<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[x] Quarterly Report pursuant Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period to .
----------------
Commission File Number 0-21766
BroadBand Technologies, Inc.
Delaware 56-1615990
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4024 Stirrup Creek Drive, Durham, N.C. 27703
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (919) 544-0015
----------------------------
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 the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest feasible date.
Classes Outstanding as of May 8, 1996
Common Stock ($.01 par Value) 13,208,109
<PAGE>
BroadBand Technologies, Inc.
Index
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets
March 31, 1996 and December 31, 1995 3
Condensed Statements of Income
Three Months Ended March 31, 1996 and 1995 5
Condensed Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
</TABLE>
2
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BroadBand Technologies, Inc.
Condensed Balance Sheets
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------------- ------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term investments
(Notes 2 and 3) $59,790,923 $65,350,943
Accounts receivable, trade 2,908,688 4,313,465
Inventories (net) (Note 4) 2,096,572 2,007,362
Prepaid expenses and other current assets 980,431 692,171
Total current assets 65,776,614 72,363,941
Property, plant and equipment, at cost 24,287,880 23,827,633
Less allowance for depreciation and amortization (11,325,642) (10,233,135)
12,962,238 13,594,498
Total assets $ 78,738,852 $ 85,958,439
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
BroadBand Technologies, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------------- -------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $9,428,477 $10,410,803
Accrued warranty reserve 2,800,769 2,758,743
Deposits 3,820,303 5,418,776
Deferred revenue 10,650,200 8,193,970
Current installments of capitalized leases 208,784 264,447
Total current liabilities 26,908,533 27,046,739
Capitalized leases, excluding current installments 9,654 43,420
Stockholders' equity:
Common stock, $.01 par value: 30,000,000 shares
authorized; 13,200,226 shares issued and outstanding
at March 31, 1996; and 13,151,167 shares issued and
outstanding at December 31, 1995. 132,003 131,512
Additional paid-in capital 161,420,345 160,927,240
Accumulated deficit (109,731,683) (102,190,472)
Total stockholders' equity 51,820,665 58,868,280
Total liabilities and stockholders' equity $78,738,852 $85,958,439
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
BroadBand Technologies, Inc.
Condensed Statements of Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $3,996,645 $3,221,124
Cost and expenses:
Cost of sales 4,256,651 4,216,500
Research and development 5,047,886 5,128,447
Selling, general and administrative expenses 2,926,645 2,837,007
12,231,182 12,181,954
Loss from operations (8,234,537) (8,960,830)
Interest income 699,635 1,012,611
Interest expense (6,309) (34,690)
Loss before income taxes (7,541,211) (7,982,909)
Income taxes 0 0
Net Loss $(7,541,211) $(7,982,909)
Net loss per share (Note 5) $ (.57) $ (.61)
Average number of shares and equivalents 13,168,038 13,053,663
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
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BroadBand Technologies, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C>
Net cash used in operating activities $ (5,593,369) $ (4,513,693)
INVESTING ACTIVITIES
Acquisitions of furniture, fixtures, and equipment (460,247) (1,046,143)
Disposal of furniture, fixtures, and equipment 0 113,056
Net cash used in investing activities (460,247) (933,087)
FINANCING ACTIVITIES
Issuance of common stock 493,596 47,924
Principal repayments on capital lease obligation 0 (86,253)
Net cash provided by (used in) financing activities 493,596 (38,329)
Decrease in cash and cash equivalents (5,560,020) (5,485,109)
Cash and cash equivalents at beginning of period 65,350,943 80,289,960
Cash and cash equivalents at end of period $59,790,923 $74,804,851
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
6
<PAGE>
BroadBand Technologies, Inc.
Notes to Condensed Financial Statements
March 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1996 and 1995 are not necessarily
indicative of the results that may be expected for a full fiscal year. For
further information, refer to the financial statements and accompanying
footnotes for the year ended December 31, 1995 included in the Company's
Form 10-K submission.
2. RESTRICTED CASH
The Company has outstanding stand-by letters of credit in the amount of
$2,706,348. These letters of credit are collaterized by restricted cash
of the same amount.
3. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. Cash equivalents consists
principally of United States treasury securities and commercial paper.
INVESTMENTS IN DEBT SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115), in 1994. There was no cumulative effect as a result of adopting FAS
115.
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company has both
the intent and ability to hold to maturity are classified as held to
maturity. These securities are carried at amortized cost. At March 31,
1996, the Company had no investments that qualified as trading or available
for sale.
At March 31, 1996, the Company's investments in debt securities were
classified as cash and cash equivalents and short-term investments. The
Company maintains cash and cash equivalents and short-term investments
principally of United States treasury securities and commercial paper with
a maturity date less than twelve months with various financial
institutions. These financial institutions are located in different areas
of the U.S. and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative
standing of those financial institutions that participate in the Company's
investment strategy.
7
<PAGE>
BroadBand Technologies, Inc.
Notes to Condensed Financial Statements
3. INVESTMENTS IN DEBT SECURITIES (CONTINUED)
The following is a summary of cash and cash equivalents and short-term
investments by balance sheet classification for March 31, 1996 and December
31, 1995:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- --------------
<S> <C> <C>
Cash and cash equivalents:
Demand deposit accounts $ 11,873,414 $ 17,544,401
Commercial paper 15,076,114 17,678,067
U.S. Treasury Obligations 7,074,562 12,026,297
-------------- --------------
$ 34,024,090 $ 47,248,765
============== ==============
Short-term investments:
Commercial paper $ 13,987,011 $ 5,425,895
U.S. Treasury Obligations 11,779,822 12,676,283
-------------- ---------------
$ 25,766,833 $ 18,102,178
============== ===============
</TABLE>
The estimated fair value of each investment approximates the amortized cost
and, therefore, there are no unrealized gains or losses as of March 31,
1996.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Electronic parts and other components $ 2,495,525 $ 2,629,801
Work In Process 1,584,894 479,914
Finished goods 355,831 816,538
4,436,250 3,926,253
Inventory Reserve (2,339,678) (1,918,891)
---------------- ----------------
$ 2,096,572 $ 2,007,362
================ ================
</TABLE>
5. NET LOSS PER SHARE
The net loss per share is governed by APB 15. Under this guidance, options,
warrants, convertible debt and securities and other common stock
equivalents are considered as outstanding only if their effect is dilutive
(i.e. increasing the net loss per share).
8
<PAGE>
BroadBand Technologies, Inc.
Notes to Condensed Financial Statements
6. WARRANTS
The Company received on April 28, 1995, $7 million for six-year Warrants
that entitles Holder of Warrant Certificates to purchase 1,000,000 shares
of the Company's Common Stock for $41.75 per share.
7. STOCK OPTIONS
The Company accounts for its employee stock option plans in accordance with
Accounting Principle Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25"). Under APB 25, no compensation expense has been
recognized since the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant.
9
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BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PRODUCT DEVELOPMENT
The Company's Second Generation product is a "global core" platform that
enables a Digital Loop Carrier system to provide telephony that will easily
interface with the Company's FLX-2500 System. The FLX-2500 provides
broadband video and data interfaces and switching, as well as transport
technology. The FLX-2500 is modular which enables network operators to
deploy the FLX-2500 for telephony first that can be easily upgraded for
broadband services. The Company has begun shipments of the FLX-2500
telephony modules to its System Integration customers for telephony
integration testing with Digital Loop Carriers' systems.
NET SALES AND NET LOSS
Net sales for the first quarter of 1996 were $4.0 million, compared to $3.2
million for the same period in 1995. Sales for the quarter included the
Company's First Generation platform and related software plus some
shipments of the Company's Second Generation product. Sales for the balance
of 1996 are expected to reflect a higher percentage of the Company's Second
Generation product as the Company begins to transition from its First to
its Second Generation product. The timing of this transition could be
either the third or fourth quarter of this year. The net loss for the
quarter was $7.5 million or $.57 per share, compared with $8.0 million or
$.61 per share for the same period in 1995. Net losses include the
Company's continued investment in research and development to ensure it is
well positioned to deliver the Second Generation product and to maintain
its acknowledged lead over competition related to Switched Digital Video
technology.
COST OF SALES
Cost of sales for the three months ending March 31, 1996 was $4.3 million
compared to $4.2 million for the same period in 1995. The gross margin
resulting from the cost of sales as a percent of net sales for the first
quarter of 1996 was a negative 6.5% compared to a negative 30.9% for the
same period of 1995. The improved gross margin for the period is a result
of both a change in the mix of products shipped and a slightly higher
volume than the same period in the prior year.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses for the three months ended March 31, 1996
were approximately $5.0 million compared to $5.1 million for the same
period in 1995. The Company continues to invest in the development of the
hardware and software for its Second Generation platform and enhancements
and support to its First Generation platform.
10
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BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ending
March 31, 1996 were approximately $2.9 million compared to $2.8 million for
the same period in 1995. These expenses include support of field service,
sales and marketing resources as well as administrative requirements.
OTHER INCOME (EXPENSE)
Other income (expense) consists primarily of interest income and interest
expense. Other income for the three months ended March 31, 1996 was
approximately $.7 million compared to $1.0 million for the same period in
1995. Interest income is the result of investing activities enabled by the
cash balance available during the period. The decrease of interest income
in the period ended March 31, 1996 compared to the same period last year
was the result of a lower cash balance available to invest.
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 1996, Cash and Cash Equivalents,
which consists of investments in demand deposits, commercial paper and U.S.
Treasury obligations with maturities of less than 90 days and short-term
investments, which consists of commercial paper and U.S. Treasury
obligations with maturities of less than 360 days, decreased approximately
$5.6 million. The ending balance is $59.8 million compared to a balance of
$65.3 at December 31, 1995.
During the period, cash required for research and development and other
operating activities represented the majority of the decrease. Cash
required for equipment purchased during the period was offset by other
financing activities.
$2.7 million of the total cash balance is restricted pursuant to
outstanding Letters of Credit.
11
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BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Management expects that cash and cash equivalents at March 31, 1996 and
cash generated from the sale of the Company's products will be adequate to
fund operating requirements and property and equipment expenditures in 1996
based on current projections of operations. However, management recognizes
the dynamic nature of the telecommunications industry and will consider
financing alternatives when and if market conditions are deemed to be
available on favorable terms.
OTHER FINANCIAL INFORMATION
The Company's backlog includes sales orders received by the Company that
have a scheduled delivery date prior to March 31, 1997. The aggregate sales
price of orders received and included in backlog was approximately $13.9
million at March 31, 1996. The Company believes that the orders included in
the backlog are firm orders and will be shipped prior to March 31, 1997.
However, some orders may be cancelled by the customer without penalty where
management believes it is in the Company's best interest to do so.
12
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BroadBand Technologies, Inc.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RISK FACTORS
In connection with the "safe "harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this document are advised that this
document contains both statements of historical facts and forward looking
statements. Forward looking statements herein, are subject to certain risks and
uncertainties, which include statements of the Company's Second Generation
Product and future financial requirements that could cause actual results to
differ materially from those indicated by the forward looking statements,
including the following: Telephone companies may not widely deploy the Company's
products in their local distribution networks. The Company must complete the
development of the new products that will be integrated with Lucent
Technologies' SLC(R)-2000 Access System and the joint product must meet the
industry standards established by Bell Communications Research and must be
compatible with the products of other telephone company suppliers, including
competitors of the Company. The provisions of the Company's agreement with
Lucent Technologies makes sales of the Company's new products in the U.S. and
Canada substantially dependent on the marketing efforts of Lucent Technologies,
which will continue to market alternative technology in competition with the
joint Lucent Technologies/BBT product. In recent years, the purchasing behavior
of the Company's large customers has increasingly been characterized by the use
of fewer, larger contracts. This trend is expected to intensify, and contributes
to the variability of the Company's results. Such larger purchase contracts
typically involve longer negotiating cycles, require the dedication of
substantial amounts of working capital and other Company resources and in
general, require investments which may substantially precede recognition of
associated revenues. Moreover, in return for larger, longer-term purchase
commitments, customers often demand more stringent acceptance criteria, which
can also cause revenue recognition delays. For example, customers have requested
that products be priced based on volume estimates of customers' future
requirements, but the failure of such customers to take delivery of product
comparable to volume anticipated, could result in negative margins on product
sales. Certain multi-year contracts may relate to new technologies which may not
have been previously deployed on a large-scale commercial basis. The Company may
incur significant initial cost overruns and losses on such contracts which would
be recognized in the quarter in which they became ascertainable. Future
estimates on such contracts are revised periodically over the lives of the
contracts, and such revisions can have a significant impact on reported earnings
in any one quarter. As the Company announces succeeding generations of its
products to better meet the changing requirements of customers, customers may
delay orders of existing products until the next generation product is available
for shipment, or until small volumes of next generation products are adequately
field tested.
13
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BroadBand Technologies, Inc.
ITEM 5. OTHER INFORMATION (CONTINUED)
RISK FACTORS (CONTINUED)
The Company competes against many larger companies that have significantly
greater resources than the Company. The Company, which has an accumulated
deficit of approximately $110 million as of March 31, 1996, has never been
profitable and may never achieve profitability. The Company may require
additional capital and may not be able to raise such capital or may be able to
raise such capital only on unfavorable terms.
Currently, the Company is dependent upon a single customer in North America,
which if lost would deprive the Company of substantially all its revenue. As the
Company's market is dominated by a few large potential customers, the Company
may not have sufficient bargaining power to sell its products on favorable
terms. If the Company is successful in expanding its sales, growth will place
significant strain on its operational resources and systems. In some cases, the
Company depends on single source suppliers or parts which are available only
from a limited number of sources. Delays in filling orders of the Company's
customers resulting from supplier delays may cause customer dissatisfaction. The
customers of the Company are subject to substantial government regulation which
could affect their ability to utilize the products of the Company. To remain
competitive, the Company must continue to invest substantial resources in
research and development. Notwithstanding such investment, competitors may
develop competing technology and products that are more attractive to customers
than is the technology and products of the Company. The ability of the Company
to compete effectively depends upon its ability to attract and retain
highly-skilled engineering, manufacturing, marketing and managerial personnel.
The patent and other proprietary rights of the Company may not prevent the
competitors of the Company from developing non infringing technology and
products that are more attractive to customers than the technology and products
of the Company. The technology and products of the Company could be determined
to infringe the patents or other proprietary rights of others. The market price
of the Company's securities has been very volatile as a result of many factors,
some of which are outside the control of the Company, including, but not limited
to, quarterly variations in financial results, announcements by the Company, its
competitors, customers, potential customers or government agencies and
predictions by industry analysts, as well as general economic conditions. Sales
by the Company's existing stockholders, trading by short-sellers and other
market factors may adversely affect the market price of the Company's
securities. Any or all these risks could have a material adverse affect on the
market price of the securities of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -- none
b) Reports on Form 8-K -- none
14
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BroadBand Technologies, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this Report of Form 10-Q to be signed on its behalf by
the undersigned, thereunto duly authorized.
May 9, 1996 /S/ John H. Gorman
-------------------------------------
John H. Gorman
Vice President and
Chief Financial Officer
15
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<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 34024090
<SECURITIES> 25766833
<RECEIVABLES> 2908688
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<INVENTORY> 2096572
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<PP&E> 24287880
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<CURRENT-LIABILITIES> 26908533
<BONDS> 9654
0
0
<COMMON> 132003
<OTHER-SE> 5168862
<TOTAL-LIABILITY-AND-EQUITY> 78738852
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