**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form 10-Q**

| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                              |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       | **For the quarterly period ended  April 1, 2005**                                                                                                                                                                                                                                                                               |
| **or**     |
| o          | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.**                                                                                                                                                                                                                             |
| ** ** |       | **For the transition period from                        to                        ** |

 

**Commissionfile number 000-30993**

**Proxim Corporation**

*(Exact name of registrant as specifiedin its charter)*

| **Delaware**                | ** ** | **52-2198231**                           |
|-----------------------------|------------|------------------------------------------|
| *(State  of Incorporation)* | * *   | *(I.R.S.  Employer  Identification No.)* |

 

**935 Stewart Drive**

**Sunnyvale, California94085**

**(408) 731-2700**

*(Address, including zip code, andtelephone number,including area code, of registrant’s principal executive offices)*

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  x   No  o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).   Yes  x   No  o

Thenumber of shares outstanding of the Company’s Class A common stock, parvalue $.01 per share, as of May 4, 2005, was 33,782,224. No shares of theCompany’s Class B common stock, par value $.01 per share, are outstanding.

 

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**TABLE OF CONTENTS**
|                                        | ** **                                                                                                                         | **Page** |
|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|----------|
| **PART I. FINANCIAL INFORMATION** |                                                                                                                               |     |   |
| Item 1.                                | Financial Statements                                                                                                               |     | 3 |   |
|                                   | Condensed Consolidated  Balance Sheets at April 1, 2005 and December 31, 2004 (unaudited)                                |     | 3 |   |
|                                   | Condensed  Consolidated Statements of Operations for the three months ended  April 1, 2005 and April 2, 2004 (unaudited) |     | 4 |   |
|                                   | Condensed  Consolidated Statements of Cash Flows for the three months ended  April 1, 2005 and April 2, 2004 (unaudited) |     | 5 |   |
|                                   | Notes to Condensed  Consolidated Financial Statements (unaudited)                                                                  |     | 6 |   |
| Item 2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                        |     | 27 |   |
| Item 3.                                | Quantitative  and Qualitative Disclosures About Market Risk                                                                        |     | 61 |   |
| Item 4.                                | Controls  and Procedures                                                                                                           |     | 61 |   |
| **PART II.  OTHER INFORMATION**   |                                                                                                                               |     |   |
| Item 1.                                | Legal  Proceedings                                                                                                                 |     | 62 |   |
| Item 5.                                | Other Information                                                                                                                  |     | 64 |   |
| Item 6.                                | Exhibits                                                                                                                           |     | 64 |   |
| Signatures                             |                                                                                                                               | 66       |   |
| Index to Exhibits                      |                                                                                                                               | 67       |   |

 

 

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**PART I.**   FINANCIAL INFORMATION

**Item 1.**   *Financial Statements*

**PROXIM CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                                                                                                      | ** ** | **April 1,  2005**                                                            | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                      | ** ** | **(In thousands, except share  and per share data)** | ** ** |
| ** **                                                                                                                                                                                      | ** ** | **(Unaudited)**                                                                    | ** ** |
| **ASSETS**                                                                                                                                                                                      |       |                                                                               |       |                        |       |   |   |
| Current assets:                                                                                                                                                                                 |       |                                                                               |       |                        |       |   |   |
| Cash and cash equivalents                                                                                                                                                                       |       | $                                                                                  | 12,117     |                        |       | $ | 16,003 |   |   |
| Accounts receivable, net                                                                                                                                                                        |       | 5,522                                                                              |       |                        | 6,050      |   |   |
| Inventory                                                                                                                                                                                       |       | 10,470                                                                             |       |                        | 13,020     |   |   |
| Other current assets                                                                                                                                                                            |       | 2,507                                                                              |       |                        | 2,238      |   |   |
| Total current assets                                                                                                                                                                            |       | 30,616                                                                             |       |                        | 37,311     |   |   |
| Property and  equipment, net                                                                                                                                                                    |       | 5,407                                                                              |       |                        | 5,981      |   |   |
| Goodwill                                                                                                                                                                                        |       | 9,726                                                                              |       |                        | 9,726      |   |   |
| Intangible assets,  net                                                                                                                                                                         |       | 9,227                                                                              |       |                        | 10,184     |   |   |
| Restricted cash                                                                                                                                                                                 |       | —                                                                             |       |                        | 20         |   |   |
| Other assets                                                                                                                                                                                    |       | 385                                                                                |       |                        | 385        |   |   |
| Total assets                                                                                                                                                                                    |       | $                                                                                  | 55,361     |                        |       | $ | 63,607 |   |   |
| **LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE  PREFERRED  STOCK AND STOCKHOLDERS’ DEFICIT**                                                                                            |       |                                                                               |       |                        |       |   |   |
| Current liabilities:                                                                                                                                                                            |       |                                                                               |       |                        |       |   |   |
| Accounts payable                                                                                                                                                                                |       | $                                                                                  | 6,469      |                        |       | $ | 8,440 |   |   |
| Short-term bank loan,  secured                                                                                                                                                                  |       | —                                                                             |       |                        | 3,000      |   |   |
| Capital lease  obligations, current                                                                                                                                                             |       | 619                                                                                |       |                        | 893        |   |   |
| Accrued royalties and  interest, current                                                                                                                                                        |       | 11,559                                                                             |       |                        | 11,808     |   |   |
| Other accrued liabilities                                                                                                                                                                       |       | 20,490                                                                             |       |                        | 20,017     |   |   |
| Convertible bridge notes                                                                                                                                                                        |       | 10,000                                                                             |       |                        | 10,000     |   |   |
| Total current liabilities                                                                                                                                                                       |       | 49,137                                                                             |       |                        | 54,158     |   |   |
| Capital lease  obligations, long-term                                                                                                                                                           |       | 14                                                                                 |       |                        | 49         |   |   |
| Accrued royalties,  long-term                                                                                                                                                                   |       | 4,401                                                                              |       |                        | 6,579      |   |   |
| Long-term debt                                                                                                                                                                                  |       | 101                                                                                |       |                        | 101        |   |   |
| Restructuring  accruals, long-term                                                                                                                                                              |       | 6,444                                                                              |       |                        | 6,977      |   |   |
| Common stock  warrants                                                                                                                                                                          |       | 151                                                                                |       |                        | —     |   |   |
| Series C  mandatorily redeemable preferred stock (authorized 400,000 shares; 400,000  shares issued and outstanding at April 1, 2005 and December 31,  2004)                     |       | 41,559                                                                             |       |                        | 40,671     |   |   |
| Total liabilities                                                                                                                                                                               |       | 101,807                                                                            |       |                        | 108,535    |   |   |
| Commitments and  contingencies (Notes 15 and 17)                                                                                                                                                |       |                                                                               |       |                        |       |   |   |
| Mandatorily  redeemable convertible preferred stock: authorized 24,600,000 shares; no  shares issued and outstanding at April 1, 2005 and December 31, 2004                           |       | —                                                                             |       |                        | —     |   |   |
| Stockholders’ deficit:                                                                                                                                                                     |       |                                                                               |       |                        |       |   |   |
| Common stock,  Class A, par value $.01; authorized 390,000,000 shares: 38,000,777 and  32,972,511 shares issued and outstanding at April 1, 2005 and  December 31, 2004, respectively |       | 380                                                                                |       |                        | 330        |   |   |
| Common stock, Class B,  par value $.01; authorized 1,000,000 shares: no shares issued and outstanding  at April 1, 2005 and December 31, 2004                                    |       | —                                                                             |       |                        | —     |   |   |
| Treasury stock, at cost;  4,218,553 shares at April 1, 2005 and December 31, 2004                                                                                                     |       | (21,585                                                                            | )          |                        | (21,585    | ) |   |
| Additional paid-in  capital                                                                                                                                                                     |       | 482,086                                                                            |       |                        | 474,342    |   |   |
| Deferred stock  compensation                                                                                                                                                                    |       | (1,559                                                                             | )          |                        | —     |   |   |
| Notes receivable from  stockholders                                                                                                                                                             |       | (529                                                                               | )          |                        | (529       | ) |   |
| Accumulated deficit                                                                                                                                                                             |       | (505,239                                                                           | )          |                        | (497,486   | ) |   |
| Total stockholders’  deficit                                                                                                                                                               |       | (46,446                                                                            | )          |                        | (44,928    | ) |   |
| Total liabilities, mandatorily redeemable convertible  preferred stock and stockholders’ deficit                                                                                           |       | $                                                                                  | 55,361     |                        |       | $ | 63,607 |   |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**PROXIM CORPORATIONCONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**
| ** **                                                                       | ** ** | **Three Months Ended**                               | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **April 1,  2005**                                        | ** ** | **April 2,  2004** | ** ** |
| ** **                                                                       | ** ** | **(In thousands, except  per share data)** | ** ** |
| ** **                                                                       | ** ** | **(Unaudited)**                                                | ** ** |
| Revenue                                                                          |       | $                                                              | 25,375     |   | $ | 26,697 |   |
| Cost of revenue                                                                  |       | 17,188                                                         |       | 17,377 |   |
| Royalty charges                                                                  |       | —                                                         |       | 828 |   |
| Gross profit                                                                     |       | 8,187                                                          |       | 8,492 |   |
| Operating expenses:                                                              |       |                                                           |       |   |   |
| Research and development                                                         |       | 4,709                                                          |       | 4,554 |   |
| Selling, general and administrative                                              |       | 10,311                                                         |       | 11,721 |   |
| Legal expense for certain litigation                                             |       | 54                                                             |       | 745 |   |
| Amortization of intangible assets                                                |       | 957                                                            |       | 5,364 |   |
| Amortization of deferred stock compensation                                      |       | 229                                                            |       | — |   |
| Restructuring charges                                                            |       | 410                                                            |       | 2,167 |   |
| Total operating expenses                                                         |       | 16,670                                                         |       | 24,551 |   |
| Loss from  operations                                                            |       | (8,483                                                         | )          | (16,059 | ) |
| Interest expense,  net                                                           |       | (1,446                                                         | )          | (2,716 | ) |
| Other income, net                                                                |       | 2,176                                                          |       | 2,208 |   |
| Loss before  income taxes                                                        |       | (7,753                                                         | )          | (16,567 | ) |
| Income tax  benefit                                                              |       | —                                                         |       | (745 | ) |
| Net loss                                                                         |       | (7,753                                                         | )          | (15,822 | ) |
| Accretion of  Series A Preferred Stock obligations                          |       | —                                                         |       | (1,658 | ) |
| Net loss  attributable to common stockholders — basic and diluted           |       | $                                                              | (7,753     | ) | $ | (17,480 | ) |
| Net loss per  share attributable to common stockholders — basic and diluted |       | $                                                              | (0.24      | ) | $ | (1.42 | ) |
| Shares used to compute  net loss per share — basic and diluted              |       | 31,684                                                         |       | 12,318 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**PROXIM CORPORATIONCONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**
| ** **                                                                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **April 1,  2005**          | ** ** | **April 2,  2004** | ** ** |
| ** **                                                                   | ** ** | **(In thousands)**          | ** ** |
| ** **                                                                   | ** ** | **(Unaudited)**                  | ** ** |
| Cash flows from  operating activities:                                       |       |                             |       |   |   |
| Net loss                                                                     |       | $                                | (7,753     | ) | $ | (15,822 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                |       | 1,474                            |       | 5,949 |   |
| Amortization of debt discount on convertible notes  and issuance costs       |       | —                           |       | 2,892 |   |
| Amortization of warrants issued to customer                                  |       | 174                              |       | 174 |   |
| Amortization of deferred stock compensation                                  |       | 229                              |       |   |   |
| Provision for excess and obsolete inventory and  lower of cost or market     |       | 1,526                            |       | 300 |   |
| Restructuring charges                                                        |       | 410                              |       | 2,167 |   |
| Loss on disposal of property and equipment                                   |       | —                           |       | 350 |   |
| Deferred income taxes                                                        |       | —                           |       | (745 | ) |
| Revaluation of common stock warrants                                         |       | (2,176                           | )          | (5,100 | ) |
| Changes in assets  and liabilities:                                          |       |                             |       |   |   |
| Accounts receivable, net                                                     |       | 528                              |       | 4,016 |   |
| Inventory                                                                    |       | 1,024                            |       | 281 |   |
| Other assets, current and non-current                                        |       | (660                             | )          | 638 |   |
| Accounts payable and other accrued liabilities                               |       | (1,247                           | )          | (119 | ) |
| Accrued royalties and interest                                               |       | (2,500                           | )          | 913 |   |
| Net cash used in operating activities                                        |       | (8,971                           | )          | (4,106 | ) |
| Cash flows from  investing activities:                                       |       |                             |       |   |   |
| Purchase of property and equipment                                           |       | (176                             | )          | (292 | ) |
| Decrease in restricted cash                                                  |       | 20                               |       | 636 |   |
| Net cash provided by (used in) investing activities                          |       | (156                             | )          | 344 |   |
| Cash flows from  financing activities:                                       |       |                             |       |   |   |
| Principal payments on short-term bank borrowing                              |       | (3,000                           | )          | — |   |
| Principal payments on capital lease obligations                              |       | (309                             | )          | (299 | ) |
| Issuance of common stock and warrants, net                                   |       | 8,550                            |       | 437 |   |
| Net cash provided by financing activities                                    |       | 5,241                            |       | 138 |   |
| Net decrease in  cash and cash equivalents                                   |       | (3,886                           | )          | (3,624 | ) |
| Cash and cash  equivalents at beginning of period                            |       | 16,003                           |       | 19,756 |   |
| Cash and cash  equivalents at end of period                                  |       | $                                | 12,117     |   | $ | 16,132 |   |
| Supplemental  disclosures:                                                   |       |                             |       |   |   |
| Cash paid during  the period for:                                            |       |                             |       |   |   |
| Interest on short-term bank loan                                             |       | $                                | 5          |   | $ | — |   |
| Interest on capital lease obligations                                        |       | $                                | 8          |   | $ | 21 |   |
| Non-cash transactions:                                                       |       |                             |       |   |   |
| Issuance of restricted common stock units                                    |       | $                                | 1,788      |   | $ | — |   |
| Accretion of  Series A Preferred Stock redemption obligations           |       | $                                | —     |   | $ | 2,357 |   |

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**Note 1 — The Company**

Proxim Corporation (the “Company”)is the company created by the merger of Proxim, Inc. and Western MultiplexCorporation, or Western Multiplex. On March 26, 2002, Western Multiplexmerged with Proxim, Inc. located in Sunnyvale, California which designs,manufactures and markets high performance wireless local area networking, orWLAN, and building-to-building network products based on radio frequency, orRF, technology and changed its name to Proxim Corporation. On August 5,2002, the Company completed the acquisition of the 802.11 WLAN systems businessof Agere Systems, Inc., or Agere, including its ORiNOCO product line. Inaccordance with accounting principles generally accepted in the United Statesof America, the results of operations for the periods presented include theresults of the merged or acquired businesses beginning from the respectivedates of completion of the business combinations.

***Significant Events***

On January 27, 2005, the Company announced thatit has engaged Bear, Stearns & Co. to explore strategic alternatives forthe Company, including capital raising and merger opportunities. The Companyremains actively engaged with Bear, Stearns & Co. and is currently indiscussion with a potential third party purchaser. There can be no assurancethat a transaction will occur and, if a transaction occurred, there can be noassurance that any consideration available to the holders of the Company’sClass A common stock (“Common Stock”) would approach the current market tradingvalue of the Company’s Common Stock given, among other factors, the preferencesheld by senior equity and debt holders.

On February 7, 2005, the Company entered intoSubscription Agreement with several purchasers (the “Purchasers”), pursuant tothe terms of which the Purchasers purchased 5,010,000 shares of Common Stock ata purchase price of $1.80 per share, for aggregate proceeds of$9.0 million. After deducting the financial advisor fees, the net proceedsto the Company totaled $8.5 million intended for general corporatepurposes, including working capital needs. As part of the sale of shares, theCompany agreed to issue for each share of Common Stock purchased warrants topurchase 0.5 shares of Common Stock at an exercise price of $2.35 per share.The warrants will become exercisable six months from the issuance of thewarrants and may be exercised for cash or on a cashless basis, depending onwhether or not an effective registration statement is available for theissuance of the shares underlying the warrants, for a period of five years. Theaggregate number of shares of Common Stock that can be issued upon exercise ofthe warrants is 2,505,000. In the event of a major transaction, such as amerger or sale of the Company, the holders of the warrants are entitled tocertain cash payment rights depending on the timing and valuation of such atransaction. The shares and warrants were issued and sold under the Company’spreviously filed Registration Statement on Form S-3, which was declaredeffective by the Securities and Exchange Commission on November 8, 2004.

Because the Company’sunaffiliated market capitalization has fallen below $75.0 million, the Companyis precluded from issuing additional registered securities under theRegistration Statement on Form S-3.

***Liquidity***

The Company has incurred substantial losses andnegative cash flows from operations during the three months ended April 1,2005 and years ended December 31, 2004, 2003 and 2002, and has an 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

accumulated deficit of $505.2 millionas of April 1, 2005. The Company’s net revenues declined to $25.4 millionin the first quarter of 2005 from $26.7 million in the first quarter of 2004and $113.7 million in 2004 from $148.5 million in 2003. In addition,as of April 1, 2005, pursuant to the terms of the Settlement Agreementwith Symbol Technologies Inc. (“Symbol”), the Company is required to pay$17.8 million to Symbol over the next seven quarters. If at any pointduring the term of the Settlement Agreement, the Company fails to make any ofthese payments within 30 days after Symbol has notified the Company of itsfailure to pay, Symbol has the right to demand immediate payment in the amountof $25.9 million minus payments made under the agreement and plus applicableinterest. To date, the Company has made two payments of $2.5 million each. Uponthe Company’s failure to timely pay to Symbol the payment due March 31, 2005,Symbol noticed the Company of a breach under the Settlement Agreement anddemanded that the Company make the payment within the thirty-day cure periodprovided by the Settlement Agreement. Symbol subsequently agreed to temporarilywaive its rights and to extend the cure period for the payment until May 15,2005. Unless the Company pays prior to expiration of the extended cure period, Symbolhas the right to demand payment in full. The Company’s current cash on hand isinsufficient to make such a payment.

The Company’s amended A/R Financing Agreement, itssecured credit facility with Silicon Valley Bank, expires in July 2005,and there is no assurance that it will be renewed after expiration. Furthermore,there is no assurance that this facility will even be available or that theCompany will be able to borrow up to its maximum availability prior to itsexpiration, because Silicon Valley Bank may limit borrowings at its discretionor the borrowing base of eligible accounts receivable may be substantially lessthan the maximum availability under the credit facility, respectively. Inaddition, the Temporary Overadvances portion of the A/R Financing Agreementwith the Silicon Valley Bank expired on April 30, 2005 and was not renewed.Pursuant to the Amendment to Loan Documents executed May 9, 2005, all outstandingand future letters of credit must be fully secured by cash in an amount equalto the greater of (i) 105% of the total face amount of all outstandingletters of credit, or (ii) $100,000 plus 100% of the total face amount ofall outstanding letters of credit. As of May 9, 2005, the restricted cashbalance associated with outstanding letters of credit which were secured bycash was $2.0 million.

The Company currently believes that its continuednegative cash flows from operations coupled with the quarterly obligations toSymbol would require that the Company obtain immediate additional financing ifits bank financing facility were to become unavailable. Additionally, if priorto June 30, 2005 the Company fails to close a financing transaction with grossproceeds of $20.0 million or more through a sale of its Common Stockand/or warrants to purchase its Common Stock and is required to repay the$10.0 million of the secured promissory notes (“the “Bridge Notes”), alongwith accrued but unpaid interest thereon, it will be required to obtainimmediate alternative sources of financing to repay the Bridge Notes. Becausethe Company’s unaffiliated market capitalization has fallen below $75.0 millionthe Company is precluded from issuing additional registered securities underthe Registration Statement on Form S-3. Therefore, it will be difficultfor the Company to raise capital through registered offerings of itssecurities.

As a result of theforegoing factors, individually or in the aggregate, the Company has animmediate need for additional financing. If the Company were not able to obtainfinancing in the second quarter of 2005, it will have insufficient cash to paythe above mentioned obligations, will be unable to meet its ongoing operatingobligations as they come due in the ordinary course of business, and will berequired to seek protection under applicable bankruptcy laws. These mattersraise substantial doubt about the 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Company’sability to continue as a going concern. The consolidated financial statementsdo not include any adjustments that might result from this uncertainty.

***Risks and Uncertainties***

The Company depends on single or limited sourcesuppliers for several key components used in the Company’s products. TheCompany depends on single sources for proprietary application specificintegrated circuits, or ASICs, and assembled circuit boards for these products.Any disruptions in the supply of these components or assemblies could delay ordecrease the Company’s revenues. In addition, even for components with multiplesources, there have been, and may continue to be, shortages due to capacityconstraints caused by high demand. The Company does not have any long-termarrangements with any suppliers.

The Company relies oncontract and subcontract manufacturers for turnkey manufacturing and circuitboard assemblies which subjects the Company to additional risks, including apotential inability to obtain an adequate supply of finished assemblies andassembled circuit boards and reduced control over the price, timely deliveryand quality of such finished assemblies and assembled circuit boards. If theCompany’s Sunnyvale facility were to become incapable of operating, eventemporarily, or were unable to operate at or near the Company’s current or fullcapacity for an extended period, the Company’s business and operating resultscould be materially adversely affected.

***Basis of Presentation***

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information and with the instructions to Form 10-Q and Article 10of Regulation S-X. The condensed consolidated balance sheet as of April 1,2005, the condensed consolidated statements of operations for the three monthsended April 1, 2005 and April 2, 2004 and the condensed consolidatedstatements of cash flows for the three months ended April 1, 2005 and April 2,2004 are unaudited but each statement includes all adjustments (consisting ofnormal recurring adjustments) which the Company considers necessary for a fairstatement of the financial position, operating results and cash flows for theperiods presented.

The condensed consolidatedbalance sheet at December 31, 2004 has been derived from ProximCorporation’s audited consolidated financial statements as of that date.Certain information and footnote information normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted pursuant to the rules andregulations of the Securities and Exchange Commission. Results for any interimperiod are not necessarily indicative of results for any future interim periodor for the entire year. The accompanying condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2004.

***Use of Estimates***

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements as well as the reportedamounts of revenue and expenses during the reporting period. Actual resultscould differ from those estimates and such differences may be material to thefinancial statements.

***Principles of Consolidation***

The condensed consolidatedfinancial statements include the financial statements of Proxim Corporation andall of its subsidiaries. The financial condition and results of operations forthe three months ended April 1, 2005 and April 2, 2004 include theresults of acquired subsidiaries from their effective dates. All significantintercompany transactions and balances are eliminated in consolidation.

***Reverse Stock Split***

In accordance with theSecurities and Exchange Commission’s Staff Accounting Bulletin Topic 4C, *Equity Accounts and Change in Capital Structure*,and the Financial Accounting Standards Board’s Statement of FinancialAccounting Standards 128, *Earnings Per Share*,the Company restated all the share and per share data in these condensedconsolidated financial statements to reflect the capital structure subsequentto the one-for-ten reverse stock split, which became effective on October 25,2004.

**Note2 — Recent Accounting Pronouncements**

In November 2004, the Financial AccountingStandards Board (“FASB”), issued Statement No. 151, *Inventory Costs — An Amendment of ARB No. 43,Chapter 4* (“SFAS No. 151”). SFAS No. 151 amends theguidance in ARB No. 43, Chapter 4 *InventoryPricing*, to clarify the accounting for abnormal amounts of idlefacility expense, freight, handling costs, and wasted material (spoilage).Among other provisions, the new rule requires that items such as idlefacility expense, excessive spoilage, double freight, and rehandling costs berecognized as current-period charges regardless of whether they meet thecriterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS No. 151requires that the allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. SFAS No. 151is effective for fiscal years beginning after June 15, 2005 and isrequired to be adopted by the Company in the first quarter of fiscal 2006,beginning on January 1, 2006. The Company is currently evaluating theeffect that the adoption of SFAS No. 151 will have on its consolidatedresults of operations and financial condition.

In December 2004, the FASB issued Statement No. 123(revised 2004), *Share-Based Payment*(“SFAS No. 123R”), which replaces SFAS No. 123, *Accounting for Stock-Based Compensation*,(SFAS No. 123) and supercedes APB Opinion No. 25, *Accounting for Stock Issued to Employees.*SFAS No. 123R requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values beginning with the first annual periodbeginning after June 15, 2005, with early adoption encouraged. The proforma disclosures previously permitted under SFAS No. 123 no longer willbe an alternative to financial statement recognition. The Company is requiredto adopt SFAS No. 123R in the first quarter of fiscal 2006, beginning January 1,2006. Under SFAS No. 123R, the Company must determine the appropriate fairvalue model to be used for valuing share-based payments, the amortizationmethod for compensation cost and the transition method to be used at date ofadoption. The transition methods include prospective and retroactive adoptionoptions. Under the retroactive option, prior periods may be restated either asof the beginning of the year of 

9

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

adoption or for allperiods presented. The prospective method requires that compensation expense berecorded for all unvested stock options and restricted stock at the beginningof the first quarter of adoption of SFAS No. 123R, while the retroactivemethods would record compensation expense for all unvested stock options andrestricted stock beginning with the first period restated.

The Company is evaluating the requirements of SFAS No. 123R,and expects that the adoption of SFAS No. 123R will have a material impacton the Company’s consolidated results of operations and earnings per share,particularly in light of the Company’s announcement on December 21, 2004regarding its intent to effect a re-pricing of outstanding options followingstockholder approval at its annual meeting of stockholders to be held on May 16,2005. The Company is currently evaluating the method of adoption and the effectof adoption of SFAS No. 123R on the Company including the re-pricing ofthe employee stock options under SFAS No. 123R will have on its results ofoperations and financial condition.

In December 2004, theFASB issued Statement No. 153 *Exchangesof Nonmonetary Assets — An Amendment of APB Opinion No. 29,Accounting for Nonmonetary Transactions* (“SFAS No. 153”). SFAS No. 153eliminates the exception from fair value measurement for nonmonetary exchangesof similar productive assets in paragraph 21(b) of APB Opinion No 29Accounting for Nonmonetary Transactions, and replaces it with an exception forexchanges that do not have commercial substance. SFAS No. 153 specifiesthat a nonmonetary exchange has commercial substance if the future cash flowsof the entity are expected to change significantly as a result of the exchange.SFAS No. 153, is effective for the fiscal periods beginning after June 15,2005 and is required to be adopted by the Company in the first quarter offiscal 2006, beginning January 1, 2006. The Company is currently evaluatingthe effect that the adoption of SFAS No. 153 will have on its consolidatedresults of operations, financial condition or cash flows.

**Note 3 — Intangible Assets**

Acquiredintangible assets, net of accumulated amortization, consist of the following(in thousands):
| ** **                        | ** ** | **April 1,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Acquired  intangible assets, net: |       |                    |       |                        |       |   |   |
| Proxim, Inc.                 |       | $                       | 1,255      |                        |       | $ | 1,412 |   |   |
| 802.11 WLAN systems business      |       | 7,972                   |       |                        | 8,772      |   |   |
| Total intangible  assets, net     |       | $                       | 9,227      |                        |       | $ | 10,184 |   |   |

 

10

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Acquiredintangible assets by categories as of April 1, 2005 and December 31,2004 consist of the following (in thousands):
| ** **                      | ** ** | **Gross**               | ** ** | **Accumulated Amortization**         | ** ** |
|---------------------------------|------------|-------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **Carrying**            | ** ** | **  April 1,  ** | ** ** | **December 31,** | ** ** |
| ** **                      | ** ** | ** Amounts ** | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
| Amortized  intangible assets:   |       |                    |       |                                      |       |   |   |   |   |   |   |   |   |
| Core Technology                 |       |                    | $          | 4,565                                     |       |   |   | $ | 444 |   |   |   | $ | — |   |   |
| Customer Relationships          |       |                    | 878        |                                      |       |   | 375 |   |   |   | — |   |   |
| Patents                         |       |                    | 3,439      |                                      |       |   | 2,328 |   |   |   | 2,190 |   |   |
| Total                           |       |                    | $          | 8,882                                     |       |   |   | $ | 3,147 |   |   |   | $ | 2,190 |   |   |
| Unamortized  intangible assets: |       |                    |       |                                      |       |   |   |   |   |   |   |   |   |
| Tradename                       |       |                    | $          | 3,492                                     |       |   |   |   |   |   |   |   |   |   |

 

Coretechnology, developed technology, customer relationships and patents are beingamortized on a straight-line basis over the following estimated periods ofbenefit:
| Core technology         |   | 5 years |   |
|-------------------------|--------|---------|--------|
| Developed  technology   |   | 3 years |   |
| Customer  relationships |   | 3 years |   |
| Patents                 |   | 5 years |   |

 

The Company expectsamortization expense of existing intangible assets to be $2.4 million in theremaining fiscal 2005, $2.3 million in fiscal 2006 and $1.0 million in fiscal2007, at which time existing intangible assets, other than tradename, will befully amortized assuming no future impairments of those intangible assets oradditions as a result of business combinations.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 4 — Balance Sheet Components**

Thefollowing is a summary of certain of the Company’s condensed consolidated balancesheets (in thousands):
| ** **                                                    | ** ** | **April 1,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Accounts receivable,  net:                                    |       |                    |       |                        |       |   |   |
| Gross accounts receivable                                     |       | $                       | 17,832     |                        |       | $ | 20,801 |   |   |
| Less: Deferred revenue                                        |       | (5,212                  | )          |                        | (5,987     | ) |   |
| Allowances for bad debts, sales returns and price  protection |       | (7,098                  | )          |                        | (8,764     | ) |   |
|                                                          |       | $                       | 5,522      |                        |       | $ | 6,050 |   |   |
| Inventory:                                                    |       |                    |       |                        |       |   |   |
| Raw materials                                                 |       | $                       | 1,974      |                        |       | $ | 2,569 |   |   |
| Work-in-process                                               |       | 769                     |       |                        | 1,512      |   |   |
| Finished goods                                                |       | 5,082                   |       |                        | 5,738      |   |   |
| Consignment inventories                                       |       | 2,645                   |       |                        | 3,201      |   |   |
|                                                          |       | $                       | 10,470     |                        |       | $ | 13,020 |   |   |
| Property and equipment,  net:                                 |       |                    |       |                        |       |   |   |
| Computer and test equipment                                   |       | $                       | 11,641     |                        |       | $ | 11,836 |   |   |
| Furniture and fixtures                                        |       | 200                     |       |                        | 201        |   |   |
| Leased assets                                                 |       | 2,987                   |       |                        | 2,987      |   |   |
| Leasehold improvements                                        |       | 438                     |       |                        | 438        |   |   |
|                                                          |       | 15,266                  |       |                        | 15,462     |   |   |
| Less: accumulated depreciation and amortization               |       | (9,859                  | )          |                        | (9,481     | ) |   |
|                                                          |       | $                       | 5,407      |                        |       | $ | 5,981 |   |   |
| Intangible assets, net:                                       |       |                    |       |                        |       |   |   |
| Core technology                                               |       | $                       | 4,565      |                        |       | $ | 4,565 |   |   |
| Customer relationships                                        |       | 878                     |       |                        | 878        |   |   |
| Tradename                                                     |       | 3,492                   |       |                        | 3,492      |   |   |
| Patents                                                       |       | 3,439                   |       |                        | 3,439      |   |   |
|                                                          |       | 12,374                  |       |                        | 12,374     |   |   |
| Less: Accumulated amortization                                |       | (3,147                  | )          |                        | (2,190     | ) |   |
|                                                          |       | $                       | 9,227      |                        |       | $ | 10,184 |   |   |
| Other accrued  liabilities:                                   |       |                    |       |                        |       |   |   |
| Restructuring accruals, current portion                       |       | $                       | 3,335      |                        |       | $ | 3,659 |   |   |
| Accrued interest on convertible bridge notes                  |       | 1,041                   |       |                        | 645        |   |   |
| Accrued unconditional purchase order and project  commitments |       | 730                     |       |                        | 746        |   |   |
| Accrued compensation                                          |       | 3,920                   |       |                        | 3,473      |   |   |
| Accrued warranty costs                                        |       | 1,150                   |       |                        | 1,199      |   |   |
| Deferred revenue                                              |       | 4,314                   |       |                        | 3,784      |   |   |
| Professional fees                                             |       | 1,063                   |       |                        | 1,245      |   |   |
| Other accrued liabilities                                     |       | 4,937                   |       |                        | 5,266      |   |   |
|                                                          |       | $                       | 20,490     |                        |       | $ | 20,017 |   |   |

 

12

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Thefollowing is a summary of the movements in allowance for bad debt, salesreturns and price protection and product warranty costs during the three monthsended April 1, 2005 and April 2, 2004 (in thousands):
| ** **                          | ** ** | **Allowance for Bad  Debt, Sales Returns  and Discounts** | ** ** | **Product Warranty  Costs** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **2005**                                                                           | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2004** | ** ** |
| Balance at  beginning of period     |       | $                                                                                  | 8,764      |                             | $          | 9,785 |   | $ | 1,199 |   | $ | 1,395 |   |
| Additional  provision               |       | 2,833                                                                              |       | 5,218                            |       | 289 |   | 42 |   |
| Settlements made  during the period |       | (4,499                                                                             | )          | (4,033                           | )          | (338 | ) | (71 | ) |
| Balance at end of period            |       | $                                                                                  | 7,098      |                             | $          | 10,970 |   | $ | 1,150 |   | $ | 1,366 |   |

 

Thefollowing is a summary of the changes in the reserve for excess and obsoleteinventory and lower of cost or market during the three months ended April 1,2005 (in thousands):
| Balance as of  December 31, 2004                                    |   | $     | 6,905  |   |
|--------------------------------------------------------------------------|--------|-------|--------|--------|
| Provision for  excess and obsolete inventory and lower of cost or market |   | 1,526 |   |
| Inventory  scrapped                                                      |   | (664  | )      |
| Balance as of  April 1, 2005                                        |   | $     | 7,767  |   |

 

During the three months ended April 1, 2005, theCompany recorded a $1.5 million provision for excess and obsolete inventory andlower of cost or market as part of its ongoing review of its inventory reserverequirements. The additional excess and obsolete and lower of cost or marketinventory charges were calculated based on the inventory levels in excess ofthe estimated 12-month sales forecasts and anticipated reduced selling pricesfor certain products. The Company does not anticipate that the excess andobsolete inventory subject to this reserve will be saleable at a later date basedon its current 12-month sales forecast. The Company uses a 12-month salesforecast, because the wireless communications industry is characterized byrapid technological changes such that if the Company has not sold a productafter a 12-month period, it is unlikely that the product will be sold.

Property and equipmentincludes $3.0 million of computer equipment under capital leases at April 1,2005. Accumulated amortization of assets under capital leases totaled $991,000.

**Note 5 — RevenueInformation and Concentration of Credit Risks**

Revenue consists of product revenues, reduced byestimated sales returns and allowances for price protection. Provisions forestimated sales returns and allowances, which are based on historical trends,contractual terms and other available information, are recorded at the timerevenue is recognized.

13

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

TheCompany’s products are classified into two product lines: WWAN and WLAN productlines. The WWAN product line includes point-to-point Lynx and Tsunami productsand point-to-multipoint Tsunami products. The WLAN product line includesORiNOCO 802.11 access point and client card products. Revenue information byproduct line is as follows (in thousands):
| ** **            | ** ** | **Three Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|
| **Product Line** | ** ** | ** **                       | ** ** | **April 1,  2005** | ** ** | **April 2,  2004** | ** ** |
| WWAN                  |       | $                                | 16,363     |   | $ | 13,074 |   |
| WLAN                  |       | 9,012                            |       | 13,623 |   |
| Total revenue         |       | $                                | 25,375     |   | $ | 26,697 |   |
|                       |            |                                  |            |  |  |  |  |  |  |

 

TheCompany sells its products worldwide primarily through independent distributorsand value-added resellers and, to a lesser extent, through its direct salesforce. It currently operates in two geographic regions: North America andInternational. Revenue outside of North America is primarily export salesdenominated in United States dollars. Disaggregated financial informationregarding the Company’s revenue by geographic region is as follows (inthousands):
| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| **Geographic Region**     | ** ** | ** **                       | ** ** | **April 1,  2005** | ** ** | **April 2,  2004** | ** ** |
| North America  product revenue |       | $                                | 11,301     |   | $ | 13,453 |   |
| International  product revenue |       | 14,074                           |       | 13,244 |   |
| Total revenue                  |       | $                                | 25,375     |   | $ | 26,697 |   |
|                                |            |                                  |            |  |  |  |  |  |  |

 

Three customers accountedfor 13.3%, 12.6% and 10.9% of total revenue for the three months ended April 1,2005, and two customers accounted for 14.3% and 12.5% of total revenue for thethree months ended April 2, 2004.

**Note 6 — RestructuringCharges for Severance and Excess Facilities**

During the three months ended April 1, 2005, theCompany recorded restructuring charges of $410,000, consisting of $177,000 ofcash provisions for severance payments to seventeen terminated employees and$236,000 of non-cash provisions for abandoned property and equipment. Theestimated future sublease receipts are based on current comparable rates forleases in the respective markets. If facility rental rates continue to decreasein these markets, or it takes longer than expected, or if the Company wereunable to sublease these facilities, the actual costs to close these facilitiescould exceed the original estimates, and additional restructuring chargestotaling $2.2 million could result.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Thefollowing table summarizes the restructuring activities for the year ended December 31,2004 and the three months ended April 1, 2005 (in thousands):
| ** **                            | ** ** | **  Severance  ** | ** ** | **Facilities** | ** ** | ** Other ** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|----------------|------------|-----------------------|------------|-----------|------------|
| Balance as of  December 31, 2003 |       |                                  | $          | 3,620          |       |                  | $          | 11,584    |       | $ | 600 |   | $ | 15,804 |   |
| Provision charged  to operations      |       |                                  | 323        |           |       | 1,653                 |       | 119       |       | 2,095 |   |
| Non-cash charges  utilized            |       |                                  | —     |           |       | —                |       | (119      | )          | (119 | ) |
| Cash payments                         |       |                                  | (3,827     | )              |       | (3,317                | )          | —    |       | (7,144 | ) |
| Balance as of  December 31, 2004 |       |                                  | 116        |           |       | 9,920                 |       | 600       |       | 10,636 |   |
| Provision charged  to operations      |       |                                  | 177        |           |       | —                |       | 233       |       | 410 |   |
| Non-cash charges  utilized            |       |                                  | —     |           |       | —                |       | (233      | )          | (233 | ) |
| Cash payments                         |       |                                  | (278       | )              |       | (756                  | )          | —    |       | (1,034 | ) |
| Balance as of  April 1, 2005     |       |                                  | $          | 15             |       |                  | $          | 9,164     |       | $ | 600 |   | $ | 9,779 |   |

 

Therestructuring reserves were presented on the balance sheet as follows (inthousands):
| ** **                    | ** ** | **April 1,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Current                       |       | $                       | 3,335      |                        |       | $ | 3,659 |   |   |
| Long-term                     |       | 6,444                   |       |                        | 6,977      |   |   |
| Total  restructuring accruals |       | $                       | 9,779      |                        |       | $ | 10,636 |   |   |

 

**Note 7 — InterestExpense, Net and Other Income, Net**

Thefollowing table summarizes the components of interest expense, net (inthousands):
| ** **                                                                | ** ** | **Three Months Ended**                                        | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **    April 1,      2005** | ** ** | **April 2,  2004** | ** ** |
| Interest expense  on royalty charges                                      |       |                                                                    | $          | (124 | ) |   | $ | (85 | ) |
| Interest expense  on convertible notes                                    |       |                                                                    | —     |   |   | (2,548 | ) |
| Interest expense  on convertible bridge notes                             |       |                                                                    | (396       | ) |   | — |   |
| Interest expense  on Series C mandatorily redeemable preferred stock |       |                                                                    | (888       | ) |   | — |   |
| Other interest  expense, net                                              |       |                                                                    | (38        | ) |   | (83 | ) |
|                                                                      |       |                                                                    | $          | (1,446 | ) |   | $ | (2,716 | ) |

 

Thefollowing table summarizes the components of other income (expense), net (inthousands):
| ** **                                        | ** ** | **Three Months Ended**                | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                        | ** ** | **  April 1,    2005** | ** ** | ** April 2,   2004** | ** ** |
| Amortization of  debt discount and issuance costs |       |                                            | $          | — |   |   | $ | (2,892 | ) |
| Revaluation of  common stock warrants             |       |                                            | 2,176      |   |   | 5,100 |   |
|                                              |       |                                            | $          | 2,176 |   |   | $ | 2,208 |   |

 

15

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 8 — Loss Per Share Attributable to CommonStockholders**

Basic net loss per common share is computed bydividing the net loss for the period by the weighted average number of commonshares outstanding during the period excluding shares subject to repurchase.The terms of the Company’s redeemable convertible preferred stock include theright to participate in dividends declared to common stockholders. TheCompany’s redeemable convertible preferred stock does not have a contractualobligation to share in the losses in any given period. As a result, thisparticipating security will not be allocated any losses in the periods of netlosses, but will be allocated in the periods of net income using the two-classmethod. The two-class method is an earnings allocation formula that determinesearnings per share for each class of common stock and participating securitiesaccording to dividends declared or accumulated and participation rights inundistributed earnings. Under the two-class method, net income is reduced bythe amount of dividends declared in the current period for each class of stockand by the contractual amounts of dividends that must be paid for the currentperiod. The remaining earnings are then allocated to common stock andparticipating securities to the extent that each security may share in earningsas if all of the earnings for the period had been distributed. The totalearnings allocated to each security are determined by adding together theamounts allocated for dividends and the amounts allocated for participationfeature. The total earnings allocated to each security are then divided by thenumber of outstanding shares of the security to which the earnings areallocated to determine the earnings per share.

Diluted net loss per share is computed by dividing thenet loss for the period by the weighted average number of common and potentialcommon shares outstanding during the period if the effect is dilutive.Potential common shares are composed of common stock subject to repurchaserights and incremental shares of common stock issuable upon the exercise ofstock options and warrants and upon the conversion of preferred stock. Thedilutive effect of outstanding stock options and warrants is computed using thetreasury stock method.

Thefollowing table sets forth the computation of basic and diluted net loss pershare as well as securities not included in the diluted net loss per sharescalculation because to do so would be antidilutive:
| ** **                                                                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **April 1,  2005**          | ** ** | **April 2,  2004** | ** ** |
| Net loss attributable to  common stockholders                                              |       | $                                | (7,753     | ) | $ | (17,480 | ) |
| Weighted average common  shares outstanding                                                |       | 31,684                           |       | 12,318 |   |
| Net loss per share —  basic and diluted                                               |       | $                                | (0.24      | ) | $ | (1.42 | ) |
| Potentially dilutive shares not included in the  calculation because they are antidilutive |       | 6,500                            |       | 11,604 |   |

 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 9 — ComprehensiveLoss**

The total comprehensiveloss for the three months ended April 1, 2005 and April 2, 2004 is asfollows (in thousands):
| ** **                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **April 1,  2005**          | ** ** | **April 2,  2004** | ** ** |
| Net loss attributable to  common stockholders |       | $                                | (7,753     | ) | $ | (17,480 | ) |
| Unrealized gain on  investments               |       | —                           |       | 1,119 |   |
| Total comprehensive loss                      |       | $                                | (7,753     | ) | $ | (16,361 | ) |

 

**Note 10 — ConvertibleBridge Notes**

On July 30, 2004, theCompany received an aggregate investment of $10 million in cash fromseveral private equity investors, namely, Warburg Pincus Private Equity VIII,L.P (“Warburg Pincus”), BCP Capital, L.P., BCP Capital QPF, L.P. and BCPCapital Affiliates Fund LLC (together “BCP Capital” and with Warburg Pincus,the “Investors”). In exchange for the investment, the Company issued to theInvestors 15% Secured Promissory Notes (“Bridge Notes”) with an aggregateprincipal amount equal to their investment of $10 million and each withmaturity date of June 30, 2005. All principal and accrued interest on theBridge Notes will convert into Common Stock and/or warrants to purchase CommonStock, at the same price and upon the same terms and conditions offered toother investors if prior to June 30, 2005 the Company closes a financingtransaction with gross proceeds of $20 million or more through a sale ofCommon Stock and/or warrants to purchase Common Stock. In the event of a changein control or material asset sale prior to closing such Common Stocktransaction, the Bridge Notes will become due and payable upon demand by theholders for an amount equal to one hundred fifty percent (150%) of all unpaidprincipal and accrued but unpaid interest under the Bridge Notes as of the dateof the change in control or material asset sale. This greater amount is onlypayable by the Company in the event of change in control or material assetsale; if such an event does not occur prior to June 30, 2005, the Companywill be require to pay to the Investors on June 30, 2005 the lesser amountthat is equal to the aggregate principal amount and accrued but unpaid intereston the Bridge Notes.

**Note 11 — Series CMandatorily Redeemable Preferred Stock (“Series C Preferred Stock”)**

In connection with the issuance of the Bridge Notes,the Company and the Investors agreed that, subject to the approval of theCompany’s stockholders, the Investors would surrender (i) all of their Series APreferred Stock, (ii) all of their Series B Preferred Stock and (iii) theirwarrants to purchase an aggregate of 4,213,346 shares of Common Stock inexchange for 16,400,000 shares of Common Stock and 400,000 shares ofmandatorily redeemable Series C Preferred Stock (“Series C PreferredStock”), collectively referred to as “the Exchange”. At the special annualmeeting of stockholders held October 21, 2004, the Company’s stockholdersapproved the Exchange and the Exchange closed the following day.

In accordance with SFAS No. 150, “Accounting forCertain Financial Instruments with Characteristics of Both Liabilities andEquity”, Series C Preferred Stock is accounted as a liability because thefinancial instrument embodies a financial obligation of the issuer. Inaddition, SFAS No. 150 requires that dividends or other amountsattributable to those certain financial instruments be reflected as interestexpense in the Company’s statement of operations.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Theissuance of Series C Preferred Stock and the interest accrual was recordedthrough April 1, 2005 as follows (in thousands):
| ** **                                           | ** ** | **Series C  Preferred  Stock** | ** ** | **Interest  Expense** | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-----------------------|------------|
| Issuance of  Series C Preferred Stock           |       | $                                   | 40,000     |                  | $          | — |   |
| Accretion of  Preferred Stock redemption obligations |       | 671                                 |       | (671                  | )          |
| Balance at  December 31, 2004                   |       | 40,671                              |       | (671                  | )          |
| Accretion of  Preferred Stock redemption obligations |       | 888                                 |       | (888                  | )          |
| Balance at April 1,  2005                       |       | $                                   | 41,559     |                  | $          | (1,559 | ) |

 

The holders of Series C Preferred Stock are notentitled to voting rights or to receive dividends but have various rights andpreferences as follows:

*Liquidation Preference.  *Theinitial liquidation preference for the shares of Series C Preferred Stockis $100.00 per share. The liquidation preference accretes at 8.75% per annum,compounded quarterly, through October 22, 2012. The liquidation preferenceis subject to adjustment in the event the Company undertakes a businesscombination or other extraordinary transaction, or it is liquidated ordissolved. In the event of a change of control transaction or material assetsale after the Series C Preferred Stock original issue date, theliquidation preference automatically increases to include eight full year ofaccretion at 8.75% per annum.

*Mandatory Redemption.  *OnOctober 22, 2012, the Company is required to redeem all outstanding sharesof Series C Preferred Stock at its fully accreted value of approximately$80 million. Upon an earlier change of control transaction or materialasset sale after the Series C Preferred Stock original issue date, the Series CPreferred Stock will become redeemable at a liquidation preference ofapproximately $80 million as if it had fully accreted through the eighthanniversary of the Series C Preferred Stock original issue date.

*OptionalRedemption.  *At any time prior to October 22, 2012,the Company has the right at its option to redeem all outstanding shares of Series CPreferred Stock at a price per share in cash equal to the liquidationpreference as if the Series C Preferred Stock had fully accreted throughthe eighth anniversary of the Series C Preferred Stock original issuedate. Additionally, the Company has the right at its option to redeem alloutstanding shares of Series C Preferred Stock (i) at any time priorto, and including, the third anniversary of the Series C Preferred Stockoriginal issue date at a price per share in cash equal to its then accretedliquidation preference, if the market price of the Company’s Common Stock hasbeen higher than $22.50 for a period of forty-five (45) consecutivetrading days prior to the date that notice of redemption is given to theInvestors or (ii) at any time following the third anniversary of the Series CPreferred Stock original issuance date at a price per share equal to its thenaccreted liquidation preference if the market price of the Company’s CommonStock has been higher than $20.00 for a period of forty-five consecutivetrading days prior to the date that notice of redemption is given to theInvestors.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 12 — Stockholders’Deficit**

***Deferred StockCompensation***

In connection with the grant of 700,000 restrictedstock units (“RSU”) to the Company’s executive chairman and executive officerspursuant to the Company’s 1995 Long-Term Incentive Plan and 1999 StockIncentive Plan, respectively, during the first fiscal quarter of 2005, theCompany recorded deferred stock compensation of approximately $1.8 million.This amount represents the intrinsic value of the RSU based on the Company’sclosing stock price on the date of the grant. The RSU vest over a period of twoto three years depending on the term of the individual grant. The deferredstock compensation is being amortized as an expense on an accelerated basisover the vesting period of the individual grant consistent with the methoddescribed in FASB Interpretation 28, “Accounting for Stock Appreciation Rightsand Other Variable Stock Option or Award Plan.” Accordingly, approximately 63%of the unearned deferred compensation is amortized in the first year,approximately 29% in the second year and 8% in the third year following thedate of grant.

Duringthe three months ended April 1, 2005, the amortization of deferred stockcompensation was relating to the associated expense categories as follows (inthousands):
| Cost of revenue                      |   | $    | 14     |   |
|--------------------------------------|--------|------|--------|--------|
| Research and development             |   | 11   |   |
| Selling, general  and administrative |   | 204  |   |
|                                 |   | $229 |   |

 

***Warrants toPurchase Common Stock***

In connection with the Subscription Agreement enteredinto between the Company and certain Purchasers on February 7, 2005, theCompany issued to the Purchasers 2,505,000 warrants to purchase the Company’sCommon Stock at the exercise price of $2.35per share. The warrants will become exercisable six months from theissuance of the warrants and may be exercised for cash or on a cashless basis,depending on whether or not an effective registration statement is availablefor the issuance of the shares underlying the warrants, for a period of fiveyears. These warrants were valued by the Company with the assistance of anindependent valuation consulting firm at $2.3 million. Since the Company hascertain repayment requirements upon a change of control, the valuation of thesewarrants was recorded as a long-term liability on the Company’s balance sheet.The fair value of the warrants are subject to revaluation adjustments at theend of each reporting period. As a result of a revaluation, the Companyrecorded a gain of $2.2 million as other income during the first fiscal quarterof 2005.

In connection with athree-year licensing and distribution agreement entered into with Motorola, Inc.on September 8, 2003, the Company issued to Motorola a fully vestedwarrant to purchase 108,000 shares of the Company’s Common Stock at an exerciseprice of $23.40 per share. This warrant will expire on September 8, 2008.At issuance the Company estimated the fair value of the warrant using theBlack-Scholes option valuation model at $2.1 million. The fair value of thewarrant is being amortized on a straight-line basis over the three-year term ofthe commercial arrangement with Motorola with quarterly charges against revenueof $174,000 effective beginning in the first quarter of 2004.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

***Pro Forma FairValue Disclosure Under SFAS No. 123 and 148***

The Company accounts for its stock options and equityawards using the intrinsic value method prescribed by Accounting PrinciplesBoard Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”and has adopted the disclosure provision of SFAS No. 123 “Accounting forStock-Based Compensation” and SFAS No. 148 “Accounting for Stock-basedCompensation, Transition and Disclosure.” In accordance with SFAS No. 148the Company is required to disclose the effects on reported net loss and basicand diluted net loss per share as if the fair value based method had beenapplied to all awards.

The weighted average estimated grant date fair value,as defined by SFAS No. 123, for stock options granted under its stockoption plans during the three months ended April 1, 2005 and April 2,2004 was $1.11 and $16.70 per share, respectively. The weighted averageestimated grant date fair value of stock purchase rights granted pursuant toits employee stock purchase plan during the three months ended April 1,2005 and April 26, 2004 was $3.28 and $7.60 per share, respectively. Theestimated grant date fair value disclosed by the Company is calculated usingthe Black-Scholes option pricing model. The Black-Scholes model, as wellas other currently accepted option valuation models, was developed to estimatethe fair value of freely tradable, fully transferable options without vestingrestrictions, which significantly differ from its stock option and purchaseawards. These models also require highly subjective assumptions, includingfuture stock price volatility and expected time until exercise, which greatly affectthe calculated grant date fair value.

Had the Company recordedcompensation based on the estimated grant date fair value, as defined by SFAS No. 123,for awards granted under its stock option plans and stock purchase plan, thenet loss attributable to common stockholders and net loss per shareattributable to common stockholders would have been (in thousands, except pershare data):
| ** **                                                                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                               | ** ** | **April 1,  2005**          | ** ** | **April 2,  2004** | ** ** |
| Net loss  attributable to common stockholders as reported                                |       | $                                | (7,753     | ) | $ | (17,480 | ) |
| Add: stock-based  employee compensation expense included in reported net loss       |       | 229                              |       | — |   |
| Less: stock-based  employee compensation expense determined under fair value method |       | (634                             | )          | (1,794 | ) |
| Pro forma net  loss attributable to common stockholders                                  |       | $                                | (8,158     | ) | $ | (19,274 | ) |
| As reported:                                                                             |       |                             |       |   |   |
| Basic and diluted net loss attributable to common  stockholders per share                |       | $                                | (0.24      | ) | $ | (1.42 | ) |
| Pro forma:                                                                               |       |                             |       |   |   |
| Basic and diluted  net loss attributable to common stockholders per share                |       | $                                | (0.26      | ) | $ | (1.56 | ) |

 

These pro forma amountsdisclosed above may not be representative of the effects for future period oryears.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 15 — Commitments and Contingencies**

TheCompany occupies its facilities under several non-cancelable operating leaseagreements expiring at various dates through September 2009, and requiringpayment of property taxes, insurance, maintenance and utilities. Future minimumlease payments under non-cancelable operating were as follows (in thousands):
| ** **                                 | ** ** | **Minimum  Lease  Payments** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| Nine months  ending December 31, 2005 |       | $                            | 5,788      |   |
| Year ending  December 31:             |       |                         |       |
| 2006                                       |       | 6,738                        |       |
| 2007                                       |       | 6,371                        |       |
| 2008                                       |       | 6,435                        |       |
| 2009                                       |       | 4,434                        |       |
| Total minimum lease  payments    |       | $                            | 29,766     |   |

 

For the years ended December 31,2004, 2003 and 2002, the Company recorded restructuring charges relating to thecommitted future lease payments for closed facilities, net of estimated futuresublease receipts of $19.8 million. As of April 1, 2005 restructuringaccruals of $9.2 million were related to these closed facilities.

Under the terms of theSettlement Agreement with Symbol Technologies described more fully below inNote 17, “Legal Proceedings”, the Company agreed to pay Symbol $22.75 milliondollars over the period of ten quarters, commencing with the quarter ended October 1,2004. The Settlement Agreement provides for lump sum payments of $2.5 millionper quarter in each of the first eight quarters, a payment of $1.5 million inthe ninth quarter, and a payment of $1.25 million in the tenth quarter. If atany point during the term of the Settlement Agreement, the Company fails tomake any of these payments within 30 days after Symbol has notified the Companyof its failure to pay, Symbol shall have the right to demand immediate paymentin the amount of $25.9 million minus payments made under the agreement and plusapplicable interest.

Upon the Company’s failureto timely pay to Symbol the payment due on March 31, 2005, Symbol noticedthe Company of a breach under the Settlement Agreement and demanded that theCompany make the payment within the thirty-day cure period provided by theSettlement Agreement. Symbol subsequently agreed to temporarily waive itsrights and to extend the cure period for the payment until May 15, 2005.The waiver does not otherwise alter the Company’s obligations under theSettlement Agreement.

Under the terms of thePatent Cross License Agreement, Symbol and the Company have agreed to crosslicense certain patents, and the Company has agreed to pay to Symbol a twopercent royalty on sales of certain of the Company’s wireless LAN products. Ifthe Company fails to make any of the lump sum payments due under the SettlementAgreement over the next ten quarters and fails to cure any such missed paymentwithin 30 days thereafter, the Patent Cross License Agreement provides that theroyalty rate payable to Symbol on sales of certain of the Company’s wirelessLAN products covered by the agreement shall increase to five percent until therequired payments as set forth in the Settlement Agreement have been made.

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

**Note 16 — Credit Facilities**

In December 2002, the Company entered into asecured credit facility with Silicon Valley Bank (the “Lender”), and thensubsequently amended the credit facility in March 2003. On June 13,2003, in order to secure additional working capital, the Company entered into aletter agreement (the “Letter Agreement”) and an accounts receivable financingagreement, which effectively amended and restated the existing credit facilityin its entirety. The Company subsequently amended the accounts receivablefinancing agreement (amended, the “Amended A/R Financing Agreement”) on July 25,2003, October 31, 2003, July 31, 2004 and most recently on May 9,2005.

Under the Amended A/R Financing Agreement, the Companymay borrow up to $20.0 million in total consisting of (i) up to$10.0 million by financing a portion of its eligible accounts receivable,primarily limited to customers in the United States and (ii) up to anadditional $10 million, under which the Company is required to maintain acompensating cash balance equal to such borrowings. Under this arrangement, theLender may agree to accept for collection through a lockbox arrangementaccounts receivable from the Company, and in return the Company will receiveadvances from the Lender at a rate equal to 80% of accounts receivable fromaccount debtors who are not distributors, and 50% of accounts receivable fromaccount debtors who are distributors, subject to borrowing restrictions on mostinternational accounts and at the discretion of the Lender. After collection ofa receivable, the Lender will refund to the Company the difference between theamount collected and the amount initially advanced to the Company, less afinance charge applied against the average monthly balance of all transferred butoutstanding receivables at a rate per annum equal to the Lender’s prime rateplus 1.50 percentage points, or 5.75%, whichever is greater. In additionto a facility fee of $100,000, the Company must pay each month to the Lender ahandling fee equal to 0.25% of the average monthly balance of transferred butoutstanding receivables. The Company must repay each advance upon the earliestto occur of (i) the collection of the corresponding financed receivable, (ii) thedate on which the corresponding financed receivable becomes an ineligiblereceivable pursuant to the terms of the Amended A/R Financing Agreement, or (iii) July 30,2005.

Through April 30, 2005, the Company was able toreceive temporary advances (“Temporary Overadvances”) from the Lender in excessof the availability otherwise applicable under the A/R Financing Agreement, inan amount equal to $4.0 million for advances relating to letters ofcredit. The Temporary Overadvances portion of the credit facility could also beused to satisfy the financial covenant to maintain at least a $4.0 millionbank balance as described below. On May 9, 2005, the Company and theLender executed an Amendment to Loan Documents, pursuant to which the partiesagreed that all outstanding and future letters of credit must be fully securedby cash in an amount equal to the greater of (i) 105% of the total faceamount of all outstanding letters of credit, or (ii) $100,000 plus 100% ofthe total face amount of all outstanding letters of credit. At the same time,the financial covenant requirement to maintain at least a $4.0 millionbank balance was deleted. As of May 9, 2005, the restricted cash balanceassociated with outstanding letters of credit which were secured by cash was $2.0million.

Obligations under the amended A/R Financing Agreementare collateralized by a security interest on all of the assets of the Company,including intellectual property, and are senior in lien priority and right ofpayment to the Company’s obligations to the funds affiliated with WarburgPincus and BCP Capital pursuant to the Bridge Notes issued July 30, 2004.The amended A/R Financing Agreement requires the consent of the Lender in orderto incur debt, grant liens and sell assets. The events of default under thesecured credit facility include the failureto pay amounts when due, failure to observe or perform covenants, 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

bankruptcyand insolvency events, defaults under certain of the Company’s otherobligations and the occurrence of a material adverse change in the Company’sbusiness.

Until the most recent amendment executed on May 9,2005, the financial covenants under the Amended A/R Financing Agreementrequired the Company to maintain cash and cash equivalents with the Lender andits affiliates in an amount not less than $4.0 million, which could besatisfied by either (i) maintaining cash balances on deposit with SiliconValley Bank at or in excess of $4.0 million; (ii) borrowing againstits eligible accounts receivable under the Amended A/R Financing Agreement; or (iii) utilizingthe available borrowing capacity from the Temporary Overadvances portion ofthis credit facility. If the Company failed to meet this requirement, the Company could still remain in compliance with thefinancial covenants by maintaining a ratio of the total of cash, cashequivalents and accounts receivable approved by the Lender to the Company’scurrent liabilities of at least 5.0 to 1. In addition, the Company was requiredto maintain restricted cash balances to the extent that the Company’soutstanding letters of credit exceeded $4.0 million. The Company currentlymaintains substantially all of its cash, cash equivalents and investments atSilicon Valley Bank and its affiliates. In the event of default under theAmended A/R Financing Agreement, the Lender had the right to offset such cash,cash equivalents and investments against the Company’s obligations owing to theLender. As of April 1, 2005, the Company complied with all of thefinancial covenants under this agreement.

The financial covenants weredeleted from the amended A/R Financing Agreement on May 9, 2005 and theCompany’s agreements with the Lender were amended such that as of May 9, 2005 alloutstanding and future letters of credit must be fully secured by cash in anamount equal to the greater of (i) 105% of the total face amount of alloutstanding letters of credit, or (ii) $100,000 plus 100% of the totalface amount of all outstanding letters of credit. As of May 9, 2005, therestricted cash balance associated with outstanding letters of credit whichwere secured by cash was $2.0 million.

In the first quarter of2003, the Company entered into an equipment and software lease agreement. Underthe agreement, the Company may either lease or finance certain equipment,software and related services through a direct leasing or sales and leasebackarrangement with the lessor for up to $3.0 million. The lease term covers a periodof 30 months, and the annual implicit interest rate on the lease isapproximately 4%. During the second quarter of 2003, the Company installed andplaced into service certain equipment, software and related services throughboth a direct leasing and sales leaseback arrangement and through a directleasing arrangement during the third and fourth quarters of 2003 and during thesecond quarter of 2004. As the present value of total future minimum leasepayments was greater than 90% of the fair value of the leased assets, theCompany accounted for both the direct leasing and sales and leasebacktransactions as capital lease transactions. Net book value of the leased assets

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

capitalized in connection with this agreement as of April 1,2005 was $2.0 million. Future minimum lease payments under non-cancelablecapital leases at April 1, 2005 were as follows (in thousands):
| Nine months  ending December 31, 2005      |   | $      | 596    |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Year ending  December 31:                  |   |   |   |
| 2006                                            |   | 46     |   |
| Total minimum  lease payments                   |   | 642    |   |
| Less: amounts representing  interest            |   | 9      |   |
| Present value of  future minimum lease payments |   | 633    |   |
| Less: current  portion                          |   | 619    |   |
| Capital lease  obligations, long-term portion   |   | $      | 14     |   |

 

**Note 17 — Legal Proceedings**

Patent and otherlitigation has resulted in, and could in the future continue to result in,substantial costs and diversion of management resources of the Company.

***Active TechnologyCorporation***

On February 10, 2004,the Company received a copy of a complaint filed on February 2, 2004 inTokyo District Court by Active Technology Corporation, a Japanese-baseddistributor of the Company’s products. The complaint alleges, among otherthings, that the Company sold to Active certain defective products, whichActive in turn subsequently sold to the Company’s customers. Active seeksdamages of ¥559.2 million,which includes the purchase price of the allegedly defective products andreplacement costs allegedly incurred by Active. Active seeks to offset theclaim of ¥559.2 millionagainst outstanding accounts payable by Active of ¥175.3 million to the Company, resulting in anet claim against Proxim Corporation of ¥383.9 million. Translated into U.S. dollars onMay 4, 2005, Active’s net claim is approximately $3.7 million. On October 5,2004, a hearing was held in the matter and the Company filed a counterclaim for$2.3 million plus interest for outstanding amounts owed the Company.Additional hearings were held on January 11, 2005, February 22, 2005,March 10, 2005 and April 19, 2005. At the present time, it is notpossible to comment upon the likelihood of a favorable or unfavorable outcomeof the litigation. The Company will continue to defend itself vigorouslyagainst this lawsuit.

***Top GlobalTechnology Limited***

On or about March 10,2003, the Company was served with a complaint filed on January 15, 2003,by Top Global Technology Limited (“Top Global”), a distributor for AgereSystems Singapore. The Company’s demurrer to Top Global’s complaint wassustained in May 2003. Top Global then filed and served an amendedcomplaint on May 30, 2003. Top Global’s lawsuit was filed against AgereSystems, Inc., Agere Systems Singapore, and Agere Systems Asia Pacific(collectively, “Agere”) and the Company in the Superior Court for the State ofCalifornia, County of Santa Clara. Top Global claimed that it was entitled toreturn for a credit $1.2 million of products that it purchased from AgereSystems Singapore in June 2002 as a result of the Company’s decision todiscontinue a product line that the Company purchased from Agere in August 2002.In September 2004, Top Global voluntarily dismissed Agere from the case,leaving the Company as the only defendant. Also in September 2004, theCompany moved for summary judgment on all counts on the grounds that theCompany is not an assignee of or party to the contract upon which 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

TopGlobal based its claims. On January 18, 2005, the Court granted theCompany’s motion for summary judgment. The distributor’s time to file anotice of appeal has expired.

***Symbol Technologies, Inc.***

On December 4, 2001, Symbol filed suit in theU.S. District Court for the District of Delaware alleging that Proxim, Inc.infringed four Symbol patents related to systems for packet data transmission.Symbol sought an award for unspecified damages and a permanent injunctionagainst Proxim, Inc. based on alleged patent infringement counterclaims.

On September 15, 2003, the Company announced thata jury had rendered a verdict in the first phase of the patent infringementsuit Symbol. On Symbol’s claims of patent infringement, the jury found thatcertain of our products infringe two Symbol’s patents and assessed a 6% royaltyon the revenue of relevant products.

On July 29, 2004, the Company announced that thecourt has denied its equitable defenses and determined that the jury’s award ofa 6% royalty on the Company’s sales of these products from 1995 through September 2003,plus prejudgment interest, results in an award of damages to Symbol of$25.9 million. The court entered its judgment on this matter on August 4,2004.

On September 13, 2004 the Company entered intothe Settlement Agreement and a Patent Cross License Agreement with Symbol andassigned certain intellectual property to Symbol resolving all outstandinglitigation.

Under the terms of the Settlement Agreement, theCompany agreed to pay Symbol $22.75 million dollars over Proxim’s next tenquarters, commencing with the quarter ending October 1, 2004. TheSettlement Agreement provides for lump sum payments of $2.5 million perquarter in each of the first eight quarters, a payment of $1.5 million inthe ninth quarter, and a payment of $1.25 million in the tenth quarter. Ifat any point during the term of the Settlement Agreement, the Company fails tomake any of these payments within 30 days after Symbol has notified theCompany of its failure to pay, Symbol shall have the right to demand immediatepayment in the amount of $25,917,669, minus payments made under the agreementand plus applicable interest.

Upon the Company’s failure to timely pay to Symbol thepayment due on March 31, 2005, Symbol noticed the Company of a breachunder the Settlement Agreement and demanded that the Company make the paymentwithin the thirty-day cure period provided by the Settlement Agreement. Symbolsubsequently agreed to temporarily waive its rights and to extend the cureperiod for the payment until May 15, 2005. The waiver does not otherwisealter the Company’s obligations under the Settlement Agreement.

Under the terms of the Patent Cross License Agreement,Symbol and the Company have agreed to cross license certain patents, and theCompany has agreed to pay to Symbol a two percent royalty on sales of certainof the Company’s wireless LAN products. If the Company fails to make any of thelump sum payments due under the Settlement Agreement over the next ten quartersand fails to cure any such missed payment within 30 days thereafter, thePatent Cross License Agreement provides that the royalty rate payable to Symbolon sales of certain of the Company’s wireless LAN products covered by theagreement shall increase to five percent until the required payments as setforth a in the Settlement Agreement have been made. Also pursuant to the termsof the Patent Cross License Agreement, the 

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**PROXIM CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)**

Company and Symbol haveentered into a covenant not to sue one another for patent infringement withrespect to one another’s products through September 13, 2009.

Since the date of theinitial jury award of the patent infringement suit in September 2003, theCompany had recorded an accrual for estimated past royalties of $22.9 millionand interest of $3.0 million covering the period from 1995 through September 2003plus total potential royalties and interest of $2.8 million covering theperiod from October 2003 to July 2, 2004. As a result of theSettlement Agreement, the Company recorded a non-cash reversal of royaltycharges of $4.8 million and interest expense of $3.2 million totaling$8.0 million during the quarter ended October 1, 2004. This reversalis the difference between the net present value of the $22.75 million settlementand the accrued liability related to the litigation of $28.7 million,which was recorded in the Company’s balance sheet prior to the litigationsettlement. The initial net present value of the settlement payment was$20.69 million. At April 1, 2005 the net present value was$16.0 million, which is included in the balance sheet captions “Accruedroyalties and interest” and “Accrued royalties, long-term”. The differencebetween the balance at April 1, 2005 and the sum of the periodic paymentswill be accreted, using the effective interest rate method over the paymentperiod as periodic charges to interest expense.

***General***

The Company is a party to disputes, including legalactions, with several of its suppliers and vendors. These disputes relateprimarily to excess materials and order cancellation claims that resulted fromthe declines in demand for the Company’s products during 2001 and 2002 and thecommensurate reductions in manufacturing volumes. The Company intends to defenditself vigorously against these claims.

The results of any litigation matters are inherentlyuncertain. In the event of any adverse decision in the described legal actionsor disputes, or any other related litigation with third parties that couldarise in the future, the Company could be required to pay damages and otherexpenses, and, in the case of litigation related to patents or otherintellectual property rights, to cease the manufacture, use and sale ofinfringing products, to expend significant resources to develop non-infringingtechnology, or to obtain licenses to the infringing technology. The Companycannot make any assurance that these matters will not materially and adverselyaffect the Company’s business, financial condition, operating results or cashflows.

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**Item2.   *Management’s Discussion and Analysis of FinancialCondition and Results of Operations***

*Except for any historicalinformation contained herein, the matters discussed in this Quarterly Report onForm 10-Q contain certain “forward-looking” statements within the meaningof the Private Securities Litigation Reform Act of 1995 with respect to ourfinancial condition, results of operations, cash flows, revenues, financingplans, business strategies and market acceptance of its products. The words “anticipate,”“believe,” “estimate,” “expect,” “plan,” “intend,” and similar expressions, areintended to identify these forward-looking statements. These forward-lookingstatements are found at various places throughout this Quarterly Report. Wecaution you not to place undue reliance on these forward-looking statements,which speak only as of the date they were made. We do not undertake anyobligation to publicly release any revisions to these forward-lookingstatements to reflect events or circumstances after the date of this QuarterlyReport or to reflect the occurrence of unanticipated events. Forward-lookingstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those reflected in the forward-lookingstatements. Factors that might cause such a difference include, but are notlimited to those discussed below under “Risk Factors” and elsewhere in thisReport.*

*Thefollowing discussion should be read together with our financial statements,notes to those financial statements included elsewhere in this Quarterly Reporton Form 10-Q, our financial statements, notes to those financialstatements and Management’s Discussion and Analysis of Financial Condition andResults of Operations in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission.*

**Overview**

Proxim Corporation is a leader in wireless networkingequipment for Wi-Fi and broadband wireless networks. We provide wirelesssolutions for the mobile enterprise, security and surveillance, last mileaccess, voice and data backhaul, public hot spots, and metropolitan areanetworks. We serve these markets by selling our systems to service providers,businesses and other enterprises, primarily indirectly through distributors,value-added resellers, products integrators and to a lesser extent directlythrough our sales force to original equipment manufacturers and end-users.

Wegenerate revenue primarily from the sale of our Lynx and Tsunami systems fromour WWAN product line, and the sale of 802.11 standards-based products from ourWLAN product line. We also generate a small percentage of our revenue from thesale of services and parts and rentals of our systems. Shipments to certaindistributors are made under terms allowing certain rights of return, protectionagainst subsequent price declines on our products held by our distributors andcredits under co-op marketing programs.

***Significant Events***

On January 27, 2005, we announced that we haveengaged Bear, Stearns Co. to explore strategic alternatives for the Company,including capital raising and merger opportunities. We remain actively engagedwith Bear, Stearns & Co. and are currently in discussion with a potentialthird party purchaser. There can be no assurance that a transaction will occurand, if a transaction occurred, there can be no assurance that anyconsideration available to the holders of our Class A common stock (“CommonStock”) would approach the current market trading value of our Company’s CommonStock given, among other factors, the preferences held by senior equity anddebt holders.

On February 7, 2005, we entered into SubscriptionAgreement with several purchasers (the “Purchasers”), pursuant to the terms ofwhich the Purchasers purchased 5,010,000 shares of Common Stock at a purchaseprice of $1.80 per share, for aggregate proceeds of $9.0 million. Afterdeducting the financial advisor fees, the net proceeds to us totaled$8.5 million intended for general corporate purposes, including workingcapital needs. As part of the sale of shares, we agreed to issue for each shareof Common Stock purchased warrants to purchase 0.5 shares of Common Stock at anexercise price of $2.35 per share. The warrants will become exercisable sixmonths from the issuance of the warrants and may be exercised for cash or on acashless basis, depending on whether or not an effective registration statementis 

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available for the issuanceof the shares underlying the warrants, for a period of five years. Theaggregate number of shares of Common Stock that can be issued upon exercise ofthe warrants is 2,505,000. In the event of a major transaction, such as amerger or sale of the Company, the holders of the warrants are entitled tocertain cash payment rights depending on the timing and valuation of such atransaction. The shares and warrants were issued and sold under our previouslyfiled Registration Statement on Form S-3, which was declared effective bythe Securities and Exchange Commission on November 8, 2004.

Because our unaffiliatedmarket capitalization has fallen below $75.0 million, we are precluded fromissuing additional registered securities under the Registration Statement on Form S-3.

***Liquidity***

We have incurred substantial losses and negative cashflows from operations during the three months ended April 1, 2005 andyears ended December 31, 2004, 2003 and 2002, and have an accumulateddeficit of $505.2 million as of April 1, 2005. Our net revenuesdeclined to $25.4 million in the first quarter of 2005 from $26.7 million inthe first quarter of 2004 and $113.7 million in 2004 from $148.5 million in 2003. Inaddition, as of April 1, 2005, pursuant to the terms of the SettlementAgreement with Symbol Technologies Inc. (“Symbol”), we are required to pay$17.8 million to Symbol over the next seven quarters. If at any pointduring the term of the Settlement Agreement, we fail to make any of thesepayments within 30 days after Symbol has notified us of our failure to pay,Symbol has the right to demand immediate payment in the amount of $25.9 millionminus payments made under the agreement and plus applicable interest. To date,we have made two payments of $2.5 million each. Upon our failure to timely payto Symbol the payment due on March 31, 2005, Symbol noticed us of abreach under the Settlement Agreement and demanded that we make the paymentwithin the thirty-day cure period provided by the Settlement Agreement. Symbolsubsequently agreed to temporarily waive its rights and to extend the cureperiod for the payment until May 15, 2005. Unless we pay prior toexpiration of the extended cure period, Symbol has the right to demand paymentin full. Our current cash on hand is insufficient to make such a payment.

Our amended A/R Financing Agreement, our securedcredit facility with Silicon Valley Bank, expires in July 2005 and thereis no assurance that it will be renewed after expiration. In addition, theTemporary Overadvances portion of the A/R Financing Agreement with the SiliconValley Bank expired on April 30, 2005 and was not renewed. Pursuant to theAmendment to Loan Documents executed on May 9, 2005, all outstanding andfuture letters of credit must be fully secured by cash in an amount equal to thegreater of (i) 105% of the total face amount of all outstanding letters ofcredit, or (ii) $100,000 plus 100% of the total face amount of alloutstanding letters of credit. As of May 9, 2005, the restricted cashbalance associated with outstanding letters of credit which were secured bycash was $2.0 million.

We currently believe that our continued negative cashflows from operations coupled with the quarterly obligations to Symbol wouldrequire that we obtain immediate additional financing if our bank financingfacility were to become unavailable. Additionally, if prior to June 30,2005 we fail to close a financing transaction with gross proceeds of$20.0 million or more through a sale of our common stock and/or warrantsto purchase our common stock and is required to repay the $10.0 million ofthe secured promissory notes (“the “Bridge Notes”), along with accrued butunpaid interest thereon, we will be required to obtain immediate alternativesources of financing to repay the Bridge Notes. Because our unaffiliated marketcapitalization has fallen below $75.0 million, we are precluded from issuingadditional registered securities under the Registration Statement on Form S-3.Therefore, it will be difficult for us to raise capital through registeredofferings of our securities.

As a result of theforegoing factors, individually or in the aggregate, we have an immediate needfor additional financing. If we were not able to obtain financing in the secondquarter of 2005, we will have insufficient cash to pay the above mentionedobligations, we will be unable to meet our ongoing operating obligations asthey come due in the ordinary course of business, and we will be required toseek protection 

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underapplicable bankruptcy laws. These matters raise substantial doubt about ourability to continue as a going concern. The consolidated financial statementsdo not include any adjustments that might result from this uncertainty.

***FinancialPerformance***

·       Ournet revenue for the first quarter of 2005 was $25.4 million, a 5.0% decreasecompared to our net revenue of $26.7 million for the first quarter of 2004. Therevenue decrease was primarily attributable to the market-driven  declines in average selling  prices of our ORiNOCO WLAN products.

·       Inour two geographical regions, North America and International, net revenue comprised44.5% and 55.5%, respectively, of net revenue in the first quarter of 2005 comparedto 50.4% and 49.6%, respectively, of net revenue in the first quarter of 2004.

·       Netloss attributable to common stockholders in the first quarter of 2005 was $7.8million compared to $17.5 million in the first quarter of 2004. The decreasewas primarily attributable to a decrease in amortization of intangible assetsof $4.4 million, decrease in legal expense for certain litigation of $691,000,a decrease in combined research and development and selling, general andadministrative expenses of $1.3 million, a decrease in restructuring charges of$1.8 million, a decrease in interest expense of $1.3 million and a decrease inaccretion of Series A Preferred Stock obligations of $1.7 million offsetby slightly lower gross profit and an increase of $229,000 in amortization ofdeferred stock compensation.

·       Grossprofit decreased by $0.3 million to $8.2 million in the first quarter of 2005from $8.5 million in the first quarter of 2004. Gross profit for the firstquarter of 2005 included provision for excess and obsolescence of $1.5 million,which had a 6.0% negative impact on our gross margin while the provision forexcess and obsolescence of $300,000 recorded during the first three months of2004 had a negative impact of 1.1% on the first quarter 2004 gross margin.

·       Combined research anddevelopment, selling, general and administrative expenses, decreased to $15.0million from $16.3 million in the first quarter of 2004, mainly attributable toreduction in discretionary spending.

**CriticalAccounting Policies, Judgments and Estimates**

Our discussion andanalysis of our financial condition and results of operations are based uponour consolidated financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States of America.The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. We base our assumptions, judgments and estimateson historical experience and various other factors that we believe to bereasonable under the circumstances. Actual results could differ materially fromthese estimates under different assumptions or conditions. On a regular basiswe evaluate our assumptions, judgments and estimates and make changesaccordingly. Historically, our assumptions, judgments and estimates relative toour critical accounting policies have not differed materially from actualresults.

Oursignificant accounting policies are described in Note 2 to the consolidatedfinancial statements as of and for the year ended December 31, 2004included in our Annual Report on Form 10-K filed with the Securities andExchange Commission on March 16, 2005 and notes to condensed consolidatedfinancial statements as of and for the three month period ended April 1,2005, included herein. We believe our most critical accounting policies, whichhave not changed since December 31, 2004, include the following:

·       revenuerecognition

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·       allowancefor doubtful accounts, returns and discounts

·       warrantyprovision

·       valuationof inventories

·       incometaxes

·       restructuringcosts

·       impairmentof goodwill and intangible assets

·       derivativefinancial instruments

·       patentlitigation and other litigation costs.

**Results of Operations**

Thefollowing table provides results of operations data as a percentage of revenuefor the periods presented:
| ** **                                              | ** ** | **Three Months Ended**                            | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                              | ** ** | **April 1,     2005   ** | ** ** | **April 2,     2004   ** | ** ** |
| Revenue                                                 |       |                                                        | 100.0      | % |   |   | 100.0 | % |   |
| Cost of revenue                                         |       |                                                        | 67.7       |   |   |   | 65.1 |   |   |
| Royalty charges                                         |       |                                                        | —     |   |   |   | 3.1 |   |   |
| Gross margin                                            |       |                                                        | 32.3       |   |   |   | 31.8 |   |   |
| Operating expenses:                                     |       |                                                        |       |   |   |   |   |   |   |
| Research and development                                |       |                                                        | 18.6       |   |   |   | 17.1 |   |   |
| Selling, general and administrative                     |       |                                                        | 40.6       |   |   |   | 43.9 |   |   |
| Legal expense for certain litigation                    |       |                                                        | 0.2        |   |   |   | 2.8 |   |   |
| Amortization of intangible assets                       |       |                                                        | 3.8        |   |   |   | 20.1 |   |   |
| Amortization of stock compensation                      |       |                                                        | 0.9        |   |   |   | — |   |   |
| Restructuring charges                                   |       |                                                        | 1.6        |   |   |   | 8.1 |   |   |
| Total operating expenses                                |       |                                                        | 65.7       |   |   |   | 92.0 |   |   |
| Loss from operations                                    |       |                                                        | (33.4      | ) |   |   | (60.2 | ) |   |
| Interest expense, net                                   |       |                                                        | (5.7       | ) |   |   | (10.2 | ) |   |
| Other income, net                                       |       |                                                        | 8.6        |   |   |   | 8.3 |   |   |
| Loss before income taxes                                |       |                                                        | (30.6      | ) |   |   | (62.1 | ) |   |
| Income tax benefit                                      |       |                                                        | —     |   |   |   | (2.8 | ) |   |
| Net loss                                                |       |                                                        | (30.6      | ) |   |   | (59.3 | ) |   |
| Accretion of Series A Preferred Stock  obligations |       |                                                        | —     |   |   |   | (6.2 | ) |   |
| Net loss  attributable to common stockholders           |       |                                                        | (30.6      | )% |   |   | (65.5 | )% |   |

 

***Comparison of the Three Months Ended April 1,2005 and April 2, 2004***

***Revenue***

Revenue consists of product revenues, reduced byestimated sales returns and allowances for price protection. Provisions forestimated sales returns and allowances, which are based on historical trends,contractual terms and other available information, are recorded at the timerevenue is recognized.

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Weclassify our products into two product lines: Wireless Wide Area Network, orWWAN, product line, and Wireless Local Area Network, or WLAN, product line. TheWWAN product line includes point-to-point Lynx and Tsunami products andpoint-to-multipoint Tsunami products. The WLAN product line includes ORiNOCO802.11 access point and client card products. Revenue information by productline is as follows (in thousands):
| ** **            | ** ** | **Three Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|
| **Product Line** | ** ** | ** **                       | ** ** | **April 1,  2005** | ** ** | **April 2,  2004** | ** ** |
| WWAN                  |       | $                                | 16,363     |   | $ | 13,074 |   |
| WLAN                  |       | 9,012                            |       | 13,623 |   |
| Total revenue         |       | $                                | 25,375     |   | $ | 26,697 |   |
|                       |            |                                  |            |  |  |  |  |  |  |

 

Wesell our products worldwide primarily through independent distributors andvalue-added resellers as well as to lesser extent through a direct sales force.We currently operate in two geographic regions: North America andInternational. Revenue outside of North America are primarily export salesdenominated in United States dollars. Disaggregated financial informationregarding our revenue by geographic region is as follows (in thousands):
| ** **                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| **Geographic Region**     | ** ** | ** **                       | ** ** | **April 1,  2005** | ** ** | **April 2,  2004** | ** ** |
| North America  product revenue |       | $                                | 11,301     |   | $ | 13,453 |   |
| International  product revenue |       | 14,074                           |       | 13,244 |   |
| Total revenue                  |       | $                                | 25,375     |   | $ | 26,697 |   |
|                                |            |                                  |            |  |  |  |  |  |  |

 

Three customers accounted for 13.3%, 12.6% and 10.9%of total revenue for the three months ended April 1, 2005, and twocustomers accounted for 14.3% and 12.5% of total revenue for the three monthsended April 2, 2004.

Revenue decreased 4.9% to$25.4 million in the first quarter of 2005 from $26.7 million in the firstquarter of 2004. The revenue decrease is primarily attributable tomarket-driven declines in average selling prices of our ORiNOCO WLAN products.

***Cost of Revenue***   

Cost of revenue decreased 1.1% to $17.2 million in thefirst quarter of 2005 from $17.4 million in the first quarter of 2004. As apercentage of revenue, cost of revenue increased to 67.7% in the first quarterof 2005 from 65.1% in the first quarter of 2004. Increased write downs ofestimated excess and obsolete or unmarketable inventories increased cost ofrevenue by 4.9% which was offset by improved product margin of our WWAN productline.

Thefollowing is a summary of the changes in the reserve for excess and obsoleteinventory during the three months ended April 1, 2005 and April 2,2004 (in thousands):
| ** **                                                               | ** ** | **Three Months Ended**                | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                               | ** ** | **  April 1,    2005** | ** ** | **  April 2,    2004** | ** ** |
| Balance as of  beginning of period                                       |       |                                            | $          | 6,905 |   |   |   | $ | 5,072 |   |   |
| Provision for  excess and obsolete inventory and lower of cost or market |       |                                            | 1,526      |   |   |   | 300 |   |   |
| Inventory  scrapped                                                      |       |                                            | (664       | ) |   |   | (1,526 | ) |   |
| Balance as of end of  period                                             |       |                                            | $          | 7,767 |   |   |   | $ | 3,846 |   |   |

 

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***Royalty Charges***

On September 15, 2003, we announced that a juryhad rendered a verdict in the first phase of our patent infringement suit withSymbol. On Symbol’s claims of patent infringement, the jury found that certainof our products infringe two of Symbol’s patents and assessed a 6% royalty onthe revenue of relevant products. After the court had denied our equitabledefenses on July 29, 2004 and awarded a 6% royalty on our sales of theseproducts from 1995 through September 2003, plus prejudgment interest, weentered into a Settlement Agreement and a Patent Cross License Agreement withSymbol on September 13, 2004 resolving all our outstanding litigation withSymbol.

Under the terms of theSettlement Agreement, we agreed to pay Symbol $22.75 million over a period often quarters, commencing with our third quarter of 2004. Prior to the settlement,we had recorded an accrual for estimated past royalties of $22.9 million andinterest of $3.0 million covering the period from 1995 through September 2003plus a total of $2.8 million for estimated potential royalties and interestcovering the period from October 2003 to July 2, 2004. During thethird quarter of 2004,  based on theSettlement Agreement, we reversed royalty charges of $4.8 million and interestexpense of $3.2 million. While the final outcome of the Symbol litigation hadnot been determined during first quarter of 2004, we recorded royalty chargesof $828,000 based on sales of our products which were the subject of the suitat an assumed royalty rate of 6%. As a result of the settlement of the Symbollitigation, royalty charges, which were included in cost revenue, were recordedat 2% of the relevant revenue during first quarter of 2005.

***Research and Development Expense***   

Research and developmentexpense increased 2.2% to $4.7 million, or 18.6% of revenue in the firstquarter of 2005 from $4.6 million, or 17.1% of revenue in the first quarter of2004. The increase in research and development expense was primarily attributableto an increase in personnel primarily at our research facility in India.

***Selling, General and Administrative Expense***   

Selling, general andadministrative expense decreased 12.0% to $10.3 million or 40.6% of total netrevenue in the first quarter of 2005 from $11.7 million or 44.0% of revenue inthe first quarter of 2004. The decrease in selling, general and administrativeexpenses from the first quarter of 2004 to the first quarter of 2005 wasprimarily attributable to reduction in discretionary spending and the workforcereductions implemented in 2004 which resulted in reduced personnel expenses.

***Legal Expense for Certain Litigation***   

Legal expense for certainlitigation decreased $691,000 to $54,000 in the first quarter of 2005 from$745,000 in the first quarter of 2004. The decrease was primarily attributableto the decrease in legal services incurred during the respective periods inconnection with our litigation with Symbol. Please refer to Part II, Item1, Legal Proceedings for a description of our litigation.

***Amortization of Intangible Assets***   

Amortization of intangibleassets was $1.0 million in the first quarter of 2005 compared to $5.4 millionin the first quarter of 2004. The decrease is primarily attributable to theimpairment of intangible assets of $12.2 million recorded during the fourthquarter of 2004.

***Amortization of Deferred Stock Compensation***   

Inconnection with the grant of 700,000 restricted stock units (“RSU”) to ourexecutive chairman and executive officers during the first fiscal quarter of2005, we recorded deferred stock compensation within 

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stockholders’equity of $1.8 million. This amount represents the intrinsic value of the RSUbased on the Company’s closing stock price on the date of the grant. Thedeferred stock compensation is expensed to earnings on an accelerated basisover the vesting period of the individual grant consistent with the methoddescribed in FASB Interpretation 28, “Accounting for Stock Appreciation Rightsand Other Variable Stock Option or Award Plan.” Accordingly, approximately 63% of the unearned deferred compensation isamortized in the first year, approximately 29% in the second year and 8% in thethird year following the date of grant. The amortization of deferred stockcompensation amounted to $229,000 during the first quarter of 2005.

***Restructuring Charges for Severance and ExcessFacilities***   

During the three months ended April 1, 2005, werecorded restructuring charges of $410,000, consisting of $177,000 of cashprovisions for severance payments to seventeen terminated employees and$233,000 of non-cash provisions for abandoned property and equipment.

Thefollowing table summarizes our restructuring activities for the year ended December 31,2004 and the three months ended April 1, 2005 (in thousands):
| ** **                            | ** ** | ** Severance ** | ** ** | **Facilities** | ** ** | **Other** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|---------------------------|------------|----------------|------------|-----------|------------|-----------|------------|
| Balance as of  December 31, 2003 |       |                      | $          | 3,620          |       |      | $          | 11,584    |       | $ | 600 |   | $ | 15,804 |   |
| Provision charged  to operations      |       |                      | 323        |           |       | 1,653     |       | 119       |       | 2,095 |   |
| Non-cash charges  utilized            |       |                      | —     |           |       | —    |       | (119      | )          | (119 | ) |
| Cash payments                         |       |                      | (3,827     | )              |       | (3,317    | )          | —    |       | (7,144 | ) |
| Balance as of  December 31, 2004 |       |                      | 116        |           |       | 9,920     |       | 600       |       | 10,636 |   |
| Provision charged  to operations      |       |                      | 177        |           |       | —    |       | 233       |       | 410 |   |
| Non-cash charges  utilized            |       |                      | —     |           |       | —    |       | (233      | )          | (233 | ) |
| Cash payments                         |       |                      | (278       | )              |       | (756      | )          | —    |       | (1,034 | ) |
| Balance as of  April 1, 2005     |       |                      | $          | 15             |       |      | $          | 9,164     |       | $ | 600 |   | $ | 9,779 |   |

 

***Interest Expense***

Our interest expense decreased $1.3 million or 48.0%to $1.4 million in the first quarter of 2005 from $2.7 million in the firstquarter of 2004. This decrease was primarily attributable to the Securities Purchase Agreement we entered into withour investors Warburg Pincus Private Equity VIII, L.P (“Warburg Pincus”), BCPCapital, L.P., BCP Capital QPF, L.P. and BCP Capital Affiliates Fund LLC(together “BCP Capital” and with Warburg Pincus, the “Investors”) on July 27,2004. Pursuant to the agreement, the investors agreed to restructure theirequity instruments and debt holdings with us and we received cash proceeds of$10 million in aggregate principal amount. In exchange for the investment,we issued to the investors the 15% Bridge Notes with an aggregate principalamount equal to their investment of $10 million and a maturity date of June 30,2005. We also agreed, pursuant to the terms of the Securities PurchaseAgreement, to grant to these investors upon the approval of our stockholders,shares of our Series C Preferred Stock. The liquidation preference forshares of Series C Preferred Stock accretes at 8.75% per annum, and thequarterly accretion was recorded as interest expense.

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Thefollowing table summarizes interest expense (in thousands):
| ** **                                                                | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                | ** ** | **April 1,  2005**          | ** ** | **April 2,  2004** | ** ** |
| Interest expense  on royalty charges                                      |       | $                                | (124       | ) | $ | (85 | ) |
| Interest expense  on convertible notes                                    |       | —                           |       | (2,548 | ) |
| Interest expense  on convertible bridge notes                             |       | (396                             | )          | — |   |
| Interest expense  on Series C mandatorily redeemable preferred stock |       | (888                             | )          |   |   |
| Other                                                                     |       | (38                              | )          | (83 | ) |
|                                                                      |       | $                                | (1,446     | ) | $ | (2,716 | ) |

 

***Other Income, Net***

Other income, netwas $2.2 million during the three months ended April 1, 2005 and April 2,2004. The following table summarizes other income, net (in thousands):
| ** **                                        | ** ** | **Three Months Ended**                | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                        | ** ** | **  April 1,    2005** | ** ** | ** April 2,   2004** | ** ** |
| Amortization of  debt discount and issuance costs |       |                                            | $          | — |   |   | $ | (2,892 | ) |
| Revaluation of  common stock warrants             |       |                                            | 2,176      |   |   | 5,100 |   |
|                                              |       |                                            | $          | 2,176 |   |   | $ | 2,208 |   |

 

***Income Tax Provision***

The income tax provisionrecorded during the three months ended April 2, 2004 represents thereversal of the valuation allowance of deferred tax assets to offset thedeferred tax liability arising from the revaluation of short-term investments.No income tax provision was recorded during the three months ended April 1,2005.

***Accretion of Series A Preferred Stock RedemptionObligations***   

The accretion of Series APreferred Stock during three months ended April 2, 2004 represents thequarterly adjustments to the carrying value of the Series A PreferredStock, on an effective-interest basis, so that the carrying value would equalthe redemption amount at the earliest redemption date. The accretion wasrecorded to increase the net loss attributable to common stockholders untilthey were surrendered October 21, 2004 in connection with the restructure of equity instruments pursuant to theSecurities Purchase Agreement of July 27, 2004 between us and ourinvestors Warburg Pincus and BCP Capital. As a result of the surrender andexchange of the Series A Preferred Stock, no charge was incurred for thequarter ended April 1, 2005.

**Liquidity and Capital Resources**

***Sources and Use of Cash***

Cash and cash equivalents decreased by $3.9 million to$12.1 million at April 1, 2005 from $16.0 million at December 31,2004.

Net cash used in operating activities for the threemonths ended April 1, 2005 was $9.0 million and was attributable to thenet loss after the effect of non-cash charges, decrease in accrued royalty,accounts payable and other accrued liabilities partially offset by a decreasein accounts receivable, net, and inventory, net. Net cash used in operatingactivities for the three months ended April 2, 2004 was $4.1 million andwas attributable to the net loss after the effect of non-cash charges, adecrease in accounts 

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payable and other accruedliabilities partially offset by an decrease in accounts receivable, net,inventory, other assets and an increase in accrued royalties and interest.

Net cash used in investing activities for the threemonths ended April 1, 2005 was $156,000 and represented $176,000 capitalspending offset by decrease in restricted cash. Net cash provided by investingactivities for the three months ended April 2, 2004 was $344,000 and wasattributable to $636,000 decrease in restricted cash partially offset bycapital spending of $292,000.

Net cash provided byfinancing activities for the three months ended April 1, 2005 was $5.2million and was attributable to issuance of common stock, net of $8.6 million,offset by principal payments on capital lease obligations of $309,000 andshort-term bank borrowing of $3.0 million. Net cash provided by financingactivities for the three months ended April 2, 2004 was $138,000 due toissuance of common stock, net of $437,000, offset by principal payments oncapital lease obligations of $299,000.

***Contractual Commitments***

Weoccupy our facilities under several non-cancelable operating lease agreementsexpiring at various dates through September 2009 which require payment ofproperty taxes, insurance, maintenance and utilities. Future payments undercontractual obligations as of April 1, 2005 were as follows (inthousands):
| ** **                                  | ** ** | **Payments Due By Period** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | **Total**                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Amounts**                               | ** ** | **Year Ending December 31,** | ** ** |
| ** **                                  | ** ** | ** Committed **                 | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | ** Thereafter ** | ** ** |
| Royalty payments                            |       |                                      | $          | 17,750 |   |   | $ | 10,000 |   | $ | 7,750 |   | $ | — |   | $ | — |   | $ | — |   |   | $ | — |   |   |
| Convertible bridge loan and interest        |       |                                      | 11,439     |   |   | 11,439 |   | — |   | — |   | — |   | — |   |   | — |   |   |
| Operating leases                            |       |                                      | 29,766     |   |   | 5,788 |   | 6,738 |   | 6,371 |   | 6,435 |   | 4,434 |   |   | — |   |   |
| Capital leases                              |       |                                      | 642        |   |   | 596 |   | 46 |   | — |   | — |   | — |   |   | — |   |   |
| Purchase order and project commitments      |       |                                      | 1,330      |   |   | 1,330 |   | — |   | — |   | — |   | — |   |   | — |   |   |
| Redemption of Series C Preferred Stock |       |                                      | 79,995     |   |   | — |   | — |   | — |   | — |   | — |   |   | 79,995 |   |   |
|                                        |       |                                      | $          | 140,922 |   |   | $ | 29,153 |   | $ | 14,534 |   | $ | 6,371 |   | $ | 6,435 |   | $ | 4,434 |   |   | $ | 79,995 |   |   |

 

For the years ended December 31,2004, 2003 and 2002, we recorded restructuring charges of $19.8 million relatedto the committed future lease payments for closed facilities, net of estimatedfuture sublease receipts, which are included in the operating leases captionabove. As of April 1, 2005, restructuring accruals of $9.2 million wererelated to the closed facilities.

***Credit Facilities***

In December 2002, we entered into a securedcredit facility with Silicon Valley Bank (the “Lender”), and then subsequentlyamended the credit facility in March 2003. On June 13, 2003, in orderto secure additional working capital, we entered into a letter agreement (the “LetterAgreement”) and an accounts receivable financing agreement, which effectivelyamended and restated the existing credit facility in its entirety. Wesubsequently amended the accounts receivable financing agreement (amended, the “AmendedA/R Financing Agreement”) on July 25, 2003, October 31, 2003, July 31,2004 and most recently on May 9, 2005.

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Under the Amended A/R Financing Agreement, we mayborrow up to $20.0 million in total consisting of (i) up to$10.0 million by financing a portion of our eligible accounts receivable,primarily limited to customers in the United States; and (ii) up to an additional$10 million, under which we are required to maintain a compensating cashbalance equal to such borrowings. Under this arrangement, the Lender may agreeto accept for collection through a lockbox arrangement accounts receivable fromus, and in return we will receive advances from the Lender at a rate equal to80% of accounts receivable from account debtors who are not distributors, and50% of accounts receivable from account debtors who are distributors, subjectto borrowing restrictions on most international accounts and at the discretionof the Lender. After collection of a receivable, the Lender will refund to usthe difference between the amount collected and the amount initially advancedto us, less a finance charge applied against the average monthly balance of alltransferred but outstanding receivables at a rate per annum equal to the Lender’sprime rate plus 1.50 percentage points, or 5.75%, whichever is greater. Inaddition to a facility fee of $100,000, we must pay each month to the Lender ahandling fee equal to 0.25% of the average monthly balance of transferred butoutstanding receivables. We must repay each advance upon the earliest to occurof (i) the collection of the corresponding financed receivable, (ii) thedate on which the corresponding financed receivable becomes an ineligiblereceivable pursuant to the terms of the Amended A/R Financing Agreement, or (iii) July 30,2005.

Through April 30, 2005, we were able to receivetemporary advances (“Temporary Overadvances”) from the Lender in excess of theavailability otherwise applicable under the A/R Financing Agreement, in anamount equal to $4.0 million for advances relating to letters of credit.The Temporary Overadvances portion of the credit facility could also be used tosatisfy the financial covenant to maintain at least a $4.0 million bankbalance as described below. On May 9, 2005, we and the Lenderexecuted an Amendment to Loan Documents, pursuant to which we agreed that all outstandingand future letters of credit must be fully secured by cash in an amount equalto the greater of (i) 105% of the total face amount of all outstandingletters of credit, or (ii) $100,000 plus 100% of the total face amount ofall outstanding letters of credit. At the same time the financial covenantrequirement to maintain at least a $4.0 million bank balance was deleted.As of May 9, 2005, the restricted cash balance associated withoutstanding letters of credit which were secured by cash was $2.0 million.

Obligations under the amended A/ R Financing Agreementare collateralized by a security interest on all of our assets, includingintellectual property, and are senior in lien priority and right of payment toour obligations to the funds affiliated with Warburg Pincus and BCP Capital,pursuant to the Bridge Notes issued in July 2004. The amended A/ RFinancing Agreement requires the consent of the Lender in order to incur debt,grant liens and sell assets. The events of default under the secured creditfacility include the failure to pay amounts when due, failure to observe orperform covenants, bankruptcy and insolvency events, defaults under certain ofour other obligations and the occurrence of a material adverse change in ourbusiness.

Until the most recent amendment executed on May 9,2005, the financial covenants under the Amended A/R Financing Agreementrequired us to maintain cash and cash equivalents with the Lender and itsaffiliates in an amount not less than $4.0 million, which could besatisfied by either (i) maintaining cash balances on deposit with SiliconValley Bank at or in excess of $4.0 million; (ii) borrowing againstits eligible accounts receivable under the Amended A/R Financing Agreement; or (iii) utilizingthe available borrowing capacity from the Temporary Overadvances portion ofthis credit facility. If we failed to meet this requirement, we could stillremain in compliance with the financial covenants by maintaining a ratio of thetotal of cash, cash equivalents and accounts receivable approved by the Lenderto our current liabilities of at least 5.0 to 1. In addition, we were requiredto maintain restricted cash balances to the extent that our outstanding lettersof credit exceeded $4.0 million. We currently maintain substantially allof our cash, cash equivalents and investments at Silicon Valley Bank and itsaffiliates. In the event of default under the Amended A/R Financing Agreement,the Lender had the right to offset such cash, cash equivalents and 

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investments against ourobligations owing to the Lender. As of April 1, 2005, we complied with allof the financial covenants under this agreement.

The financial covenantswere deleted from the amended A/R Financing Agreement on May 9, 2005 and theCompany’s agreements with the Lender were amended such that as of May 9, 2005,all outstanding and future letters of credit must be fully secured by cash inan amount equal to the greater of (i) 105% of the total face amount of alloutstanding letters of credit, or (ii) $100,000 plus 100% of the totalface amount of all outstanding letters of credit.

***Debt Financing***

On July 30, 2004, wereceived $10.0 million from the Investors in exchange for a 15% Bridge Notespursuant to the securities purchase agreement dated July 27, 2004. Inaccordance with such agreement, the principal and accrued interest will convertinto Common Stock and/or warrants to purchase Common Stock, at the same priceand upon the same terms and conditions offered to other investors, if prior to June 30,2005 we close a financing transaction with gross proceeds of $20.0 million ormore through a sale of our Common Stock and/or warrants to purchase CommonStock. If such financing transaction does not occur, the bridge note becomesdue and payable by its terms on June 30, 2005.

***Litigation withSymbol Technologies***

On September 13, 2004we entered into a Settlement Agreement and a Patent Cross License Agreementwith Symbol and assigned certain intellectual property to Symbol resolving alloutstanding litigation.

Under the terms of theSettlement Agreement, we agreed to pay Symbol $22.75 million dollars over aperiod of ten quarters, commencing with our quarter ended October 1, 2004.The Settlement Agreement provides for lump sum payments of $2.5 million perquarter in each of the first eight quarters, a payment of $1.5 million in theninth quarter, and a payment of $1.25 million in the tenth quarter. If at anypoint during the term of the Settlement Agreement, we fail to make any of thesepayments within 30 days after Symbol has notified us of our failure to pay,Symbol shall have the right to demand immediate payment in the amount of $25.9million minus payments made under the agreement and plus applicable interest.

Under the terms of thePatent Cross License Agreement, we have agreed to cross license certainpatents, and we have agreed to pay to Symbol a two percent royalty on sales ofcertain of our WLAN products. If we fail to make any of the lump sum paymentsdue under the Settlement Agreement over the next ten quarters and fail to cureany such missed payment within 30 days thereafter, the Patent Cross LicenseAgreement provides that the royalty rate payable to Symbol on sales of certainof our WLAN products covered by the agreement shall increase to five percentuntil the required payments as set forth in the Settlement Agreement have beenmade. Also pursuant to the terms of the Patent Cross License Agreement, we andSymbol have entered into a covenant not to sue one another for patentinfringement with respect to one another’s products through September 13,2009.

Upon our failure to timelypay to Symbol the payment due on March 31, 2005, Symbol noticed us of abreach under the Settlement Agreement and demanded that we make the paymentwithin the thirty-day cure period provided by the Settlement Agreement. Symbolsubsequently agreed to temporarily waive its rights and to extend the cureperiod for the payment until May 15, 2005. The waiver does not otherwisealter our obligations under the Settlement Agreement.

***Additional Sourcesof Financing***

We have incurred substantial losses and negative cashflows from operations during the three months ended April 1, 2005 andyears ended December 31, 2004, 2003 and 2002, and have an accumulateddeficit of $505.2 million as of April 1, 2005. Our net revenuesdeclined to $25.4 million in the first quarter of 2005 from $26.7 million inthe first quarter of 2004 and $113.7 million in 2004 from $148.5 millionin 2003. In 

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addition, as of April 1,2005, pursuant to the terms of the Settlement Agreement with Symbol, we arerequired to pay $17.8 million to Symbol over the next seven quarters. Ifat any point during the term of the Settlement Agreement, we fail to make anyof these payments within 30 days after Symbol has notified us of our failure topay, Symbol has the right to demand immediate payment in the amount of $25.9minus payments made under the agreement and plus applicable interest. To date, wehave made two payments of $2.5 million each. Upon our failure to timely pay toSymbol the payment due on March 31, 2005, Symbol noticed us of a breachunder the Settlement Agreement and demanded that we make the payment within thethirty-day cure period provided by the Settlement Agreement. Symbolsubsequently agreed to temporarily waive its rights and to extend the cureperiod for the payment until May 15, 2005. Unless we pay prior toexpiration of the extended cure period, Symbol has the right to demand paymentin full. Our current cash on hand is insufficient to make such a payment.

Our amended A/R Financing Agreement, our securedcredit facility with Silicon Valley Bank, expires in July 2005 and thereis no assurance that it will be renewed after expiration. Furthermore, there isno assurance that this facility will even be available or that we will be ableto borrow up to our maximum availability prior to its expiration, because SiliconValley Bank may limit borrowings at its discretion or the borrowing base ofeligible accounts receivable may be substantially less than the maximumavailability under the credit facility, respectively. In addition, theTemporary Overadvances portion of the A/R Financing Agreement with the SiliconValley Bank expired on April 30, 2005 and was not renewed. Pursuant to theAmendment to Loan Documents executed May 9, 2005, all outstanding andfuture letters of credit must be fully secured by cash in an amount equal to thegreater of (i) 105% of the total face amount of all outstanding letters ofcredit, or (ii) $100,000 plus 100% of the total face amount of alloutstanding letters of credit. As of May 9, 2005, the restricted cashbalance associated with outstanding letters of credit which were secured bycash was $2.0 million.

We currently believe that our continued negative cashflows from operations coupled with the quarterly obligations to Symbol wouldrequire that we obtain immediate additional financing if our bank financingfacility were to become unavailable. Additionally, if prior to June 30,2005 we fail to close a financing transaction with gross proceeds of$20.0 million or more through a sale of our common stock and/or warrantsto purchase our common stock and are required to repay the $10.0 millionof our Bridge Notes, along with accrued but unpaid interest thereon, we will berequired to obtain immediate alternative sources of financing to repay the BridgeNotes. Because our unaffiliated market capitalization has fallen under $75.0million, we are precluded from issuing additional registered securities underthe Registration Statement on Form S-3. Therefore, it will bedifficult for us to raise capital through registered offerings of oursecurities.

As a result of theforegoing factors, individually or in the aggregate, we have an immediate needfor additional financing. If we were not able to obtain financing in the secondquarter of 2005, we will have insufficient cash to pay the above mentionedobligations, we will be unable to meet our ongoing operating obligations asthey come due in the ordinary course of business, and we will be required toseek protection under applicable bankruptcy laws. These matters raisesubstantial doubt about our ability to continue as a going concern. Theconsolidated financial statements do not include any adjustments that mightresult from this uncertainty.

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***Recent Accounting Pronouncements***

In December 2004, the FASB issued Statement No. 123(revised 2004), *Share-Based Payment*(“SFAS No. 123R”), which replaces SFAS No. 123, *Accounting for Stock-Based Compensation*,(SFAS No. 123) and supercedes APB Opinion No. 25, *Accounting for Stock Issued to Employees.*SFAS No. 123R requires all share-based payments to employees,including grants of employee stock options, to be recognized in the financialstatements based on their fair values beginning with the first annual periodbeginning after June 15, 2005, with early adoption encouraged. The proforma disclosures previously permitted under SFAS No. 123 no longer willbe an alternative to financial statement recognition. We are required to adoptSFAS No. 123R in the first quarter of fiscal 2006, beginning January 1,2006. Under SFAS No. 123R, we must determine the appropriate fair valuemodel to be used for valuing share-based payments, the amortizationmethod for compensation cost and the transition method to be used at date ofadoption. The transition methods include prospective and retroactive adoptionoptions. Under the retroactive option, prior periods may be restated either asof the beginning of the year of adoption or for all periods presented. Theprospective method requires that compensation expense be recorded for allunvested stock options and restricted stock at the beginning of the firstquarter of adoption of SFAS No. 123R, while the retroactive methods wouldrecord compensation expense for all unvested stock options and restricted stockbeginning with the first period restated. We are evaluating the requirements ofSFAS No. 123R, and expect that the adoption of SFAS No. 123R willhave a material impact on the our consolidated results of operations andearnings per share, particularly in light of the Company’s announcement on December 21,2004 regarding its intent to effect a re-pricing of outstanding optionsfollowing stockholder approval at its annual meeting of stockholders to be heldon May 16, 2005. If the proposal is approved by our stockholders, there-pricing program may commence at any time after the annual meeting and at thediscretion of our Compensation Committee.

We currently evaluatingthe method of adoption and the effect of adoption of SFAS No. 123Rincluding the re-pricing of employee stock options under SFAS No. 123Rwill have on our results of operations and financial condition.

**RISKFACTORS**

*You shouldcarefully consider the risks described below before making an investmentdecision. The risks and uncertainties described below are not the only onesfacing our company. Additional risks and uncertainties not presently known tous or that we currently deem immaterial may also impair our businessoperations.*

*If any of the following risks actually occur, ourbusiness, financial condition or results of operations could be materiallyadversely affected. In such case, the trading price of our Class A commonstock could decline and you could lose all or part of your investment. Ouractual results could differ materially from those anticipated inforward-looking statements as a result of certain factors, including the risksfaced by us described below and elsewhere.*

**Wewill need to obtain a significant amount of additional capital in the nearfuture and may not be able to secure adequate funds on a timely basis or onterms acceptable to us.**

We have incurred substantial losses and negative cashflows from operations during the three months ended April 1, 2005 andyears ended December 31, 2004, 2003 and 2002, and have an accumulateddeficit of $505.2 million as of April 1, 2005. Our net revenuesdeclined to $25.4 million in the first quarter of 2005 from $26.7 million inthe first quarter of 2004 and $113.7 million in 2004 from$148.5 million in 2003. In addition, as of April 1, 2005, pursuant tothe terms of the Settlement Agreement with Symbol, we are required to pay$17.8 million to Symbol over the next seven quarters. If at any pointduring the term of the Settlement Agreement, we fail to make any of these paymentswithin 30 days after Symbol has notified us of our failure to pay, Symbol hasthe right to demand immediate payment in the amount of $25.9 minus 

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payments made under theagreement and plus applicable interest. To date, we have made two payments of $2.5million each. Upon our failure to timely pay to Symbol the payment due March 31,2005, Symbol noticed us of a breach under the Settlement Agreement and demandedthat we make the payment within the thirty-day cure period provided by theSettlement Agreement. Symbol subsequently agreed to temporarily waive itsrights and to extend the cure period for the payment until May 15, 2005.

Our amended A/R Financing Agreement, our securedcredit facility with Silicon Valley Bank, expires in July 2005 and thereis no assurance that it will be renewed after expiration. Furthermore, there isno assurance that this facility will even be available or that we will be ableto borrow up to our maximum availability prior to its expiration, becauseSilicon Valley Bank may limit borrowings at its discretion or the borrowingbase of eligible accounts receivable may be substantially less than the maximumavailability under the credit facility, respectively. In addition, theTemporary Overadvances portion of the A/R Financing Agreement with the SiliconValley Bank expired on April 30, 2005 and was not renewed. Pursuant to theAmendment to Loan Documents executed on May 9, 2005, all outstanding andfuture letters of credit must be fully secured by cash in an amount equal to thegreater of (i) 105% of the total face amount of all outstanding letters ofcredit, or (ii) $100,000 plus 100% of the total face amount of all outstandingletters of credit. As of May 9, 2005, the restricted cash balance associatedwith outstanding letters of credit which were secured by cash was $2.0 million.

We currently believe that our continued negative cashflows from operations coupled with the quarterly obligations to Symbol wouldrequire that we obtain immediate additional financing if our bank financingfacility were to become unavailable. Additionally, if prior to June 30,2005 we fail to close a financing transaction with gross proceeds of $20.0 millionor more through a sale of our Common Stock and/or warrants to purchase ourCommon Stock and are required to repay the $10.0 million of our BridgeNotes, along with accrued but unpaid interest thereon, we will be required toobtain immediate alternative sources of financing to repay the Bridge Notes.Because our unaffiliated market capitalization has fallen below $75.0 million,we are precluded from issuing additional registered securities under theRegistration Statement on Form S-3. Therefore, it will be difficultfor us to raise capital through registered offerings of our securities.

As a result of the foregoing factors, individually orin the aggregate, we have an immediate need for additional financing. If wewere not able to obtain financing in the second quarter of 2005, we will haveinsufficient cash to pay the above mentioned obligations, we will be unable tomeet our ongoing operating obligations as they come due in the ordinary courseof business, and we will be required to seek protection under applicablebankruptcy laws. These matters raise substantial doubt about our ability tocontinue as a going concern. The consolidated financial statements do notinclude any adjustments that might result from this uncertainty.

Under the terms of our settlement agreement withSymbol, we agreed, among other things, to pay Symbol $22.75 million overten quarters. We have made two payments of $2.5 million each to Symbol oneduring our third quarter of 2004 and the other during the first quarter of2005. We have payment obligations of $2.5 million in each of the next fivequarters, including the March 31, 2005 payment, a payment obligation of$1.5 million in the sixth quarter and a payment obligation of$1.25 million in the seventh quarter. Our current cash on hand isinsufficient to make all of the required payments to Symbol.

We issued $10 million in convertible Bridge Notesto the Investors on July 30, 2004 and these notes mature June 30,2005. In the event of a change in control or material asset sale prior to ourclosing such Common Stock transaction, we will be required to pay to theInvestors with respect to the Bridge Notes an amount equal to one hundred fiftypercent (150%) of all unpaid principal and accrued but unpaid interest as ofthe date of the change in control or material asset sale. This greater amountis only payable by the Company in the event of change in control or materialasset sale; if such an event does not occur prior to June 30, 2005, wewill be required to pay to the Investors on June 30, 2005 the lesseramount that is equal 

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to the aggregate principalamount and accrued but unpaid interest on the Bridge Notes. If we were not ableto close a financing transaction by June 30, 2005 with gross proceeds of$20.0 million or more through a sale of our common stock and/or warrantsto purchase common stock, we will be required to repay the entire principal andinterest under the convertible Bridge Notes in cash. If we were required torepay the convertible Bridge Notes in cash, either on their maturity date orearlier upon an event of default, we would likely have insufficient funds tofund our operational activities and to meet our continuing obligations toSymbol.

We rely on our secured credit facility with SiliconValley Bank as a source of liquidity. The credit facility allows us to borrowup to $20 million subject to certain requirements as more fully describedin Note 16 to the unaudited condensed consolidated financial statements.$10 million of the facility requires that we maintain a compensating cashbalance equal to any borrowings, which could restrict our ability to utilizethis portion of the credit facility. The secured credit facility expires in July 2005.The credit facilities may be renewed upon mutual agreement by both us andSilicon Valley Bank. If these facilities become unavailable to us eitherbecause of our default under the facility or due to non-renewal of thefacility, and we are unable to secure a replacement facility, our liquidity willbe significantly impaired. On May 9, 2005, we and the Lender executedan Amendment to Loan Documents, pursuant to which we agreed that all outstandingand future letters of credit must be fully secured by cash in an amount equalto the greater of (i) 105% of the total face amount of all outstandingletters of credit, or (ii) $100,000 plus 100% of the total face amount ofall outstanding letters of credit. At the same time the financial covenantrequirement to maintain at least a $4.0 million bank balance was deleted. Asof May 9, 2005, the restricted cash balance associated with outstanding lettersof credit which were secured by cash was $2.0 million.

Our ability to raise fundsmay be adversely affected by factors beyond our control, including marketuncertainty and conditions in the capital markets. We cannot assure you thatany financing will be available on terms acceptable to us or on a timely basis,if at all, and any need to raise additional capital through the issuance ofequity or convertible debt securities may result in additional, and perhapssignificant, dilution. Furthermore, even If we were able to raise funds in afinancing transaction or otherwise, the amount of the funds raised may beinsufficient to resolve doubt about our ability to continue as a going concern.

**Weare not profitable and may not be profitable in the future.**

For the three months endedApril 1, 2005 and the years ended December 31, 2002, 2003 and 2004 wehad a net loss attributable to holders of our Common Stock of $7.8 million,$244.5 million, $133.7 and $99.7 million, respectively. Our 2004revenue of $113.7 million was substantially lower than our 2003 revenue of$148.5 million. We will continue to have net losses in the future. Inorder for us to achieve profitability, our revenue will need to significantlyincrease from its current level. We cannot assure you that our revenue willincrease or continue at current levels or that we will achieve profitability orgenerate cash from operations in future periods.

**Ourgross profit may decline in the future.**

Our gross profit isaffected by both the average selling prices of our systems and our cost ofrevenue. Historically, decreases in our average selling prices have generallybeen offset by reductions in our per unit product cost. We participate in ahighly volatile industry that is characterized by vigorous competition formarket share and rapid technological development. Furthermore, our current andpotential customers are increasingly concentrating on limitations andreductions on their capital expenditures as well as return on investment inconnection with their purchasing decisions. These factors have resulted inaggressive pricing practices and growing competition both from start-upcompanies and from well-capitalized wireless networking equipment providers.Manufacturers of wireless networking equipment are experiencing price pressure,which has resulted in downward pricing pressure on our products particularlyWLAN access point products. Our ability to achieve profitability in the futureis dependent upon our ability to improve 

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manufacturingefficiencies, effectively and efficiently outsource manufacturing, reduce costsof materials used in our products, and to continue to introduce new productsand product enhancements. We cannot assure you, however, that we will achieveany reductions in per unit product cost in the future or that any reductionswill offset the effects of downward pricing pressures on our products. Anyinability by us to effectively respond to these downward pricing pressures maycause our gross profit to decline in the future.

**Inthe event the Company is sold, the sales price payable to Common Stockholdersmay be less than the prevailing market price due to the aggregate liquidationpreferences of the Series C Preferred Stock and our other outstandingobligations.**

On January 27, 2005,we announced that we have engaged Bear, Stearns Co. to explore strategicalternatives for us, including capital raising and merger opportunities. Thefully-accreted value of $80 million of Series C Preferred Stockwill be due upon any change in control, material asset sale, liquidation orsimilar event. Additionally, the Bridge Notes will become due and payable upondemand by the holders for an amount equal to one hundred fifty percent (150%)of all unpaid principal and accrued but unpaid interest under the Bridge Notesas of the date of the change in control or material asset sale. This greateramount is only payable by the Company in the event of change in control ormaterial asset sale; if such an event does not occur prior to June 30,2005, we will be require to pay to the Investors on June 30, 2005 thelesser amount that is equal to the aggregate principal amount and accrued butunpaid interest on the Bridge Notes. In the event of a merger or sale of theCompany, we cannot assure you that the sales proceeds will exceed theseliquidation preferences or that there will be sufficient proceeds, if any,available to the Common Stockholders. In addition to these obligations, we haveother obligations, as disclosed herein and in our other public filings, whichmay affect the amounts payable to holders of our Common Stock on a sale of the Company,including but not limited to our obligations to Symbol and our trade creditors.

**Theprice of our Common Stock may be subject to wide fluctuation, and you may loseall or part of your investment in our Common Stock.**

The trading pricesof our Common Stock has been subject to wide fluctuations and substantialdeclines recently, and such trend is likely to continue with respect to thetrading price of our Common Stock. The trading price of our Common Stock mayfluctuate in response to a number of events and factors, including:

·       quarterlydecline in revenues and operating results;

·       potentialfor bankruptcy;

·       dilutionas a result of an immediate need to raise new financing;

·       announcementsof innovations and new products;

·       strategicdevelopments or business combinations by us or our competitors;

·       changesin our expected operating expense levels;

·       changesin financial estimates including our ability to meet its future revenue andoperating profit or loss projections;

·       recommendations offinancial and industry analysts;

·       impacton our financial statements and results of our adoption of SFAS 123R;

·       performanceof our competitors;

·       theoperating and securities price performance of comparable companies; and

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·       newsreports relating to trends in the wireless communications industry.

We have frequently not met our revenue and/or earnings(loss) per share projections in the past, most recently in the quarters ended April 2,2004, July 2, 2004 and December 31, 2004. In addition, since ouroperating losses have been greater than expected, our need for additionalcapital has increased.

In addition, the stockmarket in general, and the market prices for wireless-related companiesin particular, have experienced extreme volatility that often has beenunrelated to the operating performance of these companies. These broad marketand industry fluctuations may influence the trading price of our Common Stock.These trading price fluctuations may make it more difficult to use our CommonStock as currency to make acquisitions that might otherwise be advantageous, orto use stock options as a means to attract and retain employees. Accordingly,you may lose all or part of your investment in our Common Stock.

**OurCommon Stockholders will experience immediate dilution If we were able toconvert our outstanding Bridge Notes.**

On July 30, 2004, wereceived $10.0 million from the Investors in exchange for the BridgeNotes. If we close a financing transaction involving the sale of Common Stockor warrants to purchase Common Stock that results in gross proceeds to us of atleast $20.0 million, the principal and accrued interest on the convertiblebridge note will convert into Common Stock and/or warrants to purchase CommonStock, at the same price and upon the same terms and conditions offered in thefinancing transaction. The ownership of the holders of our Common Stockoutstanding at the time of the conversion will experience immediate dilution asa result of such issuance to the Investors and the Common Stock outstandingmight decline in value as a result.

**Severalof our stockholders beneficially own a significant percentage of our CommonStock, which will allow them to significantly influence matters requiringstockholder approval and could discourage potential acquisitions of our company.**

As a result of the Exchange consummated October 22,2004, a small number of institutional investors hold a significant percentageof our Common Stock. As of May 4, 2005, Warburg Pincus and BCP Capital ownan aggregate of approximately 49% of our Common Stock.

As a result of theirownership as described above, the holders are able to exert significantinfluence over actions requiring the approval of our stockholders, includingmany types of change of control transactions and any amendments to our certificateof incorporation. The interests of the holders described above may be differentthan those of other stockholders of our company.

**Holdersof our Series C Preferred Stock have certain rights that are senior tothose of the holders of our Common Stock.**

Holders of our Series CPreferred Stock are entitled to receive certain benefits not available toholders of our Common Stock. In particular:

·       eachshare of Series C Preferred Stock has an initial liquidation preference of$100.00 and the liquidation preference bears interest at an annual rate of8.75%, compounded quarterly, for eight years from the date of issuance. Theliquidation preference is subject to adjustments in the event we undertake abusiness combination or certain other transactions, or we are liquidated ordissolved;

·       onOctober 22, 2012, we will be required to redeem all outstanding shares of Series CPreferred Stock, if any, for cash equal to their liquidation preference plusaccrued and unpaid dividends. The redemption right of our Series CPreferred Stock may be senior to any claim of our common stock 

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on the Company’s assetsand is senior to all of our current debt obligations except for the creditfacility we maintain with Silicon Valley Bank;

·       inthe event of a change in control of our company, we are required to redeem incash or readily marketable securities all of the Series C Preferred Stockat a price per share in cash equal to the liquidation preference of the Series CPreferred Stock as if it had fully accreted through the eighth anniversary ofthe issuance of the Series C Preferred Stock plus following the eighthanniversary of the issuance of the Series C Preferred Stock, an amountequal to the unrecognized accretion, if any, up to but not including theredemption date;

·       inthe event that we participate in any sale of our assets (i) that does notconstitute a business combination and (ii) as a result of which sale ourrevenues for the prior twelve-month period would have declined by 40% ormore on a pro forma basis giving effect to such asset sale (a “Material AssetSale”), each holder of shares of Series C Preferred Stock has the right torequire us to repurchase such holder’s shares of Series C Preferred Stock,in whole or in part, at such holder’s option, at a price per share in cashequal to the liquidation preference as if the Series C Preferred Stock hadfully accreted through the eighth anniversary of the issuance of the Series CPreferred Stock plus following the eighth anniversary of the issuance of the Series CPreferred Stock, an amount equal to the unrecognized accretion, if any, up tobut not including the date of the Material Asset Sale; and

·       theapproval of holders of a majority of the Series C Preferred Stock isseparately required to approve changes to our certificate of incorporation orbylaws that adversely affect these holders’ rights, any offer, sale or issuanceof our equity or equity-linked securities ranking senior to or equallywith the Series C Preferred Stock, any repurchase or redemption of ourequity securities (other than from an employee, director or consultantfollowing termination), or the declaration or payment of any dividend on ourCommon Stock.

In connection with theExchange by the Investors of their Series A Preferred Stock, Series BPreferred Stock and Common Stock warrants for shares of our Common Stock andour Series C Preferred Stock, Warburg Pincus agreed that it will limit itsvoting rights until July 22, 2008 to no more than 49% of our issued andoutstanding voting stock. In addition, for so long as each of the Investorsowns at least 25% of the aggregate principal amount of the Common Stock issuedto it in the Exchange, the Investors each will have the right to appoint amember of our Board of Directors. For so long as Warburg Pincus owns 50% of theCommon Stock issued to it in the Exchange, it shall have the right to appoint asecond member of our Board of Directors. Independent of its holdings, WarburgPincus shall have the right to have one observer attend meetings of the Boardof Directors.

**Wemay experience fluctuations in operating results and may not be able to adjustspending in time to compensate for any unexpected revenue shortfall, which maycause operating results to fall below expectations of securities analysts andinvestors.**

Our operating results may fluctuate significantly inthe future as a result of a variety of factors, many of which will be outsideour control. We may be unable to adjust spending in a timely manner tocompensate for any unexpected revenue shortfall. Accordingly, any significantshortfall in revenues in relation to planned expenditures could materially harmour operating results and financial condition, and may cause our operatingresults to fall below the expectations of securities analysts and investors. Ifthis happens, the trading price of our Common Stock could declinesignificantly.

Factors that mayharm operating results include:

·       questionsas to our ultimate viability from the perspective of our suppliers, contractmanufacturers, distributors, customers and others;

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·       ourcredit worthiness in the opinion of our suppliers, contract manufacturers,distributors, customers and others;

·       theeffectiveness of our distribution channels and the success in maintaining ourcurrent distribution channels;

·       theeffectiveness of developing new distribution channels;

·       ourability to effectively manage the development of new business segments andmarkets;

·       seasonalfactors that may affect capital spending by customers;

·       marketadoption of radio frequency, or RF, standards-based products (such asthose compliant with the IEEE 802.11b, IEEE 802.11a, IEEE 802.11g, IEEE 802.16(WiMAX) or IEEE 802.20 specifications);

·       ourability to develop, introduce, ship and support new products and productenhancements;

·       theavailability of liquid capital resources to fund our operations;

·       thesell-through rate of our WLAN and WWAN products through commercial distributionchannels;

·       marketdemand for our point-to-point Lynx and Tsunami systems;

·       marketdemand for our point-to-multipoint Tsunami systems;

·       ourability to effectively manage product transitions from one generation ofproduct platforms to newer product platform designs, including inventories onhand, product certifications, and customer transitions;

·       themix of products sold because our products generate different gross margins;

·       adecrease in the average selling prices of our products;

·       ourability to upgrade and develop our systems and infrastructure;

·       difficultiesin expanding and conducting international operations; and

·       generaleconomic conditions and economic conditions specific to the wirelesscommunications industry.

**Shouldthe outcome of our ongoing litigation be unfavorable, we may be required to paydamages and other expenses, which could materially and adversely affect ourbusiness, financial condition, operating results and cash flows.**

On February 10, 2004, we received a copy of acomplaint filed on February 2, 2004 in Tokyo District Court by ActiveTechnology Corporation, a Japanese-based distributor of our products. Thecomplaint alleges, among other things, that we sold to Active certain defectiveproducts, which Active in turn subsequently sold to our customers. Active seeksdamages of ¥559.2 million, which includes the purchase price of the allegedlydefective products and replacement costs allegedly incurred by Active. Activeseeks to offset the claim of ¥559.2 million against outstanding accountspayable by Active of ¥175.3 million to us, resulting in a net claimagainst Proxim Corporation of ¥383.9 million. Translated into U.S. dollarsas of May 4, 2005, Active’s net claim is approximately $3.7 million.On October 5, 2004, a hearing was held in the matter, and we filed acounterclaim for $2.3 million plus interest for outstanding amounts owedus. Additional hearings were held on January 11, 2005, February 22,2005, March 10, 2005 and April 19, 2005. At the present time, it isnot possible to comment upon the likelihood of a favorable or unfavorableoutcome of the litigation.

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We are party to disputes, including legal actions,with several of our suppliers and vendors. These disputes relate primarily toexcess materials and order cancellation claims that resulted from the declinesin demand for our products during 2001 and 2002 and the commensurate reductionsin manufacturing volumes. We have recorded reserves related to these disputesto the extent that management believes are appropriate. We intend to vigorouslydefend ourselves in these matters.

Any ruling or judgment against us or any of our subsidiariesin any amount in excess of $4,000,000 that is not discharged, stayed or bondedpending appeal within 30 days from the entry thereof will constitute anevent of default pursuant to the terms of the Bridge Notes. Upon such anoccurrence, the Investors would have the ability to require us to repay theBridge Notes. Likewise, any such occurrence would result in an event of defaultunder the secured credit facility with Silicon Valley Bank. Upon suchoccurrence, Silicon Valley Bank would have the right to require us to repay anyamounts outstanding under the credit facility and to prohibit us from borrowingany additional amounts. Any event of default under the secured credit facilitywith Silicon Valley Bank, whether or not related to litigation, also wouldconstitute an event of default pursuant to the terms of the Bridge Notes ifamounts outstanding under the credit facility exceeded $1.0 million.

The results of anylitigation matters are inherently uncertain. In the event of any adversedecision in the described legal actions or disputes, or any other litigationwith third parties that could arise in the future, we could be required to paydamages and other expenses, and, in the case of litigation related to patentsor other intellectual property rights, to cease the manufacture, use and saleof infringing products, to expend significant resources to developnon-infringing technology, or to obtain licenses to the infringing technology.We cannot make any assurance that these matters will not materially andadversely affect our business, financial condition, operating results or cashflows.

**Shareseligible for future sale, including shares owned by our principal stockholders,may cause the market price of our Common Stock to drop significantly, even ifour business is doing well.**

The potential for sales of substantial amounts of ourCommon Stock into the public market may adversely affect the market price ofour Common Stock. Following the Exchange, the Investors together own16.4 million shares, or approximately 49% of our outstanding capitalstock, based on shares outstanding as of May 4, 2005. If the Investors areable to convert the Bridge Loan into shares of the Company’s Common Stock in aQualified Transaction, their share ownership will increase.

Upon the request of a majority-in-interest ofthe Investors, we have agreed to use reasonable best efforts to prepare andfile with the SEC within 180 days after the closing of a financingtransaction or series of financing transactions in which we would issue andsell our Common Stock or warrants to purchase our Common Stock or both inexchange for aggregate gross proceeds to us of at least $20 million (a “QualifiedTransaction”), or such other time as shall be mutually agreed upon by us andthe Investors, a registration statement on Form S-3 covering theresale of the securities held by each Investor in compliance with theSecurities Act. Upon the effectiveness of such registration statement, theInvestors will have the right to resell any shares of Common Stock issued tothem upon the Exchange and the conversion of the Bridge Loan notes.

In addition to these securities, as of May 4,2005, options and similar rights and warrants to acquire approximately 3,652,733and 2,770,131 shares, respectively, of our Common Stock were outstanding. Also,as of May 4, 2005, approximately an additional 431,233 shares of ourCommon Stock were reserved for issuance to our employees under existing stockoption plans and will be freely tradeable upon issuance, subject to our insidertrading policies.

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As of May 4, 2005,all of the Company’s outstanding stock options had exercise prices above theclosing price of our Common Stock on the NASDAQ. In order to more closely alignthe interest of the Company and its employees and in order to provide adequateequity incentives for employee recruiting and retention, our Board of Directorshas approved re-pricing of outstanding options. The Company anticipates that,following the approval of stock option re-pricing by the majority of itsstockholders, the aggregate number of outstanding options with an exerciseprice at the then current fair market value would not exceed the number ofoptions outstanding prior to such initiative. However, the Common Stockissuable upon the exercise of modified options that have exercise prices at,rather than above, the then current fair market value may cause dilution of thethen-outstanding Common Stock and may result in then holders experiencing adecline in the value of their Common Stock.

**Weare exposed to increased costs and risks associated with complying withincreasing and new regulation of corporate governance and disclosure standards,including the risk of an unfavorable report under Section 404 of theSarbanes-Oxley Act.**

We are spending an increased amount of management timeand external resources to comply with changing laws, regulations and standardsrelating to corporate governance and public disclosure, including the Sarbanes-OxleyAct of 2002, new SEC regulations and NASDAQ Stock Market rules. In particular, Section 404of the Sarbanes-Oxley Act of 2002 requires management’s annual review andevaluation of our internal control systems, and attestations of theeffectiveness of these systems by our management and our independent registeredpublic accounting firm.

We have recently completed our evaluation of thedesign, remediation and testing of effectiveness of our internal controls overfinancial reporting required to comply with the management certification andattestation by our independent registered public accounting firm under Section 404of Sarbanes-Oxley (“Section 404”). While our assessment, testing andevaluation of the design and operating effectiveness of our internal controlsover financial reporting resulted in our conclusion that as of December 31,2004, our internal controls over financial reporting were effective, we cannotpredict the outcome of our testing in future periods. If we conclude in futureperiods that our internal control over financial reporting is not effective, wemay be required to change our internal control over financial reporting toremediate deficiencies. In such an event, investors may lose confidence in thereliability of our financial statements and we could also be subject toinvestigation and/or sanctions by regulatory authorities.

Sarbanes-Oxley andnewly proposed or enacted rules of the SEC and Nasdaq have caused us, andwe expect will cause us, to incur significant increased costs in the future aswe implement and respond to new requirements. In this regard, achieving andmaintaining compliance with Sarbanes-Oxley and other new rules andregulations, may require us to hire additional personnel and use additionaloutside legal, accounting and advisory services.

**Possiblethird-party claims of infringement of proprietary rights against us couldhave a material adverse effect on our business, results of operation andfinancial condition.**

The communicationsindustry and products based on the 802.11 standards in particular arecharacterized by a relatively high level of litigation based on allegations ofinfringement of proprietary rights. We have in the past, and may in the future,be subject to such litigation. For example, we recently settled a lawsuitbrought against us by Symbol alleging that certain of our products infringed onfour Symbol patents related to systems for packet data transmission. As part ofthe settlement, we agreed to pay to Symbol $22.75 million over a period often quarters and a 2% royalty on sales of certain of our WLAN products. Wecannot assure you that other third parties have made assertions of intellectualproperty rights in relation to 802.11 standards-based products and thatany such assertion of infringement will not result in litigation or that wewould prevail in such litigation. Furthermore, any such claims, with or withoutmerit, could result in substantial cost to our business and diversion of ourpersonnel, require us to develop new 

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technologyor enter into royalty or licensing arrangements. Such royalty or licensingagreements, if required, may not be available on terms acceptable to us, or atall. In the event of a successful claim of infringement or misappropriationagainst us, and our failure or inability to develop non-infringing technologyor to license the infringed, misappropriated or similar technology at areasonable cost, our business, results of operations and financial conditionwould be materially adversely affected. In addition, we may be obligated toindemnify our customers against claimed infringement of patents, trademarks,copyrights and other proprietary rights of third parties. Any requirement toindemnify our customers could have a material adverse effect on our business,results of operations or financial condition.

**Ourintellectual property rights may not provide meaningful commercial protectionfor our products, which could enable third parties to use our technology ormethods, or very similar technology or methods, and could reduce our ability tocompete.**

Our success depends significantly on our ability toprotect our proprietary rights to the technologies used in our products. Werely on patent protection, as well as a combination of copyright, trade secretand trademark laws and nondisclosure, confidentiality and other contractualrestrictions to protect our proprietary technology. However, these legal meansafford only limited protection and may not adequately protect our rights orpermit us to gain or keep any competitive advantage. Our patent applicationsmay not issue as patents in a form that will be advantageous to us. Our issuedpatents and those that may issue in the future may be challenged, invalidatedor circumvented, which could limit our ability to stop competitors frommarketing related products. Although we have taken steps to protect ourintellectual property and proprietary technology, there is no assurance thatthird parties will not be able to design around our patents. Furthermore,although we have entered into confidentiality agreements and intellectualproperty assignment agreements with our employees, consultants and advisors,such agreements may not be enforceable or may not provide meaningful protectionfor our trade secrets or other proprietary information in the event ofunauthorized use or disclosure or other breaches of the agreements.

Furthermore, the laws offoreign countries may not protect our intellectual property rights to the sameextent as the laws of the United States. If our intellectual property does notprovide significant protection against competition, our competitors couldcompete more directly with us, which could result in a decrease in our marketshare. All of these factors may harm our competitive position.

**Competitionwithin the wireless networking industry is intense and is expected to increasesignificantly. Our failure to compete successfully could materially harm ourprospects and financial results.**

The market for broadband wireless systems and wirelesslocal area networking and building-to-building markets areextremely competitive and we expect that competition will intensify in thefuture. Increased competition could adversely affect our business and operatingresults through pricing pressures, the loss of market share and other factors.The principal competitive factors affecting wireless local area networking andfixed wireless markets include the following: data throughput; effective RFcoverage area; interference immunity; network security; network scalability;price; integration with voice technology; wireless networking protocolsophistication; ability to support industry standards; roaming capability;power consumption; product miniaturization; product reliability; ease of use;product costs; product features and applications; product time to market;product certifications; changes to government regulations with respect to eachcountry served and related to the use of radio spectrum; brand recognition; OEMpartnerships; marketing alliances; manufacturing capabilities and experience;effective distribution channels; and company reputation. We could be at adisadvantage when compared to our competitors, particularly Symbol, CiscoSystems, NetGear and D-Link, that have broader distribution channels, greaterbrand recognition, more extensive patent portfolios and, in particular, morediversified product lines and greater financial resources. In the broadbandwireless access market, we have several 

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competitors, includingwithout limitation, Alvarion, Ceragon Networks, Stratex Networks, and HarrisCorporation, all of which have more diversified product lines and greaterfinancial resources.

We face competition from numerous companies that havedeveloped competing products in both the commercial wireless and homenetworking markets, including several Asia-based companies offering low-priceIEEE 802.11a/b/g products. We are also facing future competition from companiesthat offer products, which replace network adapters or offer alternativecommunications solutions (such as the integrated wireless functionality on theIntel Centrino computer chip), or from large computer companies, PC peripheralcompanies, as well as other large networking equipment companies that integratenetwork adapters into their products. Furthermore, we could face competitionfrom certain of our OEM customers, which have, or could acquire, wirelessengineering and product development capabilities, or might elect to offercompeting technologies. We can offer no assurance that we will be able tocompete successfully against these competitors or those competitive pressureswe face will not adversely affect our business or operating results.

Additionally, as a resultof our settlement agreement with Symbol, including the impact of the assignmentand cross-licensing of certain of our patents and patent applications toSymbol, Symbol could compete more effectively across our product lines. Many ofour present and potential competitors have substantially greater financial,marketing, technical and other resources with which to pursue engineering,manufacturing, marketing, and distribution of their products. These competitorsmay succeed in establishing technology standards or strategic alliances in theWLAN obtain more rapid market acceptance for their products, or otherwise gaina competitive advantage. We can offer no assurance that we will succeed indeveloping products or technologies that are more effective than thosedeveloped by our competitors. Furthermore, we compete with companies that havehigh volume manufacturing and extensive marketing and distributioncapabilities, areas in which we have only limited experience. We can offer noassurance that we will be able to compete successfully against existing and newcompetitors as wireless markets evolve and the level of competition increases.

**Wirelessnetworking markets are subject to rapid technological change and to compete, wemust continually introduce new products that achieve broad market acceptance.**

As the market for our wireless networking products isevolving, we believe our ability to compete successfully in this market isdependent upon the continued compatibility and interoperability of our productswith products and architectures offered by other vendors. To remaincompetitive, we need to introduce products in a timely manner that incorporateor are compatible with these new technologies as they emerge. If we were unableto enter a particular market in a timely manner with internally developedproducts, we may license technology from other businesses or acquire otherbusinesses as an alternative to internal research and development. In the pastwe have reduced personnel expenses as a result of the workforce reductionimplementions. To the extent our revenues do not increase or we do not obtainadditional financing for working capital purposes, we may be required to reduceour expenses for research and development, which could limit our ability tointroduce new products.

We have expended substantial resources in developingproducts that are designed to conform to the IEEE 802.11 standards. We cannotassure you, however, that the IEEE 802.11 compliant products will have anongoing meaningful commercial impact. Already, even within the 802.11 standard,there have been significant technological changes. The IEEE approved the 2.4GHz WLAN standard designated 802.11b. In 2000, the IEEE approved the 5 GHz WLANstandard designated 802.11a. In 2003, the IEEE approved a new 2.4 GHz WLANstandard designated 802.11g. IEEE is in the process of establishing additional802.11 standards, including 802.11e related to quality of service for voice andvideo transmission, 802.11i related to enhanced security, and 802.11h relatedto dynamic frequency selection and transmission power control. Furthermore,IEEE has recently committed to developing new wireless WAN standards under twoseparate initiatives, 802.16d (WiMAX) and 802.16e. 802.16d is a WWAN protocolto address the existing 

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Fixed Wireless Access (“FWA”)market as well as extend that market to include certain mobility applications(at vehicular levels), while 802.16e is a WWAN protocol to address the FWAmarket as well as lower power portable devices.

While we have products based on the 802.11a, 802.11band 802.11g standards, future standards developments may make thesetechnologies obsolete and require significant additional investment by thecompany. As an example, in August 2000, the FCC adopted a rule changeto Part 15. Based on the rule change, we made significant investmentsin developing higher-speed frequency hopping technology that allowed forwider band hopping channels and increased the data rate from 1.6 Mbps to up to10 Mbps based on the HomeRF 2.0 standard. However, widespread adoption ofproducts based on the IEEE 802.11 standard has led us to discontinue theseproducts. We cannot assure you that a similar future change in industrystandards and market acceptance will not require us to abandon our currentproduct lines and invest significantly in research and development of futurestandards based products.

Given the emerging nature of the WLAN market, wecannot assure you that the products and technology, or our other products ortechnology, will not be rendered obsolete by alternative or competingtechnologies, including cellular. Currently, cellular companies are deploying3rd generation technologies designed to transmit data at up to 2 mbps. Inparticular, Verizon has already announced an initiative based on thistechnology known as EV-DO. Cellular technology today has an inherent advantageof being more ubiquitous than WLAN hotspot technology. We cannot assure youthat our current product offerings will be competitive with cellular or otherWLAN technologies in the future.

In addition, when weannounce new products or product enhancements that have the potential toreplace or shorten the life cycle of our existing products, customers may deferpurchasing our existing products. These actions could materially adverselyaffect our operating results by unexpectedly decreasing sales, increasing ourinventory levels of older products and exposing us to greater risk of productobsolescence.

**Ourrevenue may decline and our ability to achieve profitability may be threatenedif the demand for wireless services in general and broadband wireless accesssystems in particular does not continue to grow.**

Our success isdependent on the continued trend toward wireless telecommunications and datacommunications services. If the rate of growth slows and service providersreduce their capital investments in wireless infrastructure or fail to expandinto new geographic markets, our revenue may decline. Unlike some competitorssuch as Cisco Systems, NetGear and 3Com, our principal product offerings relyon wireless technologies. Accordingly, we would experience a greater impactfrom a decline in the demand for wireless services than some of our mostimportant competitors. In addition, wireless access solutions are unproven inthe marketplace and some of the wireless technologies, such as our Tsunamipoint-to-multipoint technology and 802.11 technologies in which wehave invested substantial capital, were only commercially introduced in thelast few years. In addition, we are also investing in the development ofproducts that comply with the emerging 802.16 wireless access standard. Ifwireless access technology turns out to be unsuitable for widespread commercialdeployment, it is unlikely we could generate enough sales to achieve andsustain profitability. We have listed below the factors that we believe are keyto the success or failure of broadband wireless access technology:

·       itsreliability and security and the perception by end users of its reliability andsecurity;

·       itscapacity to handle growing demands for faster transmission of increasingamounts of data, voice and video;

·       theavailability of sufficient frequencies for network service providers to deployproducts at commercially reasonable rates;

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·       itscost-effectiveness and performance compared to other forms of broadband access,whose prices and performance continue to improve;

·       unforeseenchanges in regulatory environment;

·       itssuitability for a sufficient number of geographic regions; and

·       theavailability of sufficient site locations for network service providers toinstall products at commercially reasonable rates.

We have experienced the effects of many of the factorslisted above in interactions with customers selecting wireless versus wire linetechnology. For example, because of the frequency with which individuals usingcellular phones experience fading or a loss of signal, customers often hold theperception that all broadband wireless technologies will have the same reliabilityconstraints even though the wireless technology we use does not have the sameproblems as cellular phones. In some geographic areas, because of adverseweather conditions that affect wireless transmissions, but not wire linetechnologies, we are not able to sell products as successfully as competitorswith wire line technology. In addition, future legislation, legal decisions andregulation relating to the wireless telecommunications industry may slow ordelay the deployment of wireless networks.

We may also lose customersto different types of wireless technologies. Many of our products operate inthe unlicensed frequency bands, in compliance with various governmentalregulations. In addition, many of the emerging wireless standards utilize theselicense-exempt frequency bands. The proliferation and market acceptanceof unlicensed wireless products increases the probability of interference amongunlicensed devices. Increasing interference can adversely affect the operationof our unlicensed products, resulting in customers selecting alternativeproducts that do not operate in these unlicensed frequency bands. For example,we have only a very limited offering of products that operate in licensed radiospectrums. Some customers, however, may want to operate in licensed radiospectrums because they sometimes offer less interference than license exemptradio spectrums or have other advantages.

**Wedepend on international sales and our ability to sustain or expandinternational sales is subject to many risks, which could adversely affect ouroperating results.**

During the quarterended April 2005 and years ended December 31, 2004, 2003 and 2002,international sales accounted for approximately 55%, 43%, 41% and 38% of ourtotal sales, respectively. We expect that our revenue from shipments tointernational customers will vary as a percentage of total revenue. There arecertain risks inherent in doing business in international markets, includingthe following:

·       uncertaintyof product acceptance by customers in foreign countries;

·       uncertaintyof obtaining homologation in certain key international countries;

·       difficultyin assessing the ability to collect on orders to be shipped in an uncertaineconomic environment;

·       difficultyin collecting accounts receivable;

·       exportlicense and documentation requirements;

·       unforeseenchanges in regulatory requirements;

·       difficultiesin staffing and managing multinational operations;

·       governmentalrestrictions on the repatriation of funds into the United States;

·       foreigncurrency fluctuations;

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·       longerpayment cycles for international distributors;

·       tariffs,duties, taxes and other trade barriers;

·       difficultiesin finding foreign licensees or joint venture partners;

·       difficultiesin enforcing intellectual property rights; and

·       potentialpolitical and economic instability.

There is a risk that such factors will harm ourability to continue to successfully operate internationally and our efforts toexpand international operations. In this regard, our revenue levels have been affected,in part, by reduced ability to ship our products to international customers incases where collectibility, based on a number of factors, could not bereasonably assured.

While we may extendlimited credit terms, fluctuations in currency exchange rates could cause ourproducts to become relatively more expensive to customers in a particularcountry, leading to a reduction in sales or profitability in that country. Wecannot assure you that foreign markets will continue to develop or that we willreceive additional orders to supply our products to foreign customers. Ourbusiness and operating results could be materially adversely affected ifforeign markets do not continue to develop or if we do not receive additionalorders to supply our products for use by foreign customers. To successfullyexpand international sales, we will need to recruit additional internationalsales and support personnel and expand our relationships with internationaldistributors and value-added resellers. This expansion will requiresignificant management attention and financial resources. We may incur theseadditional costs and add these management burdens without successfullyexpanding sales. This failure would harm our operating results.

**Ourbusiness depends on rapidly evolving telecommunications and Internetindustries.**

Our future success isdependent upon the continued growth of the data communications and wirelessindustries, particularly with regard to Internet usage. The global datacommunications and Internet industries are evolving rapidly and it is difficultto predict potential growth rates or future trends in technology development.We cannot assure you that the deregulation, privatization and economicglobalization of the worldwide telecommunications market that has resulted inincreased competition and escalating demand for new technologies and serviceswill continue in a manner favorable to us or our business strategies. Inaddition, there can be no assurance that the growth in demand for wireless andInternet services, and the resulting need for high speed or enhanced datacommunications products and wireless systems, will continue at its current rateor at all.

**Wemay be dependent on a limited number of OEM customers.**

A limited number ofOEM customers may contribute to our revenue. Sales of many of our wirelessnetworking products depend upon decisions of prospective OEM customers todevelop and market wireless solutions, which incorporate our wirelesstechnology. OEM customers’ orders are affected by a variety of factors,including the following:

·       newproduct introductions;

·       enduser demand for OEM customers’ products;

·       jointdevelopment efforts;

·       OEMcustomers’ product life cycles;

·       inventorylevels;

·       marketand OEM customers’ adoption of new wireless standards;

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·       manufacturingstrategies;

·       lengthydesign-in cycles;

·       pricing;

·       regulatorychanges;

·       contractawards; and

·       competitivesituations.

The loss of one or moreof, or a significant reduction in orders from, our major OEM customers couldmaterially and adversely affect our operating results or stock price. Inaddition, there can be no assurance that we will become a qualified supplierfor new OEM customers or that we will remain a qualified supplier for existingOEM customers.

**Ourbusiness derives a substantial portion of its revenue from a limited number ofdistributors. Therefore, a decrease or loss in business from any of them maycause a significant delay or decline in our revenue and could harm ourreputation.**

Our business hashistorically generated a significant amount of revenue from a limited number ofdistributors. The loss of business from any of these distributors or the delayof significant orders from any of them, even if only temporary, couldsignificantly reduce our revenue, delay recognition of revenue, harm ourreputation or reduce our ability to accurately predict cash flow. Threedistributors accounted for approximately 13.3%, 12.6% and 10.9% of our totalrevenue for the three months ended April 1, 2005. Two distributorsaccounted for approximately 15.5% and 14.2%, respectively, of our total revenuefor year ended December 31, 2004, and one distributor accounted forapproximately 14% and 23% of our total revenue for the years ended December 31,2003 and 2002, respectively. We do not have long-term contracts with any ofthese distributors. While we expect to have a more diversified and expansiveend customer base, the future success of our business will depend significantlyon the timing and size of future purchase orders, if any, from a limited numberof distributors. Additionally, our reliance on distributors limits ourvisibility to our end user customers, which impacts our ability to accuratelyforecast our revenues. Most of our expenses are fixed in the short term and anyshortfall in revenues and delay in collections of our receivables in relationto planned expenditures could materially harm our operating results andfinancial condition.

**Wedepend on limited suppliers for key components that are difficult tomanufacture, and because we may not have long-term arrangements with thesesuppliers, we could experience disruptions in supply that could decrease ordelay the recognition of revenues.**

We depend on single orlimited source suppliers for several key components used in our products. Anydisruptions in the supply of these components or assemblies could delay ordecrease our revenues. In addition, even for components with multiple sources,there have been, and may continue to be, shortages due to capacity constraintscaused by high demand. We do not have any long-term arrangements with oursuppliers and could be at a disadvantage compared to other companies,particularly larger companies that have contractual rights or preferredpurchasing arrangements. In addition, during periods of capacity constraint, weare disadvantaged compared to better capitalized companies, as suppliers havein the past and may in the future choose not to do business with us, or mayrequire letters of credit guaranteeing our obligations, as a result of our financialcondition. If, for any reason, a supplier fails to meet our quantity or qualityrequirements, or stops selling components to us or our contract manufacturersat commercially reasonable prices, we could experience significant productiondelays and cost increases, as well as higher warranty expenses and productreputation problems. Because the key components and assemblies of our productsare complex, difficult to manufacture and require long lead times, we may havedifficulty finding 

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alternativesuppliers to produce our components and assemblies on a timely basis. In theWi-Fi market, the growth in demand has created unexpected shortages and suddenincreases in lead times. We have experienced shortages of some of thesecomponents in the past, which delayed related revenue, and we may experienceshortages in the future. In addition, because the majority of our products havea short sales cycle of between 30 and 90 days, we may have difficulty inmaking accurate and reliable forecasts of product needs. As a result, we couldexperience shortages in supply, which could delay or decrease revenue becauseour customers may cancel their orders or choose a competitor for their futureneeds.

**Wehave limited internal manufacturing capabilities and we will need to increasinglydepend on contract manufacturers for our manufacturing requirements.**

We have limited internal manufacturing capability. Wecannot assure you that we will be able to develop or contract for additionalmanufacturing capacity on acceptable terms on a timely basis if needed. Inaddition, in order to compete successfully, we will need to achieve significantproduct cost reductions. Although we intend to achieve cost reductions throughengineering improvements, production economies, and manufacturing at lower costlocations including outside the United States, we cannot assure you that wewill be able to do so. In order to remain competitive, we must continue tointroduce new products and processes into our manufacturing environment, and wecannot assure you that any such new products will not create obsoleteinventories related to older products.

We rely on contract and subcontract manufacturers forturnkey manufacturing and circuit board assemblies which subjects us toadditional risks, including a potential inability to obtain an adequate supplyof finished assemblies and assembled circuit boards and reduced control overthe price, timely delivery and quality of such finished assemblies andassembled circuit boards. If our Sunnyvale facility were to become incapable ofoperating, even temporarily, or were unable to operate at or near our currentor full capacity for an extended period, our business and operating resultscould be materially adversely affected.

Changes in our manufacturing operations to incorporatenew products and processes, or to manufacture at lower cost locations outsidethe United States, could cause disruptions, which, in turn, could adverselyaffect customer relationships, cause a loss of market opportunities andnegatively affect our business and operating results. In addition, our relianceon a limited number of manufacturers involves a number of risks, including therisk that these manufacturers may terminate their relationship with us, maychoose not to devote adequate capacity to produce our products or may delayproduction of our products. If any of these risks are realized, we couldexperience an interruption in supply, which could have an adverse impact on thetiming and amount of our revenues. There can be no assurance that we will beable to effectively transition these products, which, in turn, could adverselyaffect customer relationships, cause a loss of market opportunities andnegatively affect our business and operating results.

Our reliance on contractmanufacturers could subject us to additional costs or delays in productshipments as demand for our products increases or decreases. As demand forwireless products increases, our contract manufacturers are experiencingincreasing lead times for many components increasing the possibility that theywill be unable to satisfy our product requirements in a timely fashion. Therecan be no assurance that we will effectively manage our contract manufacturersor that these manufacturers will meet our future requirements for timelydelivery of products of sufficient quality and quantity. The inability of ourcontract manufacturers to provide us with adequate supplies or the loss of acontract manufacturer would result in costs to acquire additional manufacturingcapacity and delays in shipments of our products, materially adverselyaffecting our business and operating results. In addition, cancellations inorders as a result of decreases in demand for products may subject us to claimsfor damages. In this regard, we are party to disputes, including legal actions,with several of our suppliers and vendors. These disputes relate primarily toexcess materials and order cancellation claims that resulted from declines indemand for our products during 2002 and 2003 and the commensurate reductions inmanufacturing volumes.

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**Wemust be able to reduce expenses and inventory risks associated with meeting thedemand of our customers.**

To ensure that we are ableto meet customer demand for our products, we place orders with oursubcontractors and suppliers based on our estimates of future sales. If actualsales differ materially from these estimates, our inventory levels and expensesmay be adversely affected and our business and results of operations couldsuffer. For example, in 2003 and 2004, the fulfillment of our product and supplyorders resulted in our receiving more products and components than we were ableto sell and caused an increase in our inventories. This oversupply was causedby customer demand not meeting the sales forecasts that were made when theorders were originally placed and our strategy to discontinue certain productsin order to concentrate on selling next generation products. As part of ourongoing review of our inventory reserve requirements, we increased our reservefor excess and obsolete inventory and lower of cost or market by $1.6 millionin the first quarter of 2005 and $3.9 million in the year ended December 31,2004, primarily related to legacy WWAN products. As part of our restructuringcharge in the second quarter of 2003, we increased our reserve for excess andobsolete inventory by $22.5 million, also primarily related to legacy WWANproducts. As a part of our restructuring charge in the first quarter of 2002,we increased our reserve for obsolete and excess inventory, including purchasecommitments, totaling $12.7 million, of which $7.7 million related toexcess inventory and $5.0 million related to purchase commitments,primarily related to legacy WLAN products. These provisions related to adecrease in demand for certain products as well as our strategy to discontinuecertain products in order to concentrate on selling next generation products.

**Failure to decrease the cost of our products or toeffectively develop new systems would cause our gross profit and our revenue todecline or to increase more slowly.**

We participate in a highly volatile industrycharacterized by vigorous competition for market share and rapid technologicaldevelopment. Furthermore, business consumers of wireless products increasinglyare concentrating on reducing capital expenditures and on maximizing return oninvestment (ROI) in connection with their purchases of networking products.These factors have resulted in aggressive pricing practices in our industry andhave resulted in downward pricing pressure on our products. For example, in December 2004,a number of our competitors announced substantial price reductions in theiraccess point products forcing down prices in the market overall. We expectsimilar actions in the future, expect such market conditions to persist andexpect that falling prices for competing broadband solutions will force us toreduce prices over time. In addition to the effects of industry-wide pricingpressures, we expect that the average selling prices of our products willcontinue to decrease because one of our strategies is to increase thepercentage of domestic and international sales being made through distributorsand value-added resellers, and to OEM customers, which involve lowerprices than our direct sales. Given this combination of factors, we may beforced under some circumstances to reduce the selling prices of our productseven if it causes us to decrease gross profit or to take a loss on ourproducts. We may also be unable to reduce sufficiently the cost of our productsto enable us to compete with other broadband access technologies with lowerproduct costs.

In order to remaincompetitive, we will need to design our products so that they can bemanufactured with low-cost, automated manufacturing, assembly and testingtechniques. We cannot assure you that we will be successful in designing ourproducts to allow contract manufacturers to use lower-cost, automatedtechniques. In addition, any redesign may fail to result in sufficient costreductions to allow us to significantly reduce the price of our products orprevent our gross profit from declining as prices decline.

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**Becausemany of our current and planned products are or will be highly complex, theymay contain defects or errors that are detectable only after deployment incomplex networks and which, if detected, could harm our reputation, result incosts to us in excess of our estimates, adversely affect our operating results,result in a decrease in revenue or result in difficulty collecting accountsreceivable.**

Many of our complexproducts can only be fully tested when deployed in commercial networks. As aresult, end users may discover defects or errors or experience breakdowns intheir networks after the products have been deployed. The occurrence of anydefects or errors in these products, including defects or errors in componentssupplied by our contract manufacturers, could result in:

·       failureto achieve market acceptance and loss of market share;

·       cancellationof orders;

·       difficultyin collecting accounts receivable;

·       increasedservice and warranty costs;

·       diversionof resources, legal actions by customers and end users; and

·       increasedinsurance costs and other losses to our business or to end-users.

If we experience warrantyfailure that indicates either manufacturing or design deficiencies, we may berequired to recall units in the field and or stop producing and shipping suchproducts until the deficiency is identified and corrected. In the event of suchwarranty failures, our business could be adversely affected resulting inreduced revenue, increased costs and decreased customer satisfaction. Becausecustomers often delay deployment of a full system until they have tested theproducts and any defects have been corrected, we expect these revisions tocause delays in orders by our customers for our systems. Because our strategyis to introduce more complex products in the future, this risk will intensifyover time. End users have discovered errors in our products. If the costs ofremediating problems experienced by our customers exceed our warranty reserves,these costs may adversely affect our operating results.

**Tocompete effectively, we will need to establish and expand new distributionchannels for our point-to-point and point-to-multipointproducts and 802.11 WLAN products.**

We sell our productsthrough domestic and international distributors. In general, distributors,value-added resellers and retailers offer products of several differentcompanies, including products that may compete with our products. Accordingly,they may give higher priority to products of other suppliers, thus reducing ourefforts to sell our products. In addition they often focus on specific marketsand we will need to add new distributors and value-added resellers as weexpand our sales to new markets. Agreements with distributors and retailers aregenerally terminable at their option. Any reduction in sales efforts ortermination of a relationship may materially and adversely affect our businessand operating results. Use of distributors and retailers also entails the riskthat they will build up inventories in anticipation of substantial growth insales. If such growth does not occur as anticipated, they may substantiallydecrease the amount of products ordered in subsequent quarters. Such fluctuationscould contribute to significant variations in our future operating results.

**Broadbandwireless access solutions have some disadvantages and limitations as comparedto other alternative broadband access solutions that may prevent widespreadadoption, which could hurt our prospects.**

Broadband wireless accesssolutions, including point-to-point and point-to-multipoint systems, competewith other high-speed access solutions such as digital subscriber lines, cablemodem technology, fiber optic cable and other high-speed wire line andsatellite technologies. If the market for our Lynx and 

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Tsunamipoint-to-point and Tsunami point-to-multipoint solutions fails to develop ordevelops more slowly than we expect due to this competition, our salesopportunities will be harmed. Many of these alternative technologies can takeadvantage of existing installed infrastructure and are generally perceived tobe reliable and secure. As a result, they have already achieved significantlygreater market acceptance and penetration than point-to-point andpoint-to-multipoint broadband wireless access technologies. Moreover, currentpoint-to-point and point-to-multipoint broadband wireless access technologieshave inherent technical limitations that may inhibit their widespread adoptionin many areas, including the need for near line-of-sight installation and, inthe case of operating frequencies above 11 GHz, reduced communication distancein bad weather. We expect point-to-point and point-to-multipoint broadbandwireless access technologies to face increasing competitive pressures from bothcurrent and future alternative technologies. In light of these factors, manyservice providers may be reluctant to invest heavily in broadband wirelessaccess solutions.

**Broadbandwireless access products frequently require a direct line-of-sight, which maylimit the ability of service providers to deploy them in a cost-effectivemanner and could harm our sales.**

Because of line-of-sightlimitations, service providers often install broadband wireless accessequipment on the rooftops of buildings and on other tall structures. Beforeundertaking these installations, service providers must generally secure roofrights from the owners of each building or other structure on which theequipment is to be installed. The inability to easily and cost-effectivelyobtain roof rights may deter customers from choosing to install broadbandwireless access equipment, which could have an adverse effect on our sales.

**Inabilityto attract and retain key personnel could hinder our ability to operate.**

Our success depends to alarge extent on the continued services of Mr. Frank Plastina, ourExecutive Chairman, Mr. Kevin Duffy, our President and Chief ExecutiveOfficer, Mr. Michael D. Angel, our Executive Vice President and ChiefFinancial Officer, and other members of our senior management team. The loss ofthe services of any of these management members could harm our business becauseof the crucial role each of them is expected to play in our operations andstrategic development. In order to be successful, we must also retain andmotivate key employees, including those in managerial, technical, marketing andsales positions. In particular, our product generation efforts depend on hiringand retaining qualified engineers. Experienced management and technical, sales,marketing and support personnel in the wireless networking industry are in highdemand and competition for their talents is intense. This is particularly thecase in Silicon Valley, where our headquarters and a majority of our operationsare located. Additionally due to our current financial situation, we haveexperienced more attrition than in the past and it has been more difficult thatin the past to fulfill vacant positions.

**Wirelessproducts may pose health and safety risks.**

There has been recentpublicity alleging potentially negative direct and indirect health and safetyeffects of electromagnetic radiation from cellular telephones and otherwireless equipment sources, including allegations that such emissions may causecancer. Our wireless communications products emit electromagnetic radiation.Health and safety issues related to our products may arise that could lead tolitigation or other action against us or to additional regulation of ourproducts. We may be required to modify our technology and may not be able to doso. We may also be required to pay damages that may reduce our profitabilityand adversely affect our financial condition. Even if concerns about the safetyof electromagnetic radiation prove to be without merit, negative publicitycould affect our ability to market our products and could, in turn, harm ourbusiness and our results of operations.

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**Compliancewith governmental regulations in multiple jurisdictions where we sell ourproducts is difficult and costly.**

In the United States, we are subject to variousFederal Communications Commission, or FCC, rules and regulations. CurrentFCC regulations permit license exempt operation in certain FCC-certified bandsin the radio spectrum. Our wireless products are certified for unlicensedoperation in the 902-928 MHz, 2.4-2.4835 GHz, 5.15-5.35 GHzand 5.725-5.825 GHz frequency bands, and we expect soon to have certifiedproducts in the newly opened 5.470-5.725 GHz band. Operation in thesefrequency bands is governed by rules set forth in Part 15 of the FCCregulations. The Part 15 rules are designed to minimize theprobability of interference to other users of the spectrum and, thus, accord Part 15systems license-exempt status in the frequency band. In the event thatthere is interference caused by a Part 15 user, the FCC can require the Part 15user to curtail transmissions that create interference. In this regard, ifusers of our products experience excessive interference from primary users,market acceptance of our products could be adversely affected, which couldmaterially and adversely affect our business and operating results. The FCC,however, has established certain standards that create an irrefutablepresumption of noninterference for Part 15 users and we believe that ourproducts comply with such requirements. There can be no assurance that theoccurrence of regulatory changes, including changes in the availability oflicense-exempt spectrum, changes in the allowed use spectrum, ormodification to the standards establishing an irrefutable presumption forunlicensed Part 15 users, would not significantly affect our operations byrendering current products obsolete, restricting the applications and marketsserved by our products or increasing the opportunity for additionalcompetition.

Our products are also subject to regulatoryrequirements in international markets and, therefore, we must monitor thedevelopment of frequency regulations in certain countries that representpotential markets for our products. While we cannot assure you that we will beable to comply with regulations in any particular country, we will design ourproducts to minimize the design modifications required to meet various 2.4 GHzand 5 GHz international spread spectrum regulations. In addition, we will seekto obtain international certifications for our product line in countries wherethere are substantial markets for wireless networking systems. Changes in, orthe failure by us to comply with, applicable domestic and internationalregulations could materially adversely affect our business and operatingresults. In addition, with respect to those countries that do not follow FCCregulations, we may need to modify our products to meet local rules andregulations.

Regulatory changesby the FCC or by regulatory agencies outside the United States, includingchanges in the availability of spectrum, could significantly affect ouroperations by restricting our development efforts, rendering current productsobsolete or increasing the opportunity for additional competition. Severalchanges by the FCC were approved within the last eight years including changesin the allocation and use of available frequency spectrum, as well as thegranting of an interim waiver. These approved changes could createopportunities for other wireless networking products and services. There can beno assurance that new regulations will not be promulgated, that couldmaterially and adversely affect our business and operating results. It ispossible that the United States and other jurisdictions will adopt new laws andregulations affecting the pricing, characteristics and quality of broadbandwireless systems and products. Increased government regulations could:

·       decreasethe growth of the broadband wireless industry;

·       hinderour ability to conduct business both domestically and internationally;

·       reduceour revenues;

·       increasethe costs and pricing of our products;

·       increaseour operating expenses; and

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·       exposeus to significant liabilities.

Any of these events orcircumstances could seriously harm our business and results of operations.

**Ouroperating results have been, and could further be, adversely affected as aresult of purchase accounting treatment and the impact of amortization andimpairment of intangible assets relating to our merger with Proxim, Inc.and the Agere asset purchase.**

In accordance with generally accepted accountingprinciples, we accounted for our merger with Proxim, Inc. and the Agereasset purchase using the purchase method of accounting. Under the purchasemethod of accounting, we have recorded the market value of our Common Stockissued in connection with the merger, the fair value of the options to purchaseProxim, Inc. Common Stock that became options to purchase ProximCorporation Common Stock and the amount of direct transaction costs as the costof combining with Proxim, Inc. We have allocated the cost of theindividual assets acquired and liabilities assumed, including variousidentifiable intangible assets (such as acquired technology and acquiredtrademarks and trade names) and in-process research and development, based ontheir respective fair values at the date of the completion of the merger.Intangible assets are amortized over their estimated useful lives. The purchaseprice was allocated to deferred compensation, based on the portion of theintrinsic value of the unvested Proxim, Inc. options we have assumed tothe extent that service is required after completion of the merger in order tovest. The excess of the purchase price over those fair market values wasaccounted for as goodwill. We are not required to amortize goodwill butgoodwill and other non-amortizable intangible assets are subject to periodicreviews for impairment.

In this regard, we took acharge of $12.2 million related to the impairment of intangibles inaccordance with SFAS No. 142 and 144 in the fourth quarter of 2004 and$129.1 million related to the impairment of goodwill in accordance withSFAS No. 142 in 2002. The impairment charges were measured as the amountthat the carrying amounts exceeded our estimated fair value. If we wererequired to recognize additional impairment charges in goodwill or intangibles,the charge will negatively impact reported earnings in the period of thecharge.

**Changesin stock option accounting rules may adversely impact our reportedoperating results prepared in accordance with generally accepted accountingprinciples, our stock price and our competitiveness in the employeemarketplace.**

Technology companies like ours have a history of usingbroad based employee stock option programs to hire, provide incentives for andretain our workforce in a competitive marketplace. Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”) allowed companies the choice of either using afair value method of accounting for options, which would result in expenserecognition for all options granted, or using an intrinsic value method, asprescribed by Accounting Principles Board Opinion No. 25, “Accounting forStock Issued to Employees” (APB 25), with a pro forma disclosure of the impacton net income (loss) of using the fair value option expense recognition method.We have elected to apply APB 25 and accordingly we generally do not recognizeany expense with respect to employee stock options as long as such options aregranted at exercise prices equal to the fair value of our Common Stock on thedate of grant.

In December 2004, the FASB issued Statement No. 123(revised 2004), *Share-Based Payment*(“SFAS 123R”), which replaces SFAS No. 123, *Accounting for Stack-Based Compensation*,(SFAS 123) and supercedes APB Opinion No. 25, *Accounting for Stock Issued to Employees*.SFAS 123R requires all share-based payments to employees, includinggrants of employee stock options, to be recognized in the financial statementsbased on their fair values beginning with the first annual period after June 15,2005. The pro forma disclosures previously permitted under SFAS 123 nolonger will be an alternative to 

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financial statementrecognition. We are required to adopt SFAS 123R in the first quarter offiscal 2006, beginning January 1, 2006 and are considering early adoptionof SFAS 123R.

Under SFAS 123R, we must determine theappropriate fair value model to be used for valuing share-based payments,the amortization method for compensation cost and the transition method to beused at date of adoption. The transition methods include prospective andretroactive adoption options. Under the retroactive option, prior periods maybe restated either as of the beginning of the year of adoption or for allperiods presented. The prospective method requires that compensation expense berecorded for all unvested stock options and restricted stock at the beginningof the first quarter of adoption of SFAS 123R, while the retroactivemethods would record compensation expense for all unvested stock options andrestricted stock beginning with the first period restated. We are evaluatingthe requirements of SFAS 123R and expect that the adoption ofSFAS 123R will have a material impact on our consolidated results ofoperations and earnings per share.

Additionally, on December 21, 2004, we announcedthat our Board of Directors has approved re-pricing of substantially allemployee stock options to fair market value subject to approval by majority ofour stockholders at our annual meeting of stockholders to be held on May 16,2005. If the proposal is approved by our stockholders, the re-pricing programmay commence at any time after the annual meeting and at the discretion of ourCompensation Committee. Our current pro forma disclosure under SFAS 123does not take into consideration the impact, if any, re-pricing of our stockoptions would have on our results of operations. We are considering to an earlyadoption of FAS 123R and are currently evaluating the effect re-pricing ofemployee stock options under SFAS No. 123R will have on our results ofoperations and financial condition and earning per share.

We have not yet determinedthe method of adoption or the effect of adopting SFAS 123R, and we havenot determined whether the adoption will result in amounts that are similar tothe current pro forma disclosures under SFAS 123. In addition, this newstatement could impact our ability to utilize broad-based employee stockplans to reward employees and could result in a competitive disadvantage to usin the employee marketplace.

**Provisionsof our certificate of incorporation, bylaws and Delaware law could detertakeover attempts.**

Some provisions inour certificate of incorporation and bylaws could delay, prevent or make moredifficult a merger, tender offer, proxy contest or change of control of ourcompany despite the possibility that such transactions may be viewed to be inthe best interest of our stockholders since such transactions could result in ahigher stock price than the then-market price of our Common Stock. Among otherthings, our certificate of incorporation and bylaws:

·       authorizeour board of directors to issue preferred stock with the terms of each seriesto be fixed by the board of directors;

·       authorizeour board of directors to issue shares of common stock, which in somecircumstances may be sufficient in number to dilute the stock ownership of anyperson or persons seeking to effect a change in the composition of the Company’sboard of directors or contemplating a tender offer for the combination of theCompany with another company;

·       divideour board of directors into three classes so that only approximately one-thirdof the total number of directors is elected each year;

·       permitdirectors to be removed only for cause; and

·       specifyadvance notice requirements for stockholder proposals and director nominations.

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In addition, with someexceptions, the Delaware General Corporation Law will restrict or delay mergersand other business combinations between us and any stockholder that acquires15% or more of our voting stock.

**Item3.   *Quantitative and Qualitative Disclosures AboutMarket Risk***

The following discussionabout our market risk disclosures involves forward-looking statements. Actualresults could differ materially from those projected in the forward-lookingstatements.

**Interest Rate Sensitivity**

We currently do notmaintain investments that are subject to interest rate risk.

**Exchange Rate Risk**

We currently have operations in the United States andseveral countries in South America, Europe and Asia. The functional currency ofall our operations is the U.S. dollar. Though salaries for our internationalsales personnel and operating expenses of our international offices areincurred in local currencies by our overseas operations, substantially all ofour other transactions are made in U.S. dollars; hence, we minimal exposure toforeign currency rate fluctuations relating to our transactions.

While we expect ourinternational revenues to continue to be denominated predominately in U.S.dollars, an increasing portion of our international revenues may be denominatedin foreign currencies in the future. As a result, our operating results maybecome subject to significant fluctuations based upon changes in exchange ratesof certain currencies in relation to the U.S. dollar. We will analyze ourexposure to currency fluctuations and may engage in financial hedgingtechniques in the future to attempt to minimize the effect of these potentialfluctuations; however, exchange rate fluctuations may adversely affect ourfinancial results in the future.

**Item 4.   *Controls and Procedures***

*Evaluation of disclosure controlsand procedures.  *Our Chief Executive Officer and ourChief Financial Officer, after evaluating the effectiveness of our “disclosurecontrols and procedures” (as defined in the Securities Exchange Act of 1934, asamended (the “Exchange Act”) Rules 13a-15(e) or 15d-15(e))as of the end of the period covered by this quarterly report, have concludedthat our disclosure controls and procedures are effective based on theirevaluation of these controls and procedures required by paragraph (b) ofExchange Act Rules 13a-15 or 15d-15.

*Changes in internal control overfinancial reporting.  *There were no changes in ourinternal control over financial reporting identified in connection with theevaluation required by paragraph (d) of Exchange Act Rules 13a-15or 15d-15 that occurred during our last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

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**PART II. OTHER INFORMATION**

**Item 1.   *Legal Proceedings***

Our involvement inlitigation has resulted in, and could in the future continue to result in,substantial costs and diversion of management resources of the Company. Inaddition, our litigation, if determined adversely to us, could result in thepayment of substantial damages and /or royalties or prohibitions againstutilization of essential technologies, and could materially and adverselyaffect our business, financial condition, operating results or cash flows.

**Active Technology Corporation**

On February 10, 2004,we received a copy of a complaint filed on February 2, 2004 in TokyoDistrict Court by Active Technology Corporation, a Japanese-baseddistributor of our products. The complaint alleges, among other things, that wesold to Active certain defective products, which Active in turn subsequentlysold to our customers. Active seeks damages of ¥559.2 million,which includes the purchase price of the allegedly defective products andreplacement costs allegedly incurred by Active. Active seeks to offset theclaim of ¥559.2 millionagainst outstanding accounts payable by Active of ¥175.3 million to us, resulting in a net claimagainst Proxim Corporation of ¥383.9 million.Translated into U.S. dollars on May 4, 2005, Active’s net claim isapproximately $3.7 million. On October 5, 2004, a hearing was held inthe matter and we filed a counterclaim for $2.3 million plus interest foroutstanding amounts owed us. Additional hearings were held on January 11,2005, February 22, 2005, March 10, 2005 and April 19, 2005. Atthe present time, it is not possible to comment upon the likelihood of afavorable or unfavorable outcome of the litigation. We will continue to defendourselves vigorously against this lawsuit.

**Top Global Technology Limited**

As previously reported, onor about March 10, 2003, we were served with a complaint filed on January 15,2003, by Top Global Technology Limited (“Top Global”), a distributor for AgereSystems Singapore. Our demurrer to Top Global’s complaint was sustained in May 2003.Top Global then filed and served an amended complaint on May 30, 2003. TopGlobal’s lawsuit was filed against Agere Systems, Inc., Agere SystemsSingapore, and Agere Systems Asia Pacific (collectively, “Agere”) and us in theSuperior Court for the State of California, County of Santa Clara. Top Globalclaimed that it was entitled to return for a credit $1.2 million ofproducts that it purchased from Agere Systems Singapore in June 2002 as aresult of our decision to discontinue a product line that we purchased fromAgere in August 2002. In September 2004, Top Global voluntarilydismissed Agere from the case, leaving us as the only defendant. Also in September 2004,we moved for summary judgment on all counts on the grounds that we were not anassignee or a party to the contract upon which Top Global based its claims. On January 18,2005, the Court granted our motion for summary judgment. The distributor’s timeto file a notice of appeal has expired.

**Symbol Technologies, Inc.**

As previously reported, on December 4, 2001,Symbol filed suit in the U.S. District Court for the District of Delawarealleging that Proxim, Inc. infringed four Symbol patents related tosystems for packet data transmission. Symbol sought an award for unspecifieddamages and a permanent injunction against Proxim, Inc. based on allegedpatent infringement counterclaims.

On September 15, 2003, we announced that a juryhad rendered a verdict in the first phase of the patent infringement suit withSymbol. On Symbol’s claims of patent infringement, the jury found that certainof our products infringe two Symbol’s patents and assessed a 6% royalty on therelevant products.

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On July 29, 2004, we announced that the court hasdenied our equitable defenses and determined that the jury’s award of a 6%royalty on our sales of these products from 1995 through September 2003,plus prejudgment interest, results in an award of damages to Symbol of$25.9 million. The District Court entered its judgment on this matter on August 4,2004.

On September 13, 2004 we entered into theSettlement Agreement and a Patent Cross License Agreement with Symbol andassigned certain intellectual property to Symbol resolving all outstandinglitigation.

Under the terms of the Settlement Agreement, we agreedto pay Symbol $22.75 million dollars in each of the ensuing ten quarters,commencing with the quarter ended October 1, 2004. The SettlementAgreement provides for lump sum payments of $2.5 million per quarter ineach of the first eight quarters, a payment of $1.5 million in the ninthquarter, and a payment of $1.25 million in the tenth quarter. If at anypoint during the term of the Settlement Agreement, we fail to make any of thesepayments within 30 days after Symbol has notified us of the failure topay, Symbol shall have the right to demand immediate payment in the amount of$25,917,669, minus payments made under the agreement and plus applicableinterest.

Under the terms of the Patent Cross License Agreement,Symbol and we have agreed to cross license certain patents, and we have agreedto pay to Symbol a two percent royalty on sales of certain of our wireless LANproducts. If we fail to make any of the lump sum payments due under theSettlement Agreement over the period of ten quarters and fail to cure any suchmissed payment within 30 days thereafter, the Patent Cross LicenseAgreement provides that the royalty rate payable to Symbol on sales of certainof our wireless LAN products covered by the agreement shall increase to five percentuntil the required payments as set forth in the Settlement Agreement have beenmade. Also pursuant to the terms of the Patent Cross License Agreement, we andSymbol have entered into a covenant not to sue one another for patentinfringement with respect to one another’s products through September 13,2009.

Upon our failure to timelypay to Symbol the payment due March 31, 2005, Symbol noticed us of abreach under the Settlement Agreement and demanded that we make the paymentwithin the thirty-day cure period provided by the Settlement Agreement. Symbolsubsequently agreed to waive its rights to extend the cure period for thepayment until May 15, 2005. The waiver does not otherwise alter ourobligations under the Settlement Agreement.

**General**

We are party to disputes, including legal actions,with several of our suppliers and vendors. These disputes relate primarily toexcess materials and order cancellation claims that resulted from the declinesin demand for our products during 2001 and 2002 and the commensurate reductionsin manufacturing volumes. We have recorded reserves related to these disputesto the extent that management believes are appropriate. We intend to vigorouslydefend ourselves in these matters.

From time to time, inaddition to those identified above, we are subject to legal proceedings,claims, investigations and proceedings in the ordinary course of business,including claims of alleged infringement of third-party patents and otherintellectual property rights, commercial, employment and other matters. Inaccordance with generally accepted accounting principles, we make a provisionfor a liability when it is both probable that a liability has been incurred andthe amount of the loss can be reasonably estimated. These provisions are reviewedat least quarterly and adjusted to reflect the impacts of negotiations,settlements, rulings, advice of legal counsel, and other information and eventspertaining to a particular case. Litigation is inherently unpredictable.However, we believe that we have valid defenses with respect to the legalmatters pending against us. It is possible, nevertheless, that our consolidatedfinancial position, cash flows or results of operations could be affected bythe resolution of one or more of these contingencies.

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**Item 5.   *Other Information***

The Company provides thefollowing disclosure in lieu of a report relating to such event underItem 1.01 of Form 8-K:

*Amendment to LoanDocuments*

On May 9, 2005, the Company and Silicon Valley Bank(the “Lender”) executed an Amendment to Loan Documents, pursuant to which theparties agreed that all outstanding and future letters of credit are requiredto be fully secured by cash in an amount equal to the greater of (i) 105% ofthe total face amount of all outstanding letters of credit, or (ii) $100,000plus 100% of the total face amount of all outstanding letters of credit.

Until this amendment executed on May 9, 2005, thefinancial covenants under the Amended A/R Financing Agreement between theCompany and Lender required the Company to maintain cash and cash equivalentswith the Lender and its affiliates in an amount not less than $4.0 million,which could be satisfied by either (i) maintaining cash balances on depositwith Silicon Valley Bank at or in excess of $4.0 million; (ii) borrowingagainst its eligible accounts receivable under the Amended A/R FinancingAgreement; or (iii) utilizing the available borrowing capacity from theTemporary Overadvances portion of this credit facility. If the Company failedto meet this requirement, the Company could still remain in compliance with thefinancial covenants by maintaining a ratio of the total of cash, cashequivalents and accounts receivable approved by the Lender to the Company’scurrent liabilities of at least 5.0 to 1. In addition, the Company was requiredto maintain restricted cash balances to the extent that the Company’soutstanding letters of credit exceeded $4.0 million. The Company currentlymaintains substantially all of its cash, cash equivalents and investments atSilicon Valley Bank and its affiliates. In the event of default under theAmended A/R Financing Agreement, the Lender had the right to offset such cash, cashequivalents and investments against the Company’s obligations owing to theLender.

These financial covenantswere deleted from the amended A/R Financing Agreement on May 9, 2005 by theexecution by the parties of the Amendment to Loan Documents.

**Item 6.   *Exhibits***
| Exhibit   Number | ** ** | ** **                                                                                                                                                                                                                                                                                                                               | **Description** | ** ** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|
| 4.1              |       | Form of Warrant (Incorporated by reference to  Exhibit 4.1 to the Company’s Current Report on Form 8-K filed  with the Commission February 8, 2005)                                                                                                                                                             |
| 10.37            |       | Employment  Agreement, dated as of February 23, 2000 between the Registrant and  Gordana Pance (Incorporated by reference to Exhibit 10.37 to the  Company’s Annual Report on Form 10-K for the fiscal period ended  December 31, 2001, filed with the Commission February 25, 2002.)                      |
| 10.71            |       | Employment Agreement,  dated as of December 5, 2002, between Proxim Corporation and Kevin J.  Duffy (Incorporated by reference to Exhibit 10.71 to the Company’s  Quarterly Report on Form 10-Q for the quarterly period ended  September 30, 2004, filed with the Commission November 11, 2004.)          |
| 10.72            |       | Amendment to Employment  Agreement, dated as of May 25, 2004, between Proxim Corporation and  Kevin J. Duffy (Incorporated by reference to Exhibit 10.72 to the  Company’s Quarterly Report on Form 10-Q for the quarterly period ended  September 30, 2004, filed with the Commission November 11, 2004.) |
| 10.78            |       | Second Amendment to  Employment Agreement, dated as of January 11, 2005, between Proxim  Corporation and Kevin J. Duffy (Incorporated by Reference to  Exhibit 10.78 to the Company’s Current Report on Form 8-K, filed  with the Commission January 18, 2005.)                                                 |

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| 10.79 |   | Amended Employment Agreement, dated as of  January 11, 2005, between Proxim Corporation and Frank Plastina  (Incorporated by Reference to Exhibit 10.78 to the Company’s Current  Report on Form 8-K, filed with the Commission January 18, 2005.) |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.81 |   | Employment Agreement  between Proxim Corporation and Gordana Pance, effective January 20, 2005  (Incorporated by Reference to Exhibit 10.81 to the Company’s Current  Report on Form 8-K, filed with the Commission January 27, 2005.).            |
| 10.82 |   | Financial Advisor  Agreement (Incorporated by reference to Exhibit 4.1 to the Company’s  Current Report on Form 8-K filed with the Commission February 8,  2005)                                                                                        |
| 10.83 |   | Form of  Subscription Agreement, dated February 7, 2005 between the Company and  the Purchasers (Incorporated by reference to Exhibit 4.1 to the  Company’s Current Report on Form 8-K filed with the Commission  February 8, 2005)           |
| 10.84 |   | Amendment to Loan  Documents, dated as of May 9, 2005, between the Company and Silicon Valley  Bank.                                                                                                                                                                        |
| 31.1  |   | Section 302  Certification of Principal Executive Officer                                                                                                                                                                                                              |
| 31.2  |   | Section 302  Certification of Principal Financial Officer                                                                                                                                                                                                              |
| 32.1  |   | Section 906  Certification of Principal Executive Officer                                                                                                                                                                                                              |
| 32.2  |   | Section 906  Certification of Principal Financial Officer                                                                                                                                                                                                              |

 

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Company hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         | PROXIM  CORPORATION                             |
|-------------------------|-------------------------------------------------|
|                    | By:                                             | /s/  MICHAEL D. ANGEL |
|                    | Michael D. Angel                                |
| * *                | *Executive  Vice President and*                 |
| * *                | *Chief  Financial Officer*                      |
| * *                | *(Principal  Financial and Accounting Officer)* |
| Date: May 11, 2005 |                                            |
|                         |                                                 |  |

 

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**INDEX TO EXHIBITS**
|            | **Exhibit  Number** | ** **                                                                                                                                                                                                                                                                                                                     |   | ** ** | **Description** | ** ** |
|------------|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------------|------------|
| 4.1        |                | Form of Warrant (Incorporated by reference to  Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the  Commission February 8, 2005)                                                                                                                                                                       |
| 10.37      |                | Employment  Agreement, dated as of February 23, 2000 between the Registrant and  Gordana Pance (Incorporated by reference to Exhibit 10.37 to the Company’s  Annual Report on Form 10-K for the fiscal period ended December 31, 2001,  filed with the Commission February 25, 2002.)                                |
| 10.71      |                | Employment Agreement,  dated as of December 5, 2002, between Proxim Corporation and Kevin J. Duffy  (Incorporated by reference to Exhibit 10.71 to the Company’s Quarterly  Report on Form 10-Q for the quarterly period ended September 30,  2004, filed with the Commission November 11, 2004.)          |
| 10.72      |                | Amendment to Employment  Agreement, dated as of May 25, 2004, between Proxim Corporation and Kevin J.  Duffy (Incorporated by reference to Exhibit 10.72 to the Company’s  Quarterly Report on Form 10-Q for the quarterly period ended  September 30, 2004, filed with the Commission November 11, 2004.) |
| 10.78      |                | Second Amendment to  Employment Agreement, dated as of January 11, 2005, between Proxim  Corporation and Kevin J. Duffy (Incorporated by Reference to Exhibit 10.78 to  the Company’s Current Report on Form 8-K, filed with the Commission January  18, 2005.)                                                           |
| 10.79      |                | Amended Employment  Agreement, dated as of January 11, 2005, between Proxim Corporation and Frank  Plastina (Incorporated by Reference to Exhibit 10.78 to the Company’s Current  Report on Form 8-K, filed with the Commission January 18, 2005.)                                                                        |
| 10.81      |                | Employment  Agreement between Proxim Corporation and Gordana Pance, effective January 20,  2005 (Incorporated by Reference to Exhibit 10.81 to the Company’s Current  Report on Form 8-K, filed with the Commission January 27, 2005.).                                                                                   |
| 10.82      |                | Financial Advisor  Agreement (Incorporated by reference to Exhibit 4.1 to the Company’s Current  Report on Form 8-K filed with the Commission February 8, 2005)                                                                                                                                                           |
| 10.83      |                | Form of Subscription Agreement,  dated February 7, 2005 between the Company and the Purchasers  (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on  Form 8-K filed with the Commission February 8, 2005)                                                                                   |
| 10.84      |                | Amendment to Loan  Documents, dated as of May 9, 2005, between the Company and Silicon Valley  Bank.                                                                                                                                                                                                                           |
| 31.1  |                | Section 302  Certification of Principal Executive Officer                                                                                                                                                                                                                                                                      |
| 31.2  |                | Section 302  Certification of Principal Financial Officer                                                                                                                                                                                                                                                                      |
| 32.1  |                | Section 906  Certification of Principal Executive Officer                                                                                                                                                                                                                                                                      |
| 32.2  |                | Section 906  Certification of Principal Financial Officer                                                                                                                                                                                                                                                                      |

 

 

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