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, 1997
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 9, 1997
- -------
Common Stock ($.01 par Value) 13,264,746
<PAGE>
BroadBand Technologies, Inc.
Index
PAGE NO.
---------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets
March 31, 1997 and December 31, 1996 3
Condensed Statements of Income
Three Months Ended March 31, 1997 and 1996 5
Condensed Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Legal Proceedings 13
PART II - OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
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,
1997 1996
(UNAUDITED) (AUDITED)
---------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short term investments
(Notes 2 and 3) $ 128,983,840 $ 130,032,203
Accounts receivable, trade 4,555,999 6,284,217
Inventories (net) (Note 4) 1,968,667 1,532,907
Prepaid expenses and other current assets 1,085,823 954,288
--------- ------------
Total current assets 136,594,329 138,803,615
Long term investments (Note 3) 22,334,584 18,725,698
Property, plant and equipment, at cost 24,954,233 23,731,900
Less allowance for depreciation and amortization (14,180,865) (13,186,825)
------------ --------------
10,773,368 10,545,075
Deferred debt issuance costs
(net of accumulated amortization) (Note 8) 3,085,912 3,272,787
---------------- --------------
Total assets $ 172,788,193 $ 171,347,175
================= =================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
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BroadBand Technologies, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------------- ------------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,634,429 $ 10,353,549
Accrued warranty reserve 7,258,419 5,934,027
Deposits 3,258,316 3,258,316
Deferred revenue 3,125,000 4,875,000
Current installments of capitalized leases 6,135 25,044
--------------- ---------------
Total current liabilities $ 24,282,299 $ 24,445,936
Long Term:
Deposits 13,000,000 3,000,000
Debt (Note 8) 115,000,000 115,000,000
Stockholders' equity:
Series A preferred stock, $.01 par value; 100,000 shares
authorized; no shares issued and outstanding
Convertible preferred stock, $.01 par value; 7,500,000
shares authorized; no shares issued and outstanding
Common stock, $.01 par value; 30,000,000 shares
authorized; 13,256,685 shares issued and
outstanding at March 31, 1997 and 13,249,480 issued
an outstanding as of December 31, 1996 132,567 132,495
Additional paid-in capital 162,044,344 161,977,629
Accumulated deficit (141,671,017) (133,208,885)
------------- -------------
Total stockholders' equity 20,505,894 28,901,239
-------------- ---------------
Total liabilities and stockholders' equity $ 172,788,193 $ 171,347,175
============== ===============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
BroadBand Technologies, Inc.
Condensed Statements of Income
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1997 1996
------------ -------------
Net sales $ 5,309,815 $ 3,996,645
Cost and expenses:
Cost of sales 4,297,089 4,256,651
Research and development 6,499,240 5,047,886
Selling, general and administrative expenses 2,819,947 2,926,645
------------ ------------
13,616,276 12,231,182
------------ ------------
Loss from operations (8,306,461) (8,234,537)
Interest income 1,449,073 699,635
Interest expense (1,604,745) (6,309)
------------ ------------
Loss before income taxes (8,462,133) (7,541,211)
Income taxes 0 0
------------ ------------
Net Loss $ (8,462,133) $ (7,541,211)
============ ============
Net loss per share (Note 5) $ (.64) $ (.57)
============ ============
Average number of shares and equivalents $ 13,253,244 $ 13,168,038
============ ============
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
BroadBand Technologies, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities $ 9,148,760 $ (5,503,940)
INVESTING ACTIVITIES
Acquisitions of furniture, fixtures, and equipment (1,264,448) (460,247)
Disposal of furniture, fixtures, and equipment 42,115 0
------------- ------------
Net cash used in investing activities (1,222,333) (460,247)
FINANCING ACTIVITIES
Issuance of common stock 66,788 493,596
Principal repayments on capital lease obligation (18,909) (89,429)
-------------- -------------
Net cash provided by (used in) financing activities 47,879 404,167
-------------- -------------
Increase/(Decrease) in cash and cash equivalents 7,974,306 (5,560,020)
Cash and cash equivalents at beginning of period 107,221,929 65,350,943
------------- -------------
Cash and cash equivalents at end of period $ 115,196,235 $ 59,790,923
============= =============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
6
<PAGE>
BroadBand Technologies, Inc.
Notes to Condensed Financial Statements
March 31, 1997
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, 1997 and 1996 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, 1996 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
$451,043. This letter of credit is 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 when purchased, to be cash equivalents. Cash
equivalents consists principally of funds in demand deposit accounts,
United States Treasury Obligations, and commercial paper.
INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase. 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, 1997, the Company had no investments that qualified as trading or
available for sale.
At March 31, 1997, the Company's investments in debt securities were
classified as cash and cash equivalents and both short and long-term
investments. The Company maintains these balances principally in demand
deposit accounts, United States Treasury Obligations and commercial paper
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 both short and
long-term investments by balance sheet classification for March 31, 1997
and December 31, 1996:
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
Cash and cash equivalents:
Demand deposit accounts $ 80,420,112 $ 78,899,019
Commercial paper 20,295,760 25,332,655
U.S. Treasury Obligations 14,029,320 2,990,254
Restricted Cash 451,043 451,043
------------ ------------
$115,196,235 $107,672,971
============ ============
Short-term investments:
Commercial paper $ 12,753,505 $ 20,293,691
U.S. Treasury Obligations 1,034,100 2,065,541
------------ ------------
$ 13,787,605 $ 22,359,232
============ ============
Long-term investments:
Commercial paper $ 18,355,324 $ 13,669,688
U.S. Treasury Obligations 3,979,260 5,056,010
------------ ------------
$ 22,334,584 $ 18,725,698
============ ============
The estimated fair value of each investment approximates the amortized cost
and, therefore, there are no unrealized gains or losses as of March 31,
1997.
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,
1997 1996
------------- ---------------
<S> <C> <C>
Electronic parts and other components $ 3,104,342 $ 2,583,074
Work In Process 907,028 603,601
Finished goods 1,482,095 1,681,971
----------- -----------
5,493,465 4,868,646
Inventory Reserve (3,524,798) (3,335,739)
----------- -----------
$ 1,968,667 $ 1,532,907
=========== ===========
</TABLE>
8
<PAGE>
BroadBand Technologies, Inc.
Notes to Condensed Financial Statements
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).
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 Principles 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.
8. LONG-TERM DEBT
The Company issued on May 17, 1996, $115 million of 5% Convertible
Subordinated Bonds Securities that entitles Holder of Bond Certificates to
convert into shares of the Company's Common Stock. Interest is payable on
May 15th and November 15th of each year, commencing on November 15, 1996.
Each $1,000 bond is convertible into 24.1080 shares of common stock of the
Company at a conversion price $41.48 per share. The bonds are not
redeemable by the Company prior to May 15, 1999. Thereafter, the Company
may redeem the bonds initially at 102%, and at decreasing prices thereafter
to 100% at maturity, in each case together with accrued interest. Costs
associated with this financing have been deferred and are being amortized
on a straight-line basis over the term of the debt.
9
<PAGE>
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 (DLC) system providing the telephony
interfaces to easily interface with the Company's FLX-2500 System, which
provides broadband video and data interfaces and switching, as well as
transport technology. The FLX-2500 is a second generation modular platform
which leverages its technology to enable network operators to deploy the
platform in a variety of configurations. Telephony, data, video, and
interactive services can be deployed simultaneously or incrementally at the
network operators choice. The Company believes the platform provides the
flexibility to partner with some of the world's most experienced
telecommunication providers.
The Company is completing development of the FLX-2500, a second generation
Fiber Loop Access (FLX) System. Telephony and broadband units have been
delivered globally to network operators, system integrators and peripheral
equipment providers for system integration and testing. The system is also
being trialed at SBC for telephony services and has been shipped to an
international carrier for field demonstration of its broadband video and
data capabilities. The base platform and telephony capability of the
product is expected to be available for deployment by mid-year 1997 with
broadband elements expected to become available late in the fourth quarter
of 1997 or early 1998, although there can be no assurance that development
will be completed on schedule.
As is customary with large network operators, customer satisfaction at each
step of the laboratory testing, field trial, first office or service
application stages are conditions to the start of commercial deployment of
the FLX-2500. The Company is engaging in further development work on
broadband video and data modules that enable the use of longer and older
drop cables in the customer's installed base, as well as additional
software features. The Company also continues its efforts on developing
product features, increased reliability and lowering product cost to
maintain its leadership position in switched digital broadband technology
and address emerging competition from other suppliers of switched digital
broadband products and technologies.
NET SALES AND NET LOSS
Net sales for the first quarter of 1997 were $5.3 million, compared to $4.0
million for the same period in 1996. Sales for the quarter included the
Company's Second Generation platform and related software plus some
shipments of the Company's First Generation product. Sales for 1997 will
primarily be composed of the Company's second generation platform, the
FLX-2500. The net loss for the quarter was $8.5 million or $.64 per share,
compared with $7.5 million or $.57 per share for the same period in 1996.
Net losses include the Company's continued investment in research and
development to ensure it is well positioned to deliver the Second
Generation product as well as the impact of higher net interest expense.
10
<PAGE>
BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COST OF SALES
Cost of sales for the three months ending March 31, 1997 was $4.3 million
compared to $4.3 million for the same period in 1996. The gross margin
resulting from the cost of sales as a percent of net sales for the first
quarter of 1997 was a positive 19.1% compared to a negative 6.5% for the
same period of 1996. The improved gross margin for the period is a result
of a change in product mix compared to the prior year. In a RFP decision
during the second half of 1996, the Company believes an emerging supplier
underbid the Company and expects price competition to be an important
competitive factor, together with other factors, including experience,
product performance, features, reliability and supplier strength.
Consequently, the Company expects that price competition could have an
adverse impact on the Company's margins. The Company's ability to continue
to meet its cost reduction goals could have a material effect on the
Company's profitability.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses for the three months ended March 31, 1997
were approximately $6.5 million compared to $5.0 million for the same
period in 1996. The Company continues to invest in the development of the
hardware and software for its Second Generation platform and enhancements,
support for its First Generation platform, and the assembly of an end to
end system to support Competitive Local Exchange Carriers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ending
March 31, 1997 were approximately $2.8 million compared to $2.9 million for
the same period in 1996. These expenses include support of field service,
sales and marketing resources as well as administrative requirements. It is
expected that selling, general and administrative expenses may increase in
future periods as the Company incurs legal fees and expense as it relates
to its patent litigation. See Item 3 (Legal Proceedings)
OTHER INCOME (EXPENSE)
Other income (expense) consists primarily of interest income and interest
expense. Net other expense for the three month period ended March 31, 1997
was approximately $.2 million compared to income of $1.0 million for the
same period in 1996. Interest income is the result of investing activities
of the cash balance available during the period. The increase in interest
income for the period ended March 31, 1997 compared to the same period
last year was the result of a higher cash balance from the proceeds of
the May 1996 bond offering. However, the higher interest income was
offset by accrued interest and bond amortization expenses on the
convertible bond offering, resulting in the decrease of net other income
from prior year.
11
<PAGE>
BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 1997, 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
$1.0 million.
The ending cash and short and long-term investment balance is $151.3
million compared to a balance of $148.8 at December 31, 1996. The
increase was primarily due to prepayments from major customers.
$.5 million of the total cash balance is restricted pursuant to outstanding
Letters of Credit.
During the quarter, the Board of Directors authorized the initiation of a
stock repurchase program that utilizes equity options for up to 10% or 1.3
million shares of common stock. The actual number of shares to be purchased
and the timing of the purchase will be based on the Company's stock price,
general market conditions and additional factors. Recently the Company
completed the option transaction supporting the share repurchase.
Management expects that cash and cash equivalents at March 31, 1997 and
cash generated from the sale of the Company's products will be adequate to
fund operating requirements and property and equipment expenditures for at
least the next twelve (12) months 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, 1998. The aggregate sales
price of orders received and included in backlog was approximately $4.8
million at March 31, 1997. The Company believes that the orders included in
the backlog are firm orders that will be shipped prior to March 31, 1998.
However, some orders may be canceled by the customer without penalty where
management believes it is in the Company's best interest to do so.
PATENTS AND PROTECTION OF OTHER PROPRIETARY INFORMATION
The Company has been awarded patents in the United States. BBT's patent
portfolio covers the basic technology for implementing switched digital
broadband systems in the context of a fiber to the curb architecture. The
issued patents cover systems using a main site (HDT) and a remote site
(ONU) interconnected by fiber, providing downstream digital broadband and
video information to subscriber locations in response to upstream signals
requesting a given channel. An approach for multicasting one channel to
multiple subscribers is also covered by a patent that the Company was
issued as U.S. Patent No. 5,619,498 on April 8, 1997.
12
<PAGE>
BroadBand Technologies, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
PATENTS AND PROTECTION OF OTHER PROPRIETARY INFORMATION (CONTINUED)
In 1996 as competitors have announced competing products, the Company began
to focus greater attention on assessing its intellectual property. The
Company is continuing such efforts and intends to protect its intellectual
property in a manner that maximizes its business opportunity. The Company
believes that its patents provide a competitive advantage over other
providers of switched digital broadband products. There can be no
assurance, however, that the patents of the Company will be enforceable or
that competitors will not be able to develop products that do not infringe
upon the patents of the Company.
Additional patent applications are pending in the United States and certain
foreign countries. There can be no assurance that any of these applications
will result in the award of a patent or that the Company would be
successful in defending its patent rights in any subsequent infringement
actions.
ITEM 3. LEGAL PROCEEDINGS
On March 18, 1997, the Company commenced a legal action against General
Instrument, Inc. in the U.S. District Court for the Eastern District of
North Carolina (BroadBand Technologies, Inc. vs. General Instrument Corp.
Civil Action No. 5.97-CB-173BR(2) for infringement of the Company's United
States Patent No. 5,457,560 (the "560 Patent") titled "Fiber Optic
Telecommunication System Employing Continuous Downlink, Burst Uplink
Transmission Format and Preset Uplink Guardband." The Complaint alleges,
among other things, that General Instrument, has made, tested and used for
a broadband access system that infringes the 560 Patent (the "Infringing
System"), has offered the Infringing System for sale, has contracted to
sell the Infringing System to NYNEX, and has induced others to infringe the
560 patent. The Company is seeking to enjoin General Instrument from
further acts infringing the 560 Patent and to recover compensatory damages
and treble damages. On March 19, 1997, Next Level Communications, a
subsidiary of General Instrument Corporation, commenced a legal action
against the Company in the U.S. District Court for the Northern District of
California. (Next Level Communications v. BroadBand Technologies, Inc.,
Civil Action No. C-97-0960), among other things, seeking to have the
Company's U.S. Patent No. 5,457,560 declared invalid, alleging that the
Company is infringing two patents of General Instrument Corporation
relating to the transmission of digital video and seeking an injunction
against further infringement. Management does not believe that the Company
is infringing on General Instrument's patents.
There can be no assurance as to success of the Company's infringement
action or the amount of damages recovered if the Company is successful.
Nevertheless, the Company has invested substantial amounts in developing
its technology and intends to protect its intellectual property in a manner
that maximizes its business opportunity.
13
<PAGE>
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, which include statements about the Company's Second
Generation Product, the expected action of customers, corporate partners,
and competitors and future financial requirements. Forward looking
statements herein, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated by the
forward looking statements. To remain competitive, the Company must
continue to invest substantial resources in research and development and to
achieve development results in its Second Generation product and future
products that meet the specific needs of customers, including product
performance, features, reliability and price competitiveness. There can be
no assurance the Company will be successful in such efforts. In a fourth
quarter 1996 RFP decision, the Company believes an alternative or new
supplier of switched digital broadband had underbid the Company and expects
price competition to be an important competitive factor, together with
other factors, including experience, product performance, features,
reliability and supplier strength. Failure of the Company to meet its
development goals could have a material adverse effect on the Company.
Notwithstanding such investment, competitors may develop competing
technology and products that are more attractive to customers than are the
technologies and products of the Company and may offer such products at
materially lower prices.
Other risk factors include the possibility that 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 United States and Canada substantially
dependent on the competitiveness and performance of Lucent's product
capability as well and their marketing efforts. Lucent Technologies will
continue to market alternative technology in competition with the joint
Lucent Technologies/BroadBand Technologies 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
14
<PAGE>
BroadBand Technologies, Inc.
ITEM 5. OTHER INFORMATION (CONTINUED)
RISK FACTORS (CONTINUED)
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.
The Company competes against many larger companies that have significantly
greater resources than the Company. The Company, which has an accumulated
deficit of approximately $142 million as of March 31, 1997, 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. In May 1996, the Company
sold $115 million of 5% convertible five-year notes. Failure to pay
principal and interest when due would have a material adverse effect on the
Company.
Currently, the Company is dependent upon a two primary customers 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 technologies and products of the Company and may offer such
products at materially lower prices. The ability of the Company to complete
development projects on schedule and to otherwise compete effectively
depends upon its ability to attract and retain highly-skilled engineering,
manufacturing, marketing and managerial personnel, which in the current
environment are becoming increasingly difficult to recruit and retain. 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
15
<PAGE>
BroadBand Technologies, Inc.
ITEM 5. OTHER INFORMATION (CONTINUED)
RISK FACTORS (CONTINUED)
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. Continued pursuit of international markets exposes the Company to
increased risks of currency fluctuations and controls, political and social
risks, trade barriers, new competitors and other risks associated with
international markets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -- none
b) Reports on Form 8-K -- none
16
<PAGE>
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 13, 1997 /S/ Timothy K. Oakley
------------------------------
Timothy K. Oakley
Vice President and
Chief Financial Officer
17
<PAGE>
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