<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Title of Class
Common Stock, par value $.001 per share
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 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Based on the closing sale price of the Common Stock on the NASDAQ National
Market System on March 4, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $120,204,000. Shares of Common
Stock held by each officer and director and by each person who owns 5% of more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, was 9,908,948 at March 4, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K
Annual Report.
-1-
<PAGE> 2
PART 1
ITEM 1. BUSINESS
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.
Proxim designs, manufactures and markets high performance wireless
local area networking ("LAN") products based on spread spectrum radio frequency
("RF") technology. Proxim's highly integrated wireless client adapters and
network infrastructure systems seamlessly extend existing enterprise LANs to
enable mobility-driven applications in a wide variety of in-building or campus
area environments. Proxim's RangeLAN2(TM) 2.4 GHz wireless LAN technology has
been adopted by a number of major mobile computer system and handheld data
terminal manufacturers, as well as many leading wireless solution providers, for
real-time data collection applications in manufacturing, warehousing,
transportation and retailing and for point-of-service network applications in
healthcare, hospitality and financial services. Proxim was incorporated in
California in 1984, and reincorporated in Delaware in 1993.
BACKGROUND
In recent years, organizations have shifted from centralized computing
environments to distributed client/server networks in order to move information
processing power closer to end users. Traditionally, these networks have been
accessed from desktop computers situated in fixed locations throughout an
enterprise and, accordingly, have not addressed the needs of organizations which
require their employees to be mobile within the workplace. In response,
organizations have begun to utilize wireless technologies to extend their
client/server networks to mobile end users.
Significant technological advances and changes in the regulatory
environment have facilitated the development and proliferation of wireless
networking solutions which extend the reach of existing wired networks. In voice
communications, wireless technology has made possible the extension of wired
networks to serve mobile users through devices such as cordless and cellular
telephones. Similarly, advances in wireless data communications, including
wireless LAN adapters and radio modems, have enabled the extension of enterprise
networks to notebook computers, pen-based notepads and handheld data collection
terminals in the local area environment. By providing network connectivity for
mobile users, these products increase the accuracy, timeliness and convenience
of data collection and information access, thereby improving productivity and
enhancing customer service.
Commercial applications of wireless local area networking technology
initially addressed a limited number of vertical markets such as retailing,
warehousing and distribution. In these industries, businesses quickly recognized
the advantages of mobile handheld data collection devices and the productivity
benefits associated with applications such as on-line inventory management and
real-time asset tracking. Early wireless networking products failed to achieve
widespread adoption, however, because these systems typically involved
-2-
<PAGE> 3
proprietary wireless network architectures operating at low data rates with
limited connectivity to existing enterprise LANs. Furthermore, because these
systems operated in licensed narrowband frequencies or in the 900 MHz frequency
band, they were generally authorized for use only in the U.S. and in a limited
number of international markets.
During the past several years, advances in wireless data communications
technology have enabled the development of a new generation of wireless LAN
systems designed to operate in the 2.4 GHz frequency band. This new generation
of 2.4 GHz products operates at significantly higher data rates and utilizes
standard network interfaces and protocols to seamlessly extend existing
enterprise data networks. The recent development of these high performance, open
systems products has enabled the emergence of a number of new high bandwidth
applications in established industrial data collection markets and has fostered
the creation of many applications in new vertical markets such as healthcare,
hospitality and financial services. In healthcare, for example, wireless LANs
now allow medical professionals to access clinical data and input patient
charting information at the point-of-care anywhere in a hospital environment.
These same wireless networks can also be used to facilitate admissions, billing,
materials management and other administrative applications. Data-intensive
applications in markets such as healthcare require robust and scalable wireless
networks capable of supporting an increasing number of applications and users
over time.
Concurrent with the emergence of new applications and new vertical
markets, two primary factors have led to an expansion in the worldwide market
potential for wireless LANs. First, from a regulatory perspective, the 2.4 GHz
frequency band has recently been allocated for unlicensed wireless networks in
virtually every developed country around the world. Second, the universal
availability of this unlicensed spectrum has encouraged wireless LAN suppliers
to design standard products and solutions which can be marketed and sold
globally.
The Company believes that the convergence of worldwide spectrum
availability, emerging standards and new high performance products will lead to
more widespread deployment of wireless LAN products in both traditional
industrial data collection applications as well as emerging point-of-service
network applications.
THE PROXIM SOLUTION
In 1994, Proxim pioneered 2.4 GHz frequency hopping wireless LAN
technology by being first to market with its RangeLAN2 product family. Since
then the Company has captured a substantial number of key design wins with major
2.4 GHz OEM customers. The Company attributes this success to the architectural
advantages of its RangeLAN2 product line as well as key aspects of the Company's
overall technology approach, including the following:
- Seamless Extension of Existing Enterprise Data Networks. Proxim designs
high performance open systems wireless communications products that
transparently extend the reach of existing enterprise LANs using standard
network interfaces and protocols.
- Robust, Scalable Wireless Network Architecture. RangeLAN2's unique
frequency hopping systems architecture and wireless LAN protocols create a
robust RF network environment that cost-effectively expands to accommodate
an increasing number of mobile users and applications.
- Superior Product Performance and Functionality. The RangeLAN2 family
incorporates a number of industry-leading technology innovations to achieve
superior product performance and functionality, including a
fully-integrated, single chip gallium arsenide ("GaAs") RF transceiver for
enhanced radio sensitivity and power amplification, a high throughput
frequency hopping modulation approach with a
-3-
<PAGE> 4
fallback mode for extended range and coverage, and sophisticated wireless
networking protocols for state-of-the-art roaming and power management
capabilities.
- Broad Array of Interoperable Products and Applications. Based on the highly
integrated design of Proxim's RangeLAN2 credit card-sized OEM adapter
products, numerous mobile systems and handheld device manufacturers have
designed RangeLAN2 technology into their products. The availability of
RangeLAN2-based mobile computer and peripheral systems allows end users to
select from numerous interoperable products in meeting their application
requirements.
PRODUCTS
Since 1989, Proxim has focused on supplying spread spectrum RF
transceiver modules and wireless LAN adapters to OEM customers for integration
into mobile computing platforms, handheld data terminals and portable peripheral
devices. Proxim designs its products to be small, lightweight, cost-effective
and power efficient in order to meet the needs of its OEM customers and the
vertical markets they serve. Proxim currently offers three wireless networking
product lines: RangeLAN2(TM), RangeLINK(TM) and 900 MHz products. The RangeLAN2
and RangeLINK product families are based on the Company's latest 2.4 GHz
frequency hopping technology, while the 900 MHz products utilize the Company's
first generation direct sequence technology.
Since the introduction of the RangeLAN2 product family in 1994,
Proxim's 2.4 GHz product sales have increased to over 78% of total revenue in
1996. Although 900 MHz product sales are still increasing in absolute terms, the
Company anticipates that its RangeLAN2 product family will continue to increase
as a percentage of total revenue based on the worldwide availability of
unlicensed 2.4 GHz spectrum as well as the higher throughput and capacity
achievable with 2.4 GHz wireless networks.
RangeLAN2. Introduced in 1994, RangeLAN2 was the industry's first
FCC-certified 2.4 GHz frequency hopping wireless LAN product family. The
RangeLAN2 family consists of two product lines: OEM design-in modules and
packaged "off the shelf" products. The design-in modules are integrated by OEM
customers into handheld computing and data collection devices. Packaged products
are used with standard notebook and desktop computers to extend existing
enterprise networks and to create ad hoc wireless networks. All RangeLAN2
products are designed to share the same software and are functionally
interoperable.
RangeLAN2 packaged products include one-piece PC Card, two-piece PCMCIA
and desktop ISA wireless LAN adapters for client computer systems as well as
network Access Points for transparent bridging to existing 802.3 Ethernet LANs.
In addition, RangeLAN2 packaged products are available as private label models,
enabling OEM customers to offer a complete line of 2.4 GHz wireless LAN products
under their brand name. Private label versions of these products are currently
marketed by AMP, DEC, Intermec, Kansai Electric and LXE, among others.
RangeLAN2 OEM modules are credit card-sized, design-in wireless LAN
adapters. These modules are highly integrated, miniaturized products which
reduce the design-in cycle time and expedite the time to market for OEMs by
offering industry standard interfaces and, if required, the ability to port to
non-standard interfaces and computing platforms with software tools and licensed
source code. RangeLAN2 OEM modules have been designed into more than 30 OEM
handheld computing and data collection devices by companies such as Alps
Electric (formerly Kalidor), Bass, Citadel, Cruise Technologies (formerly Zenith
Data Systems), Fujitsu, Intermec, LXE and Norand.
RangeLINK. RangeLINK is a family of building-to-building wireless
remote bridges designed to connect local area networks at distances of up to
three miles. RangeLINK utilizes Proxim's 2.4 GHz frequency hopping technology,
specialized software and directional antennas. These products provide a
cost-effective
-4-
<PAGE> 5
alternative to leased 56 Kbps and T1 data communications lines and other more
expensive wireless products. Proxim offers two different RangeLINK models: one
operates point-to-point with maximum throughput exceeding 1 Mbps, and the other
serves as a multipoint "hub and spoke" campus area interconnection bridging
system with throughput in the 500-600 Kbps range.
900 MHz Products. The Company offers four types of products based on
the Company's 900 MHz direct sequence spread spectrum technology: RF
transceivers; dual board radio-modems that combine a RF transceiver, controller
and RS-232 interface in a single unit; ProxLink, a packaged version of the dual
board radio-modem units; and RangeLAN, a family of wireless LAN adapters. The RF
transceiver products and dual board radio-modems are OEM design-in products.
ProxLink products, originally introduced in 1991, are self-contained ruggedized
networking devices which enable both point-to-point and multipoint wireless data
communications. The RangeLAN product family, originally introduced in 1992,
includes Proxim's first generation of open systems wireless LAN adapters.
CUSTOMERS
The majority of Proxim's revenue has been derived from sales to OEM
customers that offer wireless LAN products as part of a complete solution that
typically includes specialized mobile computers developed by the OEM, network
infrastructure systems, peripheral devices, software and services. The
Company's OEM partners traditionally target industrial applications in one or
more specific markets such as manufacturing, warehousing, transportation and
retailing. Additionally, Proxim markets its branded products to value added
resellers and systems integrators in emerging wireless markets that include
healthcare, hospitality and financial services, where access to real-time
information is critical. Proxim's 2.4 GHz OEM customers include, among others,
AMP, Bass, Data General, Digital, Fujitsu, Intermec, LXE, Norand, NTT-IT,
SpaceLabs Medical, and WiSE Medical.
In 1996, Intermec, NTT-IT and LXE represented 22%, 22% and 12%,
respectively, of the Company's total revenue; in 1995, Intermec and NTT-IT
represented 27% and 14%, respectively, of the Company's total revenue; and in
1994 Intermec and Zenith Data Systems represented 17% and 15%, respectively,
of the Company's total revenue. Sales to OEM customers were $24,602,000,
$17,465,000 and $6,286,000, in 1996, 1995 and 1994, respectively, representing
60%, 79% and 56% of total revenue during such periods.
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. See "Certain Factors That May Affect Future
Operating Results -- Dependence on a Limited Number of OEM Customers."
SALES AND MARKETING
The Company sells its products directly to OEM customers, and
indirectly to value added resellers, systems integrators and end users through
regional, national and international distributors. Proxim offers OEM customers
both design-in products for integration into their wireless computing platforms,
and branded products as private label models.
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
-5-
<PAGE> 6
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.
The Company generally does not operate with a significant order
backlog. 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. The Company's sales to any single
OEM customer are also subject to significant variability from quarter to
quarter. Such fluctuations could have a material adverse effect on the Company's
operating results. 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.
Proxim's branded products are sold to value added resellers, systems
integrators and end users in the U.S. through regional distributors, and through
TechData Corporation and Anixter Corporation, two nationwide distribution and
sales organizations.
<PAGE> 7
Distributors generally 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
could have a material adverse effect on 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. In addition,
distributors generally have stock rotation rights and price protection on unsold
merchandise, which may adversely impact the Company's profit margins.
Proxim is expanding the international distribution channels for its
products. The Company is authorized to ship its RangeLAN2 products into more
than 40 countries. In addition to the Company's relationships with numerous OEM
customers who market the RangeLAN2 technology internationally, the Company has
over 30 international authorized distributors in over 40 sales territories.
Revenue from shipments by the Company to customers outside the United States,
principally to a limited number of distributors and OEM customers, represented
31%, 24% and 6% of total revenue during 1996, 1995 and 1994, 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
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.
MANUFACTURING
The Company's manufacturing operations consist primarily of final
assembly and testing, quality assurance, packaging and shipping at the Company's
manufacturing facility in Mountain View, California. The Company purchases all
of the circuit boards, integrated circuits and other components used in its
products from third party suppliers. The Company inspects these components for
quality, groups the components into kits by production order, and ships the kits
to its subcontractors for interim assembly and test.
The Company designs its products to provide a high degree of
reliability. The Company's products have achieved a field failure rate of its
installed base of less than 1% per annum to date. The Company believes that this
reliability is the result of its careful quality assurance procedures. Proxim
has developed a supplier selection procedure and approved vendor list to
maintain quality. In addition, the Company monitors its suppliers' performance
to ensure consistent quality, reliability and yields. While the Company's
quality assurance program is not currently certified under ISO 9000, it is
modeled after the ISO 9000 quality standards, including process documentation,
test procedures, quality assurance procedures, process control, equipment
maintenance, quality record keeping and training of personnel. In addition, the
Company generally uses ISO 9000 certified
-6-
<PAGE> 8
manufacturing assembly subcontractors and intends to pursue ISO 9000
certification for its internal manufacturing processes in the future.
The Company currently has limited manufacturing capability and has no
experience in large scale manufacturing. If the Company's customers were to
place or concurrently place orders for unexpectedly large quantities of the
Company's products, the Company's present manufacturing capacity might 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 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 were to become incapable of operating, even temporarily, or were
unable to operate at or near its current or full capacity for an extended
period, the Company's business and operating results could be materially
adversely affected. Further, in order to remain competitive the Company expects
to continue to introduce new processes into its manufacturing environment.
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.
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,
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.
RESEARCH AND DEVELOPMENT
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
-7-
<PAGE> 9
cost-effectiveness. The Company's research and development efforts are focused
on investigating new technologies, developing new products and implementing
enhancements to existing products. The Company's research and development
efforts since 1994 have been primarily concentrated on enhancing features and
performance of the Company's RangeLAN2-based products. These efforts include the
development of new ASICs/MMICs, software drivers, enhanced wireless adapter and
access point products; and additional networking software features. The Company
expects that it will continue to devote substantial research and development
resources to enhance its RangeLAN2 architecture in the foreseeable 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.
As of December 31, 1996, the Company's research and development
department consisted of 36 full-time employees. Research and development
expenses were $4,949,000, $3,288,000, and $1,783,000 during 1996, 1995 and 1994,
respectively.
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 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. Moreover, the Company could also face competition from certain of its
OEM customers which have, or could acquire, wireless engineering and product
development capabilities. 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.
-8-
<PAGE> 10
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.
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.
-9-
<PAGE> 11
Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact the Company's operations by
restricting the Company's development efforts, rendering current products
obsolete or increasing the opportunity for additional competition. In September
1993 and in February 1995, the FCC allocated additional spectrum for personal
communications services. In January 1997, the FCC authorized 300 MHz of
additional unlicensed frequencies in the 5 GHz frequency range. These changes in
the allocation of available frequency spectrum could create opportunities for
other wireless networking products and services. There can be no assurance that
new regulations will not be promulgated which could have a material adverse
effect on the Company's business and results of operations.
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 were issued in 1991,
1993 and 1995 and are important to the current business of the Company, and has
six 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 tends 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. However, 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.
EMPLOYEES
As of December 31, 1996, the Company employed 151 full-time employees
and 14 temporary employees. Of these individuals, 36 are in engineering and
product development, 39 are in marketing, sales and
-10-
<PAGE> 12
customer support, 79 are in manufacturing and quality assurance, and 11 are in
finance and administration. The Company believes that its future success will
depend in large measure on its ability to retain certain key technical and
management personnel and to attract and retain additional highly skilled
employees. Competition for qualified personnel in the wireless data
communications and networking industries is intense, and there can be no
assurance that the Company will be successful in retaining its key employees or
that it will be able to attract, assimilate or retain the additional skilled
personnel that will be required to support the Company's anticipated growth.
None of the Company's employees are represented by a labor union. The Company
believes that its relations with employees are good.
-11-
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
Company's executive officers as of December 31, 1996:
NAME AGE POSITION
David C. King ..... 37 Chairman of the Board of Directors,
President and Chief Executive Officer
Brian T. Button ... 38 Vice President of Sales and Marketing
Thomas J. Carey ... 48 Vice President of Operations
Keith E. Glover ... 40 Vice President of Finance and
Administration and Chief Financial
Officer
Juan Grau ......... 39 Vice President of Engineering
DAVID C. KING joined Proxim in December 1992 as Vice President of
Marketing and acting Chief Financial Officer, in July 1993 was appointed
President, Chief Executive Officer and Director, and in January 1996 was named
Chairman of the Board of Directors. From December 1990 to November 1992, Mr.
King served in various executive capacities at Vitalink Communications
Corporation ("Vitalink"), a LAN internetworking subsidiary of Network Systems
Corporation, most recently as Vice President of Marketing and Customer Services.
From 1985 to 1990, Mr. King was Senior Manager in the San Francisco office of
McKinsey & Company, Inc., an international management consulting firm, where he
was a member of the firm's high technology and health care practices.
BRIAN T. BUTTON joined Proxim as Vice President of Marketing in June
1994. In September 1996 Mr. Button was appointed Vice President of Sales and
Marketing. From March 1989 to June 1994, Mr. Button worked for Stratacom
Corporation, where he held several management positions, most recently as
Director, Product Marketing. From May 1982 to February 1989, Mr. Button worked
for Hewlett-Packard Company, where he held several marketing management
positions.
THOMAS J. CAREY joined Proxim as Director of OEM Services in May 1995.
In August 1996 Mr. Carey was appointed Vice President of Operations. From
1977 to May 1995, Mr. Carey worked at Hewlett-Packard Company, where he served
in several engineering and project management positions.
KEITH E. GLOVER has served as the Vice President of Finance and
Administration and Chief Financial Officer since he joined Proxim in September
1993. From March 1986 to June 1993, Mr. Glover worked for Vitalink, where he
held several financial management positions, most recently as Vice President of
Finance.
JUAN GRAU joined Proxim in August 1988 as RF Communications Manager.
Mr. Grau was promoted to Director of Product Engineering in November 1989 and,
in June 1991, was appointed Vice President of Engineering. From 1980 to 1988,
Mr. Grau worked at Hewlett-Packard Company, where he served in several
engineering and project management positions.
-12-
<PAGE> 14
ITEM 2. PROPERTIES
FACILITIES
The Company maintains its corporate headquarters in a 40,000 square
foot building located in Mountain View, California pursuant to a lease that
expires in June 2000. The Company sublets a 6,000 square foot warehouse located
in Mountain View, California pursuant to a month-to-month agreement. The Company
also leases sales offices in Atlanta, Georgia, Nashua, New Hampshire and Paris,
France. The Company believes that its facilities are adequate to meet its
current needs and that additional or alternative space will be available as
necessary in the future on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-13-
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market for Common Stock.
Prior to December 15, 1993, the date of the Company's initial public
offering, there was no public market for the Company's Common Stock. Since
December 15, 1993, the Company's Common Stock has been available for quotation
through the NASDAQ National Market System under the symbol "PROX." The following
table sets forth, for the period indicated, the high and low sale prices per
share of the Company's Common Stock as reported by NASDAQ:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995: First quarter $6.375 $3.825
Second quarter $9.625 $5.00
Third quarter $14.75 $7.75
Fourth quarter $17.825 $11.00
1996: First quarter $26.125 $15.125
Second quarter $51.25 $25.00
Third quarter $42.00 $23.75
Fourth quarter $28.75 $16.875
</TABLE>
Holders of Record.
As of March 4, 1997, there were 158 stockholders of record of the
Company's Common Stock.
Dividends.
The Company has not declared or paid cash dividends.
-14-
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue .............................. $41,220 $22,083 $11,297 $8,078 $ 4,114
Gross profit ......................... 19,837 11,240 6,076 4,171 1,696
Research and development ............. 4,949 3,288 1,783 1,474 1,199
Selling, general and administrative .. 9,408 6,694 3,982 2,821 2,383
Income (loss) from operations ........ 5,480 1,258 311 (124) (1,886)
Net income(loss) ..................... $ 6,654 $ 2,846 $ 745 $ (99) $(1,902)
Net income (loss) per share(1)........ $ .71 $ .35 $ .10 $ (.02) $ --
Pro forma net loss per share(1)....... -- -- -- -- (.36)
Weighted average common shares
and equivalents(1) .................. 9,386 8,172 7,738 5,665 --
Pro forma weighted average common
shares and equivalents(1)............ -- -- -- -- 5,326
BALANCE SHEET DATA:
Cash and cash equivalents ............ $54,232 $ 6,247 $11,300 $13,303 $1,216
Working capital ...................... 70,559 16,650 14,488 13,980 1,397
Total assets ......................... 81,381 24,107 17,435 15,753 2,816
Mandatorily Redeemable Convertible
Preferred Stock ..................... -- -- -- -- 5,376
Stockholders' equity (deficit) ....... 75,641 18,450 15,226 14,299 (3,612)
</TABLE>
- ----------
(1)Net loss per share for 1992 is a pro forma calculation based on the weighted
average number of outstanding shares of Common Stock plus common stock
equivalents. Common stock equivalents include stock options and warrants
granted between October 1, 1992 and December 15, 1993 (using the treasury
stock method and the initial public offering price) and Mandatorily
Redeemable Convertible Preferred Stock assuming conversion into Common Stock
on their respective original dates of issuance, even though anti-dilutive for
all periods through the effectiveness of the Company's initial public
offering.
-15-
<PAGE> 17
ITEM 7. 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.
OVERVIEW
Since 1989, Proxim has focused on supplying spread spectrum RF
transceiver modules and wireless LAN adapters to OEM customers for integration
into mobile computing platforms, pen-based portables and handheld data
collection terminals. In 1990, the Company introduced its first commercial
product for OEM customers, a 900 MHz direct sequence spread spectrum RF
transceiver. The Company introduced ProxLink, its first branded wireless data
communications product for the commercial end user market in 1991, and RangeLAN,
a family of 900 MHz direct sequence wireless LAN adapters in 1992. In 1994, the
Company began commercial shipment of RangeLAN2, the industry's first family of
2.4 GHz frequency hopping spread spectrum wireless LAN products. In 1995, the
Company introduced RangeLINK, a line of 2.4 GHz inter-building wireless remote
bridges.
Since the introduction of the RangeLAN2 product family in 1994,
Proxim's 2.4 GHz product sales have increased to over 78% of total revenue in
1996. The Company anticipates that its 2.4 GHz product family will continue to
increase as a percentage of total revenue as a result of the worldwide
availability of unlicensed 2.4 GHz spectrum as well as the higher throughput and
capacity achievable with 2.4 GHz wireless networks. To date, the Company has
realized lower gross margins from sales of its 2.4 GHz products compared to its
900 MHz products due primarily to the higher component costs and higher
manufacturing costs associated with early production of various 2.4 GHz
products. While the Company expects manufacturing costs to decline over time as
a result of greater efficiencies associated with higher volume production, there
can be no assurance that the Company will be able to achieve higher gross
margins with respect to 2.4 GHz product sales. Gross margins will be affected by
a variety of factors, including manufacturing efficiencies, competitive pricing
pressures, the degree of customization of individual products required by OEM
customers and component and assembly costs. In addition, gross profit as a
percentage of total revenue may fluctuate in the future depending primarily on
the mix of revenue between 900 MHz products and 2.4 GHz products.
Historically, the Company has marketed its products predominantly in
the United States and, until 1995, revenue from international sales was not
significant. During 1994 and 1995, the Company obtained regulatory
certifications for its 2.4 GHz RangeLAN2 products in 24 countries and approval
to ship to 20 additional countries. These certifications and approvals have
significantly increased the available markets for these products. Revenue from
sales directly to international customers were 31%, 24% and 6% in 1996, 1995 and
1994, respectively. See "Business -- Sales and Marketing."
-16-
<PAGE> 18
A substantial portion of the Company's revenue to date has been derived
from a limited number of customers, most of which are OEM customers. Sales to
OEM customers represented approximately 60%, 79% and 56% of total revenue in
1996, 1995 and 1994, respectively. The Company expects that sales to a limited
number of OEM customers will continue to account for a substantial portion of
its revenue 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. The development of products for OEM customer applications
is characterized by a lengthy sales process and design-in cycle which typically
lasts from six months to two years and requires the Company to integrate its
technologies into, and in certain cases adapt its products to fit, OEM
customers' products. In addition, the Company's OEM customers' products are
generally required to be certified by the FCC or the equivalent regulatory
agency in each country where such products are sold. The Company has committed
substantial engineering, marketing and sales resources to develop key OEM
relationships and has broadened its OEM customer base. Due to the Company's
current dependency on its OEM customers for a significant percentage of its
total revenue and the nature of its OEM business, the Company's annual and
quarterly operating results are subject to fluctuations as a result of the level
and timing of OEM customer orders. The Company works closely with its OEM
customers to manage the order cycle process in an attempt to reduce the
fluctuations inherent in its OEM business.
The Company's RangeLAN2, RangeLINK, RangeLAN and ProxLink branded
products are marketed to value added resellers, systems integrators and end
users primarily through regional and national distributors. The Company grants
certain distributors limited rights of return and price protection on unsold
products. Product revenue on shipments to distributors which have rights of
return and price protection is recognized upon shipment by the distributor. Many
of the Company's packaged products are also sold to certain OEM customers.
Packaged products sold through distribution channels under Proxim's brand name
and to OEM customers under private label agreements, represented 61%, 49% and
52% of total revenue in 1996, 1995 and 1994, respectively.
RESULTS OF OPERATIONS
Three Years Ended December 31, 1996, 1995 and 1994
Revenue increased 87% from 1995 to 1996 and 95% from 1994 to 1995.
Revenue increased in 1996 and 1995 primarily due 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
distributors and to OEM customers that have recently introduced RangeLAN2-based
2.4 GHz product lines in North America, Europe and Asia.
Gross profit as a percentage of revenue was 48%, 51% and 54% in 1996,
1995 and 1994, respectively. Gross profit as a percentage of revenue decreased
in 1996 and 1995 due to a change in the mix of revenue from higher gross margin
900 MHz products to lower gross margin 2.4 GHz OEM 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.
Research and development expenses consist primarily of personnel
expenses and, to a lesser extent, consulting fees, prototype material and other
costs of ASIC/MMIC development. Research and development expenses are related
primarily to the development and enhancement of radio transceivers, ASICs/MMICs,
wireless protocols and network software drivers. Research and development
expenses increased each year primarily due to the increased number of
engineering employees, continued investment in integrating the Company's
technology into ASICs, development of wireless protocols and network software
drivers, costs related to performance enhancements in the RangeLAN2
architecture, and costs related to both domestic and international product
certifications. Research and development expenses as a percentage of revenue
were 12%,
-17-
<PAGE> 19
15% and 16% in 1996, 1995 and 1994, respectively. Research and development
expenses declined as a percentage of revenue 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 expenses consist primarily of
personnel expenses, sales commissions, costs related to both domestic and
international product certifications, customer support, trade show and
advertising expenses, and to a lesser extent, professional fees and facilities
costs. Selling, general and administrative expenses increased each year
primarily due to the hiring of additional marketing and sales personnel to
support the Company's growth, particularly its expansion into international
markets, as well as increased trade show and promotional expenses. Selling,
general and administrative expenses as a percentage of revenue were 23%, 30% and
35% in 1996, 1995 and 1994, respectively. Selling, general and administrative
expenses declined as a percentage of revenue 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 is primarily interest income and
non-operating gains. Interest and other income increased significantly from 1995
to 1996 primarily due to proceeds from the follow-on public offering in July
1996 and a one-time non-operating gain of $1,500,000 related to the November
1996 termination of a proposed merger with DSP Communications, Inc.
The Company recognized a provision for income taxes of $1,664,000 in
1996, a benefit of $1,051,000 in 1995, and a provision of $83,000 in 1994. The
provision of $83,000 in 1994 primarily represented alternative minimum taxes.
The benefit recognized in 1995 was due to a current provision of $180,000,
primarily representing alternative minimum taxes, offset by the recognition of
$1,231,000 of deferred tax assets based on the Company's assessment that this
portion of the deferred tax assets will be realized. The provision of $1,664,000
in 1996 was due to a current provision of $2,629,000, offset by the recognition
of $965,000 of deferred tax assets. As of December 31, 1996, the Company had
gross deferred tax assets of $2,762,000 and a related valuation allowance of
$566,000. The Company has established a valuation allowance covering deferred
tax assets related to net operating loss carryforwards which cannot be utilized
prior to January 1, 2002 due to limitations on their usage.
Inflation
To date, inflation has not had a significant impact on the Company's
operating results.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through
private placements of its equity securities, and its public offerings in
December 1993 and July 1996. As of December 31, 1996, the Company had an
accumulated deficit of $2,497,000.
In 1996, cash provided by operations was $633,000. In 1995 and 1994,
cash used in operations was $3,853,000 and $1,070,000, respectively. In 1996,
cash was provided primarily by net income and by increases in other accrued
liabilities, partially offset by cash used to fund increases in inventories and
accounts receivable and decreases in accounts payable. In 1995 and 1994, cash
was used primarily to fund increases in inventories and accounts receivable,
partially offset by cash provided by net income and by increases in accounts
payable and
-18-
<PAGE> 20
accrued liabilities. The increases in inventories and accounts receivable in
1996, 1995 and 1994 were primarily attributable to the addition of new products
and the growth in revenue. The Company believes that to the extent it
experiences growth in its operations, if any, then additional cash will be
required to fund increases in accounts receivable and inventories.
In 1996, 1995 and 1994, the Company purchased $3,185,000, $1,578,000
and $681,000, respectively, of property and equipment using cash raised in
equity financings. Expenditures related primarily to the acquisition of
manufacturing and engineering test equipment and leasehold improvements. The
Company expects to purchase approximately $5,000,000 of property and equipment
during 1997, consisting primarily of leasehold improvements, telecommunications
equipment, manufacturing and engineering test equipment, engineering systems
software and equipment, and general office equipment.
At December 31, 1996, the Company's principal source of liquidity
was cash and cash equivalents of $54,232,000. The Company believes that 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 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-K, 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. 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
-19-
<PAGE> 21
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 60%, 79%,
and 56% of the Company's sales during 1996, 1995 and 1994, respectively, were to
OEM customers. Sales to three OEM customers represented approximately 22%, 22%
and 12%, of the Company's total revenue during 1996. Sales to two OEM customers
represented approximately 27% and 14%, of the Company's total revenue during
1995. The Company expects that sales to a limited number of OEM customers will
continue to account for a substantial portion of its revenue 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, 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
-20-
<PAGE> 22
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 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
-21-
<PAGE> 23
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 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. Moreover, the Company could also face competition from certain of its
OEM customers which have, or could acquire, wireless engineering and product
development capabilities. 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 31%, 24% and 6% of total revenue
during 1996, 1995 and 1994, 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,
-22-
<PAGE> 24
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 six 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
-23-
<PAGE> 25
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.
Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact the Company's operations by
restricting the Company's development efforts, rendering current products
obsolete or increasing the opportunity for additional competition. In September
1993 and in February 1995, the FCC allocated additional spectrum for personal
communications services. In January 1997, the FCC authorized 300 MHz of
additional unlicensed frequencies in the 5 GHz frequency range. These changes in
the allocation of available frequency spectrum could create opportunities for
other wireless networking products and services. There can be no assurance that
new regulations will not be promulgated which could have a material adverse
effect on the Company's business and results of operations
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
-24-
<PAGE> 26
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 fluctuations in the
future, including fluctuations that are unrelated to the Company's performance.
-25-
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page
Report of Independent Accountants 27
Balance Sheet at December 31, 1996 and 1995 28
Statement of Operations for the Years Ended December 31, 1996,
1995 and 1994 29
Statement of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 30
Statement of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 31
Notes to Financial Statements 32
Financial Statement Schedules
All financial statement schedules have been omitted because the
information is not required to be set forth herein, is not applicable or is
included in the financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-26-
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Proxim, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Proxim, Inc. at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 17, 1997
-27-
<PAGE> 29
<TABLE>
<CAPTION>
PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS DECEMBER 31,
------------
1996 1995
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................... $54,232 $ 6,247
Accounts receivable, net ...................... 10,271 6,810
Inventories ................................... 10,479 7,891
Deferred tax assets ........................... 1,116 1,231
Other assets .................................. 201 128
------- -------
Total current assets ........................ 76,299 22,307
Property and equipment, net ..................... 4,002 1,800
Deferred tax assets ............................. 1,080 --
------- -------
$81,381 $24,107
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $1,833 $3,747
Accrued liabilities ........................... 3,907 1,910
------- -------
Total current liabilities ................... 5,740 5,657
------- -------
Commitments (Note 10)
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares
authorized; 9,787 and 7,257 shares issued and
outstanding ................................... 10 7
Additional paid-in capital .................... 78,128 27,594
Accumulated deficit ........................... (2,497) (9,151)
------- -------
Total stockholders' equity .................. 75,641 18,450
------- -------
$81,381 $24,107
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-28-
<PAGE> 30
PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue.................................... $41,220 $22,083 $11,297
Cost of revenue............................ 21,383 10,843 5,221
------- ------- -------
Gross profit............................... 19,837 11,240 6,076
------- ------- -------
Operating expenses:
Research and development................. 4,949 3,288 1,783
Selling, general and administrative...... 9,408 6,694 3,982
------- ------- -------
Total operating expenses............... 14,357 9,982 5,765
------- ------- -------
Income from operations..................... 5,480 1,258 311
Interest and other income, net............. 2,838 537 517
------- ------- -------
Income before income taxes................. 8,318 1,795 828
Provision (benefit) for income taxes....... 1,664 (1,051) 83
------- ------- -------
Net income................................. $ 6,654 $ 2,846 $ 745
======= ======= =======
Net income per share....................... $ .71 $ .35 $ .10
======= ======= =======
Weighted average common shares and
equivalents.............................. 9,386 8,172 7,738
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-29-
<PAGE> 31
PROXIM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ....... 6,855 $ 7 $ 27,034 $(12,742) $14,299
Exercise of stock options .......... 131 -- 52 -- 52
Issuance of Common Stock under
Stock Purchase Plan .............. 25 -- 130 -- 130
Net income ......................... -- -- -- 745 745
----- ------ -------- -------- -------
Balance at December 31, 1994 ....... 7,011 7 27,216 (11,997) 15,226
Exercise of stock options .......... 172 -- 102 -- 102
Issuance of Common Stock under
Stock Purchase Plan ............... 74 -- 276 -- 276
Net income ......................... -- -- -- 2,846 2,846
----- ------ -------- -------- -------
Balance at December 31, 1995 ....... 7,257 7 27,594 (9,151) 18,450
Exercise of stock options .......... 381 1 822 -- 823
Issuance of Common Stock under
Stock Purchase Plan ............... 136 -- 610 -- 610
Issuance of Common Stock in follow-
on public offering, net .......... 2,013 2 47,002 -- 47,004
Tax benefit of stock options ....... -- -- 2,100 -- 2,100
Net income ......................... -- -- -- 6,654 6,654
----- ------ -------- -------- -------
Balance at December 31, 1996 ....... 9,787 $ 10 $ 78,128 $ (2,497) $75,641
===== ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-30-
<PAGE> 32
PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 6,654 $ 2,846 $ 745
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................... 983 516 262
Deferred tax assets ..................................... (965) (1,231) --
Changes in assets and liabilities:
Accounts receivable ................................... (3,461) (4,681) (1,036)
Inventories ........................................... (2,588) (4,865) (2,115)
Other assets .......................................... (73) 114 (115)
Accounts payable ...................................... (1,914) 2,060 1,047
Accrued liabilities ................................... 1,997 1,388 142
------- ------- -------
Net cash provided by (used in) operating activities . 633 (3,853) (1,070)
------- ------- -------
Cash flows used in investing activities for purchase of
property and equipment .................................. (3,185) (1,578) (681)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net ............. 48,437 378 (235)
Tax benefit of stock options ............................ 2,100 -- --
Principal payments on capitalized lease obligations ..... -- -- (17)
------- ------- -------
Net cash provided by (used in) financing activities . 50,537 378 (252)
------- ------- -------
Net increase (decrease) in cash and cash equivalents ...... 47,985 (5,053) (2,003)
Cash and cash equivalents, beginning of period ............ 6,247 11,300 13,303
------- ------- -------
Cash and cash equivalents, end of period .................. $54,232 $ 6,247 $11,300
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-31-
<PAGE> 33
PROXIM, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Proxim, Inc. (the "Company") designs, manufactures and markets high
performance wireless local area data networking products. Based on spread
spectrum radio frequency technology, Proxim's highly integrated wireless client
adapters and network infrastructure systems seamlessly extend existing
enterprise LANs to enable mobility-driven applications in a wide variety of
in-building and campus area environments. The Company operates in one industry
segment and assets located outside of the United States are not significant.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first in, first out method.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets, ranging from two to five years. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
remaining lease term or the estimated useful lives of the improvements.
Revenue
Product revenue is generally recognized upon shipment to the customer.
The Company grants certain distributors limited rights of return and price
protection on unsold products. Product revenue on shipments to distributors
which have rights of return and price protection is recognized upon shipment by
the distributor. The provision for estimated future warranty is recorded at the
time revenue is recognized.
Software development costs
Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standards No. 86
requires the capitalization of certain software development costs once
technological feasibility is established, which the Company defines as
completion of a working model. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater. To date, the
period between achieving technological feasibility and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
-32-
<PAGE> 34
Income taxes
A deferred tax liability or asset, net of valuation allowance, is
established for the expected future consequences resulting from the differences
between the financial reporting and income tax bases of assets and liabilities
and from net operating loss carryforwards.
Net income per share
Net income per share is computed using the weighted average number of
outstanding shares of Common Stock plus dilutive Common Stock equivalents.
Common Stock equivalents consist of stock options (using the treasury stock
method).
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." (See Note 5.)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenue, cost of revenue and expenses during
the reporting period.
Actual results could differ from those estimates.
NOTE 3 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Gross accounts receivable ....................... $10,371 $6,930
Less: allowance for doubtful accounts ........... (100) (120)
------- ------
$10,271 $6,810
======= ======
Inventories:
Raw materials ................................... $3,978 $1,609
Work-in-process ................................. 6,501 6,282
------- ------
$10,479 $7,891
======= ======
Property and equipment:
Computer and test equipment ..................... $5,883 $3,163
Furniture and fixtures .......................... 511 385
Leasehold improvements .......................... 858 519
------- ------
7,252 4,067
Less: accumulated depreciation and amortization . (3,250) (2,267)
------- ------
$4,002 $1,800
======= ======
Accrued liabilities:
Accrued compensation ............................ $1,580 $1,119
Accrued professional fees and expenses .......... 1,056 67
Income taxes payable ............................ 680 220
Deferred revenue ................................ 392 340
Other ........................................... 199 164
------- ------
$3,907 $1,910
======= ======
</TABLE>
-33-
<PAGE> 35
NOTE 4 -- STOCKHOLDERS' EQUITY:
Initial and Follow-on Public Offerings
In December 1993, the Company completed an initial public offering of
1,500,000 shares of Common Stock at $9.00 per share and realized proceeds of
approximately $11.7 million, net of issuance costs of $812,000. In July 1996,
the Company completed a follow-on public offering of 2,012,500 shares of Common
Stock at $25.00 per share and realized proceeds of approximately $47 million,
net of issuance costs of $795,000.
Preferred Stock
In December 1993, the stockholders approved a class of Preferred Stock
consisting of 5,000,000 shares, at a par value of $.001 per share, issuable in
series and having such rights, preferences, privileges and restrictions as may
be determined by the Board of Directors. As of December 31, 1996, no Preferred
Stock had been issued.
NOTE 5 - STOCK PLANS:
1986 Stock Option Plan
The Company's Stock Option Plan (the "1986 Plan") provided for the grant
of stock options to employees and consultants at prices not less than 85% of the
fair market value of the Company's Common Stock on the date of grant. The
options terminate ten years after the date of grant. All options granted have
been at the fair market value of the stock on the dates of grant. An aggregate
of 2,272,088 shares of Common Stock were reserved for issuance pursuant to the
1986 Plan. Unless otherwise provided for by the Board of Directors, the options
are exercisable only upon vesting. Options generally vest ratably over a 48
month period. The 1986 Plan (but not outstanding options issued thereunder)
terminated by its terms on March 20, 1996.
1995 Long-Term Incentive Plan
In April 1995, the Company established the 1995 Long-Term Incentive
Plan (the "1995 Plan") and reserved 250,000 shares of Common Stock for issuance
to employees, consultants and officers upon the exercise of awards granted
thereunder. In March 1996, the Board of Directors increased the number of shares
of Common Stock authorized for issuance under the 1995 Plan by 1,000,000 shares
to an aggregate of 1,250,000 shares. The 1995 Plan provides for the grant of
awards in the form of stock options, restricted stock, performance shares,
restricted stock units, and stock unit awards to employees, consultants and
officers at prices not less than 100% of the of the fair market value of the
Company's Common Stock on the date of grant. The options terminate ten years
after the date of grant. Through December 31, 1996, only stock options have been
granted under the 1995 Plan and all such options have been granted at the fair
market value of the stock at the dates of grant. Unless otherwise provided for
by the Board of Directors, the options are exercisable only upon vesting.
Options generally vest ratably over a 48 month period.
1994 Director Option Plan
In May 1994, the Company adopted the 1994 Director Option Plan (the
"Directors' Plan") which provides for the grant of stock options to directors at
the fair market value of the Company's Common Stock on the date of grant. The
options terminate 10 years after the date of grant. All options granted have
been at the fair market value of the stock at the dates of grant. An aggregate
of 100,000 shares of Common Stock have been reserved for issuance under the
Directors' Plan. Options granted under the Directors' Plan are exercisable only
upon vesting. Grants made prior to January 1, 1996 vest ratably over a 48 month
period, and grants made on or after January 1, 1996 fully vest one year from the
date of grant.
-34-
<PAGE> 36
The following table summarizes stock option activity under the Company's
stock option plans (shares in thousands):
<TABLE>
<CAPTION>
SHARES OPTIONS WEIGHTED AVERAGE
AVAILABLE OUTSTANDING EXERCISED PRICE
--------- ----------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1993 264 984 $ .64
Shares authorized ........ 600 --
Options granted .......... (355) 355 5.65
Options exercised ........ -- (131) .39
Options canceled ......... 47 (47) 1.00
----- -----
Balance at December 31, 1994 556 1,161 2.19
Shares authorized ........ 250 --
Options granted .......... (382) 382 8.69
Options exercised ........ -- (172) .59
Options canceled ......... 36 (36) 4.53
----- -----
Balance at December 31, 1995 460 1,335 4.20
Shares authorized ........ 1,000 --
Termination of 1986 Plan . (120) --
Options granted .......... (602) 602 20.19
Options exercised ........ -- (380) 2.21
Options canceled ......... 41 (41) 13.45
----- -----
Balance at December 31, 1996 779 1,516 $10.79
===== =====
</TABLE>
The following table summarizes information concerning outstanding and
exercisable stock options as of December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------
Weighted Average Weighted Average Weighted Average
Range of Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------------------- ------------- ------------------ ------- ------------- -------
<S> <C> <C> <C> <C> <C>
$.15 -- $ 1.50 344 6.42 $ .65 259 $ .60
$4.00 -- $ 9.63 504 8.02 $ 6.38 273 $ 6.36
$11.63 -- $21.75 596 9.50 $18.04 24 $14.48
$27.50 -- $29.88 61 9.48 $28.03 - $ -
$45.50 -- $45.50 11 9.38 $45.50 - $ -
-----
$.15 -- $45.50 1,516 8.30 $10.79 556 $ 4.02
===== =====
</TABLE>
1993 Employee Stock Purchase Plan
In September 1993, the Company established the 1993 Employee Stock
Purchase Plan (the "Purchase Plan"). The Company initially reserved 200,000
shares of Common Stock for issuance to employees under the Purchase Plan. In
March 1996, the Company's Board of Directors increased the number of shares of
Common Stock reserved for issuance under the Purchase Plan by 200,000 shares to
an aggregate of 400,000 shares. Under the Purchase Plan, an eligible employee
may purchase shares of Common Stock from the Company through payroll deductions
of up to 10% of his or her total compensation, at a price per share equal to
85% of the lesser of the fair market value of the Company's Common Stock at the
first day or last day of each six-month offering period. Offering periods
commence on August 15 and February 15. During 1996, 1995 and 1994, the Company
issued 135,736, 74,354 and 24,592 shares, respectively, of Common Stock under
the Purchase Plan.
Pro forma disclosure
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted under the Company's stock option plans during 1996 and
1995 was $13.31 and $5.21 per share, respectively. The weighted average
estimated grant date fair value of stock purchase rights granted pursuant to
the Company's employee stock purchase
-35-
<PAGE> 37
plan during 1996 and 1995 was $2.05 and $3.73 per share, respectively. The
estimated grant date fair value disclosed by the Company is calculated using the
Black-Scholes model. The Black-Scholes model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option and purchase awards. These
models also require highly subjective assumptions, including future stock price
volatility and expected time until exercise, which greatly affect the
calculated grant date fair value.
The following weighted average assumptions are included in the
estimated grant date fair value calculations for the Company's stock option and
purchase awards:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Stock option plans:
Expected dividend yield............................... 0.0% 0.0%
Expected stock price volatility....................... 109.8% 109.8%
Risk free interest rate............................... 6.19% 5.88%
Expected life (years)................................. 2.68 2.68
Stock purchase plan:
Expected dividend yield............................... 0.0% 0.0%
Expected stock price volatility....................... 152.4% 61.8%
Risk free interest rate............................... 5.29% 5.75%
Expected life (years)................................. 0.5 0.5
</TABLE>
Pro forma net income and net income per share
Had the Company recorded compensation based on the estimated grant date
fair value, as defined by SFAS 123, for awards granted under its stock option
plans and stock purchase plan, the Company's net income and net income per share
would have been reduced to the pro forma amounts below for the years ended
December 31, 1996 and 1995 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net income as reported................................ $6,654 $2,846
Pro forma net income.................................. $4,828 $2,087
Net income per share as reported...................... $ 0.71 $ 0.35
Pro forma net income per share........................ $ 0.52 $ 0.26
</TABLE>
The pro forma effect on net income and net income per share for 1996
and 1995 is not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
NOTE 6 -- RETIREMENT SAVINGS PLAN:
Effective January 1, 1993, the Company implemented a retirement savings
plan which qualifies as a thrift plan under section 401(k) of the Internal
Revenue Code. All employees who have completed two months of service and are
twenty-one years of age or older on or before the quarterly entry periods are
eligible to participate in the Plan. The Plan allows participants to contribute
up to 25% of the total compensation that would otherwise be paid to the
participant, not to exceed the amount allowed by applicable Internal Revenue
Service guidelines. The Company may make a discretionary matching contribution
equal to the percentage of the participant's contributions subject to a maximum
of 4%. The Company made no contributions to the plan through December 31, 1996.
-36-
<PAGE> 38
NOTE 7 -- INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................ $1,974 $ 149 $ 60
State.............................. 655 31 23
------ ------- -----
2,629 180 83
------ ------- -----
Deferred:
Federal............................ (995) (1,093) --
State.............................. 30 (138) --
------ ------- -----
(965) (1,231) --
------ ------- -----
$1,664 $(1,051) $ 83
====== ======= =====
</TABLE>
The tax provision (benefit) reconciles to the amount computed by
multiplying income before tax by the U.S. federal statutory rate of 35% as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Tax at federal statutory rate ............................... $2,911 $ 628 $290
State taxes, net of federal tax benefit ..................... 452 109 50
Research and development credits ............................ (100) -- --
Net operating loss carryforwards, net of minimum tax effect . (843) (503) (257)
Change in valuation allowance ............................... (758) (1,231) --
Other ....................................................... 2 (54) --
------ ------- ----
$1,664 $(1,051) $ 83
====== ======= ====
</TABLE>
Deferred tax assets comprise the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Net operating loss and credit carryforwards ...................................... $ 1,740 $ 1,788
Capitalized research and development costs ....................................... 131 181
Accrued expenses and reserves .................................................... 891 586
------- -------
Total deferred tax assets ........................................................ 2,762 2,555
Valuation allowance .............................................................. (566) (1,324)
------- -------
$ 2,196 $ 1,231
======= =======
</TABLE>
-37-
<PAGE> 39
The Company has established a valuation allowance covering deferred tax
assets related to net operating loss carryforwards which cannot be utilized
prior to January 1, 2002 due to limitations on their usage.
At December 31, 1996, the Company had approximately $4,200,000 of net
operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income; such carryforwards expire through 2008.
The amounts of and the benefit from net operating losses that can be
carried forward may be impaired or limited in certain circumstances. Events
which may cause such limitations include, but are not limited to, a cumulative
stock ownership change of greater than 50%, as defined, over a three year
period. As a result of a prior financing which resulted in a cumulative
ownership change in 1991 of greater than 50%, the Company's net operating loss
carryforwards are limited to usage of approximately $600,000 per year.
NOTE 8 -- NON-OPERATING GAIN
During 1996, the Company entered into an agreement with DSP
Communications, Inc. ("DSPC") whereby Proxim was to merge with DSPC. In
November 1996, the merger agreement was terminated. The Company recorded a
one-time non-operating gain of $1,500,000, net of related expenses, resulting
from termination fees paid by DSPC as provided in the agreement.
NOTE 9 -- CONCENTRATION OF SALES AND CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and trade accounts receivable. The Company places its cash and cash
equivalents primarily in market rate accounts and highly rated commercial paper.
The Company, by policy, limits the amount of credit exposure to any one
financial institution or commercial issuer.
The Company generally extends 30-day credit terms to its customers,
which is consistent with industry business practices. The Company performs
ongoing credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. To date the Company has not
experienced any material credit losses. All transactions are denominated in U.S.
dollars.
During 1996, revenue from three customers represented 22%, 22% and 12%
of total revenue. During 1995, revenue from two customers represented 27% and
14% of total revenue. In 1994, revenue from two customers represented 17% and
15% of total revenue.
Revenue from shipments to customers outside the United States,
primarily in Asia Pacific, Europe and South America, represented 31%, 24% and 6%
of total revenue in 1996, 1995 and 1994, respectively. Revenue from shipments to
customers in Asia Pacific represented 22% and 17% of total revenue in 1996 and
1995, respectively.
At December 31, 1996, outstanding receivables from three customers
represented 32%, 24% and 17% of gross receivables. At December 31, 1995,
outstanding receivables from three customer represented 26%, 25% and 11% of
gross receivables.
NOTE 10 -- COMMITMENTS:
The Company occupies its facility under a non-cancelable operating
lease agreement which expires in June 2000 and which requires payment for
property taxes, insurance, maintenance and utilities. Total rental expense
related to this operating lease was $456,000, $364,000 and $194,000 for 1996,
1995 and 1994, respectively.
-38-
<PAGE> 40
Future minimum lease payments under non-cancelable leases at December
31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,:
1997............................................................. $ 488
1998............................................................. 504
1999............................................................. 504
2000............................................................. 252
-------
Total minimum lease payments..................................... $ 1,748
=======
</TABLE>
NOTE 11 -- SUBSEQUENT EVENT (UNAUDITED):
In March 1997, the Company declared a dividend distribution of one
Preferred Share Purchase Right (the "Rights") on each outstanding share of the
Company's Common Stock. Each right will entitle stockholders to buy one
one-thousandth of a share of the Company's Series A Participating Preferred
Stock at an exercise price of $115.00. The Rights will become exercisable
following the tenth day after a person or group announces acquisition of 15% or
more of the Company's Common Stock or announces commencement of a tender offer
the consummation of which would result in ownership by the person or group of
15% or more of the Common Stock. The Company will be entitled to redeem the
Rights at $0.001 per Right at any time on or before the tenth day following
acquisition by a person or group of 15% or more of the Company's Common Stock.
If, prior to redemption of the Rights, a person or group acquires 15%
or more of the Company's Common Stock, each Right not owned by a holder of 15%
or more of the Common Stock will entitle its holder to purchase, at the Right's
then current exercise price, that number of shares of Common Stock of the
Company (or, in certain circumstances as determined by the Board, cash, other
property or other securities) having a market value at that time of twice the
Right's exercise price. If, after the tenth day following acquisition by a
person or group of 15% or more of the Company's Common Stock, Proxim sells more
than 50% of its assets or earning power or is acquired in a merger or other
business combination transaction, the acquiring person must assume the
obligations under the Rights and the Rights will become exercisable to acquire
Common Stock of the acquiring person at the discounted price. At any time after
an event triggering exercisability of the Rights at a discounted price and
prior to the acquisition by the acquiring person of 50% or more of the
outstanding Common Stock, the Board of Directors of the Company may exchange
the Rights (other than those owned by the acquiring person or its affiliates)
for Common Stock of the Company at an exchange ratio of one share of Common
Stock per Right.
-39-
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
10.a. Information with respect to directors is incorporated by reference from
the information under the caption "Election of Directors," in the
Registrant's Proxy Statement which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996.
10.b. Information with respect to directors and executive officers is included
at the end of PART I, Item 1. on page 12 of this Report under the caption
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Registrant's Proxy Statement which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
-40-
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements: See Index to Financial Statements at Item 8. on
page 26 of this Report.
(2) Financial Statement Schedules: See Item 8. on page 26 of this Report.
(3) 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)(5) Form of Registrant's Indemnification Agreement for Officers and
Directors, Delaware.
10.2(1)(5) 1993 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.3(1)(5) 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)(5) 1994 Director Option Plan and form of Subscription Agreement.
10.9(4)(5) 1995 Long-Term Incentive Plan and form of Subscription Agreement.
11.1 Computation of Net Income Per Share.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
(b) Reports on Form 8-K: None.
1. A report on Form 8-K (File No. 000-22700) was filed pursuant to
the Securities Exchange Act of 1934, as amended, on November 7,
1996, relating to the proposed acquisition of the Registrant by
DSP Communications, Inc.
(c) Exhibits: See 14(a) above.
(d) Financial Statement Schedules: See 14(a) above.
- ---------------------
(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 definitive proxy materials
filed with the Securities and Exchange Commission on April 15, 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.
(5) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to item 14(c) of
this Report.
-41-
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Mountain View, State of California, on the 28th day of March, 1997.
PROXIM, INC.
By: /s/ KEITH E. GLOVER
--------------------------------------
(Keith E. Glover, Vice President of
Finance and Administration and Chief
Financial Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David C. King and Keith E. Glover,
jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign on behalf of the
undersigned any amendments to this Report on Form 10-K, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, and each of the undersigned does hereby
ratify and confirm all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------- ------- ------
<S> <C> <C>
/s/ DAVID C. KING Chairman of the Board of Directors, March 28, 1997
- -------------------------- President and Chief Executive Officer
(David C. King) (Principal Executive Officer)
/s/ KEITH E. GLOVER Vice President of Finance and March 28, 1997
- -------------------------- Administration and Chief Financial -
(Keith E. Glover) Officer (Principal Financial and
Accounting Officer)
/s/ RAYMOND CHIN Director March 28, 1997
- --------------------------
(Raymond Chin)
/s/ LESLIE G. DENEND Director March 28, 1997
- --------------------------
(Leslie G. Denend)
/s/ MICHAEL D. KAUFMAN Director March 28, 1997
- ---- ---------------------
(Michael D. Kaufman)
/s/ G. RUSSELL MORTENSON Director March 28, 1997
- --------------------------
(G. Russell Mortenson)
</TABLE>
-42-
<PAGE> 44
EXHIBIT INDEX
Exhibit
No. 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)(5) Form of Registrant's Indemnification Agreement for Officers and
Directors, Delaware.
10.2(1)(5) 1993 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.3(1)(5) 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)(5) 1994 Director Option Plan and form of Subscription Agreement.
10.9(4)(5) 1995 Long-Term Incentive Plan and form of Subscription Agreement.
11.1 Computation of Net Income Per Share.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
PROXIM, INC.
COMPUTATION OF NET INCOME PER SHARE(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net income................................................. $6,654 $ 2,846 $ 745
====== ======= =====
Weighted average shares outstanding:
Common Stock............................................... 8,466 7,150 6,922
Common Stock issuable upon exercise of options and warrants 920 1,022 816
------ ------- -----
Weighted average common shares and equivalents............. 9,386 8,172 7,738
====== ======= =====
Net income per share....................................... $ 0.71 $ 0.35 $0.10
====== ======= =====
</TABLE>
- ---------------
(1) This Exhibit should be read with Note 2 of Notes to Financial Statements.
-43-
<PAGE> 1
EXHIBIT 23.1
PROXIM, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-94910) of Proxim, Inc. of our report dated January
17, 1997 appearing on page 27 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 25, 1997
-44-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 54,232
<SECURITIES> 0
<RECEIVABLES> 10,371
<ALLOWANCES> 100
<INVENTORY> 10,479
<CURRENT-ASSETS> 76,299
<PP&E> 7,252
<DEPRECIATION> 3,250
<TOTAL-ASSETS> 81,381
<CURRENT-LIABILITIES> 5,740
<BONDS> 0
0
0
<COMMON> 78,138
<OTHER-SE> (2,497)
<TOTAL-LIABILITY-AND-EQUITY> 81,381
<SALES> 41,220
<TOTAL-REVENUES> 41,220
<CGS> 21,383
<TOTAL-COSTS> 21,383
<OTHER-EXPENSES> 14,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,838
<INCOME-PRETAX> 8,318
<INCOME-TAX> 1,664
<INCOME-CONTINUING> 6,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,654
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
