<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 MARCH 31, 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 March 31, 1996
-------------- --------------------------------
<S> <C>
Common Stock, par value $.001 per share 7,456,000
</TABLE>
<PAGE> 2
PROXIM, INC.
Index
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Balance Sheet at March 31, 1996 and December 31, 1995 ............. 3
Statement of Operations for the Three Months Ended
March 31, 1996 and 1995 ......................................... 4
Statement of Cash Flows for the Three Months Ended
March 31, 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 ............................ 11
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<PAGE> 3
PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 5,590 $ 6,247
Accounts receivable, net ............................................... 6,350 6,810
Inventories ............................................................ 8,112 7,891
Deferred tax assets .................................................... 1,275 1,231
Other assets ........................................................... 279 128
-------- --------
Total current assets ................................................ 21,606 22,307
Property and equipment, net ............................................... 2,269 1,800
-------- --------
$ 23,875 $ 24,107
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 2,331 $ 3,747
Accrued liabilities .................................................... 2,019 1,910
-------- --------
Total current liabilities ........................................... 4,350 5,657
-------- --------
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares authorized; 7,456 and 7,257
shares issued and outstanding ....................................... 7 7
Additional paid-in capital ................................................ 27,757 27,594
Accumulated deficit .................................................... (8,239) (9,151)
-------- --------
Total stockholders' equity .......................................... 19,525 18,450
-------- --------
$ 23,875 $ 24,107
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
------ -------
<S> <C> <C>
Revenue ...................................... $8,901 $ 3,363
Cost of revenue .............................. 4,539 1,619
------ -------
Gross profit ................................. 4,362 1,744
------ -------
Operating expenses:
Research and development .................. 1,070 652
Selling, general and administrative ....... 2,127 1,235
------ -------
Total operating expenses ............... 3,197 1,887
------ -------
Income (loss) from operations ................ 1,165 (143)
Interest and other income, net ............... 84 163
------ -------
Income before income taxes ................... 1,249 20
Provision for income taxes ................... 337 2
------ -------
Net income ................................... $ 912 $ 18
====== =======
Net income per share ......................... $ 0.11 $ 0.00
====== =======
Weighted average common shares and equivalents 8,268 7,733
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 912 $ 18
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization ................................... 160 94
Deferred tax assets ............................................. (44) --
Changes in assets and liabilities:
Accounts receivable .......................................... 460 342
Inventories .................................................. (221) (465)
Other assets ................................................. (151) 64
Accounts payable ............................................. (1,416) (649)
Accrued liabilities .......................................... 109 199
------- --------
Net cash used in operating activities ...................... (191) (397)
------- --------
Cash flows used in investing activities for purchases of property
and equipment .................................................... (629) (539)
------- --------
Cash flows provided by financing activities from issuance of
Common Stock ....................................................... 163 127
------- --------
Net decrease in cash and cash equivalents .......................... (657) (809)
Cash and cash equivalents, beginning of period ..................... 6,247 11,300
------- --------
Cash and cash equivalents, end of period ........................... $ 5,590 $ 10,491
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
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 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 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. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of results that may be expected
for the entire year ending December 31, 1996.
INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Raw materials ................................... $1,665 $1,609
Work-in-process ................................. 3,070 2,987
Finished goods .................................. 3,377 3,295
------ ------
$8,112 $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.
-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. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and elsewhere in this
report.
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
------------------
MARCH 31,
---------
1996 1995
----- -----
<S> <C> <C>
Revenue .............................. 100.0% 100.0%
Cost of revenue ...................... 51.0% 48.1%
----- -----
Gross profit ......................... 49.0% 51.9%
----- -----
Operating expenses:
Research and development .......... 12.0% 19.4%
Selling, general and administrative 23.9% 36.7%
----- -----
Total operating expenses ....... 35.9% 56.1%
----- -----
Income (loss) from operations ........ 13.1% (4.2)%
Interest income, net ................. .9% 4.8%
----- -----
Income before income taxes ........... 14.0% 0.6%
Provision for income taxes ........... 3.8% 0.1%
----- -----
Net income ........................... 10.2% 0.5%
===== =====
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased 165% in the first quarter of 1995 compared to the
first quarter of 1994. The increase in revenue was primarily attributable to
increased unit sales of 2.4 GHz OEM products, RangeLAN2 branded products and
private label RangeLAN2 products, including increased revenue from shipments to
international independent distributors and to OEM customers that have recently
launched RangeLAN2-based 2.4 GHz product lines in North America, Europe and
Asia.
GROSS PROFIT
Gross profit as a percentage of revenue was 49.0% and 51.9% in the
first quarter of 1996 and 1995, respectively. Gross profit as a percentage of
revenue decreased in the first quarter of 1996 compared to the first quarter of
1995 due to a change in the mix of revenue from 902 MHz products to 2.4 GHz OEM
products and branded RangeLAN2 products, and to a lesser extent, higher costs
related to manufacturing 2.4 GHz products for North America, Europe and Asia.
Gross profit as a percentage of total revenue may fluctuate in future periods
depending on the mix of revenue from 902 MHz products and RangeLAN2 branded and
OEM products, and to a lesser extent, higher costs related to manufacturing 2.4
GHz products for North America, Europe and Asia.
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<PAGE> 8
RESEARCH AND DEVELOPMENT
Research and development expenses as a percentage of revenue were 12.0%
and 19.4% in the first quarter of 1996 and 1995, respectively. Research and
development expenses declined as a percentage of revenue in the first quarter of
1996 compared to the first quarter of 1995 primarily due to increases in
research and development expenses at a rate that was not commensurate with
increases in revenue. Research and development expenses increased in absolute
dollars in the first quarter of 1996 compared to the first quarter 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 networking software and protocols, costs related to performance
enhancements in the RangeLAN2 architecture, and costs related to product
certifications. The Company expects that research and development expenses will
continue to increase in absolute dollars but may vary over time as a percentage
of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses as a percentage of revenue
were 23.9% and 36.7% in the first quarter of 1996 and 1995, respectively.
Selling, general and administrative expenses declined as a percentage of revenue
in the first quarter of 1996 compared to the first quarter of 1995 primarily due
to increases in selling, general and administrative expenses at a rate that was
not commensurate with increases in revenue. Selling, general and administrative
expenses increased in absolute dollars in the first quarter of 1996 compared to
the first quarter of 1995 primarily due to the hiring of additional marketing
and sales personnel to support the Company's growth and expansion into
international markets, and increased trade show and promotional expenses. 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 INCOME, NET
Interest income, net decreased in the first quarter of 1996 compared
to the first quarter 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 first quarters 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 quarter of 1996, $191,000 of cash was used in operating
activities primarily to fund increases in inventories and decreases in accounts
payable, partially offset by net income for the period, cash provided by
decreases in accounts receivable and increases in other current liabilities. In
the first quarter of 1995, $397,000 of cash was used in operating activities
primarily to fund increases in inventories and decreases in accounts payable,
partially offset by cash provided by decreases in accounts receivable and
increases in other current liabilities.
In the first quarter of 1996 and 1995, the Company purchased $629,000
and $539,000, respectively, of property and equipment. Capital expenditures in
the first quarter 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 March 31, 1996, the Company's principal sources of liquidity were
cash and cash equivalents of $5,590,000. The Company believes the existing funds
to be sufficient to fund its working capital and other cash requirements for the
balance of the current fiscal year. There can no assurance that additional
capital beyond the amounts currently forecasted by the Company will not be
required nor that any such required additional capital will be available on
reasonable terms, if at all, at such time or times as required by the Company.
-8-
<PAGE> 9
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.
Limited Operating History; Potential Fluctuations in Future Operating Results.
The Company was in the development stage from its inception in December 1984
until August 1990 and had an accumulated deficit of approximately $8.2 million
at March 31, 1996. Although the Company has achieved profitability in its last
twelve fiscal quarters and has experienced revenue growth in thirteen of its
last fourteen fiscal quarters, the Company experienced a sequential decline in
revenue in the third quarter of 1994 which resulted in a loss from operations,
and there can be no assurance that revenue growth or profitability will continue
on a quarterly or annual basis.
The Company believes that its future operating results over both the
short and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company, including
fluctuating market demand for, and declines in the average selling prices of,
the Company's products, the timing of significant orders from OEM customers,
delays in the introduction of the Company's new products, competitive product
introductions, the mix of products sold, changes in the Company's distribution
channels, the failure to anticipate changing customer product requirements,
changes in the regulatory environment, the cost, availability and quality of
components from the Company's suppliers 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 in that quarter. Accordingly, the Company's sales
expectations are based almost entirely on its internal estimates of future
demand and not on firm customer orders. Planned expense levels are based, in
large part, on these estimates and if orders and sales do not meet expectations,
the Company's operating results will be adversely affected.
Rapid Technological Change; Ongoing New Product Development Requirements. The
wireless communications industry is characterized by very rapid technological
change and intense competition. 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. Given the
emerging nature of the wireless LAN market, there can be no assurance that the
Company's 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.
In addition, the Company has incurred and expects to continue to incur
significant research and development expenses. 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.
Sole or Limited Sources of Supply. Certain parts and components used in the
Company's products, including the Company's proprietary ASICs and assembled
circuit boards, are only available from single sources, and other parts are
available from only a limited number of sources. The Company's reliance on these
sole source or limited source suppliers involves certain risks, including the
possibility of a shortage or discontinuation of certain key components and
reduced control over delivery schedules, manufacturing capability, quality and
costs. 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 may be unable to manufacture certain products in a
quantity sufficient to meet its customers' demand. Business disruptions 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 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.
-9-
<PAGE> 10
International Sales. Revenue from sales to customers outside the United States,
principally to a limited number of distributors and OEM customers, represented
4%, 6% and 24% of total revenue in 1993, 1994 and 1995, respectively, and 33% of
total revenue in the first quarter of 1996. The Company expects that revenue
from sales to international customers will continue to represent a substantial
portion of total revenue for the foreseeable future. Revenue from sales to
international customers is 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 political and economic instability. While international sales are
typically denominated in U.S. dollars and the Company typically 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 typically 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.
Management of Growth. Depending on the extent of its future growth, the Company
may experience a significant strain on its management, operational and financial
resources. The Company's ability to manage its growth effectively will require
it to improve its operational and financial systems. These demands would 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.
Dependence on Key Employees. The Company is highly dependent on the technical
and management skills of its key employees, including 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 key man life insurance on the life of, either person. The loss of the
services of any key employees 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 additional skilled personnel as required.
-10-
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
Exhibit # Description of Document
--------- -----------------------
3.1(1) Amended Articles of Incorporation.
3.2(1) Certificate of Incorporation of Registrant.
3.3(1) Restated Certificate of Incorporation.
3.4(1) Bylaws of Registrant.
4.1(1) Form of Common Stock Certificate.
4.3(1) Series A Preferred Stock Purchase Agreement dated May 2, 1991.
4.4(1) Registration and Information Rights and Modification Agreement
dated May 2, 1991 as amended.
10.1(1) Form of Registrant's Indemnification Agreement for Officers
and Directors, Delaware.
10.2(1)(4) 1993 Employee Stock Purchase Plan and form of Subscription
Agreement, as amended.
10.3(1) 1986 Incentive Stock Option Plan and form of Stock Option
Agreement.
10.4(1) Services Agreement dated June 17, 1992 between the Company and
Sears Technology Services, Inc.
10.5(1) Lease Agreement dated February 18, 1993 between Proxim, Inc.
and Vanni Business Park Partnership.
10.6(1) Security and Loan Agreement dated August 17, 1993 between
Proxim, Inc. and Imperial Bank.
10.7(2) Amendment to lease Agreement dated August 28, 1994 between
Proxim, Inc. and Vanni Business Park Partnership.
10.8(3) 1994 Director Option Plan and form of Subscription Agreement.
10.9(4) 1995 Long-Term Incentive Plan and form of Subscription
Agreement.
B. Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended March 31,
1996.
- - ----------
(1) Incorporated by reference to the Registrant's Registration Statement
No. 33-70712 filed with the Securities and Exchange Commission on
December 15, 1993.
(2) Incorporated by reference to the Registrant's Form 10-Q for the period
ended September 30, 1994 filed with the Securities and Exchange
Commission on November 14, 1994.
(3) Incorporated by reference to the Registrant's Form S-8 filed with the
Securities and Exchange Commission on April 13, 1994.
(4) Incorporated by reference to the Registrant's Registration Statement
No. 33-94910 filed with the Securities and Exchange Commission on July
19, 1995.
-11-
<PAGE> 12
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 May, 1996.
PROXIM, INC.
By: /s/ Keith E. Glover
---------------------------------------------
Keith E. Glover,
Vice President of Finance and Administration
and Chief Financial Officer
Dated: May 13, 1996
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,590
<SECURITIES> 0
<RECEIVABLES> 6,470
<ALLOWANCES> 120
<INVENTORY> 8,112
<CURRENT-ASSETS> 21,606
<PP&E> 4,696
<DEPRECIATION> 2,427
<TOTAL-ASSETS> 23,875
<CURRENT-LIABILITIES> 4,350
<BONDS> 0
0
0
<COMMON> 27,764
<OTHER-SE> (8,239)
<TOTAL-LIABILITY-AND-EQUITY> 23,875
<SALES> 8,901
<TOTAL-REVENUES> 8,901
<CGS> 4,539
<TOTAL-COSTS> 4,539
<OTHER-EXPENSES> 3,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (84)
<INCOME-PRETAX> 1,249
<INCOME-TAX> 337
<INCOME-CONTINUING> 912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 912
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
