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, 1999
--------------
[ ] 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.
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Delaware 56-1615990
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4024 Stirrup Creek Drive, Durham, N.C. 27703
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(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 10, 1999
- -------
Common Stock ($.01 par Value) 13,458,642
<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, 1999 and December 31, 1998 3
Condensed Statements of Operations
Three Months Ended March 31, 1999 and 1998 5
Condensed Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 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 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE
</TABLE>
2
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BROADBAND TECHNOLOGIES, INC.
Condensed Balance Sheets
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -----------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,029,802 $ 45,403,692
Restricted cash (NOTE 2) 6,708,798 7,283,500
Short-term investments (NOTE 3) 48,851,311 48,787,993
Accounts receivable, trade, less allowances $150,725 in 1999
and $250,879 in 1998 4,808,437 7,638,024
Inventories (NOTE 4) 4,667,760 1,861,372
Prepaid expenses and other current assets 2,500,912 1,204,372
------------------------------------------------
Total current assets 99,567,020 112,178,953
Long term investments (NOTE 3) 5,563,395 408,780
Restricted cash (NOTE 2) 4,148,370 4,146,563
Furniture, fixtures, and equipment:
Equipment 14,987,630 14,626,531
Software 5,100,227 4,804,929
Furniture and fixtures 725,767 723,411
Leasehold improvements 1,316,276 1,316,276
------------------------------------------------
22,129,900 21,471,147
Accumulated depreciation and amortization (16,038,900) (15,381,974)
------------------------------------------------
Net furniture, fixtures and equipment 6,091,000 6,089,173
Deferred debt issuance costs (net of accumulated amortization)
and other noncurrent assets 1,597,534 1,784,193
------------------------------------------------
Total assets $ 116,967,319 $ 124,607,662
================================================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
3
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BROADBAND TECHNOLOGIES, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
------------------ ----------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 5,703,691 $ 3,244,472
Accrued expenses 5,794,234 5,912,028
Deferred revenue 3,820,254 5,659,015
Deposits 3,237,437 3,245,072
Accrued warranty reserve 730,842 724,851
----------------------- ----------------------
Total current liabilities 19,286,458 18,785,438
Long-term liabilities:
Convertible debt (NOTE 5) 115,000,000 115,000,000
Deferred compensation 1,600,000 1,400,000
Other liabilities 2,315,000 2,300,000
----------------------- ----------------------
Total long-term liabilities 118,915,000 118,700,000
Stockholders' deficit:
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; 13,453,568 and 13,436,686 shares
outstanding 134,536 134,367
Additional paid-in capital (NOTE 2) 160,415,123 163,428,408
Deferred compensation (NOTE 2) (600,000) (650,000)
Accumulated deficit (181,183,798) (175,790,551)
----------------------- ----------------------
Total stockholders' deficit (21,234,139) (12,877,776)
----------------------- ----------------------
Total liabilities and stockholders' deficit $ 116,967,319 $ 124,607,662
======================= ======================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
4
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BROADBAND TECHNOLOGIES, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------------------- ----------------------
<S> <C> <C>
Revenues:
Product sales and contract revenue $ 2,229,064 $ 2,285,001
Services revenue 1,954,761 222,222
------------------------ ----------------------
Total revenues 4,183,825 2,507,223
Costs and expenses:
Cost of revenues 1,986,518 2,188,014
Research and development 4,439,515 6,252,950
Selling, general and administrative expenses 2,886,596 5,409,899
------------------------ ----------------------
Total costs and expenses 9,312,629 13,850,863
------------------------ ----------------------
Loss from operations (5,128,804) (11,343,640)
Interest income 1,359,357 1,875,150
Interest expense (1,623,800) (1,604,653)
------------------------ ----------------------
Total other income (expense) (264,443) 270,497
------------------------ ----------------------
Loss before income taxes (5,393,247) (11,073,143)
Income taxes -- --
------------------------ ----------------------
Net loss $ (5,393,247) $ (11,073,143)
======================== ======================
Net loss per share (NOTE 6) $ (.40) $ (.83)
======================== ======================
Average number of shares and equivalents 13,440,163 13,390,012
======================== ======================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
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BROADBAND TECHNOLOGIES, INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---------------------- ----------------------
<S> <C> <C>
OPERATING ACTIVITIES $ (5,393,247) $ (11,073,143)
Net loss
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 656,926 1,042,096
Other non cash charges 451,659 433,688
Changes in operating assets (1,273,341) (181,612)
Changes in operating liabilities 501,020 1,255,169
------------------------------------------------
Net cash used in operating activities $ (5,056,983) $ (8,523,802)
INVESTING ACTIVITIES
Acquisitions of furniture, fixtures, and equipment (658,753) (335,892)
Disposal of furniture, fixtures, and equipment -- 218
Net decrease(increase) in investments (5,217,933) 15,786,838
------------------------------------------------
Net cash provided by (used in) investing activities (5,876,686) 15,451,164
FINANCING ACTIVITIES
Settlement of put option (NOTE 2) (3,048,482) --
Issuance of common stock 35,366 44,450
Decrease in restricted cash 572,895 3,761,807
------------------------------------------------
Net cash provided by (used in) financing activities (2,440,221) 3,806,257
Increase/(decrease) in cash and cash equivalents (13,373,890) 10,733,619
Cash and cash equivalents at beginning of period 45,403,692 47,464,129
------------------------------------------------
Cash and cash equivalents at end of period $ 32,029,802 $ 58,197,748
================================================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
6
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BROADBAND TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
March 31, 1999
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, 1999 and 1998
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, 1998 included in the
Company's Form 10-K submission.
2. EMPLOYMENT AGREEMENT AND RESTRICTED CASH
The Company has an outstanding stand-by letter of credit in the amount of $1.0
million at March 31, 1999, which expires in March 2000. This letter of credit is
collateralized by restricted cash of the same amount. The Company also has
$200,000 restricted cash on deposit with its main bank collateralizing a
corporate procurement card.
The Company has restricted cash of $4.0 million associated with executive
compensation for the President and CEO, David E. Orr, who joined the Company on
April 1, 1997. Compensation expense of $4.0 million is being recognized on a
straight-line basis over the term of the employment agreement of five years.
Additionally, Mr. Orr is entitled to receive the interest income earned by the
$4.0 million. The compensation is payable on the fifth anniversary of Mr. Orr's
employment or based upon certain triggering events that are detailed in Mr.
Orr's employment contract with the Company. Mr. Orr was also granted 80,000
shares of restricted common stock valued at $1.0 million. Upon issuance of this
stock, deferred compensation equivalent to the market value at the date of
grant, $1.0 million, has been charged to shareholders' equity and is being
amortized as compensation expense over the employment period of five years.
During the first quarter of 1997, the Board of Directors authorized the
initiation of a stock repurchase program and entered into an agreement with an
investment banker that utilizes equity put and call options for the purchase of
up to 1.0 million shares of common stock outstanding. Since the Company's stock
price fell below the put option price of $9.11, the Company is required to
reflect the differential as restricted cash on its balance sheet. Given a stock
price of $1.50 at March 31, 1999, the Company had restricted cash of $5.5
million in connection with this agreement for the unexercised put contracts. The
options expired April 15, 1999. To settle its option obligations, the Company
paid the holder of the options $3.0 million from restricted cash during the
first quarter and $4.3 million from restricted cash during the second quarter.
All payments were recorded as a reduction of additional paid-in capital. All
option obligations have been settled and the Company has no further obligations
under the original agreement.
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 consist
principally of funds in demand deposit accounts, United States Treasury
Obligations, and commercial paper.
7
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BROADBAND TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
3. CASH AND CASH EQUIVALENTS (CONTINUED)
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, 1999, the
Company had no investments that qualified as trading or available for sale.
At March 31, 1999, 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.
The following is a summary of cash and cash equivalents and both short and
long-term investments by balance sheet classification for March 31, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------------- -----------------------
<S> <C> <C>
Cash and cash equivalents:
Demand deposit accounts $ 5,701,438 $ 13,019,247
Commercial paper 9,474,207 13,228,613
U.S. Treasury Obligations 16,854,157 19,155,832
---------------------- -----------------------
$ 32,029,802 $ 45,403,692
====================== =======================
MARCH 31, DECEMBER 31,
1999 1998
---------------------- -----------------------
Short-term investments:
Commercial paper $ 44,329,289 $ 46,255,410
U.S. Treasury Obligations 4,522,022 2,532,583
---------------------- -----------------------
$ 48,851,311 $ 48,787,993
====================== =======================
Long-term investments:
Commercial paper $ 5,563,395 $ 408,780
---------------------- -----------------------
$ 5,563,395 $ 408,780
====================== =======================
</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, 1999.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
components of inventory consist of the following:
8
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BROADBAND TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
4. INVENTORIES (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------------------- ---------------------
<S> <C> <C>
Electronic parts and other components $ 6,758,112 $ 4,264,671
Work In Process 788,971 291,310
Finished goods 1,356,468 1,490,287
---------------------- ---------------------
8,903,551 6,046,268
Inventory Reserves (4,235,791) (4,184,896)
---------------------- ---------------------
$ 4,667,760 $ 1,861,372
====================== =====================
</TABLE>
5. LONG-TERM DEBT
The Company issued on May 17, 1996, $115.0 million of 5% convertible
subordinated notes due May 15, 2001, that entitles the holder to convert the
notes into shares of the Company's common stock. Interest is payable on May 15
and November 15 of each year. Each $1,000 note is convertible into 24.1080
shares of common stock of the Company at a conversion price $41.48 per share.
The notes are not redeemable by the Company prior to May 15, 1999. Thereafter,
the Company may redeem the notes 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 notes. The Company is actively
continuing negotiations to restructure the convertible subordinated notes. (See
Item 2, Management's Discussion and Analysis of Financial Conditions and Results
of Operations: Recent Developments.)
6. NET LOSS PER SHARE
All loss per share amounts for all periods have been presented to conform to
Financial Accounting Standards Board issued Statement No. 128, "Earnings per
Share" ("SFAS 128"). Due to the cumulative net losses for the periods presented,
potential common shares are considered antidilutive and therefore did not
require restatement of prior periods.
7. BUSINESS SEGMENT INFORMATION
The Company is engaged in a single business segment consisting of the
development, manufacture, marketing and service of electronic equipment for the
telecommunications industry. Regional Bell Operating Companies (RBOCs),
independent telephone companies and competitive local exchange carriers are the
primary users of the Company's products. In 1998, the Company entered into
several agreements with Lucent, which utilized the Company's research and
development and manufacturing resources.
Revenues from Lucent, direct sales to RBOCs and others as a percentage of the
Company's total revenues are as follows:
9
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BROADBAND TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
7. BUSINESS SEGMENT INFORMATION (CONTINUED)
March 31
1999 1998
------------------------
Lucent 94.0% 60.0%
RBOCs 4.0% 14.0%
Others 2.0% 26.0%
------------------------
100.0% 100.0%
========================
The following customers' accounts receivable balances as a percentage of the
Company's total accounts receivable as of March 31, 1999 and December 31, 1998
are as follows:
1999 1998
--------------------------
Lucent 44.0% 62.0%
Bosch 54.0% 32.0%
RBOCs -- 6.0%
Others 2.0% --
-- --
--------------------------
100.0% 100.0%
==========================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
DEBT RESTRUCTURING ACTIVITIES
In late 1998, the Company and its financial advisor, CIBC Oppenheimer Corp.,
began negotiating a restructuring of the Company's $115.0 million 5% convertible
subordinated notes, which do not become due, except for interest payments, until
May 2001. Through the debt restructuring negotiations, the Company is seeking to
extend the due dates for the $115.0 million of debt so that payments of
principal do not become due until after the Company has had an opportunity to
introduce its new generation access product (the "New Platform") into the
market. The Company is actively continuing negotiations with a committee
representing a substantial majority of the convertible subordinated noteholders.
Although significant progress has been made on the structure and some covenants,
a final agreement has not been reached and the Company is uncertain as to when
an agreement will be completed. Implementation of a debt restructuring plan may
result in the reduction of the cash resources of the Company, dilution of the
equity of the Company, an increase in interest payments by the Company and/or
other adverse consequences. There can be no assurance the Company will be
successful in implementing a debt restructuring plan that will meet the
financial goals of the Company.
LUCENT MANUFACTURING AGREEMENT
On February 4, 1998 the Company entered into a Manufacturing Agreement (the
"Agreement") with Lucent. Under the Agreement, if Lucent does not provide orders
for product in sufficient volume to absorb $18.0 million of the Company's
manufacturing overhead for three (3) years, Lucent will pay the Company the
amount that is not absorbed by Lucent's orders. On March 22, 1999 the Company
and Lucent agreed upon a Product Letter which details the
10
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BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RECENT DEVELOPMENTS (CONTINUED)
LUCENT MANUFACTURING AGREEMENT (CONTINUED)
product specifications, pricing and other terms and conditions of the product
the Company will manufacture for a Lucent customer. The Product Letter, among
other provisions, provides that the Company shall be reimbursed by Lucent for
the cost of any reasonable excess inventories that result in a forecast change
or failure to order product. There is no firm commitment at this time from
Lucent regarding the longevity and volume to the Company; however, Lucent did
provide an initial purchase order in late April 1999. The Company anticipates
initial volume production units to begin shipment in May 1999. During the first
quarter of 1999 the Company recognized $1.5 million of revenue for payments in
lieu of production volume, offset by a minimal amount of manufacturing overhead
absorption due to some initial production shipments prior to March 31, 1999.
LUCENT R & D PROJECTS
The Company recognized $1.6 million of revenue resulting from service revenue
from development projects under the February 4, 1998 Research & Development
Agreement with Lucent during the quarter. To date, Lucent and the Company have
agreed on projects valued at approximately $17.6 million of the $21.0 million
called for under the agreement, and the Company has recognized revenue of
approximately $3.7 million since inception of this contract. No additional
specific development projects have been agreed upon. Subject to certain
restrictions, the Company has the right to use technology it develops for Lucent
in the New Platform the Company is currently developing. There can be no
assurance as to what percentage, if any, of the technology developed from Lucent
will be usable in the Company's New Platform.
SETTLEMENT OF EQUITY PUT OPTIONS
During the first quarter of 1997, the Board of Directors authorized the
initiation of a stock repurchase program and entered into an agreement with an
investment banker that utilizes equity put and call options for the purchase of
up to 1.0 million shares of common stock outstanding. The options expired April
15, 1999. To settle its option obligations, the Company paid the holder of the
options $3.0 million from restricted cash during the first quarter and $4.3
million from restricted cash during the second quarter. All payments were
recorded as a reduction of additional paid-in capital. All option obligations
have been settled and the Company has no further obligations under the original
agreement. (See Item 1, Financial Statements: Notes to Condensed Financial
Statements.)
BELL ATLANTIC SETTLEMENT AGREEMENT
On March 31, 1999 the Company and Bell Atlantic agreed to the following
settlement of certain hardware and software supply agreements entered into in
1993 and 1996 regarding the Company's FLX-1100 and FLX-2500 products: a) In
April 1999, the Company paid to Bell Atlantic $3.2 million in prepayments
advanced to the Company in prior years; b) Bell Atlantic's license rights were
terminated; and c) The Company and Bell Atlantic mutually released each other
from any current and future liabilities and claims related to such agreements.
The $3.2 million obligation had been classified as a current liability in prior
years by the Company and will have no impact on current period or future period
operating costs and expenses.
11
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BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RECENT DEVELOPMENTS (CONTINUED)
LUCENT SETTLEMENT AGREEMENT
In late 1998 as a result of the agreements with Lucent and the decrease in the
demand for the Switched Digital Broadband Access Systems (SDBAS) joint product,
the Company recognized as revenue the $13.0 million of nonrefundable prepayments
received in prior years net of $2.3 million relating to certain potential
contractual obligations. On April 1, 1999 the Company and Lucent agreed that due
to the continued lack of demand for the SDBAS joint product from certain
customers and Lucent's new product development, AnyMedia, future contractual
obligations are unlikely to occur; therefore, the Company anticipates
recognizing approximately $2.3 million of one-time revenue in the second quarter
of 1999 from the remaining liability less $115,000 related to certain canceled
purchase orders.
TOTAL REVENUES
HISTORICAL
Total revenues for the first quarter of 1999 were $4.2 million, compared to $2.5
million for the same period in 1998. Revenues for the quarter included $2.2
million from product sales and contract revenue from prototype and initial
production for the Lucent product the Company is expecting to manufacture in the
second quarter. This is a direct outcome of the 1998 Manufacturing Agreement
with Lucent. Product revenues for the first quarter 1999 included less than $0.5
million in sales of the Company's Second Generation platform (FLX-2500), while
the prior year included $1.4 million. Services revenue of $2.0 million increased
from $0.2 million for the same period last year due to revenue recognition from
the Company's 1998 $21.0 million R & D Agreement with Lucent. Services revenue
has been accounted for under the percentage of completion method of accounting.
(See Recent Developments: Lucent Manufacturing Agreement and R & D Projects.)
FUTURE EXPECTATIONS
The Company is developing a new generation access product (the "New Platform")
to address the new trends in the network access market - the convergence of
traditional voice and higher speed Internet access. The Company has ceased
devoting resources to actively market its FLX Platform product and does not
expect significant future revenues from the FLX-2500 or the FLX-1100. The
Company does not anticipate initial revenues from its New Platform until second
quarter 2000 and does not expect substantial revenue from its FLX-2500 or
FLX-1100 products.
COST OF REVENUES AND GROSS MARGIN
Cost of revenues for the three-month period ended March 31, 1999 was $2.0
million compared to $2.2 million for the same period in 1998. Cost of product
revenue was $1.2 million and cost of services revenue was $0.7 million. The
gross margin of $2.2 million resulting from the cost of revenues for the first
quarter of 1999 was 52.5% compared to 12.7% for the same period of 1998. The
increased gross margin for the first quarter reflects the services revenue
attributed to the Lucent R & D Agreement and contract revenue associated with
the Lucent Manufacturing Agreement.
12
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
COST OF REVENUES AND GROSS MARGIN (CONTINUED)
The Company expects that price competition will have an adverse impact on the
Company's margins. There can be no assurance that the Company can meet product
modification requests, customers' feature requests, or customers' business
cases. The Company's ability to continue to meet its cost reduction goals could
have a material effect on the Company's profitability. The Company's margins are
expected to fluctuate due to the uncertainty of shipments of the existing
products and New Platform under development, as well as a higher mix of services
revenue from the Lucent Agreements. (See Recent Developments: Lucent
Manufacturing Agreement.)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three-month period ended March 31,
1999 were $4.4 million, compared to $6.3 million for the same period in 1998.
This $1.9 million decrease was due primarily to the cost savings associated with
the transfer of 44 engineering employees as part of the Bosch alliance
consummated during the second quarter of 1998 and a more focused engineering
development effort related to the New Platform under development. Also, the
Company's ability to reduce development expenses associated with the Company's
New Platform access product by incorporating some costs into the New Platform
technology being developed with Lucent has favorably impacted research and
development expenses. However, as the development team begins hardware and
software integration during the second quarter, the Company does anticipate
research and development expenses to increase from the current levels. A
continued tight labor market in the Research Triangle Park and severe
competitive engineering salary pressure in the market place could make
development more expensive.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three-month period ended
March 31, 1999 were $2.9 million compared to $5.4 million for the same period in
1998. These expenses include support of field service, sales and marketing
resources, legal expense, as well as administrative requirements. This 47%
reduction was primarily due to a $1.2 million decrease in legal fees, lower
payroll costs, and tighter expense controls. Selling expenses are expected to
increase in the third quarter as the company reestablishes a sales force for the
planned release of its New Platform access product in the first quarter of the
year 2000. Additionally, the Company had incurred and expects to incur a
significant increase in legal and financial advisory fees in connection with its
current efforts to restructure the $115.0 million 5% convertible subordinated
notes due in May 2001, whether or not its efforts are successful. These expenses
are classified as prepaid expenses at March 31, 1999 and will be charged against
any gain or loss on completion of the debt restructuring; or if a restructuring
is not consummated, these costs will be expensed at such time. (See Recent
Developments: Debt Restructuring Activities.)
OTHER INCOME (EXPENSES)
Other income (expenses) during the first quarter of 1999 consists primarily of
interest income and interest expense. Net interest income (expense) for the
three-month period ended March 31, 1999 was approximately $0.3 million in
expense compared to $0.3 million in income for the same period in 1998. The
decrease in interest income for the period ended March 31, 1999 compared to the
same period of 1998 was the result of lower cash and investment balances.
Interest income is the result of investment of the cash balances available
during the period. The Company expects interest expense to continue to exceed
interest income in future periods as the Company's cash is reduced by operating
losses and capital expenditures during the development period of its New
Platform.
13
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NET LOSS
The net loss for the first quarter of 1999 was $5.4 million or $.40 per share as
compared to $11.1 million or $.83 per share for the same period in 1998. This
improvement in loss for the first quarter reflected the increase in services
revenue and the decrease in operating expenses resulting from the Company's new
strategy.
The Company's results continue to reflect both an unfavorable regulatory
environment for its current product and the development stage of the Company's
New Platform access product. The Company has completed the third full quarter of
implementation of its new business strategy announced in early 1998 and it
expects to continue to incur substantial losses in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The ending cash and cash equivalents, restricted cash, and short and long-term
investment balances on March 31, 1999, were $97.3 million compared to a balance
of $106.0 million at December 31, 1998. The decrease of $8.7 million was due
primarily to $5.1 million used in operations and $3.0 million paid as partial
settlement of the put equity option more fully described in Note 2 (Employment
Agreement and Restricted Cash) of the Condensed Financial Statements. The $2.8
million increase in inventories at March 31, 1999 as compared to December 31,
1998 was primarily due to the increase in electronic parts and components
related to the anticipated manufacturing resulting from the signing of the
Product Letter with Lucent in late March 1999. The Product Letter, among other
provisions, provides that the Company shall be reimbursed by Lucent for the cost
of any reasonable excess inventories that result in a forecast change or failure
to order product. Activities related to the development of the Company's New
Platform accounted for the $0.7 million increase in equipment and software
during the first quarter of 1999. (See Recent Developments: Lucent Manufacturing
Activities.)
The Company had total restricted cash, included in the above amounts, of $10.9
million as of March 31, 1999. The restricted cash balance consists of $4.0
million associated with executive compensation for its President and CEO, David
E. Orr, $5.5 million associated with the equity put option agreement entered
into in April 1997, an outstanding stand-by letter of credit in the amount of
$1.0 million, which is collateralized by restricted cash of the same amount and
expires March 31, 2000, and $0.2 million restricted cash on deposit with its
main bank for the implementation of a corporate procurement card. The details of
these restricted cash balances are more fully described in Note 2 (Employment
Agreement and Restricted Cash) of the Condensed Financial Statements.
Restricted cash in the amount of $7.1 million at December 31, 1998 and $5.5
million at March 31, 1999 is included in the Company's cash balance as of such
dates based upon a market value of the stock of $2.94 and $1.50 per share,
respectively, in connection with the equity put option agreement. As more fully
described in Note 2 (Employment Agreement and Restricted Cash) of the financial
statements, this decrease in restricted cash is due to the settlement payment of
$3.0 million for the partial unwinding of the equity put option. Settlement of
the remaining contracts subsequent to March 31, 1999 totaled $4.3 million.
The Company has issued $115.0 million of 5% convertible subordinated notes which
do not become due, except for interest payments, until May 15, 2001. Interest is
payable on May 15 and November 15 of each year. Additional details on the
convertible subordinated notes are more fully described in Note 5 (Long-Term
Debt) of the Condensed Financial Statements. The Company is current on all
interest payments and anticipates making such payments in the future.
14
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company expects, however, that additional equity and/or debt financing will
be required to repay the $115.0 million of notes when they become due. Failure
to pay principal and interest when due would have a material adverse effect on
the Company. If the Company's new business strategy fails to generate investor
confidence in the Company's ability to generate future revenue and profits, the
Company would not be able to obtain the additional financing it will require to
repay the notes when the notes become due, or will not obtain such financing on
terms favorable to the Company and its shareholders.
The Company is currently negotiating with representatives of a majority of the
convertible notes to restructure the debt. Although significant progress has
been made on the structure and some covenants, a final agreement has not been
reached and the Company is uncertain as to when an agreement will be completed.
There is no assurance that the Company will be successful in implementing a
debt restructuring plan that will meet the financial goals of the Company.
Implementation of a debt restructuring plan may result in the reduction of the
cash resources of the Company, dilution of the equity of the Company, an
increase in interest payments by the Company and/or other adverse consequences.
Management recognizes the dynamic nature of the telecommunications industry and
the possibility that the Company's product initiatives might increase working
capital and capital equipment requirements. In such event, the Company would
consider appropriate financing alternatives. (See Recent Developments: Debt
Restructuring Activities.)
Management expects that cash and cash equivalents at March 31, 1999 and cash
generated from fees and product sales and contract and service revenues will be
adequate to fund operating requirements and property and equipment expenditures
for at least the next year and a half based on current forecasted operations and
management will be actively considering financing alternatives when and if
market conditions and the Company's progress in implementing its business plan
are deemed to cause financing to be available on favorable terms, as to which
there can be no assurance.
OTHER FINANCIAL INFORMATION
BACKLOG
The Company's backlog includes sales orders received by the Company that have a
scheduled delivery date prior to March 31, 2000. The aggregate sales price of
orders received and included in backlog was approximately $1.7 million at March
31, 1999. The Company believes that the orders included in the backlog are firm
orders that will be shipped prior to March 31, 2000. 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. The Company also has backlog of approximately
$12.0 million in specific development projects with Lucent.
YEAR 2000 ISSUES
The Company had established a compliance plan to address Year 2000 issues
consisting of four elements: inventory, assessment, remediation and testing. The
Company completed substantially all of the efforts around these phases in late
April 1999, with extensive testing and obtaining assurances from key suppliers
with regard to Year 2000 compliance of their products and services to the
Company to continue through 1999. During the first quarter the Company completed
the upgrade of its major accounting and manufacturing and material requirements
planning
15
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OTHER FINANCIAL INFORMATION (CONTINUED)
YEAR 2000 ISSUES (CONTINUED)
systems to meet Year 2000 requirements. Costs associated with the correction of
Year 2000 problems, including correction of the Company's products that have
been deployed, as well as internal systems, for the prior year and 1999 will not
exceed $175,000.
Although the Company believes that its Year 2000 compliance plan is adequate to
address Year 2000 concerns, there can be no assurance that the Company will not
experience negative consequences as a result of undetected defects or the
noncompliance of third parties with whom the Company interacts. Furthermore,
there can be no assurance that there will not be a delay in, or increased costs
associated with, the implementation of corrections as the Year 2000 compliance
plan is performed, such as unexpected costs of correcting equipment that has not
yet been fully evaluated. If realized, these risks could result in adverse
effects on the business, results of operations and financial condition.
The Company plans to begin marketing its New Platform in 2000. If potential
customers for the New Platform are experiencing problems related to Year 2000
issues, the Company's marketing efforts may be adversely affected by customers
expending resources to address Year 2000 problems or by revenue losses by
potential customers resulting from their Year 2000 problems.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative Disclosures
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities and debt obligations, the table presents principal cash flows and
related interest rates by expected maturity dates. The Company's investments are
classified as both short and long-term investments. All short-term investments
are scheduled to mature within twelve (12) months subsequent to March 31, 1999.
The Company's long-term investment is scheduled to mature in year 2000.
16
<PAGE>
BROADBAND TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OTHER FINANCIAL INFORMATION (CONTINUED)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
Quantitative Disclosures (continued)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATES
- -------------------------------------------------------------------------------------------------------------------------------
Fair Value
(dollars in 000's) 1999 2000 2001 2002 2003 Total 3/31/99
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
- -------------------------------------------------------------------------------------------------------------------------------
Short-term investments $48,851 - - - - $48,851 $48,788
- -------------------------------------------------------------------------------------------------------------------------------
Long-term investments - 5,563 - - - 5,563 5,563
- -------------------------------------------------------------------------------------------------------------------------------
Average interest rate 5.3% 5.4%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt - - $115,000 - - $115,000 $42,000
- -------------------------------------------------------------------------------------------------------------------------------
Average interest rate 5.0% 5.0%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Qualitative Disclosures
There have been no changes in the nature of the Company's investments since
December 31, 1999 or the various financial institutions, which holds those
investments.
On March 11, 1999 the Company entered into an agreement with an investment
banker to undertake an early exercise (unwinding) of equity put option which the
Company had initiated in 1997. The unwinding of this equity put option resulted
in cash payments of $3.0 million made from restricted cash for the quarter ended
March 31, 1999 and $4.3 million subsequent to March 31, 1999. (See Note 2
"Employment Agreement and Restricted Cash" in the Notes to the Condensed
Financial Statements.)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently has no material litigation pending.
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 contained in this document include
statements about the Company's relationship with Lucent, Lucent's new AnyMedia
product, the Company's relationship with Bosch, the future of the Company's
FLX-1100 and FLX-2500 products, the Company's New Platform, a new generation
access product the
17
<PAGE>
BROADBAND TECHNOLOGIES, INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
RISK FACTORS (CONTINUED)
Company is developing, migration of the FLX-2500 to FSAN, the regulatory
environment in which the Company's customers operate, the expected action of
customers, corporate partners and competitors, future expense reductions,
restructuring negotiations with creditors 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. These risks include, but are not limited to, the
following:
NEW PLATFORM DEVELOPMENT
To survive, the Company must develop on schedule a new generation access
product, the New Platform, that can compete in the market on price,
architecture, features and other factors. Development of the New Platform
product by the Company will be subject to significant technical and other
challenges and will require a substantial investment of money and time. Although
the Company believes that the development of the New Platform product is on
schedule for market introduction in first quarter 2000, there can be no
assurance that the Company will be able to develop a new generation access
product, or that any product it develops will be attractive to customers and
priced competitively with the products of competitors, including Lucent.
Competition for internet/data services is growing between the traditional
telephone communication carriers and the cable television operators. The cable
television operators, which includes AT&T, will be deploying a technology
referred to as cable modem as a solution to voice, data and video services. The
Company's New Platform product utilizes Digital Subscriber Lines (DSL)
technology to enhance the traditional telephone wiring plant to provide enhanced
services such as high speed internet access. Should the cable television
operators deploy cable modem technology successfully, the market for DSL
technology would be diminished as well as the demand for the Company's New
Platform product.
CONVERTIBLE SUBORDINATED DEBENTURES
In May 1996, the Company sold $115.0 million of 5% convertible five-year notes
due May 15, 2001, with interest payable on May 15 and November 15 of each year.
The Company expects that additional equity and/or debt financing will be
required to repay the notes when they become due. Failure to pay principal and
interest when due would have a material adverse effect on the Company. If the
Company's new business strategy fails to generate investor confidence in the
Company's ability to generate future revenue and profits, the Company would not
be able to obtain the additional financing it will require to repay the notes
when the notes become due, or will not obtain such financing on terms favorable
to the Company and its shareholders.
The Company is currently negotiating with representatives of a majority of the
convertible notes to restructure the debt. Although progress has been made on
defining the structure, terms and conditions related to the restructuring of the
subordinated notes, to date the Company and the noteholders have not been able
to agree upon a restructuring plan. There is no assurance that the Company will
be successful in implementing a debt restructuring plan that will meet the
financial goals of the Company. Implementation of a debt restructuring plan may
result in the reduction of the cash resources of the Company, dilution of the
equity of the Company, an increase in interest payments by the Company and/or
other adverse consequences.
18
<PAGE>
BROADBAND TECHNOLOGIES, INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
NASDAQ DELISTING/OVER THE COUNTER BULLETIN BOARD
On February 12, 1999 the Company's shares of Common Stock were delisted from the
NASDAQ National Market for failure to achieve compliance with continued listing
criteria.
The Company's shares are now traded on the Over the Counter Bulletin Board
(OTCBB). The OTCBB is a regulated quotation service that displays real-time
quotes and volume information in over-the-counter (OTC) equity securities. The
OTCBB does not impose listing standards or requirements, does not provide
automatic trade executions and does not maintain relationships with quoted
issuers. Stocks traded on the OTCBB may face a loss of market makers, lack of
readily available bid and ask prices for its stock, experience a greater spread
between the bid and ask price of its stock and a general loss of liquidity with
its stock. In addition, certain investors have policies against purchasing or
holding OTC securities. Both trading volume and the market value of the
Company's securities have been, and will continue to be, materially adversely
affected by the delisting and subsequent trading on the OTCBB.
In addition, the value of stock options of the Company's management and
employees has declined as a result of the delisting, along with other financial
reasons, both as a result of lower market prices and lower trading volume, which
makes resales of stock by employees more difficult. The foregoing could have a
material adverse effect on the ability of the Company to recruit and retain key
personnel unless the Company provides other recruiting and retention incentives
which will be expensive. Failure to recruit and retain key employees, however,
would have a material adverse effect on the Company's ability to implement its
business plan, including its ability to develop its New Platform.
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, partners, 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 have had and
are likely to have a material adverse effect on the market price of the
securities of the Company. With the substantially lower trading volumes that
have occurred since delisting and are likely to occur in the future, the
foregoing factors are likely to have a greater adverse impact on the market
price of the Company's securities.
LUCENT RELATIONSHIP
Although management believes the new relationship with Lucent has provided
certain revenue opportunities to the Company and will continue to do so, the
relationship includes certain risks as well. As disclosed in prior filings, the
relationship between the Company and Lucent relating to SDBAS, arising out of
the November 1995 exclusive agreement, did not meet the Company's expectations
and resulted in substantially lower than expected sales volume. There can be no
assurances that the new relationship with Lucent will not also fail to meet the
Company's expectations. The Company's relationship with Lucent also may
adversely affect the prospect for partnership with others in the
telecommunications industry, especially in light of certain restrictions
contained in the new Lucent agreements including change of control provisions.
Decisions by Lucent or rumors of a decision by Lucent that changes Lucent's
relationship with the Company may have an adverse effect on the market price of
the stock of the
19
<PAGE>
BROADBAND TECHNOLOGIES, INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
LUCENT RELATIONSHIP (CONTINUED)
Company. In addition, Lucent is a vendor of digital loop carrier products and
the Company's product may compete with Lucent in some circumstances. Such
competition could adversely affect the ability of the Company and Lucent to
cooperate to the extent required under their agreements.
BOSCH RELATIONSHIP
Although management believes the Alliance Agreement with Bosch offers certain
opportunities to the Company, the relationship includes certain risks as well.
There can be no assurances that the relationship with Bosch will meet the
Company's expectations. The Company's relationship with Bosch, which was
designed to leverage the Company's intellectual property and other resources,
may also adversely affect the prospect for partnership with others in the
telecommunications industry, especially in light of restrictions contained in
the Alliance Agreement relating to a change of control of the Company and
restrictions on the Company's sublicensing. Decisions by Bosch or rumors of a
decision by Bosch that changes Bosch's relationship with the Company may have an
adverse effect on the market price of the Company's stock. In addition, although
initially there will be geographic restrictions on where the Company and Bosch
can sell FSAN products, the Alliance Agreement provides that these restrictions
will terminate and eventually the FSAN products of the Company and Bosch will
compete with one another in the same markets. There can be no assurance the
Company will be able to compete with Bosch, which has substantially greater
resources than the Company. Such competition could adversely affect the Company.
Given the current regulatory and customer environment which have delayed market
acceptance of the Company's current product, the FLX-2500, there can be no
assurance that there will be market demand for any FSAN products of either the
Company or Bosch. Under the Alliance Agreement, there is no commitment by Bosch
to complete development of FSAN products, if sufficient market demand does not
develop. In such case, Bosch is free to cease its development efforts; in which
case, the Company will not achieve all the benefits contemplated by this
Agreement. If Bosch completes its development of FSAN products, there can be no
assurance such products will be competitive with the FSAN and other products of
other telecommunications equipment suppliers.
OTHER FACTORS
Given the current regulatory and customer environment as well as prior product
delays, sales volume for the Company's only current product, the FLX-2500, are
expected to remain low. Accordingly, except for development, contract
manufacturing, element manager system fees and potential OEM revenues from the
new agreements with Lucent, the Company anticipates low product sales volume
until New Platform products are introduced into the market in early 2000. (See
Item 2, Management's Discussion and Analysis of Financial Condition and Results
of Operations: Total Revenues.)
To remain competitive, the Company must continue to invest substantial resources
in research and development and to achieve development results in its current
products and future products, including the New Platform products the Company is
developing, as well as upgrades to the Company's products that meet the specific
needs of customers, including product performance, features, reliability and
price competitiveness. Development efforts are in place and many challenges
exist to successful development. In particular, the Company will need to attract
additional engineers who have hardware and software experience in digital loop
carrier products, as well as retain its current key
20
<PAGE>
BROADBAND TECHNOLOGIES, INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
OTHER FACTORS (CONTINUED)
engineers. The Company is also managing multiple, concurrent projects that will
require critical program management expertise to efficiently allocate scarce
engineering resources among competing initiatives. There can be no assurance the
Company will be successful in such effort.
Failure of the Company to meet its development goals will have a material
adverse effect on the Company. Notwithstanding successful development by the
Company, competitors already are selling products to customers in the market
targeted by the Company and competitors may develop new 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.
The Company expects price competition to be an important competitive factor,
together with other factors, including experience, product performance,
features, reliability, partner performance and supplier strength.
Other factors include the possibility that telephone companies may not widely
deploy all or part of the Company's current or future products in their local
distribution networks or may require expensive upgrades to the Company's current
product. For example, during 1997, SBC decided to discontinue the video portion
of its trial in Richardson, Texas. This move was attributed to federal
regulatory actions, which forced SBC to sell its wireless services and network
to new competitors at prices below actual cost. Also, the Company's current and
future products must meet the industry standards established by Telcordia
Technologies, Inc. (formerly BELLCORE) and must be compatible with the products
of other telephone company suppliers, including competitors of the Company.
Additionally, regulatory delays may continue to impede competition in the local
loop, which may delay the rollout of the Company's new generation access
products.
The failure of telephone companies to widely deploy broadband networks is also
increasing the risk that cable television networks will become more competitive
with telephone companies for the transmission of voice and data information due
to the broader bandwidth capabilities of coaxial cable networks. During the past
year substantially greater interest and investment in broadband cable television
networks has occurred and the trend appears to be accelerating. Failure by the
telephone companies to successfully meet competition from coaxial cable based
telecommunications networks would have a material adverse effect on the Company.
As the Company or its partners announce new products to better meet the changing
requirements of customers, customers may delay orders of existing products until
the new products are available for shipment, or until small volumes of new
products are adequately field tested. Announcements by Lucent of its new digital
loop carrier product, AnyMedia, had this adverse effect on sales of the
Company's FLX-2500 product and the same could occur in the future with respect
to the New Platform the Company is developing.
The Company competes against many larger companies that have significantly
greater resources than the Company. The Company, which has an accumulated
deficit of approximately $181.2 million as of March 31, 1999, has never been
profitable on an annual basis and may never achieve profitability. The Company
will require additional capital and may not be able to raise such capital or may
be able to raise such capital only on unfavorable terms.
The Company was dependent upon Lucent for greater than 94% of its revenues for
the quarter ended March 31, 1999 and greater than 80% of its projected 1999
revenue and will remain substantially dependent upon Lucent until the Company
develops and successfully markets its New Platform. Failure by the Company or
Lucent to comply with existing agreements would have a material adverse effect
on the Company.
As fewer large potential customers dominate the Company's market, 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.
21
<PAGE>
BROADBAND TECHNOLOGIES, INC.
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5. OTHER INFORMATION (CONTINUED)
OTHER FACTORS (CONTINUED)
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. 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.
YEAR 2000
Although the Company believes that its Year 2000 compliance plan is adequate to
address Year 2000 concerns, there can be no assurance that the Company will not
experience negative consequences as a result of undetected defects or the
noncompliance of third parties with whom the Company interacts. Furthermore,
there can be no assurance that there will not be a delay in, or increased costs
associated with, the implementation of corrections as the Year 2000 compliance
plan is performed, such as unexpected costs of correcting equipment that has not
yet been fully evaluated. If potential customers for the New Platform product
that the Company anticipates introducing in first quarter 2000 are experiencing
problems related to Year 2000 issues, the Company's marketing efforts may be
adversely affected by customers expending resources to address Year 2000
problems or by revenue losses by potential customers resulting from their Year
2000 platforms. If realized, these risks could result in adverse effects on the
business, results of operations and financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - None.
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 14, 1999 /s/ John T. Autrey
------------------
John T. Autrey
Vice President and Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> $ 97,301,676
<SECURITIES> $ 9,711,765
<RECEIVABLES> $ 4,959,162
<ALLOWANCES> $ (150,725)
<INVENTORY> $ 4,667,760
<CURRENT-ASSETS> $ 2,500,912
<PP&E> $ 22,129,900
<DEPRECIATION> $ (16,038,900)
<TOTAL-ASSETS> $ 116,967,319
<CURRENT-LIABILITIES> $ 19,286,458
<BONDS> $ 115,000,000
0
0
<COMMON> $ 134,536
<OTHER-SE> $ 159,815,123
<TOTAL-LIABILITY-AND-EQUITY> $ 116,967,319
<SALES> $ 2,229,064
<TOTAL-REVENUES> $ 4,183,825
<CGS> $ 1,968,518
<TOTAL-COSTS> $ 1,968,518
<OTHER-EXPENSES> $ 7,326,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $ (264,443)
<INCOME-PRETAX> $ (5,393,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> $ (5,393,247)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ (5,393,247)
<EPS-PRIMARY> (.40)
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