SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1611421
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE JAKE BROWN ROAD, OLD BRIDGE, NEW JERSEY 08857
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 679-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
---- ------
Number of shares of common stock, par value $.001, outstanding as of May 14,
2003: 7,522,027
The Exhibit Index appears on page 16.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December
2003 31, 2002
-------- --------
ASSETS (NOTE 4) (unaudited)
Current assets:
Cash ................................................................ $ 32 $ 258
Accounts receivable, net of allowance for doubtful
accounts of $797 and $715 respectively .............................. 7,040 6,713
Inventories, net (Note 3) ........................................... 23,634 24,760
Notes receivable (Note 6) ........................................... 459 459
Income tax receivable ............................................... 361 170
Other current assets ................................................ 520 556
Deferred income taxes ............................................... 1,892 1,858
-------- --------
Total current assets ............................................ 33,938 34,774
Notes receivable (Note 6) ................................................ 857 1,019
Property, plant and equipment, net of accumulated
depreciation and amortization ........................................ 6,869 6,831
Patents, net ............................................................. 2,998 3,120
Rights-of-Entry, net (Note 5) ............................................ 1,477 1,396
Other assets, net ........................................................ 948 951
Investment in Blonder Tongue Telephone LLC (Note 7) ...................... 200 --
Deferred income taxes .................................................... 3,867 3,911
-------- --------
$ 51,154 $ 52,002
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) .......................... $ 2,634 $ 2,632
Accounts payable .................................................... 1,352 888
Accrued compensation ................................................ 597 514
Accrued benefit liability ........................................... 196 196
Other accrued expenses .............................................. 164 227
-------- --------
Total current liabilities ....................................... 4,943 4,457
-------- --------
Long-term debt (Note 4) .................................................. 13,771 14,278
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000 shares;
no shares outstanding ............................................... -- --
Common stock, $.001 par value; authorized 25,000 shares, 8,445 shares
Issued .............................................................. 8 8
Paid-in capital ..................................................... 24,145 24,145
Retained earnings ................................................... 15,233 15,991
Accumulated other comprehensive loss ................................ (508) (508)
Treasury stock, at cost, 922 shares and 879 shares, respectively .... (6,438) (6,369)
-------- --------
Total stockholders' equity ...................................... 32,440 33,267
-------- --------
$ 51,154 $ 52,002
======== ========
See accompanying notes to consolidated financial statements.
2
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
Net sales ...................................................... $ 8,602 $ 10,890
Cost of goods sold ............................................. 6,443 7,574
-------- --------
Gross profit ............................................... 2,159 3,316
-------- --------
Operating expenses:
Selling .................................................... 998 1,118
General and administrative ................................. 1,564 1,197
Research and development ................................... 548 497
-------- --------
3,110 2,812
-------- --------
Earnings (loss) from operations ................................ (951) 504
-------- --------
Interest expense ........................................... (273) (211)
-------- --------
Earnings (loss) before income taxes ............................ (1,224) 293
Provision (benefit) for income taxes ........................... (466) 110
-------- --------
Earnings (loss) before cumulative effect ....................... (758) 183
Cumulative effect of change in
accounting principle, net of tax ............................. -- (6,886)
-------- --------
Net loss ....................................................... $ (758) $ (6,703)
======== ========
Basic earnings (loss) per share before cumulative effect ....... $ (0.10) $ 0.02
Cumulative effect of change in accounting
principle, net of tax ........................................ -- (0.90)
-------- --------
Basic loss per share ........................................... $ (0.10) $ (0.88)
======== ========
Basic weighted average shares outstanding ...................... 7,539 7,613
======== ========
Diluted earnings (loss) per share before cumulative effect ..... $ (0.10) $ 0.02
Cumulative effect of change in
accounting principle, net of tax ............................. -- (0.90)
-------- --------
Diluted loss per share ......................................... $ (0.10) $ (0.88)
======== ========
Diluted weighted average shares outstanding .................... 7,539 7,613
======== ========
See accompanying notes to consolidated financial statements.
3
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
Cash Flows From Operating Activities:
Net loss ............................................ $ (758) $ (6,703)
Adjustments to reconcile net earnings to cash
provided by (used in) operating activities:
Cumulative effect of change in
accounting principle ............................ -- 6,886
Depreciation ...................................... 285 324
Amortization ...................................... 191 107
Provision for doubtful accounts ................... 90 90
Deferred income taxes ............................. 10 (115)
Changes in operating assets and liabilities:
Accounts receivable ............................. (417) 2,225
Inventories ..................................... 1,126 2
Other current assets ............................ 36 216
Other assets .................................... 3 (178)
Income taxes .................................... (191) 225
Accounts payable and accrued expenses ........... 484 (1,450)
-------- --------
Net cash provided by operating activities ....... 859 1,629
-------- --------
Cash Flows From Investing Activities:
Capital expenditures ................................ (323) (29)
Receipts from note receivable ....................... 162 --
Investment in Blonder Tongue Telephone, LLC ......... (200) --
Acquisition of rights-of-entry ...................... (150) --
-------- --------
Net cash used in investing activities ............... (511) (29)
-------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt ........................ 2,430 14,954
Repayments of long-term debt ........................ (2,935) (17,103)
Acquisition of treasury stock ....................... (69) --
-------- --------
Net cash used in financing activities ......... (574) (2,149)
-------- --------
Net decrease in cash ..................................... (226) (549)
Cash, beginning of period ................................ 258 942
-------- --------
Cash, end of period ...................................... $ 32 $ 393
======== ========
Supplemental Cash Flow Information:
Cash paid for interest .............................. $ 187 $ 243
Cash paid for income taxes .......................... -- --
======== ========
See accompanying notes to consolidated financial statements.
4
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 1 - COMPANY AND BASIS OF PRESENTATION
Blonder Tongue Laboratories, Inc. (the "COMPANY") is a designer,
manufacturer and supplier of electronics and systems equipment for the cable
television industry, primarily throughout the United States. The consolidated
financial statements include the accounts of Blonder Tongue Laboratories, Inc.
and subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
The results for the first quarter of 2003 are not necessarily indicative of
the results to be expected for the full fiscal year and have not been audited.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary for a fair statement of the results of operations for the
period presented and the consolidated balance sheet at March 31, 2003. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the SEC rules and regulations. These financial
statements should be read in conjunction with the financial statements and notes
thereto that were included in the Company's latest annual report on Form 10-K
for the year ended December 31, 2002.
NOTE 2 - STOCK OPTIONS
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option plans.
Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for
Stock-Based Compensation, requires the Company to provide pro forma information
regarding net income 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 the three months ended
March 31, 2002. No options were granted during the three months ended March 31,
2003.
Under accounting provisions of FAS 123, the Company's net loss to common
shareholders and net loss per common share would have been adjusted to the pro
forma amounts indicated below (in thousands, except per share data):
Three Months
Ended March 31
------------------
2003 2002
------- -------
Net loss as reported ................................. $ (758) $(6,703)
Adjustment for fair value of stock options,
net of tax .......................................... 78 148
------- -------
Pro forma ....................................... ($ 836) ($6,851)
======= =======
Net loss per share basic and diluted:
As reported ..................................... $ (0.10) $ (0.88)
======= =======
Pro forma ....................................... $ (0.11) $ (0.90)
======= =======
5
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 3 - INVENTORIES
Inventories net of reserves are summarized as follows:
March 31, Dec. 31,
2003 2002
------- -------
Raw Materials .......................... $10,784 $11,054
Work in process ........................ 1,633 1,660
Finished Goods ......................... 11,217 12,046
------- -------
$23,634 $24,760
======= =======
NOTE 4 - DEBT
On March 20, 2002 the Company executed a credit agreement with Commerce
Bank, N.A. for a $19,500 credit facility, comprised of (i) a $7,000 revolving
line of credit under which funds may be borrowed at LIBOR, plus a margin ranging
from 1.75% to 2.50%, in each case depending on the calculation of certain
financial covenants, with a floor of 5% through March 19, 2003 (5% at March 31,
2003), (ii) a $9,000 term loan which bears 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
(6.75% at March 31, 2003) and (iii) a $3,500 mortgage loan bearing interest at
7.5%. Borrowings under the revolving line of credit are limited to certain
percentages of eligible accounts receivable and inventory, as defined in the
credit agreement. The credit facility is collateralized by a security interest
in all of the Company's assets. The agreement also contains restrictions that
require the Company to maintain certain financial ratios as well as restrictions
on the payment of cash dividends. The maturity date of the line of credit with
Commerce Bank is April 1, 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.
Upon execution of the credit agreement with Commerce Bank, $14,954 was
advanced to the Company, of which $14,827 was used to pay all unpaid principal
and accrued interest under the Company's prior line of credit and term loans
with First Union National Bank.
At March 31, 2003, there was $5,595, $6,750 and $3,267 outstanding under
the revolving line of credit, term loan and mortgage loan, respectively.
At March 31, 2003, the Company was unable to meet one of its financial
covenants under its credit agreement with its bank, compliance with which was
waived by such bank as of March 31, 2003.
NOTE 5 - RIGHTS OF ENTRY ACQUISITION (DOLLARS IN THOUSANDS)
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, LLC ("BDR BROADBAND"), 80% of the outstanding capital
stock of which is owned by the Company, acquired the Systems, which are
comprised of approximately 3,270 existing MDU cable television subscribers and
approximately 7,340 passings. BDR Broadband paid approximately $1,880 for the
Systems, subject to adjustment, which constitutes a purchase price of $.575 per
subscriber. The final closing date for the transaction was on October 1, 2002
and BDR Broadband has been reflected in the consolidated results of the Company
since that date. The Systems are expected to be cash flow positive beginning in
the first year. It is planned that the Systems will be upgraded with
approximately $1,300 of interdiction and other products of the Company over the
course of operation.
6
BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
The purchase price (excluding transaction costs) was allocated $1,489 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.
NOTE 6 - NOTES RECEIVABLE
During September 2002, the Company sold inventory at a cost of
approximately $1,447 to a private cable operator for approximately $1,929 in
exchange for which the Company received notes receivable in the principal amount
of approximately $1,929. The notes are payable by the customer in 48 monthly
principal and interest (at 11.5%) installments of approximately $51 commencing
January 1, 2003. The customer's payment obligations under the notes are
collateralized by purchase money liens on the inventory sold and blanket second
liens on all other assets of the customer. The Company 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.
NOTE 7 - ACQUISITION
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 consists of (i) up to $3,500 payable over a minimum of two years, plus
(ii) 500 shares of the Company's common stock. Of the $3,500 payable under the
agreements, the Company's obligation to pay $2,500 is contingent upon BTT
achieving specified targeted monthly earnings objectives. As of March 31, 2003,
$200 has been paid.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those matters
discussed herein in the section entitled Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. The words "believe",
"expect", "anticipate", "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including without limitation, the Company's Annual Report
on Form 10-K for the year ended December 31, 2002 (See Item 1 - Business; Item 3
- - Legal Proceedings; and Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations).
GENERAL
During June, 2002, the Company formed a venture with Priority Systems, LLC
and Paradigm Capital Investments, LLC for the purpose of acquiring the
rights-of-entry for certain multiple dwelling unit cable television systems (the
"SYSTEMS") owned by affiliates of Verizon Communications, Inc. The venture
entity, BDR Broadband, 80% of the outstanding capital stock of which is owned by
the Company, acquired the Systems, which are comprised of approximately 3,270
existing MDU cable television subscribers and approximately 7,340 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 are expected to be
cash flow positive beginning in the first year. It is planned that the Systems
will be upgraded with approximately $1,300,000 of interdiction and other
products of the Company over the course of operation.
In consideration for its majority interest in BDR Broadband, the Company
advanced to BDR Broadband $250,000, which was paid to the sellers as a down
payment against the final purchase price for the Systems. The Company also
agreed to guaranty payment of the aggregate purchase price for the Systems by
BDR Broadband. The approximately $1,630,000 balance of the purchase price was
paid by the Company on behalf of BDR Broadband on November 30, 2002 pursuant to
the terms and in satisfaction of certain promissory notes (the "SELLER NOTES")
executed by BDR Broadband in favor of the sellers.
The Company believes that similar opportunities currently exist to acquire
additional rights-of-entry for multiple dwelling unit cable television systems
at historically low prices. The Company also believes that the model it devised
for acquiring and operating the Systems will be successful and can be replicated
for other transactions with the same or new venture partners. Accordingly, the
Company is currently seeking and assessing various opportunities to acquire
additional rights-of-entry via venture arrangements with third parties that
would market and operate the systems. As of the date hereof, however, the
Company does not have any binding commitments or agreements for any such
acquisitions. Moreover, even if attractive opportunities arise, the Company may
need financing to acquire the rights-of-entry for such cable systems. Given that
financing may not be available on acceptable terms or at all, the Company may be
unable to pursue these opportunities.
In March, 2003, the Company entered into a series of agreements, pursuant
to which the Company acquired
8
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 consists 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. Of the $3,500,000 payable under the agreements, Blonder
Tongue's obligation to pay $2,500,000 is contingent upon BTT achieving specified
targeted monthly earnings objectives. As of March 31, 2003, $200,000 has been
paid.
NetLinc is the owner of patents, proprietary technology and know-how for
certain telephony products that allow Competitive Local Exchange Carriers
("CLECs") to competitively provide voice service to MDUs. Pursuant to a
distributorship agreement between NetLinc and BTT, BTT has the exclusive
worldwide distribution rights, subject to certain limited exceptions, to
NetLinc's products. In turn, pursuant to a distribution agreement between BTT
and Blonder Tongue, Blonder Tongue has obtained from BTT exclusive worldwide
distribution rights, subject to certain limited exceptions, to those same
products for sale to private and franchise cable operators as well as to all
buyers for use in MDU applications. As part of the overall series of agreements,
Blonder Tongue has licensed the right to use the name "Blonder Tongue" to BTT,
thereby allowing the venture to capitalize upon the goodwill that the Company
has developed over its 50+ years in business. It is contemplated that BTT will
partner with CLECs to offer the telephony solution, receiving a portion of the
line charges due from the CLECs' telephone customers. Blonder Tongue will
receive incremental revenues and profits associated with sales of the telephony
products. In addition, through its 35% stake in BTT, Blonder Tongue will also
receive a portion of the voice service revenues earned by BTT.
First three months of 2003 Compared with first three months of 2002
Net Sales. Net sales decreased $2,288,000 or 21% to $8,602,000 in the first
three months of 2003 from $10,890,000 in the first three months of 2002. The
decrease in sales is primarily attributed to a decrease in capital spending by
cable system operators and weak overall economic conditions. As a result, the
Company experienced lower interdiction and digital product sales. Net sales
included approximately $775,000 and $1,336,000 of interdiction and digital
equipment for the first three months of 2003 compared to approximately
$1,014,000 and $2,139,000 for the first three months of 2002.
Cost of Goods Sold. Cost of goods sold decreased to $6,443,000 for the
first three months of 2003 from $7,574,000 for the first three months of 2002,
primarily due to decreased volume but increased as a percentage of sales to
74.9% from 69.6%. The increase as a percentage of sales was caused primarily by
a higher portion of sales during the period being comprised of lower margin
product, including the Motorola QAM decoder.
Selling Expenses. Selling expenses decreased to $998,000 for the first
three months of 2003 from $1,118,000 in the first three months of 2002 but
increased as a percentage of sales to 11.6% for the first three months of 2003
from 10.3% for the first three months of 2002. This $120,000 decrease is
primarily attributable to a decrease in wages and fringe benefits of $34,000 due
to a reduction in headcount, along with a reduction in freight of $50,000 and
commissions of $24,000 due to reduced sales levels.
General and Administrative Expenses. General and administrative expenses
increased to $1,564,000 for the first three months of 2003 from $1,197,000 for
the first three months of 2002 and increased as a percentage of sales to 18.2%
for the first three months of 2003 from 11.0% for the first three months of
2002. The $367,000 increase can be primarily attributed to professional fees of
$109,000, depreciation and amortization of $97,000 and operating expenses of
$123,000, all of which related to BDR Broadband.
Research and Development Expenses. Research and development expenses
increased to $548,000 in the first three months of 2003 from $497,000 in the
first three months of 2002. This $51,000 increase was primarily due to an
increase in licensing fees of $16,000 and an $18,000 increase in departmental
supplies. Research and development expenses, as a percentage of sales, increased
to 6.4% in the first three months of 2003 from 4.6% in the first three months of
2002.
Operating Income (Loss). Operating income (loss) was a loss of $951,000 for
the first three months of 2003 compared to income of $504,000 for the first
three months of 2002.
9
Interest Expense. Interest expense increased to $273,000 in the first three
months of 2003 from $211,000 in the first three months of 2002. The increase is
the result of higher average borrowing.
Income Taxes. The provision (benefit) for income taxes for the first three
months of 2003 was a benefit of $466,000 compared to a provision of $110,000 for
the first three months of 2002 as a result of a decrease in taxable income.
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 non-recurring $6,886,000 charge against
earnings in the first three months of 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003 and December 31, 2002, the Company's working capital
was $28,995,000 and $30,317,000, respectively. The decrease in working capital
is attributable primarily to a reduction of inventory of $1,126,000 along with
an increase in accounts payable and accrued expenses of $484,000.
The Company's net cash provided by operating activities for the three-month
period ended March 31, 2003 was $859,000, compared to net cash provided by
operating activities for the three-month period ended March 31, 2002, which was
$1,629,000. The decrease in net cash is primarily due to a decrease in inventory
offset by a decrease in accounts payable and accrued expenses.
Cash used in investing activities was $511,000, which was attributable to
capital expenditures for new equipment and upgrades to the BDR Broadband Systems
of $323,000 and a $200,000 investment in BTT.
Cash used in financing activities was $574,000 for the first three months
of 2003 primarily comprised of $2,430,000 of borrowings offset by $2,935,000 of
repayments of long term debt.
On March 20, 2002 the Company executed a credit agreement with Commerce
Bank, N.A. for a $19,500,000 credit facility, comprised of (i) a $7,000,000
revolving line of credit under which funds may be borrowed at LIBOR, plus a
margin ranging from 1.75% to 2.50%, in each case depending on the calculation of
certain financial covenants, with a floor of 5% through March 19, 2003 (5% at
March 31, 2003), (ii) a $9,000,000 term loan which bears 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 (6.75% at March 31, 2003) and (iii) a $3,500,000 mortgage
loan bearing interest at 7.5%. Borrowings under the revolving line of credit are
limited to certain percentages of eligible accounts receivable and inventory, as
defined in the credit agreement. The credit facility is collateralized by a
security interest in all of the Company's assets. The agreement also contains
restrictions that require the Company to maintain certain financial ratios as
well as restrictions on the payment of cash dividends. The maturity date of the
line of credit with Commerce Bank is April 1, 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.
Upon execution of the credit agreement with Commerce Bank, $14,954,000 was
advanced to the Company, of which $14,827,000 was used to pay all unpaid
principal and accrued interest under the Company's prior line of credit and term
loans with First Union National Bank.
At March 31, 2003, there was $5,595,000, $6,750,000 and $3,267,000
outstanding under the revolving line of credit, term loan and mortgage loan,
respectively.
At March 31, 2003, the Company was unable to meet one of its financial
covenants under its credit agreement with Commerce Bank, compliance with which
was waived by Commerce Bank as of March 31, 2003.
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
10
obligations in connection with its investments in NetLinc and BTT. While the
Company's existing lender agreed to allow the Company to fund both the BDR
Broadband obligations and the NetLinc/BTT obligations, such lender did not agree
to increase the Company's line of credit. This has and may hereafter decrease
the amount of funds otherwise available to the Company for working capital
purposes. Accordingly, if alternative financing is not obtained for BDR
Broadband and/or NetLinc/BTT, the Company may eventually need to seek to
increase the amount of its line of credit or find an alternative financing
source.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments and
positions represents the potential loss arising from adverse changes in interest
rates. At March 31, 2003 and 2002 the principal amount of the Company's
aggregate outstanding variable rate indebtedness was $5,595,000 and $753,913,
respectively. A hypothetical 100 basis point increase in interest rates would
have had an annualized unfavorable impact of approximately $56,000 and $8,000,
respectively, on the Company's earnings and cash flows based upon these
quarter-end debt levels. At March 31, 2003, the Company did not have any
derivative financial instruments.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, 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. 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.
In addition, the Company reviewed its internal controls, and there have
been no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain proceedings incidental to the ordinary
course of its business, none of which, in the current opinion of management, is
likely to have a material adverse effect on the Company's business, financial
condition, or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first
quarter ended March 31, 2003 through the solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits are listed in the Exhibit Index appearing at page 15 herein.
(b) No reports on Form 8-K were filed in the quarter ended March 31, 2003.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BLONDER TONGUE LABORATORIES, INC.
Date: May 15, 2003 By: /s/ James A. Luksch
-------------------------------------
James A. Luksch
Chief Executive Officer
By: /s/ Eric Skolnik
-------------------------------------
Eric Skolnik
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
13
CERTIFICATION
I, James A. Luksch, Chief Executive Officer of Blonder Tongue Laboratories,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blonder Tongue
Laboratories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board or directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ James A. Luksch
--------------------------------
James A. Luksch
Chief Executive Officer
(Principal Executive Officer)
14
CERTIFICATION
I, Eric Skolnik, Senior Vice President and Chief Financial Officer of
Blonder Tongue Laboratories, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Blonder Tongue
Laboratories, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board or directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Eric Skolnik
--------------------------------
Eric Skolnik
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
15
EXHIBIT INDEX
-------------
Exhibit # Description Location
- --------- ----------- --------
3.1 Restated Certificate of Incorporated by reference from
Incorporation of Blonder Exhibit 3.1 to S-1
Tongue Laboratories, Inc. Registration Statement No.
33-98070 originally filed
October 12, 1995, as amended.
3.2 Restated Bylaws of Blonder Incorporated by reference from
Tongue Laboratories, Inc. Exhibit 3.2 to S-1
Registration Statement No.
33-98070 originally filed
October 12, 1995, as amended.
10.1 Capital Contribution Agreement Filed herewith
between Blonder Tongue
Telephone, LLC, Resource
Investment, LLC, H. Tyler
Bell, NetLinc Communications,
LLC and Blonder Tongue
Laboratories, Inc., dated
March 26, 2003
99.1 Certification pursuant to Filed herewith.
Section 906 of Sarbanes-Oxley
Act of 2002
16