##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM  TO
 Commission File Number 000-29053
 PROXIM WIRELESS CORPORATION
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    04-2751645(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 1561 Buckeye Drive
Milpitas, CA 95035
(Address of principal executive offices)
 (408) 383-7600
(Registrants telephone number, including area code
 þ o
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ




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##### 



PROXIM WIRELESS CORPORATION
INDEX
 PAGE NO.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2008 (unaudited) and
December 31, 2007
    
    
    4Consolidated Statements of Operations for the six months ended
June 30, 2008 and 2007 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the six months ended
June 30, 2008 and 2007 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4T. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Under Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURE
    
    
    33EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I  FINANCIAL INFORMATION
  
 Item 1. Financial Statements.




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##### Table of Contents



PROXIM WIRELESS CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,884
    
    
    $
    6,329Accounts receivable, net
    
    
    5,067
    
    
    
    9,326Inventory
    
    
    4,828
    
    
    
    5,753Prepaid expenses
    
    
    1,159
    
    
    
    1,029Assets held
for sale
    
    
    2,293
    
    
    
    2,085Total current assets
    
    
    18,231
    
    
    
    24,522Property and equipment, net
    
    
    2,547
    
    
    
    2,538Other Assets:Restricted cash
    
    
    77
    
    
    
    76Intangible assets, net
    
    
    7,439
    
    
    
    8,400Deposits and prepaid expenses
    
    
    489
    
    
    
    239Total other assets
    
    
    8,005
    
    
    
    8,715Assets held
for sale
    
    
    511
    
    
    
    635Total assets
    
    $
    29,294
    
    
    $
    36,410Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    10,312
    
    
    $
    12,752Line of credit payable
    
    
    3,000
    
    
    
    Deferred revenue
    
    
    2,840
    
    
    
    4,001License agreement payable  current maturities
    
    
    851
    
    
    
    1,065Total current liabilities
    
    
    17,003
    
    
    
    17,818License agreement payable, net of current maturities
    
    
    756
    
    
    
    1,023Liabilities
related to assets held for sale
    
    
    153
    
    
    
    232Total liabilities
    
    
    17,912
    
    
    
    19,073Commitments and contingenciesStockholders EquityPreferred stock, $0.01 par value; 4,500,000 shares
authorized, none issued at June 30, 2008 and December 31,
2007
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000,000 shares
authorized, 23,519,069 issued and outstanding at June 30,
2008 and December 31, 2007
    
    
    235
    
    
    
    235Additional paid-in capital
    
    
    64,132
    
    
    
    63,451Retained earnings (accumulated deficit)
    
    
    (52,985
    )
    
    
    (46,349
    )Total stockholders equity
    
    
    11,382
    
    
    
    17,337Total liabilities and stockholders equity
    
    $
    29,294
    
    
    $
    36,410
  4




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PROXIM WIRELESS CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    15,088
    
    
    $
    16,874
    
    
    $
    25,331
    
    
    $
    32,273Cost of goods sold
    
    
    7,831
    
    
    
    9,296
    
    
    
    13,752
    
    
    
    17,568Gross profit
    
    
    7,257
    
    
    
    7,578
    
    
    
    11,579
    
    
    
    14,705Operating expenses:Selling costs
    
    
    5,137
    
    
    
    5,094
    
    
    
    10,164
    
    
    
    9,748Restructuring Charges
    
    
    0
    
    
    
    91
    
    
    
    0
    
    
    
    91General and administrative
    
    
    3,089
    
    
    
    2,884
    
    
    
    6,500
    
    
    
    5,891Research and development
    
    
    1,082
    
    
    
    2,009
    
    
    
    2,127
    
    
    
    4,152Total operating expenses
    
    
    9,308
    
    
    
    10,078
    
    
    
    18,791
    
    
    
    19,882Operating loss
    
    
    (2,051
    )
    
    
    (2,500
    )
    
    
    (7,212
    )
    
    
    (5,177
    )Other income (expenses):Interest income
    
    
    7
    
    
    
    28
    
    
    
    21
    
    
    
    72Interest expense
    
    
    (75
    )
    
    
    (34
    )
    
    
    (114
    )
    
    
    (68
    )Other income (loss)
    
    
    745
    
    
    
    2,576
    
    
    
    664
    
    
    
    2,600Realized gain/loss from AFS securities
    
    
    0
    
    
    
    0
    
    
    
    (59
    )
    
    
    22Total other income (expenses)
    
    
    677
    
    
    
    2,570
    
    
    
    512
    
    
    
    2,626Loss before income taxes
    
    
    (1,374
    )
    
    
    70
    
    
    
    (6,700
    )
    
    
    (2,551
    )Benefit (provision) for income taxes
    
    
    (41
    )
    
    
    (45
    )
    
    
    (112
    )
    
    
    (68
    )Loss from continuing operations
    
    
    (1,415
    )
    
    
    25
    
    
    
    (6,812
    )
    
    
    (2,619
    )(Loss)/income from discontinued operations
    
    
    51
    
    
    
    (364
    )
    
    
    176
    
    
    
    (706
    )Net income (loss)
    
    
    (1,364
    )
    
    
    (339
    )
    
    
    (6,636
    )
    
    
    (3,325
    )Weighted average number of shares -basic and
diluted used in computing net earnings (loss)
per share
    
    
    23,519
    
    
    
    21,554
    
    
    
    23,519
    
    
    
    21,554Basic and diluted net earnings (loss) per share:Continuing operations
    
    $
    (0.06
    )
    
    $
    0.00
    
    
    $
    (0.29
    )
    
    $
    (0.12
    )Discontinued operations
    
    $
    0.00
    
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.03
    )Total
    
    $
    (0.06
    )
    
    $
    (0.02
    )
    
    $
    (0.28
    )
    
    $
    (0.15
    )
  5




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PROXIM WIRELESS CORPORATION
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 Six Month Ended June2008
    
    
    2007(Unaudited)Cash flows from operating activities:Net Income (loss)
    
    
    (6,636
    )
    
    
    (3,325
    )Less: Gain from discontinued operations
    
    
    (176
    )
    
    
    (706
    )Loss from continuing operations
    
    
    (6,812
    )
    
    
    (2,665
    )Depreciation and amortization
    
    
    1,711
    
    
    
    1,843(Gain)loss on disposal of equipment & long-term assets
    
    
    95
    
    
    
    (Gain)loss on disposal of intangible asset
    
    
    (850
    )
    
    
    (2,461
    )Bad debt allowance (recovery)
    
    
    301
    
    
    
    98Employee stock option amortization
    
    
    682
    
    
    
    1,098Inventory allowance
    
    
    (4,569
    )
    
    
    (1,320
    )Changes in assets and liabilities affecting operations:Accounts receivable, net
    
    
    3,958
    
    
    
    (2,852
    )Inventory
    
    
    5,494
    
    
    
    3,009Deposits
    
    
    (250
    )
    
    
    (11
    )Prepaid expenses
    
    
    (130
    )
    
    
    (185
    )Accounts payable and accrued expenses
    
    
    (2,384
    )
    
    
    (718
    )Deferred revenue
    
    
    (1,161
    )
    
    
    95Net cash provided by (used in) operating activities
    
    
    (3,915
    )
    
    
    (4,069
    )Net cash provided by (used in) discontinued
operating activity
    
    
    (45
    )
    
    
    (1,357
    )Net cash provided by (used in) operating activities
    
    
    (3,960
    )
    
    
    (5,426
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (354
    )
    
    
    (233
    )Sale of intangible asset
    
    
    824
    
    
    
    2,461Investment in capitalized software
    
    
    (474
    )
    
    
    (491
    )Net cash provided by (used in) continuing investing
activities
    
    
    (4
    )
    
    
    1,737Net cash provided by (used in) investing activities
    
    
    (4
    )
    
    
    1,737Cash flows from financing activities:Exercise of stock options and warrants
    
    
    
    
    
    
    3Proceeds from bank financing
    
    
    3,000
    
    
    
    Repayment of license agreement payable
    
    
    (481
    )
    
    
    (429
    )Net cash provided by (used in) financing activities
    
    
    2,519
    
    
    
    (426
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,445
    )
    
    
    (4,115
    )Cash and cash equivalents, beginning of period
    
    
    6,329
    
    
    
    10,290Cash and cash equivalents, end of period
    
    $
    4,884
    
    
    $
    6,175Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    75
    
    
    $
    68Income taxes paid
    
    $
    215
    
    
    $
    125
  6




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PROXIM WIRELESS CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
       7




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2. Inventory
  June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Raw materials
    
    $
    3 ,447
    
    
    $
    6,748Work in process
    
    
    527
    
    
    
    374Finished goods
    
    
    5,967
    
    
    
    7,5319,941
    
    
    
    14,653Allowance for excess and obsolescence
    
    
    (2,935
    )
    
    
    (7,499
    )Discontinued operations- inventory held for sale
    
    
    (2,178
    )
    
    
    (1,401
    )Net Inventory
    
    $
    4,828
    
    
    $
    5,753
 3. Intangibles
 Schedule of Non-Amortizable Assets
 June 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Trade names  indefinite useful life
    
    
    780
    
    
    
    780$
    780
    
    
    $
    780
 Schedule of Amortizable Assets
 June 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Patents, customer relationships and other technologies with
identifiable useful lives
    
    
    11,265
    
    
    
    11,308Less: accumulated amortization
    
    
    (4,112
    )
    
    
    (3,073
    )Less: Intangible assets net in assets held for sale
    
    
    (494
    )
    
    
    (615
    )Amortizable intangible assets, net
    
    $
    6,659
    
    
    $
    7,620
  8




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4. Earnings per share
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Loss from continuing operations
    
    
    (1,415
    )
    
    
    25
    
    
    
    (6,812
    )
    
    
    (2,619
    )Loss/income from discontinued operations (loss)
    
    
    51
    
    
    
    (364
    )
    
    
    176
    
    
    
    (706
    )Net income (loss)
    
    
    (1,364
    )
    
    
    (339
    )
    
    
    (6,636
    )
    
    
    (3,325
    )Weighted average number of shares -basic and
diluted used in computing net earnings (loss)
per share
    
    
    23,519
    
    
    
    21,554
    
    
    
    23,519
    
    
    
    21,554Basic and diluted net earnings (loss) per share:Continuing operations
    
    $
    (0.06
    )
    
    $
    0.00
    
    
    $
    (0.29
    )
    
    $
    (0.12
    )Discontinued operations
    
    $
    0.00
    
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.03
    )Total
    
    $
    (0.06
    )
    
    $
    (0.02
    )
    
    $
    (0.28
    )
    
    $
    (0.15
    )
  5. Concentrations
   6. Patent License Agreement  License Agreement Payable
   June 30,
    
    
    December 31,2008
    
    
    2007License Agreement Payable
    
    $
    1,607
    
    
    $
    2,088Current portion
    
    
    (851
    )
    
    
    (1,065
    )Long term portion
    
    $
    756
    
    
    $
    1,023
 9




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7. Allowance for Product Warranty Costs
  June 30,
    
    
    June 302008
    
    
    2007Balance at January 1,
    
    $
    697
    
    
    $
    1,102Settlements
    
    
    (298
    )
    
    
    (226
    )Other Provision Adjustments
    
    
    441
    
    
    
    (465
    )Balance at June 30,
    
    $
    840
    
    
    $
    411
 8. Discontinued Operations
 ®
  Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30, 2008
    
    June 30, 2008Revenue from discontinued operations
    
    $
    
    
    
    $
    Revenue from discontinued
operations-held for sale
    
    $
    866
    
    
    $
    1,870Net gain/ (loss) from discontinued operations
    
    $
    123
    
    
    $
    72Net
gain/(loss) from discontinued operations-held for sale
    
    
    (72
    )
    
    
    104Net
gain/(loss) from discontinued and discontinued operations held for sale
    
    $
    (51
    )
    
    $
    (176
    )
 10




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9. Security Agreement -Line of Credit
  10. Recent Accounting Pronouncements
      11




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##### Table of Contents



11. Commitments and Contingencies
 IPO Litigation
    In
re Initial Public Offering Securities Litigation en banc
 12




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##### Table of Contents



Linex Technologies, Inc. Litigation
  KarlNet
  General
  13




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##### Table of Contents



12. Subsequent Events
 Lending
Transaction
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   14




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##### Table of Contents



Harmonix Division Strategic Alternatives
  Critical Accounting Policies
  Revenue Recognition
  1.
    
    The price is fixed and determinable at the date of sale;2.
    
    The buyers payment obligation is not contingent on resale;3.
    
    The buyers payment obligation would not be changed in the event of theft or physical
damage of the product;4.
    
    The buyer acquiring the product for resale has economic substance apart from that
provided by the seller;5.
    
    The seller does not have significant obligations for future resale of the product; and6.
    
    The amount of future returns can be reasonably estimated.
  15




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Accounts Receivable Valuation
  16




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Inventory Valuation
  Warranty Provision
 .
 Valuation of Stock-based Awards
   17




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Capitalized Software
 Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed
 Foreign Currency Transactions
  Reclassifications
  Results of Operations
 For the three months ended June 30, 2008 and 2007
  Three Months EndedJune 30,2008
    
    2007Sales
    
    
    100
    %
    
    
    100
    %Cost of goods sold
    
    
    52
    
    
    
    55Gross profit
    
    
    48
    
    
    
    45Operating expensesSelling costs
    
    
    34
    
    
    
    30Restructuring
costs
    
    
    
    
    
    
    1General and administrative
    
    
    21
    
    
    
    17Research and development
    
    
    7
    
    
    
    12Total operating expenses
    
    
    62
    
    
    
    60Operating (loss) income
    
    
    (14
    )
    
    
    (15
    )Other income (expenses)
    
    
    5
    
    
    
    15Income /(loss) from continuing operations
    
    
    (9
    )
    
    
    Income /(loss) discontinued operations/available for sale
    
    
    
    
    
    
    (2
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    
    (9
    )%
    
    
    (2
    )%
 Sales
   18




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##### Table of Contents



Cost of goods sold and gross profit
  Sales and Marketing Expenses
  General and Administrative Expenses
  Research and Development Expenses
  Other income (expense)
  Discontinued Operations
  19




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For the six months ended June 30, 2008 and 2007
  Six Months Ended June 30,2008
    
    2007Sales
    
    
    100
    %
    
    
    100
    %Cost of goods sold
    
    
    54
    
    
    
    54Gross profit
    
    
    46
    
    
    
    46Operating expensesSelling costs
    
    
    40
    
    
    
    30Restructuring charges
    
    
    
    
    
    
    1General and administrative
    
    
    26
    
    
    
    18Research and development
    
    
    8
    
    
    
    13Total operating expenses
    
    
    74
    
    
    
    62Operating (loss) income
    
    
    (28
    )
    
    
    (16
    )Other income (expenses)
    
    
    2
    
    
    
    8Income/(loss) from continuing operations
    
    
    (26
    )
    
    
    (8
    )Income /(loss) discontinued operations
    
    
    
    
    
    
    (2
    )Income taxes
    
    
    
    
    
    
    Net loss
    
    
    (26
    )%
    
    
    (10
    )%
 Sales
   Cost of goods sold and gross profit
  Sales and Marketing Expenses
  20




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General and Administrative Expenses
  Research and Development Expenses
  Other income (expenses)
  Discontinued Operations
  Liquidity and Capital Resources
    21




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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Disclosures About Market Risk
   22




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##### Table of Contents



Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting
    Changes in Internal Control over Financial Reporting
  23




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Important Considerations
  24




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 IPO Litigation
     25




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##### Table of Contents



Linex Technologies Litigation
  General
  
 Item 1A. Risk Factors.
 General Overview
  26




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##### Table of Contents



Cautionary Statements of General Applicability
  27




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28




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##### Table of Contents



Specific Cautionary Statements Relating to Revenues
  Specific Cautionary Statements Relating to Capital Resources
   Specific Cautionary Statements relating to Bank Line of
  Specific
Cautionary Statements relating to Possible Harmonix Division Strategic
Transaction
  29




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Specific Cautionary Statements relating to July 2008 Lending Transaction
  Specific Cautionary Statements Relating to Nasdaq Delisting Possibility
  30




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##### Table of Contents



Specific Cautionary Statements relating to Intellectual Property Litigation
  Specific Cautionary Statements relating to Ricochet Actions
 ®
 Possible Implications of Cautionary Statements
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  31




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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Name of Individual
    
    Votes For
    
    Votes WithheldJohn W. Gerdelman
    
    
    12,827,192
    
    
    
    4,070,345J. Michael Gullard
    
    
    12,870,381
    
    
    
    4,027,156Alan B. Howe
    
    
    12,826,281
    
    
    
    4,071,256Pankaj S. Manglik
    
    
    14,215,084
    
    
    
    2,682,453Robert A. Wiedemer
    
    
    12,827,206
    
    
    
    4,070,331
  
 Item 6. Exhibits.
  32




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SIGNATURE
  Proxim Wireless CorporationDate:  August 14,  2008
    By:
    /s/  Brian J. SeredaBrian J. Sereda,Chief Financial Officer(principal financial and accounting officer) 33




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EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Lease dated April 15, 2008 by and between OA Oakcreek, LLC and the
Registrant together with First Addendum to Lease also dated April
15, 2008 (1)10.2
    
    Amendment No. 3 to 2004 Stock Plan of the Registrant (2)10.3
    
    Securities Purchase Agreement dated as of July 25, 2008 between the
Registrant and Lloyd I. Miller, III and Milfam II L.P. (3)10.4
    
    Form of Promissory Note dated July 25, 2008, a substantially
similar version of which was issued by the Registrant in favor of
each of Lloyd I. Miller, III and Milfam II L.P. (3)10.5
    
    Form of Warrant dated July 25, 2008, a substantially similar
version of which was issued by the Registrant to each of Lloyd I.
Miller, III and Milfam II L.P. (3)31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).31.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).32.1
    
    Certification Pursuant to Rule 13a-14(b) and Section 906 of the
Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350
of Chapter 63 of Title 18 of the United States Code).
 
 All non-marked exhibits are filed herewith.(1)
    
    Incorporated herein by reference to the exhibits to Form 8-K filed with the SEC on May 1, 2008.(2)
    
    Incorporated herein by reference to the exhibits to Form 8-K filed with the SEC on May 28, 2008.(3)
    
    Incorporated herein by reference to the exhibits to Form 8-K filed with the SEC on July 29, 2008. 34