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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, 1996
OR
/ / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
______________
Commission File Number 0-21034
PROXIMA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3740880
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9440 Carroll Park Drive
San Diego, California 92121
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (619) 457-5500
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: Common Stock, $.001
par value per share, 7,181,390 shares as of July 29, 1996.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROXIMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
-------- --------
June 30, March 31,
1996 1996
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,403 $ 2,389
Short-term investments 18,750 19,032
Accounts receivable, net 19,530 27,255
Inventories (note 2) 27,603 24,416
Deferred income taxes 3,032 2,864
Prepaid expenses and other 962 809
-------- --------
Total current assets 80,280 76,765
-------- --------
PROPERTY 7,459 7,189
-------- --------
OTHER ASSETS
Investment in affiliate (note 3) 1,104 4,485
Deferred income taxes 866 874
Patents 450 497
Other 378 448
-------- --------
Total other assets 2,798 6,304
-------- --------
TOTAL $ 90,537 $ 90,258
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,034 $ 9,469
Accrued expenses 4,830 5,555
Income taxes payable 1,254 2,064
-------- --------
Total current liabilities 21,118 17,088
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY
Preferred stock, authorized--5,000,000 shares,
par value $.001, no shares issued or outstanding
Common stock, authorized--40,000,000 shares,
par value $.001, issued and outstanding--
7,168,000 and 7,120,000 shares, respectively 7 7
Paid-in capital 39,881 39,399
Treasury stock--225,000 shares held (1,750) (1,750)
Retained earnings 31,281 35,514
-------- --------
Total stockholders' equity 69,419 73,170
-------- --------
TOTAL $ 90,537 $ 90,258
======== ========
See notes to consolidated financial statements.
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PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three months ended
June 30,
---------------------------
1996 1995
-------- --------
(unaudited) (unaudited)
SALES $ 35,039 $ 32,960
COST OF SALES 24,939 21,439
-------- --------
Gross profit 10,100 11,521
-------- --------
OPERATING EXPENSES
Selling and marketing 6,669 4,437
Research and development 4,484 2,773
General and administrative 1,837 1,537
-------- --------
Total 12,990 8,747
-------- --------
INCOME (LOSS) FROM OPERATIONS (2,890) 2,774
-------- --------
OTHER INCOME (EXPENSE)
Interest and other income 320 186
Equity in loss of affiliate (note 3) (283) (208)
Gain on sale of subsidiary's assets (note 5) 2,679 --
Write-down of investment in affiliate (note 3) (3,905) --
-------- --------
Total (1,189) (22)
-------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (4,079) 2,752
PROVISION FOR INCOME TAXES 154 1,104
-------- --------
NET INCOME (LOSS) $ (4,233) $ 1,648
======== ========
EARNINGS (LOSS) PER SHARE DATA (NOTE 1)
Earnings (loss) per share $ (0.59) $ 0.24
======== ========
Weighted average common and common
equivalent shares (note 1) 7,207 6,963
======== ========
See notes to consolidated financial statements.
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PROXIMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended June 30,
---------------------------
1996 1995
-------- --------
(unaudited) (unaudited)
OPERATING ACTIVITIES
Net income (loss) $ (4,233) $ 1,648
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 834 644
Provision for allowance for doubtful accounts (210) 357
Benefit from deferred income taxes (160) (38)
Tax benefit from stock option exercises 206 351
Gain on sale of subsidiary's assets (2,679) --
Write-down of investment in affiliate 3,905 --
Changes in assets and liabilities, net of effects from sale of
subsidiary's assets:
Accounts receivable 5,714 5,867
Income taxes payable (810) 14
Inventories (5,334) (2,320)
Prepaid expenses and other assets (181) 500
Accounts payable and accrued expenses 5,426 (7,033)
-------- --------
Net cash provided by (used for) operating activities 2,478 (10)
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of subsidiary's assets 7,259 --
Acquisition of property (1,785) (1,149)
Short-term investments decrease 282 6,472
Investment in affiliate (524) (913)
Other 28 (201)
-------- --------
Net cash provided by investing activities 5,260 4,209
-------- --------
FINANCING ACTIVITIES
Sale of common stock 276 324
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,014 4,523
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,389 3,304
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,403 $ 7,827
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 905 $ 28
======== ========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared by Proxima
Corporation (the "Company"), without audit, in accordance with the instructions
to Form 10-Q and therefore does not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in accordance with generally accepted accounting principles.
In the opinion of management, the unaudited consolidated financial statements
for the interim periods presented reflect all adjustments (solely of a normal
recurring nature) which are necessary for a fair presentation of the financial
position and results of operations as of and for the periods indicated. These
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended March
31, 1996.
Earnings (loss) per share is computed based on the weighted average number of
common and common equivalent shares outstanding during each period using the
treasury stock method, in which any shares that could have been purchased on the
open market with the funds received from the exercise of options or warrants are
not considered additional outstanding stock and have no dilutive effect on
earnings per share. Stock options are considered to be common stock equivalents.
Primary earnings (loss) per share is not significantly different from undiluted
earnings (loss) per share based on the weighted average number of common shares
outstanding for the three months ended June 30, 1996. Primary earnings (loss)
per share is not significantly different from fully diluted earnings (loss) per
share for any of the periods indicated.
For ease of presentation, the Company has indicated its fiscal year as ending on
March 31 and its first fiscal quarter as ending on June 30, whereas the Company
operates and reports on a 52-53 week fiscal year ending on the Sunday closest to
March 31. Each fiscal quarter presented herein included 13 weeks.
Results for the interim periods presented herein are not necessarily indicative
of results which may be reported for any other interim period or for the entire
fiscal year.
2. INVENTORIES:
June 30, March 31,
1996 1996
(unaudited)
Raw materials $ 3,809,000 $ 3,974,000
Work-in-process 12,261,000 10,887,000
Finished goods 11,533,000 9,555,000
----------- -----------
Total $27,603,000 $24,416,000
=========== ===========
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3. OTHER ASSETS--INVESTMENT IN AFFILIATE
In May 1993 the Company purchased 125,000 shares of Laser Power Corporation
("LPC") common stock for $255,000 and has subsequently purchased, through June
30, 1996, 1,611,000 shares of LPC Series A Preferred Stock for $6,444,000. The
Company has also entered into agreements providing for technology licenses
between the Company and LPC and the cooperative development of new technologies.
At June 30, 1996, the Company owned 125,000 shares of LPC common stock and
1,611,000 shares of LPC Series A Preferred Stock for a total investment of
$6,699,000.
At June 30, 1996, the Company owned approximately 29% of the outstanding voting
stock of LPC. The Company accounts for its investment under the equity method.
The Company's share of the net losses of LPC of $283,000 for the first quarter
of fiscal 1997 is reflected in the accompanying Consolidated Statements of
Operations. This item includes approximately $195,000 for the amortization of
the excess of the cost of the investment over the underlying equity in net
assets of LPC.
The Company recorded a write-down of $3,905,000 against its investment in LPC
during the quarter ended June 30, 1996. The remaining investment balance of
$1,104,000, shown on the accompanying balance sheet as of June 30, 1996,
reflects the Company's equity in the net assets of LPC, less a valuation
reserve. This remaining investment in LPC was determined by an analysis of
discounted and undiscounted estimated cash flows from the investment. The
Company deemed it necessary to review its investment in LPC because of
information obtained upon the completion of the first engineering model of a
microlaser projector in July 1996. That engineering model demonstrated that the
microlaser projector development would take more time and would be more costly
than anticipated, and that component costs would exceed earlier expectations.
The Company now believes that microlaser technology will initially be suited for
the higher-cost specialty projector market, which offers lower unit volumes than
originally contemplated.
The Company has entered into an equipment line of credit agreement with LPC to
provide up to $1,000,000 to LPC for the acquisition of equipment for projector
development. The line of credit carries interest at 1.5% over the prime rate for
a term of 48 months. The line of credit is secured by the equipment acquired and
is guaranteed by a principal of LPC. At June 30, 1996, the total amount borrowed
pursuant to the line of credit was $293,000. This amount is included in "Other"
assets in the accompanying balance sheets.
4. LINE OF CREDIT
At June 30, 1996, the Company had available a credit arrangement with a bank
providing for a $13.0 million revolving line of credit, secured by accounts
receivable, inventories and equipment, at an interest rate equal to the bank's
prime rate, with $3.0 million of the line available for the purchase of fixed
assets, at an interest rate of one-half percent over the bank's prime rate. The
credit arrangement contains standard covenants relating to financial ratios. The
Company is in compliance with all such covenants. No borrowings were made under
this or any previous credit arrangement during fiscal year 1996 or during the
first three months of fiscal 1997. The credit arrangement expires on July 31,
1997.
5. SALE OF SUBSIDIARY'S ASSETS
On June 28, 1996, the Company entered into an agreement to sell the assets of
its wholly-owned power protection subsidiary, Newpoint Corporation, in a cash
transaction totaling approximately $7.3 million. Newpoint accounted for less
than 10% of the Company's revenues, assets and operating income during fiscal
year 1996. A pre-tax gain on the sale of assets of $2,679,000 is reflected
in the Consolidated Statement of Operations for the three-month period ended
June 30,
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1996, under "Gain on sale of subsidiary's assets." The agreement provides for
potential adjustments to the sales price based on an independent audit of the
Newpoint assets within 60 days from the date of the agreement, and on such
factors as collectability of receivables and inventory obsolescence for up to
one year after the date of the agreement. The Company has established reserves
that it considers sufficient to cover any such adjustments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company offers broad lines of data and video projection products.
The Company's projection products include integrated multimedia projectors
capable of supporting full-motion video and sound directly from a computer or
VCR, projection panels also capable of supporting full-motion video when placed
on a standard overhead projector, and the Cyclops pointer system, a unique fully
interactive command and control system. All of the Company's projection products
are designed for interactivity and ease of use.
NEWPOINT SUBSIDIARY
On June 28, 1996, the Company sold the assets of its Newpoint
Corporation power protection subsidiary for approximately $7.3 million,
resulting in a pre-tax gain of $2,679,000. Newpoint represented less than 10% of
the Company's sales, assets and operating income during fiscal year 1996.
RESULTS OF OPERATIONS
The following table sets forth certain data as a percentage of sales:
THREE MONTHS ENDED
JUNE 30,
--------
1996 1995
----- -----
Sales 100.0% 100.0%
Cost of sales 71.2 65.0
----- -----
Gross profit 28.8 35.0
----- -----
Operating expenses:
Selling and marketing 19.0 13.5
Research and development 12.8 8.4
General and administrative 5.3 4.7
----- -----
Total 37.1 26.6
----- -----
Income (loss) from operations (8.3) 8.4
----- -----
Other income (expense)
Interest and other income 0.9 0.5
Equity in loss of affiliate (0.8) (0.6)
Gain on sale of subsidiary's assets 7.6 --
Write-down of investment in affiliate (11.1) --
----- -----
Total (3.4) (0.1)
----- -----
Income (loss) before income taxes (11.7) 8.3
Provision for income taxes 0.4 3.3
----- -----
Net income (loss) (12.1)% 5.0%
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NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report contains 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 relating to future expenses and results, uses for
microlaser technology, and liquidity and capital resources. All forward-looking
statements included in this report are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statement. It is important to note that actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below.
FIRST QUARTER FISCAL 1997 COMPARED TO FIRST QUARTER FISCAL 1996
Sales
The Company's sales increased 6% to $35.0 million in the first quarter
of fiscal year 1997 from $33.0 million in the first quarter of fiscal year 1996.
The increase in sales was primarily attributable to sales of the Company's
integrated multimedia projector products, partially offset by reduced sales of
LCD display panels. Overall, an increase in unit sales was partially offset by a
decrease in average selling prices attributable to price reductions and
promotional discounts.
Gross Profit
Gross profit as a percentage of sales decreased from 35.0% in the first
quarter of fiscal 1996 to 28.8% in the comparable quarter of fiscal 1997. The
decrease in gross profit as a percentage of sales for the quarter ended June 30,
1996 was primarily due to price reductions, promotional discounts and price
protection to the Company's dealers and distributors, partially offset by
component cost reductions.
Selling and Marketing Expenses
Selling and marketing expenses increased from $4,437,000 in the first
quarter of fiscal 1996 to $6,669,000 in the first quarter of fiscal 1997. As a
percentage of sales, selling and marketing expenses increased from 13.5% in the
first quarter of fiscal 1996 to 19.0% in the first quarter of fiscal 1997.
Selling and marketing expenses were higher primarily due to expenses associated
with new product introductions, product promotions and compensation expenses
related to sales. The Company expects selling and marketing expenses to increase
in dollar amount during the remainder of fiscal 1997, while selling and
marketing expenses as a percentage of sales will depend on sales volume.
Research and Development Expenses
Research and development expenses increased from $2,773,000 in the
first quarter of fiscal 1996 to $4,484,000 in the first quarter of fiscal 1997.
As a percentage of sales, research and development expenses were 8.4% in the
first quarter of fiscal 1996 and 12.8% in the first quarter of fiscal 1997.
Research and development expenses were higher primarily due to higher staffing
levels and expenses for outside R&D services required for the development of new
products. The Company expects research and development expenses to increase in
dollar amount during the remainder of fiscal 1997, while any change as a
percentage of sales will depend on sales volume.
General and Administrative Expenses
General and administrative expenses increased from $1,537,000 in the
first quarter of fiscal 1996 to $1,837,000 in the first quarter of fiscal 1997.
As a percentage of sales, general and administrative expenses increased from
4.7% in the first quarter of fiscal 1996 to 5.3% in the first quarter if fiscal
1997. General and administrative expenses were higher
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primarily due to higher staffing levels and associated costs. The Company
expects that general and administrative expenses as a percentage of sales will
vary from quarter to quarter.
Interest and Other Income
Interest and other income increased from $186,000 in the first quarter
of fiscal 1996 to $320,000 in the first quarter of fiscal 1997. The increase was
attributable to interest earned on higher average balances of cash and
short-term investments.
Write-down of Investment in Affiliate
The Company recorded a write-down of $3,905,000 of its investment in
LPC during the quarter ended June 30, 1996. The remaining investment balance of
$1,104,000, shown on the accompanying balance sheet as of June 30, 1996,
reflects the Company's equity in the net assets of LPC, less a valuation
reserve. The Company deemed it necessary to review its investment in LPC because
of information obtained upon the completion of the first engineering model of a
microlaser projector in July 1996. That engineering model demonstrated that the
microlaser projector development would take more time and would be more costly
than anticipated, and that component costs would exceed earlier expectations.
The Company now believes that microlaser technology will initially be suited for
the higher-cost specialty projector market, which offers lower unit volumes than
originally contemplated.
Income Taxes
The Company's effective tax rate was 40.1% in the first quarter of
fiscal 1996. In the first quarter of fiscal 1997, the Company had a provision
for income taxes was $154,000. The Company has not recognized any tax benefit
from the equity in loss of affiliate or from the write-down of its investment in
LPC.
REPURCHASE OF OUTSTANDING COMMON STOCK
On November 17, 1993, the Board of Directors authorized the Company to
repurchase up to $3,000,000 worth of the Company's common stock on the open
market. To date the Company has repurchased a total of 225,000 shares for
$1,750,000 at an average price of $7.80 per share. The repurchased shares are
shown as Treasury Stock in the accompanying balance sheets. The Company may
repurchase additional shares of its issued and outstanding common stock in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally funded its operations through cash flow
provided from operations. The net increase in cash and short-term investments
was $7.7 million in the three months ended June 30, 1996. The net increase in
cash and short-term investments in the first quarter of fiscal 1997 was
primarily due to a $7.8 million decrease in accounts receivable, $7.3 million
received on the sale of the assets of Newpoint Corporation, and a $5.5 million
increase in accounts payable, partially offset by a $4.2 million net loss, a
$3.2 million increase in inventories, and the acquisition of $1.7 million in
property. The decrease in accounts receivable during the first quarter of
fiscal 1997 was attributable to decreased sales volume. The increases in
accounts payable and inventories during the first quarter of fiscal 1997 were
attributable to the buildup of component parts for new product introductions.
Receivable days outstanding were 52 at March 31, 1996 and 56 at June 30, 1996.
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As of June 30, 1996, the Company had $29.2 million in cash and
short-term investments and $59.2 million in working capital, compared to $21.4
million in cash and short-term investments and $59.7 million in working capital
as of March 31, 1996. The Company had no debt at March 31 or June 30 of 1996.
The Company has a credit arrangement with a bank providing for a $13.0
million revolving line of credit, secured by accounts receivable, inventories
and equipment, at an interest rate equal to the bank's prime rate, with $3.0
million of the line available for the purchase of fixed assets, at an interest
rate of one-half percent over the bank's prime rate. The credit arrangement
contains standard covenants relating to financial ratios. The company is in
compliance with all such covenants. No borrowings were made under this or any
previous credit arrangement during fiscal year 1996 or during the first three
months of fiscal 1997. The credit arrangement expires on July 31, 1997. The
Company expects to be able to obtain a new credit arrangement under favorable
terms.
The Company believes that existing cash resources, together with cash
flow from operations and available lines of credit, will provide sufficient
funding for operations for the foreseeable future.
To date, inflation has not had a significant impact on the Company's
operating results.
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RISK FACTORS
The following discussion of risk factors describes certain aspects of
the business environment in which the Company operates. Users of this report
should carefully consider these risk factors in addition to the other
information in this report. As an example of the significant impact of risks
facing the Company, the Company reported earnings per share of $.47 in its
fourth quarter of fiscal 1996 and then reported a loss in its first quarter of
fiscal 1997 of $.27 per share, exclusive of the gain on the sale of assets of
Newpoint Corporation and the write-down of Proxima's investment in Laser Power
Corporation. The Company believes that this volatility has been primarily caused
by the occurrence of many of the issues discussed in the risk factors below.
SHORT PRODUCT LIVES AND TECHNOLOGICAL CHANGE
The market for multimedia projection products is characterized by
rapidly evolving technology and short product lives, with new products
frequently capturing significant market share. Anticipated product releases (and
particularly products incorporating new technology) by the Company or its
competitors often cause customers to delay purchases until such new products are
available. Any delays in purchases can significantly impact the Company's
results of operations. The Company's future success depends on its ability to
develop and manufacture, or to distribute under private label arrangements,
competitive products on a timely basis, particularly enhancements to and new
generations of multimedia projectors. There can be no assurance that the
Company's current or future products will continue to achieve market acceptance,
or that the Company will be able to develop or expand production of and deliver
new products in a timely manner.
Certain of the Company's competitors currently offer projectors that
directly compete with the Company's existing projector products on a
price/performance, feature and/or availability basis. The Company believes that
the sale of such products by the Company's competitors adversely affected sales
of the Company's projectors during the first and second quarters of fiscal 1996
and the first quarter of fiscal 1997. Although the Company continues to
introduce enhanced versions and new generations of its projector products, there
can be no assurance that the Company will be able to recapture market share.
More specifically, the Company has announced an intention to release numerous
new products during the first half of fiscal 1997. Such new products are
expected to account for more than 85% of the Company's sales during the second
half of fiscal 1997. This product transition is dependent upon timely delivery,
resolution of technical challenges and availability issues, price and
feature/function competitiveness, and overall market acceptance by distribution
and end-user customers. See "Sources of Supply," "Competition," "Variability of
Quarterly or Annual Results," and "Channels of Distribution." There can be no
assurance that the new product transition will be successful. Further, the
Company has previously disclosed that the announcement of new products (by both
the Company and its competitors) has caused a substantial decline in the sales
of the Company's present models, creating an expected material adverse effect on
the Company's results in the first half of fiscal 1997. Future new product
announcements may have a similar effect on sales of the Company's then-current
models. In any product transition, as new products are announced, the Company
may deem it necessary to substantially reduce prices on the then-present models
and/or write off certain inventory as obsolete.
In addition to the evolutionary changes in products and technologies
described above, several new technologies are currently in production or under
development by the Company or its competitors, including polysilicon LCD
modules, digital micromirrors, reflective silicon panels, and higher resolution
(SVGA and XGA) controllers. The Company or one or more of its competitors may
introduce additional products based on new technologies from time to time. The
Company believes that polysilicon technology, which has been developed and is
owned by numerous Japanese companies, will continue to improve on a
price/performance basis. See "Competition." Further, the Company believes that
the demand will increase for higher resolution (SVGA and XGA resolution)
projectors. There can be no assurance that the Company will be able to respond
to these technological shifts on a timely basis.
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SOURCES OF SUPPLY
Certain products and components which the Company resells or uses to
manufacture its products are available only from single sources. Although the
Company generally buys products and components under purchase orders and does
not have long-term agreements with its suppliers, the Company expects that its
suppliers will continue to attempt to meet its requirements. Alternate suppliers
are readily available for most of these items, but for certain other items, the
process of qualifying a replacement supplier and receiving replacement supplies
could take several months. For example, should a mold for plastic componentry
break or become unusable, repair or replacement could take several months. The
Company does not maintain sufficient inventory to allow it to fill customer
orders without interruption for more than a few weeks. Therefore, an extended
interruption in the supply of products or components would have a material
adverse effect on the Company's results of operations. Two of the Company's
major suppliers, Sharp and Hitachi, also compete with the Company. See
"Competition." The Company purchases many of its products and components from
suppliers located outside the United States. Policies adopted by the Company's
suppliers, trading policies adopted by the United States (such as anti-dumping
or other duties on imported components) or foreign governments, or fluctuations
in foreign exchange rates may at any time restrict the availability of products
or components or increase their cost. The Company has experienced product and
component shortages in the past and expects that it could again experience
product and component shortages in the future, particularly in the months
immediately following the introduction of new products.
COMPETITION
The Company's ability to compete in the highly competitive multimedia
projection products market depends on factors both within and outside its
control, including the success and timing of product introductions by the
Company and its competitors, product price, performance and features,
availability, product distribution and customer support. The Company expects
that new competitors will enter the market and that new or existing competitors
will introduce products which directly compete with the Company's existing
products on a performance and price basis. The Company's insight into its
competition and their development plans/dates is extremely limited and,
therefore, it is generally unable to forecast the impact of new competitive
products.
Some of the Company's current or potential competitors have greater
financial, technical, manufacturing and marketing resources than the Company and
may have lower cost structures and may be in a position to introduce products
incorporating advanced technologies ahead of the Company. A number of large
electronics and computer manufacturers such as Apple, Hewlett-Packard, Compaq,
Kyocera, Samsung and Texas Instruments, among others, have the resources to
enter the projection products market in direct competition with the Company,
employing potentially superior technologies and/or cost structures.
Announcements by one or more of the large manufacturers could cause customers to
delay or cease altogether purchases of the Company's products, which would have
a material adverse effect on the Company's results of operations. For example,
since the beginning of 1995, Epson, Fujitsu, Hitachi, 3M, IBM, Matsushita,
Philips, NEC, Sanyo, Sony, and Toshiba have each introduced or announced new
products addressing the same markets as certain of the Company's products.
Competition between the Company and its competitors in the market for
polysilicon LCD projectors has been
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and is expected to continue to be intense. The Company's polysilicon projector,
the DP5500, is sourced from Hitachi. Should Hitachi decide to aggressively enter
the Company's largest markets directly, the Company may sell fewer of these
units, potentially causing a material adverse effect on the Company's results of
operations.
PRICE REDUCTIONS
The Company has in the past significantly reduced prices on its product
lines and may do so again in the future to attempt to preserve or increase sales
volume. The Company expects price competition to continue to be intense and,
therefore, also expects continued downward pressure on its gross margins. The
Company provides price protection to its dealers and distributors such that, if
the Company reduces the price of its products, dealers and distributors are
entitled to a credit for the difference between the new, reduced price and the
price of products purchased and still held in their inventory at the time of the
price reduction. Any significant price reduction and the associated price
protection would have a material adverse impact on sales and gross margins and
therefore on the Company's results of operations for the period in which the
price reduction occurs, unless such price reduction were offset by higher unit
volume resulting from the price reduction. For example, the Company's series of
price reductions early in fiscal 1996 ranged up to 17% and did have a material
adverse effect on the results of operations during the first and second quarters
of fiscal 1996. The Company also reduced prices ranging up to approximately 25%
on certain of its multimedia projection products subsequent to the end of fiscal
1996 and thereafter experienced a revenue decline on those products in the first
quarter of fiscal 1997. The Company believes that such decline was primarily
attributable to the fact that the price reduction was not offset by higher unit
volumes. Future price reductions may have a similar material adverse effect.
VARIABILITY OF QUARTERLY OR ANNUAL RESULTS
A significant portion of the Company's shipments typically occur in the
last month of a quarter. Although the Company attempts to ship products to its
customers as promptly as practicable upon receipt of a purchase order, minor
timing differences between the receipt of customer purchase orders and the
Company's shipments to fill such orders can have a significant impact on the
Company's quarterly or annual results. These timing differences may be caused by
customers' ordering patterns or business cycles, or by the Company's production
capacity, component availability or technical challenges. When significant
variations occur between forecasts and actual orders, the Company is often
unable to reduce its fixed short-term expenses proportionately and in a timely
manner, which at times has had an adverse effect on operating results and could
have a similar effect in the future. For example, during fiscal 1996, the
Company and its suppliers encountered technological barriers and manufacturing
process problems on several of its new integrated projector products. The
Company was therefore unable to obtain enough components to meet the initial
demand for certain of its newer products. When breakthroughs were made on some
of these new products, the Company was able to ship a large volume of products
to fill past due orders. Component availability, quality control, production
yield, and technological factors have caused variations in quarterly and annual
results in the past, and may cause further volatility in future periods. The
Company's new projector products introduced or expected to be introduced in
fiscal 1997 may experience similar technical challenges and are also critically
dependent on the availability of supplier products and/or key components such as
LCD panels, light valves and power supplies.
The Company's rate of year-over-year revenue growth slowed
significantly in the first quarter of fiscal 1997 compared to the year earlier
period. The Company may not achieve in the future the rates of growth
experienced by the Company in fiscal years 1992 through 1996 or the rates of
growth projected for the multimedia projection products industry.
VOLATILITY OF STOCK PRICE
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The trading price of the Company's stock has been and is expected to
continue to be subject to immediate and wide fluctuations due to factors both
within and outside the Company's control, including but not limited to one or
more of the following: variations in operating results or financial position,
new product introductions or price changes by the Company or its competitors,
changes in product mix, product reviews by trade publications, estimates or
statements made by analysts regarding the Company or its industry, perceptions
formed at major trade shows regarding the Company or its industry, stock market
price fluctuations, and litigation. As is the case with other technology
companies, fluctuations in the market price of the Company's stock may result in
class action stockholder lawsuits against the Company. The Company settled such
a lawsuit in March 1995 and could be subject to similar lawsuits in the future.
The defense of such lawsuits could have a material adverse effect on the
Company's results of operations, whether or not any such lawsuits are
meritorious.
The Company believes that the variability of its quarterly and annual
operating results contributes to the volatility of the price of the Company's
common stock in the public market. As a result, investors should expect that
market reactions to announcements of the Company's actual or expected results of
operations for a particular quarter or annual period could be immediate and
severe. For example, during each of the first two quarters of fiscal 1996 and
during the first quarter of fiscal 1997, the Company announced that it expected
to experience a decline in revenues and/or earnings due to the effect of new
products introduced by competitors and limited availability of certain of the
Company's new products and related components. Each of these announcements
caused a sudden drop in the price of the Company's stock, along with an increase
in the trading volume of the Company's common stock.
CHANNELS OF DISTRIBUTION
The Company sells its products primarily through independent
presentation specialists, personal computer dealers and distributors, and
private label and OEM arrangements. These presentation specialists, dealers and
distributors ("resellers") may carry competing product lines and could reduce or
discontinue sales of the Company's products. There can be no assurance that
these resellers will devote the resources necessary to provide effective sales
and marketing support to the Company. In addition, to the extent that private
label and OEM customers do not purchase products as anticipated or switch to a
different supplier on short notice, the Company may be holding customized
inventories which are not salable to other customers and inventory write-downs
may result. In fiscal 1996, private label sales represented approximately 15% of
the Company's business. Any future phase-out of sales to any current or future
private label or OEM customers, or any reduction in sales to presentation
specialists, dealers and distributors, may have a material adverse effect.
Shifts in end-user preferences or the entry of a major new competitor
(see "Competition" above) may alter the relative importance of the channels of
distribution discussed above or may create entirely new channels of
distribution. The Company may incur significant costs in order to expand its
presence in existing channels of distribution or establish a presence in new
channels, which could have a material adverse effect on the Company's results of
operations.
CREDIT RISKS
Many of the resellers discussed above are small organizations with
limited capital. The Company continuously monitors and manages the credit it
extends to its resellers. However, from time to time, one or more of the
resellers owing debt to the Company may become insolvent. In the event of such
insolvency, the Company could experience disruptions in its distribution as well
as a loss of some or all of any outstanding accounts receivable. The Company's
objective is to increase international sales, including sales in emerging
markets such as China and Latin America. The Company believes that the credit
risks associated with resellers in emerging markets are materially greater than
those associated with the U.S. and European markets.
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INTELLECTUAL PROPERTY RIGHTS
From time to time, certain companies have asserted patent, copyright
and other intellectual property claims relevant to the Company's business and
the Company expects that this will continue. The Company evaluates each claim
relating to its products and, if appropriate, seeks a license. The Company has
previously been involved in intellectual property litigation with one of its
principal competitors in fiscal 1991 and 1992. During the course of the
litigation one of the Company's suppliers refused to supply components for a
product that was the subject of the dispute, and certain of the Company's
dealers declined to carry the product. As a result, the Company found it
necessary to redesign the disputed product family. The cumulative effect of the
litigation contributed to the Company's losses in fiscal 1991. Although the
eventual settlement in March 1992 had no material financial effect on the
Company, if any future legal action were to arise in which the Company's
products should be found to infringe upon intellectual property rights, the
Company could be enjoined from further infringement and required to pay damages,
which could have a material adverse effect on the Company's results of
operations.
DEPENDENCE ON EXPORT SALES
For fiscal 1995, 1996, and in the first quarter of fiscal 1997, sales
outside the United States and Canada represented approximately 38%, 39%, and
34%, respectively, of the Company's total sales. Sales outside the United
States are subject to the normal risks of international business activities,
such as protective tariff, export and import controls, transportation delays and
interruptions, and changes in demand resulting from fluctuations in exchange
rates. With respect to exchange rates, all of the Company's products sold in
international markets are denominated in U.S. dollars. An increase in the value
of the U.S. dollar relative to foreign currencies could make the Company's
products less price competitive in foreign markets. Any increase in
international sales may subject the Company to greater currency fluctuation risk
than it has faced in the past.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW; THE COMPANY'S CHARTER DOCUMENTS
Certain provisions of Delaware law and the charter documents of the
Company may have the effect of delaying, deferring or preventing changes in
control or management of the Company. The Company is subject to the provisions
of Section 203 of the Delaware General Corporation Law, which has the effect of
restricting changes in control of a company. The Company's Board of Directors
has authority to issue up to 5,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
such shares without any further vote or action by the stockholders.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Not applicable.
ITEM 2: CHANGES IN SECURITIES
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27 Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROXIMA CORPORATION
Dated: August 13, 1996 /s/ John E Rehfeld
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JOHN E. REHFELD
President and Chief Executive Officer
Dated: August 13, 1996 /s/ Dennis Whittler
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DENNIS A. WHITTLER
Vice President, Finance
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EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule