Blonder Tongue Laboratories, Inc.

Robert Palle - CEO Eric Skolnik - CFO Steven Shea - Chairman of the Board

Richard Todaro - George Gaspar - Kenneth Hemphill - Richard Greulich - Greg Brown -

Thank you. Welcome to Blonder Tongue's 2016 fourth quarter and full-year financial reporting teleconference.

Before we begin this morning with any details of performance, I'd like to preface my remarks and those made by other Blonder Tongue representatives, who may be speaking today, by reminding you that we will be discussing certain subjects, which will contain forward-looking statements, including management's view of our prospects and evolving trends in the marketplace. As you know, the future is impossible to predict, so I caution you that actual results may differ from those that maybe projected in our comments this morning.

I would ask you that you refer to our prior SEC filings, our Form 10-K for the years 2015 and 2016, and our Form 10-Qs from prior quarters for additional information concerning factors that could cause actual results to differ from the information discussed this morning. With me today are Eric Skolnik, Blonder Tongue's Chief Financial Officer and Steve Shea, the Chairman of the Board.

All of us will be available to answer any questions you may have following our presentations. First, the essence of the press release comments we are repeating.

We are able to substantially narrow the losses for both the fourth quarter and the full-year compared to 2015. Of the overall results are disappointing and clearly indicate we still have a lot more to do in the areas of increasing sales and improving gross margin.

In the third quarter 2016, we reported that we would remain focused on achieving positive EBITDA and refinancing our revolver in term loan with a new lender. We achieve both of these goals and the details regarding each of these can be found in our 2016 form 10-K.

also, as we previously indicated, we continue to project the sales remain relatively flat for the first half of 2017. Continuing beyond the comments of the press release and the area of research and development, BT spent the third and fourth quarters developing additional versions of the public education and government video encoder products.

Specifically at the request of several large service providers, the engineering team improved both the data rate efficiency and the picture quality and also developed specific features that are needed to expand the utility of the product. Although, incremental sales of these products for 2016 were modest, BT prevail in several head-to-head product evaluations against its direct competitors.

And so doing, we established relationships and credibility with several large service providers that should lead to increasing sales in this key product area. For the coming year, our focus will be developing additional products to help the large operators serve the hospitality, education and healthcare communities more efficiently and cost effectively.

This market segment is very large and it is a good fit for both BT's technical and product expertise and sales channels. Now, I'd like to turn the call over to Eric Skolnik, the company's Chief Financial Officer.

And following Eric, we will have an open question and answer session. Eric?

Thank you, Bob. Net sales increased $235,000 or 4.5% to $5,449,000 for the fourth quarter of 2016 from $5,214,000 for the comparable period in 2015.

Net loss for the three months ended December 31, 2016, was a loss of $338,000 or a loss of $0.04 per share compared to a loss of $2,136,000 or a loss of $0.32 per share for the comparable period in 2015. To the year ended December 31, 2016, net sales increased $1,563,000 or 7.5%, $22,506,000 from $20,943,000 in 2015.

The net loss for the 12 months ended December 31, 2016, was a loss of $1,195,000 or a loss of $0.16 per share compared to a loss of $6,771,000 or a loss of $1.05 per share for the comparable period in 2015. The increase in net sales for the year is primarily attributed to an increase in sales of digital video headend products and data products also in part by a decrease in sales of analogue video headend products and contract manufacture products.

Sales of digital video headend products were $11,777,000 and $9,364,000, sales of data products for $2,701,000 and $1,051,000, sales of analogue video headend products were $2,317,000 and $3,555,000 and sales of contract manufacture products were $895,000 and $1,553,000 in 2016 and 2015 respectively. Now, I'll like to turn the call over to our question and answer session.

Hi guys, great job on the refinancing, that's a big relief. I'm trying to reach to this chaos we're talking and I'm trying to understand what's happening with the subordinate mound that the insiders lend to the company and just to sync once you refinance that, we'd discuss paid-offs.

No. it's the part of the refinancing was to refinance our Santander debt and the subordinated debts that remains outstanding.

So, but cost of capital on that new revolver, you can't use that, it’s a lot cheaper, right, to pay off that debt?

But and then obviously then it would impact our liquidity. So, upright we would be using that liquidity then for that purpose and that's not the intent.

Well then, I'm going to just make sure you clarify. How much is drawn on your revolver today?

Today, I'm not able to discuss how much is outstanding today.

What is at the end of the quarter, roughly?

Again, at the end of the year, the information is in our 10-K. we had at the end of the year, I believe, my ministry what it says.

Okay, within one second --. Okay.

At the end of the year, we had, I'm sorry -- okay -- we had approximately, where is it, $734,000 additional availability for borrowing.

We had a $700,000 left in capacity on that, on the line of credit which you gave extra?

Correct, at the end of the year, yes, correct.

Okay. I thought you guys had more capacity than that, I thought it was like a $8.5 million line of credit and that doesn't mean like you're borrowing that much of it.

The $8.5 million is a combination of two pieces, it's a $5 million revolver and a $3.5 million term loan. So, the and the revolver of course is formula based on accounts receivable and inventory.

So, and obviously have since flow -- the months go on.

Okay. And the term loan is again against your facility?

Well, the entire deal is all across a lot of then in it. It's one joint facility if you will.

Okay. And under the terms if you start bringing capital, you have to pay down the revolver first, is that how that works?

I would have to research that but we're --.

Yeah. It's subordinated, the obligation to the convertible sub-debt holders, is subordinate to the bank.

And we would have to get their permission to pay any of that down.

Yeah. And just, in case your revolver is that like prime plus whatever but this node is a 12%, right?

Correct.

Yeah, that's fine.

But then, Richard?

I'm trying to figure out how to take out the 12% node, isn’t possible.

Richard?

Yeah?

The node is picked.

Right.

Yeah. It doesn't matter if it's picked, it's still growing at 12%.

Agreed.

Alright. So, it would seem like that's a pay only steep rate if we else can do anything to work that down, you know what I'm saying?

Sure.

Any, you mentioned some positive things you've been working on, that's so great. Is there anything that you're concerned about in the business right now, customer wise?

You meant like something in jeopardy, is that you're getting on, no?

Yeah exactly, something ending a contract or anything like that?

No.

No? Okay.

No, that's not. I'm not aware of anything, no.

To the end, you talked about the front half of the year being flat, do you have any thoughts initially on the back half for the year, is there any of this stuff that you think starts to help towards the back half of the year?

That's a very good question. It really gets hazy.

As you know, the political climate and environment has really caused the markets and just the activity to be very choppy. So, those are the reasons for a lot of my reasons for hesitating to go forecast any further than the first half.

We don’t know one, and on even maybe the White House doesn't even know what's going on inside the White House. But you know, it gets hazy when you get out past the first half of this year because of the political climate.

Unless, you know something. If we got a crystal ball, please let me know, okay?

Yeah. Under the if let's say the back half ended up being somewhere to the front half, I know that you're waiting for it not to be.

I'm just curious, would you end up having to make any adjustments to the operating share at that point or do you feel pretty ahead about running at this current rate through the year?

I think that if we can hold this current rate, we will be okay, yeah.

Okay. Thanks, guys.

Thank you.

Welcome.

George? Mam, if we --.

Hello.

Hi.

Can you hear me?

Yes.

Can, yes.

This is George Gaspar, sorry about that. Could you just review a little bit more your general view on the jump down in the market conditions?

I know you talked about the White House and the mix up potentially causing some problems as you view the forward. But in terms of just of total markets that you're serving, are there any particular changes coming about that are plusses and minuses that you might see and where do you want to take your development to gain access to larger revenue generating capacity.

Anything special that you're working on that could really give you a bump and to get you up much higher on the revenue stream?

Well, I believe in my prepared remarks, I stated there our focus for the coming year will be developing on additional products to help our company to serve hospitality, education, and healthcare communities more efficiently and cost effectively. Because that market segment cannot compare to our revenue, it's quite large and it's good that for technical and product expertise.

So, does that -- I don’t -- I hesitate to say anything more positive than that, I mean, that's -- is that not sufficient?

Rob, I think as shareholders, we are anxious to see the company do something dynamic that could put it on to different plane in terms of revenue generation relative to the product areas. And with the technology that you have, I would assume that you could broaden your base of what you're in tie to evolve into some markets that you are not in at all and generate a larger revenue stream.

Is that, am I way off these by even asking you about this?

And no, you can ask any questions and there are note down questions whatsoever. It's not off day, so no off days questions.

But some of this if you were in my position, you might come to the same conclusion that I have that we have established sales channels and established relationships and as additional potential prospects or customers for us migrate into a territory where we are very active. And these service providers that may we have ignored certain serving certain segments and they get into those segments where our expertise is high, then we are jumping on those and capturing those opportunities.

But to go off and do something completely different and new in a new market is very risky for us. Because we don’t have established sales channels or contacts.

Yeah. I get you.

And I don’t think you would do that if you were here in my position, so.

Sure, okay.

Okay.

Alright.

But the opportunities in the markets that we serve are quite large. They are maybe not a bazillion dollars but hundreds of millions of dollars and so we need to get our appropriate market recover our fair share of that market, like we as we were in the middle 90s and late 90s.

And that's where we're working on and we think that's achievable with the team that we have. And we think we demonstrated that was some recent wins towards the end of 2016.

But as I said, the sales for those products at the end of 2016 were modest. Okay, but it did allow us to increase our sales in the fourth quarter by 5%, several $100,000.

Okay. Sure, that was impressive.

Well, not a -- it's I don’t think is impressive but it is a demonstration that we are in setting targets, we're achieving those targets and now we're reporting on the results.

Okay. And then from the previous dialogue that you were talking in the questionnaire, your personnel structure that you have it now is pretty much in the scope of where you see a revenue generating capacity, and you don’t have to make any further reductions at this point?

We are not planning any further reductions at this point, correct.

Okay, alright. Alright, thank you.

Thank you.

You're welcome.

Good morning, gentlemen.

Good morning, Ken.

Good morning, Ken.

How many place do you have in the research and development deployment?

Think it's 19.

And may have asked you this question before. I know you don’t have any proprietary products, and I do know your company from a firsthand, I've experienced your product when I worked as business manager of a School District, which is the last job I had.

But it has a very good reputation for quality. Is that basically what you try to sell?

Well, that's a piece of it. Absolutely.

What else would you do besides?

From our price that works properly and last a long time.

And of course your price obviously would have to be competitive, otherwise you wouldn’t sell anything.

Right. At a -- you know, we -- our products are modestly priced, if you -- you need to be modestly priced if you're going to be competitive in that product area.

And we say your sales looked flat for the next six months, flat compared to the last quarter or prior year when sales weren’t as good?

The prior year when sales weren’t as good. We made money in the first half last year.

I notice, on the --.

Why did you say sales weren’t as good last year?

The impression is sales were better in towards the end of the year than in the beginning. Is that true?

No, I think it's pretty flat. I mean, I haven’t taken or you know made a bar graph or taken a ruler to it but it's relatively flat.

It's in structured term that I was told to use which it is.

I mean, the reason that for the question, it looks like cash flow last year must have break even.

Cash flow is positive and if you have those couple of pages from the K, we can review that if you like.

I'm just saying that at the level right now, well if it stays that way, you're still you're break even, so we can only hope that things can improve if you things improve in the market place.

Net earnings, we are not break even.

No, I mean, in cash flow wise.

Cash flow wise, we're positive.

Right, some, yeah. I noticed on the release it says basic and deluded rated average shares outstanding, the three months and your $8,110,000 yet for the year ended it was $7,413,000 to the same date.

I don’t understand how that could be different.

Because the weighted average for the three month period is the -- is only for a three month period, right? So, it's only a 90 days, and then the up weighted average over a 12 month period, right, its 365 days.

I see. I see the treasury stock drop tremendously, what happened there?

We issued shares out of treasury rather than reissue new shares for the various restricted stock awards that we had in 2016 as well as under our director stock purchase plan.

So, these shares were sold?

They were removed from treasury and then issued under those various plans.

So, no amount of come in that had come in, just they were given out as bonuses to the --.

Well, no. and depending on the situation, on the restricted stock, yes, those were awards basically compensation to the employees in lieu of cash.

And as far as the director fees were concerned, that was where director fees that the directors took stock instead of cash. So, the idea of course in all of these types of programs is cash preservation, so which obviously is better for the company.

I see. Okay alright, well good luck for the next year.

Thank you so much, Ken.

Thanks, Ken.

Alright.

Good morning.

Good morning.

Bob, is there any compensation that has been differed or reduced that once you become more profitable, we'll be automatically increased?

No. well, not that I know.

Okay. So, you're getting a salary now?

No.

I know one time you weren’t.

I'm not getting a salary.

So, I'm assuming if things get better, your salary will at least bump up somewhere.

That would be the hope, but we're focused on meeting our bank covenants and preserving cash right now and keeping all our key employees and team members together, while we proceed forward with these, or maybe modest victories here this past year and turn them into more than modest victories this year.

What is the outlook for contract manufacturing at this point now? Are you in for 2017, are you likely to have much or less or more?

I think it's going to be similar. But if it's -- all of this is uncertain.

Oh you say your visibility looks out, do you look out a couple of quarters and have those orders in hand to do that business or --?

No. we look out, we do look out a couple of quarters, we did not have that business in hand.

Okay, great. Okay, good luck, thank you.

Thank you.

Thank you.

Hello?

We can't hear, there you go, we can hear you now.

There you go. I think you got my last name wrong.

Anyway --.

Well, what is your last name?

Herman. Glad to see we're moving in the right direction.

Let me be clear, about the cash flow for the year, I understand was positive, what is for the quarter?

Yes.

Okay. And shares outstanding were $8.1 million, correct?

Yes.

Now, I want to [indiscernible] since the credit agreement with Sterling. The first one about regarding Olson.

Can you talk a little bit about that at all?

Yes. The Olson Technology, Inc., has a basically fiber optic product line and Olson supplies certain key subassembly to Blonder Tongue that our part of our fiber optic product line sales and the idea is that we are going to acquire the assets to this product line.

And his present open market customers are similar to ours is largest -- his largest distributor customer is also our largest distributor customer. So, we think it's a good fit.

That hasn’t been consummated yet?

It has not closed.

But you had anticipate it will without problem?

It is forecasted to close. Yes, sometime in the future.

The idea is for us to expand our fiber optic product offerings with this tuck in.

And what's that bill to P&L. I assume it's going to be you have any positive, correct?

Yes. Our assessment, our analysis is that it will be accretive to our financials.

Okay. We only look forward to hearing more about that maybe the course of this year?

We will report on our, yeah sure, our success, it’s part of what we're doing.

Not making fun, but again most of the releases had over the past few years have not had to do with sales and revenue but more with financing agreements and amendments for financing. Look forward that a day when a more revenue related.

Anyway, finally on the 8-K that had to do with the deletion of section 4E2 or something to that effect, what why is that done, number one.

Which 8-K are you referring to?

The one release that I think on the 23rd, 21st, 23rd.

That what that did was that modified the subordinated debt agreement and removed an element of price per section.

Yes. It had to do with the conversion prices.

Correct. It was not the conversion price itself, it was basically a price protection element of the convertible debt which was eliminated.

Okay. Well, anything that prompted that?

Now, within an original agreement, obviously that's something crossed someone’s attention or someone wanted to change and leaded?

What happened was that element of the agreement gave rise to having us to bifurcate the debt into a derivative piece as well as the debt piece. And so, that elimination of that provision will then allow us to just have the debt be regular debt without having a derivative piece anymore.

So, that explains there will be a one time I guess maybe in the first quarter liability or expense that subsequently will disappear?

That is correct.

I can understand and that makes it simple and more safe, really. Well, any of the fair converted below the 8.56?

Not sure.

Okay, that's good enough. Alright, now look forward to reporting 45 days as well and like I say I'm glad you guys are moving in the right direction.

Thank you, very much.

Thank you, so much.

Okay. If that there's no up further questions, thank you very much for participating this morning.

I hope you guys have a great day and a great weekend. Look forward to talking to you on the next call.