<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            -------------------------

                                    FORM 10-Q

(Mark One)

    [X]     Quarterly Report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934 for the quarterly period ended September 28,
            1997

                                               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, 7,454,580 shares as of November 2, 1997.


<PAGE>   2

PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                               PROXIMA CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                             September 30,   March 31,
                                                                 1997          1997
                                                             -------------   ---------
                                                              (unaudited)
<S>                                                            <C>           <C>     
ASSETS
    CURRENT ASSETS
       Cash and cash equivalents                               $  6,359      $  5,556
       Short-term investments                                    16,333        12,455
       Accounts receivable, net                                  29,260        32,701
       Inventories (note 2)                                      13,811        22,359
       Deferred income taxes                                      5,424         5,199
       Income taxes receivable                                      981            --
       Prepaid expenses and other                                   626           666
                                                               --------      --------
          Total current assets                                   72,794        78,936
                                                               --------      --------
    PROPERTY, NET                                                 4,112         5,756
                                                               --------      --------
    OTHER ASSETS
       Investment in affiliate (note 3)                           1,307         1,201
       Deferred income taxes                                        552           714
       Patents, net                                                 337           378
       Other                                                         66           293
                                                               --------      --------
          Total other assets                                      2,262         2,586
                                                               --------      --------
    TOTAL                                                      $ 79,168      $ 87,278
                                                               ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES
       Accounts payable                                        $  9,112      $ 12,957
       Accrued expenses                                           6,322         8,683
       Income taxes payable                                          --           348
                                                               --------      --------
          Total current liabilities                              15,434        21,988
                                                               --------      --------
    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--
          7,434,000 and 7,418,000 shares, respectively                8             7
       Paid-in capital                                           41,870        41,857
       Treasury stock--281,000 shares held                       (2,548)       (2,548)
       Retained earnings                                         24,404        25,974
                                                               --------      --------
          Total stockholders' equity                             63,734        65,290
                                                               --------      --------
    TOTAL                                                      $ 79,168      $ 87,278
                                                               ========      ========
</TABLE>

See notes to consolidated financial statements.



                                       2
<PAGE>   3

                               PROXIMA CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands except per share data)


<TABLE>
<CAPTION>
                                                         Three months ended          Six months ended
                                                            September 30,              September 30,
                                                       ----------------------     ----------------------
                                                         1997          1996         1997          1996
                                                       --------      --------     --------      --------
                                                      (unaudited)   (unaudited) (unaudited)    (unaudited)
<S>                                                      <C>           <C>          <C>           <C>   
SALES                                                  $ 30,178      $ 36,221     $ 59,221      $ 71,260
COST OF SALES                                            24,096        24,813       48,542        49,752
                                                       --------      --------     --------      --------
    Gross profit                                          6,082        11,408       10,679        21,508
                                                       --------      --------     --------      --------
OPERATING EXPENSES
    Selling and marketing                                 4,582         5,277        8,863        11,946
    Research and development                              1,582         4,141        3,565         8,625
    General and administrative                            1,739         1,537        3,080         3,374
    Restructuring charge (note 7)                        (1,528)           --       (1,528)           --
                                                       --------      --------     --------      --------
        Total                                             6,375        10,955       13,980        23,945
                                                       --------      --------     --------      --------
INCOME (LOSS) FROM OPERATIONS                              (293)          453       (3,301)       (2,437)
                                                       --------      --------     --------      --------
OTHER INCOME (EXPENSE)
    Interest and other income                               296           353          507           673
    Equity in income (loss) of affiliate (note 3)            44             7          105          (276)
    Gain on sale of subsidiary's assets (note 6)             --           100           --         2,779
    Write-down of investment in affiliate (note 3)           --            --           --        (3,905)
                                                       --------      --------     --------      --------
        Total                                               340           460          612          (729)
                                                       --------      --------     --------      --------
INCOME (LOSS) FROM CONTINUING
    OPERATIONS BEFORE INCOME TAXES                           47           913       (2,689)       (3,166)
PROVISION (BENEFIT) FOR INCOME TAXES                         (4)          211       (1,116)          365
                                                       --------      --------     --------      --------
NET INCOME (LOSS)                                      $     51      $    702     $ (1,573)     $ (3,531)
                                                       ========      ========     ========      ========
INCOME (LOSS) PER SHARE DATA (NOTE 1)
    Income (loss) per share                            $   0.01      $   0.10     $  (0.22)     $  (0.51)
                                                       ========      ========     ========      ========
    Weighted average common and common
        equivalent shares (note 1)                        7,211         7,151        7,155         6,953
                                                       ========      ========     ========      ========
</TABLE>


See notes to consolidated financial statements.



                                       3
<PAGE>   4

                               PROXIMA CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                           Six months ended
                                                                             September 30,
                                                                        -----------------------
                                                                            1997        1996
                                                                          -------      -------
                                                                        (unaudited)  (unaudited)
<S>                                                                       <C>          <C>     
OPERATING ACTIVITIES
    Net loss                                                              $(1,573)     $(3,531)
    Adjustments to reconcile net loss to net cash
      provided by (used for) operating activities:
       Depreciation and amortization                                        1,779        1,730
       Provision for allowance for doubtful accounts                          164          (80)
       Benefit from deferred income taxes                                     (63)        (148)
       Tax benefit from stock option exercises                                 --          269
       Gain on sale of subsidiary's assets                                     --       (2,779)
       Write-down of investment in affiliate                                   --        3,905
       Changes in assets and liabilities, net of effects from sale of
         subsidiary's assets:
          Accounts receivable                                               3,277       (3,427)
          Income taxes payable                                               (348)        (744)
          Inventories                                                       8,548       (1,887)
          Prepaid expenses and other assets                                  (987)        (215)
          Accounts payable and accrued expenses                            (6,206)      (1,540)
                                                                          -------      -------
              Net cash provided by (used for) operating activities          4,591       (8,447)
                                                                          -------      -------
INVESTING ACTIVITIES
    Proceeds from sale of subsidiary's assets                                  --        7,259
    Acquisition of property                                                  (135)      (2,541)
    Short-term investments                                                 (3,878)       1,713
    Investment in affiliate                                                    --         (666)
    Other                                                                     208          123
                                                                          -------      -------
             Net cash provided by (used for) investing activities          (3,805)       5,888
                                                                          -------      -------
FINANCING ACTIVITIES
    Sale of common stock                                                       17          438
                                                                          -------      -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          803       (2,121)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            5,556        2,389
                                                                          -------      -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 6,359      $   268
                                                                          =======      =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Income taxes paid                                                     $    17      $   985
                                                                          =======      =======
</TABLE>


See notes to consolidated financial statements.




                                       4
<PAGE>   5

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, 1997.

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.
For the six month periods ended September 30, 1996 and September 30, 1997, when
the inclusion of common stock equivalents would be antidilutive, loss per share
is computed based on the weighted average number of common shares outstanding
excluding common stock equivalents. Primary earnings (loss) per share is not
significantly different from fully diluted earnings (loss) per share for any of
the periods indicated. In February of 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" (EPS). This statement requires the presentation of EPS to
reflect both "Basic EPS" and "Diluted EPS" on the face of the statement of
operations. In general, Basic EPS excludes dilution created by common stock
equivalents and is a function of the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution created
by common stock equivalents and is calculated in the same manner as fully
diluted EPS illustrated in Accounting Principles Board Opinion No. 15, "Earnings
Per Share" (APB No. 15).

The Company will be required to adopt the new method of reporting EPS for the
quarter ending December 31, 1997. The Company's EPS as reflected in this
document includes Primary EPS for the three and six month periods ended
September 30, 1996 and 1997, under the rules of APB No. 15, and the use of
common stock equivalents only when they are dilutive.

Based on the Company's capital structure, the anticipated results of
implementing SFAS No. 128 would reflect EPS materially in the same manner as
currently reported.

For ease of presentation, the Company has indicated its fiscal year as ending on
March 31 and its second fiscal quarter as ending on September 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, and
each six month period presented herein included 26 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.



                                       5
<PAGE>   6

2.      INVENTORIES:

<TABLE>
<CAPTION>
                        September 30,     March 31,
                            1997            1997
                        -------------     ---------
                         (unaudited)
<S>                      <C>             <C>        
     Raw materials       $ 1,891,000     $ 5,515,000
     Work-in-process       4,894,000       9,501,000
     Finished goods        7,026,000       7,343,000
                         -----------     -----------
          Total          $13,811,000     $22,359,000
                         ===========     ===========
</TABLE>


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 purchased, through September 30, 1997,
1,611,000 shares of LPC Series A Preferred Stock for $6,444,000 for a total
investment of $6,699,000. In June 1997, the Company converted its 1,611,000
shares of LPC Series A Preferred Stock and 125,000 shares of LPC common stock to
a total of 1,277,000 shares of LPC common stock upon the completion of LPC's
initial public offering and reverse stock split. In 1994, the Company entered
into agreements providing for technology licenses between the Company and LPC
and the cooperative development of new technologies.

At September 30, 1997, the Company owned approximately 20% of the outstanding
voting stock of LPC. The Company accounts for its investment under the equity
method. The Company's share of the net income of LPC of $105,000 for the first
six months of fiscal 1998 is presented as "Equity in income (loss) of affiliate"
in the accompanying Consolidated Statements of Operations. The investment
balance of $1,307,000 shown on the accompanying balance sheet as of September
30, 1997 reflects the Company's equity in the net assets of LPC. LPC completed
an initial public offering in June 1997. Through November 11, 1997, LPC common
shares have traded on the open market at prices ranging from $5.50 to $9.75 per
share.


4.      COMMITMENTS AND CONTINGENCIES

Litigation

The Company has been named as a defendant in two class action lawsuits filed in
the U.S. District Court for the Southern District of California on August 16,
and on August 27, 1996 in the California Superior Court for San Diego County.
Certain current and former executive officers and directors of the Company are
also named as defendants. In one of the cases, the plaintiffs represent a class
of all persons who purchased the Company's common stock between July 26, 1994
and August 17, 1995. In the other case, the plaintiffs purport to represent a
class of all persons who purchased the Company's common stock between October
21, 1995 and June 24, 1996. The complaints allege that the defendants violated
various federal securities laws and California statutes through material
misrepresentations and omissions during the class periods, and seek unspecified
monetary damages. A third case was dismissed by the California Superior Court 
for San Diego County on August 12, 1997 at the request of the plaintiffs.



                                       6
<PAGE>   7

The Company maintains directors' and officers' insurance primarily to provide
coverage for the type of lawsuits described above. The Company and its insurance
carrier, Evanston Insurance Company ("Evanston"), have been involved in a
dispute over such coverage. On June 11, 1997, Evanston filed an action for
declaratory relief and breach of contract in the U.S. District Court for the
Southern District of California against the Company and certain of its current
and former executive officers and directors, alleging that any insurance claims
arising from the foregoing class action lawsuits would not be covered. The 
Company and the individual defendants have not been served with the complaint.

The outcome of the lawsuits cannot be determined. However, management believes
that the suits are without merit and intends to defend them vigorously. No
amounts have been recorded in the financial statements for any losses which may
result from these lawsuits.


5.      LINE OF CREDIT

At September 30, 1997, the Company had available a line of credit arrangement
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
line of 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 1997 or
during the first six months of fiscal 1998. The credit arrangement expires on
July 31, 1998.


6.      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 during the six month period ended September
30, 1996. The operating results of Newpoint Corporation for the three months
ended June 30, 1996 are reflected in the accompanying Consolidated Statements of
Operations. The gain on sale of assets of $2,679,000 was recognized in the
Consolidated Statements of Operations for the three-month period ended June 30,
1996, under "Gain on sale of subsidiary's assets." An additional gain on sale of
assets of $100,000 was recognized in the Consolidated Statements of Operations
for the three-month period ended September 30, 1996, under "Gain on sale of
subsidiary's assets," reflecting an adjustment in the reserve for certain
liabilities that the Company retained relating to Newpoint Corporation.


7.      RESTRUCTURING CHARGE

In the second quarter of fiscal 1998, the Company reversed a $1,528,000
restructuring charge taken during the fourth quarter of fiscal 1997. The
restructuring charge consisted primarily of fixed asset write-downs and
severance costs related to the planned relocation of all manufacturing
operations from the Company's Tijuana, Mexico, facilities. Subsequent to the end
of the second quarter of fiscal 1998, on September 29, 1997, the Company entered
into an agreement to sell its Tijuana manufacturing operation. This agreement
rendered the restructuring charge unnecessary. Any gain or loss on the sale is
expected to be minimal and will be recognized in the third quarter of fiscal
1998.



                                       7
<PAGE>   8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS

OVERVIEW

        The Company offers broad lines of data and video projection products,
including multimedia projectors capable of supporting full-motion video,
animation, and sound directly from a computer or VCR, as well as interactive
command and control systems and meeting room tools.

RESULTS OF OPERATIONS

        The following table sets forth certain data as a percentage of sales:

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED      SIX MONTHS ENDED
                                                       SEPTEMBER 30,         SEPTEMBER 30,
                                                   ------------------      -----------------
                                                     1997        1996       1997       1996
                                                    -----       -----      -----       -----
<S>                                                 <C>         <C>        <C>         <C>   
     Sales                                          100.0%      100.0%     100.0%      100.0%
     Cost of sales                                   79.8        68.5       82.0        69.8
                                                    -----       -----      -----       -----
        Gross profit                                 20.2        31.5       18.0        30.2
                                                    -----       -----      -----       -----
     Operating expenses
        Selling and marketing                        15.2        14.6       15.0        16.8
        Research and development                      5.2        11.4        6.0        12.1
        General and administrative                    5.8         4.3        5.2         4.7
        Restructuring charge                         (5.0)         --       (2.6)         --
                                                    -----       -----      -----       -----
                 Total                               21.2        30.3       23.6        33.6
                                                    -----       -----      -----       -----

     Income (loss) from operations                   (1.0)        1.2       (5.6)       (3.4)
                                                    -----       -----      -----       -----
     Other income (expense)
        Interest and other income                     1.0         1.0        0.9         0.9
        Equity in income (loss) of affiliate          0.2          --        0.2        (0.4)
        Gain on sale of subsidiary's assets            --         0.3         --         3.9
        Write-down of investment in affiliate          --          --         --        (5.5)
                                                    -----       -----      -----       -----
                 Total                                1.2         1.3        1.1        (1.1)
                                                    -----       -----      -----       -----

     Income (loss) before income taxes                0.2         2.5       (4.5)       (4.5)
     Provision (benefit) for income taxes            --           0.6       (1.9)        0.5
                                                    -----       -----      -----       -----
      Net income (loss)                               0.2%        1.9%      (2.6)%      (5.0)%
                                                    =====       =====      =====       =====
</TABLE>


NOTICE REGARDING FORWARD-LOOKING STATEMENTS

        This report contains forward-looking statements (denoted with an
asterisk *) within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth below.




                                       8
<PAGE>   9

SECOND QUARTER FISCAL 1998 COMPARED TO SECOND QUARTER FISCAL 1997

Sales

        The Company's sales decreased 17% from $36.2 million in the second
quarter of fiscal 1997 to $30.2 million in the second quarter of fiscal 1998.
Sales of LCD projection panels and VGA-resolution projectors were $23.0 million
lower in the second quarter of fiscal 1998 than in the comparable quarter of
fiscal 1997, whereas sales of higher-resolution SVGA and XGA projectors
increased by $17.3 million. In addition, the Company has experienced increased
pricing pressures as a result of both the entry of new competitors into the
projection market and an increase in the number of competitive new products
available to the channels of distribution in which the Company competes. The
increasing number of competitive products is due primarily to the growth in
resources dedicated to product development by the Company's competitors. These
pricing pressures have negatively impacted the Company's sales and market share.
The Company believes that competition in the form of continued pricing pressures
and the introduction of new product offerings will intensify in the future*. See
"Risk Factors." The Company's international sales in the second quarter of
fiscal 1998 were also lower than in the second quarter of fiscal 1997 because of
reduced sales to the Company's major private label customer. The Company also
expects that its international sales as a percentage of total sales will be
lower in the third quarter of fiscal 1998 versus the comparable period of fiscal
1997, primarily due to expected reduced sales to the Company's major private
label customer*. See "Risk Factors."

Gross Profit

        Gross profit declined from $11.4 million in the second quarter of fiscal
1997 to $6.1 million in the second quarter of fiscal 1998, primarily due to
price reductions and reduced sales of older products, partially offset by
increased sales of sourced products. Although the Company realized a small gross
profit of approximately $450,000 from the sale of obsolete and slow-moving
inventories during the second quarter of fiscal 1998, the Company does not
expect sales of obsolete and slow-moving inventories to generate significant
gross profits in the future. Gross profit as a percentage of sales decreased
from 31.5% in the second quarter of fiscal 1997 to 20.2% in the comparable
quarter of fiscal 1998. The decrease in gross profit as a percentage of sales
for the quarter ended September 30, 1997 was due primarily to price reductions
on older products and promotional discounts offered by the Company. The
increasing downward pressure on the average selling prices of the Company's
products, discussed in "Sales" above, also serves to reduce gross profit
margins*. See "Risk Factors."

Operating Expenses

        Operating expenses include selling and marketing, research and
development, and administrative expenses, which are individually discussed
below. Total operating expenses were $6,375,000 during the second quarter of
fiscal 1998, compared to $10,955,000 in the same period a year ago. The $4.6
million reduction in operating expenses in the second quarter of fiscal 1998
versus the second quarter of fiscal 1997 is primarily attributable to cost
reduction measures undertaken at the end of fiscal 1997 and at the beginning of
fiscal 1998, including a significant reduction in staffing. Approximately $1.5
million of the reduction in operating expenses is due to the restructuring
charge reversed in the second quarter of fiscal 1998.

        Selling and marketing expenses decreased from $5,277,000 in the second
quarter of fiscal 1997 to $4,582,000 in the second quarter of fiscal 1998. As a
percentage of sales, selling and marketing expenses increased from 14.6% in the
second quarter of fiscal 1997 to 15.2% in the second quarter of fiscal 1998.
Selling and marketing expenses were lower in dollar amount primarily due to
product promotion expenses incurred during the second quarter of fiscal 1997
related to the introduction of the Company's new line of integrated projectors.
Selling and marketing expenses were higher as a percentage of sales 



                                       9
<PAGE>   10

primarily due to lower sales volume in the second quarter of fiscal 1998
compared with the second quarter of fiscal 1997.

        Research and development expenses decreased from $4,141,000 in the
second quarter of fiscal 1997 to $1,582,000 in the second quarter of fiscal
1998. As a percentage of sales, research and development expenses were 11.4% in
the second quarter of fiscal 1997 and 5.2% in the second quarter of fiscal 1998.
The decrease in absolute dollars and as a percentage of sales for the second
quarter of fiscal 1998 as compared to the second quarter of fiscal 1997 reflects
the effects of cost reduction measures as the Company moves toward a reduced
reliance on product development in favor of increased sourcing of products from
other manufacturers*, and also the wind-down of microlaser research during the
second quarter of fiscal 1997. See "Risk Factors."

        General and administrative expenses were $1,739,000 in the second
quarter of fiscal 1998 versus $1,537,000 in the second quarter of fiscal 1997.
As a percentage of sales, general and administrative expenses increased from
4.3% in the second quarter of fiscal 1997 to 5.8% in the second quarter of
fiscal 1998, primarily due to lower sales volume in the second quarter of fiscal
1998. The increase in general and administrative expenses in absolute dollars
was due primarily to expenditures on business consultants and recruiting for a
new chief executive officer during the three months ended September 30, 1997. 
The Company expects legal expenses to increase due to the defense of 
stockholder litigation, although the timing of such expenses is uncertain*. 
See "Risk Factors."

        In the second quarter of fiscal 1998, the Company reversed a $1,528,000
restructuring charge taken during the fourth quarter of fiscal 1997. The
restructuring charge consisted primarily of fixed asset write-downs and
severance costs related to the planned relocation of all manufacturing
operations from the Company's Tijuana, Mexico, facilities. Subsequent to the end
of the second quarter of fiscal 1998, on September 29, 1997, the Company entered
into an agreement to sell its Tijuana manufacturing operation. This agreement
rendered the restructuring charge unnecessary. Any gain or loss on the sale is
expected to be minimal and will be recognized in the third quarter of fiscal
1998.

Interest Income

        Interest income decreased from $353,000 in the second quarter of fiscal
1997 to $296,000 in the second quarter of fiscal 1998. The decrease in interest
income in the second quarter of fiscal 1998 compared to the same period a year
ago is attributable primarily to lower interest rates earned and to lower
average cash balances during the three months ended September 30, 1997.

Income Taxes

        The Company's effective tax rate was 23.1% in the second quarter of
fiscal 1997 compared to a benefit of $4,000 in the second quarter of fiscal
1998. The Company does not expect to benefit from the credit for increasing
research expenditures during fiscal 1998 because research expenditures are
expected to decline in absolute dollar amount in fiscal 1998 as compared to
prior years. The Company has not recognized any tax effect from its equity in
gain or loss of affiliate or from the write-down of its investment in affiliate.


SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED 
SEPTEMBER 30, 1996

Sales

        The Company's sales decreased 17% from $71.3 million in the first six
months of fiscal 1997 to $59.2 million in the first six months of fiscal 1998.
Sales of LCD projection panels and VGA-resolution projectors were $43.3 million
lower in the first six months of fiscal 1998 than in the comparable period of




                                       10
<PAGE>   11

fiscal 1997, whereas sales of higher-resolution SVGA and XGA projectors
increased by $35.3 million. In addition, the Company has experienced increased
pricing pressures as a result of both the entry of new competitors into the
projection market and an increase in the number of competitive new products
available to the channels of distribution in which the Company competes. The
increasing number of competitive products is due primarily to the growing
investment in product development by the Company's competitors. These pricing
pressures have negatively impacted the Company's sales and market share. The
Company believes that competition in the form of continued pricing pressures and
the introduction of new product offerings will intensify in the future*. See
"Risk Factors." The Company's international sales in the first six months of
fiscal 1998 were also lower than in the first six months of fiscal 1997 because
of reduced sales to the Company's major private label customer. The Company also
expects that its international sales as a percentage of total sales will be
lower in the second half of fiscal 1998 versus the comparable period of fiscal
1997, primarily due to expected reduced sales to the Company's major private
label customer*. See "Risk Factors."

Gross Profit

        Gross profit declined from $21.5 million in the first six months of
fiscal 1997 to $10.7 million in the first six months of fiscal 1998, primarily
due to price reductions and reduced sales of older products, partially offset by
increased sales of new SVGA and XGA products. Gross profit as a percentage of
sales decreased from 30.2% in the first six months of fiscal 1997 to 18.0% in
the comparable period of fiscal 1998. The decrease in gross profit as a
percentage of sales for the six months ended September 30, 1997 was due
primarily to price reductions on older products and promotional discounts
offered by the Company. The increasing downward pressure on the average selling
prices of the Company's products, discussed in "Sales" above, also serves to
reduce gross profit margins*. See "Risk Factors."

Operating Expenses

        Operating expenses include selling and marketing, research and
development, and administrative expenses, which are individually discussed
below. Total operating expenses were $13,980,000 during the first six months of
fiscal 1998, compared to $23,945,000 of operating expenses during the first six
months of fiscal 1997. The $10.0 million reduction in operating expenses in the
first half of fiscal 1998 versus the first half of fiscal 1997 is primarily
attributable to cost reduction measures undertaken at the end of fiscal 1997 and
at the beginning of fiscal 1998, including a significant reduction in staffing.
Approximately $1.5 million of the reduction in operating expenses is due to the
restructuring charge reversed in the second quarter of fiscal 1998.

        Selling and marketing expenses decreased from $11,946,000 in the first
six months of fiscal 1997 to $8,863,000 in the first six months of fiscal 1998.
As a percentage of sales, selling and marketing expenses decreased from 16.8% in
the first six months of fiscal 1997 to 15.0% in the first six months of fiscal
1998. Selling and marketing expenses were lower in both dollar amount and as a
percentage of sales primarily due to higher product promotion expenses incurred
during the first half of fiscal 1997 related to the introduction of the
Company's new line of integrated projectors. In addition, selling and marketing
expenses of the Company's Newpoint Corporation subsidiary through June 28, 1996
are included in the selling and marketing expenses for the first six months of
fiscal 1997.

        Research and development expenses decreased from $8,625,000 in the first
six months of fiscal 1997 to $3,565,000 in the first six months of fiscal 1998.
As a percentage of sales, research and development expenses were 12.1% in the
first six months of fiscal 1997 and 6.0% in the first six months of fiscal 1998.
The decrease in absolute dollars and as a percentage of sales for the first six
months of fiscal 1998 as compared to the first six months of fiscal 1997
reflects the effects of cost reduction measures as the Company moves toward a
reduced reliance on product development in favor of increased sourcing of
products from other manufacturers*, and also the wind-down of microlaser
research during the second quarter of fiscal 1997. See "Risk Factors."




                                       11
<PAGE>   12

        General and administrative expenses were $3,080,000 in the first six
months of fiscal 1998 versus $3,374,000 in the first six months of fiscal 1997.
As a percentage of sales, general and administrative expenses increased from
4.7% in the first six months of fiscal 1997 to 5.2% in the first six months of
fiscal 1998 due to lower sales volume in the first six months of fiscal 1998.
The decrease in general and administrative expenses in absolute dollars was due
primarily to staff reductions resulting in lower personnel costs. The Company
expects legal expenses to increase due to the defense of stockholder litigation,
although the timing of such expenses is uncertain*. See "Risk Factors."

        In the second quarter of fiscal 1998, the Company reversed a $1,528,000
restructuring charge taken during the fourth quarter of fiscal 1997. The
restructuring charge consisted primarily of fixed asset write-downs and
severance costs related to the planned relocation of all manufacturing
operations from the Company's Tijuana, Mexico, facilities. Subsequent to the end
of the second quarter of fiscal 1998, on September 29, 1997, the Company entered
into an agreement to sell its Tijuana manufacturing operation. This agreement
rendered the restructuring charge unnecessary. Any gain or loss on the sale is
expected to be minimal and will be recognized in the third quarter of fiscal
1998.

Interest Income

        Interest income decreased from $673,000 in the second six months of
fiscal 1997 to $507,000 in the second six months of fiscal 1998. The decrease in
interest income in the first six months of fiscal 1998 compared to the same
period a year ago is attributable primarily to lower interest rates earned and
to lower average cash balances during the six months ended September 30, 1997.

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
$1,307,000 shown on the accompanying balance sheet as of September 30, 1997
reflects the Company's equity in the net assets of LPC. Subsequent to the
Company's write-down of its investment in LPC, LPC completed an initial public
offering in June 1997.

Income Taxes

        The Company's tax provision was a benefit of $1,116,000 in the first six
months of fiscal 1998 compared to a provision of $365,000 in the first six
months of fiscal 1997. The Company does not expect to benefit from the credit
for increasing research expenditures during fiscal 1998 because research
expenditures are expected to decline in absolute dollar amount in fiscal 1998 as
compared to prior years*. See "Risk Facators." The Company has not recognized 
any tax effect from its equity in gain or loss of affiliate or from the 
write-down of its investment in affiliate.

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 $5.7 million in fiscal 1996. In fiscal 1997, the net decrease in cash and
short-term investments was $3.4 million. The net decrease in cash and short-term
investments in fiscal 1997 was primarily due to a $9.5 million net loss, a $5.4
million increase in accounts receivable, the acquisition of $3.5 million in
property, and a $2.2 million increase in deferred income tax assets, partially
offset by $7.3 million received on the sale of the assets of Newpoint
Corporation, a $6.6 million increase in accounts payable and accrued expenses,
and a $2.0 million positive cash flow from the sale of common stock related to
stock option exercises. The net increase in cash and short-term investments was
$4.7 million in the six months ended September 30, 1997. The net increase in
cash and short-term investments in the first six months of fiscal 1998 was due
primarily to a $8.5 million decrease 



                                       12
<PAGE>   13

in inventories and a $3.4 million decrease in accounts receivable, partially
offset by a $3.8 million decrease in accounts payable and a $2.4 million
decrease in accrued expenses. Accounts receivable decreased during the six
months ended September 30, 1997 primarily due to lower sales volume. Inventories
were reduced during the first half of fiscal 1998 through the sale of older
products in a specific effort to reduce inventory levels. Receivable days
outstanding were 78 at March 31, 1997 and 88 at September 30, 1997.

        As of September 30, 1997, the Company had $22.7 million in cash and
short-term investments and $57.4 million in working capital, compared to $18.0
million in cash and short-term investments and $56.9 million in working capital
as of March 31, 1997. The Company had no debt at March 31 or September 30 of
1997.

        The Company has an arrangement 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 line of 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 1997 or during the first six months of
fiscal 1998. The credit arrangement expires on July 31, 1998.

        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*. See "Risk Factors." The
effect of the two class action lawsuits on the Company's liquidity cannot be 
determined. The plaintiffs are seeking unspecified monetary damages (see note 4
to the Consolidated Financial Statements).

        To date, inflation has not had a significant impact on the Company's
operating results.


                                  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. The risks faced by the Company are illustrated by
the volatility of the Company's reported sales and earnings per share over the
last eight quarters:


<TABLE>
<CAPTION>
                            FY96                             FY97                  FY98
                    ----------------------    ---------------------------------   -------
                       Q3      Q4      Q1        Q2      Q3        Q4        Q1      Q2
<S>                 <C>     <C>     <C>       <C>     <C>       <C>       <C>     <C> 
Sales ($millions)    44.2    47.6    35.0      36.2    47.4      36.0      29.0    30.2
EPS                 $0.46   $0.47  ($0.59)    $0.10   $0.25   ($1.10)     (.23)     .01
</TABLE>

The Company believes that this volatility has been influenced by the occurrence
of one or more of the factors discussed below.

FORECASTS

        The Company prepares annual budgets and other confidential internal
projections that contain detailed forecasts of future sales and earnings. The
Company's forecasts may turn out to be inaccurate as a result of circumstances
described in certain of the risk factors below, including "Short Product Lives
and Technological Change," "Competition," "Sources of Supply," "Price
Reductions" and "Variability of Quarterly or Annual Results." Numerous
independent stock and market analysts prepare and publish their own financial
forecasts and projections about the Company. The Company disclaims
responsibility for all such forecasts and projections. The Company believes that
forecasts and projections prepared by 


                                       13
<PAGE>   14

these independent stock and market analysts have frequently been inaccurate in
the past and are, therefore, highly speculative and should be used only with
extreme caution.

        From time to time, the Company may announce one or more new products
with a subsequent availability date. Any such availability dates are merely good
faith estimates by the Company. In the past, the Company has suffered delays in
the availability of new products. These delays have occurred either because the
Company and/or its suppliers have been unable to resolve certain technical
challenges that are normal in any development process prior to the estimated
availability date, or because of unforeseen technical and manufacturing
challenges arising after the announcement of an availability date. The Company
expects that it and its suppliers will continue to face such challenges and
risks which may adversely impact the estimated availability dates and production
ramp-up periods for new products.

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. Any time significant new products
are announced or introduced by the Company or others, the Company will likely
deem it necessary to substantially reduce prices on certain models. Further, if
such prices are reduced to less than the inventory carrying value, the Company
would be required to record a write-off of the excess carrying value. In the
fourth quarter of fiscal 1997, the Company recorded a substantial write-down for
certain inventory and may record other write-downs of varying magnitudes from
time to time in the future.

        The Company's future success depends on its ability to continue to
develop and/or distribute under private label arrangements competitive products
and services on a timely basis. Historically, many of the Company's products
have achieved peak sales within a few months after their introduction with sales
declining thereafter until the products are obsolete. The Company's product line
must be frequently refreshed with improved products to maintain parity with
competitors' products. The Company has increasingly relied on various business
alliances to source products manufactured by third parties. Notwithstanding the
Company's prior success in distributing sourced products, the Company may not be
able to continue to respond to the expected rapid product shifts with improved
sourced products in the future. See "Sources of Supply."

        There are several new technologies currently under development within
the multimedia projection industry including reflective silicon panels, higher
resolution (SXGA) controllers, and ultra-portable projectors weighing
substantially less than current industry offerings. 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 LCD technology, which
has been developed and is primarily controlled by two Japanese companies, and
digital light processor technology, which has been developed and is owned by one
U. S. company, will both continue to improve on a price/performance basis. See
"Competition." The Company believes that the owners of these proprietary
technologies have a business advantage over others. Therefore, the Company may
not be able to respond to technological shifts in a timely manner. Any inability
to respond could result in an adverse impact to financial results and inventory
write-downs on obsolete products.

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 the Company's requirements. For
certain of these 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 


                                       14
<PAGE>   15

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. The Company is critically dependent on the availability of sourced
products and/or key components such as LCD panels, light valves, power supplies
and, as mentioned above, molded plastic.

        Two of the Company's major suppliers, Sanyo and Hitachi, also compete
with the Company and, in the case of sourced products, the Company sells product
substantially similar to that of its suppliers. The sourced product suppliers
are in a position to sell product at a lower price than the Company. See
"Competition." For the first two quarters of fiscal 1998, the majority of the
Company's sales were derived from sourced products, which are fully manufactured
by third party suppliers. The Company expects this critical dependence on
sourced products to continue throughout fiscal year 1998 and beyond. The
manufacturers of these sourced products face significant development and
technological challenges in developing and manufacturing very complicated
multimedia projection equipment. Although the Company communicates regularly
with its sourced product suppliers, the Company does not have the same
visibility into any delays or pending development or supplier issues that it
would have on its own internal development project. Any delay, discontinuance,
constraint or reduction, for whatever reason, in the supply of any sourced
products would have an immediate and severe adverse impact on the Company's
financial results.

        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 believes that new competitors will continue to enter the
market and that new or existing competitors will continue to 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/product introduction dates is limited and, therefore, it is generally
unable to forecast the impact of new competitive products. Anticipated product
releases (and particularly products incorporating new technology) by the Company
or its competitors often cause customers to delay purchases of existing products
until such new products are available. Any delays in purchases can significantly
impact the Company's results of operations.

        The company competes against some of the largest electronics
manufacturers in the world (such as Epson, Hitachi, 3M, Polaroid, Matsushita,
Philips, NEC, Sanyo, Sharp, Sony, Toshiba and others). Many competitors have
greater financial, technical, manufacturing and marketing resources than the
Company and have lower cost and/or profit structures and may be in a position to
introduce products incorporating advanced technologies ahead of the Company.
Competition between the Company and its competitors in the market for multimedia
projectors has been and is expected to continue to be intense.

        The Company has traditionally been a manufacturer of hardware products.
With the large number of competitors now in the market, the Company believes
that non-hardware offerings, such as value-added service and support offerings,
software, and a broad distribution capability, will become critical. The Company
may invest significantly in one or more of these areas or other complementary
business areas. Any such investment may or may not be successful.




                                       15
<PAGE>   16

PRICE REDUCTIONS

        The industry in which the Company competes is characterized by
continually falling prices. The Company expects price competition to continue to
be intense and, therefore, expects continued downward pressure on its gross
margins. The Company believes that certain of its competitors have the financial
resources to, and may, sell competitive products at cost or potentially below
cost in an effort to gain market share.

        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. Each significant price reduction
and the associated price protection will 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 is
offset by higher unit volume resulting from the price reduction. In order to
remain competitive, the Company is regularly reducing its prices on a product by
product basis. To date, these reductions have not been offset by higher unit
volumes. Future price reductions are expected and will likely have a similar
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. Any delay in receiving orders or in the shipment of
orders can have a significant impact on the Company's quarterly or annual
results. These delays may be caused by customers' ordering patterns or business
cycles, or by the Company's production capacity, component availability or
technical challenges or other issues. These kinds of factors are expected to
cause further volatility in future periods.

VOLATILITY OF STOCK PRICE

        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 reductions 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. 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.

STOCKHOLDER LAWSUITS

        Two class action securities lawsuits are pending against the Company.
The lawsuits allege that the Company and certain of its officers and directors
engaged in a scheme to defraud investors by making a series of positive
statements about the Company that were allegedly known to be false and
misleading when made. The Company believes that the lawsuits are without merit,
and the Company is defending the lawsuits.

        Alleged damages in the lawsuits are unspecified, but an adverse verdict
could have a severe adverse impact on the Company's operations, liquidity and
financial results. The Company is expending significant financial and managerial
resources in defense of the lawsuits to protect its business interests and the
interests of its stockholders. Defense costs alone could have a material adverse
effect on future results. The Company is subject to Generally Accepted
Accounting Principles and to the rules of the 



                                       16
<PAGE>   17

Securities and Exchange Commission, which do not permit the provision for any
loss that may result from the resolution of litigation whose outcome cannot
presently be determined.

        The Company believes that the volatility of its business and of the
market for stocks of high technology companies makes it inevitable that the
Company's stock will continue to fluctuate substantially in price. In addition,
most or all of the Company's officers and directors have, as part of their
compensation packages, stock option arrangements with finite lives and which
expire ninety days after the termination of employment. As a result, the Company
expects that its directors, officers and other employees will from time to time
exercise stock options and subsequently lawfully sell the stock thus acquired in
the midst of continuing fluctuations in the price of the Company's stock. The
Company believes that its stock price volatility and the occasional lawful sale
of stock by its directors and officers may make it susceptible to meritless
stockholder lawsuits in the future.

CHANNELS OF DISTRIBUTION

        The Company sells its products primarily through independent
presentation specialists, personal computer dealers and distributors. These
presentation specialists, dealers and distributors ("resellers") may carry
competing product lines and could reduce or discontinue sales of the Company's
products at any time. These resellers may not devote the resources necessary to
provide effective sales and marketing support to the Company. Any reduction in
sales to presentation specialists, dealers and distributors may have a material
adverse effect.

        Many of the resellers are small organizations with limited capital. The
Company continuously monitors and manages the credit it extends to its
resellers; however, one or more of the resellers could 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.

        Shifts in pricing, end-user preferences or the entry of a major new
competitor (See "Competition") may alter the relative importance of the channels
of distribution discussed above or may create entirely new channels of
distribution. For example, as market prices decline on the Company's products,
it may become advantageous to promote and sell the products through new and
alternative channels of distribution. The Company may incur significant costs in
order to expand its presence in these new channels or in existing channels,
which could have a material adverse effect on the Company's results of
operations. Any investment to enter new channels or to expand existing
distribution channels may not be successful.

KEY PERSONNEL

        The Company believes that it is important to fill certain key positions
in its senior management team and to maintain continuity at that level. The 
Company is presently searching for a permanent chief executive officer and a
vice president of sales and marketing. Although the Company is devoting
substantial effort to recruiting for these positions and others, it may not be
successful in these efforts.

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. If any legal
action were to arise in which the Company's products should be found to infringe
upon intellectual 




                                       17
<PAGE>   18

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 1996, 1997 and the first half of fiscal 1998, sales outside
the United States and Canada represented approximately 39%, 38% and 24%,
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 tariffs, export and import controls, transportation delays and
interruptions, and changes in demand resulting from fluctuations in exchange
rates. With respect to exchange rates, virtually 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.



                                       18
<PAGE>   19


PART II - OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

         See Note 4 of the Notes to Consolidated Financial Statements herein 
and also Item 3, Legal Proceedings, in Registrant's Form 10-K for the fiscal
year ended March 30, 1997. Subsequent to the filing of the Company's Form 10-K,
the Stielau Family Trust, et. al. v. Proxima Corp., et. al. case was dismissed
on August 12, 1997 by the California Superior Court for San Diego County at the
request of the plaintiffs.

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

         a. The Company's annual meeting of stockholders was held on July 23,
1997.

         b. Not applicable.

         c. At the annual meeting of stockholders on July 23, 1997, the
            stockholders took the following actions:

            1. Elected the Company's six nominees for director to the Board of
               Directors of the Company. The six directors elected, along with
               the voting results, were as follows:

<TABLE>
<CAPTION>
              Name                    Shares voting for  Shares withheld
              ----                    -----------------  ---------------
<S>                                       <C>                <C>    
               Patrick Arrington          5,562,603          890,805
               Richard E. Belluzzo        5,576,803          876,605
               Robert W. Johnson          5,531,586          921,822
               Jeffrey M. Nash            5,574,003          879,405
               Kenneth E. Olson           5,575,723          877,685
               John M. Seiber             5,573,348          880,060
</TABLE>

            2. Approved the appointment of Deloitte & Touche LLP as the
               independent accountants of the Company for fiscal year 1998
               (6,393,494 shares were voted for, 39,850 shares were voted
               against, and 20,064 shares abstained from voting).

            3. Approved an amendment to the Amended and Restated 1996 Stock Plan
               increasing the number of shares reserved for issuance thereunder
               by 1,000,000, bringing the total number of shares reserved for
               issuance to 1,500,000, together with up to an additional 500,000
               shares to the extent that outstanding options previously granted
               under the Amended and Restated 1986 Stock Option Plan expire
               unexercised (1,659,079 shares were voted for, 1,489,661 shares
               were voted against, and 42,293 shares abstained from voting).

ITEM 5:  OTHER INFORMATION

         Not applicable.

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

         a.  Exhibits:

               #27 - Financial Data Schedule (for EDGAR purposes only)

         b. No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.



                                       19
<PAGE>   20

                                   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:  November 11, 1997                   /s/ KENNETH E. OLSON
                                            ------------------------------
                                            KENNETH E. OLSON
                                            Interim President and 
                                            Chief Executive Officer


Dated:  November 11, 1997                   /s/ DENNIS WHITTLER
                                            -------------------------------
                                            DENNIS A. WHITTLER
                                            Vice President, Finance



                                       20
<PAGE>   21

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit  No.                 Description                                Page No.
------------                 -----------                                --------
    <S>                   <C>                                              <C>
    27                    Financial Data Schedule                          22
</TABLE>



                                       21