Greetings, and welcome to the Blonder Tongue Laboratories First Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, James Luksch. Please go ahead, sir.

Good morning. Welcome to Blonder Tongue's teleconference, which covers our reported performance in the first quarter of 2014. 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 market. As you know, the future is impossible to predict, and so I caution you that actual results may differ from those that may be projected in our comments this morning. I would ask you to refer to our prior SEC filings, our Form 10-Ks for 2012 and 2013 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 this morning are Blonder Tongue's President, Bob Pallé; and Eric Skolnik, our Chief Financial Officer. All of us will be available to answer any questions following our presentation of the state of the company, its accomplishments, direction and goals, and how that direction lines up with the trends in the marketplace. As you can see from our press release this morning, sales were low in the first quarter, which historically has been the case in Blonder Tongue's first quarter. Closing of the many opportunities that have been focused on has been slower to being realized than expected. Some of this delay has been due to the delay -- I'm sorry, some of this delay has been due to product introductions that were later than planned, and a large reason for the delay was due to the marketplace being slow to spend their money. The malaise in the spending pattern seems to still be affected by the political atmosphere and the mass of mergers and acquisitions happening every week. Based upon our bookings in the recent months, the pattern has changed for the better. As we talk today, Blonder Tongue, a typically low backlog company, has a backlog a little over $5,200,000. Essentially, all of this backlog is shippable in 2014 and most of it in the second and third quarters. The backlog is heavily weighted with products introduced in recent months, but also includes product for deals that have been in limbo for many months. As stated in our 2013 year end teleconference, we are attacking the top line in numerous ways. Sales input is driven by products that satisfy our customer need and are provided at a competitive price. The needs of our customers are changing continuously. There is a merging of IP, voice and video in an ever-increasing number of applications. The software required to manage the distribution of these multiple services to multiple receiving equipment is pushing to needs to more and more complicated software packages. This is a good news/bad news situation. The good news is that once you get the software working, it has no lifetime. The bad news is that software requires continuous expensive support. Hardware may have a limited life but does need the continuous cost of expensive updates. Future systems will require a marriage of the best of both. The Internet, including streaming video and cellphone RF distribution, will deliver an ever-increasing amount of communications demanded by the marketplace. If you want to distribute voice, data and video, even the IP purists must eventually realize that when it comes to the video, maintaining good picture quality delivered reliably requires careful attention to the RF characteristics of the delivery system. Blonder Tongue knows that its future is dependent on its products, interfacing with these networks of the future and being able to interface with the many profiles needed for viewing on your TV, your iPhone, your iPad and your computer. And over the horizon, 4K video is closer and closer to becoming the next and best video system for home viewing of live events, especially sporting high-activity events. Blonder Tongue is up to the challenge. We continue to invest heavily in engineering and continue to search out partners with complementary technology with the determination to stay on the leading edge to serve our market's requirements. Our engineering department is continuing to release new products, and this cycle must not only continue, but must be accelerated. We add in new product needs to our project list as our customer base feeds us application needs. I will now turn the call over to Eric Skolnik, who will give you a report on our financial performance in the first quarter of 2014, then Bob Pallé will provide his insight into the market we serve and more specifics about applications and our success in meeting the requirements of those applications being met by our products. Subsequent to Bob's presentation, we will have a Q&A session. But now here is Eric.

Thank you, Jim. Net sales decreased $1,141,000 or 17% to $5,578,000 in the first 3 months of 2014 from $6,719,000 in the first 3 months of 2013. Net loss for the 3 months ended March 31, 2014, was $1,161,000 or a $0.19 loss per share compared to a $482,000 loss or an $0.08 loss per share for the comparable period in 2013. The net sales decrease is primarily attributed to a decrease in sales of contract manufactured products and digital video headend products, offset by an increase in analog video headend products. Sales of contract manufactured products were $80,000 and $960,000. Digital video headend products were $2,404,000 and $3,192,000, and analog video headend products were $1,671,000 and $1,283,000 in the first 3 months of 2014 and 2013, respectively. The reduction in sales of our contract manufactured products is directly related to the reduction in sales to XRS Corporation. Now I'd like to turn the call over to Bob Pallé. Bob?

Thank you, Eric, and good morning. We were obviously disappointed in the first quarter financial performance. In spite of this, there are some bright spots, and the sales marketing and engineering teams continue to work hard on the opportunities, many of which are substantial in the $1 million to $4 million range. Several of these were described in prior calls and have recently matured into orders that began shipping in the first quarter and will continue throughout 2014. The retail signal distribution commitment of $4.5 million described in the last call and also described in the press release just prior to the last conference call began shipping in April and will be completed over the next 2 quarters, Q2 and Q3. In the university market, sales were down for Q1, but the company has recently released 2 new encoders that are variations of the HDE-8C-QAM discussed in the last call. These are application-specific models for use with Dish Network-based systems and DIRECTV-based systems, respectively. Formal approval was received from Dish Network in Q1, and formal approval from DIRECTV is expected in the near future. In the last call, we stated that we have lost ground in this area to a much lower performing competitor. But with the introduction of the HDE-8C-QAM, we regained this lost share. The introduction of these new models and the approvals to which I refer are part of this process. As I've said in the past, the BT HD encoder product line remains the #1 choice for this application as it has the highest performance for the price. In the hospitality Free-to-Guest market, BT's key customer World Cinema, Inc. suspended shipments in Q1 as it had done also in Q1 2013. As stated in the last call, we are still in contention for several large hospitality opportunities that have not yet closed. These could result in increased sales in the latter half of 2014 should they close as forecast. In the CATV MSO market, the product testing and approvals did result in significant sales in Q1, and those sales will continue throughout 2014. This was nearly $1 million of the Q1 revenue. As stated in previous calls, these solutions helped MSO serve pocket communities, such as businesses, hospitality, apartments and condominium complexes. Also as stated in the last call, the GPS product-based customer reduced orders to a maintenance level. This was the largest factor in the Q1 sales decrease, meaning 820,000 of that sales reduction, Q1 2013 to Q1 2014, comparatively. In the first quarter, BT's HD encoder customer maintained their shipments at the previous level and these, as I said earlier, are forecasted to increase later in the year and in 2015 as the 2015 deadline nears for low-power TV broadcasters to convert from analog to digital broadcasting. Repeating what we have stated in prior calls, it is taking more chronological time than we originally forecast to increase sales. We have done some important design wins and customer commitments that are resulting in significant sales. As Jim stated earlier, we have built a significant backlog of $5.2 million at this point, a number that BT in recent history seldom exceeds $1 million. Also, the general business climate remains positive. Consequently, BT should show improving sales and resulting improved financial performance in future quarters. And now we'd like to open up the call to the question-and-answer session.

[Operator Instructions] And our first question comes from the line of Peter Abrahamson, who is a private investor.

I have a number of questions. Obviously, a tougher quarter, but I have a question. There was -- appears to be a deterioration in the gross margin. It was like 31.5% from 37%. I was wondering if you could comment on that in the light of the XRS sales that dropped off I thought were lower margin, and then the inventory write-offs from the prior year I thought might have helped gross margin.

Yes. The -- it's pretty much dominated by product mix. I mean, the analog products don't have nearly, when you look at it as a percentage of sales of gross margin dollars, don't contribute nearly as much gross margin dollars as the digital product sales do. So since we had a significant loss on the digital product sales, comparative quarter, that's really what drove down the margins.

Okay. So the analog product sales are much lower than digital at this point?

Well, no. Not the margin. I'm talking about the contribution of the margin because of the dollars that are involved. That's what I'm referring to.

Okay. I guess, in the backlog of $5.2 million, is that $4.5 million electronics chain order in that backlog, or is that separate to that new product?

The remaining approximately $3.5 million is. And all of it was present at April 1, the beginning of the quarter, if that's what your -- I don't know if exactly what your question was -- today or at the beginning of Q2.

Well, whatever is referred to in the press release.

Which is today backlog, yes.

Which is today's backlog, okay. And then, I guess, do you have any update on the bank refinancing? Is that expected to take place this quarter, or any timing on that?

At this time, no, we don't have any update. The debt expires on February 1, 2015. So we have time, and we're taking our time in evaluating all alternatives. Whether we stay where we are or find a different lender, we're not really sure at this point.

Okay, so it sounds like it will not be a Q2 event. It would be Q3 or Q4.

That's probably accurate, yes.

Okay. My next question kind of relates to the upcoming shareholders' meeting and the proxy statement. I guess, there's a proposal to increase the stock option plan from $1.6 million to $2.6 million options and then the directors' plan from $400,000 to $600,000 options. So that would be a total of $3.2 million stock options, which would be roughly 52% of the kind of total common shares outstanding. I know the directors are recommending a vote for it, but given that the independent shareholders are on this call, can you provide why the board or management thinks the independent shareholders should vote for the plan? Is there any market data that supports this level of dilution?

I think that it takes an examination of the options that are in place and what their strike prices are to properly answer that question. If you were to examine in the 10-K what the strike price were of all of these -- of the options that were given previously and realize that the old ones have expiration dates coming up and the new ones have periods of time that they kick in, and anyway, no one is making any money off of the options. And the only reason -- the main reason why we are continuing to award options in anticipation of improving the financial performance of Blonder Tongue and being able to use options as incentives to maintain employees in the company and to be able to hire new employees with stock option incentives that we'll realize some gain in the future. But there is nobody that's gotten rich off of stock options at Blonder Tongue. So...

No, I understand that. I mean, the dilution's really high. I mean, the existing plan is going to stay in place, and there's -- a lot of those options have 5 more years to go. So, I mean, we're all hoping that the share price and profits and business will recover. I just have not seen this type of dilution before, and that's the nature of the question. I mean...

I understand. It's a valid question, Peter. I -- the key, though, is to understand the makeup, like what Jim was saying, of the actual options themselves that have been granted. A significant portion of the options are well, well under order, and we're talking not just by a little -- several percentage points. We're talking, in some cases, 1/3 or even more of the value of the strike price compared to the market price of the stock right now. So that's really where the thought process came.

Let's say it turns out that the stock goes up. Anyway, if the employees are willing to pay $2 and $3 to buy the stock in the options, I'm sure that would not bother you any, would it?

Well, at that level, no. But, I mean, the book value of the business, the tangible book value of the business, is around $1.60, $1.80. I'd have to recalculate it after this earnings release. But granting a lot of options that are below kind of book value type exercise price is dilutive. So I don't want to spend the call getting into the details of the option, tranches and grants, but I'm just asking the question and it's getting -- if we -- if you increase 1 million shares every 3 or 4 years, pretty soon, you're just granting the company away, I mean, at the current pace. So that's the nature of the question. I guess the follow-up is, is the board going to include in terms of the vote tabulation all shares, including shares of, I guess, management and board who are going to receive options as part of approving this, or is it going to be the approval of the disinterested shareholders like independents who aren't getting options?

No, the tally is the total number of shares voted.

Okay. I guess that would encourage the board to consider how the tally looks from the disinterested shareholders. But anyway, that's the nature of the -- those are all my questions at this time.

[Operator Instructions] And our next question comes from the line of Ken Hemphil [ph], who is a private investor.

Were there any lost customers in the mix of reduction in sales?

The XRS Corporation that was already disclosed publicly and here.

Was that a Blonder customer or a...

It's a Blonder customer. It's a contract manufacturer contracting deal that we had.

Okay. Are there any more thoughts of buying anymore companies or selling Blonder?

Those kind of considerations are ongoing, but we have nothing to report at the moment.

Okay. Have any of your competitors come out with any new product that would put some of your products more at risk? I mean, something revolutionary, or is it just like you said, Jim, constantly changing the widget around a little bit to make it more sellable?

It's happening every day. There's new announcements every day, and it is a challenge to stay ahead of all of the new entries into the market. But I think we're doing a very good job at that. And you get a half step behind and then you go a step ahead. It's a constant challenge, but I think we're doing well in that area.

Eric, with the Affordable Health Care Act (sic) [Affordable Care Act], if you opt out of it, you would have to pay a fine of $2,000 per employee. Would that be something that you guys should think about? I don't know what your premiums are for your employees for the health care but...

It's something that we're always considering. At this point, there's nothing on the horizon. But obviously, as time goes on and the time line shifts with the Affordable Care Act, we have to make a decision every year on which way we believe we should go. Because it's not just a question of just saying forget it and then save the money because now you're shouldering the burden of the health care coverage onto the employees, which becomes all part of the whole concept of what are our competitors doing, both competitors in our marketplace, as well as our competitors locally in terms of talent, right? So we have to be very cognizant of what is the market place is doing with regards to health care.

Have you ever thought about self-insuring your plan?

It doesn't make sense. Yes, we have absolutely looked at that, and it economically does not make sense, to self-insure.

Because that's something I did for 10 years, and I kept switching insurance companies every year until I couldn't place it anymore. But I did manage to put the specific and aggregate insurance with Lloyd's and only rang the bell one time for a small amount. But that's something you may want to think about at some point.

Sure.

We -- both Bob and I have been with a company where we had self-insurance for a long time, but it was in the era where stop-loss insurance premiums were very reasonable.

Reasonable, yes.

And also, hiring companies to do the administration of the claims was also be able to be obtained at a reasonable price. Those things, in recent history, when we've tried to duplicate what we had done in the past are really way different than they were 20 years ago.

Okay. And one last question. Are you guys doing much internationally with your products these days?

We do not have a significant amount of international sales.

Except for Canada. We have a -- our Canada sales are significantly higher than they've been in the past.

And then I know you read where we're sending our technology to China, and I know you guys are manufacturing in China. Does that pose a risk that they would now become -- taking some of your proprietary stuff and start competing with you?

I'll take that question. First, here, is that all of the recently released stuff that is technology-sensitive is made here, all the high dollar items are made here. Secondly, we've chosen a partner that we've had since 1998 making products for us, and they absolutely only make products to spec for their customers. And none of the technology that we've been involved in or any other of their customers have we seen escape into the local market in China. So we think we have the best of both worlds right now.

All right. I know the stock was -- hit an all time -- I think it went down to $0.82 this morning, so that's a -- I can only hope things improve.

And it seems that we have one other question from the line of Peter Abrahamson, a private investor.

I had a couple of follow-up questions, one I forgot to ask. Given the visibility in the backlog, and we're halfway through Q2, will the company be profitable in the second quarter? Can you provide some guidance for the second quarter given the visibility in the backlog disclosure?

We normally don't provide guidance, Peter, as you know, but we've got a decent backlog. And certainly, the financial performance should improve. But how much, I'm really not a -- we don't do it, okay? The numbers that we got kind of speak for themselves. You could do some arithmetic and come to your own conclusion. I mean, if we are going to continue to sell at the level we normally would sell, then this backlog is kind of additional product sales.

I see. So you're suggesting that kind of look at last year's second quarter, adjust for XRS and then look at this backlog and do some math?

Yes, sir.

Okay. And then are you expecting more digital sales in the second quarter?

Well, this backlog is heavily loaded with digital products.

Okay, okay, I got it. Well, I thought I'd ask, just given the backlog disclosure was different than the past. Next question, I guess, is an update on the pension plan. I think in the last call, you're going to look into getting that off the company's books. Given that it swung to a slight surplus or a positive account, I would think you could get a life insurance company to just take the risk in the assets and you might even get a little capital in return for it since it's slightly overfunded. Have you looked into that, or is there some progress on that?

Yes. We have that on our hit list for this year to investigate alternatives on the pension plan.

Okay. If you need any names or numbers, let me know, because that is a hot topic this year.

Absolutely, thank you.

And it seems that we have no further questions at this time. I would like to turn the floor back to management for closing remarks.

Okay. Thank you, all, for participating in the call, and thank you for the good questions, and I guess we'll see you next time or talk to you next time. And goodbye, and everybody have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.