<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 29,1997
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
______________
Commission File Number 0-21034
--------------------
PROXIMA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3740880
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9440 Carroll Park Drive
San Diego, California 92121
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (619) 457-5500
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $.001 par
value per share, 7,433,589 shares as of July 23, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROXIMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
--------- ---------
June 30, March 31,
1997 1997
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,642 $ 5,556
Short-term investments 14,392 12,455
Accounts receivable, net 25,859 32,701
Inventories (note 2) 18,648 22,359
Deferred income taxes 5,254 5,199
Income taxes receivable 945 --
Prepaid expenses and other 410 666
--------- ---------
Total current assets 75,150 78,936
--------- ---------
PROPERTY 4,860 5,756
--------- ---------
OTHER ASSETS
Investment in affiliate (note 3) 1,262 1,201
Deferred income taxes 744 714
Patents 358 378
Other 246 293
--------- ---------
Total other assets 2,610 2,586
--------- ---------
TOTAL $ 82,620 $ 87,278
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,167 $ 12,957
Accrued expenses 6,771 8,683
Income taxes payable -- 348
--------- ---------
Total current liabilities 18,938 21,988
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY
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--
7,434,000 and 7,418,000 shares, respectively 7 7
Paid-in capital 41,870 41,857
Treasury stock--281,000 shares held (2,548) (2,548)
Retained earnings 24,353 25,974
--------- ---------
Total stockholders' equity 63,682 65,290
--------- ---------
TOTAL $ 82,620 $ 87,278
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
SALES $ 29,043 $ 35,039
COST OF SALES 24,446 24,939
----------- -----------
Gross profit 4,597 10,100
----------- -----------
OPERATING EXPENSES
Selling and marketing 4,281 6,669
Research and development 1,983 4,484
General and administrative 1,341 1,837
----------- -----------
Total 7,605 12,990
----------- -----------
LOSS FROM OPERATIONS (3,008) (2,890)
----------- -----------
OTHER INCOME (EXPENSE)
Interest and other income 211 320
Equity in income (loss) of affiliate (note 3) 61 (283)
Gain on sale of subsidiary's assets (note 6) -- 2,679
Write-down of investment in affiliate (note 3) -- (3,905)
----------- -----------
Total 272 (1,189)
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,736) (4,079)
PROVISION (BENEFIT) FOR INCOME TAXES (1,112) 154
----------- -----------
NET LOSS $ (1,624) $ (4,233)
=========== ===========
LOSS PER SHARE DATA (NOTE 1)
Loss per share $ (0.23) $ (0.59)
=========== ===========
Weighted average common and common
equivalent shares (note 1) 7,152 7,207
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,624) $ (4,233)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 846 834
Provision for allowance for doubtful accounts 70 (210)
Benefit from deferred income taxes (85) (160)
Tax benefit from stock option exercises -- 206
Gain on sale of subsidiary's assets -- (2,679)
Write-down of investment in affiliate -- 3,905
Changes in assets and liabilities, net of effects
from sale of subsidiary's assets:
Accounts receivable 6,772 5,714
Income taxes payable (1,293) (810)
Inventories 3,711 (5,334)
Prepaid expenses and other assets 332 (181)
Accounts payable and accrued expenses (2,702) 5,426
----------- -----------
Net cash provided by operating activities 6,027 2,478
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of subsidiary's assets -- 7,259
Acquisition of property (49) (1,785)
Short-term investments (1,937) 282
Investment in affiliate -- (524)
Other 28 28
----------- -----------
Net cash provided by (Used for) investing
activities (1,958) 5,260
----------- -----------
FINANCING ACTIVITIES
Sale of common stock 17 276
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,086 8,014
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,556 2,389
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,642 $ 10,403
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ -- $ 905
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared by Proxima
Corporation (the "Company"), without audit, in accordance with the instructions
to Form 10-Q and therefore does not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in accordance with generally accepted accounting principles.
In the opinion of management, the unaudited consolidated financial statements
for the interim periods presented reflect all adjustments (solely of a normal
recurring nature) which are necessary for a fair presentation of the financial
position and results of operations as of and for the periods indicated. These
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1997.
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, in which any shares that could have been purchased on the open market
with the funds received from the exercise of options or warrants are not
considered additional outstanding stock and have no dilutive effect on earnings
per share. Stock options are considered to be common stock equivalents. For the
three months ended June 30, 1996 and June 30, 1997, when the inclusion of common
stock equivalents would be antidilutive, loss per share is computed based on the
weighted average number of common shares outstanding excluding common stock
equivalents. Primary loss per share is not significantly different from fully
diluted loss per share for any of the periods indicated. 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 for the year
ending March 31, 1998. The Company's loss per share as reflected in this
document includes Primary loss per share for the three months ended June 30,
1996 and 1997, under the rules of APB No. 15, and the use of common stock
equivalents only when they are dilutive.
Based on the Company's capital structure, the anticipated results of
implementing SFAS No. 128 would reflect loss per share materially in the same
manner as currently reported.
For ease of presentation, the Company has indicated its fiscal year as ending on
March 31 and its first fiscal quarter as ending on June 30, whereas the Company
operates and reports on a 52-53 week fiscal year ending on the Sunday closest to
March 31. Each fiscal quarter presented herein included 13 weeks.
Results for the interim periods presented herein are not necessarily indicative
of results which may be reported for any other interim period or for the entire
fiscal year.
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2. INVENTORIES:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
----------- -----------
(unaudited)
<S> <C> <C>
Raw materials $ 1,967,000 $ 5,515,000
Work-in-process 8,502,000 9,501,000
Finished goods 8,179,000 7,343,000
----------- -----------
Total $18,648,000 $22,359,000
=========== ===========
</TABLE>
3. OTHER ASSETS--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 June 30, 1997,
1,611,000 shares of LPC Series A Preferred Stock for $6,444,000 for a total
investment of $6,669,000. In 1994, the Company entered into agreements providing
for technology licenses between the Company and LPC and the cooperative
development of new technologies. 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 the
completion of LPC's initial public offering and 1-for-1.5 reverse stock split.
At June 30, 1997, the Company owned approximately 20% of the outstanding voting
stock of LPC. The Company accounts for its investment under the equity method.
The Company's share of the net income of LPC of $61,000 for the first three
months of fiscal 1998 is presented as "Equity in income (loss) of affiliate" in
the accompanying Consolidated Statements of Operations.
The Company recorded a write-down of $3,905,000 against its investment in LPC
during the quarter ended June 30, 1996. The remaining investment balance of
$1,262,000 shown on the accompanying balance sheet as of June 30,1997 reflects
the Company's equity in the net assets of LPC. The write-down and balance of the
Company's investment in LPC was 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. That engineering model demonstrated that the microlaser projector
development would take more time and be more costly than anticipated, and that
component costs would exceed earlier expectations. 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.
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.
The line of credit is secured by the equipment acquired and is guaranteed by a
principal of LPC. At June 30, 1997, the total amount borrowed pursuant to the
line of credit was $180,000. This amount is included in "Other" assets in the
accompanying balance sheets. Subsequent to the end of the first quarter of
fiscal 1998, LPC paid off all amounts outstanding under this line of credit.
6
<PAGE> 7
4. COMMITMENTS AND CONTINGENCIES
Litigation
The Company has been named as a defendant in three stockholder 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 the case
filed in federal court, the plaintiffs represent a class of all persons who
purchased the Company's common stock between July 26, 1994 and August 17, 1995.
In another case filed in state court, the plaintiffs purport to represent the
same class. In the third 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 stockholder 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.
5. LINE OF CREDIT
At June 30, 1997, the Company had available a line of credit arrangement
providing 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 contained 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 year 1997 or
during the first three months of fiscal 1998. The Company renewed its line of
credit arrangement in July 1997 under substantially similar terms. The new
credit arrangement expires on July 31, 1998.
6. SALE OF SUBSIDIARY'S ASSETS
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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company offers data and video projection products, including multimedia
projectors capable of supporting full-motion video, animation, and sound
directly from a computer or VCR, as well as interactive command and control
systems and meeting room tools. All of the Company's products are designed for
interactivity and ease of use.
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
1997 1996
------- -------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 84.2 71.2
------- -------
Gross profit 15.8 28.8
------- -------
Operating expenses
Selling and marketing 14.8 19.0
Research and development 6.8 12.8
General and administrative 4.6 5.3
------- -------
Total 26.2 37.1
------- -------
Loss from operations (10.4) (8.3)
------- -------
Other income (expense)
Interest and other income 0.8 0.9
Equity in income (loss) of affiliate 0.2 (0.8)
Gain on sale of subsidiary's assets -- 7.6
Write-down of investment in affiliate -- (11.1)
------- -------
Total 1.0 (3.4)
------- -------
Loss before income taxes (9.4) (11.7)
Provision (benefit) for income taxes (3.8) 0.4
------- -------
Net loss (5.6)% (12.1)%
======= =======
</TABLE>
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements (denoted with an asterisk
*) within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the Risk Factors set forth below.
8
<PAGE> 9
FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997
Sales
The Company's sales decreased 17% from $35.0 million in the first quarter
of fiscal 1997 to $29.0 million in the first quarter of fiscal 1998. The
decrease in sales was primarily attributable to a $3.8 million reduction in
revenues from the Company's Newpoint power protection business, which was sold
at the end of the first quarter of fiscal 1997. In addition, the Company's older
product lines experienced lower average selling prices attributable to price
reductions and promotional discounts. The Company has experienced increased
pricing pressures as a result of the entry of new competitors into the
projection market. In addition, the increase in the number of competitive new
products available to the channels of distribution in which the Company competes
has negatively impacted the Company's sales and market share. The increasing
number of competitive products is due primarily to the growth in resources
dedicated to product development by the Company's competitors. The Company
believes that competition in the form of continued pricing pressures and the
introduction of new product offerings will intensify in the future*. The Company
also expects that its international sales as a percentage of total sales will be
lower in the second quarter of fiscal 1998 versus the comparable period of
fiscal 1997, primarily due to expected reduced sales to the Company's major
private label customer*. See "Risk Factors."
Gross Profit
Gross profit declined from $10,100,000 in the first quarter of fiscal 1997
to $4,597,000 in the first quarter of fiscal 1998, primarily due to price
reductions and reduced sales of older products, partially offset by increased
sales of sourced products. Gross profit as a percentage of sales decreased from
28.8% in the first quarter of fiscal 1997 to 15.8% in the comparable quarter of
fiscal 1998. The decrease in gross profit as a percentage of sales for the
quarter ended June 30, 1997 was due primarily to price reductions on older
products and promotional discounts offered by the Company. The increasing
downward pressure on the average selling prices of the Company's products,
discussed in "Sales" above, also serves to reduce gross profit margins*. See
"Risk Factors."
Operating Expenses
Operating expenses include selling and marketing, research and development,
and administrative expenses, which are individually discussed below. Actual
operating expenses were $7,605,000 during the first quarter of fiscal 1998. The
reduction in operating expenses in the first quarter of fiscal 1998 versus the
fourth quarter of fiscal 1997 is primarily attributable to cost reduction
measures undertaken at the end of fiscal 1997 and at the beginning of fiscal
1998, including a significant reduction in staffing.
Selling and marketing expenses decreased from $6,669,000 in the first
quarter of fiscal 1997 to $4,281,000 in the first quarter of fiscal 1998. As a
percentage of sales, selling and marketing expenses decreased from 19.0% in the
first quarter of fiscal 1997 to 14.8% in the first quarter of fiscal 1998.
Selling and marketing expenses were lower both in dollar amount and as a
percentage of sales primarily due to product promotion expenses incurred during
the first quarter of fiscal 1997 related to the introduction of the Company's
new line of integrated projectors.
Research and development expenses decreased from $4,484,000 in the first
quarter of fiscal 1997 to $1,983,000 in the first quarter of fiscal 1998. As a
percentage of sales, research and development expenses were 12.8% in the first
quarter of fiscal 1997 and 6.8% in the first quarter of fiscal 1998. The
decrease in absolute dollars and as a percentage of sales for the first quarter
of fiscal 1998 as compared to the first quarter of fiscal 1997 reflects the
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<PAGE> 10
wind-down of microlaser research during the second quarter of fiscal 1997 and
the effects of cost reduction measures undertaken at the end of fiscal 1997.
General and administrative expenses were $1,341,000 in the first quarter of
fiscal 1998 versus $1,837,000 in the first quarter of fiscal 1997. As a
percentage of sales, general and administrative expenses decreased from 5.3% in
the first quarter of fiscal 1997 to 4.6% in the first quarter of fiscal 1998.
The decrease in general and administrative expenses in absolute dollars and as a
percentage of sales was due primarily to lower payroll related expenses
including recruiting and relocation costs. The Company expects legal expenses
to increase due to the defense of stockholder litigation*. See "Risk Factors."
Interest Income
Interest income decreased from $320,000 in the first quarter of fiscal 1997
to $211,000 in the first quarter of fiscal 1998. The decrease in interest income
from the in the first quarter of fiscal 1998 compared to the same period a year
ago is attributable primarily to lower average cash balances during the first
three months of fiscal 1998.
Income Taxes
The Company's effective tax rate was a benefit of 40.6% in the first
quarter of fiscal 1998 compared to a provision of $154,000 in the first quarter
of fiscal 1997. The Company does not expect to benefit from the credit for
increasing research expenditures during fiscal 1998 because research
expenditures are expected to decline in absolute dollar amount in fiscal 1998 as
compared to prior years *. See "Risk Factors." The Company has not recognized
any tax effect from its equity in gain or loss of affiliate or from the
write-down of its investment in affiliate.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally funded its operations through cash flow provided
from operations. The net increase in cash and short-term investments was $6.0
million in the three months ended June 30, 1997. The net increase in cash and
short-term investments in the first three months of fiscal 1998 was due
primarily to a $6.8 million decrease in accounts receivable and a $3.7 million
decrease in inventories, partially offset by a $2.7 million decrease in accounts
payable and a $1.6 million net loss. Accounts receivable decreased during the
three months ended June 30, 1997 primarily due to lower sales volume.
Inventories were reduced during the first quarter of fiscal 1998 through the
sale of older products in a specific effort to reduce inventory levels.
Receivable days outstanding were 78 at March 31, 1997 and 81 at June 30, 1997.
As of June 30, 1997, the Company had $24.0 million in cash and short-term
investments and $56.2 million in working capital, compared to $18.0 million in
cash and short-term investments and $56.9 million in working capital as of March
31, 1997. The Company had no debt at March 31 or June 30 of 1997.
The Company has an arrangement, renewed in July 1997, 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 $3.0
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<PAGE> 11
million of the line available for the purchase of fixed
assets, at an interest rate of one-half percent over the bank's prime rate. The
line of credit arrangement contains standard covenants relating to financial
ratios. The Company is in compliance with all such covenants. No borrowings were
made under this or any previous credit arrangement during fiscal year 1997 or
during the first three months of fiscal 1998. The credit arrangement expires on
July 31, 1998.
Company believes that existing cash resources, together with cash flow from
operations and available lines of credit, will provide sufficient funding for
operations for the foreseeable future*. See "Risk Factors". The effect of the
three stockholder class action lawsuits on the Company's liquidity cannot be
determined. The plaintiffs are seeking unspecified monetary damages (see note 4
to the Consolidated Financial Statements).
To date, inflation has not had a significant impact on the Company's
operating results.
RISK FACTORS
The following discussion of risk factors describes certain aspects of the
business environment in which the Company operates. Users of this report should
carefully consider these risk factors in addition to the other information in
this report. The risks faced by the Company are illustrated by the volatility of
the Company's reported sales and earnings per share over the last eight
quarters:
<TABLE>
<CAPTION>
FY96 FY97 FY98
------------------------------- --------------------------------------------- ----------
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ($millions) 35.0 44.2 47.6 35.0 36.2 47.4 36.0 29.0
EPS $0.20 $0.46 $0.47 ($0.59) $0.10 $0.25 ($1.10) ($0.23)
</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%. Actual
results may differ materially from any estimates of the Company 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 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
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<PAGE> 12
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 certain 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.
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 last two quarters, 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 continue to experience 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
12
<PAGE> 13
that there will be a shift from SVGA toward 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.
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. In developing its new products, the
Company exposes itself to technical and financial risks. In the past, the
Company has discontinued certain development efforts based on changing
expectations of the respective products' marketability or producability 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.
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. Two of the Company's major suppliers, Sanyo 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."
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<PAGE> 14
For the first fiscal quarter of 1998, the majority of the Company's sales
were derived from sourced products, which are fully 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 may 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.
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 adverse effect.
14
<PAGE> 15
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 does not expect to achieve in the future 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 "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.
STOCKHOLDER LAWSUITS
Three 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
15
<PAGE> 16
misleading when made. The Company believes that the lawsuits are without merit,
and the Company is 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 may 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. 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. 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 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.
KEY PERSONNEL
The Company believes that it is critically important to fill certain key
positions in its senior management team, and to maintain continuity at that
level. For example, the Company is presently searching for a permanent chief
executive officer and, due to the recent resignation of its vice president of
marketing, a replacement for that position. Although the Company is devoting
substantial effort to recruiting for these positions and others, it may not be
successful in these efforts.
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.
16
<PAGE> 17
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 1996, 1997 and the first quarter of fiscal 1998, sales outside
the United States and Canada represented approximately 39%, 38% and 31%,
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.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
See Note 4 of the Notes to Consolidated Financial Statements herein
and also Item 3, Legal Proceedings, in Registrant's Form 10-K for the
fiscal year ended March 30, 1997.
ITEM 2: CHANGES IN SECURITIES
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
#27 - Financial Data Schedule (for EDGAR purposes only)
b. No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1997.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and 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
Dated: August 12, 1997 Kenneth E. Olson
------------------------------
KENNETH E. OLSON
President and Chief Executive Officer
Dated: August 12, 1997 Dennis Whittler
------------------------------
DENNIS A. WHITTLER
Vice President, Finance
19
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule (for EDGAR use only) 21
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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-Q FILING FOR THE QUARTER ENDED 6-30-97.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,642
<SECURITIES> 14,392
<RECEIVABLES> 25,859
<ALLOWANCES> 2,287
<INVENTORY> 18,648
<CURRENT-ASSETS> 75,150
<PP&E> 4,860
<DEPRECIATION> 13,227
<TOTAL-ASSETS> 82,620
<CURRENT-LIABILITIES> 18,938
<BONDS> 0
<COMMON> 7
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 82,620
<SALES> 29,043
<TOTAL-REVENUES> 29,043
<CGS> 24,446
<TOTAL-COSTS> 24,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,736)
<INCOME-TAX> (1,112)
<INCOME-CONTINUING> (1,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,624)
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
