<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 March 31, 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 March 31, 1996:
4,104,406
Transitional Small Business Disclosure Format (check one):
Yes ; No X
----- ----
<PAGE> 2
TELECHIPS CORPORATION
INDEX
Page
Number
------
PART I. Financial Information
1. Interim Financial Statements
Condensed Balance Sheets -
March 31, 1996 and December 31, 1995................... 1
Condensed Statements of Operations -
Three months ended March 31, 1996 and 1995 ............ 2
Condensed Statements of Cash Flows -
Three months ended March 31, 1996 and 1995............. 3
Notes to Condensed Financial Statements ..................... 4
2. Management's Discussion and Analysis ........................ 7
PART II. Other Information
SIGNATURES ................................................................ 13
<PAGE> 3
TELECHIPS CORPORATION
(A Development Stage Company)
CONDENSED BALANCE SHEETS
----------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 1,710,213 $ 2,702,701
Accounts receivable 5,941 7,339
Inventory 1,116,844 831,664
Prepaid expenses 56,187 101,814
------------ ------------
Total current assets 2,889,185 3,643,518
------------ ------------
Equipment and tooling, net 956,208 793,321
Prepaid expenses 49,408 44,680
Deposits and other assets 35,812 34,312
Prepaid royalties 284,708 285,194
------------ ------------
$ 4,215,321 $ 4,801,025
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 448,820 $ 437,393
Accrued expenses 20,312 18,303
Line of credit payable 354,289 --
------------ ------------
Total current liabilities 823,421 455,696
------------ ------------
Other liabilities 34,217 --
------------ ------------
Total liabilities 857,638 455,696
------------ ------------
Shareholders' equity:
Common stock, par value $.01, 10,200,000 shares authorized,
3,863,106 issued and outstanding at March 31, 1996
(unaudited) 38,631 38,631
Paid-in capital 12,283,957 12,218,616
Retained earnings (deficit accumulated) during the development
stage (5,849,763) (4,862,117)
------------ ------------
6,472,825 7,395,130
Less: Notes receivable from shareholders (3,115,142) (3,049,801)
------------ ------------
Total shareholders' equity 3,357,683 4,345,329
------------ ------------
$ 4,215,321 $ 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 Period From
March 31 January 7, 1991 to
-------------------------- March 31, 1996
1996 1995 -------------------
---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Sales revenue $ -- $ -- $ 20,700
Contract revenue -- -- 2,652,274
Cost of sales -- -- (33,783)
Contract research and development costs -- -- (2,080,188)
----------- ----------- -----------
-- -- 559,003
Operating expenses:
Marketing 229,005 96,544 1,304,024
General and administrative 311,305 106,029 1,600,053
Research and development 474,014 289,950 3,053,419
----------- ----------- -----------
Income (loss) from operations (1,014,324) (492,523) (5,398,493)
Other income (expense):
Interest income 33,308 2,515 75,362
Interest (expense) (6,630) (15,846) (245,837)
Amortization of 1995 Bridge financing costs -- -- (280,795)
----------- ----------- -----------
Total other income (expense) 26,678 (13,331) (451,270)
----------- ----------- -----------
Net loss $ (987,646) $ (505,854) $(5,849,763)
=========== =========== ===========
Net loss per common and common equivalent shares $ (.27) $ (.26) $ (2.72)
=========== =========== ===========
Weighted average common shares 3,669,930 1,940,624 2,148,665
=========== =========== ===========
</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 Period From
March 31 January 7, 1991 to
------------------ March 31, 1996
1996 1995 ---------------------
---- ---- (unaudited)
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (987,646) $ (505,854) $(5,849,763)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 7,009 5,951 36,857
Note receivable expensed as salary -- -- 48,750
Amortization of 1995 Bridge financing costs -- -- 409,995
Net effect of changes in:
Accounts receivable 1,398 -- (5,941)
Inventory (285,180) (139,233) (1,116,844)
Prepaid expenses 40,899 -- (105,595)
Deposits (1,500) 85,000 (35,812)
Accrued interest on note receivable -- (853) --
Prepaid royalties 486 -- (284,708)
Accounts payable 11,427 148,175 448,820
Accrued expenses 2,009 (16,719) 20,312
Accrued interest on notes payable -- 13,750 --
Other liabilities 34,217 -- 34,217
----------- ----------- -----------
Net cash used in operating activities (1,176,881) (409,783) (6,399,712)
----------- ----------- -----------
Cash flows from investing activities:
Issuance of note receivable -- -- (48,750)
Purchase of equipment and tooling (169,896) (133,476) (987,065)
----------- ----------- -----------
Net cash used in investing activities (169,896) (133,476) (1,035,815)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit 354,289 -- 354,289
Loan proceeds -- -- 2,340,005
Proceeds from issuance of common stock -- 41,222 6,571,304
Proceeds from issuance of preferred stock -- 408,788 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 354,289 450,010 9,145,740
----------- ----------- -----------
Net (decrease) increase in cash (992,488) (93,249) 1,710,213
Cash at beginning of period 2,702,701 313,011 --
----------- ----------- -----------
Cash at end of period $ 1,710,213 $ 219,762 $ 1,710,213
=========== =========== ===========
</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 three-month period ended March 31, 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
----------
3. Inventory:
Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(unaudited)
<S> <C> <C>
Raw Materials $ 901,324 $ 688,802
Work-in-Process 159,715 118,333
Finished Goods 55,805 24,529
---------- ----------
$1,116,844 $ 831,664
========== ==========
</TABLE>
4. Equipment and Tooling:
Equipment and tooling consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
<S> <C> <C>
Tooling $ 737,110 $ 659,506
Computer and other equipment 173,843 81,105
Furniture and fixtures 40,815 44,086
Leasehold improvements 37,256 38,472
--------- ---------
989,024 823,169
Less accumulated depreciation (32,816) (29,848)
--------- ---------
Equipment, net $ 956,208 $ 793,321
========= =========
</TABLE>
5. 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 payable
monthly at a three-month U.S. Treasury Bill rate plus 3% (8.05% at
March 31, 1996). Principal is due at maturity. The line of credit
expires December 13, 1996. At December 31, 1995, there were no
outstanding draws. At March 31, 1996, the Company had an outstanding
balance of $354,289 on the line of credit.
- 5 -
<PAGE> 8
TELECHIPS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------
6. 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 with
an expiration date of April, 2006, and an exercise price of $5.00.
7. 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 March 31, 1996, the deferred tax assets totaling approximately
$1,945,000 (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 $1,945,000 has been recorded resulting in no net deferred
taxes or tax provision.
- 6 -
<PAGE> 9
ITEM 2. Management's Discussion and Analysis
Introduction. The Company was organized in January 1991 and since its inception
has been engaged primarily in the research, design and development of the
ThinPhone and related software and other technology. The Company has recently
begun marketing commercial units of the ThinPhone to its customers. During the
quarter ended March 31, 1996, the Company did not sell any units of the
ThinPhone and derived no revenues therefrom. However, during the fourth quarter
of 1995 and since March 31, 1996, the Company has sold approximately 82
commercial units of the ThinPhone with total revenues of approximately $72,000.
In addition, the Company distributed 26 demonstration units which were generally
accounted for as advertising and promotional expenses.
The Company had no activity from inception through May 21, 1991. From
May 22, 1991 to February 1994, the Company generated revenue from research and
development consulting agreements with NSC. From May 22, 1991 to July 31, 1992,
Mr. C.A. Burns, the Company's founder and a major shareholder of the Company,
satisfied all contract obligations, paid all costs, and received an aggregate of
$697,000 as a consultant to the Company. From August 1992 through February 1994,
the Company performed all obligations and paid all costs and received $1,956,000
in contract revenue from NSC and debt financing of $750,000. In September 1994,
the Company completed the 1994 Note financing and received approximately
$250,000 in net proceeds.
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.
7
<PAGE> 10
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.
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 ThinPhone to view World Wide Web pages on
the internet and electronic mail software which will allow a ThinPhone 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 version 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
ThinPhone. 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 currently has no arrangements with respect
to additional funding. See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 as Compared to Three Months Ended
March 31, 1995. There were no revenues for either three-month period ended March
31, 1996 or 1995, respectively.
For the three months ended March 31, 1996, operating expenses, which
consist of marketing, research and development and general administrative
expenses, were approximately $1,014,000 as compared to $493,000 for the three
months ended March 31, 1995. The increase was due to increased operating
activity related to marketing the ThinPhone product, increasing research and
development activity related to final modifications for ThinPhone production and
new software and hardware products and increased general corporate activity as
the company begins to emerge from the development stage into a fully operational
entity.
8
<PAGE> 11
Research and development expenses increased to approximately $474,000
for the three months ended March 31, 1996 from $290,000 for the three months
ended March 31, 1995. The increase was due to increased research and development
activities relating to new software and hardware products such as the World Wide
Web browser software, electronic mail software, a large-screen version of the
product and a public payphone product.
Marketing expenses increased to approximately $229,000 for the three
months ended March 31, 1996 from $97,000 for the three months ended March 31,
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.
General and administrative expenses increased to approximately $311,000
for the three months ended March 31, 1996 from $106,000 for the three months
ended March 31, 1995. This increase was due in part to hiring additional
personnel as well as increased corporate, legal, investor relations and other
administrative costs correlating with the anticipated growth in the Company's
operations.
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 NSC, the private placement of its securities and
notes and the IPO.
Under the NSC contracts, from January 1991 through December 31, 1995,
the Company received contract revenues of $2,652,274 and debt financing of
$750,000 from NSC (the "NSC Debt").
In September 1994, the Company issued to certain investors promissory
notes, with a 10% annual interest rate, in the aggregate amount of $300,000 (the
"1994 Notes") along with warrants to purchase up to 48,260 shares of Common
Stock.
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.
9
<PAGE> 12
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 this
offering 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 1994 Notes,
$250,000 of indebtedness to NSC, accrued dividends on the Preferred Stock and
interest on all of such indebtedness.
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").
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 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.
10
<PAGE> 13
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% (8.05% currently). Principal is
due at maturity. As of the date of this report, the Company borrowed
approximately $357,000 on the Line of Credit.
The Company has no current arrangements with respect to, or sources of,
additional financing and it is not anticipated that any of the Company's current
shareholders will provide any portion of the Company's future financing
requirements.
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 March 31,
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 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 would be required to seek additional funding sooner than anticipated.
Any such additional funding could be in the form of additional equity capital.
In addition, in the event that the Company receives a larger than anticipated
number of initial purchase orders for ThinPhones, it may require resources
substantially greater than the proceeds of the IPO or than are otherwise
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. The Company has no
current arrangements with respect to additional funding.
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
11
<PAGE> 14
Company has no current arrangements with respect to, or sources of, any such
capital, and there can be no assurance that such additional capital will be
available to the Company, if needed, on commercially reasonable terms or at all.
The inability of the Company to obtain additional capital, if needed, could have
a material adverse effect on the Company and could cause the Company to be
unable to implement its business strategy or to significantly curtail or cease
operations. Any additional equity funding, if located, may involve substantial
dilution to the interests of the Company's then-existing shareholders.
The Company's future performance will be subject to a number of business
factors, including factors such as economic conditions, competition and evolving
industry needs and practices that are beyond the control of the Company. There
can be no assurance that the Company will be able successfully to implement a
marketing strategy, generate significant revenues or ever achieve profitable
operations. In addition, because the Company has had only limited operations to
date, there can be no assurance that its estimates will prove to be accurate or
that unforeseen events will not occur that result in the need for additional
capital.
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 "Factors
Affecting Operating Results" in the Company's Annual Report in Form 10-KSB filed
with the Securities and Exchange Commission on April 1, 1996. Such statements
include the following specific statements:
Page 8: Paragraph 2; Sentence 1
Paragraph 2; Sentence 2
Paragraph 2; Sentence 4
Paragraph 2; Sentence 5
Page 11: Paragraph 4; Each Sentence
12
<PAGE> 15
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: May 14, 1996
- ----------------------------
C.A. Burns
Chief Executive Officer
/s/ Nelson B. Caldwell Date: May 14, 1996
- ----------------------------
Nelson B. Caldwell
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
FINANCIAL STATEMENTS FOR MARCH 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,710,213
<SECURITIES> 0
<RECEIVABLES> 5,941
<ALLOWANCES> 0
<INVENTORY> 1,116,844
<CURRENT-ASSETS> 2,889,185
<PP&E> 989,024
<DEPRECIATION> 32,816
<TOTAL-ASSETS> 4,215,321
<CURRENT-LIABILITIES> 823,421
<BONDS> 0
0
0
<COMMON> 38,631
<OTHER-SE> 3,319,052
<TOTAL-LIABILITY-AND-EQUITY> 4,215,321
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 474,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,630
<INCOME-PRETAX> (987,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (987,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (987,646)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
