<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 JUNE 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.
<TABLE>
<CAPTION>
Title of Class Outstanding as of June 30, 1996
-------------- -------------------------------
<S> <C>
Common Stock, par value $.001 per share 7,620,070
</TABLE>
<PAGE> 2
PROXIM, INC.
Index
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheet at June 30, 1996 and December 31, 1995......................... 3
Statement of Operations for the Three Months and Six Months
Ended June 30, 1996 and 1995............................................... 4
Statement of Cash Flows for the Six Months Ended
June 30, 1996 and 1995..................................................... 5
Notes to Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 14
</TABLE>
2
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PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 5,013 $ 6,247
Accounts receivable, net ............................................... 7,431 6,810
Inventories ............................................................ 9,719 7,891
Deferred tax assets .................................................... 1,319 1,231
Other assets ........................................................... 190 128
-------- --------
Total current assets ................................................ 23,672 22,307
Property and equipment, net ............................................... 2,834 1,800
-------- --------
$ 26,506 $ 24,107
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 2,975 $ 3,747
Accrued liabilities .................................................... 2,281 1,910
-------- --------
Total current liabilities ........................................... 5,256 5,657
-------- --------
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares authorized; 7,620 and 7,257
shares issued and outstanding ....................................... 8 7
Additional paid-in capital ............................................. 28,468 27,594
Accumulated deficit .................................................... (7,226) (9,151)
-------- --------
Total stockholders' equity .......................................... 21,250 18,450
-------- --------
$ 26,506 $ 24,107
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue ...................................... $ 9,751 $ 4,202 $18,652 $ 7,565
Cost of revenue .............................. 5,051 2,002 9,590 3,621
------- ------- ------- -------
Gross profit ................................. 4,700 2,200 9,062 3,944
------- ------- ------- -------
Operating expenses:
Research and development .................. 1,192 754 2,262 1,406
Selling, general and administrative ....... 2,186 1,360 4,313 2,595
------- ------- ------- -------
Total operating expenses ............... 3,378 2,114 6,575 4,001
------- ------- ------- -------
Income (loss) from operations ................ 1,322 86 2,487 (57)
Interest and other income, net ............... 65 142 149 305
------- ------- ------- -------
Income before income taxes ................... 1,387 228 2,636 248
Provision for income taxes ................... 374 23 711 25
------- ------- ------- -------
Net income ................................... $ 1,013 $ 205 $ 1,925 $ 223
======= ======= ======= =======
Net income per share ......................... $ 0.12 $ 0.03 $ 0.23 $ 0.03
======= ======= ======= =======
Weighted average common shares and equivalents 8,558 7,842 8,392 7,745
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income .................................................................. $ 1,925 $ 223
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization ............................................... 367 223
Deferred tax assets ......................................................... (88) --
Changes in assets and liabilities:
Accounts receivable ...................................................... (621) (673)
Inventories .............................................................. (1,828) (724)
Other assets ............................................................. (62) 91
Accounts payable ......................................................... (772) (451)
Accrued liabilities ...................................................... 371 223
-------- --------
Net cash used in operating activities .................................. (708) (1,088)
-------- --------
Cash flows used in investing activities for purchases of property
and equipment ................................................................ (1,401) (828)
-------- --------
Cash flows provided by financing activities from issuance of
Common Stock ................................................................ 875 146
-------- --------
Net decrease in cash and cash equivalents ...................................... (1,234) (1,770)
Cash and cash equivalents, beginning of period ................................. 6,247 11,300
-------- --------
Cash and cash equivalents, end of period ....................................... $ 5,013 $ 9,530
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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 the Company considers
necessary for a fair statement 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 quarterly 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 six
months ended June 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>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Raw materials ..................... $1,993 $1,609
Work-in-process ................... 3,679 2,987
Finished goods .................... 4,047 3,295
------ ------
$9,719 $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.
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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. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth under "Certain Factors That
May Affect Future Operating Results" below.
The following discussion should be read in conjunction with the
Company's Financial Statements and Notes thereto.
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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue .............................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue ...................... 51.8% 47.6% 51.4% 47.9%
------ ------ ------ ------
Gross profit ......................... 48.2% 52.4% 48.6% 52.1%
------ ------ ------ ------
Operating expenses:
Research and development .......... 12.2% 17.9% 12.1% 18.6%
Selling, general and administrative 22.4% 32.4% 23.2% 34.3%
------ ------ ------ ------
Total operating expenses ....... 34.6% 50.3% 35.3% 52.9%
------ ------ ------ ------
Income (loss) from operations ........ 13.6% 2.1% 13.3% (.8)%
Interest and other income, net ....... .6% 3.3% .8% 4.0%
------ ------ ------ ------
Income before income taxes ........... 14.2% 5.4% 14.1% 3.2%
Provision for income taxes ........... 3.8% .5% 3.8% .3%
------ ------ ------ ------
Net income ........................... 10.4% 4.9% 10.3% 2.9%
====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased 132% in the second quarter of 1996 compared to the
second quarter of 1995 and 147% in the first six months of 1996 compared to the
first six 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 48.2% and 52.4% in the
second quarter of 1996 and 1995, respectively, and 48.6% and 52.1% in the first
six 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 costs related to the
initial production of and increasing the manufacturing 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.
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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 to 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 decreased in the interim periods of
1996 compared to the interim periods of 1995 primarily due to the decrease in
cash balances.
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. The provision for income taxes for the interim periods of 1995
primarily represented alternative minimum taxes.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 1996, $708,000 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 six
months of 1995, $1,088,000 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 six months of 1996 and 1995, the Company purchased
$1,401,000 and $828,000, respectively, of property and equipment. Capital
expenditures in the first six 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 June 30, 1996, the Company had cash and cash equivalents of
approximately $5,013,000. 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
the net proceeds from the secondary public offering, together with its existing
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
additional 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.
8
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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 manufacturing 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, 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. 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.
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 70%, 79%,
56%, and 83% of the Company's total revenue during the first six 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 three OEM customers represented approximately 26%,
21% and 10% of the Company's total revenue during the first six 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 OEM 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
9
<PAGE> 10
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 to 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, monolithic microwave integrated circuits 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, 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
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research and development resources to enhance its RangeLAN2 architecture and
develop new RangeLAN2-based 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.
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 41%, 24%, 6% and 4% of total revenue
during the first six 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
11
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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 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 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
12
<PAGE> 13
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 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 22 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. 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.
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 fluctuation in the
future, including fluctuations that are unrelated to the Company's performance.
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
None.
B. Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended June 30, 1996.
14
<PAGE> 15
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 August, 1996.
PROXIM, INC.
By: /s/ Keith E. Glover
-----------------------------------
Keith E. Glover,
Vice President of Finance and Administration
and Chief Financial Officer
Dated: August 13, 1996
15
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