<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
COMMISSION FILE NO. 0-22700
PROXIM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0059429
(State of incorporation) (I.R.S. Employer Identification No.)
510 DEGUIGNE DRIVE
SUNNYVALE, CALIFORNIA 94086
(408) 731-2700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Title of Class Outstanding as of September 30, 1999
-------------- ------------------------------------
<S> <C>
Common Stock, par value $.001 per share 11,735,644
</TABLE>
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PROXIM, INC.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet at September 30, 1999 and December 31, 1998 .... 3
Statement of Operations for the Three Months and Nine Months
Ended September 30, 1999 and 1998 ......................... 4
Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 ............................... 5
Notes to Financial Statements ................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................... 19
</TABLE>
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PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 43,393 $ 38,509
Marketable securities ................................ 46,048 28,178
Accounts receivable, net ............................. 11,160 9,193
Inventories .......................................... 13,194 11,825
Deferred tax assets .................................. 1,612 1,612
Other current assets ................................. 363 297
Total current assets ............................. 115,770 89,614
Property and equipment, net .............................. 6,510 3,355
Deferred tax assets and other assets ..................... 3,273 1,273
$125,553 $ 94,242
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 2,675 $ 2,321
Other current liabilities ............................. 7,974 6,451
Total current liabilities ......................... 10,649 8,772
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares authorized;
11,736 and 10,435 shares issued and outstanding ...... 12 10
Additional paid-in capital ............................. 108,293 83,165
Retained earnings ..................................... 6,599 2,295
Total stockholders' equity ........................ 114,904 85,470
$125,553 $ 94,242
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue ...................................... $18,002 $13,302 $48,754 $35,052
Cost of revenue .............................. 9,448 6,892 25,525 18,136
Gross profit ................................. 8,554 6,410 23,229 16,916
Operating expenses:
Research and development ................. 2,469 1,916 8,658 5,703
Selling, general and administrative ...... 3,619 2,989 9,855 8,430
Total operating expenses ............. 6,088 4,905 18,513 14,133
Income from operations ....................... 2,466 1,505 4,716 2,783
Interest and other income, net ............... 1,160 873 2,981 2,488
Income before income taxes ................... 3,626 2,378 7,697 5,271
Provision for income taxes ................... 1,269 713 3,393 1,580
Net income ................................... $ 2,357 $ 1,665 $ 4,304 $ 3,691
Basic net income per share ................... $ 0.20 $ 0.16 $ 0.39 $ 0.36
Weighted average common shares ............... 11,677 10,311 11,128 10,285
Diluted net income per share ................. $ 0.18 $ 0.15 $ 0.34 $ 0.34
Weighted average common shares and equivalents 13,186 11,152 12,576 11,016
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 4,304 $ 3,691
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 1,349 1,442
Changes in assets and liabilities:
Accounts receivable, net ........................... (1,967) (743)
Inventories ........................................ (1,369) 466
Other assets ....................................... (66) (15)
Accounts payable ................................... 354 414
Other current liabilities .......................... 1,523 (3,364)
Net cash provided by operating activities ....... 4,128 1,891
Cash flows used in investing activities:
Purchase of property and equipment .................. (4,504) (897)
Purchase of marketable securities ................... (17,870) (28,526)
Minority investments ................................ (2,000) --
Net cash used in investing activities ........... (24,374) (29,423)
Cash flows provided by financing activities from issuance of
Common Stock ........................................... 25,130 858
Net increase (decrease) in cash and cash equivalents ....... 4,884 (26,674)
Cash and cash equivalents, beginning of period ............. 38,509 62,296
Cash and cash equivalents, end of period ................... $ 43,393 $ 35,622
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying financial statements include all adjustments (consisting
only of normal recurring adjustments) which Proxim, Inc. (the "Company")
considers necessary for a fair presentation of the results of operations for the
interim periods covered and the financial condition of the Company at the date
of the balance sheets. The interim financial information is unaudited. This
Quarterly Report on Form 10-Q should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1998, included in
the 1998 Annual Report on Form 10-K. The results of operations for the nine
months ended September 30, 1999 are not necessarily indicative of results that
may be expected for the entire year ending December 31, 1999.
INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Raw materials . $ 5,805 $ 5,149
Work-in-process 6,923 6,028
Finished goods 466 648
$13,194 $11,825
</TABLE>
NET INCOME PER SHARE:
The following table is a reconciliation of the numerators and
denominators of the basic and diluted net income per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE:
Net income ................................... $ 2,357 $ 1,665 $ 4,304 $ 3,691
======= ======= ======= =======
Weighted average common shares ............... 11,677 10,311 11,128 10,285
======= ======= ======= =======
Basic net income per share ................... $ .20 $ .16 $ .39 $ .36
======= ======= ======= =======
DILUTED NET INCOME PER SHARE:
Net income ................................... $ 2,357 $ 1,665 $ 4,304 $ 3,691
======= ======= ======= =======
Weighted average common shares ............... 11,677 10,311 11,128 10,285
Dilutive common stock equivalents ............ 1,509 841 1,448 731
------- ------- ------- -------
Weighted average common shares and equivalents 13,186 11,152 12,576 11,016
======= ======= ======= =======
Diluted net income per share ................. $ .18 $ .15 $ .34 $ .34
======= ======= ======= =======
</TABLE>
Options to purchase 147,352 shares of common stock were excluded from
the diluted net income per share calculations for the three months and nine
months ended September 30, 1998. Options to purchase 32,500 shares of common
stock and warrants to purchase 85,714 and 181,714 shares of common stock were
excluded from the diluted net income per share calculations for the three months
and nine months ended September 30, 1999, respectively. The options and warrants
were antidilutive because the exercise prices were greater than the average
market price of the common shares during the respective periods.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below contain 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 this report and 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 1998 Financial Statements and Notes thereto.
The following table presents the percentages of total revenue
represented by certain line items from the Statement of Operations for the
periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenue ............................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue ....................... 52.5% 51.8% 52.3% 51.8%
Gross profit .......................... 47.5% 48.2% 47.7% 48.2%
Operating expenses:
Research and development .......... 13.7% 14.4% 17.8% 16.3%
Selling, general and administrative 20.1% 22.5% 20.2% 24.0%
Total operating expenses ...... 33.8% 36.9% 38.0% 40.3%
Income from operations ................ 13.7% 11.3% 9.7% 7.9%
Interest and other income, net ........ 6.5% 6.6% 6.1% 7.1%
Income before income taxes ............ 20.2% 17.9% 15.8% 15.0%
Provision for income taxes ............ 7.1% 5.4% 7.0% 4.5%
Net income ............................ 13.1% 12.5% 8.8% 10.5%
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased 35% in the third quarter of 1999 compared to the
third quarter of 1998 and 39% in the first nine months of 1999 compared to the
first nine months of 1998. The increases in revenue were primarily attributable
to increased unit shipments to distributors and OEM customers that sell
RangeLAN2-based 2.4 GHz product lines in North America, Europe and Japan and, to
a lesser extent, shipments of Symphony and RangeLAN802 products. The
increases were partially offset by decreased revenue from sales of 900 MHz
products.
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GROSS PROFIT
Gross profit as a percentage of revenue was 47.5% and 48.2% in the
third quarter of 1999 and 1998, respectively, and 47.7% and 48.2% in the first
nine months of 1999 and 1998, respectively. The decreases in gross profit as a
percentage of revenue were due to declining average selling prices on RangeLAN2
and Symphony products, increased revenue from lower margin Symphony and
RangeLAN802 products and a decrease in revenue from higher gross margin 900 MHz
products. The decreases were partially offset by cost reductions on RangeLAN2
products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased in absolute dollars during
the interim periods of 1999 compared to the interim periods of 1998 primarily
due to the increased number of engineering employees, continued investment in
integrating the Company's technology into application specific integrated
circuits ("ASICs"), development of wireless protocols and network software
drivers, costs related to product performance enhancements, expenses related to
cost reductions in the RangeLAN2 and Symphony product architectures, costs
related to both domestic and international product certifications, development
of products based on Institute of Electrical and Electronics Engineers ("IEEE")
802.11 standard and the Home RF SWAP standard, development of 5 GHz high-speed
wireless LAN technology based on the HiperLAN standard, increased expenses
related to the corporate facilities expansion in July 1999, and a $2,000,000
charge related to an investment in a startup company developing ultra-broadband
wireless products. Research and development expenses decreased as percentage of
revenue in the third quarter of 1999 compared to the third quarter of 1998
primarily due to the increase in revenue. Research and development expenses
increased as percentage of revenue in the first nine months of 1999 compared to
the first nine months of 1998 primarily due to the increase in personnel and
development program costs and the charge related to the investment in a startup
company. To date, all of the Company's research and development costs have been
expensed as incurred. The Company expects that research and development expenses
will continue to increase in absolute dollars but may vary over time as a
percentage of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased in absolute
dollars during the interim periods of 1999 compared to the interim periods of
1998 primarily due to the hiring of additional marketing and sales personnel to
support the Company's growth, particularly its expansion into international and
consumer markets, increased expenses related to the corporate facilities
expansion in July 1999, as well as increased trade show and promotional expenses
for the Symphony product line. Selling, general and administrative expenses
decreased as a percentage of revenue in the interim periods of 1999 compared to
the interim periods of 1998 primarily due to the increases in revenue, partially
offset by higher personnel costs, facilities costs and promotional expenses. The
Company expects that selling, general and administrative expenses will vary over
time as a percentage of revenue.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, increased in interim periods of 1999
compared to the interim periods of 1998 primarily due to higher invested cash
balances.
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INCOME TAXES
The Company's estimated effective income tax rate was 35% for the
interim periods of 1999 before the non-deductible charge, compared to 30% for
the interim periods of 1998. The 1998 estimated effective income tax rate was
less than the combined federal and state statutory rates primarily due to tax
credits.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1999, $4,128,000 of cash and cash
equivalents were provided by operating activities, primarily by net income and
an increase in accounts payable and other current liabilities, partially offset
by cash used to fund an increase in accounts receivable and inventories. In the
first nine months of 1998, $1,891,000 of cash and cash equivalents were provided
by operating activities, primarily by net income, a decrease in inventories and
an increase in accounts payable, partially offset by cash used to fund an
increase in accounts receivable and a decrease in other current liabilities.
In the first nine months of 1999 and 1998, the Company purchased
$4,504,000 and $897,000, respectively, of property and equipment. Capital
expenditures in the first nine months of 1999 were primarily for leasehold
improvements and furniture for the Company's new corporate headquarters and
manufacturing facilities. In addition, in the first nine months of 1999, the
Company made $2,000,000 minority investments in each of a wireless services
company and a startup company developing ultra-broadband wireless products.
Capital expenditures in the first nine months of 1998 were primarily for
manufacturing and engineering test equipment and marketing trade show equipment.
The Company generated $25,130,000 from financing activities during the
first nine months of 1999 from the issuance of common stock and the exercise of
employee stock options.
At September 30, 1999, the Company had working capital of $105,121,000,
including $43,393,000 in cash and cash equivalents and $46,048,000 in marketable
securities. The Company believes that its working capital and cash generated
from operations will be sufficient to finance 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 raising additional financing. There can be no assurance that such
financing will be available on terms acceptable to the Company, if at all.
YEAR 2000 READINESS DISCLOSURE
Customary computer programming practices, developed prior to the
upcoming change in the century becoming a concern, have used two digits rather
than four to identify the year in date fields. If not corrected, many computer
applications may fail to treat year dates intended to represent years in the
twenty-first century as such but instead treat them as still in the twentieth
century. This failure could potentially result in system failure or
miscalculations disruptive of business operations, including, among other
things, an inability to initiate, receive, process, invoice or otherwise
complete normal business activities. These Year 2000 issues affect virtually all
companies and organizations.
Year 2000 issues may affect the Company's internal operations.
Management is engaged in a comprehensive program to assess its Year 2000 risk
exposure and to plan and implement remedial and corrective action where
necessary. The Company has several computer software programs and operating
systems in its internal operations, including applications used in its
financial, human resources (HR), order management and manufacturing information
systems. Management has reviewed all of its major internal systems, including
HR, financial and manufacturing systems, to assess Year 2000 readiness and to
identify critical systems that require
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correction or remediation. The Company believes that its existing HR, financial
and manufacturing information systems are Year 2000 ready.
Management is working with consultants to develop and implement a new
order management, manufacturing and financial information system. The new system
was identified as a strategic business initiative independent of Year 2000
considerations. While the new information system will be a dynamic one
permitting ongoing improvements as business needs are identified, the basic
operational systems are expected to be substantially complete by the second
quarter of 2000 at a total estimated expenditure of approximately $2 million.
These time and cost targets are management's current best estimates based on
presently available information and numerous assumptions. Given the
uncertainties and complexities inherent in any new system installation and
implementation, there can be no assurance that the project will be completed
within the estimated time and cost parameters. A significant disruption of the
Company's financial, order management or manufacturing information systems would
adversely effect its ability to process orders, manage production and issue and
pay invoices, and may have a material adverse effect on operating results and
financial condition.
The Company's manufacturing processes incorporate sophisticated
integrated computer manufacturing test systems that depend on a mix of
proprietary software and systems and software purchased from third parties.
Failure of these systems would cause a disruption in the manufacturing process
and could result in a delay in completion and shipment of products. Management's
believes that its assessment of the Year 2000 readiness of its manufacturing
test systems is complete. Based on information currently available, management
believes that its manufacturing test systems will not be materially impacted by
Year 2000 issues. However, the Company cannot guaranty that a significant
disruption in its manufacturing test systems resulting from a Year 2000 problem
will not occur. If the manufacturing test systems fail for this or any other
reason, there could be a material adverse effect on operating results and
financial condition.
Management is working with critical suppliers of products and services
to assess their Year 2000 readiness with respect both to their operations and
the products and services they supply to the Company. Comprehensive inquiries
have been sent and responses are being monitored, with appropriate follow-up
where required. This analysis will continue throughout 1999, with corrective
action taken commensurate with the criticality of affected products and
services.
Management is currently developing various types of contingency plans
to address potential problems with critical internal systems and third party
interactions. Management's contingency plans include procedures for dealing with
a major disruption of internal business systems, plans for a long term factory
shutdown and identification of alternative vendors of critical materials in the
event of a Year 2000 related disruption in supply. Contingency planning will
continue through 1999, and will depend on the results of the remediation and
testing of critical systems. The potential ramifications of a Year 2000 type
failure are potentially far-reaching and largely unknown. The Company cannot
guaranty that a contingency plan in effect at the time of a system failure will
adequately address the immediate or long term effects of a failure, or that such
a failure would not have a material adverse effect on its operations or
financial results in spite of prudent planning.
The Company's costs to date related to the Year 2000 issue consist
primarily of reallocation of internal resources to evaluate and assess the
system as described above and to plan remediation and testing efforts. The
Company has not maintained detailed accounting records, but based on its review
of department budgets and staff allocations, the Company believes these costs to
be approximately $500,000. Management currently estimates that the total cost of
ongoing assessment, remediation, testing and planning directly and indirectly
related to Year 2000 issues will amount to approximately $2 million. This is
expected to consist of expenses attributed to cost of software, external
consulting fees and capital expenditures. The capital expenditures represent
early replacement of information technology equipment and software to obtain the
full benefits of Year 2000 protections versus the normal technical obsolescence
replacement cycle. The estimate is based on the current assessment of the
projects and is subject to change as the projects progress. The Company cannot
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guaranty that remediation and testing will identify issues which require
additional expenditure of material amounts which could result in an adverse
effect on financial results in future reporting periods.
Based on currently available information, management does not believe
that the Year 2000 issues discussed above related to internal systems will have
a material adverse effect on the Company's operations and financial condition.
However, the Company is uncertain to what extent it may be affected by such
matters. In addition, the Company cannot assure you that the failure to ensure
Year 2000 capability by a supplier not considered critical or another third
party would not have a material adverse effect on its operations and financial
condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Form 10Q, 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, many 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 major customers, loss of one or more of
the Company's major customers, the cost, availability and quality of components
from the Company's suppliers, the cost, availability, and quality of assemblies
from contract and subcontract manufacturers, the lengthy sales and design-in
cycles for OEM products, delays in the introduction of the Company's new
products, competitive product announcements and introductions, market adoption
of new technologies, market adoption of standards-based products (such as those
compliant with the IEEE 802.11 or the Home RF SWAP standards), the mix of
products sold, the effectiveness of the Company's distribution channels, the
success of the Company in developing new distribution channels, the sell through
rate of the Company's Symphony products through consumer retail channels,
management of retail channel inventories, the failure to anticipate changing
customer product requirements, seasonality in demand, manufacturing capacity and
efficiency, changes in the regulatory environment, product health and safety
concerns, Year 2000 issues 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 operating
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 1997, the Company experienced a decrease in
revenue and an operating loss as a result of a significant decrease in orders
from two of the Company's major customers. There can be no assurance that the
Company will not experience future quarter to quarter decreases in revenue 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 the potential fluctuations identified above
or other factors, the Company's future operating results could be below the
expectations of securities analysts and investors. In such an event, or in the
event that adverse market conditions prevail or are perceived to prevail
generally or with respect to the Company's business, the price of the Company's
Common Stock would likely decline. For example, in the third quarter of 1997 the
Company announced that revenue and operating results were expected to be
significantly below expectations of securities analysts and investors, resulting
in a decrease in the market price of the Company's Common Stock.
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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 55%, 59% and
62% of the Company's sales during the first nine months of 1999, and calendar
years 1998 and 1997, respectively, were to OEM customers. In addition, sales to
one customer represented approximately 31% of the Company's revenue during the
first nine months of 1999. Sales to two customers represented approximately 41%
and 11% of the Company's revenue during 1998. Sales to three customers
represented approximately 28%, 17% and 10% of the Company's revenue during 1997.
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.
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 strategies,
pricing, contract awards, competitive conditions and general economic
conditions. Sales of wireless LAN products generally involve significant
commitments of capital and other resources by the Company and its customers,
with the attendant delays associated with procedures to approve such
commitments. In this regard, in the fourth quarters of 1997 and 1998, the
Company recorded charges of $2,400,000 and $1,000,000 respectively, to selling,
general and administrative expense related to investments in two startup
companies: one in a startup wireless services company utilizing wireless LAN
technology and the other in a developer of mobile thin-client computing
technology. Due to the nature of these entities and their operations, there can
be no assurance that these investments will be realizable or will result in
marketable and/or successful products or services. 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 loss of one or more of, or a significant reduction in orders from,
the Company's major OEM customers could have a material adverse effect on the
Company's results of operations. For example, in the third quarter of 1997, the
Company experienced a significant decrease in orders from two of the Company's
major customers resulting in a decrease in revenue, an operating loss and higher
inventory levels. 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, yields 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
12
<PAGE> 13
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, production quality or financial difficulties
of a sole or limited source supplier could materially and adversely effect 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 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 its new corporate headquarters in
Sunnyvale, California. In addition, the Company relies on certain contract and
subcontract manufacturers for turnkey manufacturing and circuit board assemblies
which subjects the Company to a number of risks, including a potential inability
to obtain an adequate supply of finished assemblies and assembled circuit boards
as well as reduced control over the price, timely delivery and quality of such
finished assemblies and assembled circuit boards. If the Company's Sunnyvale
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.
The Company has in the past 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.
The Company's corporate headquarters and its primary research and
development and manufacturing operations are located in approximately 139,000
square feet in Sunnyvale, California under a lease that expires August 31, 2003.
In addition, the Company maintains 40,000 square feet of office space in
Mountain View, California under a lease that expires March 31, 2006. Management
considers the above facilities suitable and adequate to meet the Company's
current requirements.
Rapid Technological Change; Ongoing New Product Development
Requirements; Evolving Industry Standards. The wireless communications industry
is characterized by 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
13
<PAGE> 14
maintain cost-effectiveness. The Company's research and development efforts are
focused on implementing enhancements to existing products, investigating new
technologies and developing new products. Since 1994 the Company's research and
development efforts have been concentrated on enhancing features and performance
and reducing the cost of the RangeLAN2-based products, and development of the
Symphony and HomeRF products. These efforts include developing and integrating
the Company's technology into ASICs, development of wireless protocols and
network software drivers, development of new product features, performance
enhancements and cost reductions to wireless adapter and access point products
and efforts related to both domestic and international product certification. In
1997 and 1998 the Company substantially increased its research and development
efforts in developing lower cost Symphony products, IEEE 802.11 standard based
products and 5 GHz high-speed wireless LAN technology based on the HiperLAN
standard. In 1999 the Company increased its research and development efforts in
developing HomeRF SWAP standard based products.
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 or retain qualified engineers to develop such
technologies and products, its future operating results would be materially and
adversely affected. In particular, the Company has expended substantial
resources in developing products that are designed to conform to the IEEE 802.11
standard that received final approval in June 1997. There can be no assurance
that the Company's IEEE 802.11 compliant products or the IEEE 802.11 standard
will have a meaningful commercial impact.
The Company has substantially increased its research and development
expenses to develop new technologies related to 5 GHz high-speed wireless LAN
products. In this regard, in the fourth quarter of 1997, the Company took a
charge of $2,500,000 to research and development expense for the acquisition of
certain technology to be used in developing a new family of 5 GHz high-speed
wireless LAN products. Additionally, during the interim periods of 1999, the
Company took a $2,000,000 charge related to an investment in a startup company
developing ultra-broadband wireless products. In addition, the Company is a core
member of the HomeRF Working Group, an industry consortium that is establishing
an open industry standard (SWAP specification) for wireless digital
communications between PCs and consumer electronic devices, including a common
interface specification that supports wireless data and voice services in and
around the home. There can be no assurance that the HomeRF SWAP specification,
or products developed by the Company to comply with the specification will have
a meaningful commercial impact. 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.
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, manufacturing capabilities and experience, 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 competitors in its commercial wireless LAN business,
including Lucent Technologies, Nokia, Symbol Technologies and Aironet Wireless
Communications (which has announced an agreement to be
14
<PAGE> 15
acquired by Cisco Systems), among others. Proxim also faces competition from a
variety of companies that offer different technologies in the nascent home
networking market, including several companies developing competing wireless
networking products. Additionally, numerous companies have announced their
intention to develop competing products in both the commercial wireless LAN and
home networking markets. 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 communications solutions, or from large
computer companies, PC peripheral companies as well as other large networking
equipment companies. Furthermore, 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 that have 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 distributors and
OEM customers, represented 21%, 17% and 26% of total revenue during the first
nine months of 1999, and calendar years 1998 and 1997. The Company expects that
revenue from shipments to international customers will vary as a percentage of
total revenue. 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 if the
Company does not receive additional orders to supply its products for use by
foreign customers. In the latter part of 1997 and throughout 1998, capital
markets in Asia were highly volatile, resulting in fluctuations in Asian
currencies and other economic instabilities. These instabilities may continue or
worsen, either of which could have a material adverse effect on the Company's
results of operations. In this regard, in the third quarter of 1997 and
continuing through the second quarter of 1998, the Company experienced a
significant decrease in orders from NTT-IT, one of the Company's major Japanese
customers, resulting in a significant decrease in quarterly revenue and an
operating loss in the third quarter of 1997.
15
<PAGE> 16
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 four U.S. patents which
were issued in 1991, 1993, 1995 and 1999, and are important to the current
business of the Company, and has five patent applications pending in the U.S.
which relate to the Company's core technologies and product designs. 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 adequately protect 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 and invention assignment 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. As the number of products in the
wireless LAN market increase, and related functionalities and features overlap,
the Company may become increasingly subject to infringement claims. These claims
also might require the Company to enter into royalty or license agreements. Any
such claims, with or without merit, could cause costly litigation and could
require significant management time. There can be no assurance that, if
required, the Company could obtain such royalty or license agreement on terms
acceptable to management. 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 management, operational and financial
processes and controls as well as the related information and communications
systems. These demands will require the addition of new management personnel and
the development of additional expertise by existing management. The failure of
the Company's management team to effectively manage growth, should it occur,
could have a material adverse effect 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
16
<PAGE> 17
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 effect 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 and other radio frequency regulations in certain
countries that represent potential markets for its products. The Company has
extensive 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 or authorizations to ship the Company's products
into over 50 countries. 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, RangeLAN802, Symphony and HomeRF products to minimize the design
modifications required to meet various 2.4 GHz international spread spectrum
regulations. In addition, the Company will seek to obtain international
certifications for the Symphony and HomeRF product line in countries where there
is a substantial market for home PCs and Internet connectivity. 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 effect 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. In June 1999,
the FCC issued a Notice of Proposed Rulemaking (NPRM) that proposed changing the
way allocated frequencies are utilized by Part 15 spread spectrum systems. These
approved and proposed changes in the allocation and use 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.
Emission of Electromagnetic Radiation. The intentional emission of
electromagnetic radiation has been the subject of recent public concern
regarding possible health and safety risks, and though the Company's products,
when installed in any of the intended configurations, will not exceed the
maximum permissible exposure limits listed in Section 1.1311 of the Federal
Communications Commission Regulations, there can be no assurance that such
safety issues will not arise in the future and will not have a materially
adverse effect on the Company's business.
17
<PAGE> 18
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. The Company
is also establishing new distribution channels for its Symphony family of
cordless home and small office networking products. Symphony products are
currently sold through national retailers such as Best Buy, OfficeMax and
Staples, computer retailers such as Fry's Electronics, J&R Computer World and
Micro Center, leading computer catalogs such as CDW, MobilePlanet and PC
Connection, and numerous on-line retail sites over the Internet, including
Proxim's e-commerce Web site. In general, distributors and retailers offer
products of several different companies, including products that may compete
with the Company's products. Accordingly, they may give higher priority to
products of other suppliers, thus reducing their efforts to sell the Company's
products. Agreements with distributors and retailers are generally terminable at
their option. A reduction in sales efforts or termination of a relationship with
the Company may have a material adverse effect on the Company's future operating
results. Use of distributors and retailers also entails the risk that they will
build up inventories in anticipation of substantial growth in sales. If such
growth does not occur as anticipated, they 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 the
third quarter of 1997, the Company announced revenue and operating results below
expectations of securities analysts and investors, resulting in a decrease in
the market price of the Company's Common Stock. 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.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
None.
B. Reports on Form 8-K:
None.
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on the 12th day of November, 1999.
PROXIM, INC.
By: /s/ Keith E. Glover
--------------------------------
Keith E. Glover,
Vice President of Finance and
Administration and Chief
Financial Officer
Dated: November 12, 1999
20
<PAGE> 21
Exhibit Index
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 43,393
<SECURITIES> 46,048
<RECEIVABLES> 11,160
<ALLOWANCES> 0
<INVENTORY> 13,194
<CURRENT-ASSETS> 115,770
<PP&E> 14,419
<DEPRECIATION> 7,909
<TOTAL-ASSETS> 125,553
<CURRENT-LIABILITIES> 10,649
<BONDS> 0
0
0
<COMMON> 108,305
<OTHER-SE> 6,599
<TOTAL-LIABILITY-AND-EQUITY> 125,553
<SALES> 18,002
<TOTAL-REVENUES> 18,002
<CGS> 9,448
<TOTAL-COSTS> 9,448
<OTHER-EXPENSES> 6,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,160
<INCOME-PRETAX> 3,626
<INCOME-TAX> 1,269
<INCOME-CONTINUING> 2,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,357
<EPS-BASIC> .20
<EPS-DILUTED> .18
</TABLE>
