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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED: MARCH 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21034
PROXIMA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C>
DELAWARE 95-3740880
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
9440 CARROLL PARK DRIVE
SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 457-5500
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.001 par value The Nasdaq Stock Market
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 6, 1997 was $39,354,101 based upon the last sales price
reported for such date on the NASDAQ National Market System. For purposes of
this disclosure, shares of Common Stock held by persons who hold more than 5% of
the outstanding shares of Common Stock and shares held by officers and directors
of the registrant, have been excluded in that such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.
At June 9, 1997, registrant had outstanding 7,433,589 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement, to be filed on or
before June 30, 1997, in connection with Registrant's annual meeting of
stockholders to be held on July 23, 1997, are incorporated herein by reference.
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PART I
ITEM 1. BUSINESS
Proxima designs, develops, manufactures and markets multimedia projection
products. These products employ "light valves" consisting of either liquid
crystal displays ("LCDs") or digital light processors ("DLPs"). The Company's
multimedia projection products are designed to enhance the productivity of
workgroups and the effectiveness of presenters by bringing the power and
flexibility of personal computers from the desktop into business, education and
government workgroup and presentation settings. The Company's multimedia
projection products include portable projection panels and projectors, along
with interactive presentation control systems. The projectors and panels can be
connected to a personal computer or to a video source. The panels are placed on
an overhead projector, allowing the computer image or full-motion video to be
projected onto a screen or wall, while the projectors have an integrated light
source. The interactive presentation control systems enable the presenter to
control the computer by pointing at the projected image with a laser pointer
while moving freely around the room, or by touching the projected image with a
wand.
In November 1995, the Company acquired its wholly-owned subsidiary, Mind
Path Technologies, Inc., a manufacturer of remote control devices used with
personal computers and also used with the Company's multimedia projection
products. Through another wholly-owned subsidiary, Newpoint Corporation, the
Company manufactured and marketed a line of products which protect personal
computers and peripherals from potentially harmful electrical power problems. On
June 28, 1996, the Company sold the assets of its Newpoint Corporation power
protection business, which accounted for less than 10% of the Company's sales in
fiscal 1997.
BACKGROUND
Communication of information in a group setting is a basic activity in
business, education and government. This communication occurs in many ways,
including two common settings: workgroup sessions and presentations. Workgroup
sessions are working exchanges of information in which the format may be
relatively unstructured. The participants actively exchange information to
develop a mutually acceptable work product or action plan. Presentations are
generally more structured, with less audience participation. The primary goal of
a presentation is to transmit information to the audience.
Millions of workgroup sessions take place each day to plan activities,
analyze financial data, establish project schedules, design products and
accomplish other tasks requiring multiple participants to review and comment on
information. Traditionally, workgroup sessions have required one person to
present information, collect comments, revise the information and recirculate a
new version for consideration at subsequent meetings. Personal computers have
shortened the revision process and made distribution of the revised material
much easier and faster, but are limited in their ability to display information
in group settings.
Millions of presentations also occur daily in business, education and
government, including executive briefings, sales presentations, and teaching and
training sessions. Traditionally, presentations have been delivered with the aid
of a variety of media, including flip charts, 35mm slides, overhead
transparencies and videotapes. Each of the traditional media is subject to
limitations including the inability to easily change the content or order of a
presentation, the long lead times associated with preparation, the need to rely
on outside suppliers, and the relatively high production cost.
The various personal computer operating systems, which incorporate
graphical user interfaces, have enhanced the ease of use and productivity of
personal computers. Tens of millions of people now use personal computers as, in
effect, electronic desktops where they perform a broad variety of tasks such as
typing, filing, calculating and preparing presentations. In addition, users are
increasingly incorporating color graphics, photographic images and full-motion
video into these applications. Until recently, however, personal computer users
were unable to bring the productivity benefits of the electronic desktop to the
workgroup and presentation environments.
<PAGE> 3
Advances in video interface, control and light valve technologies have
facilitated development of multimedia projection products that can be used to
project computer information onto a wall or screen in group settings.
Multimedia projection products enable personal computers to be used in
workgroups and presentations to enhance the information exchange process. The
combination of computing power and projection capability allows workgroup
participants to analyze immediately the effects of changes and to avoid the
delays and inefficiencies of revising and recirculating the information prior to
subsequent group meetings. Multimedia projection products also allow presenters
to realize several benefits over traditional presentation methods. First,
personal computer-based presentations can be customized, revised or corrected
without delay. Second, the presenter can easily modify the content and can
access information nonsequentially to address the specific knowledge and
interest levels of the audience. More detailed information can also be accessed
easily in response to questions from the audience. Finally, recent advances in
personal computer software allow users to create multimedia presentations
incorporating computer graphics, animation, video and sound, thereby enhancing
the impact of presentations.
Demand for multimedia projection products has increased as products have
been introduced which meet the specific needs of the workgroup and presentation
markets. As light valve, video interface and controller technologies continue to
advance, the range of available colors and image quality has increased to a
level comparable with other presentation media, including slide projectors and
video monitors. This technological evolution, in conjunction with the increasing
availability of easy-to-use presentation software, has stimulated demand for
multimedia projection products. The Company believes that demand for multimedia
projection products will continue to grow and broaden due to (i) continued
advances in product portability, ease of use and affordability, (ii) continued
improvements in image quality, color spectrum and the ability to project full-
motion video images and (iii) the continued proliferation of portable computers
and more powerful and user-friendly presentation and multimedia software*.
STRATEGY
The Company's goal is to bring the power and flexibility of personal
computers from the desktop into workgroup and presentation settings to improve
the productivity of workgroups and the effectiveness of presenters. The Company
intends to accomplish this by delivering superior products that do not require
substantial changes in the ways in which workgroups and presentations are
conducted. The Company's three-part growth strategy consists of enhancing the
product line, increasing global distribution and increasing quality and
operational efficiencies:
Enhance Product Lines. The Company is focused on developing or sourcing
new products incorporating the latest advances in projection technology and
introducing these products to the market quickly and efficiently. The products
will be differentiated by innovative features that increase brightness, ease of
use, interactivity, connectivity and mobility, while lowering cost.
Three major market segments are emerging in the multimedia projection
market. The Company currently offers a family of multimedia projectors for the
meeting/conference room and for the mobile segments. The other segment is the
low-end auditorium market. The Company's goal is to develop or source
competitive products for each of these market segments.
Increase Global Distribution. The Company expanded its distribution with
the addition of MicroAge, Inc., as a distributor in fiscal 1997.
Internationally, in fiscal 1997 the Company opened a new sales office supporting
Latin America and relocated the headquarters for its European business to
London. Early in fiscal 1998, the Company opened a sales office in China. These
changes are intended to bolster overseas revenues. The Company has also
initiated a series of programs to strengthen relationships with its existing
value-added resellers and distributors.
Increase Quality and Operational Efficiencies. The Company's third
strategic objective is to increase its quality and operational efficiencies
through improved inventory turnover, cash flow, product cycle management and
efficiency throughout the Company.
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TECHNOLOGY
Proxima is a leader in developing and incorporating new technologies into
its products as evidenced by its numerous technological firsts. The Company's
proprietary technology encompasses several technical disciplines, including:
Video Interface and Controller Technology. The Company has developed
proprietary video interface and controller technology to drive a range of light
valves (LCD modules and DLP modules). Advanced microprocessor control,
programmable logic and mixed signal design techniques are combined in
controllers that greatly enhance light valve performance by expanding the range
of available colors, enabling the system to operate with a broad range of
international computer and broadcast video standards, and providing simple and
intuitive user control.
Software and Firmware. The Company designs software and firmware to
enhance image quality, ease of use and functionality of its multimedia
projection products. The Company has developed software drivers for remote
controls and its Cyclops system to run on a number of personal computer
operating systems including DOS, Windows and Macintosh. The Company has also
developed firmware to control microprocessors embedded in its multimedia
projection products, making possible such features as write-on-image, automatic
video mode detection, remote control and on-board menus and control.
Input Device Technology. The Company's Cyclops interactive presentation
control system is a proprietary personal computer input device that combines
microprocessor control with optical and software design. In addition, the
Company's wholly-owned subsidiary, Mind Path Technologies, is a leading
developer of remote control devices used with personal computers and also with
the Company's multimedia projection products.
Optical Design. The Company develops optical designs for its multimedia
projection products to enhance image quality and overall system performance
through complex lens systems, light filtration and polarization techniques.
Mechanical Design. The Company has developed expertise in mechanical,
thermal and ergonomic design technologies required to develop multimedia
projection products with the size, weight and human factor characteristics
desired by end-users.
PRODUCTS AND NEW PRODUCT DEVELOPMENT
The Company's multimedia projection products are targeted at professionals
who present computer-generated information. These products are lightweight and
easily portable. They may be used with or without a standard video monitor and
are compatible with virtually all popular application software programs. The
Company's multimedia projection products are also compatible with a broad range
of international computer and broadcast video standards.
The Company believes that timely development and introduction of new
products are essential to maintaining its competitive position. The Company
devotes a portion of its internal research and development resources to making
advances in video interface and controller technology, firmware and software,
and mechanical and optical design. The Company also works with light valve
suppliers to influence design decisions and keep abreast of technological
advances.
The Company continues to expand its line of multimedia projection products
for both high-performance and cost-sensitive applications. The Company is
developing or sourcing lighter, brighter color projectors in compact packages
featuring higher resolutions and image quality.
Research and development expenses were approximately $8,782,000,
$12,852,000, and $15,080,000 in fiscal 1995, 1996 and 1997, respectively, which
represented 6.5%, 8.0%, and 9.7% of sales in those periods, respectively.
3
<PAGE> 5
MARKETING, SALES AND DISTRIBUTION
The Company markets and sells its multimedia projection products worldwide
through various channels, including presentation specialists, personal computer
distributors and dealers, and private label arrangements.
Since the market for multimedia projection products is relatively new, the
Company believes that market awareness of the capabilities and features of
multimedia projection products is currently low. As a result, presentation
specialists, who have expertise in the integration, demonstration, training and
after-sales support of presentation systems which employ the Company's
multimedia projection products, are an important distribution channel for the
Company. The Company sells its products through over 100 presentation
specialists who make field demonstrations of the Company's products at customer
sites and respond to inquiries received by the Company as a result of the
Company's marketing activities. The Company works closely with these
presentation specialists, especially in the introduction of new products, market
development activities and the definition of future products.
The Company believes that as multimedia software and multimedia-compatible
computer hardware gain acceptance, personal computer dealers and distributors
will increase in importance as a channel for the Company's multimedia projection
products*. The Company believes that its experience and presence in this
distribution channel will therefore be an important competitive factor*. The
Company has agreements with computer dealers and distributors in key
international markets including Germany, France and England. The Company's
computer dealers and distributors include Ingram Micro, Inc., Inmac Inc.,
Intelligent Electronics, Inc., Merisel, Inc., MicroAge, Inc. and Tech Data
Corporation.
Private label customers distribute the Company's multimedia projection
products globally.
Sales outside of the United States and Canada, consisting primarily of
multimedia projection products sold in Europe, represented approximately 38%,
39%, and 38% of the Company's total sales during fiscal years 1995, 1996, and
1997, respectively. The Company employs dedicated international sales personnel
at its headquarters in San Diego and in Miami, Florida, the Netherlands, the
United Kingdom, Canada, Singapore and China, who work with international
distributors to sell and support the Company's products.
The Company generally ships its standard products promptly following
receipt of an order. The Company usually has relatively little backlog of orders
for its standard products at any given time. While the Company's private label
customers typically place orders for products several months prior to the
scheduled shipment date, these orders are subject to rescheduling and
cancellation. As a result, the Company generally does not consider its backlog
to be a meaningful indicator of future sales.
CUSTOMER SUPPORT
The ongoing support of customers is an important element of the Company's
business. The Company has established a customer service and support
organization that provides order processing, technical support and hardware
repair to distributors and end-users of its products. Customers have toll-free
telephone access to technical specialists who respond to hardware, software and
applications questions. Each of the Company's products is covered by a warranty
for parts and labor for one year or longer from the date of sale. In addition,
certain distributors have been trained by the Company to repair and upgrade
products.
MANUFACTURING
The Company's manufacturing and assembly operations are conducted at its
headquarters in San Diego, California, and at facilities less than 40 miles away
in Tijuana, Mexico. The proximity of these facilities permits the rapid movement
of inventory and senior management supervision of production. An integrated
manufacturing software program, administered by personnel in each of the plants,
is used to control and track the entire manufacturing process. The Company plans
to restructure the activities at its facilities in Mexico during fiscal 1998*.
Thereafter, all manufacturing operations will be conducted at the Company's
facilities in San Diego and/or outsourced*. (see note 9 to the Consolidated
Financial Statements).
4
<PAGE> 6
Materials procurement, contract management, receiving inspection,
production planning, inventory staging, manufacturing engineering and quality
assurance auditing are generally performed in San Diego. The manufacturing
facilities in San Diego were used during fiscal 1997 primarily for product
assembly, testing, pilot run production and product repair. By the end of fiscal
1998, the San Diego manufacturing facility may undertake all of the Company's
manufacturing activities and certain activities may be outsourced*. The Company
believes that the San Diego facilities have adequate capacity to accommodate all
of the Company's manufacturing needs for the foreseeable future. The Tijuana
facilities, which employed 181 people as of March 31, 1997, has generally
handled high-volume production of subassemblies, panels, and integrated
projectors, including the highly automated assembly and test of fine-pitch,
surface-mount components on printed circuit boards.
PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright and trade secret
protection, and non-disclosure agreements to protect its proprietary rights.
Although the Company has pursued and intends to continue pursuing patent
protection of inventions that it considers important, the Company's patents may
not preclude competitors from developing products or technologies equivalent or
superior to those of the Company.
EMPLOYEES
As of March 31, 1997, the Company employed 444 people, including 252 in
manufacturing, 75 in selling and marketing activities, 72 in engineering and 45
in management, administration and finance. None of the Company's employees is
represented by a labor union or is subject to a collective bargaining agreement.
The Company believes that its relations with its employees are excellent.
ITEM 2. PROPERTIES
The Company's headquarters and multimedia projection business are located
in San Diego, California, in leased facilities consisting of approximately
93,000 square feet. The lease on this facility expires in March 1999, subject to
the Company's option to extend it for an additional 5 years. Mind Path
Technologies is located in Dallas, Texas, in a leased facility consisting of
approximately 2,000 square feet. The Company also leases a facility in Tijuana,
Mexico consisting of approximately 26,000 square feet, which is used primarily
for the assembly and testing of the Company's products. In addition, the Company
leases facilities in the Netherlands, Miami, Florida, and in the United Kingdom.
The Company considers its facilities adequate for its current needs and believes
that additional space can be obtained in the future if necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in three putative class action
lawsuits entitled: Robert Powers, et. al. v. Proxima Corp., et. al., filed in
the U.S. District Court for the Southern District of California on August 16,
1996 ( the "Powers" case); Stielau Family Trust, et. al. v. Proxima Corp., et.
al., filed on August 15, 1996 in the California Superior Court for San Diego
County (the "Stielau" case); and Richard Strausz, et. al. v. Proxima Corp., et.
al., filed on August 27, 1996 in the California Superior Court for San Diego
County (the "Strausz" case). Certain current and former executive officers and
directors of the Company are also named as defendants. In the Powers and Stielau
cases, the plaintiffs purport to represent a class of all persons who purchased
the Company's common stock between July 26, 1994 and August 17, 1995. In the
Strausz case, the plaintiffs purport to represent a class of all persons who
purchased the Company's common stock between October 21, 1995 and June 24, 1996.
The complaints allege that the defendants violated various federal securities
laws and California statutes through material misrepresentations and omissions
during the class periods, and seek unspecified monetary damages.
On March 1, 1997 the U.S. District Court granted portions of the
defendants' motion to dismiss the Powers complaint and denied other portions of
the motion. Plaintiffs were given leave to amend the dismissed portions of their
complaint. On April 16, 1997 the California Superior Court sustained the
defendants' demurrer dismissing the Stielau complaint. The Court dismissed
portions without leave to amend but gave the
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plaintiffs leave to amend other portions of their complaint. The defendants also
filed a demurrer in the Strausz case and the California Superior Court has not
yet ruled on that demurrer.
The Company maintains directors' and officers' insurance primarily to
provide coverage for the type of lawsuits described above. The Company and its
insurance carrier, Evanston Insurance Company ("Evanston"), have been involved
in a dispute over such coverage. On June 11, 1997, Evanston filed an action for
declaratory relief and breach of contract in the U.S. District Court for the
Southern District of California against the Company and certain of its current
and former executive officers and directors, alleging that any insurance claims
arising from the foregoing putative class action lawsuits would not be covered.
The Company and the individual defendants have not been served with the
complaint.
The outcome of the lawsuits cannot be determined. Thus, there can be no
assurance that these lawsuits will be resolved favorably to the Company or that
they will not have a material adverse effect on the Company's financial
condition and results of operations. However, management believes that the suits
are without merit and is defending itself vigorously against these actions. No
amounts have been recorded in the financial statements for any losses which may
result from these lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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IDENTIFICATION OF EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
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AGE
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Kenneth Olson.................... 60 Chairman of the Board since 1984. In March 1997, he
was appointed Interim President and CEO of the
Company. He originally became an employee in July
1989 and was CEO from December 1990 to February
1996.
Frank Drdek...................... 50 Vice President, Human Resources since March 1994. Mr.
Drdek was the Director of Human Resources from
February 1992 to March 1994. From 1989 to 1992, he
was employed by Hawthorne Machinery Company as
Director of Human Resources.
Thomas Kampfer................... 34 General Counsel and Secretary. Mr. Kampfer joined the
Company as Director of Legal Affairs in January 1996
and was named General Counsel and Secretary in June
1997. He was with IBM Corporation from 1985 to 1995
where he held a variety of positions in engineering,
contracting and IBM's legal department, most
recently as Counsel.
Steven E. Richardson............. 45 Joined the Company in March 1997 as V.P., Marketing.
He was previously employed by Compression Labs,
Incorporated from 1987 to 1996 where he held a
variety of positions including most recently VP,
Marketing. Between 1976 and 1987, he worked for
Hewlett-Packard Company in various capacities.
Michael S. Tamkin................ 55 Vice President, Manufacturing since 1994. From 1992
through March 1994, Mr. Tamkin was V.P., Operations,
at Midwestco Enterprises, Inc. From 1990 to 1992, he
was V.P., Manufacturing and Quality, with Motorola
Lighting, Inc., a manufacturer of electronic
ballasts. From 1963 to 1990, he was with Zenith
Electronics Corporation, most recently as V.P. and
General Manager of the Video Display Division.
Michael Vogt..................... 54 Vice President, International Sales since 1995. From
January 1984 to December 1989, he served in a variety
of senior management positions with the Company,
including V.P., Finance, CFO and Secretary of the
Company.
Nigel Waites..................... 31 Acting Vice President, Product Development since April
1997. Mr. Waites joined the Company as Manager of
Hardware Engineering in March 1996. He was Manager
of Test Engineering at Polycom, Inc., from 1995 to
1996, and Hardware Manager Entry Level PowerBook
Division at Apple Computer, Inc., from 1994 to 1995.
From 1988 to 1994 he held a variety of engineering
positions at National Instruments, Inc.
Dennis Whittler.................. 46 Vice President, Finance and Chief Financial Officer of
the Company since December 1989. From 1980 to December
1989, Mr. Whittler held a variety of financial
positions with Topaz, Inc., including Chief
Financial Officer and Controller.
</TABLE>
Officers' terms expire following the 1997 Annual Meeting of Stockholders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol: PRXM. As of March 31, 1997, there were approximately 5,500 stockholders
of record and beneficial stockholders of common stock. The Company has never
paid dividends and does not anticipate paying any dividends in the foreseeable
future. The high and low sales prices of Proxima common stock for the two years
ended March 31, 1997 were as follows:
PRICE RANGE OF COMMON STOCK
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HIGH LOW
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Fiscal 1996
First Quarter.................................................... $35.13 $20.25
Second Quarter................................................... 29.50 16.75
Third Quarter.................................................... 24.00 13.88
Fourth Quarter................................................... 28.88 17.88
Fiscal 1997
First Quarter.................................................... $20.25 $10.75
Second Quarter................................................... 14.50 9.13
Third Quarter.................................................... 16.00 10.44
Fourth Quarter................................................... 16.88 5.63
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
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YEARS ENDED MARCH 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales......................... $57,167 $69,245 $135,750 $159,797 $154,665
Gross Profit.................. 23,373 26,034 55,937 58,338 35,315
Net Income (Loss)............. 4,913 3,875 13,109 9,690 (9,540)
Earnings (Loss) Per Share..... 0.94 0.61 1.91 1.37 (1.36)
BALANCES AT MARCH 31,
Working Capital............... $35,917 $35,045 $ 50,343 $ 59,677 $ 56,948
Total Assets.................. 44,264 51,554 77,827 90,258 87,278
Total Debt.................... -- -- -- -- --
Total Stockholders'
Equity(1)................... 38,848 41,593 59,289 73,170 65,290
</TABLE>
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(1) No dividends were declared or paid during fiscal 1993 to 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (as contained in Item 1 "Strategy" or denoted with an
asterisk *). Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below.
GENERAL
The Company was founded in 1982 to develop and market desktop accessory
products for personal computers. In 1987, the Company introduced its first
multimedia projection product. In 1990, the Company sold its entire inventory of
desktop accessories. In fiscal 1992, the Company began phasing out the
uninterruptible power systems portion of its power protection product line and
completed the phase-out in fiscal 1993. In November, 1995, the Company purchased
Mind Path Technologies, Inc., a developer and manufacturer of remote control
user interfaces. On June 28, 1996, the Company sold the assets of its Newpoint
Corporation power protection business, which accounted for less than 10% of the
Company's sales in fiscal 1997.
The Company now offers broad lines of multimedia projection products which,
for the fiscal year ended March 31, 1997, accounted for more than 90% of the
Company's sales.
The Company's ability to compete in the multimedia projection products
market depends on factors within and outside its control, including the success
and timing of product introductions by the Company and its competitors, product
price/performance, product distribution and customer support. Moreover, the
market for multimedia projection products is characterized by rapidly evolving
technology and frequent new product introductions. Anticipated product releases
by the Company or its competitors often cause customers to delay purchases until
new products are available. Because the Company generally books and ships orders
in the same quarter, delays in customer orders, whether caused by waiting for
new products or otherwise, can have a significant impact on the Company's
results of operations. The Company's future success will depend on its ability
to continue to develop and manufacture, or source from third parties,
competitive products*. There can be no assurance that the Company's current
products will continue to achieve market acceptance, that the Company will be
able to develop and deliver new products in a timely manner, or that new
products, once delivered, will achieve market acceptance.
The factors discussed above are part of the business environment in which
the Company operates and have had an impact on the Company's results of
operations in fiscal 1997 and in the early part of fiscal 1998. These factors
may have a significant adverse effect on the Company's sales and results of
operations*. Please refer to the "Risk Factors" at the end of this section of
the Report for a further review of the Company's risk factors.
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RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of sales.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Sales..................................................... 100.0% 100.0% 100.0%
Cost of sales............................................. 58.8 63.5 77.2
----- ----- -----
Gross profit.............................................. 41.2 36.5 22.8
Operating expenses
Selling and marketing................................... 14.1 13.7 15.9
Research and development................................ 6.5 8.0 9.7
General and administrative.............................. 5.4 4.4 4.8
Restructuring charge.................................... -- -- 1.0
----- ----- -----
Total........................................... 26.0 26.1 31.4
----- ----- -----
Income (loss) from operations............................. 15.2 10.4 (8.6)
----- ----- -----
Other income (expense)
Interest and other income............................... 0.5 0.6 0.7
Equity in loss of affiliate............................. (0.4) (0.7) (0.1)
Gain on sale of subsidiary's assets..................... -- -- 1.8
Writedown of investment in affiliate.................... -- -- (2.5)
----- ----- -----
Total........................................... 0.1 (0.1) (0.1)
----- ----- -----
Income (loss) before income taxes......................... 15.3 10.3 (8.7)
Provision (benefit) for income taxes...................... 5.6 4.2 (2.5)
----- ----- -----
Net income (loss)......................................... 9.7% 6.1% (6.2)%
===== ===== =====
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
SALES -- Revenue for fiscal year 1997 was $154.7 million, down 3% from
$159.8 million in fiscal year 1996. Sales of multimedia projection products
increased to $150.9 million in fiscal year 1997, up 3% from $146.2 million in
fiscal year 1996. The 3% increase in sales of multimedia projection products was
primarily attributable to sales of sourced branded integrated projectors, while
the 3% decrease in overall sales was attributable to a $9.9 million reduction in
revenues from the Company's Newpoint power protection business, which was sold
in June 1996.
The Company reduced the prices of certain multimedia projection products in
fiscal years 1995, 1996 and 1997. The Company believes that severe price
competition will continue in the multimedia projection market*. The Company
provides price protection to its dealers and distributors such that, if the
Company reduces the price of its products, dealers and distributors are entitled
to a credit for the difference between the new, reduced price and the price they
previously paid for products which are held in their inventory at the time of
the price reduction and were purchased within the preceding 30 days. Price
protection to dealers and distributors in connection with the price reductions
totaled approximately $413,000 in fiscal 1995, $1,552,000 in fiscal 1996, and
$1,758,000 in fiscal 1997. Subsequent to the end of fiscal 1997, the Company
announced further price reductions impacting fiscal 1998 sales related to many
of its multimedia projection products. The Company believes that fiscal 1998
sales are likely to be adversely affected as a result of this and future price
reductions*.
Sales to distributors, dealers, and end-users outside of the United States
and Canada declined from $62.6 million in fiscal 1996 to $58.4 million in fiscal
1997. Sales outside of the United States and Canada were approximately 39% and
38% of total sales for fiscal 1996 and 1997, respectively. The decrease in
international sales in absolute dollars and as a percentage of revenue was
primarily attributable to reduced sales to a large private label customer.
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<PAGE> 12
GROSS PROFIT -- Gross profit as a percentage of sales decreased from 36.5%
in fiscal 1996 to 22.8% in fiscal 1997. The decrease was due primarily to
inventory adjustments and competitive price reductions and discounts offered on
phase-out products. Inventory adjustments for obsolete and slow-moving inventory
as a percentage of sales increased from 3.0% in fiscal 1996 to 9.5% in fiscal
1997. The Company believes that its gross margins will decline in fiscal 1998 as
a result of the selling off of slow-moving and obsolete inventory and as a
result of price reductions due to competitive pricing pressures*.
SELLING AND MARKETING EXPENSES -- Selling and marketing expenses increased
from $21,838,000 in fiscal 1996 to $24,554,000 in fiscal 1997. Selling and
marketing expenses as a percentage of sales increased from 13.7% in fiscal 1996
to 15.9% in fiscal 1997. The increase in both absolute dollars and as a
percentage of sales is primarily attributable to increased promotional expenses
related to the introduction of new products. Some of the increased selling and
marketing expenditures were incurred to develop new international distribution
channels for multimedia projection products, including the expansion of the
Company's European sales and marketing operations. The Company expects selling
and marketing expenses to decrease in both absolute dollars and as a percentage
of sales in fiscal 1998 as a result of cost control measures undertaken at the
end of fiscal 1997*.
RESEARCH AND DEVELOPMENT EXPENSES -- Research and development expenses
include costs associated with researching new technologies, developing new
products and improving existing product designs. These expenses increased from
$12,852,000 in fiscal 1996 to $15,080,000 in fiscal 1997. Research and
development spending as a percentage of sales increased from 8.0% in fiscal 1996
to 9.7% in fiscal 1997. The increase in spending in both dollar amount and as a
percentage of sales in fiscal 1997 compared to fiscal 1996 primarily reflects
increased engineering staff. The Company expects research and development
expenses to decrease in both dollar amount and as a percentage of sales in
fiscal 1998 as a result of cost control measures undertaken at the end of fiscal
1997*.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased from $7,129,000 in fiscal 1996 to $7,487,000 in fiscal 1997. As a
percentage of sales, these expenses increased from 4.4% in fiscal 1996 to 4.8%
in fiscal 1997. General and administrative expenses were higher in fiscal 1997
versus fiscal 1996 both in absolute dollars and as a percentage of sales
primarily as a result of severance costs.
RESTRUCTURING CHARGE -- In March 1997, the Company recorded a restructuring
charge of $1,528,000 to recognize the expected costs of reorganizing the
Company's manufacturing activities. By the end of fiscal 1998, the Company
expects to relocate all manufacturing activities conducted at its Tijuana,
Mexico, facilities to its San Diego facilities* and may outsource certain
activities. The restructuring charge primarily included a $770,000 write-down of
fixed assets and $484,000 of severance costs. The restructuring was a result of
rapid changes in the marketplace in which the Company operates. In particular,
demand has shifted from VGA projectors to higher resolution SVGA and XGA
projectors. In addition, the Company expects to require less manufacturing
capacity than it currently has available due to its increasing reliance on
sourced products*.
OTHER INCOME (EXPENSE) -- Interest and other income increased from $927,000
in fiscal 1996 to $1,141,000 in fiscal 1997, primarily as a result of higher
interest income. The increase in interest income is attributable to higher
average balances of cash and short-term investments in fiscal 1997 as compared
to fiscal 1996.
GAIN ON SALE OF SUBSIDIARY'S ASSETS -- On June 28, 1996, the Company sold
the assets of its Newpoint Corporation power protection subsidiary for
approximately $7.3 million. The Company recognized a pre-tax gain on the sale of
$2,779,000. Newpoint Corporation represented less than 10% of the Company's
sales, assets and operating income during fiscal year 1997.
WRITE-DOWN OF INVESTMENT IN AFFILIATE -- The Company recorded a write-down
of $3,905,000 against its investment in Laser Power Corporation (LPC) during the
quarter ended June 30, 1996. The remaining investment balance of $1,201,000
shown on the accompanying balance sheet as of March 31, 1997 reflects the
Company's equity in the net assets of LPC, less a valuation reserve. The
write-down and balance of the Company's investment in LPC is the result of an
analysis of discounted and undiscounted estimated cash flows
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<PAGE> 13
from the investment. The Company deemed it necessary to review its investment in
LPC because of information obtained upon the completion of the first engineering
model of a microlaser projector in July 1996. On the basis of that information,
the Company now believes that microlaser technology will initially be suited for
the higher-cost specialty projector market, which offers lower unit volumes than
originally contemplated*. The Company will continue to recognize its share of
the net income or loss of LPC under the equity method.
INCOME TAXES -- The Company's effective tax rate was a benefit of 29.4% in
fiscal 1997 compared to a provision of 40.9% in fiscal 1996. Note 6 to the
Consolidated Financial Statements contains a description of the Company's tax
position and a reconciliation of the variances from the Federal statutory income
tax rate. The effective tax rate was lower in fiscal 1997 than in fiscal 1996
primarily due to the reinstatement of the research and development tax credit in
July 1996. The Company utilized research and development tax credits of $530,000
in fiscal 1997 and $161,000 in fiscal 1996. The Company realized no foreign
sales corporation tax benefits in fiscal 1997, compared to benefits of $118,000
in fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
SALES -- Revenue for fiscal year 1996 was $159.8 million, up 18% from
$135.8 million in fiscal year 1995. Sales of multimedia projection products
increased to $146.2 million in fiscal year 1996, up 18% from $123.7 million in
fiscal year 1995. The 18% increase in sales of multimedia projection products
was primarily attributable to sales of Proxima's integrated projectors,
particularly the DP5100 family of projectors which began shipping early in
fiscal 1996.
The Company reduced the prices of certain multimedia projection products in
fiscal years 1995 and 1996. The Company provides price protection to its
distributors such that, if the Company reduces the price of its products,
distributors are entitled to a credit for the difference between the new,
reduced price and the price they previously paid for products which are held in
their inventory at the time of the price reduction and were purchased within the
preceding 30 days. Price protection to distributors in connection with the price
reductions totaled approximately $413,000 in fiscal 1995 and $1,552,000 in
fiscal 1996.
Sales to distributors, dealers, and end-users outside of the United States
and Canada grew from $51.4 million in fiscal 1995 to $62.6 million in fiscal
1996 due primarily to the broadening of the Company's international distribution
network and increased market acceptance of the Company's products. Sales outside
of the United States and Canada were approximately 38% and 39% of total sales
for fiscal 1995 and 1996, respectively. The increase in international sales as a
percentage of revenue was primarily attributable to sales to a large private
label customer.
GROSS PROFIT -- Gross profit as a percentage of sales decreased from 41.2%
in fiscal 1995 to 36.5% in fiscal 1996. The decrease was due primarily to
competitive price reductions and discounts offered on phase-out products.
Partially offsetting the price decreases were continuing decreases in LCD panel
costs and greater manufacturing efficiencies.
SELLING AND MARKETING EXPENSES -- Selling and marketing expenses increased
from $19,163,000 in fiscal 1995 to $21,838,000 in fiscal 1996. Growth in sales
volume reduced selling and marketing expenses as a percentage of sales from
14.1% in fiscal 1995 to 13.7% in fiscal 1996. Some of the increased selling and
marketing expenditures were incurred to develop new international distribution
channels for multimedia projection products.
RESEARCH AND DEVELOPMENT EXPENSES -- Research and development expenses
include costs associated with researching new technologies, developing new
products and improving existing product designs. These expenses increased from
$8,782,000 in fiscal 1995 to $12,852,000 in fiscal 1996. Research and
development spending as a percentage of sales increased from 6.5% in fiscal 1995
to 8.0% in fiscal 1996. The increase in spending in both dollar amount and as a
percentage of sales in fiscal 1996 compared to fiscal 1995 primarily reflects
increased engineering staff.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
decreased from $7,291,000 in fiscal 1995 to $7,129,000 in fiscal 1996. As a
percentage of sales, these expenses decreased from 5.4% in fiscal 1995 to 4.4%
in fiscal 1996, primarily as a result of higher sales volume. General and
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<PAGE> 14
administrative expenses were lower in absolute dollars in fiscal 1996 versus
fiscal 1995 primarily as a result of costs associated with stockholder class
action litigation against the Company. General and administrative expenses
included legal fees and settlement costs of $1,545,000 in fiscal 1995 in
connection with the lawsuit. The lawsuit was settled in March 1995. Partially
offsetting the reduction in legal expenses during fiscal 1996 versus fiscal 1995
were higher staffing levels and increases in reserves for accounts receivable
associated with higher sales volume during fiscal 1996.
OTHER INCOME (EXPENSE) -- Interest and other income increased from $610,000
in fiscal 1995 to $927,000 in fiscal 1996, primarily as a result of higher
interest income. The increase in interest income is attributable to higher
average balances of cash and short-term investments in combination with higher
rates of interest earned on cash and short-term investments in fiscal 1996 as
compared to fiscal 1995.
Equity in loss of affiliate increased from $504,000 in fiscal 1995 to
$1,052,000 in fiscal 1996. This amount is attributable to Proxima's equity in
Laser Power Corporation (LPC) operating losses, amortization of excess cost over
net assets acquired and the Company's increased equity investment in LPC during
fiscal 1996.
INCOME TAXES -- The Company's effective tax rate was 40.9% in fiscal 1996
compared to 37.0% in fiscal 1995. Note 6 to the Consolidated Financial
Statements contains a description of the Company's tax position and a
reconciliation of the variances from the Federal statutory income tax rate. The
effective tax rate was higher in fiscal 1996 than in fiscal 1995 primarily due
to the expiration of the research and development tax credit in June 1995 and to
the increase in equity in loss of affiliate. The Company utilized research and
development tax credits of $520,000 in fiscal 1995 and $161,000 in fiscal 1996.
The Company also realized foreign sales corporation tax benefits of $57,000 in
fiscal 1995 and $118,000 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Over the past three years, the Company has funded its operations through
cash flow provided from operations and the initial public offering in February
1993. The net increase in cash and short-term investments in fiscal 1995 was
primarily due to $13.1 million of earnings, a $9.8 million increase in accounts
payable and accrued expenses, plus a $2.4 million positive cash flow from the
sale of common stock, partially offset by a $14.1 million increase in accounts
receivable, a $5.9 million increase in inventories, the acquisition of $2.5
million in property, and a $1.7 million investment in LPC. In fiscal 1996, the
net increase in cash and short-term investments was $5.7 million. The net
increase in cash and short-term investments in fiscal 1996 was primarily due to
$9.7 million of earnings, a $2.0 million positive cash flow from the sale of
common stock, and a $2.0 million tax benefit from stock option exercises,
partially offset by the acquisition of $5.0 million in property, a $3.3 million
decrease in accounts payable and accrued expenses, and a $2.0 million investment
in LPC. In fiscal 1997, the net decrease in cash and short-term investments was
$3.4 million. The net decrease in cash and short-term investments in fiscal 1997
was primarily due to a $9.5 million net loss, a $5.4 million increase in
accounts receivable, the acquisition of $3.5 million in property, and a $2.2
million increase in deferred income tax assets, partially offset by $7.3 million
received on the sale of the assets of Newpoint Corporation, a $6.6 million
increase in accounts payable and accrued expenses, and a $2.0 million positive
cash flow from the sale of common stock related to stock option exercises.
As of March 31, 1997, the Company had $18.0 million in cash and short-term
investments and $56.9 million in working capital, versus $21.4 million in cash
and short-term investments and $59.7 million in working capital as of March 31,
1996. The Company had no debt at March 31 of 1997 or 1996.
The Company has an arrangement for a $13.0 million revolving line of
credit, secured by accounts receivable, inventories and equipment, at an
interest rate equal to the bank's prime rate, with $3.0 million of the line
available for the purchase of fixed assets, at an interest rate of one-half
percent over the bank's prime rate. The line of credit arrangement contains
standard covenants relating to financial ratios. The Company is in compliance
with all such covenants. No borrowings were made under this or any previous
credit arrangement during fiscal years 1995, 1996 or 1997. The credit
arrangement expires on July 31, 1997. The Company expects to be able to obtain a
new credit arrangement under similar terms*.
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<PAGE> 15
The Company believes that existing cash resources, together with cash flow
from operations and available lines of credit, will provide sufficient funding
for operations for the foreseeable future*. The effect of the three putative
class action lawsuits on the Company's liquidity cannot be determined. The
plaintiffs are seeking unspecified monetary damages (see note 7 to the
Consolidated Financial Statements). The Company's restructuring plan is not
expected to have a significant impact on the Company's liquidity (see note 9 to
the Consolidated Financial Statements)*.
To date, inflation has not had a significant impact on the Company's
operating results.
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<PAGE> 16
RISK FACTORS
The following discussion of risk factors describes certain aspects of the
business environment in which the Company operates. Users of this report should
carefully consider these risk factors in addition to the other information in
this report. The risks faced by the Company are illustrated by the volatility of
the Company's reported sales and earnings per share over the last eight
quarters:
<TABLE>
<CAPTION>
FY96 FY97
----------------------------------- -------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
----- ----- ----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ($millions)..... 33.0 35.0 44.2 47.6 35.0 36.2 47.4 36.0
EPS................... $0.24 $0.20 $0.46 $0.47 $(0.59) $0.10 $0.25 $(1.10)
</TABLE>
The Company believes that this volatility has been influenced by the
occurrence of one or more of the factors discussed below.
FORECASTS
The Company prepares annual budgets and other confidential internal
projections that contain detailed forecasts of future sales and earnings for
existing products as well as forecasts for products still in development. The
Company believes that inaccuracies in its forecasting result from factors in the
highly dynamic market in which it competes as described in certain of the risk
factors below, including "Short Product Lives and Technological Change,"
"Competition," "Development Risk," "Sources of Supply," "Price Reductions" and
"Variability of Quarterly or Annual Results." In the past eight quarters, for
example, actual quarterly earnings results have varied from internal forecasts
by amounts ranging from only a few percentage points to well over 100%, with
most of the large variances being negative. The Company has previously announced
that it expects fiscal year 1998 to be near break-even. Actual results may
differ materially from this fiscal year estimate due to circumstances described
in the risk factors below. Numerous independent stock analysts and market
analysts prepare and publish their own financial forecasts and projections about
the Company. The Company disclaims responsibility for all such forecasts and
projections. The Company believes that forecasts and projections prepared by
these independent stock analysts and market analysts have frequently been
inaccurate in the past and are, therefore, highly speculative and should be used
only with extreme caution.
From time to time, the Company may announce one or more new products with a
subsequent availability date. Any such availability dates are merely good faith
estimates by the Company based on an assessment of all information available at
the time of the estimate. In the past, the Company has suffered substantial
delays in the availability of new products. These delays have occurred either
because the Company has been unable to resolve certain technical challenges and
supplier issues that are normal in any development process prior to the
estimated availability date, or because of unforeseen technical and
manufacturing challenges and supplier issues arising after the announcement of
an availability date. See "Development Risk" and "Sources of Supply." The
Company expects that it will continue to face such challenges and risks which
may adversely impact the estimated availability dates and production ramp-up
periods for its products.
SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE
The market for multimedia projection products is characterized by rapidly
evolving technology and short product lives, with new products frequently
capturing significant market share. Anticipated product releases (and
particularly products incorporating new technology) by the Company or its
competitors often cause customers to delay purchases of existing products until
such new products are available. Any delays in purchases can significantly
impact the Company's results of operations. Any time significant new products
are announced or introduced by the Company or others, the Company will likely
deem it necessary to substantially reduce prices on the then-present models.
Further, if such prices are reduced to less than the inventory carrying value,
the Company would be required to record a write-off of the excess carrying
value. In the fourth fiscal quarter of 1997, the Company recorded a substantial
write-down for certain inventory and may record other write-downs of varying
magnitudes from time to time in the future.
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<PAGE> 17
The Company's future success depends on its ability to continue to develop
and manufacture, or to distribute under private label arrangements, competitive
products and services on a timely basis, particularly enhancements to and new
generations of multimedia projectors. For example, in the third and fourth
quarters of fiscal 1997, the vast majority of the Company's sales were generated
by products introduced within the preceding twelve months. Historically, many of
the Company's products have achieved peak sales within a few months after their
introduction with sales declining thereafter until the products are obsolete.
The Company's product line must be frequently refreshed with improved products
to maintain parity with competitors' products. The increasing number of large
competitors in the multimedia projection industry has made it more difficult to
foresee the successive waves of product introductions in the industry. See
"Competition." Given that the Company does not have the internal resources to
develop competitive products in every product segment in which it competes, the
Company must increasingly rely on its evolving business alliances to source
products manufactured by third parties. Notwithstanding the Company's prior
success in distributing sourced products, the Company may not be able to
continue to respond to the expected rapid product shifts with improved sourced
products in the future.
Although the Company continues to introduce enhanced versions and new
generations of its projector products, the Company has continued to lose market
share. See "Competition." The Company's new products released over the last
twelve months are expected to continue to account for the majority of the
Company's sales during the first half of fiscal 1998. Through the date of this
filing, these new products have experienced some slowness in demand. See
"Forecasts."
In addition to the evolutionary changes in products and technologies
described above, several new technologies are currently in production or under
development by the Company or its competitors, including reflective silicon
panels, higher resolution (XGA and EWS) controllers, and ultra-portable
projectors weighing substantially less than current industry offerings. The
Company or one or more of its competitors may introduce additional products
based on new technologies from time to time. The Company believes that
polysilicon LCD technology, which has been developed and is primarily controlled
by two Japanese companies, and digital light processor technology, which has
been developed and is owned by one U. S. company, will both continue to improve
on a price/performance basis. See "Competition." Further, the Company believes
that demand will continue to increase for higher resolution (SVGA and XGA
resolution) projectors, and that there will continue to be a drastic reduction
in demand for VGA resolution projectors. Similarly, the Company believes that
there will be a rapid shift from SVGA to XGA products over the next twelve
months. The Company may not be able to respond to these technological shifts in
a timely manner potentially resulting in an adverse impact to financial results
and inventory write-downs on obsolete products. In the past, the company or
companies that first introduce new features or technologies into the marketplace
have gained significant market share. The Company has lost market share in this
way in the past and may do so again in the future.
DEVELOPMENT RISK
The Company currently designs, manufactures and distributes its own
products, and also distributes products designed and manufactured by others. The
design, manufacture and marketing of multimedia projector products is
complicated by rapidly evolving light valve technologies, lamp technologies,
electronic control circuitry and optics. As projection products become smaller,
the Company faces extraordinarily complex engineering challenges in integrating
electrical, mechanical, optical, thermal, and software designs into a compact
unit. Further, the Company must repeatedly make complex choices regarding which
technologies to pursue, product make versus buy determinations, and the
development of differentiating product features. As a result, in developing its
new products, the Company exposes itself to enormous technical and financial
risks. In the past, the Company has discontinued certain development efforts
based on changing expectations of the respective products' marketability or
producibility and may do so again in the future. Many of the challenges faced by
the Company in developing new products involve key components produced by
vendors who themselves face engineering or procurement challenges that the
Company has little or no ability to anticipate or resolve.
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<PAGE> 18
The Company continues to face the development risks described above and
expects to face other unforeseen development risks which may cause substantial
delays in the development and introduction of new products.
SOURCES OF SUPPLY
Certain products and components which the Company resells or uses to
manufacture its products are available only from single sources. Although the
Company generally buys products and components under purchase orders and does
not have long-term agreements with its suppliers, the Company expects that its
suppliers will continue to attempt to meet the Company's requirements. For
certain of these items, the process of qualifying a replacement supplier and
receiving replacement supplies could take several months. For example, should a
mold for plastic componentry break or become unusable, repair or replacement
could take several months. The Company does not maintain sufficient inventory to
allow it to fill customer orders without interruption for more than a few weeks.
Therefore, an extended interruption in the supply of products or components
would have a material adverse effect on the Company's results of operations. The
Company is critically dependent on the availability of sourced products and/or
key components such as LCD panels, light valves, power supplies and, as
mentioned above, molded plastic. Three of the Company's major suppliers, Sanyo,
Sharp and Hitachi, also compete with the Company and, in the case of sourced
products, the Company sells product substantially similar to that of the
supplier. See "Competition." The Company purchases many of its products and
components from suppliers located outside the United States. Policies adopted by
the Company's suppliers, trading policies adopted by the United States (such as
anti-dumping or other duties on imported components) or foreign governments, or
fluctuations in foreign exchange rates may at any time restrict the availability
of products or components or increase their cost. The Company has experienced
product and component shortages in the past and expects that it could again
experience product and component shortages in the future, particularly in the
months immediately following the introduction of new products. See "Development
Risk."
For the fourth fiscal quarter of 1997, the majority of the Company's sales
were derived from sourced products, which are designed and manufactured by third
party suppliers. The Company expects this critical dependence on sourced
products to continue throughout fiscal year 1998. The manufacturers of these
sourced products face all of the same challenges described in this risk factor
and in "Development Risk" above. Further, although the Company communicates
regularly with its sourced product suppliers, the Company does not have the same
visibility into any delays or pending development or supplier issues that it
would have on its own development project. Any delay, discontinuance, constraint
or reduction, for whatever reason, in the supply of any sourced products would
have an immediate and severe adverse impact on the Company's financial results.
COMPETITION
The Company believes that new competitors will continue to enter the market
and that new or existing competitors will introduce products which directly
compete with the Company's existing products on a performance and price basis.
The Company's insight into its competition and their development plans/dates is
extremely limited and, therefore, it is generally unable to forecast the impact
of new competitive products.
Some of the Company's current or potential competitors have greater
financial, technical, manufacturing and marketing resources than the Company and
have lower cost and/or profit structures and may be in a position to introduce
products incorporating advanced technologies ahead of the Company. Announcements
by one or more large manufacturers can cause customers to delay or cease
altogether purchases of the Company's products, which would have a material
adverse effect on the Company's results of operations. For example, since the
beginning of 1995, Epson, Fujitsu, Hitachi, 3M, IBM, Matsushita, Philips, NEC,
Sanyo, Sony and Toshiba have each introduced or announced new products
addressing the same markets as certain of the Company's products. Competition
between the Company and its competitors in the market for multimedia projectors
has been and is expected to continue to be intense.
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<PAGE> 19
The Company has traditionally been a manufacturer of hardware products. As
more and more competitors enter the market, the Company believes that
non-hardware offerings, such as value-added service and support offerings,
software, and a broad distribution capability, will become critical. The Company
may invest significantly in one or more of these areas, or other complementary
business areas. Any such investment may or may not be successful.
PRICE REDUCTIONS
The industry in which the Company competes is characterized by continually
falling prices. The Company expects price competition to continue to be intense
and, therefore, expects continued downward pressure on its gross margins. The
Company believes that certain of its competitors have the financial resources
to, and may, sell competitive products at cost or potentially below cost in an
effort to gain market share.
The Company provides price protection to its dealers and distributors such
that, if the Company reduces the price of its products, dealers and distributors
are entitled to a credit for the difference between the new, reduced price and
the price of products purchased and still held in their inventory at the time of
the price reduction. Each significant price reduction and the associated price
protection will have a material adverse impact on sales and gross margins and
therefore on the Company's results of operations for the period in which the
price reduction occurs, unless such price reduction is offset by higher unit
volume resulting from the price reduction. In order to meet competition, the
Company is regularly reducing its prices on a product by product basis. To date,
these reductions have not been offset by higher unit volumes. Future price
reductions are expected and will likely have a similar material adverse effect.
VARIABILITY OF QUARTERLY OR ANNUAL RESULTS
A significant portion of the Company's shipments typically occur in the
last month of a quarter. Although the Company attempts to ship products to its
customers as promptly as practicable upon receipt of a purchase order, minor
timing differences between the receipt of customer purchase orders and the
Company's shipments to fill such orders can have a significant impact on the
Company's quarterly or annual results. These timing differences may be caused by
customers' ordering patterns or business cycles, or by the Company's production
capacity, component availability or technical challenges. When, as often
happens, significant variations occur between forecasts and actual orders (see
"Forecasts"), the Company is often unable to reduce its fixed short-term
expenses proportionately and in a timely manner, which at times has had an
adverse effect on operating results and could have a similar effect in the
future. Component availability, quality control, production yield, and
technological factors are expected to cause further volatility in future
periods. See "Development Risk" and "Sources of Supply."
The Company's rate of year-over-year revenue growth slowed significantly in
fiscal 1997 compared to the year earlier period. The Company does not expect to
achieve in the future either the rates of growth experienced by the Company in
fiscal years 1992 through 1996 or the rates of growth projected for the
multimedia projection products industry as a whole. The Company believes that
the projections by third parties of total unit demand growth in the multimedia
projection products industry will be partially or entirely offset by continued
price erosion in the industry. See "Price Reductions."
VOLATILITY OF STOCK PRICE
The trading price of the Company's stock has been and is expected to
continue to be subject to immediate and wide fluctuations due to factors both
within and outside the Company's control, including but not limited to one or
more of the following: variations in operating results or financial position,
new product introductions or price changes by the Company or its competitors,
changes in product mix, product reviews by trade publications, estimates or
statements made by analysts regarding the Company or its industry, perceptions
formed at major trade shows regarding the Company or its industry, stock market
price fluctuations, and litigation. As is the case with many other technology
companies, fluctuations in the market price of the Company's stock have resulted
in class action stockholder lawsuits against the Company. See
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<PAGE> 20
"Stockholder Lawsuits." The defense of such lawsuits could have a material
adverse effect on the Company's results of operations, whether or not any such
lawsuits are meritorious.
The Company believes that the variability of its quarterly and annual
operating results contributes to the volatility of the price of the Company's
common stock in the public market. As a result, investors should expect that
market reactions to announcements of the Company's actual or expected results of
operations for a particular quarter or annual period could be immediate and
severe. For example, during the fourth quarter of fiscal 1997, the Company
disclosed in its 10-Q, filed on February 12, 1997 for the third fiscal quarter,
that it expected adverse financial results generally due to downward pricing
pressures and a slowness in demand and order rates across the Company's entire
product line. This disclosure resulted in a material decline in the price of the
Company's stock. The Company expects that continued downward pricing pressures,
competition and transitions to new products and technologies by the Company
and/or others will also result in a loss from operations in one or more fiscal
quarters in fiscal year 1998 thereby likely causing a drop in the price of the
Company's stock at those times.
STOCKHOLDER LAWSUITS
Three putative class action securities lawsuits are pending against the
Company. The lawsuits allege that the Company and certain of its officers and
directors engaged in a scheme to defraud investors by making a series of
positive statements about the Company that were allegedly known to be false and
misleading when made. The Company believes that the lawsuits are without merit,
and the Company is vigorously defending the lawsuits.
Alleged damages in the lawsuits are unspecified, but theoretically an
adverse verdict could bankrupt the Company and result in a total loss of each
stockholder's investment. The Company is expending significant financial and
managerial resources in defense of the lawsuits to protect its business
interests and the interests of its stockholders. Defense costs alone could have
a material adverse effect on future results. The Company is subject to Generally
Accepted Accounting Principles and to the rules of the Securities and Exchange
Commission, which do not permit the provision for any loss that may result from
the resolution of litigation whose outcome cannot presently be determined.
The Company believes that the volatility of its business and of the market
for stocks of high technology companies makes it inevitable that the Company's
stock will continue to fluctuate substantially in price. In addition, most or
all of the Company's officers and directors have, as part of their compensation
packages, stock option arrangements with finite lives and which expire ninety
days after the termination of employment. As a result, the Company expects that
its directors, officers and other employees will from time to time exercise
stock options and subsequently lawfully sell the stock thus acquired in the
midst of continuing fluctuations in the price of the Company's stock. The
Company believes that its stock price volatility and the occasional lawful sale
of stock by its directors and officers will make it susceptible to meritless
shareholder lawsuits in the future.
CHANNELS OF DISTRIBUTION
The Company sells its products primarily through independent presentation
specialists, personal computer dealers and distributors, and through private
label arrangements. These presentation specialists, dealers and distributors
("resellers") may carry competing product lines and could reduce or discontinue
sales of the Company's products at any time. These resellers may not devote the
resources necessary to provide effective sales and marketing support to the
Company. In addition, to the extent that private label customers do not purchase
products as anticipated or switch to a different supplier on short notice, the
Company may be holding customized inventories which are not salable to other
customers and inventory write-downs may result. Any phase-out of sales to any
private label customers, or any reduction in sales to presentation specialists,
dealers and distributors, may have a material adverse effect.
Shifts in pricing, end-user preferences or the entry of a major new
competitor (see "Competition," above) may alter the relative importance of the
channels of distribution discussed above or may create entirely new channels of
distribution. For example, as market prices decline on the Company's products,
it may
19
<PAGE> 21
become advantageous to promote and sell the products through new and alternative
channels of distribution. The Company may incur significant costs in order to
expand its presence in these new channels or to expand its presence in existing
channels, which could have a material adverse effect on the Company's results of
operations. Notwithstanding any investment to enter new channels or to expand
existing distribution channels, such strategy may not be successful.
CREDIT RISKS
Many of the resellers discussed above are small organizations with limited
capital. The Company continuously monitors and manages the credit it extends to
its resellers; however, one or more of the resellers could become insolvent. In
the event of such insolvency, the Company could experience disruptions in its
distribution as well as a loss of some or all of any outstanding accounts
receivable. The Company's objective is to increase international sales,
including sales in emerging markets such as China and Latin America. The Company
believes that the credit risks associated with resellers in emerging markets are
materially greater than those associated with the U.S. and European markets.
INTELLECTUAL PROPERTY RIGHTS
From time to time, certain companies have asserted patent, copyright and
other intellectual property claims relevant to the Company's business and the
Company expects that this will continue. The Company evaluates each claim
relating to its products and, if appropriate, seeks a license. If any legal
action were to arise in which the Company's products should be found to infringe
upon intellectual property rights, the Company could be enjoined from further
infringement and required to pay damages, which could have a material adverse
effect on the Company's results of operations.
DEPENDENCE ON EXPORT SALES
For fiscal 1995, 1996 and 1997, sales outside the United States and Canada
represented approximately 38%, 39% and 38%, respectively, of the Company's total
sales. Sales outside the United States are subject to the normal risks of
international business activities, such as protective tariffs, export and import
controls, transportation delays and interruptions, and changes in demand
resulting from fluctuations in exchange rates. With respect to exchange rates,
virtually all of the Company's products sold in international markets are
denominated in U.S. dollars. An increase in the value of the U.S. dollar
relative to foreign currencies could make the Company's products less price
competitive in foreign markets. Any increase in international sales may subject
the Company to greater currency fluctuation risk than it has faced in the past.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW; THE COMPANY'S CHARTER DOCUMENTS
Certain provisions of Delaware law and the charter documents of the Company
may have the effect of delaying, deferring or preventing changes in control or
management of the Company. The Company is subject to the provisions of Section
203 of the Delaware General Corporation Law, which has the effect of restricting
changes in control of a company. The Company's Board of Directors has authority
to issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of such
shares without any further vote or action by the stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
required by this item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
20
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is included under the caption
"Election of Directors" in the Company's Proxy Statement and is incorporated
herein by reference. Information relating to the executive officers of the
Company is included in Part I of this Form 10-K Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's Proxy
Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The following Consolidated Financial
Statements of Proxima Corporation and Independent Auditors' Report are included
in a separate section of this Report beginning on page F-1:
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
---------------------------------------------------------------- ------------
<S> <C>
Proxima Corporation and Subsidiaries:
Consolidated Balance Sheets as of March 31, 1996 and 1997..... F-1
Consolidated Statements of Operations for the Years Ended
March 31, 1995, 1996 and 1997.............................. F-2
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 1995, 1996 and 1997........................ F-3
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1995, 1996 and 1997.............................. F-4
Notes to Consolidated Financial Statements.................... F-5 to F-14
Independent Auditors' Report.................................. F-15
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULE. The following financial statement
schedule of Proxima Corporation for the years ended March 31, 1995, 1996 and
1997 is filed as part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Proxima Corporation:
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
------------------------------------------------------------------- --------
<S> <C>
Independent Auditors' Report (included in Exhibit
23.1 -- "Independent Auditors' Consent and Report on
Schedule")....................................................... --
Schedule II Valuation and Qualifying Accounts...................... S-1
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
21
<PAGE> 23
(a)(3) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation of Registrant*
3.2 Bylaws of Registrant*
4.1 Specimen stock certificate*
10.1 Amended and Restated 1986 Stock Option Plan filed as an exhibit to Registrant's Form
10-Q for the period ended September 29, 1996
10.2 Amended and Restated 1996 Stock Plan filed as an exhibit to Registrant's Form 10-Q
for the period ended September 29, 1996
10.3 Form of Indemnification Agreement between the Registrant and its officers and
directors*
10.4 Credit Agreement dated November 3, 1995, between Registrant and Imperial Bank
expiring July 31, 1997 filed as an exhibit to Registrant's Form 10-K for the year
ended March 31, 1996
10.5 Lease Agreement dated December 8, 1993 between Registrant and Canyon Ridge Associates
filed as an exhibit to Registrant's Form 10-Q for the quarter ended December 26, 1993
10.6 Lease Agreement dated August 1, 1993 between Registrant's wholly owned subsidiary,
Transferencia Mexicana de Tijuana, S.A. de C.V., and Salvadore Lutteroth filed as an
exhibit to Registrant's Form 10-Q for the quarter ended December 26, 1993
11 Statement Re Computation of Earnings (Loss) Per Share
22 Subsidiaries of Registrant
23.1 Independent Auditors' Consent and Report on Schedule
25 Power of Attorney (included on Signature Page)
27 Financial Data Schedule (for EDGAR use only)
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement No.
33-56064 on Form S-1 declared effective February 4, 1993.
Company will furnish a copy of any exhibit requested on payment of a
reasonable charge to cover the expenses of production.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fiscal quarter
ended March 31, 1997.
22
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROXIMA CORPORATION
By: /s/ KENNETH E. OLSON
------------------------------------
Kenneth E. Olson,
Interim President and CEO
June 20, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kenneth E. Olson and Dennis A. Whittler,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ KENNETH E. OLSON Interim President and CEO June 20, 1997
- --------------------------------------------- (Principal Executive Officer)
Kenneth E. Olson and Chairman of the Board
/s/ DENNIS A. WHITTLER Vice President, Finance and June 20, 1997
- --------------------------------------------- Chief Financial Officer
Dennis A. Whittler (Principal Financial and
Accounting Officer)
/s/ PATRICK ARRINGTON Director June 20, 1997
- ---------------------------------------------
Patrick Arrington
/s/ RICHARD E. BELLUZZO Director June 20, 1997
- ---------------------------------------------
Richard E. Belluzzo
/s/ ROBERT W. JOHNSON Director June 20, 1997
- ---------------------------------------------
Robert W. Johnson
/s/ JEFFREY M. NASH Director June 20, 1997
- ---------------------------------------------
Jeffrey M. Nash
/s/ JOHN M. SEIBER Director June 20, 1997
- ---------------------------------------------
John M. Seiber
</TABLE>
23
<PAGE> 25
PROXIMA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------
1996 1997
------- -------
(IN THOUSANDS EXCEPT
PAR VALUE AND NUMBER
OF SHARES)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 2,389 $ 5,556
Short-term investments............................................... 19,032 12,455
Accounts receivable, net (notes 2 and 4)............................. 27,255 32,701
Inventories (notes 2 and 4).......................................... 24,416 22,359
Deferred income taxes, net (note 6).................................. 2,864 5,199
Prepaid expenses and other........................................... 809 666
------- -------
Total current assets................................................. 76,765 78,936
------- -------
PROPERTY, NET (NOTES 2 AND 4).......................................... 7,189 5,756
------- -------
OTHER ASSETS
Investment in affiliate (note 3)..................................... 4,485 1,201
Deferred income taxes (note 6)....................................... 874 714
Patents.............................................................. 497 378
Other................................................................ 448 293
------- -------
Total other assets................................................... 6,304 2,586
------- -------
TOTAL.................................................................. $90,258 $87,278
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................... $ 9,469 $12,957
Accrued expenses (note 2)............................................ 5,555 8,683
Income taxes payable (note 6)........................................ 2,064 348
------- -------
Total current liabilities............................................ 17,088 21,988
------- -------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 4, 7, 8 AND 9)
STOCKHOLDERS' EQUITY (NOTE 5)
Preferred stock, authorized -- 5,000,000 shares, par value $.001, no
shares issued or outstanding...................................... -- --
Common stock, authorized -- 40,000,000 shares, par value $.001,
issued and outstanding -- 7,120,000 shares and 7,418,000 shares,
respectively...................................................... 7 7
Paid-in capital...................................................... 39,399 41,857
Treasury stock -- 225,000 shares and 281,000 shares held,
respectively...................................................... (1,750) (2,548)
Retained earnings.................................................... 35,514 25,974
------- -------
Total stockholders' equity........................................... 73,170 65,290
------- -------
TOTAL.................................................................. $90,258 $87,278
======= =======
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE> 26
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
SALES.................................................... $135,750 $159,797 $154,665
COST OF SALES............................................ 79,813 101,459 119,350
-------- -------- --------
Gross profit........................................... 55,937 58,338 35,315
-------- -------- --------
OPERATING EXPENSES
Selling and marketing.................................. 19,163 21,838 24,554
Research and development............................... 8,782 12,852 15,080
General and administrative............................. 7,291 7,129 7,487
Restructuring charge (note 9).......................... -- -- 1,528
-------- -------- --------
Total operating expenses............................... 35,236 41,819 48,649
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................ 20,701 16,519 (13,334)
-------- -------- --------
OTHER INCOME (EXPENSE)
Interest and other income.............................. 610 927 1,141
Equity in loss of affiliate (note 3)................... (504) (1,052) (185)
Gain on sale of subsidiary's assets (note 8)........... -- -- 2,779
Writedown of investment in affiliate (note 3).......... -- -- (3,905)
-------- -------- --------
Total other income (expense)........................... 106 (125) (170)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................ 20,807 16,394 (13,504)
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 6)............ 7,698 6,704 (3,964)
-------- -------- --------
NET INCOME (LOSS)........................................ $ 13,109 $ 9,690 $ (9,540)
======== ======== ========
EARNINGS (LOSS) PER SHARE DATA (NOTE 1)
Earnings (loss) per share.............................. $1.91 $1.37 $(1.36)
===== ===== ======
Weighted average common and common equivalent shares... 6,847 7,069 7,036
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 27
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK RECEIVABLE
--------------- PAID-IN ---------------- RETAINED FROM
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS STOCKHOLDER TOTAL
------ ------ ------- ------ ------- -------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
APRIL 1, 1994............ 6,121 $ 6 $30,876 (225) $(1,750) $ 12,581 $(120) $41,593
Issuance of common
stock................. 433 1 2,367 -- -- -- -- 2,368
Tax benefit from stock
option exercises (note
6).................... -- -- 2,099 -- -- -- -- 2,099
Collection of note
receivable............ -- -- -- -- -- -- 120 120
Net income............... -- -- -- -- -- 13,109 -- 13,109
----- --- ------- ---- ------- ------- ----- -------
BALANCE,
MARCH 31, 1995........... 6,554 7 35,342 (225) (1,750) 25,690 -- 59,289
Issuance of common
stock................. 300 -- 2,034 -- -- -- -- 2,034
Tax benefit from stock
option exercises (note
6).................... -- -- 1,988 -- -- -- -- 1,988
Acquisition of Mind
Path.................. 266 -- 35 -- -- 134 -- 169
Net Income............... -- -- -- -- -- 9,690 -- 9,690
----- --- ------- ---- ------- ------- ----- -------
BALANCE,
MARCH 31, 1996........... 7,120 7 39,399 (225) (1,750) 35,514 -- 73,170
Issuance of common
stock................. 298 -- 2,007 -- -- -- -- 2,007
Purchase of treasury
stock (note 5)........ -- -- -- (56) (798) -- -- (798)
Tax benefit from stock
option exercises (note
6).................... -- -- 451 -- -- -- -- 451
Net Loss................. -- -- -- -- -- (9,540) -- (9,540)
----- --- ------- ---- ------- ------- ----- -------
BALANCE,
MARCH 31, 1997........... 7,418 $ 7 $41,857 (281) $(2,548) $ 25,974 $ -- $65,290
===== === ======= ==== ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 28
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1995 1996 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................. $ 13,109 $ 9,690 $(9,540)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization.............................. 2,017 2,716 4,745
Provision (recovery) for allowance for doubtful accounts... 453 563 (17)
Benefit from deferred income taxes......................... (1,141) (800) (2,175)
Tax benefit from stock option exercises.................... 2,099 1,988 451
Gain on sale of subsidiary's assets........................ -- -- (2,779)
Write-down of investment in affiliate...................... -- -- 3,905
Changes in assets and liabilities, net of effects from sale
of subsidiary's assets:
Accounts receivable...................................... (14,083) (1,067) (7,550)
Income taxes payable..................................... (1,200) 1,816 (1,716)
Inventories.............................................. (5,944) (2,533) 60
Prepaid expenses and other assets........................ (1,700) 1,516 (75)
Accounts payable and accrued expenses.................... 9,777 (3,266) 7,202
-------- -------- -------
Net cash provided by (used for) operating
activities.......................................... 3,387 10,623 (7,489)
-------- -------- -------
INVESTING ACTIVITIES
Proceeds from sale of subsidiary's assets..................... -- -- 7,259
Acquisition of property....................................... (2,487) (5,005) (3,531)
Short-term investments........................................ (3,084) (6,639) 6,577
Investment in affiliate....................................... (1,749) (1,981) (826)
Other......................................................... 81 53 (32)
-------- -------- -------
Net cash provided by (used for) investing
activities.......................................... (7,239) (13,572) 9,447
-------- -------- -------
FINANCING ACTIVITIES
Sale of common stock, net of issuance costs................... 2,368 2,034 2,007
Purchase of treasury stock.................................... -- -- (798)
Collection of note receivable from stockholder................ 120 -- --
-------- -------- -------
Net cash provided by financing activities............. 2,488 2,034 1,209
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (1,364) (915) 3,167
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................. 4,668 3,304 2,389
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................ $ 3,304 $ 2,389 $ 5,556
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid (refunded).......................... $ 9,550 $ 2,337 $ (471)
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 29
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY -- Proxima Corporation and its subsidiaries (collectively, the
"Company") are in the business of designing, developing, manufacturing and
marketing specialized computer support products. Its product lines include
Liquid Crystal Display (LCD) projection products. The Company's projection
products are used in business, education and government to improve the
efficiency and productivity of workgroups and presentations.
The Company markets its products primarily through presentation
specialists, personal computer dealers and distributors and private label
arrangements. Export sales (excluding Canada), primarily to Europe, accounted
for 38%, 39% and 38% of product sales for fiscal 1995, 1996 and 1997,
respectively. Of the Company's sales, the two largest customers accounted for
11% and 6% in fiscal 1995, 13% and 11% in fiscal 1996, and 12% and 9% in fiscal
1997.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of Proxima Corporation and its wholly-owned
subsidiaries, Newpoint Corporation, Mind Path Technologies, Inc., Transferencia
Mexicana de Tijuana, S.A. de C.V. (a Mexican corporation) and Computer
Accessories Corporation International (a foreign sales corporation). The Company
acquired Mind Path Technologies on November 22, 1995, in exchange for 266,000
shares of the Company's common stock and options to acquire an additional 34,000
shares of the Company's common stock. The acquisition was accounted for as a
pooling of interests. All significant intercompany balances have been eliminated
in consolidation. On June 28, 1996, the Company sold the assets of its Newpoint
Corporation power protection business (see note 8).
ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
BASIS OF FINANCIAL STATEMENT PRESENTATION -- For ease of presentation, the
Company has indicated its fiscal year as ending on March 31, whereas the Company
operates and reports on a 52-53 week fiscal year ending on the Sunday closest to
March 31. Each of the three fiscal years presented herein included 52 weeks.
CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments purchased with an original maturity date of three months or less to
be cash equivalents. The Company has not experienced any significant losses on
its cash accounts.
SHORT-TERM INVESTMENTS -- Short-term investments are investments with
original maturities greater than three months and less than one year. At March
31, 1996 and 1997, short-term investments consisted entirely of U.S. government
securities considered to be held to maturity and are recorded at their
unamortized cost, which approximates market value.
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out) or market.
PROPERTY -- Property is stated at cost. Depreciation and amortization are
provided on the straight-line method over the estimated useful lives of the
assets (generally 2-5 years). In March 1997, pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," the Company reviewed the
recoverability of certain of its fixed assets in response to changing business
conditions. An impairment loss of $770,000 was recognized in fiscal 1997 in the
accompanying Consolidated Statements of Operations as part of the "Restructuring
Charge" (see note 9).
The impairment loss related primarily to tooling and was calculated using
estimates based on prices of similar assets.
F-5
<PAGE> 30
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTIES -- The Company provides warranties on its products for up to two
years. Warranty expense and warranty reserves are estimated based on historical
warranty costs. Actual warranty costs are charged against warranty reserves as
they are incurred.
PRICE PROTECTION -- The Company provides price protection to its dealers
and distributors such that, if the Company reduces the price of its products,
dealers and distributors are entitled to a credit for the difference between the
new, reduced price and the price they previously paid for products which are
held in their inventory at the time of the price reduction and were purchased
within the preceding 30 days. Price protection expense and accrued price
protection liabilities are recognized when management formally approves price
reductions. Price protection is estimated based on the size of the price
reduction and the amount of eligible inventory reported by customers. Actual
price protection costs are charged against accrued price protection as they are
incurred.
PATENTS -- Legal costs incurred in connection with applications for patents
are capitalized. Amortization of the costs commences immediately over the
shorter of the expected product lives or the useful lives of the pending
patents. For patent applications that are not approved, accumulated unamortized
costs are charged to expense.
REVENUE RECOGNITION -- Revenue from product sales is generally recognized
at the time of shipment.
EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share is computed based on
the weighted average number of common and common equivalent shares outstanding
during each period using the treasury stock method. Stock options are considered
to be common stock equivalents (note 5). Primary earnings per share is not
significantly different from fully diluted earnings per share for fiscal years
1995 and 1996. For fiscal year 1997, for which the inclusion of common stock
equivalents would be antidilutive, loss per share is calculated using the
weighted average number of common shares outstanding.
In February of 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share"
(EPS). This statement requires the presentation of EPS to reflect both "Basic
EPS" and "Diluted EPS" on the face of the statement of operations. In general,
Basic EPS excludes dilution created by common stock equivalents and is a
function of the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution created by common stock
equivalents and is calculated in the same manner as fully diluted EPS
illustrated in Accounting Principles Board Opinion No. 15, "Earnings Per Share"
(APB No. 15).
The Company will be required to adopt the new method of reporting EPS for
the year ending March 31, 1998. The Company's EPS as reflected in this document
includes Primary EPS for fiscal years 1995, 1996 and 1997 under the rules of APB
No. 15, and the use of common stock equivalents only when they are dilutive.
F-6
<PAGE> 31
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the Company's capital structure, the anticipated results of
implementing SFAS No. 128 would reflect Basic EPS as materially different from
the results of computing Primary EPS under the current method. The pro forma
effects of adopting SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Basic EPS
Weighted average number of common shares..... 6,100,000 6,541,000 7,036,000
========== ========== ==========
Earnings (loss) per share.................... $ 2.15 $ 1.48 $ (1.36)
========== ========== ==========
Diluted EPS
Weighted average number of common shares..... 6,847,000 7,069,000 7,036,000
========== ========== ==========
Earnings (loss) per share.................... $ 1.91 $ 1.37 $ (1.36)
========== ========== ==========
</TABLE>
CONCENTRATION OF CREDIT RISK -- The Company invests its excess cash in
money market accounts and short-term investments. The Company has not
experienced any losses on its cash accounts or short-term investments. The
Company sells its product to customers primarily in the United States and
Europe. The Company maintains a reserve for potential credit losses and such
losses are minimal.
2. BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Accounts receivable-trade..................................... $29,789 $ 35,328
Less allowances............................................... (2,534) (2,627)
------- --------
Total................................................. $27,255 $ 32,701
======= ========
INVENTORIES:
Raw materials................................................. $ 3,974 $ 5,515
Work-in-process............................................... 10,887 9,501
Finished goods................................................ 9,555 7,343
------- --------
Total................................................. $24,416 $ 22,359
======= ========
PROPERTY:
Machinery and equipment....................................... $ 8,274 $ 9,423
Office furniture and equipment................................ 6,759 7,351
Leasehold improvements........................................ 1,421 1,363
------- --------
16,454 18,137
Less accumulated depreciation and amortization................ (9,265) (12,381)
------- --------
Total................................................. $ 7,189 $ 5,756
======= ========
</TABLE>
F-7
<PAGE> 32
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
ACCRUED EXPENSES:
Compensation..................................................... $1,205 $2,008
Vacation pay..................................................... 561 447
Warranty......................................................... 1,123 1,283
Rebates.......................................................... 1,134 484
Co-operative advertising......................................... 347 836
Duty liability................................................... 71 615
Restructuring (note 9)........................................... -- 1,528
Price protection................................................. -- 616
Other............................................................ 1,114 866
------ ------
Total.................................................... $5,555 $8,683
====== ======
</TABLE>
3. INVESTMENT IN AFFILIATE
In May 1993 the Company purchased 125,000 shares of Laser Power Corporation
(LPC) common stock for $255,000 and has purchased, through March 31, 1997,
1,611,000 shares of LPC's Series A Preferred Stock for $6,444,000 for a total
investment of $6,669,000. In June 1997, the Company converted its 1,611,000
shares of LPC Series A Preferred Stock and 125,000 shares of LPC common stock to
a total of 1,277,000 shares of LPC common stock upon completion of LPC's initial
public offering and reverse stock split. The Company has also entered into
agreements providing for technology licenses between the Company and LPC and the
cooperative development of new technologies.
At March 31, 1997, the Company owned approximately 28% of the outstanding
voting stock of LPC. The Company accounts for its investment using the equity
method. The Company's fiscal 1997 share of the net losses of LPC of $185,000 is
reflected in the accompanying Consolidated Statements of Operations. This item
includes approximately $10,000 for the Company's share of the net income of LPC,
offset by approximately $195,000 for the amortization of the excess of the cost
of the investment over the underlying equity in net assets of LPC.
The Company recorded a write-down of $3,905,000 of its investment in LPC
during the quarter ended June 30, 1996. The remaining investment balance of
$1,201,000 shown on the accompanying Balance Sheet as of March 31, 1997 reflects
the Company's equity in the net assets of LPC. The write-down and balance of the
Company's investment in LPC is the result of an analysis of discounted and
undiscounted estimated cash flows from the investment. The Company deemed it
necessary to review its investment in LPC because of information obtained upon
the completion of the first engineering model of a microlaser projector in July
1996. On the basis of that information, the Company now believes that microlaser
technology will initially be suited for the higher-cost specialty projector
market, which offers lower unit volumes than originally contemplated. The
Company will continue to recognize its share of the net income (loss) of LPC
under the equity method.
The Company has entered into an equipment line of credit agreement with LPC
to provide up to $500,000 to LPC for the acquisition of equipment for projector
development. The line of credit carries interest at 1.5% over the prime rate for
a term of 48 months. The line of credit is secured by the equipment acquired and
is guaranteed by a principal of LPC. At March 31, 1997, the total amount
borrowed pursuant to the line of credit was $208,000.
F-8
<PAGE> 33
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LINES OF CREDIT
At March 31, 1997, the Company had available with a bank a credit
arrangement providing for revolving and non-revolving lines of credit. The
agreement expires on July 31, 1997. The credit arrangement contains standard
covenants, requires the Company to meet various financial ratios including,
among others, a quick ratio of not less than 1.75 to 1 and debt to tangible net
worth of less than .55 to 1, and prohibits the payment of cash dividends without
prior bank approval as long as amounts are outstanding under such arrangement.
There were no borrowings outstanding at March 31, 1997.
REVOLVING LINE -- The revolving line of credit is for $13,000,000. Any
borrowings under the line bear interest at the bank's prime interest rate (8.5%
at March 31, 1997) and are collateralized by accounts receivable, inventories,
and equipment.
NON-REVOLVING FIXED ASSET LINE -- Up to $3,000,000 of the $13,000,000 line
of credit may be used as a non-revolving line available for the purchase of
fixed assets. Any borrowings under the line bear interest at .5% over the bank's
prime interest rate and are collateralized by the related equipment. Under the
agreement, each advance would be converted to a term loan and amortized on a
48-month basis plus interest.
5. STOCKHOLDERS' EQUITY
TREASURY STOCK -- On November 17, 1993, the Board of Directors authorized
the Company to repurchase up to $3,000,000 of its issued and outstanding common
stock on the open market. Through March 31, 1997, the Company had repurchased,
or received in connection with the exercise of stock options, a total of 281,000
shares for $2,548,000 at an average price of $9.07 per share. The shares are
shown as Treasury Stock in the accompanying Consolidated Balance Sheets. The
Company has no present plans to retire the treasury shares.
STOCK PLANS -- The Company had a Stock Option Plan, amended and restated in
March 1993 and terminated in February 1996, which provided for incentive and
non-qualified options to purchase up to 2,127,500 shares of common stock to be
granted to certain key employees, directors and other individuals to purchase
shares of the Company's common stock. Incentive stock options were granted at
prices not less than the fair market value at the date of grant, and generally
became exercisable in various increments over four or five years. Non-qualified
stock options and options granted to individuals possessing 10% or more of the
total combined voting power of all classes of stock were to be granted at prices
not less than 85% and 110%, respectively, of the fair market value. Options
issued under the plan generally expire seven years after the date of grant. The
Plan also provided for the automatic grant of options to purchase 5,000 shares
of the Company's common stock to non-employee directors at a date approximating
the release of its annual results of operations.
In August 1996, the shareholders approved a new Stock Plan providing for
incentive and non-qualified options to purchase up to 500,000 shares of the
Company's common stock. The plan also provides for additional options, equal to
the number of options granted under the terminated 1986 Stock Option Plan that
expire unexercised, not to exceed an additional 500,000 options. The terms of
the plan are substantially similar to the terms of the terminated Stock Option
Plan described above. In addition, the new Stock Plan authorizes the issuance of
stock purchase rights. To date, no stock purchase rights have been issued under
the plan.
In August and September of 1996, the Company modified the terms of certain
of its outstanding options held by employees and officers of the Company.
Approximately 509,000 options were re-priced to the current market value of the
Company's common stock at the time of the re-pricing, which ranged from $11.50
to $12.00 per share. The vesting periods of the modified options were adjusted,
and the vesting dates were modified to the date of modification. Subsequent to
the end of fiscal 1997, the Company has offered option re-pricing on similar
terms on all outstanding employee and officer options. The re-pricing is
effective April 24, 1997, at an exercise price of $5.19.
F-9
<PAGE> 34
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes transactions in the plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------
WEIGHTED
AVERAGE
OPTIONS AVAILABLE NUMBER OF EXERCISE
FOR GRANT SHARES PRICE
----------------- --------- --------
<S> <C> <C> <C>
Outstanding at April 1, 1994....................... 96,000 1,206,000 $ 6.42
Authorized....................................... 600,000 --
Granted.......................................... (344,000) 344,000 $20.84
Exercised........................................ -- (420,000) $ 5.21
Cancelled........................................ 46,000 (46,000) $ 8.90
-------- ---------
Outstanding at March 31, 1995...................... 398,000 1,084,000 $11.37
Authorized....................................... 47,000 --
Granted.......................................... (517,000) 517,000 $18.89
Exercised........................................ -- (285,000) $ 6.24
Cancelled........................................ 72,000 (72,000) $22.09
-------- ---------
Outstanding at March 31, 1996...................... -- 1,244,000 $15.04
Authorized....................................... 500,000 --
Granted.......................................... (337,000) 337,000 $10.39
Exercised........................................ -- (290,000) $ 6.58
Cancelled........................................ 560,000 (560,000) $13.29
-------- ---------
Outstanding at March 31, 1997...................... 723,000 731,000 $10.95
======== =========
Exercisable at March 31, 1997...................... 157,000 $ 9.97
=========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
----------------------------------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.19............................. 26,000 n/a* $ 0.19 26,000 $ 0.19
$ 4.50 -- $ 5.25................... 18,000 0.94 $ 4.68 18,000 $ 4.68
$ 6.00 -- $ 7.63................... 99,000 5.79 $ 7.30 25,000 $ 6.47
$ 9.13 -- $11.50................... 391,000 5.99 $10.74 54,000 $ 9.74
$11.75 -- $17.44................... 167,000 6.35 $12.35 15,000 $14.08
$27.94 -- $36.88................... 30,000 7.97 $30.92 19,000 $31.09
------- -------
731,000 157,000
======= =======
</TABLE>
- ---------------
* These options have no expiration date.
EMPLOYEE STOCK PURCHASE PLAN -- In March 1993 the Board of Directors
approved, and the stockholders subsequently ratified, an Employee Stock Purchase
Plan (ESPP) covering 100,000 shares of the Company's common stock. Under the
ESPP, employees are eligible to participate after 90 days of employment.
However, no employee who would directly or indirectly own 5% or more of the
Company's voting stock is eligible, and no employee's combined purchase rights
in all ESPPs may exceed $25,000 per year. A new offering period under the ESPP
will commence on the first trading day on or after April 1 and October 1 each
year. Under the
F-10
<PAGE> 35
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ESPP, employees can apply from 1% to 10% of their gross earnings toward the
purchase of the Company's common stock. The purchase will occur on the exercise
date, which is the final day of the offering period. The purchase price is equal
to the lesser of the fair market value of the common stock on the first and last
day of the offering period. The ESPP is administered by the Board of Directors
and terminates in March 2003. During fiscal years 1995, 1996 and 1997,
respectively, the Company sold approximately 13,000, 14,000 and 8,000 shares of
its common stock to employees at an average price of $14.98, $17.19 and $11.63
per share.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- The Company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its stock option and purchase plans. The Company has opted under Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
to disclose its stock-based compensation with no financial effect. The pro forma
effects of applying SFAS No. 123 in this initial phase-in period are not
necessarily representative of the effects on reported net income or loss for
future years. Had compensation expense for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's pro forma net income (loss) and net income (loss) per share would have
been as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH
31,
-------------------
1996 1997
------ --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net income (loss)
As reported............................................ $9,690 $ (9,540)
Pro forma.............................................. 8,790 (10,407)
Net income (loss) per share
As reported............................................ $ 1.37 $ (1.36)
Pro forma.............................................. 1.24 (1.48)
</TABLE>
The weighted average fair value of the options granted during fiscal years
1996 and 1997 is estimated on the date of grant using the Black-Scholes option
pricing model. The weighted average fair values and weighted average assumptions
used in calculating the fair values were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH
31,
------------------
1996 1997
------ -----
<S> <C> <C>
Fair value of options granted............................. $13.02 $6.82
Risk-free interest rate................................... 5.6% 6.4%
Expected life (years)..................................... 5.9 5.0
Expected volatility....................................... 65% 66%
Expected dividends........................................ -- --
</TABLE>
COMMON SHARES RESERVED -- As of March 31, 1997, the Company had reserved
the following number of shares of common stock for issuance:
<TABLE>
<S> <C>
Issuance under stock option plan................................. 731,000
Issuance under employee stock purchase plan...................... 53,000
-------
Total....................................................... 784,000
=======
</TABLE>
F-11
<PAGE> 36
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
1995 1996 1997
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $ 7,216 $6,069 $(1,224)
State........................................ 1,613 1,531 (565)
------- ------ -------
Total..................................... 8,829 7,600 (1,789)
------- ------ -------
Deferred:
Federal...................................... (998) (733) (1,722)
State........................................ (133) (163) (453)
------- ------ -------
Total..................................... (1,131) (896) (2,175)
------- ------ -------
Provision for income taxes..................... $ 7,698 $6,704 $(3,964)
======= ====== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
State income taxes............................... $ 471 $ 331 $ (132)
Vacation reserve................................. 134 201 150
Accounts receivable allowances................... 822 1,206 1,010
Inventory obsolescence........................... 589 762 3,677
Other............................................ 289 364 494
------ ------ ------
Deferred tax assets -- current................. $2,305 $2,864 $5,199
====== ====== ======
Book depreciation in excess of tax............... $ 633 $ 874 $ 714
------ ------ ------
Deferred tax assets -- long-term............... $ 633 $ 874 $ 714
====== ====== ======
</TABLE>
The Company has not provided a valuation allowance against deferred tax
assets recorded as of March 31, 1997. Management believes that the realization
of these deferred tax assets is more likely than not. The Company has not
recognized a tax benefit or deferred tax asset relating to the Equity in Loss of
Laser Power Corporation (note 3).
F-12
<PAGE> 37
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the provision for income taxes computed at the
Federal statutory rate (35.0% in fiscal 1995, 34.4% in fiscal 1996, and 34.0% in
fiscal 1997) to the recorded provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------
1995 1996 1997
---- ---- -----
<S> <C> <C> <C>
Provision (benefit) at statutory rate................. 35.0% 34.4% (34.0)%
Equity in loss of affiliate........................... -- -- 10.3
State income taxes, net of Federal benefit............ 5.4 6.3 (3.6)
Benefit of foreign sales corporation, net of tax...... (0.3) (0.7) --
Tax credits........................................... (2.5) (1.0) (3.9)
Other................................................. (0.6) 1.9 1.8
---- ---- -----
Provision (benefit) for income taxes.................. 37.0% 40.9% (29.4)%
==== ==== =====
</TABLE>
Certain employee stock option transactions result in state and federal
income tax benefits to the Company related to the difference between the market
price at the date of exercise and the option price. Income tax benefits of
$2,099,000, $1,988,000 and $451,000 were credited to additional paid-in capital
in fiscal years 1995, 1996 and 1997, respectively.
7. COMMITMENTS AND CONTINGENCIES
SECURITIES LITIGATION -- The Company has been named as a defendant in three
putative class action lawsuits filed in the U.S. District Court for the Southern
District of California on August 16, and on August 15 and August 27, 1996 in the
California Superior Court for San Diego County. Certain current and former
executive officers and directors of the Company are also named as defendants. In
two of the cases, the plaintiffs purport to represent a class of all persons who
purchased the Company's common stock between July 26, 1994 and August 17, 1995.
In the other case, the plaintiffs purport to represent a class of all persons
who purchased the Company's common stock between October 21, 1995 and June 24,
1996. The complaints allege that the defendants violated various federal
securities laws and California statutes through material misrepresentations and
omissions during the class periods, and seek unspecified monetary damages.
The Company maintains directors' and officers' insurance primarily to
provide coverage for the type of lawsuits described above. The Company and its
insurance carrier, Evanston Insurance Company ("Evanston"), have been involved
in a dispute over such coverage. On June 11, 1997, Evanston filed an action for
declaratory relief and breach of contract in the U.S. District Court for the
Southern District of California against the Company and certain of its current
and former executive officers and directors, alleging that any insurance claims
arising from the foregoing putative class action lawsuits would not be covered.
The Company and the individual defendants have not been served with the
complaint.
The outcome of the lawsuits cannot be determined. However, management
believes that the suits are without merit and intends to defend them vigorously.
No amounts have been recorded in the financial statements for any losses which
may result from these lawsuits.
EMPLOYEE SAVINGS PLAN -- The Company has a 401(k) plan. The plan allows
participating employees to deposit into savings 1% to 18% of their salary,
subject to annual limits. The Company matches 60% of the employee deposits up to
a maximum of 5% of the employee's salary. The Board, at its sole discretion, may
approve additional Company contributions. No such additional contributions had
been made as of March 31, 1997. Expense related to the plan for fiscal years
1995, 1996 and 1997 was approximately $320,000, $355,000 and $591,000
respectively.
F-13
<PAGE> 38
PROXIMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES -- The Company leases its facilities under non-cancelable
operating leases. Certain of the leases are subject to scheduled rent increases.
The leases expire through March 1999 and provide for renewal options of up to 5
years. Rent expense for fiscal years 1995, 1996 and 1997 was approximately
$973,000, $1,002,000 and $972,000, respectively. Future minimum rental payments
required under the operating leases as of March 31, 1997 are $675,000 in fiscal
1998 and $730,000 in fiscal 1999.
8. SALE OF SUBSIDIARY'S ASSETS
SALE OF POWER PROTECTION BUSINESS -- On June 28, 1996, the Company sold the
assets of its Newpoint Corporation power protection business. The power
protection business accounted for less than 10% of the Company's sales, and an
insignificant percentage of the Company's net income during fiscal 1997. The
Company received approximately $7.3 million in cash in exchange for the net
assets of Newpoint Corporation, which had a book value of approximately $3.7
million. The Company has recognized a gain on the sale of approximately $2.8
million during fiscal 1997. The selling agreement provides for potential
adjustments to the sales price based on such factors as collectability of
receivables and inventory obsolescence for up to one year after the date of the
agreement. The Company has established reserves that it considers sufficient to
cover any such adjustment.
9. RESTRUCTURING CHARGE
In March 1997, the Company recorded a restructuring charge of $1,528,000 to
recognize the expected costs of reorganizing the Company's manufacturing
activities. By the end of fiscal 1998, the Company expects to relocate all
manufacturing activities conducted at its Tijuana, Mexico, facilities to its San
Diego facilities and may outsource certain activities. The restructuring charge
primarily included a $770,000 write-down of fixed assets, consisting mostly of
tooling which supported the manufacture of VGA projectors, and $484,000 of
severance costs. The restructuring was a result of rapid changes in the
marketplace in which the Company operates. In particular, demand has shifted
from VGA projectors to higher resolution SVGA and XGA projectors. In addition,
the Company expects to require less manufacturing capacity than it currently has
available due to its increasing reliance on sourced products.
F-14
<PAGE> 39
PROXIMA CORPORATION
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of Proxima Corporation:
We have audited the accompanying consolidated balance sheets of Proxima
Corporation and its subsidiaries (collectively, "the Company") as of March 31,
1996 and 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at March 31, 1996
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
As discussed in note 7 to the consolidated financial statements, the
Company is a defendant in three stockholder class action lawsuits and a related
lawsuit with its insurance carrier. The ultimate outcome of the litigation
cannot presently be determined. Accordingly, no provision for any loss that may
result from the resolution of these matters has been made in the accompanying
consolidated financial statements.
Deloitte & Touche LLP
San Diego, California
June 11, 1997
F-15
<PAGE> 40
SCHEDULE II
PROXIMA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Allowance for doubtful accounts and returns -- trade
receivables:
Balance at beginning of period....................... $ 862,000 $1,853,000 $2,534,000
Charges to cost and expenses......................... 1,174,000 776,000 134,000
Recoveries (write-offs) -- net....................... (183,000) (95,000) (41,000)
---------- ---------- ----------
Balance at end of period............................. $1,853,000 $2,534,000 $2,627,000
========== ========== ==========
</TABLE>
S-1
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO
- ------- ---------------------------------------------------------------------------- --------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of Registrant......................... *
3.2 Bylaws of Registrant........................................................ *
4.1 Specimen stock certificate.................................................. *
10.1 Amended and Restated 1986 Stock Option Plan filed as an exhibit to
Registrant's Form 10-Q for the period ended September 29, 1996..............
10.2 Amended and Restated 1996 Stock Plan filed as an exhibit to Registrant's
Form 10-Q for the period ended September 29, 1996...........................
10.3 Form of Indemnification Agreement between the Registrant and its officers *
and directors...............................................................
10.4 Credit Agreement dated November 3, 1995, between Registrant and Imperial
Bank expiring July 31, 1997 filed as an exhibit to Registrant's Form 10-K
for the year ended March 31, 1996...........................................
10.5 Lease Agreement dated December 8, 1993 between Registrant and Canyon Ridge
Associates filed as an exhibit to Registrant's Form 10-Q for the quarter
ended December 26, 1993.....................................................
10.6 Lease Agreement dated August 1, 1993 between Registrant's wholly owned
subsidiary, Transferencia Mexicana de Tijuana, S.A. de C.V., and Salvadore
Lutteroth filed as an exhibit to Registrant's Form 10-Q for the quarter
ended December 26, 1993.....................................................
11 Statement Re Computation of Earnings (Loss) Per Share....................... 42
22 Subsidiaries of Registrant.................................................. 43
23.1 Independent Auditors' Consent and Report on Schedule........................ 44
25 Power of Attorney (included on Signature Page)
27 Financial Data Schedule (for EDGAR use only)................................ 45
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement No. 33-56064
on Form S-1, declared effective February 4, 1993.
<PAGE> 1
EXHIBIT 11
PROXIMA CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Weighted average number of common shares outstanding..... 6,100,000 6,541,000 7,036,000
Assumed exercise of outstanding stock options(1)......... 747,000 528,000 185,000
----------- ---------- -----------
Weighted average common and common equivalent shares
(primary).............................................. 6,847,000 7,069,000 7,221,000
=========== ========== ===========
Assumed additional exercise of outstanding stock options
for fully diluted shares............................... 59,000 -- --
----------- ---------- -----------
Weighted average common and common equivalent shares
(fully diluted)........................................ 6,906,000 7,069,000 7,221,000
=========== ========== ===========
Net income (loss)........................................ $13,109,000 $9,690,000 $(9,540,000)
=========== ========== ===========
Primary earnings (loss) per share(2)..................... $1.91 $1.37 $(1.36)
===== ===== ======
Fully diluted earnings (loss) per share.................. $1.90 $1.37 ($1.36)
===== ===== ======
</TABLE>
- ---------------
(1) Computed utilizing the treasury stock method.
(2) Fully diluted earnings per share is not materially different from primary
earnings per share for fiscal years ended March 31, 1995 and 1996. For the
fiscal year ended March 31, 1997, for which the assumed exercise of
outstanding stock options would be antidilutive, loss per share is
calculated using the weighted average number of common shares outstanding.
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF REGISTRANT
Subsidiaries of Registrant (all wholly owned) and place of incorporation
Computer Accessories Corporation International -- Guam
Transferencia Mexicana de Tijuana, S.A. de C.V. -- Mexico
Mind Path Technologies, Inc. -- Texas
Proxima Europe Limited -- England
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Proxima Corporation:
We consent to the incorporation by reference in Registration Statement Nos.
333-20827, 33-62722, 33-72074, 33-80767 and 33-84518 on Form S-8 of our report
dated June 11, 1997 (which report contains an explanatory paragraph referring
to the Company as a defendant in three stockholder class action lawsuits and a
related lawsuit with its insurance carrier), appearing in this Annual Report on
Form 10-K of Proxima Corporation for the year ended March 31, 1997.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statements
schedule of Proxima Corporation, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Diego, California
June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-K FILING FOR THE YEAR ENDED MARCH 31, 1997.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,556
<SECURITIES> 12,455
<RECEIVABLES> 35,328
<ALLOWANCES> 2,627
<INVENTORY> 22,359
<CURRENT-ASSETS> 78,936
<PP&E> 18,137
<DEPRECIATION> 12,381
<TOTAL-ASSETS> 87,278
<CURRENT-LIABILITIES> 21,988
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 87,278
<SALES> 154,665
<TOTAL-REVENUES> 154,665
<CGS> 119,350
<TOTAL-COSTS> 119,350
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,504)
<INCOME-TAX> (3,964)
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<NET-INCOME> (9,540)
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