<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 1996.
____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the
transition period from _____ to _____.
Commission file number 0-26764
TELECHIPS CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 88-0266392
- ----------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
6880 South McCarran Blvd., Reno, Nevada 89509
---------------------------------------------
(Address of principal executive offices)
(702) 824-5555
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
The number of shares of Common Stock outstanding as of August 1, 1996:
4,104,406
Transitional Small Business Disclosure Format (check one):
Yes _____ ; No X
<PAGE> 2
TELECHIPS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. Financial Information
1. Interim Financial Statements
Condensed Balance Sheets -
June 30, 1996 (unaudited) and December 31, 1995 . . . . 1
Condensed Statements of Operations -
Three months and six months ended June 30, 1996
and 1995 and period from January 7, 1991, to
June 30, 1996 (unaudited) . . . . . . . . . . . . . . . 2
Condensed Statements of Cash Flows -
Three months and six months ended June 30, 1996 and
1995; and period from January 7, 1991,
to June 30, 1996 (unaudited) . . . . . . . . . . . . . 3
Notes to Condensed Financial Statements . . . . . . . . . . . . 4
2. Management's Discussion and Analysis . . . . . . . . . . . . . 7
PART II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
TELECHIPS CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 621,575 $2,702,701
Accounts receivable 4,248 7,339
Inventory 1,419,465 831,664
Prepaid expenses 40,547 101,814
---------- ----------
Total current assets 2,085,835 3,643,518
---------- ----------
Equipment and tooling, net 1,002,723 793,321
Prepaid expenses 38,701 44,680
Deposits and other assets 88,991 34,312
Prepaid royalties 282,584 285,194
---------- ----------
$3,498,834 $4,801,025
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 750,449 $ 437,393
Accrued expenses 49,228 18,303
Note payable 62,500 --
Line of credit payable 354,289 --
---------- ----------
Total current liabilities 1,216,466 455,696
---------- ----------
Other liabilities 34,945 --
---------- ----------
Total liabilities 1,251,411 455,696
Shareholders' equity:
Common stock, par value $.01, 10,200,000 shares authorized,
3,863,106 issued and outstanding at June 30, 1996
(unaudited) 38,631 38,631
Paid-in capital 12,349,298 12,218,616
Retained earnings (deficit accumulated) during the development
stage (6,960,023) (4,862,117)
---------- ----------
5,427,906 7,395,130
Less: Notes receivable from shareholders (3,180,483) (3,049,801)
---------- ----------
Total shareholders' equity 2,247,423 4,345,329
---------- ----------
$3,498,834 $4,801,025
========== ==========
</TABLE>
The accompanying notes are in integral part of these condensed financial
statements.
- 1 -
<PAGE> 4
TELECHIPS CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
-------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 Period From
------------------------- --------------------------- January 7, 1991
1996 1995 1996 1995 to June 30, 1996
----------- --------- ------------ ----------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Sales revenue $ 52,627 $ -- $ 52,627 $ -- $ 73,327
Contract revenue -- -- -- -- 2,652,274
Cost of sales (67,754) -- (67,754) -- (101,537)
Contract research and development costs -- -- -- -- (2,080,188)
----------- --------- ----------- ----------- -----------
(15,127) -- (15,127) -- 543,876
Operating expenses:
Marketing 225,163 95,413 454,168 191,957 1,529,187
General and administrative 289,998 133,815 601,303 239,844 1,890,051
Research and development 583,575 334,773 1,057,589 624,723 3,636,994
----------- --------- ----------- ----------- -----------
Loss from operations (1,113,863) (564,001) (2,128,187) (1,056,524) (6,512,356)
Other income (expense):
Interest income 13,281 7,472 46,589 9,987 88,643
Interest (expense) (9,678) (16,893) (16,308) (32,739) (255,515)
Amortization of 1995 Bridge financing costs -- -- -- -- (280,795)
----------- --------- ----------- ----------- -----------
Total other income (expense) 3,603 (9,421) 30,281 (22,752) (447,667)
----------- --------- ----------- ----------- -----------
Net loss $(1,110,260) $(573,422) $(2,097,906) $(1,079,276) $(6,960,023)
=========== ========= =========== =========== ===========
Net loss per common and common equivalent shares $(.30) $(.30) $(.57) $(.56) $(3.07)
===== ===== ===== ===== ======
Weighted average common shares 3,669,930 1,940,624 3,669,930 1,940,624 2,260,589
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are in integral part of these condensed financial
statements.
- 2 -
<PAGE> 5
TELECHIPS CORPORATION
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30 Period From
------------------------- --------------------------- January 7, 1991
1996 1995 1996 1995 to June 30, 1996
----------- --------- ------------ ----------- ----------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,110,260) $(573,422) $(2,097,906) $(1,079,276) $(6,960,023)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 10,788 1,733 17,797 7,684 47,645
Note receivable expensed as
salary -- -- -- -- 48,750
Amortization of 1995 Bridge
financing costs -- -- -- -- 409,995
Net effect of changes in:
Accounts receivable 1,693 -- 3,091 -- (4,248)
Inventory (302,621) (232,308) (587,801) (371,541) (1,419,465)
Prepaid expenses 26,347 -- 67,246 -- (79,248)
Deposits (53,179) -- (54,679) 85,000 (88,991)
Accrued interest on note receivable -- (853) -- (1,706) --
Prepaid royalties 2,124 -- 2,610 -- (282,584)
Accounts payable 364,129 155,235 375,556 303,410 812,949
Accrued expenses 28,916 32,735 30,925 16,016 49,228
Accrued interest on notes payable -- 13,750 -- 27,500 --
Other liabilities 728 -- 34,945 -- 34,945
----------- ---------- ---------- ---------- -----------
Net cash used in operating
activities (1,031,335) (603,130) (2,208,216) (1,012,913) (7,431,047)
----------- ---------- ---------- ---------- -----------
Cash flows from investing activities:
Issuance of note receivable -- -- -- -- (48,750)
Purchase of equipment and tooling (57,303) (491,450) (227,199) (624,926) (1,044,368)
----------- ---------- ---------- ---------- -----------
Net cash used in investing
activities (57,303) (491,450) (227,199) (624,926) (1,093,118)
----------- ---------- ---------- ---------- -----------
Cash flows from financing activities:
Proceeds from line of credit -- -- 354,289 -- 354,289
Loan proceeds -- -- -- -- 2,340,005
Deferred offering costs -- (25,000) -- (25,000) --
Proceeds from issuance of common stock -- 84,237 -- 125,459 6,571,304
Proceeds from issuance of preferred stock -- 930,347 -- 1,339,135 2,241,861
Repayment of notes payable -- -- -- -- (2,250,000)
Payment of accrued Series A
Preferred dividends - -- -- -- (111,719)
----------- ---------- ---------- ---------- -----------
Net cash provided by financing
activities - 989,584 354,289 1,439,594 9,145,740
----------- ---------- ---------- ---------- -----------
Net (decrease) increase in cash and
cash equivalents (1,088,638) (104,996) (2,081,126) (198,245) 621,575
Cash and cash equivalents at beginning
of period 1,710,213 219,762 2,702,701 313,011 --
----------- ---------- ---------- ---------- -----------
Cash and cash equivalents at end of period $ 621,575 $ 114,766 $ 621,575 $ 114,766 $ 621,575
=========== ========== ========== ========== ===========
</TABLE>
The accompanying notes are in integral part of these condensed financial
statements.
- 3 -
<PAGE> 6
TELECHIPS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------
1. Preparation of Interim Financial Statements:
The accompanying unaudited, condensed financial statements have been
prepared in accordance with the instructions to Form 10-QSB and,
therefore, do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. In the opinion of the Company, such financial statements
reflect all adjustments necessary for a fair statement of the results
of operations and financial position for the interim periods
presented. Operating results for the six-month period ended June 30,
1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
The accounting policies followed by the Company are set forth in Note
1 of the Company's financial statements in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995, which is
incorporated herein by reference.
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 establishes
fair value-based accounting and reporting standards for stock-based
employee compensation plans. The statement defines a fair value-based
method of accounting for an employee stock option or similar equity
instrument and allows parties to elect to continue to measure
compensation costs using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. SFAS No. 123 requires, for those electing to
remain with the APB Opinion No. 25 accounting, pro forma disclosure of
net income and earnings per share if the fair value-based method has
been applied.
The Company will adopt SFAS No. 123 for 1996 and is expected to elect
to continue to measure and record compensation costs as defined in APB
Opinion No. 25. The Company is currently determining the impact of
the adoption of SFAS No. 123 on its disclosures in its financial
statements.
2. Net Loss Per Common Share:
Net loss per common and common equivalent share is computed using the
weighted average number of common and common equivalent shares
outstanding during each period.
- 4 -
<PAGE> 7
TELECHIPS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
----------
3. Inventory:
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
Raw Materials $ 848,094 $688,802
Work-in-Process 214,977 118,333
Finished Goods 356,394 24,529
---------- --------
$1,419,465 $831,664
========== ========
</TABLE>
4. Equipment and Tooling:
Equipment and tooling consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
<S> <C> <C>
Tooling $ 772,454 $659,506
Computer and other equipment 198,246 81,105
Furniture and fixtures 42,412 44,086
Leasehold improvements 37,256 38,472
---------- --------
1,050,368 823,169
Less accumulated depreciation (47,645) (29,848)
---------- --------
Equipment, net $1,002,723 $793,321
========== ========
</TABLE>
5. Note Payable:
During April, 1996, the Company issued an uncollateralized note
payable to a vendor for $62,500, with an interest rate of 9% payable
monthly and principal due November, 1996.
- 5 -
<PAGE> 8
TELECHIPS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued
__________
6. Line of Credit:
During November, 1995, the Company obtained a revolving line of credit
from a commercial bank for $1,200,000, collateralized by cash and cash
equivalents valued at 110% of outstanding draws. Interest is payable
monthly at a three- month U.S. Treasury Bill rate plus 3% (8.32% at
June 30, 1996). Principal is due at maturity. The line of credit
expires December 13, 1996. At December 31, 1995, there were no
outstanding draws. At June 30, 1996, the Company had an outstanding
balance of $354,289 on the line of credit.
7. Stock Option Plans:
During January, 1996, the Company granted 14,750 options under the
1995 stock option plan (1995 plan) with an expiration date of January,
2006, and an exercise price of $5.125. During February, 1996, the
Company granted 82,900 additional options under the 1995 plan with an
expiration date of February, 2006, and an exercise price of $6.875.
During April, 1996, the Company granted 6,706 additional options under
the 1995 plan with an expiration date of April, 2006, and an exercise
price of $5.00. During June, 1996, the Company granted 83,450
additional options under the 1995 plan with an expiration date of
June, 2006, and an exercise price of $5.75. During the period from
April, 1996, to June, 1996, 58,338 options at prices ranging from
$3.11 to $6.875 and expiration dates from April, 2004, to February,
2006, were canceled and returned to the 1994 and 1995 stock option
plans.
8. Income Taxes:
The State of Nevada imposes no corporate income tax. The Company
accounts for income taxes in accordance with Statement of Financial
Accounting Standard No. 109 (SFAS No. 109) which requires the
liability method of accounting for income taxes.
At June 30, 1996, the deferred tax assets totaling approximately
$2,307,000 (federal) have been recorded, resulting primarily from net
operating loss carry forwards and capitalized research and development
costs. Because realization of these assets is not assured, a
valuation allowance of $2,307,000 has been recorded resulting in no
net deferred taxes or tax provision.
- 6 -
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction. Telechips Corporation (the "Company") was organized in January
1991 and since its inception has been engaged primarily in the research, design
and development of the Company's Telechips Access(TM) products and related
software and other technology. The Company began marketing commercial units of
the Access Model 3000 to its customers during the last quarter of 1995. During
the quarter ending June 30, 1996, the Company sold approximately 53 commercial
units of the Access Model 3000 with total revenues of approximately $53,000.
In addition, the Company distributed 3 demonstration units which were generally
accounted for as advertising and promotional expenses.
On April 11, 1995, the Company conducted the final closing of the sale
to private investors of an aggregate of 30 units (the "1994 Units"), each 1994
Unit consisting of (i) 16,087 shares of Common Stock and (ii) 50,000 Shares of
Preferred Stock (the "Private Placement"). The purchase price per 1994 Unit was
$100,000. The Company received gross proceeds of $3,000,000 with respect to the
sale of the 1994 Units, yielding net proceeds after the payment of fees and
expenses of approximately $2,500,000. The Private Placement resulted in the
Company's issuance of 482,600 shares of Common Stock and 1,500,000 shares of
Preferred Stock (convertible into 482,600 shares of Common Stock).
On September 1, 1995, the Company completed the sale (the "Bridge
Financing") to private investors of 17 units (the "Units"), each Unit
consisting of (i) an unsecured non-negotiable promissory note of the Company in
the principal amount of $100,000 (a "Bridge Note") and (ii) 20,000 shares of
Common Stock (the "Bridge Shares"). The purchase price per Unit was $100,000.
The Company received gross proceeds of $1,700,000 from the sale of such Units.
After the payment of $170,000 in placement fees to the Underwriter, which acted
as placement agent for the Company with respect to the sale of such Units, and
other offering expenses of approximately $134,000, the Company received net
proceeds of approximately $1,396,000 in connection with the Bridge Financing.
On October 20, 1995, the Company completed its initial public offering
of 1,500,000 shares of Common Stock, par value $.01 ("Common Stock") and
redeemable warrants ("Warrants") to purchase 1,500,000 shares of Common Stock
at an exercise price of $5.00 per share (the "IPO"). In addition, Whale
Securities, Co., L.P. (the "Underwriter") exercised its overallotment option to
purchase an additional 225,000 Warrants. The Company received approximately
$6,255,000 in net proceeds from the IPO. The Common Stock and the Warrants are
traded on the NASDAQ SmallCap Market under the symbols "TCHP" and "TCHPW,"
respectively.
7
<PAGE> 10
The Company is currently using the proceeds of the IPO to increase
marketing activities and develop new products such as a World Wide Web browser
software that will allow users of the Telechips Access to view World Wide Web
pages on the Internet and electronic mail software which will allow a Telechips
Access user to send and receive electronic mail either on a local area network
or over the Internet. In addition, the Company is working on the development
of a large screen and color versions of the product and a public payphone
product. Further, the Company is using the proceeds of the IPO to fund initial
production runs of the Access Model 3000. The Company expects to incur
significant expenses in connection with its operations, including expenses
associated with hiring additional marketing and sales personnel and the
research and development of new product lines. The Company anticipates, based
on its current proposed growth plans, borrowings and planned revenues and
assumptions relating to its growth and operations, that the proceeds from the
IPO, borrowings and planned revenues will not be sufficient to satisfy the
contemplated cash requirements of the Company for the next 12 months and that
the Company may be required to raise additional funds within the next 12
months. In addition, in the event that the Company's plans change or its
assumptions prove to be inaccurate or the proceeds of the IPO prove to be
insufficient to fund operations (due to unanticipated expenses, delays,
problems, or otherwise), the Company may be required to seek additional funding
sooner than anticipated. The Company is currently pursuing several potential
funding opportunities; however, the Company has no current commitments for
additional funding. There can be no assurance that any of such opportunities
will result in actual funding or that additional financing will be available to
the Company when needed, on commercially reasonable terms, or at all. If the
Company is unable to obtain additional financing if needed, it will likely be
required to curtail its marketing and manufacturing plans and possibly cease
its operations. Any additional equity financing may involve substantial
dilution to the Company's then-existing shareholders. See "Liquidity and
Capital Resources."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 as Compared to Six Months Ended June
30, 1995. There were sales revenues of approximately $53,000 for the six
months ended June 30, 1996 as compared to no revenues for the six months ended
June 30, 1995. In May 1996, a major customer placed their first significant
order. Telechips Access units at a cost of approximately $23,000 were also
supplied to customers as demos and trial units during the six months ended June
30, 1996 and were charged to advertising expense. Commercial production had
not commenced during the six months ended June 30, 1995.
For the six months ended June 30, 1996, operating expenses, which
consist of marketing, research and development and general administrative
expenses, were approximately $2,128,000 as compared to $1,057,000 for the six
months ended June 30, 1995. The increase was due to increased operating
activity related to marketing the Telechips Access line of products, increasing
research and development activity
8
<PAGE> 11
related to new software and hardware products and final modifications for the
initial Telechips Access models and increased general corporate activity as the
company begins to emerge from the development stage into a fully operation
entity.
Research and development expenses increased to approximately
$1,058,000 for the six months ended June 30, 1996 from $625,000 for the six
months ended June 30, 1995. The increase was due to increased research and
development activities relating to new software products such as the World Wide
Web browser software, electronic mail software, a large-screen and color
versions of the product, a public payphone product and an integrated card
reader.
Marketing expenses increased to approximately $455,000 for the six
months ended June 30, 1996 from $192,000 for the six months ended June 30,
1995. This increase was due primarily to increased marketing efforts including
hiring sales and marketing support staff, increased use of collateral
materials, trade shows, sales negotiations and efforts at forming strategic
alliances.
Three Months Ended June 30, 1996 as Compared to Three Months Ended
June 30, 1995. There were sales revenues of approximately $53,000 for the
three months ended June 30, 1996 as compared to no revenues for the three
months ended June 30, 1995. In May 1996, a major customer placed their first
significant order. Commercial production had not commenced during the three
months ended June 30, 1995.
For the three months ended June 30, 1996, operating expenses, which
consist of marketing, research and development and general administrative
expenses, were approximately $1,114,000 as compared to $564,000 for the three
months ended June 30, 1995. The increase was due to increased operating
activity related to marketing the Telechips Access line of products, increasing
research and development activity related to new software and hardware products
and final modifications for the initial Telechips Access models and increased
general corporate activity as the company begins to emerge from the development
stage into a fully operational entity.
Research and development expenses increased to approximately $584,000
for the three months ended June 30, 1996 from $335,000 for the three months
ended June 30, 1995. The increase was due to increased research and
development activities relating to new software products such as the World Wide
Web browser software, electronic mail software, a large-screen and color
versions of the product, a public payphone product and an integrated card
reader.
Marketing expenses increased to approximately $225,000 for the three
months ended June 30, 1996 from $95,000 for the three months ended June 30,
1995. This increase was due primarily to increased marketing efforts including
hiring sales and marketing support staff, increased use of collateral
materials, trade shows, sales negotiations and efforts at forming strategic
alliances.
9
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Since its inception (January 1991), the Company has financed its
operations principally through contract revenue from research and development
consulting agreements with National Semiconductor Corporation ("NSC"), private
placements of its securities and notes and the initial public offering of its
Common Stock and Warrants.
On April 11, 1995, the Company conducted the final closing of the sale
to private investors of an aggregate of 30 units (the "1994 Units"), each 1994
Unit consisting of (i) 16,087 shares of Series A Common Stock and (ii) 50,000
Shares of Preferred Stock (the "Private Placement"). The purchase price per
1994 Unit was $100,000. The Company received gross proceeds of $3,000,000 with
respect to the sale of the 1994 Units, yielding net proceeds after the payment
of fees and expenses of approximately $2,500,000. The Private Placement
resulted in the Company's issuance of 482,600 shares of Common Stock and
1,500,000 shares of Preferred Stock (convertible into 482,600 shares of Common
Stock). The Company paid to D.H. Blair in connection with the Private
Placement and the 1994 Note Financing an aggregate of $330,000 and issued to
D.H. Blair and its designees warrants to purchase up to an aggregate of 304,038
shares of Common Stock. Howard Phillips, a director of the Company, was
Director of Corporate Finance of D.H. Blair until August 1995.
On September 1, 1995, the Company completed the sale (the "Bridge
Financing") to private investors of 17 units (the "Units"), each Unit consisting
of (i) an unsecured non-negotiable promissory note of the Company in the
principal amount of $100,000, due on the earlier of the consummation of an
initial public offering ("IPO") or July 31, 1996 (a "Bridge Note") and (ii)
20,000 shares of Series A Common Stock (the "Bridge Shares"). The purchase price
per Unit was $100,000. The Company received gross proceeds of $1,700,000 from
the sale of such Units. After the payment of $170,000 in placement fees to the
Underwriter, which acted as placement agent for the Company with respect to the
sale of such Units, and other offering expenses of approximately $134,000, the
Company received net proceeds of approximately $1,396,000 in connection with the
Bridge Financing.
The Company's sale of 17 Units resulted in the Company's issuance (in
connection with the Bridge Financing) of a total of $1,700,000 principal amount
of Bridge Notes and 340,000 Bridge Shares. The 340,000 Bridge Shares issued in
the Bridge Financing were included in the Selling Shareholders' Shares and were
registered by the Company in conjunction with the IPO.
Upon consummation of the IPO, the Company received net proceeds of
approximately $6,255,000. The Company used approximately $2,451,000 of the
proceeds from the IPO to repay the outstanding Bridge Notes, the $300,000 in
notes issued in 1994, accrued dividends on Preferred Stock, $250,000 of NSC
Notes and interest on all of such indebtedness. Pursuant to the terms of an
agreement with NSC, dated March 1994, as restated August 31, 1994 and amended
September 20, 1994, $500,000 of debt
10
<PAGE> 13
owed to NSC was canceled, the Company paid NSC $250,000 plus accrued and unpaid
interest of $38,904, from the proceeds of the IPO, and issued to NSC 229,306
shares of Common Stock and a Warrant to purchase 20,108 shares of Common Stock
at $3.11 per share.
In addition, the Company issued nonredeemable warrants (the
"Underwriter's Warrants") to purchase 150,000 shares of Common Stock at an
exercise price of $7.70 per share and 150,000 warrants (each exercisable to
purchase one share of Common Stock at a price of $7.70 per share) at an
exercise price of $.154 per Warrant to the Underwriter. In addition, all
outstanding shares of Preferred Stock and Series B Common Stock, par value $.01
("Series B Common Stock"), were converted to Series A Common Stock and the
Series A Common Stock was redesignated as Common Stock. Upon conversion of the
Preferred Stock, the Company paid an aggregate of $111,719 in accrued and
unpaid dividends to the holders of Preferred Stock ("Preferred Stockholders").
During November, 1995, the Company obtained a $1,200,000 revolving
line of credit from a commercial bank ("Line of Credit"). The Line of Credit
expires on December 13, 1996. The Line of Credit is collateralized by cash and
cash equivalents valued at 110% of outstanding draws. Interest is payable
monthly at the three-month U.S. Treasury Bill rate plus 3% (8.32% currently).
Principal is due at maturity. As of the date of this report, the Company has
borrowed approximately $355,000 on the Line of Credit.
In March 1994, and as amended on February 1, 1996, the Company entered
into a License Agreement with Microsoft (the "MS License Agreement") to license
certain software to be used in the Company's products. The MS License
Agreement establishes minimum royalty payments. Beginning September 1, 1996,
the Company is obligated to make monthly minimum royalty payments. As of the
date of this report, the Company has prepaid royalties to Microsoft of
approximately $262,000. The MS License Agreement may only be terminated prior
to its expiration date upon a default by the parties. This license expires on
September 30, 1997, and there are no automatic renewal terms.
Over the next 12 months, the Company intends to focus on increasing
its marketing efforts and research and development for new proposed products.
The Company anticipates, based on its current proposed growth plans and
assumptions relating to its growth and operations, that the proceeds from the
IPO, borrowings and planned revenues will not be sufficient to satisfy the
Company's contemplated cash requirements for the next 12 months and that the
Company will be required to raise additional funds within the next 12 months.
In addition, in the event that the Company's plans change or its assumptions
prove to be inaccurate (due to unanticipated expenses, delays, problems, or
otherwise), the Company would be required to seek additional funding sooner
than anticipated. Any such additional funding could be in the form of
additional equity capital. Further, in the event that the Company receives a
larger than anticipated number of initial purchase orders for Telechips Access
products, it may require resources substantially greater than those
11
<PAGE> 14
that are currently available to the Company. In such event the Company may be
required to raise additional capital or to engage third parties (as to which
there can be no assurance) to assist the Company in meeting such orders.
Other than the Warrants, which are redeemable by the Company, upon the
consent of the Underwriter, at any time commencing on October 16, 1996, upon
notice of not less than 30 days, at a price of $.10 per Warrant (provided that
the closing bid quotation of the Common Stock on all 30 trading days ending on
the third day prior to the day on which the Company gives notice has been at
least $7.50), the Company has no current arrangements with respect to, or
sources of, additional financing. The Company is currently pursuing several
potential funding opportunities; however, the Company has no current
commitments for additional funding. There can be no assurance that any of such
opportunities will result in actual funding or that additional financing will
be available to the Company when needed, on commercially reasonable terms, or
at all. If the Company is unable to obtain additional financing if needed, it
will likely be required to curtail its marketing and manufacturing plans and
possibly cease its operations. Any additional equity financing may involve
substantial dilution to the Company's then-existing shareholders. The
Company's independent accountants have included an explanatory paragraph in
their report on the Company's financial statements for the year ended December
31, 1995, stating that the Company's has not, to date, recognized significant
revenues from product sales nor produced units in quantities which will yield a
gross margin adequate to cover product and operations costs and that these
factors raise substantial doubt about the Company's ability to continue as a
going concern.
12
<PAGE> 15
FORWARD LOOKING STATEMENTS
The statements that are not historical facts in this report are
"forward looking statements" as defined in the Securities Litigation Reform Act
of 1995 and as such involve substantial risks and uncertainties including, but
not limited to, the risks and uncertainties set forth under the caption "Risk
Factors" in the Company's Registration Statement on Form SB-2 declared
effective by the Securities and Exchange Commission on July 16, 1996. Such
statements include the following specific statements:
Page 8: Paragraph 1; Sentence 1
Paragraph 1; Sentence 2
Paragraph 1; Sentence 4
Paragraph 1; Sentence 5
Paragraph 1; Sentence 7
Page 11: Paragraph 4; Each Sentence
Page 12 Paragraph 1; Sentence 2
13
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Matters Submitted to a Vote of Security Holders
The Company held its 1996 annual meeting of stockholders on May 22,
1996 in which the following actions were taken:
I. The stockholders elected the then current Board of Directors
listed below by a vote of 2,602,874 shares for, 2,000 shares
against and zero shares not voting:
C.A. Burns
Howard Phillips
Randall Pinato
Rick Salwen
II. The stockholders approved the appointment of Coopers & Lybrand
L.L.P. as the Company's independent accountants by a vote of
2,603,574 shares for, 1,000 shares against and 300 shares
abstaining.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a). Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
b). Reports on Form 8-K
There were no reports filed on Form 8-K during the period
covered by this report.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto authorized.
TELECHIPS CORPORATION
/s/ C.A. Burns Date: August 14, 1996
- -----------------------
C.A. Burns
Chief Executive Officer
/s/ Nelson B. Caldwell Date: August 14, 1996
- -----------------------
Nelson B. Caldwell
Vice President-Finance
15
<PAGE> 18
EXHIBIT INDEX
Exhibit Sequential
Number Description Page No.
- ------- ----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
16
<PAGE> 1
EXHIBIT 11
TELECHIPS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 1,971 242 1,971 242
Shares, warrants and options
treated as common share
equivalent pursuant to SEC
Staff Accounting Bulletin
Topic 4d 1,699 1,699 1,699 1,699
-------- ------- -------- -------
Total common and common
equivalent shares 3,670 1,941 3,670 1,941
======== ======= ======== =======
Net loss $ 1,110 $ 573 $ 2,098 $ 1,079
======== ======= ======== =======
Loss per common and common
equivalent shares $ (0.30) $ (0.30) $ (0.57) $ (0.56)
======== ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
FINANCIAL STATEMENTS FOR JUNE 30, 1996 AS FILED ON FORM 10-QSB WITH THE SEC
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 621,575
<SECURITIES> 0
<RECEIVABLES> 4,248
<ALLOWANCES> 0
<INVENTORY> 1,419,465
<CURRENT-ASSETS> 2,085,835
<PP&E> 1,050,368
<DEPRECIATION> 47,645
<TOTAL-ASSETS> 3,498,834
<CURRENT-LIABILITIES> 1,216,466
<BONDS> 0
0
0
<COMMON> 38,631
<OTHER-SE> 2,208,792
<TOTAL-LIABILITY-AND-EQUITY> 3,498,834
<SALES> 52,627
<TOTAL-REVENUES> 52,627
<CGS> 67,754
<TOTAL-COSTS> 67,754
<OTHER-EXPENSES> 1,057,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,308
<INCOME-PRETAX> (2,097,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,097,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,097,906)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
