 $ 1,138 $ 1,447
Cash paid for income taxes ..................................... -- 537 966
======== ======== ========
Non-cash investing and financing activities:
Inventory sold for notes receivable ............................ $ -- $ 1,447 $ --
Investment in Blonder Tongue Telephone, LLC using treasury stock (1,030) -- --
See accompanying notes to consolidated financial statements
34
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Note 1 - Summary of Significant Accounting Policies
(a) 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 investments in Blonder Tongue Telephone, LLC and NetLinc
Communications, LLC are accounted for on the equity method since the Company
does not have control over these entities.
The Company reports its operations as one business segment.
(b) Accounts Receivable and Allowance for Doubtful accounts
Accounts receivable are customer obligations due under normal trade terms.
The Company sells its products primarily to distributors and private cable
operators. The Company performs continuing credit evaluations of its customers'
financial condition and although the Company generally does not require
collateral, letters of credit may be required from its customers in certain
circumstances.
Senior management reviews accounts receivable on a monthly basis to
determine if any receivables will potentially be uncollectible. The Company
includes any accounts receivable balances that are determined to be
uncollectible, along with a general reserve, in its overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on the information
available, the Company believes its allowance for doubtful accounts as of
December 31, 2003 is adequate. However, actual write-offs might exceed the
recorded allowance.
(c) Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out ("FIFO") method, or market.
The Company continually ensures that slow-moving, excess and obsolete
inventory is written down to its net realizable value by reviewing current
quantities on hand, actual and projected sales volumes and anticipated selling
prices on products. Generally, the Company does not experience material issues
with obsolete inventory due to the nature of its products being interchangeable
within various product offerings. If the Company were not able to achieve its
expectations of the net realizable value of the inventory at its current value,
the Company would have to adjust its reserves accordingly. However, from time to
time, the Company will reserve for excess and obsolete inventory. During 2003
and 2002, the Company recorded an increase to its reserve of $1,576,000 and
$500,000, respectively.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation generally on the straight-line method based upon estimated useful
lives of 3 to 5 years for office equipment, 5 to 7 years for furniture and
fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building
improvements, 5 to 7 years for cable systems and 40 years for the manufacturing
and administrative office facility.
(e) Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred
income taxes are provided for temporary differences
35
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
in the recognition of certain income and expenses for financial and tax
reporting purposes. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
(f) Intangible Assets
Intangible assets, net totaling $3,949 and $4,516 as of December 31, 2003
and 2002, respectively, consist of acquired patent rights and rights-of-entry,
and are carried at cost less accumulated amortization. Amortization is computed
utilizing the straight-line method over the estimated useful life of the
respective asset, 12 years for patents and 5 years for rights-of-entry.
The components of intangible assets at December 31, 2003 are as follows:
Accumulated
Cost Amortization
---- ------------
Patents and trademarks $6,414 $3,765
Rights of entry 1,672 372
-------------- -------------
Total intangible assets $8,086 $4,137
============== =============
The Company continues to amortize its patents and rights-of-entry over
their estimated useful lives with no significant residual value. Amortization
expense for intangible assets excluding goodwill was $750, $550, and $532 for
the years ending December 31, 2003, 2002 and 2001, respectively. Intangibles
amortization is projected to be approximately $750 per year for the next five
years.
In July 2001, the Financial Accounting Standards Board ("FASB") issued FAS
No. 141, "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). FAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. FAS 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets. FAS 142 requires, among other things, that companies no
longer amortize goodwill, but instead test goodwill for impairment at least
annually. FAS 141 and FAS 142 were adopted by the Company on January 1, 2002.
The adoption of this pronouncement resulted in the Company recording a $6,886,
non-cash charge, net of tax, to write off the carrying value of its goodwill.
Such charge is reflected as a cumulative effect of a change in accounting
principle. The Company's previous business combinations were accounted for using
the purchase method.
If FAS 142 had been in effect in 2001, the Company's earnings would have
been improved because of reduced amortization, as described below:
Basic Diluted
Earnings Earnings
2001 Net Earnings Per Share Per Share
---- ------------ --------- ---------
Reported Net Earnings $1,217 $0.16 $0.16
Add Amortization, Net of Tax 621 0.08 0.08
------ ----- -----
Adjusted Net Earnings $1,838 $0.24 $0.24
====== ===== =====
(g) Long-Lived Assets
The Company follows Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 standardized the accounting practices for the recognition and
measurement of impairment losses on certain long-lived assets based on
non-discounted cash flows. No impairment losses have been recorded through
December 31, 2003.
36
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(h) Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity of less than three
months at purchase to be cash equivalents. The Company did not have any cash
equivalents at December 31, 2003, 2002 and 2001.
(i) Research and Development
Research and development expenditures for the Company's projects are
expensed as incurred.
(j) Revenue Recognition
The Company records revenues when products are shipped. The Company has no
material future obligations to customers once products are shipped and customers
do not have a right of return.
(k) Earnings (loss) Per Share
Earnings (loss) per share are calculated in accordance with FAS 128, which
provides for the calculation of "basic" and "diluted" earnings (loss) per share.
Basic earnings (loss) per share includes no dilution and is computed by dividing
net earnings by the weighted average number of common shares outstanding for the
period. Diluted earnings (loss) per share reflect, in periods in which they have
a dilutive effect, the effect of common shares issuable upon exercise of stock
options.
(l) Treasury Stock
Treasury Stock is recorded at cost. Gains and losses on disposition are
recorded as increases or decreases to additional paid-in capital with losses in
excess of previously recorded gains charged directly to retained earnings.
(m) Derivative Financial Instruments
The Company utilizes interest rate swaps at times to manage interest rate
exposures. The Company specifically designates interest rate swaps as hedges of
debt instruments and recognizes interest differentials as adjustments to
interest expense in the period they occur. The Company does not hold or issue
financial instruments for trading purposes. The Company does not hold any
derivative financial instruments at December 31, 2003 or 2002.
(n) Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately 44% of the Company's employees are covered by a three year
collective bargaining agreement, which expires in February 2005.
The Company estimates that headend products accounted for approximately 54%
of the Company's revenues in 2003, 66% in 2002 and 58% in 2001. Any substantial
decrease in sales of headend products could have a material adverse effect on
the Company's results of operations, financial condition, and cash flows.
On an as-needed basis, the Company purchases several products from sole
suppliers for which alternative sources are not available, such as the
VideoCipher(R) and DigiCipher(R) encryption systems manufactured by Motorola,
Inc., which are standard encryption methodologies employed on U.S. C-Band and
Ku-Band transponders and Hughes Network Systems digital satellite receivers for
delivery of DIRECTV(TM) programming. An inability to
37
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
timely obtain sufficient quantities of these components could have a material
adverse effect on the Company's operating results. The Company does not have an
agreement with any sole source supplier requiring the supplier to sell a
specified volume of components to the Company.
(o) 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 and net 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 with the following weighted average
assumptions used for grants: expected lives of 9.5 years, no dividend yield,
volatility at 73%, risk free interest rate of 3.2% for 2003; expected lives of
9.5 years, no dividend yield, volatility at 73%, risk free interest rate of 3.2%
for 2002; expected lives of 9.5 years, no dividend yield, volatility at 71%,
risk free interest rate of 5.03% for 2001.
Under accounting provisions of FAS 123, the Company's net income (loss) to
common shareholders and net income (loss) per common share would have been
adjusted to the pro forma amounts indicated below (in thousands, except per
share data):
Years Ended December 31
2003 2002 2001
------- ------- -------
Net income (loss) as reported .......................... $(2,749) $(6,457) $ 1,217
Adjustment for fair value of stock options, net of tax.. 324 590 469
------- ------- -------
Pro forma ......................................... $(3,073) ($7,047) $ 748
======= ======= =======
Net income (loss) per share basic and diluted:
As reported ....................................... $ (0.36) $ (0.84) $ 0.16
======= ======= =======
Pro forma ......................................... $ (0.40) $ (0.93) $ 0.10
======= ======= =======
(p) Shipping and Handling Costs
Shipping and handling costs are recorded as a component of selling
expenses. Revenues from shipping and handling are not significant. Shipping and
handling costs were $36, $181 and $120 for the years ended December 31, 2003,
2002 and 2001, respectively.
(q) 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.
38
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
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 2 - Inventories
Inventories, net of reserves, are summarized as follows:
December 31,
--------------------
2003 2002
-------- --------
Raw materials ................... $ 11,379 $ 12,857
Work in process ................. 1,746 1,660
Finished goods .................. 10,935 12,686
-------- --------
24,060 27,203
Less reserve for excess
inventory ..................... (3,472) (2,443)
-------- --------
$ 20,588 $ 24,760
======== ========
The Company recorded a $1,576 and $500 provision for slow moving and obsolete
inventory during the years ended December 31, 2003 and 2002, respectively.
Note 3 - Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
December 31,
--------------------
2003 2002
-------- --------
Land ........................................... $ 1,000 $ 1,000
Building ....................................... 3,361 3,361
Machinery and equipment ........................ 7,613 7,473
Cable systems .................................. 1,460 811
Furniture and fixtures ......................... 401 401
Office equipment ............................... 1,873 1,754
Building improvements .......................... 686 640
-------- --------
16,394 15,440
Less: Accumulated depreciation and
amortization ................................. (9,742) (8,609)
-------- --------
$ 6,652 $ 6,831
======== ========
Note 4 - Debt
On March 20, 2002 the Company entered 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, (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%.
39
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
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 requires 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 bore interest at the prime rate
plus 1.5%, with a floor of 5.5% (5.5% at December 31, 2003), and the term loan
bore interest at a fixed rate of 7.5%. Beginning December 1, 2003, the term loan
required equal monthly principal payments of $193 plus interest with a final
payment on April 1, 2006 of all remaining unpaid principal and interest.
At March 31, 2003, June 30, 2003, 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.
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 fair value of the debt approximates the recorded value based on the
borrowing rates currently available to the Company for loans with similar terms
and maturities.
Long-term debt consists of the following:
December 31,
--------------------
2003 2002
-------- --------
Revolving Line of Credit.. $ 4,136 $ 5,650
Term Loan ................ 5,245 7,313
Mortgage loan ............ 3,092 3,325
Capital leases (Note 5) .. 473 622
-------- --------
12,946 16,910
Less: Current portion ... (3,201) (2,632)
-------- --------
$ 9,745 $ 14,278
======== ========
Annual maturities of long-term debt at December 31, 2003 are:
2004 ........... $ 3,201
2005 ........... 6,845
2006 ........... 509
2007 ........... 233
2008 ........... 233
Thereafter ..... 1,925
-------
$12,946
=======
40
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
The average amount outstanding on the Company's line of credit during 2003
and 2002 was $5,269 and $3,208, respectively. The maximum amount outstanding on
the line of credit during 2003 and 2002 was $6,171 and $5,650, respectively. The
weighted average interest rate at December 31, 2003, 2002 and 2001 was 5.0%,
5.0% and 7.02%, respectively.
Note 5 - Commitments and Contingencies
Leases
The Company leases certain factory office and automotive equipment under
noncancellable operating leases and equipment under capital leases expiring at
various dates through December, 2006.
Future minimum rental payments, required for all noncancellable leases are
as follows:
Capital Operating
------- ---------
2004 ................................. $191 $ 89
2005 ................................. 186 31
2006 ................................. 157 --
2007 ................................. -- --
2008 ................................. -- --
Thereafter ........................... -- --
---- ----
Total future minimum lease payments .. 534 $120
====
Less: amounts representing interest.. 61
----
Present value of minimum lease
payments............................ $ 473
=====
Property, plant and equipment included capitalized leases of $2,552 at
December 31, 2003 and 2002, less accumulated amortization of $1,992 and $1,786
at December 31, 2003 and 2002, respectively.
Rent expense was $182, $155 and $111 for the years ended December 31, 2003,
2002 and 2001, respectively.
Litigation
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
Note 6 - Benefit Plans
Defined Contribution Plan
The Company has a defined contribution plan covering all full time
non-union employees qualified under Section 401(k) of the Internal Revenue Code,
in which the Company matches a portion of an employee's salary deferral. The
Company's contributions to this plan were $194, $213, and $208 for the years
ended December 31, 2003, 2002 and 2001, respectively.
Defined Benefit Pension Plan
Substantially all union employees who meet certain requirements of age,
length of service and hours worked per year are covered by a Company sponsored
non-contributory defined benefit pension plan. Benefits paid to retirees are
based upon age at retirement and years of credited service. Net periodic pension
cost for this plan includes the following components:
41
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
December 31,
------------------------
Components of net periodic pension
cost: 2003 2002 2001
---- ---- ----
Service cost ....................... $ 124 $ 137 $ 155
Interest cost ...................... 139 127 116
Actual return on plan assets ....... (125) (124) (105)
Recognized net actuarial (gain)
loss ............................. 53 29 27
----- ----- -----
Net periodic pension cost .......... $ 191 $ 169 $ 193
===== ===== =====
The funded status of the plan and the amounts recorded in the Company's
consolidated balance sheets are as follows:
December 31,
-------------------
2003 2002
------- -------
Change in benefit obligation:
Benefit obligation at beginning of year ...... $ 2,005 $ 1,905
Service cost ................................. 124 137
Interest cost ................................ 139 127
Actuarial (gain) loss ........................ (12) (64)
Benefits paid ................................ (236) (100)
------- -------
Benefit obligation at end of year ............ 2,020 2,005
------- -------
Change in plan assets:
Fair value of plan assets at beginning of
year ....................................... 1,751 1,575
Actual return on plan assets ................. 303 (203)
Employer contribution ........................ 198 479
Benefits paid ................................ (236) (100)
------- -------
Fair value of plan assets at end of year ..... 2,016 1,751
------- -------
Funded status ................................ (4) (254)
Unrecognized net actuarial loss .............. 624 919
Unrecognized net transition liability ........ 11 (40)
Amount reflected in other comprehensive
income ..................................... -- (821)
------- -------
Prepaid (accrued) benefit cost ............... $ 631 $ (196)
======= =======
Key economic assumptions used in these determinations were:
December 31,
---------------------
2003 2002
-------- -------
Discount rate.................................... 7.0% 7.0%
Expected long-term rate of return................ 7.0% 7.0%
The Company's plan asset allocation at the end of 2003 and 2002 and target
allocations for 2004 are as follows:
Security Type Percentage of Plan Assets Target Allocation
------------- ------------------------- -----------------
2003 2002 2004
---- ---- ----
Cash Equivalents 2% 53% -
Equity Securities 65% 22% 65%
Debt Securities 33% 25% 35%
------------ ------------- -------------------
Total Plan Assets 100% 100% 100%
============ ============= ===================
42
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
The Company's investment policy is to invest in stock and balanced funds of
mutual fund and insurance companies to preserve principal while at the same time
establish a minimum rate of return of approximately 5%. No more than one-third
of the total plan assets is placed in any one fund.
The expected long-term rate-of-return-on-assets is 7%. This return is based
upon the historical performance of the currently invested funds.
The benefits expected to be paid for each of the next five years and in the
aggregate for the following five years are:
2004 $53,000
2005 57,000
2006 72,000
2007 81,000
2008 108,000
2009-2013 756,000
The expected contribution to be made during 2004 is $289,000.
The Company recorded a recognized prepaid benefit cost of $508 and an
unrecognized pension expense of $508, net of tax as an accumulated other
comprehensive loss adjustment to stockholders' equity in 2003 and 2002
respectively. This amount represents a portion of the recognized prepaid benefit
cost and the unrecognized net actuarial loss for the years ending December 31,
2003 and 2002, respectively.
Note 7 - Related Party Transactions
On January 1, 1995, the Company entered into a consulting and
non-competition agreement with a director, who is also the largest stockholder.
Under the agreement, the director provides consulting services on various
operational and financial issues and is currently paid at an annual rate of $152
but in no event is such annual rate permitted to exceed $200. The director also
agreed to keep all Company information confidential and will not compete
directly or indirectly with the Company for the term of the agreement and for a
period of two years thereafter. The initial term of this Agreement expires on
December 31, 2004 and automatically renews thereafter for successive one-year
terms (subject to termination at the end of the initial term or any renewal term
on at least 90 days' notice).
As of December 31, 2003, the Chief Executive Officer was indebted to the
Company in the amount of $201, for which no interest has been charged. This
indebtedness arose from a series of cash advances, the latest of which was
advanced in February 2002 and is included in prepaid and other current assets at
December 31, 2003 and 2002.
The President of the Company lent the Company 100% of the purchase price of
certain used equipment purchased by the Company in October through November of
2003. The equipment was purchased at a substantial discount to market price and
the Company has sold and will resell the equipment. While the aggregate cost to
purchase all of the equipment was approximately $950, the maximum amount of
indebtedness outstanding to the President at any one time during the 2003 fiscal
year was $810. At December 31, 2003, the remaining outstanding balance due to
the President was $618 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 equipment purchased by the Company and the proceeds
resulting from the sale of the equipment. 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 4.76% as of December 31,
2003) plus 25% of the gross profit derived from the Company's resale of such
equipment, which amounts will not be paid to the President until the outstanding
balance of the indebtedness has been paid in full. During 2003, accrued interest
on the loan payable to the President was $5, and the share of gross profit
payable to the President was $39.
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"). 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 the Company
to BTT in October,
43
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
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 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 the Company offers for
sale a line of telephony equipment to complement the voice service.
Note 8 - Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable.
The Company maintains cash balances at several banks located in the
northeastern United States. As part of its cash management process, the Company
periodically reviews the relative credit standing of these banks.
Credit risk with respect to trade accounts receivable is concentrated with
five of the Company's customers. These customers accounted for approximately 40%
and 52% of the Company's outstanding trade accounts receivable at December 31,
2003 and 2002, respectively. These customers are distributors of
telecommunications and private cable television components, and providers of
franchise and private cable television service. The Company performs ongoing
credit evaluations of its customers' financial condition, uses credit insurance
and requires collateral, such as letters of credit, to mitigate its credit risk.
The deterioration of the financial condition of one or more of its major
customers could adversely impact the Company's operations. From time to time
where the Company determines that circumstances warrant, such as when a customer
agrees to commit to a large blanket purchase order, the Company extends payment
terms beyond its standard payment terms.
For the year ended December 31, 2003, the Company's largest customer
accounted for approximately 21% of the Company's sales. This customer also
accounted for approximately 20% of the Company's sales in 2002 and for
approximately 14% of the Company's sales in 2001. At December 31, 2003, this
customer accounted for approximately 15% of the Company's outstanding trade
accounts receivable. At December 31, 2003, one other customer accounted for 11%
of the Company's outstanding trade accounts receivable. Management believes
these amounts to be collectible.
Note 9 - Stockholders' Equity
On July 24, 2002, the Company commenced a stock repurchase program to
acquire up to $300 of its outstanding common stock. The stock repurchase was
funded by a combination of the Company's cash on hand and borrowings against its
revolving line of credit. The Company repurchased 70 and 48 shares during 2003
and 2002, respectively.
Note 10 - Earnings (loss) Per Share
Basic and diluted earnings (loss) per share for each of the three years
ended December 31, 2003, 2002 and 2001 are calculated as follows:
44
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Net
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
For the year ended December 31, 2003:
Basic and Diluted loss per share... $(2,749) 7,654 $(0.36)
======= ======= ======
For the year ended December 31, 2002:
Basic and Diluted loss per share... $(6,457) 7,604 $(0.84)
======= ======= ======
For the year ended December 31, 2001:
Basic earnings per share ........... $ 1,217 7,613 $ 0.16
Effect of assumed conversion of
employee stock options ............. -- 24 --
------- ------- ------
Diluted earnings per share ......... $ 1,217 7,637 $ 0.16
======= ======= ======
The diluted share base excludes incremental shares of 1,231, 1,301 and 888
related to stock options for December 31, 2003, 2002 and 2001, respectively.
These shares were excluded due to their antidilutive effect.
Note 11 - Stock Option Plans
In 1994, the Company established the 1994 Incentive Stock Option Plan (the
"1994 Plan"). The 1994 Plan provides for the granting of Incentive Stock Options
to purchase shares of the Company's common stock to officers and key employees
at a price not less than the fair market value at the date of grant as
determined by the compensation committee of the Board of Directors. The maximum
number of shares available for issuance under the plan was 298. Options become
exercisable as determined by the compensation committee of the Board of
Directors at the date of grant. Options expire ten years from the date of grant.
In October, 1995, the Company's Board of Directors and stockholders
approved the 1995 Long Term Incentive Plan (the "1995 Plan"). The 1995 Plan
provides for grants of "incentive stock options" or nonqualified stock options,
and awards of restricted stock, to executives and key employees, including
officers and employee Directors. The 1995 Plan is administered by the
Compensation Committee of the Board of Directors, which determines the optionees
and the terms of the options granted under the 1995 Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof, as
well as the recipients and number of shares awarded for restricted stock awards;
provided, however, that no employee may receive stock options or restricted
stock awards which would result, separately or in combination, in the
acquisition of more than 100 shares of Common Stock of the Company under the
1995 Plan. The exercise price of incentive stock options granted under the 1995
Plan must be equal to at least the fair market value of the Common Stock on the
date of grant. With respect to any optionee who owns stock representing more
than 10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option must be equal to at
least 110% of the fair market value of the Common Stock on the date of grant,
and the term of the option may not exceed five years. The term of all other
incentive stock options granted under the 1995 Plan may not exceed ten years.
The aggregate fair market value of Common Stock (determined as of the date of
the option grant) for which an incentive stock option may for the first time
become exercisable in any calendar year may not exceed $100. The exercise price
for nonqualified stock options is established by the Compensation Committee, and
may be more or less than the fair market value of the Common Stock on the date
of grant.
Stockholders have previously approved a total of 1,150 shares of common
stock for issuance under the 1995 Plan, as amended to date.
In May, 1998, the stockholders of the Company approved the Amended and
Restated 1996 Director Option Plan (the "Amended 1996 Plan"). Under the plan,
Directors who are not currently employed by the Company or any subsidiary of the
Company and have not been so employed within the preceding six months are
eligible to receive options from time to time to purchase the number of shares
of Common Stock determined by the
45
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Board in its discretion; provided, however, that no Director is permitted to
receive options to purchase more than 5 shares of Common Stock in any one
calendar year. The exercise price for such shares is the fair market value
thereof on the date of grant, and the options vest as determined in each case by
the Board of Directors. Options granted under the Amended 1996 Plan must be
exercised within 10 years from the date of grant. A maximum of 200 shares of
Common Stock are subject to issuance under the Amended 1996 Plan, as amended.
The plan is administered by the Board of Directors.
In 1996, the Board of Directors granted a non-plan, non-qualified option
for 10 shares to an individual, who was not an employee or director of the
Company at the time of the grant. The option was originally exercisable at
$10.25 per share and expires in 2006. This option was repriced to $6.88 per
share on September 17, 1998.
The following tables summarize information about stock options outstanding
for each of the three years ended December 31, 2001, 2002 and 2003:
Weighted-
Average Weighted-Average Weighted-Average
1994 Exercise 1995 Exercise 1996 Exercise
Plan (#) Price ($) Plan (#) Price ($) Plan (#) Price ($)
---------------------------------------------------------------------------------------------
Shares under option:
Outstanding at
January 1, 2001 88 5.93 729 6.94 54 6.90
Granted 34 2.88 130 2.95 20 2.88
Exercised - - - - - -
Forfeited (35) 9.19 (92) 7.72 - -
Outstanding at
December 31, 2001 87 3.42 767 6.18 74 5.80
Granted - - 302 3.42 20 3.40
Exercised (1) 2.88 - - - -
Forfeited (6) 3.16 (30) 6.70 - -
Outstanding at
December 31, 2002 80 3.45 1,039 5.36 94 5.29
Granted - - - - 20 2.05
Exercised - - - - - -
Forfeited - - (12) 4.56 - -
Options outstanding at
December 31, 2003 80 3.45 1,027 5.37 114 4.70
Options exercisable
at December 31, 2003 72 3.50 762 5.96 94 5.27
Weighted-average fair
value of options granted
during: 2001 $2.22 $2.28 $2.22
2002 - $2.70 $2.60
2003 - - $2.05
Total options available for grant were 181 and 68 at December 31, 2003 and
December 31, 2002, respectively.
46
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Options Outstanding Options Exercisable
--------------------------------------- ----------------------------------
Range of Number of Options Weighted-Average Weighted-Average Number Weighted-Average
Exercise Outstanding at Remaining Exercise Price Exercisable Exercise Price
Prices ($) 12/31/03 Contractual Life ($) at 12/31/03 ($)
- ---------------- --------------------- ------------------ ----------------- ----------------- -------------
1994 Plan:
2.57 to 2.88 49 3.6 2.73 41 2.70
4.33 28 1.4 4.33 28 4.33
6.88 3 2.9 6.88 3 6.88
---------------- ----------------
2.57 to 6.88 80 2.8 3.45 72 3.51
================ ================
1995 Plan:
2.79 to 3.19 122 7.2 2.90 80 2.90
3.43 to 3.64 302 8.2 3.44 104 3.44
5.88 to 6.75 155 6.3 6.64 155 6.64
6.88 to 7.38 443 3.3 6.89 418 6.89
8.63 5 5.7 8.63 5 8.63
---------------- ----------------
1,027 5.7 5.37 762 5.96
================ ================
1996 Plan:
2.05 to 2.88 40 8.3 2.46 20 2.88
3.40 20 8.1 3.40 20 3.40
6.53 8 5.5 6.53 8 6.53
6.88 to 7.03 45 5.0 6.95 45 6.95
8.50 1 .5 8.50 1 8.50
---------------- ----------------
114 6.7 4.70 94 5.27
================ ================
Note 12 - Income Taxes
The following summarizes the provision (benefit) for income taxes:
Year Ended December 31,
----------------------
2003 2002 2001
---- ---- ----
Current:
Federal............................ $(691) $ (56) $ 660
State and local ................... -- (31) 40
----- ----- -----
(691) (87) 700
Deferred:
Federal ........................... (655) 275 3
State and local ................... -- 33 1
----- ----- -----
(655) 308 4
Valuation allowance .................. 655 -- --
----- ----- -----
Provision (benefit) for income taxes.. $(691) $ 221 $ 704
===== ===== =====
47
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
The provision (benefit) for income taxes differs from the amounts computed
by applying the applicable Federal statutory rates due to the following:
Year Ended December 31,
-----------------------------
2003 2002 2001
------- ------- -------
Provision (benefit) for Federal income taxes at the
statutory rate ................................................. $(1,170) $ 221 $ 653
State and local income taxes, net of Federal benefit ............. (159) 46 26
Adjustment of prior year's accruals .............................. -- (55) --
Other, net ....................................................... (17) 9 25
Change in valuation allowance .................................... 655 -- --
------- ------- -------
Provision (benefit) for income taxes ............................. $ (691) $ 221 $ 704
======= ======= =======
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
------------------
2003 2002
------- -------
Deferred tax assets:
Allowance for doubtful accounts... $ 453 $ 385
Inventory ........................ 1,642 1,289
Other ............................ 185 184
Other - Long Term ................ 96 409
Other - Goodwill ................. 3,357 3,723
Net operating loss carry forward.. 273 --
------- -------
Total deferred tax assets ...... 6,006 5,990
------- -------
Deferred tax liabilities:
Depreciation ..................... (169) (221)
------- -------
Total deferred tax
liabilities .................. (169) (221)
------- -------
5,837 5,769
Less valuation allowance ............ 655 --
------- -------
Net ................................. $ 5,182 $ 5,769
======= =======
The Company has recorded $5,182 of deferred tax benefits since it projects
recovering these benefits over the next three to five years. A valuation
allowance has been recorded against the balance of the deferred tax benefits
since management does not believe the realization of these benefits is more
likely than not.
Note 13 - 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 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 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 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%.
48
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
The purchase price was allocated $1,524 to rights-of-entry and $391 to
fixed assets. The rights-of-entry will be 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.
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 14 - 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, and collectibility is assured. The Company collected $612 during 2003
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.
49
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
Note 15 - Quarterly Financial Information - Unaudited
2003 Quarters 2002 Quarters
------------- ------------------
First Second Third Fourth First Second Third Fourth
------------------------------------------------------------------------------------
Net sales....................... $8,602 $8,534 $9,195 $9,106 $10,890 $11,257 $13,171 $11,633
Gross profit (1)................ 2,159 2,675 2,965 1,690 3,316 3,051 3,777 2,612
Net earnings (loss)............. (758) (390) (65) (1,536) (6,703) 33 536 (323)
Basic earnings (loss) per share. (0.10) (0.05) (0.01) (0.20) (0.88) .01 .07 (.04)
Diluted earnings (loss) per
share........................... (0.10) (0.05) (0.01) (0.20) (0.88) .01 .07 (.04)
(1) During the fourth quarter management did a thorough review of all of the
Company's inventory categories. As a result, the Company recorded an increase
for excess inventory of $1,576.
50
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Blonder Tongue Laboratories, Inc.:
The audits referred to in our report dated February 27, 2004, except for note 4
for which the date is March 29, 2004, relating to the consolidated financial
statements of Blonder Tongue Laboratories, Inc. and subsidiaries, which is
contained in Item 8 of this Form 10-K, included the audit of the financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based upon our
audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Woodbridge, New Jersey
February 27, 2004
51
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
for the years ended December 31, 2003, 2002 and 2001
(Dollars in thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged Charged
Allowance for Doubtful Beginning to to Other Deductions Balance at
Accounts of Year Expenses Accounts Write-Offs End of Year
-------- ------- -------- -------- ---------- -----------
Year ended December 31, 2003: $715 $360 $117 --- $1,192
Year ended December 31, 2002: $1,833 $180 --- ($1,298)(1) $715
Year ended December 31, 2001: $1,424 $409 --- --- $1,833
Inventory Reserve
-----------------
Year ended December 31, 2003: $2,443 $1,576 --- ($547)(2) $3,472
Year ended December 31, 2002: $1,943 $500 --- --- $2,443
Year ended December 31, 2001: $1,403 $540 --- --- $1,943
(1) Write off of uncollectible accounts. (2) Disposal of fully reserved
inventory.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 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
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/S/ JAMES A. LUKSCH Director and Chief Executive March 30, 2004
- ------------------------ Officer (Principal Executive Officer)
James A. Luksch
/S/ ERIC SKOLNIK Senior Vice President and Chief March 30, 2004
- ------------------------ Financial Officer (Principal
Eric Skolnik Financial Officer and Principal
Accounting Officer)
/S/ ROBERT J. PALLE, JR. Director, President, Chief March 30, 2004
- ------------------------ Operating Officer and Secretary
Robert J. Palle, Jr.
/S/ JOHN E. DWIGHT Director March 30, 2004
- ------------------------
John E. Dwight
/S/ JAMES H. WILLIAMS Director March 30, 2004
- ------------------------
James H. Williams
/S/ JAMES F. WILLIAMS Director March 30, 2004
- ------------------------
James F. Williams
53
/S/ ROBERT B. MAYER Director
- ------------------------
Robert B. Mayer March 30, 2004
/S/ GARY P. SCHARMETT Director March 30, 2004
- ------------------------
Gary P. Scharmett
/S/ ROBERT E. HEATON Director March 30, 2004
- ------------------------
Robert E. Heaton
54