<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 March 31, 2000
-------------- --------------------------------
<S> <C>
Common Stock, par value $.001 per share 12,592,998
</TABLE>
<PAGE> 2
PROXIM, INC.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet at March 31, 2000 and December 31, 1999..................... 3
Income Statement for the Three Months Ended
March 31, 2000 and 1999................................................. 4
Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999................................................. 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 5. Other Information.................................................... 20
Item 6. Reports on Form 8-K.................................................. 20
</TABLE>
2
<PAGE> 3
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................. $ 41,939 $ 46,924
Marketable securities ..................................... 21,401 21,341
Accounts receivable, net .................................. 16,755 15,819
Inventories ............................................... 18,983 14,862
Deferred tax assets ....................................... 3,390 3,390
Other current assets ...................................... 804 670
--------- ---------
Total current assets .................................. 103,272 103,006
Property and equipment, net ................................... 7,837 7,157
Goodwill and other intangibles ................................ 12,916 13,637
Marketable securities, long-term .............................. 19,792 19,868
Equity investment ............................................. 3,000 3,000
Deferred tax assets ........................................... 1,200 1,200
--------- ---------
$ 148,017 $ 147,868
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 2,648 $ 3,199
Other current liabilities ................................. 5,301 9,003
--------- ---------
Total current liabilities ............................ 7,949 12,202
Long-term debt ................................................ 542 542
Deferred tax liabilities ...................................... 1,758 1,758
--------- ---------
Total liabilities ..................................... 10,249 14,502
--------- ---------
Commitments
Stockholders' equity:
Common Stock, $.001 par value, 25,000 shares authorized;
12,593 and 12,322 shares issued and outstanding ......... 12 12
Additional paid-in capital ................................ 130,053 127,662
Unrealized losses on investments .......................... (466) (379)
Retained earnings ......................................... 8,169 6,071
--------- ---------
Total stockholders' equity ............................ 137,768 133,366
--------- ---------
$ 148,017 $ 147,868
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
PROXIM, INC.
INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------- -------
<S> <C> <C>
Revenue .............................................. $20,051 $15,119
Cost of revenue, including amortization of
intangible assets of $261 in 2000 ................ 10,926 7,904
------- -------
Gross profit ................................. 9,125 7,215
------- -------
Operating expenses:
Research and development ......................... 2,816 2,132
Purchased in-process research and development .... -- 1,100
Selling, general and administrative .............. 3,798 3,096
Amortization of goodwill ......................... 460 --
------- -------
Total operating expenses ..................... 7,074 6,328
------- -------
Income from operations ............................... 2,051 887
Interest income, net ................................. 1,177 867
------- -------
Income before income taxes ........................... 3,228 1,754
Provision for income taxes ........................... 1,130 1,000
------- -------
Net income ................................... $ 2,098 $ 754
======= =======
Basic net income per share ........................... $ .17 $ .07
======= =======
Weighted average common shares ....................... 12,481 10,739
======= =======
Diluted net income per share ......................... $ .14 $ .06
======= =======
Weighted average common shares and equivalents ....... 14,515 12,187
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 2,098 $ 754
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
In-process research and development ........................ -- 1,100
Depreciation ............................................... 691 393
Amortization ............................................... 721 --
Changes in assets and liabilities:
Accounts receivable ...................................... (936) 900
Inventories .............................................. (4,121) (857)
Other assets ............................................. (134) (12)
Accounts payable ......................................... (551) (178)
Other liabilities ........................................ (3,702) 659
-------- --------
Net cash provided by (used in) operating activities .. (5,934) 2,759
-------- --------
Cash flows used in investing activities:
Purchase of property and equipment ....................... (1,371) (560)
Marketable securities .................................... (71) (12,532)
Equity investments ....................................... -- (1,100)
-------- --------
Net cash used in investing activities ................ (1,442) (14,192)
-------- --------
Cash flows provided by financing activities from issuance
of Common Stock, net ....................................... 2,391 2,128
-------- --------
Net decrease in cash and cash equivalents .................... (4,985) (9,305)
Cash and cash equivalents, beginning of period ............... 46,924 39,117
-------- --------
Cash and cash equivalents, end of period ..................... $ 41,939 $ 29,812
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PROXIM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
All historical financial information and analysis has been restated to
reflect the acquisition of Micrilor, Inc. in January 2000, which was accounted
for as a pooling of interests. The accompanying financial statements include all
adjustments (consisting only of normal recurring adjustments) which we consider
necessary for a fair presentation of the results of operations for the interim
periods covered and the financial condition 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 our audited financial statements for the
year ended December 31, 1999, included in the 1999 Annual Report on Form 10-K.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2000.
INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Raw materials................................ $10,458 $ 8,047
Work-in-process.............................. 8,267 6,542
Finished goods............................... 258 273
------- -------
$18,983 $14,862
======= =======
</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
MARCH 31,
2000 1999
------- -------
<S> <C> <C>
BASIC NET INCOME PER SHARE:
Net income available to Common Stockholders ...... $ 2,098 $ 754
======= =======
Weighted average common shares ................... 12,481 10,739
======= =======
Basic net income per share ....................... $ .17 $ .07
======= =======
DILUTED NET INCOME PER SHARE:
Net income available to Common Stockholders ...... $ 2,098 $ 754
======= =======
Weighted average common shares ................... 12,481 10,739
Dilutive common stock equivalents ................ 2,034 1,448
------- -------
Weighted average common shares and equivalents ... 14,515 12,187
======= =======
Diluted net income per share ..................... $ .14 $ .06
======= =======
</TABLE>
Options to purchase 5,000 shares of common stock were outstanding at March
31, 1999 and were antidilutive and excluded from the dilutive net income per
share calculations because the options' exercise prices were greater than the
average market price of the common shares.
6
<PAGE> 7
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, or SAB
101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. We are required to adopt SAB 101 in
the second quarter of fiscal 2000. Management does not expect the adoption of
SAB 101 to have a material effect on our operations or financial position.
POOLING OF INTERESTS COMBINATION:
In January 2000, we acquired privately-held Micrilor, Inc. We issued 146,000
shares of common stock in our merger with Micrilor. All historical financial
information contained herein has been revised to reflect the acquisition. We
recorded $217,000 of acquisition costs as a result of the merger in the first
quarter of 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All historical financial information and analysis has been restated to
reflect the acquisition of Micrilor, Inc. in January 2000, which was accounted
for as a pooling of interests.
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. We may from
time to time make additional written and oral forward-looking statements,
including statements contained in our filings with the Securities and Exchange
Commission and in our 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 "Risk Factors" and elsewhere in this report. We do
not undertake to update any forward-looking statement that may be made from time
to time by or on behalf of us. Readers should carefully review the risk factors
described in other documents we file from time to time with the Securities and
Exchange Commission.
The following discussion should be read in conjunction with our 1999
Financial Statements and Notes thereto.
The following table presents the percentages of total revenue represented by
certain line items from the Income Statement for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
----- -----
<S> <C> <C>
Revenue ............................................... 100.0% 100.0%
Cost of revenue, including amortization of
intangible assets of $261 in 2000 ................. 54.5% 52.3%
----- -----
Gross profit .................................. 45.5% 47.7%
----- -----
Operating expenses:
Research and development .......................... 14.1% 14.1%
Purchased in-process research and development ..... -- 7.3%
Selling, general and administrative ............... 18.9% 20.4%
Amortization of goodwill .......................... 2.3% --
----- -----
Total operating expenses ...................... 35.3% 41.8%
----- -----
Income from operations ................................ 10.2% 5.9%
Interest income, net .................................. 5.9% 5.7%
----- -----
Income before income taxes ............................ 16.1% 11.6%
Provision for income taxes ............................ 5.6% 6.5%
----- -----
Net income .................................... 10.5% 5.1%
===== =====
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased by 33% from $15.1 million in 1999 to $20.1 million in
2000. Revenue increased in the first quarter of 2000 compared to the first
quarter of 1999 primarily due to increased unit shipments to distributors
7
<PAGE> 8
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,
SWAP-based Symphony and 5 GHz Stratum products. The increases were partially
offset by decreased revenue from 900 MHz products and completion of 2.4 GHz
direct sequence non-recurring engineering contracts recognized by Micrilor, Inc.
in 1999.
GROSS PROFIT
Gross profit as a percentage of revenue was 45.5% in the first quarter of
2000 compared to 47.7% in the first quarter of 1999. Included in gross profit in
the first quarter of 2000 was a charge of $261,000 for amortization of
intangible assets related to the acquisition of Wavespan Corporation. Excluding
the amortization, gross profit as a percentage of revenue was 46.8% in the first
quarter of 2000. Gross profit as a percentage of revenue decreased in the first
quarter of 2000 compared to the first quarter of 1999 due to declining average
selling prices on RangeLAN2 and Symphony products, an increase in revenue from
lower margin Symphony and 5 GHz Stratum products and a decrease in revenue from
higher gross margin 900 MHz products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased by 33% from $2.1 million in the
first quarter of 1999 to $2.8 million in the first quarter of 2000. Research and
development expenses increased primarily due to the increased number of
engineering employees, continued investment in integrating our technology into
application specific integrated circuits, or ASICs, development of wireless
protocols and network software drivers, costs related to product performance
enhancements, cost reductions in the RangeLAN2 architecture, costs related to
both domestic and international product certifications, development of Symphony
and SWAP-based Symphony products, development of products based on Institute of
Electrical and Electronics Engineers, or IEEE, 802.11 standard, and development
of 5 GHz high-speed wireless LAN technology. Research and development expenses
were flat as percentage of revenue in the first quarter of 2000 compared to the
first quarter of 1999. To date, all of our research and development costs have
been expensed as incurred. We expect that research and development expenses will
continue to increase in absolute dollars but may vary over time as a percentage
of revenue.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
Purchased in-process research and development in the first quarter of 1999
related to an equity investment in a startup company developing 5 GHz
ultra-broadband wireless technology.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administration expenses increased by 23% from $3.1
million in the first quarter of 1999 to $3.8 million in the first quarter of
2000. Selling, general and administrative expenses increased primarily due to
the hiring of additional marketing and sales personnel to support our growth,
particularly our expansion into international and consumer markets, employees
added as a result of the Wavespan acquisition, as well as increased trade show
and promotional expenses and $217,000 of issuance costs related to the
acquisition of Micrilor. Selling, general and administrative expenses decreased
as a percentage of revenue in the first quarter of 2000 compared to the first
quarter of 1999 primarily due to the increase in revenue, partially offset by
higher personnel and promotional expenses and acquisition costs. We expect 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 the first quarter of 2000
compared to the first quarter of 1999 primarily due to higher invested cash
balances.
8
<PAGE> 9
INCOME TAXES
The effective tax rates in the first quarter of 2000 and 1999 were 35% and
57%, respectively. The effective rate in the first quarter of 2000 was lower
than the federal statutory tax rate plus the state tax rate, net of the federal
benefits, primarily due to loss carryforwards. The effective rate in the first
quarter of 1999 was higher than the federal statutory rate of 35% plus the state
tax rate of 6%, net of federal benefits, primarily due to expenses related to
equity investments that were not deductible for income tax purpose.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 2000, $5,934,000 of cash and cash equivalents were
used in operating activities, primarily to fund increases in inventories and
accounts receivable and a decrease in other current liabilities, partially
offset by net income after adjustments for depreciation and amortization. In the
first quarter of 1999, $2,759,000 of cash and cash equivalents were provided by
operating activities, primarily by net income after adjustments for purchased
in-process research and development and depreciation. Cash was also provided by
a decrease in accounts receivable and an increase in other current liabilities,
partially offset by cash used to fund an increase in inventories and a decrease
in accounts payable.
In the first quarters of 2000 and 1999, we purchased $1,371,000 and
$560,000, respectively, of property and equipment. Capital expenditures in the
first quarters of 2000 and 1999 were primarily for manufacturing and engineering
test equipment, purchased software and leasehold improvements.
In 1999, we made equity investments of $1,100,000 in a start-up company
developing 5 GHz ultra-broadband wireless products, which was recorded as
purchased in-process research and development.
In 2000 and 1999, we generated $2,391,000 and $2,128,000, respectively from
issuance of common stock for the exercise of employee stock options and the
employee stock purchase plan purchases.
At March 31, 2000, we had working capital of $95,323,000, including
$41,939,000 in cash and cash equivalents and $21,401,000 in marketable
securities. We believe that our working capital and cash generated from
operations, if any, will be sufficient to finance cash acquisitions which we may
consider and to 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, we will consider raising additional
financing. There can be no assurance that such financing will be available on
terms acceptable to us, if at all.
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline and you could
lose all or part of your investment.
This Form 10-Q also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this Form 10-Q.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY FAIL TO MEET
OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, CAUSING OUR
STOCK PRICE TO DECLINE.
9
<PAGE> 10
Our operating results have fluctuated in the past and are likely to continue
to fluctuate in the future on an annual and quarterly basis, due to numerous
factors, many of which are outside of our control. Some of the factors that may
cause these fluctuations include:
- changing market demand for, and declines in the average selling prices
of, our products;
- the timing of and delays or cancellations of significant orders from
major customers;
- the loss of one or more of our major customers;
- the cost, availability and quality of components from our suppliers;
- the cost, availability, and quality of assemblies from contract and
subcontract manufacturers;
- the lengthy sales and design-in cycles for original equipment
manufacturer, or OEM, products;
- delays in the introduction of our new products;
- competitive product announcements and introductions;
- market adoption of new technologies;
- market adoption of radio frequency, or RF, standards-based products (such
as those compliant with the IEEE 802.11 or the Home RF SWAP
specifications);
- the mix of products sold;
- the effectiveness of our distribution channels and our success in
maintaining our current distribution channels and developing new
distribution channels;
- the sell-through rate of our 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; and
- general economic conditions.
Historically, we have not operated with a significant order backlog and a
substantial portion of our revenue in any quarter has been derived from orders
booked and shipped in that quarter. Accordingly, our revenue expectations are
based almost entirely on 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. If orders and revenue
do not meet expectations, our operating results could be materially adversely
affected. In this regard, in the third quarter of 1997, we experienced a
decrease in revenue and an operating loss as a result of a significant decrease
in orders from two of our major customers. We can offer no assurance that we
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,
we have often recognized a substantial portion of our 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.
WE DEPEND SIGNIFICANTLY ON A LIMITED NUMBER OF OEM CUSTOMERS.
A substantial portion of our revenue has been derived from a limited number
of customers, most of which are OEM customers. Approximately 36%, 52% and 59% of
our sales during the first quarter of 2000, and calendar years 1999 and 1998,
respectively, were to OEM customers. In addition, sales to two customers
represented approximately 16% and 11% of our revenue in the first quarter of
2000. Sales to one customer represented approximately 30% of our revenue during
1999. Sales to two customers represented approximately 41% and 11% of our
revenue during 1998. We expect that sales to a limited number of OEM customers
will continue to account
10
<PAGE> 11
for a substantial portion of our revenue for the foreseeable future. We also
have experienced quarter to quarter variability in sales to each of our major
OEM customers and expect this pattern to continue in the future.
Sales of many of our wireless networking products depend upon the decision
of a prospective OEM customer to develop and market wireless solutions, which
incorporate our wireless technology. OEM customers' orders are affected by a
variety of factors, including the following:
- new product introductions;
- regulatory approvals;
- end-user demand for OEM customers' products;
- product life cycles;
- inventory levels;
- manufacturing strategies;
- pricing;
- contract awards;
- competitive situations; and
- general economic conditions.
For these and other reasons, the design-in cycle associated with the
purchase of our 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 our control. Because of the lengthy sales cycle, we
typically plan our production and inventory levels based on internal forecasts
of OEM customer demand, which is highly unpredictable and can fluctuate
substantially. In addition, our 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 materially and
adversely affect our operating results. If revenue forecasted from a specific
customer for a particular quarter is not realized in that quarter, our operating
results for that quarter could be materially adversely affected. The loss of one
or more of, or a significant reduction in orders from, our major OEM customers
could materially and adversely affect our operating results. In addition, we can
offer no assurance that we will become a qualified supplier for new OEM
customers or that we will remain a qualified supplier for existing OEM
customers.
WE PURCHASE SEVERAL KEY COMPONENTS USED IN THE MANUFACTURE OR INTEGRATION OF OUR
PRODUCTS FROM SOLE OR LIMITED SOURCES.
Certain parts and components used in our products, including our proprietary
application specific integrated circuits, or ASICs, monolithic microwave
integrated circuits, or 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. Our reliance on these sole source or limited
source suppliers involves risks and uncertainties, including the following:
- the possibility of a shortage or discontinuation of key components; and
- reduced control over delivery schedules, manufacturing capability,
quality, yields and costs.
Any reduced availability of these parts or components when required could
significantly impair our ability to manufacture and deliver our products on a
timely basis and result in the cancellation of orders, which could materially
adversely affect our operating results. In addition, the purchase of some key
components involves long lead times and, in the event of unanticipated increases
in demand for our products, we have in the past been, and may in the future be,
unable to manufacture some products in a quantity sufficient to meet our
customers' demand in any particular period. We have no guaranteed supply
arrangements with our sole or limited source suppliers, do not maintain an
extensive inventory of parts or components, and customarily purchase sole or
limited source parts and
11
<PAGE> 12
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 affect our business by increasing product costs, or
reducing or eliminating the availability of parts or components. In an event
like this, our inability to develop alternative sources of supply quickly and on
a cost-effective basis could significantly impair our ability to manufacture and
deliver our products on a timely basis and could materially adversely affect our
business and operating results.
WE NEED TO EXPAND OUR LIMITED MANUFACTURING CAPABILITY AND INCREASINGLY DEPEND
ON CONTRACT MANUFACTURERS FOR OUR MANUFACTURING REQUIREMENTS.
We currently have limited manufacturing capability and no experience in
large-scale or foreign manufacturing. If our customers were to concurrently
place orders for unexpectedly large product quantities, our present
manufacturing capacity might be inadequate to meet the demand. We can offer no
assurance that we 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, we will need to achieve significant product cost
reductions. Although we intend to achieve cost reductions through engineering
improvements, production economies, and manufacturing at lower cost locations
including outside the United States, we can offer no assurance that we will be
able to do so. In order to remain competitive, we also must continue to
introduce new products and processes into our manufacturing environment, and we
can offer no assurance that any such new products will not create obsolete
inventories related to older products. We currently conduct our manufacturing
operations for all of our products in our new corporate headquarters in
Sunnyvale, California. In addition, we rely on contract and subcontract
manufacturers for turnkey manufacturing and circuit board assemblies which
subjects us to additional risks, including a potential inability to obtain an
adequate supply of finished assemblies and assembled circuit boards and reduced
control over the price, timely delivery and quality of such finished assemblies
and assembled circuit boards. If our Sunnyvale facility were to become incapable
of operating, even temporarily, or were unable to operate at or near our current
or full capacity for an extended period, our business and operating results
could be materially adversely affected. Changes in our manufacturing operations
to incorporate new products and processes, or to manufacture at lower cost
locations outside the United States, could cause disruptions, which, in turn,
could adversely affect customer relationships, cause a loss of market
opportunities and negatively affect our business and operating results.
We have in the past experienced higher than expected demand for our
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. Due to the complex nature
of our products and manufacturing processes, the worldwide demand for some
wireless technology components and other factors, we can offer no assurance that
delays in the delivery of products will not occur in the future.
WIRELESS COMMUNICATIONS AND NETWORKING MARKETS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE AND TO COMPETE, WE MUST CONTINUALLY INTRODUCE NEW PRODUCTS
THAT ACHIEVE BROAD MARKET ACCEPTANCE.
The wireless communications industry is characterized by rapid technological
change, short product life cycles and evolving industry standards. To remain
competitive, we must develop or gain access to new technologies in order to
increase product performance and functionality, reduce product size and maintain
cost-effectiveness.
Our success is also dependent on our 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, from time to time, we have experienced delays in
developing and introducing new products. Due to the intensely competitive nature
of our business, any delay in the commercial availability of new products could
materially and adversely affect our business, reputation and operating results.
In addition, if we are unable to develop or obtain access to advanced wireless
networking technologies as they become available, or are unable to design,
develop and introduce competitive new products on a timely basis, or are unable
to hire or retain qualified
12
<PAGE> 13
engineers to develop new technologies and products, our future operating results
would be materially and adversely affected. We have expended substantial
resources in developing products that are designed to conform to the IEEE 802.11
standard that received final approval in June 1997. We can offer no assurance,
however, that our IEEE 802.11 compliant products or the IEEE 802.11 standard
will have a meaningful commercial impact.
In 1999, the IEEE approved a new 2.4 GHz wireless LAN standard, designated
as 802.11b. Based on direct sequence spread spectrum technology, this new
standard increased the nominal data rate from 2 Mbps to 11 Mbps. We have not
developed products that comply with the IEEE 802.11b standard. While 802.11b
technology is available to develop or acquire in the market, there can be no
assurance that we will develop or acquire such technology, or that if we do
develop or acquire such technology, that our products will be competitive in the
market. In addition, we are developing higher-speed frequency hopping technology
based on the FCC Notice of Proposed Rulemaking, or NPRM, that will allow for
wider band hopping channels and increase the data rate from 1.6 Mbps to up to 10
Mbps. There can be no assurance that the NPRM will be approved, or that if the
NPRM is approved, that we will be able to complete our development of 10 Mpbs
frequency hopping products in a timely manner, or that any such new products
will compete effectively with IEEE 802.11b standard compliant products.
The IEEE approved a new 5 GHz wireless LAN standard designated as 802.11a.
This new standard is based on Orthogonal Frequency Division Multiplexing, or
OFDM, technology with multiple data rates ranging from below 10 Mbps to
approximately 50 Mbps. In 1999, the European Telecommunications Standards
Institute Project BRAN (Broadband Radio Access Networks) committee approved a
new 5 GHz wireless LAN standard designated as HiperLAN2, also based on OFDM
technology. While these two new 5 GHz standards apply to future generations of
technology, and no companies are currently shipping wireless LAN products based
on these technologies, the emergence of these standards may diminish the
competitiveness of our planned introduction of 5 GHz products based on the
HiperLAN1 standard. Furthermore, we are not currently developing products based
on either of these two new standards, and there can be no assurance that we will
develop or acquire technology compliant with these standards.
In addition, we are a core member of the HomeRF WG, an industry consortium
that is establishing an open industry standard, called the 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. We can offer no assurance that the HomeRF WG
SWAP specification, or the SWAP-based Symphony products that we develop to
comply with the specification will have a meaningful commercial impact. Further,
given the emerging nature of the wireless LAN market, we can offer no assurance
that our RangeLAN2 and Symphony products and technology, or our other products
or technology, will not be rendered obsolete by alternative or competing
technologies.
If we are unable to enter a particular market in a timely manner with
internally developed products, we may license technology from other businesses
or acquire other businesses as an alternative to internal research and
development. In this regard, in the fourth quarter of 1997, we recorded a charge
of $2,500,000 to in-process research and development related to a license of
technology to be used in 5 GHz highspeed in-building wireless LAN products. In
1999, we recorded a total of $7,883,000 in charges related to acquisition of 5
GHz ultra-broadband wireless building-to-building products.
THE WIRELESS LOCAL AREA NETWORKING MARKET IS INTENSELY COMPETITIVE AND SOME OF
OUR COMPETITORS ARE LARGER AND BETTER ESTABLISHED.
The wireless local area networking market is extremely competitive and we
expect that competition will intensify in the future. Increased competition
could adversely affect our business and operating results through pricing
pressures, the loss of market share and other factors. The principal competitive
factors in the wireless LAN market include the following:
- data throughput;
13
<PAGE> 14
- effective RF coverage area;
- interference immunity;
- network scalability;
- price;
- integration with voice technology;
- wireless networking protocol sophistication;
- ability to support industry standards;
- roaming capability;
- power consumption;
- product miniaturization;
- product reliability;
- ease of use;
- product costs;
- product features and applications;
- product time to market;
- product certifications;
- brand recognition;
- OEM partnerships;
- marketing alliances;
- manufacturing capabilities and experience;
- effective distribution channels; and
- company reputation.
We could be at a disadvantage to competitors, particularly Cisco Systems and
Lucent Technologies, that have broader distribution channels and brand
recognition and offer more diversified product lines.
We have several competitors in our commercial wireless LAN business,
including Breezecom, Cisco Systems (which acquired Aironet Wireless
Communications), Intersil, Lucent Technologies, Nokia, Symbol Technologies and
3COM, among others. We also face 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, we 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, we could face competition from certain of our OEM customers, which
have, or could acquire, wireless engineering and product development
capabilities. We can offer no assurance that we will be able to compete
successfully against these competitors or those competitive pressures we face
will not adversely affect our business or operating results.
Many of our present and potential competitors have substantially greater
financial, marketing, technical and other resources with which to pursue
engineering, manufacturing, marketing, and distribution of their products. These
competitors 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. We can offer no
assurance that we will succeed in developing products or technologies that are
more effective than those developed by our competitors. Furthermore, we compete
with companies that have high volume manufacturing and extensive marketing and
distribution capabilities, areas in which we have only limited experience. We
can offer no
14
<PAGE> 15
assurance that we will be able to compete successfully against existing and new
competitors as the wireless LAN market evolves and the level of competition
increases.
WE DEPEND UPON INTERNATIONAL SALES AND OUR ABILITY TO SUSTAIN AND INCREASE
INTERNATIONAL SALES IS SUBJECT TO MANY RISKS, WHICH COULD ADVERSELY AFFECT OUR
OPERATING RESULTS.
Revenue from shipments by us to customers outside the United States,
principally to a limited number of distributors and OEM customers, represented
20%, 21% and 17% of total revenue during the first quarter of 2000, and calendar
years 1999 and 1998, respectively. We expect 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:
- changes in foreign government regulations and telecommunications
standards;
- export license and documentation requirements;
- tariffs, duties taxes and other trade barriers;
- fluctuations in currency exchange rates;
- longer payment cycles for international distributors;
- difficulty in collecting accounts receivable;
- competition from local manufacturers with lower costs;
- difficulty in staffing and managing foreign operations; and
- potential political and economic instability.
While international sales are typically denominated in U.S. dollars and we
typically extend limited credit terms, fluctuations in currency exchange rates
could cause our products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. We can offer no assurance that foreign markets will continue to develop
or that we will receive additional orders to supply our products to foreign
customers. Our business and operating results could be materially and adversely
affected if foreign markets do not continue to develop or if we do not receive
additional orders to supply our 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. In this regard, in the third quarter of 1997 and continuing
through the second quarter of 1998, we experienced a significant decrease in
orders from NTT-IT, one of our major Japanese customers, resulting in a
significant decrease in quarterly revenue and an operating loss in the third
quarter of 1997.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD ADVERSELY AFFECT
OUR ABILITY TO COMPETE EFFECTIVELY.
We rely on a combination of patents, trademarks, non-disclosure agreements,
invention assignment agreements and other security measures in order to
establish and protect our proprietary rights. We have been issued seven U.S.
patents, which were issued in 1991, 1993, 1995, 1998 and 1999, and are important
to our current business, and we have three patent applications pending in the
U.S., which relate to our core technologies and product designs. We can offer 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
our technology. In addition, we can offer no assurance that any patents issued
to us will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will adequately protect us. 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, we cannot be certain that we first created the
inventions covered by our issued patents or pending patent
15
<PAGE> 16
applications or that we were the first to file patent applications for such
inventions or that we are not infringing on the patents of others. In addition,
we have filed, or reserved our rights to file, a number of patent applications
internationally. We can offer no assurance that any international patent
application will issue or that the laws of foreign jurisdictions will protect
our proprietary rights to the same extent as the laws of the United States.
Although we intend to protect our rights vigorously, there can be no
assurance that the measures we have taken or may take to protect our proprietary
rights will be successful. Litigation may be necessary to enforce our patents,
trademarks or other intellectual property rights, to protect our trade secrets,
to determine the validity and scope of the proprietary rights of others, to
establish the validity of any technology licenses offered to patent infringers,
or to defend against claims of infringement. Litigation could result in
substantial costs and diversion of resources and could materially and adversely
affect our business and operating results. Moreover, we can offer no assurance
that in the future these rights will be upheld. Furthermore, there can be no
assurance that any of our issued patents will provide a competitive advantage or
will not be challenged by third parties or that the patents of others will not
adversely impact our ability to do business. As the number of products in the
wireless LAN market increases, and related features and functions overlap, we
may become increasingly subject to infringement claims. These claims also might
require us 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, we could obtain
such royalty or license agreements on terms acceptable to management. There can
be no assurance that the measures we have taken or may take in the future will
prevent misappropriation of our technology or that others will not independently
develop similar products, design around our proprietary or patented technology
or duplicate our products.
WE NEED TO EFFECTIVELY MANAGE OUR GROWTH.
Our growth to date has caused, and will continue to cause, a significant
strain on our management, operational, financial and other resources. Our
ability to manage growth effectively will require us to improve our 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 our management team to effectively manage
growth, should it occur, could materially and adversely affect our business and
operating results.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS IN MULTIPLE JURISDICTIONS WHERE WE SELL
OUR PRODUCTS IS DIFFICULT AND COSTLY.
In the United States, we are subject to various Federal Communications
Commission, or FCC, rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum. Our
spread spectrum wireless products are certified for unlicensed operation in the
902 -- 928 MHz, 2.4 -- 2.4835 GHz, 5.15 -- 5.35 GHz and 5.725 -- 5.825 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 frequency. 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 our products experience excessive
interference from primary users, market acceptance of our products could be
adversely affected, which could materially and adversely affecting our business
and operating results. The FCC, however, has established certain standards that
create an irrefutable presumption of noninterference for Part 15 users and we
believe that our products comply with such requirements. We can offer no
assurance that the occurrence of regulatory changes, including changes in the
allocation of available frequency spectrum, changes in the use of allocated
frequency spectrum, or modification to the standards establishing an irrefutable
presumption for unlicensed Part 15 users, would not significantly affect our
operations by rendering current products obsolete, restricting the applications
and markets served by our products or increasing the opportunity for additional
competition.
16
<PAGE> 17
Our products are also subject to regulatory requirements in international
markets and, therefore, we must monitor the development of spread spectrum and
other radio frequency regulations in certain countries that represent potential
markets for our products. While we can offer no assurance that we will be able
to comply with regulations in any particular country, we design our RangeLAN2,
RangeLAN802, Symphony and SWAP-based Symphony products to minimize the design
modifications required to meet various 2.4 GHz international spread spectrum
regulations. In addition, we will seek to obtain international certifications
for the Symphony and SWAP-based Symphony product line in countries where there
is a substantial market for home PCs and Internet connectivity. Changes in, or
the failure by us to comply with, applicable domestic and international
regulations could materially adversely affect our business and operating
results. In addition, with respect to those countries that do not follow FCC
regulations, we may need to modify our products to meet local rules and
regulations.
Regulatory changes by the FCC or by regulatory agencies outside the United
States, including changes in the allocation or use of available frequency
spectrum, could significantly affect our operations by restricting our
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 Part 15 Subpart E which regulates U-NII devices
operating in the 5.15 -- 5.35 GHz and 5.725 -- 5.825 GHz frequency bands. In
June 1999, the FCC issued a 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, that
could materially and adversely affect our business and operating results.
THERE MAY BE POTENTIAL HEALTH AND SAFETY RISKS RELATED TO OUR PRODUCTS WHICH
COULD NEGATIVELY AFFECT OUR BUSINESS AND PRODUCT SALES.
The intentional emission of electromagnetic radiation has been the subject
of recent public concern regarding possible health and safety risks, and though
our products, when installed in any of the intended configurations, are designed
not to exceed the maximum permissible exposure limits listed in Section 1.1311
of the FCC Regulations, we can offer no assurance that safety issues will not
arise in the future and materially and adversely affect our business and
operating results.
TO COMPETE EFFECTIVELY, WE MUST ESTABLISH AND EXPAND NEW DISTRIBUTION CHANNELS
FOR OUR HOME NETWORKING PRODUCTS.
To date, a substantial percentage of our revenue has been derived from OEM
customers through our direct sales force. We sell our branded RangeLAN2 products
through domestic and international distributors. We are also establishing new
distribution channels for our Symphony family of cordless home and small office
networking products. Symphony products are currently sold through national
retailers such as Best Buy, CompUSA, OfficeMax, Office Depot and Staples
computer retailers such as Fry's Electronics, J&R Computer World, BrandSmart,
Comp-u-Tech, DataVision, Nationwide, leading computer catalogs such as CDW,
MobilePlanet and PC Connection, and numerous on-line retail sites over the
Internet, including our e-commerce Web site at www.proxim.com. In general,
distributors and retailers offer products of several different companies,
including products that may compete with our products. Accordingly, they may
give higher priority to products of other suppliers, thus reducing their efforts
to sell our products. Agreements with distributors and retailers are generally
terminable at their option. Any reduction in sales efforts or termination of a
relationship may materially and adversely affect our business and 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 our future operating results.
17
<PAGE> 18
IF WE LOSE KEY PERSONNEL OR WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL
AS NECESSARY, WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR BUSINESS OR ACHIEVE
OUR OBJECTIVES.
We are highly dependent on the technical and management skills of our key
employees, in particular David C. King, Chairman, President and Chief Executive
Officer, and Juan Grau, Vice President of Engineering. We do not have employment
agreements with or life insurance on the life of, either person. In addition,
given the rapid technological change in this industry, we believe that the
technical expertise and creative skills of our engineers and other personnel are
crucial in determining our future success. The loss of the services of any key
employee could adversely affect our business and operating results. Our success
also depends in large part on a limited number of key marketing and sales
employees and on our 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. We can offer
no assurance that we will be successful in retaining our key employees or that
we can attract, assimilate or retain the additional skilled personnel as
required.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
Recently, the price of our common stock has been volatile. We believe that
the price of our common stock may continue to fluctuate, perhaps substantially,
as a result of factors including:
- announcements of developments relating to our business;
- fluctuations in our 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 us or our competitors;
- developments in patent, copyright or other intellectual property rights;
and
- developments in our relationships with customers, distributors and
suppliers.
In the third quarter of 1997, we announced revenue and operating results
below expectations of securities analysts and investors, resulting in a decrease
in the market price of our 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 our common stock will not experience
significant fluctuations in the future, including fluctuations that are
unrelated to our performance.
YEAR 2000 COMPLIANCE
We are currently not aware of any Year 2000 problem in our products,
critical systems or services. However the success today of our Year 2000 efforts
cannot guarantee that a Year 2000 problem affecting third parties upon which we
rely will not become apparent in the future.
18
<PAGE> 19
PART II
ITEM 5. OTHER INFORMATION
Pursuant to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934, the
proxies of management would be allowed to use their discretionary voting
authority with respect to any non Rule 14a-8 stockholder proposal raised at our
annual meeting of stockholders, without any discussion of the matter in the
proxy statement, unless the stockholder has notified us of such proposal at
least 45 days prior to the month and day on which we mailed our prior year's
proxy statement. Since we mailed its proxy statement for the 2000 annual meeting
of stockholders on April 24, 2000, the deadline for receipt of any such
stockholder proposal for the 2001 annual meeting of stockholders is March 16,
2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
None.
B. Reports on Form 8-K:
The Company filed two reports on Form 8-K during the quarter ended March 31,
2000. Information regarding the items reported on is as follows:
<TABLE>
<CAPTION>
DATE ITEM REPORTED ON
- ---- ----------------
<S> <C>
January 6, 2000 The company announced the acquisition of Wavespan
Corporation.
February 16, 2000 In connection with the acquisition of Wavespan
Corporation the company filed financial statements.
</TABLE>
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 15th day of May 2000.
PROXIM, INC.
By: /s/ Keith E. Glover
--------------------------------------------
Keith E. Glover,
Vice President of Finance and Administration
and Chief Financial Officer
Dated: May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 41,939
<SECURITIES> 21,401
<RECEIVABLES> 16,755
<ALLOWANCES> 0
<INVENTORY> 18,983
<CURRENT-ASSETS> 103,272
<PP&E> 17,253
<DEPRECIATION> 9,416
<TOTAL-ASSETS> 148,017
<CURRENT-LIABILITIES> 7,949
<BONDS> 0
0
0
<COMMON> 130,065
<OTHER-SE> 7,703
<TOTAL-LIABILITY-AND-EQUITY> 148,017
<SALES> 20,051
<TOTAL-REVENUES> 20,051
<CGS> 10,926
<TOTAL-COSTS> 10,926
<OTHER-EXPENSES> 7,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,177
<INCOME-PRETAX> 3,228
<INCOME-TAX> 1,130
<INCOME-CONTINUING> 2,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,098
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.14
</TABLE>
