<PAGE> 1
UNITED STATES
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 SEPTEMBER 30, 1996
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 NO. 0-22700
PROXIM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0059429
(State of incorporation) (I.R.S. Employer Identification No.)
295 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 960-1630
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
______________
Former name, former address and former fiscal year, if changed since last
report: Not Applicable.
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.
Title of Class Outstanding as of September 30, 1996
- --------------------------------------- ------------------------------------
Common Stock, par value $.001 per share 9,741,858
<PAGE> 2
PROXIM, INC.
Index
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheet at September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Operations for the Three Months and Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analsis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
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PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,147 $ 6,247
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,207 6,810
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,536 7,891
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,363 1,231
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 128
-------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,419 22,307
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,555 1,800
-------- -------
$ 76,974 $24,107
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,581 $ 3,747
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,210 1,910
-------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 6,791 5,657
-------- -------
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares authorized; 9,742 and 7,257 shares
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 7
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,963 27,594
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,790) (9,151)
-------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 70,183 18,450
-------- -------
$76,974 $24,107
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . $10,916 $5,930 $29,568 $13,495
Cost of revenue . . . . . . . . . . . . . . . . . . . . . 5,676 2,948 15,266 6,569
------- ------ ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 5,240 2,982 14,302 6,926
------- ------ ------- -------
Operating expenses:
Research and development . . . . . . . . . . . . . . . 1,275 865 3,537 2,271
Selling, general and administrative . . . . . . . . . 2,502 1,711 6,815 4,306
------- ------ ------- -------
Total operating expenses . . . . . . . . . . . . . 3,777 2,576 10,352 6,577
------- ------ ------- -------
Income from operations . . . . . . . . . . . . . . . . . 1,463 406 3,950 349
Interest and other income, net . . . . . . . . . . . . . 504 130 653 435
------- ------ ------- -------
Income before income taxes . . . . . . . . . . . . . . . 1,967 536 4,603 784
Provision for income taxes . . . . . . . . . . . . . . . 531 54 1,242 79
------- ------ ------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 1,436 $ 482 $ 3,361 $ 705
======= ====== ======= =======
Net income per share . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.06 $ 0.38 $ 0.09
======= ====== ======= =======
Weighted average common shares and equivalents . . . . . 10,061 8,084 8,921 7,857
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,361 $ 705
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 625 359
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (132) --
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,397) (2,728)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,645) (2,478)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) 118
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (166) 1,403
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300 577
-------- --------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . (92) (2,044)
-------- --------
Cash flows used in investing activities for purchases of property
and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,380) (1,100)
-------- --------
Cash flows provided by financing activities from issuance of
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,372 331
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . 45,900 (2,813)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . 6,247 11,300
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . $ 52,147 $ 8,487
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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PROXIM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying financial statements include all adjustments
(consisting only of normal recurring adjustments) which Proxim, Inc. (the
"Company") considers necessary for a fair presentation of the results of
operations for the interim periods covered and the financial condition of the
Company at the date of the balance sheets. The interim financial information
is unaudited. This Quarterly Report on Form 10-Q should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
1995, included in the 1995 Annual Report on Form 10-K and the Company's
Registration Statement on Form S-3 dated July 18, 1996. The results of
operations for the three months and nine months ended September 30, 1996 are
not necessarily indicative of results that may be expected for the entire year
ending December 31, 1996.
INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,650 $ 1,609
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,240 2,987
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,646 3,295
------------- -------------
$ 10,536 $ 7,891
============= =============
</TABLE>
NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
outstanding shares of Common Stock plus dilutive common stock equivalents
during the periods presented.
SUBSEQUENT EVENT
On October 28, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with DSP Communications, Inc., a Delaware
corporation ("DSPC"), providing for the acquisition of the Company, by means of
a merger (the "Merger") of Data Merger Corporation, a Delaware corporation and
wholly owned subsidiary of DSPC with and into the Company. As a result of the
Merger, the Company will be a wholly owned subsidiary of DSPC. Pursuant to the
Merger Agreement, upon the Effective Time of the Merger, each outstanding share
of Common Stock of the Company will be converted into 0.70 shares of Common
Stock of DSPC, subject to adjustment. The Merger is intended to qualify as a
tax-free reorganization and a pooling of interests under Section 368(a) of the
Internal Revenue Code of 1986, as amended, and is intended to be treated as a
transfer and exchange between companies under common control for accounting
purposes. The transaction is expected to close by the end of January 1997, and
is subject to various conditions, including shareholder and requisite
regulatory approval.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
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. The
Company may from time to time make additional written and oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward- looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed below under "Certain Factors
That May Affect Future Operating Results" and elsewhere in this report. The
Company does not undertake to update any forward-looking statement that may be
made from time to time by or on behalf of the Company. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the
Company's Financial Statements and Notes thereto.
RECENT DEVELOPMENTS
On October 28, 1996, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with DSP Communications, Inc., a Delaware
corporation ("DSPC"), providing for the acquisition of the Company, by means of
a merger (the "Merger") of Data Merger Corporation, a Delaware corporation and
wholly owned subsidiary of DSPC with and into the Company. As a result of the
Merger, the Company will be a wholly owned subsidiary of DSPC. Pursuant to the
Merger Agreement, upon the Effective Time of the Merger, each outstanding share
of Common Stock of the Company will be converted into 0.70 shares of Common
Stock of DSPC, subject to adjustment. The Merger is intended to qualify as a
tax-free reorganization and a pooling of interests under Section 368(a) of the
Internal Revenue Code of 1986, as amended, and is intended to be treated as a
transfer and exchange between companies under common control for accounting
purposes. The transaction is expected to close by the end of January 1997, and
is subject to various conditions, including shareholder and requisite
regulatory approval.
The following table presents the percentages of total revenue
represented by certain line items from the Statement of Operations for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenue . . . . . . . . . . . . . . . . . 52.0% 49.7% 51.6% 48.7%
------ ------ ------ ------
Gross profit . . . . . . . . . . . . . . . . . . 48.0% 50.3% 48.4% 51.3%
------ ------ ------ ------
Operating expenses:
Research and development . . . . . . . . . . . 11.7% 14.6% 12.0% 16.8%
Selling, general and administrative . . . . . 22.9% 28.9% 23.0% 31.9%
------ ------ ------ ------
Total operating expenses . . . . . . . . . 34.6% 43.5% 35.0% 48.7%
------ ------ ------ ------
Income from operations . . . . . . . . . . . . . 13.4% 6.8% 13.4% 2.6%
Interest and other income, net . . . . . . . . . 4.6% 2.2% 2.2% 3.2%
------ ------ ------ ------
Income before income taxes . . . . . . . . . . . 18.0% 9.0% 15.6% 5.8%
Provision for income taxes . . . . . . . . . . . 4.8% .9% 4.2% .6%
------ ------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . 13.2% 8.1% 11.4% 5.2%
====== ====== ====== ======
</TABLE>
7
<PAGE> 8
RESULTS OF OPERATIONS
REVENUE
Revenue increased 84% in the third quarter of 1996 compared to the
third quarter of 1995 and 119% in the first nine months of 1996 compared to the
first nine months of 1995. The increase in revenue in the interim periods of
1996 compared to the interim periods of 1995 was primarily attributable to
increased unit sales of 2.4 GHz OEM products and RangeLAN2 branded products,
including increased revenue from shipments to international distributors and to
OEM customers that have recently introduced RangeLAN2-based 2.4 GHz product
lines in North America, Europe and Asia.
GROSS PROFIT
Gross profit as a percentage of revenue was 48.0% and 50.3% in the
third quarter of 1996 and 1995, respectively, and 48.4% and 51.3% in the first
nine months of 1996 and 1995, respectively. Gross profit as a percentage of
revenue declined in the interim periods of 1996 compared to the interim periods
of 1995 due to a change in the mix of revenue from higher gross margin 900 MHz
products to lower gross margin 2.4 GHz products, and higher costs related to
initial manufacturing of and increasing the capacity for 2.4 GHz product
versions designed to meet certification requirements in North America, Europe
and Japan. Gross profit as a percentage of revenue may fluctuate in future
periods depending primarily on the mix of revenue between 900 MHz products and
2.4 GHz products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased in the interim periods of
1996 compared to the interim periods of 1995 primarily due to the increased
number of engineering employees, continued investment in integrating the
Company's technology and designs into ASICs, development of wireless protocols
and network software drivers, costs related to performance enhancements in the
RangeLAN2 architecture, and costs related to product certifications. Research
and development expenses declined as percentage of revenue in the interim
periods of 1996 compared to the interim periods of 1995 primarily due to
increases in revenue. To date, all of the Company's research and development
costs have been expensed as incurred. The Company currently does not
anticipate further significant declines in research and development expenses as
a percentage of revenue. The Company expects that research and development
expenses will continue to increase substantially in absolute dollars but may
vary over time as a percentage of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased in the interim
periods of 1996 compared to the interim periods of 1995 primarily due to the
hiring of additional marketing and sales personnel to support the Company's
growth, particularly its expansion in international markets, as well as
increased trade show and promotional expenses. Selling, general and
administrative expenses declined as a percentage of revenue in the interim
periods of 1996 compared to the interim periods of 1995 primarily due to
increases in revenue. The Company currently does not anticipate further
significant declines in selling, general and administrative expenses as a
percentage of revenue. The Company expects that selling, general and
administrative expenses will continue to increase in absolute dollars but may
vary over time as a percentage of revenue.
INTEREST AND OTHER INCOME, NET
Interest and other income, net increased in the interim periods of
1996 compared to the interim periods of 1995 primarily due to the July 1996
secondary offering which increased cash balances.
8
<PAGE> 9
INCOME TAXES
The Company's estimated effective income tax rate was 27% and 10% for
the interim periods of 1996 and 1995, respectively. The 1996 estimated
effective income tax rate is less than the combined federal and state statutory
rates based on the expected utilization of available net operating loss
carryforwards and tax credits.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1996, $92,000 of cash was used in
operating activities primarily to fund increases in inventories and accounts
receivable, and decreases in accounts payable, partially offset by net income
for the period and by cash provided by increases in accrued liabilities. In
the first nine months of 1995, $2,044,000 of cash was used in operating
activities primarily to fund increases in inventories and accounts receivable,
partially offset by net income for the period and by cash provided by increases
in accounts payable and accrued liabilities.
In the first nine months of 1996 and 1995, the Company purchased
$2,380,000 and $1,100,000, respectively, of property and equipment. Capital
expenditures in the first nine months of 1996 and 1995 were primarily for
manufacturing and engineering test equipment, office furniture and leasehold
improvements related to the Company's facilities expansion.
At September 30, 1996, the Company had cash and cash equivalents of
approximately $52,147,000. In July 1996, the Company issued 2,012,500 shares
of its common stock pursuant to an underwritten public offering which generated
approximately $47,000,000 of net proceeds to the Company. The Company believes
that its working capital and cash generated from operations, if any, will be
sufficient to finance any cash acquisitions which the Company may consider and
provide adequate working capital for the foreseeable future. However, to the
extent that additional funds may be required in the future to address working
capital needs and to provide funding for capital expenditures, expansion of the
business or acquisitions, the Company will consider additional financing.
There can be no assurance that such financing will be available on terms
acceptable to the Company, if at all.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Form 10-Q, the following
are important factors that should be considered carefully in evaluating the
Company and its business.
Potential Fluctuations in Future Operating Results. The Company has
experienced, and may in the future continue to experience, significant annual
and quarterly fluctuations in revenue, gross margins and operating results due
to numerous factors, some of which are outside the Company's control. These
factors include fluctuating market demand for, and declines in the average
selling prices of, the Company's products, the timing of and delays or
cancellations of significant orders from OEM customers, the cost, availability
and quality of components from the Company's suppliers, the cost, availability,
and quality of assemblies from subcontractors, the lengthy sales and design-in
cycles for OEM products, delays in the introduction of the Company's new
products, competitive product introductions, market adoption of new
technologies and standards, the mix of products sold, the effectiveness of the
Company's distribution channels, the failure to anticipate changing customer
product requirements, seasonality in demand, manufacturing capacity and
efficiency, changes in the regulatory environment and general economic
conditions. Historically, the Company has not operated with a significant
order backlog and a substantial portion of the Company's revenue in any quarter
has been derived from orders booked and shipped in that quarter. Accordingly,
the Company's revenue expectations are based almost entirely on its internal
estimates of future demand and not on firm customer orders. Planned expense
levels are relatively fixed in the short term and are based in large part on
these estimates, and if orders and revenue do not meet expectations, the
Company's operating results could be materially adversely affected.
9
<PAGE> 10
In this regard, in the third quarter of 1994, the Company experienced a
decrease in revenue and an operating loss as a result of lower than expected
orders in connection with the transition of several OEM customers from 900 MHz
products to 2.4 GHz RangeLAN2 products. There can be no assurance that the
Company will not experience future quarter to quarter decreases in revenue and
gross margins or quarterly operating losses. In addition, due to the timing of
orders from OEM customers, the Company has often recognized a substantial
portion of its revenue in the last month of a quarter. As a result, minor
fluctuations in the timing of orders and the shipment of products have caused,
and may in the future cause, operating results to vary significantly from
quarter to quarter. It is possible that due to such fluctuations or other
factors, the Company's future operating results could be below the expectations
of securities analysts and investors. In such an event, or in the event that
adverse market conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the price of the Company's Common Stock
would likely be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Dependence on a Limited Number of OEM Customers. Historically, a
substantial portion of the Company's revenue has been derived from a limited
number of customers, most of which are OEM customers. Approximately 65%, 79%,
56%, and 83% of the Company's total revenue during the first nine months of
1996 and during 1995, 1994 and 1993, respectively, were to OEM customers.
Sales to two OEM customers represented approximately 27% and 14%, of the
Company's total revenue during 1995. Sales to two OEM customers represented
approximately 24% and 21% of the Company's total revenue during the first nine
months of 1996. The Company expects that sales to a limited number of OEM
customers will continue to account for a substantial portion of its revenue
during any period for the foreseeable future. The Company also has experienced
quarter to quarter variability in sales to each of its major OEM customers and
expects this pattern to continue in the future. The loss of one or more of the
Company's major OEM customers could have a material adverse effect on the
Company's results of operations.
Sales of many of the Company's wireless networking products depend in
significant part upon the decision of a prospective OEM customer to develop and
market wireless solutions which incorporate the Company's wireless technology.
OEM customers' orders are affected by a variety of factors such as new product
introductions, regulatory approvals, end user demand for OEM customers'
products, product life cycles, inventory levels, manufacturing strategy,
contract awards, competitive conditions and general economic conditions. Sales
of the Company's products generally involve a significant commitment of capital
and other resources by its customers, with the attendant delays associated with
such customers' internal procedures to approve such commitment. For these and
other reasons, the design-in cycle associated with the purchase of the
Company's wireless products by OEM customers is quite lengthy, generally
ranging from six months to two years, and is subject to a number of significant
risks, including customers' budgeting constraints and internal acceptance
reviews, that are beyond the Company's control. Because of the lengthy sales
cycle, the Company typically plans its production and inventory levels based on
internal forecasts of OEM customer demand, which is highly unpredictable and
can fluctuate substantially. In addition, the Company's agreements with OEM
customers typically do not require minimum purchase quantities and a
significant reduction, delay or cancellation of orders from any of these
customers could have a material adverse effect on the Company's results of
operations. If revenue forecasted from a specific customer for a particular
quarter is not realized in that quarter, the Company's operating results for
that quarter could be materially adversely affected. In addition, there can be
no assurance that the Company will become a qualified supplier for new OEM
customers or that the Company will remain a qualified supplier for existing OEM
customers.
Sole or Limited Sources of Supply. Certain parts and components used
in the Company's products, including the Company's proprietary application
specific integrated circuits ("ASICs"), monolithic microwave integrated
circuits ("MMICs") and assembled circuit boards, are only available from single
sources, and certain other parts and components are only available from a
limited number of sources. The Company's reliance on these sole source or
limited source suppliers involves certain risks and uncertainties, including
the possibility of a shortage or discontinuation of certain key components and
reduced control over delivery schedules,
10
<PAGE> 11
manufacturing capability, quality and costs. Any reduced availability of such
parts or components when required could materially impair the Company's ability
to manufacture and deliver its products on a timely basis and result in the
cancellation of orders, which could have a material adverse effect on the
Company's operating results. In addition, the purchase of certain key
components involves long lead times and, in the event of unanticipated
increases in demand for the Company's products, the Company has in the past
been, and may in the future be, unable to manufacture certain products in a
quantity sufficient to meet its customers' demand in any particular period.
The Company has no guaranteed supply arrangements with its sole or limited
source suppliers, does not maintain an extensive inventory of parts or
components, and customarily purchases sole or limited source parts and
components pursuant to purchase orders placed from time to time in the ordinary
course of business. Business disruptions, production shortfalls or financial
difficulties of a sole or limited source supplier could materially and
adversely impact the Company by increasing product costs, or reducing or
eliminating the availability of such parts or components. In such event, the
inability of the Company to develop alternative sources of supply quickly and
on a cost-effective basis could materially impair the Company's ability to
manufacture and deliver its products on a timely basis and could have a
material adverse effect on its operating results.
Manufacturing Risks. The Company currently has limited manufacturing
capability and has no experience in large scale manufacturing. If the
Company's customers were to place orders for unexpectedly large quantities of
the Company's products, the Company's present manufacturing capacity could be
inadequate to meet such demand. There can be no assurance that the Company
will be able to develop or contract for additional manufacturing capacity on
acceptable terms on a timely basis. In addition, in order to continue to
compete successfully, the Company will need to achieve significant product cost
reductions. Although the Company intends to achieve cost reductions through
engineering improvements and production economies, there can be no assurance
that the Company will be able to do so. In order to remain competitive, the
Company must continue to introduce new products and processes into its
manufacturing environment. The Company currently conducts its manufacturing
operations for all of its products in a single facility in Mountain View,
California. In addition, the Company relies on certain outside contract
manufacturers for circuit board assemblies which subjects the Company to a
number of risks, including a potential inability to obtain an adequate supply
of assembled circuit boards as well as reduced control over the price, timely
delivery and quality of such assembled circuit boards. If the Company's
Mountain View facility or the facilities of the outside contract manufacturers
were incapable of operating, even temporarily, or were unable to operate at or
near current or full capacity for any extended period, the Company's business
and operating results could be materially adversely affected. Changes in the
manufacturing operations to incorporate new products and processes could cause
disruptions, which, in turn, could adversely affect customer relationships,
cause a loss of market opportunities and have a material adverse effect on the
Company's business and operating results.
During the second and third quarters of 1995, the Company experienced
higher than expected demand for its products. This resulted in delays in the
delivery of certain products due to temporary shortages of certain components,
particularly components with long lead times, and insufficient manufacturing
capacity. Although the Company has taken certain steps to minimize such delays
in the future by increasing its manufacturing capacity and stocking certain
critical and long lead time components, due to the complex nature of the
Company's products and manufacturing processes, the worldwide demand for
certain wireless technology components and other factors, there can be no
assurance that delays in the delivery of products will not occur in the future.
Rapid Technological Change; Ongoing New Product Development
Requirements; Evolving Industry Standards. The wireless communications
industry is characterized by very rapid technological change, short product
life cycles and evolving industry standards. To remain competitive, the
Company must develop or gain access to new technologies in order to increase
product performance and functionality, reduce product size and maintain
cost-effectiveness. The Company has committed and expects that it will
continue to devote substantial research and development resources to enhance
its RangeLAN2 architecture and develop new RangeLAN2-based
11
<PAGE> 12
products. The Company also expects to substantially increase its research and
development expenses to develop new technologies and products in the future.
Given the emerging nature of the wireless LAN market, there can be no assurance
that the RangeLAN2 products and technology, or the Company's other products or
technology, will not be rendered obsolete by alternative technologies.
The Company's success is also dependent on its ability to develop new
products for existing and emerging wireless communications markets, to
introduce such products in a timely manner and to have them designed into new
products developed by OEM customers. The development of new wireless
networking products is highly complex, and wireless LAN companies, including
Proxim, from time to time have experienced delays in developing and introducing
new products. Due to the intensely competitive nature of the Company's
business, any delay in the commercial availability of new products could have a
material adverse effect on the Company's operating results. If the Company is
unable to develop or obtain access to advanced wireless networking technologies
as they become available, or is unable to design, develop and introduce
competitive new products on a timely basis, or is unable to hire qualified
engineers to develop such technologies and products, its future operating
results would be materially and adversely affected. In particular, the Company
intends to expend substantial resources in developing products that are
designed to conform to the potential IEEE 802.11 specifications. There can be
no assurance that these specifications will be ultimately adopted or that such
standards will have a meaningful commercial impact. To the extent these
standards or other standards are adopted, the Company could be at a
disadvantage if its competitors are able to develop and introduce competitive
products which conform to such standards more rapidly than the Company.
Competition. The wireless local area networking market is intensely
competitive. The principal competitive factors in this market include
effective RF coverage area, data throughput, wireless networking protocol
sophistication, network scalability, roaming capability, power consumption,
product miniaturization, product reliability, product time to market, product
certifications, price, effective distribution channels, ability to support new
industry standards and company reputation. Although the Company believes that
it currently competes favorably on the basis of these factors, the Company
could be at a disadvantage to companies that have broader distribution channels
and offer more diversified product lines.
Proxim has several current competitors which offer 2.4 GHz products,
including IBM, Lucent Technologies, Symbol Technologies and Telxon. In
addition, certain other companies, such as 3Com Corporation, have announced
their intention to offer competitive 2.4 GHz products. Some of these
competitors have announced their intention to develop IEEE 802.11
standards-based products or other higher performance systems in the future. In
addition to competition from companies that offer or have announced their
intention to develop wireless LAN products, the Company could face future
competition from companies that offer products which replace network adapters
or offer alternative wireless communications solutions, or from large computer
and network equipment companies. There can be no assurance that the Company
will be able to compete successfully against these competitors or that
competitive pressures faced by the Company will not adversely affect its
business or operating results.
Many of the Company's present and potential competitors have
substantially greater financial, marketing, technical and other resources than
the Company with which to pursue engineering, manufacturing, marketing, and
distribution of their products and may succeed in establishing technology
standards or strategic alliances in the wireless LAN market, obtain more rapid
market acceptance for their products, or otherwise gain a competitive
advantage. There can be no assurance that the Company will succeed in
developing products or technologies that are more effective than those
developed by its competitors. Furthermore, the Company competes with companies
with high volume manufacturing and extensive marketing and distribution
capabilities, areas in which the Company has limited experience. Increased
competition, direct and indirect, could adversely affect the Company's revenue
and profitability through pricing pressure and loss of market share. There can
be no assurance that the Company will be able to compete successfully against
existing and new competitors as the market evolves and the level of competition
increases.
12
<PAGE> 13
International Sales. Revenue from shipments by the Company to
customers outside the United States, principally to a limited number of
international distributors and OEM customers, represented 37%, 24%, 6% and 4%
of total revenue during the first nine months of 1996 and during 1995, 1994 and
1993, respectively. The Company expects that revenue from shipments to
international customers will continue to represent a substantial portion of
total revenue for the foreseeable future. Sales to international customers or
to U.S. OEM customers who ship to international locations are subject to a
number of risks and uncertainties including, but not limited to, changes in
foreign government regulations and telecommunications standards, export license
requirements, tariffs and taxes, other trade barriers, fluctuations in currency
exchange rates, difficulty in collecting accounts receivable, difficulty in
staffing and managing foreign operations, and potential political and economic
instability. While international sales are typically denominated in U.S.
dollars and the Company generally extends limited credit terms, fluctuations in
currency exchange rates could cause the Company's products to become relatively
more expensive to customers in a particular country, leading to a reduction in
sales or profitability in that country. Additionally, payment cycles for
international distributors are usually longer than for distributors in the
United States. There can be no assurance that foreign markets will continue to
develop or that the Company will receive additional orders to supply its
products to foreign customers. The Company's business and operating results
could be materially and adversely affected if foreign markets do not continue
to develop or the Company does not receive additional orders to supply its
products for use by foreign customers.
Protection of Proprietary Rights. The Company relies on a combination
of patents, trademarks and non-disclosure agreements in order to establish and
protect its proprietary rights. Proxim has been issued three U.S. patents
which are important to the current business of the Company, and has four patent
applications pending in the U.S. which relate to the Company's core technology.
There can be no assurance that patents will issue from any of these pending
applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect the Company's technology. In addition, there can
be no assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company. Since U.S. patent applications are
maintained in secrecy until patents issue, and since publication of inventions
in the technical or patent literature tend to lag behind such inventions by
several months, the Company cannot be certain that it was the first creator of
the inventions covered by its issued patents or pending patent applications or
that it was the first to file patent applications for such inventions or that
the Company is not infringing on the patents of others. In addition, the
Company has filed, or reserved its rights to file, a number of patent
applications internationally. There can be no assurance that any such
international patent applications will issue or that the laws of foreign
jurisdictions will protect the Company's proprietary rights to the same extent
as the laws of the United States.
In view of the rapid technological change in this industry, Proxim
believes that the technical expertise and creative skills of its engineers and
other personnel are crucial in determining the Company's future success. The
Company's ability to compete in the marketplace may be enhanced by its ability
to protect its proprietary information through the ownership of patents,
registrations, and trademarks. The Company attempts to protect its trade
secrets and other proprietary information through agreements with customers and
suppliers, proprietary information agreements with employees and other security
measures. Although the Company intends to protect its rights vigorously, there
can be no assurance that these measures will be successful. Litigation may be
necessary to enforce the Company's patents, trademarks or other intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the
Company's business and operating results. No intellectual property of the
Company has been invalidated or declared unenforceable. However, there can be
no assurance that in the future such rights will be upheld. Furthermore, there
can be no assurance that any issued patents will provide the Company with a
competitive advantage or will not be challenged by third parties or that the
patents of others will not have an adverse effect on the Company's ability to
do business. There can be no assurance that the measures taken by the Company
will prevent misappropriation of its technology. In addition, there can be no
assurance
13
<PAGE> 14
that others will not independently develop similar products, design around the
Company's proprietary technology or duplicate the Company's products.
Management of Growth. The Company's growth to date has caused, and
will continue to cause, a significant strain on its management, operational,
financial and other resources. The Company's ability to manage its growth
effectively will require it to improve its operational and financial systems.
These demands will require the addition of new management personnel and the
development of additional expertise by existing management. The failure of the
Company's management team to effectively manage growth, should it occur, could
have a material adverse impact on the Company's results of operations.
Uncertain Government Regulation. In the United States, the Company is
subject to various FCC rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum.
Proxim's spread spectrum wireless products are certified for unlicensed
operation in the 902-928 MHz and 2.4-2.4835 GHz frequency bands. Operation in
these frequency bands is governed by rules set forth in Part 15 of the FCC
regulations. The Part 15 rules are designed to minimize the probability of
interference to other users of the spectrum and, thus, accord Part 15 systems
secondary status. In the event that there is interference between a primary
user and a Part 15 user, a higher priority user can require the Part 15 user to
curtail transmissions that create interference. In this regard, if users of
the Company's products experience excessive interference from primary users,
market acceptance of the Company's products could be adversely affected,
thereby materially and adversely affecting the Company's business and results
of operations. The FCC, however, has established certain standards which
create an irrebuttable presumption of noninterference for Part 15 users and the
Company believes that its products comply with such requirements. There can be
no assurance that the occurrence of regulatory changes, including changes in
the allocation of available frequency spectrum or modification to the standards
establishing an irrebuttable presumption for unlicensed Part 15 users, would
not significantly impact the Company's operations by rendering current products
obsolete, restricting the applications and markets served by the Company's
products or increasing the opportunity for additional competition.
The Company's products are also subject to regulatory requirements in
international markets and, therefore, the Company has been monitoring the
development of spread spectrum regulations in certain countries that represent
potential markets for its products. The Company has limited experience in
gaining regulatory approval outside of the United States. Several foreign
countries, such as Canada, have regulations that closely follow those of the
FCC. To date, Proxim or its distribution partners have obtained certifications
for the Company's products in 24 countries as well as approval for use in over
20 additional countries which rely on or reference certification requirements
of regulatory bodies such as the FCC and the European Telecommunications
Standards Institute ("ETSI"). Each new Proxim product or OEM customer product
must be certified or otherwise qualified for use in each country. The Company
has an ongoing program to obtain certifications for its products and to assist
certain OEM customers in obtaining certification for their products in all
available markets. While there can be no assurance that the Company will be
able to comply with regulations in any particular country, the Company has
designed its RangeLAN2 products to minimize the design modifications required
to meet various 2.4 GHz international spread spectrum regulations. Changes in,
or the failure by the Company to comply with, applicable domestic and
international regulations could have a material adverse effect on the Company's
business and operating results. In addition, with respect to those countries
that do not follow FCC regulations, Proxim may need to modify its products to
meet local rules and regulations.
Expanded Distribution Required for Branded Products. To date, a
substantial percentage of Proxim's revenue has been derived from OEM customers
through the Company's direct sales force. The Company sells its branded
RangeLAN2 products through domestic and international distributors. In
general, distributors offer products of several different companies, including
products that may compete with the Company's products. Accordingly, these
distributors may give higher priority to products of other suppliers, thus
reducing their efforts to sell the Company's products. Agreements with
distributors are generally terminable at the distributor's option.
14
<PAGE> 15
A reduction in sales efforts or termination of a distributor's relationship
with the Company may have a material adverse effect on the Company's future
operating results. Use of distributors also entails the risk that distributors
will build up inventories in anticipation of substantial growth in sales. If
such growth does not occur as anticipated, these distributors may substantially
decrease the amount of product ordered in subsequent quarters. Such
fluctuations could contribute to significant variations in the Company's future
operating results.
Forward-Looking Information. In connection with a May 1996 interview
with a representative from a computer industry publication, the Company's
Chairman of the Board, President and Chief Executive Officer, in response to
questions regarding the growth of the Company's channel and OEM business,
discussed historical revenue in relation to Wall Street analysts' revenue
forecasts for the Company. In particular, he expressed comfort with the
published revenue expectations of analysts who have forecasted approximately
$40 million in Company revenue for the current fiscal year. While the Company
remains comfortable with regard to such published estimates, revenue forecasts
are forward-looking information and as such are inherently subject to risk and
uncertainty. The Company's actual operating results have fluctuated
significantly in the past and may do so in the future. Important factors which
could cause the Company's actual results to differ materially and adversely
from the projected revenue levels include each of those discussed elsewhere
within this section, as well as a failure by the Company to implement
successfully any aspect of its strategy during the current year and in future
periods. Accordingly, there can be no assurance that the Company will achieve
such levels of revenue, or, if achieved, what effect such revenue will have on
the Company's net income or income per share.
Dependence on Key Employees. The Company is highly dependent on the
technical and management skills of its key employees, in particular David C.
King, Chairman, President and Chief Executive Officer, and Juan Grau, Vice
President of Engineering. The Company does not have employment agreements
with, or life insurance on the life of, either person. The loss of the
services of any key employee could adversely affect the Company's business and
operating results. The Company's success also depends in large part on a
limited number of key technical, marketing and sales employees and on the
Company's ability to continue to attract, assimilate and retain additional
highly talented personnel. Competition for qualified personnel in the wireless
data communications and networking industries is intense. There can be no
assurance that the Company will be successful in retaining its key employees or
that it can attract, assimilate or retain the additional skilled personnel as
required.
Volatility of Stock Price. Recently, the price of the Company's
Common Stock has been volatile. The Company believes that the price of its
Common Stock may continue to fluctuate, perhaps substantially, as a result of
factors such as announcements of developments relating to the Company's
business, fluctuations in the Company's operating results, general conditions
in the wireless communications industry or the worldwide economy, a shortfall
in revenue or earnings from securities analysts' expectations or other changes
in financial estimates by securities analysts, announcements of technological
innovations or new products or enhancements by the Company or its competitors,
developments in patent, copyrights or other intellectual property rights and
developments in the Company's relationships with its customers, distributors
and suppliers. In addition, in recent years the stock market in general, and
the market for shares of high technology stocks in particular, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. There can be no assurance that the market
price of the Company's Common Stock will not experience significant
fluctuations in the future, including fluctuations that are unrelated to the
Company's performance.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
None.
B. Reports on Form 8-K:
None.
16
<PAGE> 17
SIGNATURE
Pursuant to the requirements 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, in the City of Mountain View, State of
California, on the 13th day of November, 1996.
PROXIM, INC.
By: /s/ Keith E. Glover
--------------------------------
Keith E. Glover,
Vice President of Finance and
Administration and Chief Financial
Officer
Dated: November 13, 1996
17
<PAGE> 18
Exhibit Index
Exhibit 27 Financial Data Schedule
<PAGE> 19
PROXIM, INC.
INDEX TO EXHIBITS
EXHIBIT EXHIBIT TITLE
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 52,147
<SECURITIES> 0
<RECEIVABLES> 9,307
<ALLOWANCES> 100
<INVENTORY> 10,536
<CURRENT-ASSETS> 73,419
<PP&E> 6,447
<DEPRECIATION> 2,892
<TOTAL-ASSETS> 76,974
<CURRENT-LIABILITIES> 6,791
<BONDS> 0
0
0
<COMMON> 75,973
<OTHER-SE> (5,790)
<TOTAL-LIABILITY-AND-EQUITY> 76,974
<SALES> 10,916
<TOTAL-REVENUES> 10,916
<CGS> 5,676
<TOTAL-COSTS> 5,676
<OTHER-EXPENSES> 3,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (504)
<INCOME-PRETAX> 1,967
<INCOME-TAX> 531
<INCOME-CONTINUING> 1,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,436
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
