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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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)
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<S> <C>
DELAWARE 77-0059429
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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.
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<CAPTION>
Title of Class Outstanding as of June 30, 2000
-------------- -------------------------------
<S> <C>
Common Stock, par value $.001 per share 12,761,704
</TABLE>
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PROXIM, INC.
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheet at June 30, 2000 and December 31, 1999...................................... 3
Income Statement for the Three Months Ended and Six Months Ended
June 30, 2000 and 1999.................................................................. 4
Statement of Cash Flows for the Three Months Ended and Six Months Ended
June 30, 2000 and1 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 4. Submission of Matters to a Vote of Security Holders................................... 22
Item 5. Other Information.................................................................... 22
Item 6. Reports on Form 8-K.................................................................. 23
</TABLE>
2
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BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 30,371 $ 46,924
Marketable securities......................................... 21,006 21,341
Accounts receivable, net...................................... 23,522 15,819
Inventories................................................... 25,667 14,862
Deferred tax assets........................................... 3,390 3,390
Other current assets.......................................... 1,327 670
-------- --------
Total current assets...................................... 105,283 103,006
Property and equipment, net....................................... 7,957 7,157
Goodwill and other intangibles.................................... 31,746 13,637
Marketable securities, long-term.................................. 19,291 19,868
Equity investment................................................. 7,000 3,000
Deferred tax assets............................................... 1,200 1,200
-------- --------
$172,477 $147,868
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 7,769 $ 3,199
Other current liabilities..................................... 10,495 9,003
-------- --------
Total current liabilities................................ 18,264 12,202
Long-term debt.................................................... 542 542
Deferred tax liabilities.......................................... 4,827 1,758
-------- --------
Total liabilities......................................... 23,633 14,502
-------- --------
Commitments
Stockholders' equity:
Common Stock, $.001 par value, 100,000 shares authorized;
12,762 and 12,322 shares issued and outstanding............ 13 12
Additional paid-in capital.................................... 140,589 127,662
Unrealized losses on investments.............................. (314) (379)
Retained earnings............................................. 8,556 6,071
-------- --------
Total stockholders' equity................................ 148,844 133,366
-------- --------
$172,477 $147,868
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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PROXIM, INC.
INCOME STATMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue..................................................... $24,523 $16,341 $44,574 $31,460
Cost of revenue, including amortization of intangible
assets of $407 and $668 in the second quarter and first
six months of 2000, respectively......................... 15,551 8,632 26,477 16,536
------- ------- ------- -------
Gross profit................................................ 8,972 7,709 18,097 14,924
------- ------- ------- -------
Operating expenses:
Research and development................................ 2,889 2,291 5,705 4,423
Purchased in-process research and development........... 491 900 491 2,000
Selling, general and administrative..................... 4,468 3,140 8,266 6,236
Amortization of goodwill................................ 672 -- 1,132 --
------- ------- ------- -------
Total operating expenses............................. 8,520 6,331 15,594 12,659
------- ------- ------- -------
Income from operations..................................... 452 1,378 2,503 2,265
Interest and other income, net............................. 1,145 984 2,322 1,851
------- ------- ------- -------
Income before income taxes................................. 1,597 2,362 4,825 4,116
Provision for income taxes................................. 1,210 1,142 2,340 2,142
------- ------- ------- -------
Net income................................................. $ 387 1,220 $ 2,485 $ 1,974
======= ======= ======= =======
Basic net income per share................................. $ 0.03 $ 0.11 $ 0.20 $ 0.18
======= ======= ======= =======
Weighted average common shares............................ 12,665 11,260 12,573 11,000
======= ======= ======= =======
Diluted net income per share............................... $ 0.03 $ 0.09 $ 0.17 $ 0.16
======= ======= ======= =======
Weighted average common shares and equivalents............. 14,373 12,843 14,426 12,490
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 2,485 $ 1,974
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
In-process research and development.................................. 491 2,000
Depreciation......................................................... 1,424 814
Amortization......................................................... 1,800 --
Changes in assets and liabilities, net of acquisition effect:
Accounts receivable................................................ (5,485) 164
Inventories........................................................ (10,016) (719)
Other assets....................................................... (261) 36
Accounts payable................................................... 558 10
Other liabilities.................................................. (2,469) 2,825
-------- --------
Net cash provided by (used in) operating activities............ (11,473) 7,104
-------- --------
Cash flows used in investing activities:
Purchase of property and equipment................................. (2,078) (3,758)
Marketable securities.............................................. 977 (17,934)
Equity investments................................................. (4,000) (4,000)
Cash paid for acquisition of Farallon Communications, Inc.......... (2,907) --
-------- --------
Net cash used in investing activities.......................... (8,008) (25,692)
-------- --------
Cash flows provided by financing activities from issuance
of Common Stock, net................................................. 2,928 22,109
-------- --------
Net increase (decrease) in cash and cash equivalents................... (16,553) 3,521
Cash and cash equivalents, beginning of period......................... 46,924 39,117
-------- --------
Cash and cash equivalents, end of period............................... $ 30,371 $42,638
========= ========
</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
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 six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2000.
INVENTORIES (IN THOUSANDS)
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<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
Raw materials.................................. $14,122 $ 8,047
Work-in-process................................ 10,255 6,542
Finished goods................................. 1,290 273
------- -------
$25,667 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic Net Income per Share:
Net income available to Common Stockholders........... $ 387 $ 1,220 $ 2,485 $ 1,974
======= ======= ======= =======
Weighted average common shares........................ 12,665 11,260 12,573 11,000
======= ======= ======= =======
Basic net income per share............................ $ .03 $ .11 $ .20 $ .18
======= ======= ======= =======
Diluted Net Income per Share:
Net income available to Common Stockholders........... $ 387 $ 1,220 $ 2,485 $ 1,974
======= ======= ======= =======
Weighted average common shares........................ 12,665 11,260 12,573 11,000
Dilutive common stock equivalents..................... 1,708 1,583 1,853 1,490
------- ------- ------- -------
Weighted average common shares and equivalents........ 14,373 12,843 14,426 12,490
======= ======= ======= =======
Diluted net income per share.......................... $ .03 $ .09 $ .17 $ .16
======= ======= ======= =======
</TABLE>
Options to purchase 120,000 and 5,000 shares of common stock were
outstanding at June 30, 2000 and 1999, respectively, 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. Warrants to purchase 181,714 shares of common stock were
outstanding at June 30, 1999 and were antidilutive and excluded from the
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dilutive net income per share calculations in 1999 because the warrants'
exercise prices were greater than the average market price of the common shares.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
established new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS 133 requires that all derivatives be recognized at
fair value in the statement of financial position, and that the corresponding
gains or loses be reported either in the income statement or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
In July 1999, the Financial Accounting Standard Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133." SFAS 137 deferred the effective date of SFAS
133 until the first fiscal quarter beginning after June 15, 2000. In June 2000,
the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities - An Amendment of FASB Statement
No. 133." SFAS 138 amends the accounting and reporting standards for certain
derivatives and hedging activities such as net settlement contracts, foreign
currency transactions and inter company derivatives. We will adopt SFAS 133 in
the quarter ending March 31, 2001. We do not currently hold derivative
instruments or engage in hedging activities. We are continuing to evaluate the
impact of the requirements of SFAS 133, SFAS 137 and SFAS 138 will have on our
financial statements and related disclosures.
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. Management does not expect the
adoption of SAB 101 to have a material effect on our operations or financial
position.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB 25. This Interpretation clarifies
(a) the definition of employee for purposes of applying APB 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination.
FIN 44 is effective July 1, 2000, however certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. We do
not expect that the adoption of FIN 44 will have a significant effect on our
results of operations or our 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.
ACQUISITION OF FARALLON:
In June 2000, we acquired Farallon Communications, Inc., a privately-held
corporation located in California for 121,655 shares of our common stock and $4
million of cash. The total purchase price was $14.9 million, including
acquisition costs of $900,000, and the acquisition was accounted for as a
purchase. The results of operations of Farallon and the estimated fair value of
the assets acquired and liabilities assumed are included in financial
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statements from the date of acquisition. Intangible assets arising from the
acquisition are being amortized on a straight-line basis over one to five years.
Approximately $491,000 of the purchase price represents acquired in-process
technology that had not yet reached technological feasibility and has no
alternative future use. Accordingly, this amount was immediately charged to
expense upon consummation of the acquisition. The value assigned to acquired
in-process technology was determined by identifying research projects in areas
for which technological feasibility has not been established, estimating the
costs to develop the acquired in-process technology into commercially viable
products, estimating the resulting net cash flows from such projects, and
discounting the net cash flows back to their present value. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the acquired in-process technology. If these projects
are not successfully developed, future revenue and profitability may be
adversely affected. In the future, the value of other intangible assets acquired
may become impaired.
The allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 4,232
Property, plant and equipment............................... 145
OEM relationships........................................... 2,718
Core technology............................................. 1,483
Developed technology........................................ 1,291
Acquired workforce.......................................... 782
Tradename................................................... 908
Long-term deferred tax assets............................... (3,069)
Liabilities assumed......................................... (6,808)
Acquired in-process research and development................ 491
Goodwill.................................................... 12,727
--------
$14,900
========
</TABLE>
The following table represents unaudited pro forma financial information
for the six months ended June 30, 2000 and June 30, 1999 had Proxim, Farallon,
Wavespan and Micrilor been combined as of January 1, 1999 and 2000. The pro
forma financial information are presented for illustrative purposes only and are
not necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have resulted
had Proxim, Farallon Wavespan and Micrilor been a combined company during the
specified periods. The pro forma results include the effects of the amortization
of acquired intangible assets and goodwill and adjustments to the income tax
provision or benefits. The pro forma combined results exclude the $491,000 and
$5,883,0000 charge for acquired in-process technology from Farallon and Wavespan
acquisitions.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2000 1999 1999
------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue.............................. $54,762 $42,891 $82,008
Net loss............................. (798) (5,468) (6,866)
Basic net loss per share........... $ (.06) $ (.48) $ (.58)
======== ======== ========
Diluted net loss per share......... $ (.06) $ (.48) $ (.58)
======== ======== ========
</TABLE>
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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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue...................................... 63.4% 52.8% 59.4% 52.6%
------ ------ ------ ------
Gross profit......................................... 36.6% 47.2% 40.6% 47.4%
------ ------ ------ ------
Operating expenses:
Research and development.......................... 11.8% 14.0% 12.8% 14.1%
Purchased in-process research and development..... 2.0% 5.5% 1.1% 6.3%
Selling, general and administrative............... 18.2% 19.2% 18.5% 19.8%
Amortization of goodwill.......................... 2.7% -- 2.6% --
------ ------ ------ ------
Total operating expenses....................... 34.7% 38.7% 35.0% 40.2%
------ ------ ------ ------
Income from operations............................... 1.9% 8.5% 5.6% 7.2%
Interest and other income, net....................... 4.7% 6.0% 5.2% 5.9%
------ ------ ------ ------
Income before income taxes........................... 6.6% 14.5% 10.8% 13.1%
Provision for income taxes........................... 5.0% 7.0% 5.2% 6.8%
------ ------ ------ ------
Net income........................................... 1.6% 7.5% 5.6% 6.3%
====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased by 50% from $16.3 million in the second quarter of 1999
to $24.5 million in the second quarter of 2000. Revenue increased by 42% from
$31.5 million in the first six months of 1999 to $44.6 million in the first six
months of 2000. Revenue increased primarily due 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
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lesser extent, shipments of Symphony, SWAP-based Symphony and 5 GHz Stratum
products. The increases were partially offset by declining average selling
prices for RangeLAN2 and Symphony products, decreased revenue from 900 MHz
products and completion of non-recurring engineering contracts recognized by
Micrilor, Inc. in 1999.
GROSS PROFIT
Gross profit as a percentage of revenue was 36.6% in the second quarter of
2000 compared to 47.2% in the second quarter of 1999. Gross profit as a
percentage of revenue was 40.6% in the first six months of 2000 compared to
47.4% in the first six months of 1999. Included in cost of revenue in the second
quarter of 2000 was a charge of $407,000 for amortization of intangible assets
related to acquisitions and a charge of $1,859,000 related to first generation
IEEE 802.11 inventories. Excluding the amortization and the charge, gross profit
as a percentage of revenue was 45.8% in the second quarter of 2000. Gross profit
as a percentage of revenue decreased in the second quarter of 2000 compared to
the second quarter of 1999 due primarily to declining average selling prices for
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. Included in cost of revenue in the first six months of
2000 was a charge of $668,000 for amortization of intangible assets related to
acquisitions and a charge of $1,859,000 related to first generation IEEE 802.11
inventories. Excluding the amortization and the charge, gross profit as a
percentage of revenue was 46.3% in the first six months of 2000. Gross profit as
a percentage of revenue decreased in the first six months of 2000 compared to
the first six months of 1999 due primarily to declining average selling prices
for 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 26% from $2.3 million in the
second quarter of 1999 to $2.9 million in the second quarter of 2000. Research
and development expenses increased by 29% from $4.4 million in the first six
months of 1999 to $5.7 million in the first six months of 2000. Research and
development expenses increased primarily due to the increased number of
engineering employees, including employees added as a result of the Wavespan
acquisition, 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 the IEEE 802.11 standard,
and development of 5 GHz high-speed wireless LAN technology. Research and
development expenses as a percentage of revenue decreased in the interim periods
of 2000 compared to the interim periods of 1999 primarily due to increases in
revenue, partially offset by additional personnel costs and development program
expenses. 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
The amount expensed to purchased in-process research and development in the
second quarter of 2000 relates to products acquired with the Farallon purchase
transaction and was calculated by estimating fair value of technology currently
under development using the income approach, which discounts expected future
cash flows to present value. The discount rate used in the present value
calculation was 40%. The amounts expensed to purchased in-process research and
development during the first six months of 1999 related to a minority interest
investment in a startup company developing ultra-broadband wireless technology.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 42% from $3.14
million in the second quarter of 1999 to $4.47 million in the second quarter of
2000. Selling, general and administrative expenses increased by 33% from $6.24
million in the first six months of 1999 to $8.27 million in the first six months
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 and Farallon acquisitions, 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 interim periods of 2000
compared to the interim periods 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 interim periods of 2000
compared to the interim periods of 1999 primarily due to higher invested cash
balances.
INCOME TAXES
The effective tax rates in the second quarter of 2000 and 1999 were 76% and
48%, respectively. The effective tax rates in the first six months of 2000 and
1999 were 48% and 52%, respectively. The effective rate was higher than the
federal statutory rate of 35% plus the state statutory tax rate of 6%, net of
federal benefits, primarily due to expenses related to the cost of acquisitions
and equity investments that were not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 2000, $11,473,000 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 the effect of non cash charges. In the first six
months of 1999, $7,104,000 of cash and cash equivalents were provided by
operating activities, primarily by net income after the effect of non cash
charges. 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.
In the first six months of 2000 and 1999, we purchased $2,078,000 and
$3,758,000, respectively, of property and equipment. Capital expenditures in the
first six months of 2000 and 1999 were primarily for manufacturing and
engineering test equipment, purchased software and leasehold improvements for
our new facility.
In the first six months of 2000, we made an equity investment of $4,000,000
in a start-up company developing broadband gateway solutions. In the first six
months of 1999, we made equity investments of $4,000,000 in a wireless service
company and a start-up company developing ultra-broadband wireless products of
which was $2,000,000 was recorded as purchased in-process research and
development. The remaining $2,000,000 was recorded as an equity investment.
In the first six months of 2000, we generated $2,928,000 from issuance of
common stock for the exercise of employee stock options and employee stock
purchase plan purchases. In the first six months of 1999, we generated
$22,109,000 from issuance of common stock for equity investments and the
exercise of employee stock options and employee stock purchase plan purchases.
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At June 30, 2000, we had working capital of $87,019,000, including
$30,371,000 in cash and cash equivalents and $21,006,000 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.
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;
- excess and obsolete inventories related to evolving product
technologies and industry standards;
- the failure to anticipate changing customer product requirements;
- seasonality in demand;
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- 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 45%, 52% and 59% of
our sales during the first six months of 2000, and calendar years 1999 and 1998,
respectively, were to OEM customers. In addition, sales to one customer
represented approximately 14% of our revenue in the first six months 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 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
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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 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 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
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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 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 this
regard, in the second quarter of 2000, we recorded a charge of $1,859,000 to
cost of revenue related to first generation IEEE 802.11 inventories.
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 are
currently developing 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 Mbps 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 has 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
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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 or standards.
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 the acquisition of
5 GHz ultra-broadband wireless building-to-building products. In second quarter
of 2000, we recorded a charge of $491,000 related to acquisition of products
that address home and small office networking requirements, as well as Apple
Macintosh computer connectivity.
THE WIRELESS LOCAL AREA NETWORKING AND BUILDING TO BUILDING MARKETS ARE
INTENSELY COMPETITIVE AND SOME OF OUR COMPETITORS ARE LARGER AND BETTER
ESTABLISHED.
The wireless local area networking and building to building markets are
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 include the following:
- data throughput;
- 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 manufacturability;
- product features and applications;
- product time to market;
- product certifications;
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- 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 business, including
without limitation Breezecom, Cisco Systems (which acquired Aironet Wireless
Communications), Intersil, Lucent Technologies, Nokia, Symbol Technologies,
Western Multiplex and 3COM. 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 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 and building to building markets, 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 assurance that we will be able to compete
successfully against existing and new competitors as the wireless LAN and
building to building markets evolve 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
18%, 21% and 17% of total revenue during the first six months 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;
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- 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 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
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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.
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,
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
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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.
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, particularly
in Northern California where our headquarters are located. 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.
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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.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 25, 2000, the Annual Meeting of Stockholders of Proxim, Inc. (the
"Company") was held at 10:00 am, local time, at the Sunnyvale Hilton Inn, 1250
Lakeside Drive, Sunnyvale, California.
An election of directors was held with the following individuals being elected
to the Board of Directors of Proxim, Inc.:
Raymond Chin
Leslie G. Denend
David C. King
Gregory L. Reyes
Jeffrey D. Saper
Other matters voted upon at the meeting and the number of affirmative and
negative votes cast with respect to each such matter were as follows:
1. To approve an amendment to the Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 25,000,000
shares to 100,000,000 shares. The number of affirmative votes for this
proposal was 7,346,174, the number of negative votes was 3,722,577 and the
number of abstained votes was 13,781.
2. To approve an amendment to the Company's 1995 Long-Term Incentive Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000 shares. The number of affirmative votes for this
proposal was 5,228,698, the number of negative votes was 4,020,660 and the
number of abstained votes was 1,833,174.
3. To approve an amendment to the Company's 1993 Employee Stock Purchase Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares. The number of affirmative votes for this
proposal was 9,032,960, the number of negative votes was 220,331 and the
number of abstained votes was 1,829,241.
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending December 31, 2000.
The number of affirmative votes for this proposal was 11,066,784, the
number of negative votes was 3,841 and the number of abstained votes was
11,907.
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 10,
2001.
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Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
27.1 Financial Data Schedule.
B. Reports on Form 8-K:
None.
23
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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 14th day of August 2000.
PROXIM, INC.
By: /s/ Keith E. Glover
--------------------
Keith E. Glover,
Vice President of Finance and Administration
and Chief Financial Officer
Dated: August 14, 2000
24
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
