<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------
COMMISSION FILE NUMBER: 0-26312
TELCOM SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3186995
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1300 TERRA BELLA, MT. VIEW, CALIFORNIA 94039
(address of principal executive offices)
(Zip Code)
TELEPHONE NUMBER (415) 968-9241
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
- -
The number of shares outstanding of the registrant's Common Stock as of August
1, 1997 was 16,314,553.
================================================================================
<PAGE>
TELCOM SEMICONDUCTOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PAGE
NO.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELCOM SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $13,733 $ 9,434 $24,856 $18,601
Cost of sales 7,681 6,006 14,386 11,614
-------- -------- -------- --------
Gross profit 6,052 3,428 10,470 6,987
-------- -------- -------- --------
Operating expenses:
Research and development 1,393 1,159 2,575 2,410
Selling, general and administrative 2,326 1,883 4,387 3,794
Impairment loss on foundry
investment - - 8,000 -
-------- -------- -------- --------
Total operating expenses 3,719 3,042 14,962 6,204
-------- -------- -------- --------
Income (loss) from operations 2,333 386 (4,492) 783
Interest income (expense), net (95) 100 (269) 212
-------- -------- -------- --------
Income (loss) before income taxes 2,238 486 (4,761) 995
Provision for income taxes 604 131 875 269
-------- -------- -------- --------
Net income (loss) $ 1,634 $ 355 $(5,636) $ 726
======== ======== ======== ========
Net income (loss) per share $ 0.10 $ 0.02 $ (0.35) $ 0.04
======== ======== ======== ========
Number of shares used to compute per
share data 16,931 16,917 16,068 16,900
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
TELCOM SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $20,732 $12,761
Marketable securities - 5,202
Accounts receivable 6,676 5,288
Inventory 7,116 6,490
Deferred income taxes 1,635 1,635
Income tax receivable - 1,430
Other current assets 273 358
-------- --------
Total current assets 36,432 33,164
Property and equipment, net 17,769 21,848
Other assets - 3,000
-------- --------
$54,201 $58,012
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 3,712 $ 3,518
Accounts payable 3,502 2,042
Accrued liabilities 2,568 2,006
Deferred distributor income 1,224 1,077
Income taxes payable 1,321 761
-------- --------
Total current liabilities 12,327 9,404
Notes payable 8,468 10,047
Deferred income taxes 1,635 1,635
-------- --------
Total liabilities 22,430 21,086
-------- --------
Stockholders' equity:
Common stock 16 16
Additional paid-in capital 33,676 33,199
Notes receivable from stockholders (7) (11)
Retained earnings (accumulated
deficit) (1,914) 3,722
-------- --------
Total stockholders' equity 31,771 36,926
-------- --------
$54,201 $58,012
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
TELCOM SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30,
--------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(5,636) $ 726
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Impairment loss on foundry
investment 8,000 -
Depreciation and amortization 1,929 1,579
Changes in assets and liabilities:
Accounts receivable (1,388) 803
Inventory (626) (2,097)
Income tax receivable 1,430 -
Other current assets 85 (198)
Accounts payable 1,460 (240)
Accrued liabilities 562 20
Deferred distributor income 147 (131)
Income taxes payable 560 (1,448)
------- -------
Net cash provided by (used for)
operating activities 6,523 (986)
------- -------
Cash flows from investing activities:
Purchases of property and
equipment (2,850) (2,924)
Investment in IC WORKS, Inc. - (3,000)
Sales (purchases) of marketable
securities, net 5,202 (2,611)
------- -------
Net cash provided by (used for)
investing activities 2,352 (8,535)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 477 247
Notes receivable from stockholders 4 35
Borrowings on notes payable 283 2,317
Payments on notes payable (1,668) (777)
------- -------
Net cash provided by (used for)
financing activities (904) 1,822
------- -------
Net increase (decrease) in cash and cash
equivalents 7,971 (7,699)
Cash and cash equivalents at the
beginning of period 12,761 15,849
------- -------
Cash and equivalents at the end of
period $20,732 $ 8,150
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
TELCOM SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
1. The Company and Basis of Presentation:
TelCom Semiconductor, Inc. ("TelCom" or the "Company") designs, develops,
manufactures and markets a diversified portfolio of high performance analog
integrated circuits for use in a wide variety of electronic systems. The Company
operates and reports financial results on a 52-53 week fiscal year ending on the
last Friday of December. For convenience, the Company has presented its fiscal
year as ending December 31, and its fiscal quarter as ending June 30.
In the opinion of management, the unaudited condensed consolidated interim
financial statements have been prepared on the same basis as the December 31,
1996 financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary to fairly state the information set forth
herein.
This report on Form 10-Q for the period ended June 30, 1997 should be read
in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996 and Form 10-Q for the period ended March 31, 1997.
2. Net Income (Loss) per Share
Net income (loss) per share is computed using the weighted average number
of shares of common stock and, when dilutive, common equivalent shares from
stock options and warrants using the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share". FAS
128 requires the disclosure of basic and diluted earnings per share data and is
effective for fiscal years ending after December 15, 1997. The adoption of FAS
128 would have had the following effect on earnings per share data for the three
and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ---------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic net income (loss) per
share $0.10 $0.02 $(0.35) $0.05
Diluted net income (loss) per
share $0.10 $0.02 $(0.35) $0.04
</TABLE>
6
<PAGE>
3. Balance Sheet Details:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1997 1996
------- -------
<S> <C> <C>
Inventory:
Raw material $ 853 $ 1,174
Work in process 4,333 2,233
Finished goods 1,930 3,083
------- -------
$ 7,116 $ 6,490
======== ========
Property and equipment:
Equipment $15,239 $13,222
Leasehold improvements 2,736 2,228
------- -------
17,975 15,450
Accumulated depreciation (7,627) (5,698)
------- -------
10,348 9,752
Equipment for I.C. WORKS, Inc. 5,363 10,363
Construction in progress 2,058 1,733
$17,769 $21,848
======== ========
Accrued liabilities:
Payroll and related $ 2,082 $ 1,396
Accrued rent 74 109
Professional fees 194 207
Customer deposits and other 218 294
------- -------
$ 2,568 $ 2,006
======== ========
</TABLE>
4. Impairment Loss on Foundry Investment
In November 1995, the Company entered into certain agreements with IC
WORKS, Inc., a privately-held company located in San Jose, California. Pursuant
to these agreements, in 1996, the Company purchased $3.0 million of preferred
stock of IC WORKS and provided $10.4 million in capital equipment. In return for
this investment, TelCom received a guarantee of submicron wafer capacity at
specified prices for a period of five years, projected to start in 1997. The
shortage of wafer capacity projected in late 1995 has diminished and since late
1995, substantial foundry capacity has been available worldwide while overall
demand has not increased proportionately. Consequently, wafer pricing has
decreased dramatically, which has changed the economic viability of the foundry
business in which the Company invested. As a result, the Company recorded an
impairment loss of $8.0 million on its foundry investment during the three
months ended March 31, 1997. The remaining balance of the foundry investment at
June 30, 1997 of $5.4 million represents management's estimate of the fair
market value of the investment based on appraiser estimates and prices for
similar assets.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
related factors set forth herein.
OVERVIEW
TelCom Semiconductor, Inc. ("TelCom" or the "Company") designs, develops,
manufactures and markets a diversified portfolio of high-performance standard
analog integrated circuits for a wide variety of applications in the industrial,
communications, computer, automotive and medical markets. The Company's products
comprise three principal product families: mixed signal products, which are
analog devices with some digital control functionality, such as display
analog/digital converters: power management products, such as switch node power
supply controllers, whose function is to conserve power, and smart sensors, such
as solid state thermal management devices. Within each family, the Company
markets proprietary and selected second source products offering a range of
performance, functionality and price. Average selling prices for the Company's
proprietary products have tended to decline at a slower rate than have those for
the Company's second source products, which are more susceptible to competitive
pricing pressures. The Company generally recognizes higher gross margins on its
proprietary products than on its second source products.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially and adversely affect net sales, gross
margins and operating income. These factors include the volume and timing of
orders received, changes in the mix of proprietary and second source products
sold, market acceptance of the Company's and its customers' products,
competitive pricing pressures, the Company's ability to introduce new products
on a timely basis, the timing and extent of research and development expenses,
fluctuations in manufacturing yields, cyclical semiconductor industry
conditions, the Company's access to advanced process technologies and the timing
and extent of process development costs. Historically in the semiconductor
industry, average selling prices of products have decreased over time. If the
Company is unable to introduce new products with higher margins, maintain its
product mix between proprietary and second source products or reduce
manufacturing costs to offset decreases in the prices of its existing products,
the Company's operating results will be adversely affected. The Company's
business is characterized by short term orders and shipment schedules, and
customer orders typically can be canceled or rescheduled without penalty to the
customer. Since most of the Company's backlog is cancelable without penalty, the
Company typically plans its production and inventory levels based on internal
forecasts of customer demand, which is highly unpredictable and can fluctuate
substantially. In addition, because of the high fixed costs in the semiconductor
industry, the Company is limited in its ability to reduce costs quickly in
response to any revenue shortfalls. As a result of the forgoing or other
factors, the Company may experience material adverse fluctuations in future
operating results on a quarterly or annual basis, which would materially and
adversely affect the Company's business, financial condition and results of
operations.
In November 1995, the Company entered into certain agreements with IC
WORKS, Inc., a privately-held company located in San Jose, California. Pursuant
to these agreements, in 1996, the Company purchased $3.0 million of preferred
stock of IC WORKS and provided $10.4 million in capital equipment. In return for
this investment, TelCom received a guarantee of submicron wafer capacity at
specified prices for a period of five years, projected to start in 1997. The
shortage of wafer capacity projected in late 1995 has diminished and since late
1995, substantial foundry capacity has been available worldwide while overall
demand has not increased proportionately. Consequently, wafer pricing has
decreased dramatically, which has changed the economic viability of the foundry
business in which the Company invested. As a result, the Company recorded an
impairment loss of $8.0 million on its foundry investment during the three
months ended March 31, 1997. The remaining balance of the foundry investment at
June 30, 1997 of $5.4 million represents management's estimate of the fair
market value of the investment based on appraiser estimates and
8
<PAGE>
prices for similar assets. There can be no assurance that additional losses will
not be incurred with respect to this impairment in the future.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three month and six month periods ended June 30, 1997
increased $4.3 million or 45.6% and $6.3 million or 33.6%, respectively, from
the corresponding periods in the prior fiscal year. The increase in sales was
primarily due to higher sales volume in the Company's power management product
line. International sales for the three month and six month periods ended June
30, 1997 were 67% and 65%, respectively, of total sales compared to 62% and 60%
of total sales for the same periods in the prior year. Sales in the European
market increased in the three month and six month periods ended June 30, 1997 by
$1.8 million, or 80% and $3.2 million, or 69%, respectively, compared to the
three month and six month periods ended June 30, 1996, primarily due to higher
sales of power management products. For the three month period ended June 30,
1997, two OEM customers, Motorola and Compaq Computer, accounted for
approximately 29% and 6%, respectively, of net sales compared to 7% and 8%,
respectively, of net sales for the same period in the prior year. In the six
month period ended June 30, 1997, Motorola and Compaq Computer accounted for
approximately 29% and 6%, respectively, of net sales compared to 7% and 8%,
respectively, of net sales for the same period in the prior year. Future
Electronics, one of the Company's distributors, accounted for 10% and 11%,
respectively, of the Company's net sales during the three month and six month
periods ended June 30,1997 compared to 13% of net sales for each of the same
periods in the prior year.
GROSS MARGIN
Gross margin as a percentage of sales for the three month and six month
periods ended June 30, 1997 increased to 44.1% and 42.1%, respectively, from
36.3% and 37.6%, respectively, in the corresponding periods in the prior year.
The increase in gross margin was caused by increased production volume in the
Company's wafer fabrication facility due to higher demand, increased efficiency
in wafer fabrication and higher gross margins on sales of power management
products. The Company's ability to increase gross margins will depend on the
successful introduction of its new proprietary products and increasing
manufacturing output at the Company's wafer fabrication facility to spread the
fixed costs over an increasing number of units, thereby reducing the fixed costs
per unit.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three month and six month periods
ended June 30, 1997 increased to $1.4 million or 10.1% of sales and $2.6 million
or 10.4% of sales, respectively, compared to $1.2 million, or 12.3% of sales and
$2.4 million or 13% of sales, for the corresponding periods in the prior year.
This increase was primarily due to wafer costs associated with new product
development, and increased staffing of design engineers and layout technicians.
The Company expects research and development expenses generally to increase in
absolute dollars in future periods although such expenses may fluctuate as a
percentage of net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three month and six
month periods ended June 30, 1997 increased to $2.3 million and $4.4 million,
respectively, compared to $1.9 million and $3.8 million for the corresponding
periods in the prior year. This increase was primarily due to higher outside
sales commissions as a result of higher sales. Such expenses as a percent of
sales decreased in the three month and six month periods ended June 30, 1997 to
16.9% and 17.6% of sales, respectively, compared to 20.0% and 20.4% of sales for
the corresponding periods in the prior year. The Company expects selling,
general and
9
<PAGE>
administrative expenses generally to increase in absolute dollars in future
periods although such expenses may continue to fluctuate as a percentage of net
sales.
IMPAIRMENT LOSS ON FOUNDRY INVESTMENT
In November 1995, the Company entered into certain agreements with IC
WORKS, Inc., a privately-held company located in San Jose, California. Pursuant
to these agreements, in 1996, the Company purchased $3.0 million of preferred
stock of IC WORKS and provided $10.4 million in capital equipment. In return for
this investment, TelCom received a guarantee of submicron wafer capacity at
specified prices for a period of five years, projected to start in 1997. The
shortage of wafer capacity projected in late 1995 has diminished and since late
1995, substantial foundry capacity has been available worldwide while overall
demand has not increased proportionately. Consequently, wafer pricing has
decreased dramatically, which has changed the economic viability of the foundry
business in which the Company invested. As a result, the Company recorded an
impairment loss of $8.0 million on its foundry investment during the three
months ended March 31, 1997. The remaining balance of the foundry investment at
June 30, 1997 of $5.4 million represents management's estimate of the fair
market value of the investment based on appraiser estimates and prices for
similar assets.
INTEREST INCOME (EXPENSE), NET
For the three month and six month periods ended June 30, 1997, net interest
expense was $95,000 and $269,000, respectively, compared to net interest income
of $100,000 and $212,000 for the corresponding periods in the prior year. The
increase in net interest expense is due to higher interest expenses associated
with equipment financing.
INCOME TAXES.
The effective tax rate for the three month and six month periods ended June
30, 1997 was 27% and (18.4)%, respectively, resulting from a tax rate of 27%,
which reflects a blended rate of United States, Hong Kong, and German tax rates,
offset by the recording of a valuation allowance on the income tax benefit of
the impairment loss on foundry investment. This effective rate compares to 27%
for the corresponding periods in the prior year.
LIQUIDITY AND CAPITAL RESOURCES.
As of June 30, 1997, the Company had $20.7 million of cash, cash
equivalents and marketable securities. The Company generated $6.5 million of
cash from operating activities during the six months ended June 30, 1997
primarily reflecting net income before impairment loss of $2.4 million,
depreciation of $1.9 million and a net decrease of $2.2 million in working
capital items. The net decrease in working capital items primarily reflects a
decrease of income tax receivable of $1.4 million, due to collections of income
tax refunds recorded in the prior year, an increase in accounts receivable of
$1.4 million due to higher sales, and an increase in current liabilities of
$2.0, offset by an increase in inventories of $626,000.
At June 30, 1997, the Company had notes payable of $12.2 million, the
proceeds of which were utilized to purchase certain equipment securing such
notes. These notes bear interest ranging from 9% to 13% per annum and are
payable in monthly installments of principal and interest.
The Company believes that its current cash, cash equivalent and marketable
securities balances, together with anticipated cash flow from operations, will
be sufficient to meet the Company's needs for the next twelve months.
10
<PAGE>
CERTAIN FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS
The Company's future results of operations are dependent upon a number of
factors, including those described below:
Dependence on New Products. The Company's success depends upon its ability
to develop new analog circuits for existing and new markets, to introduce such
products in a timely manner and to have such products gain market acceptance.
The development of new analog circuits is highly complex and from time to time
the Company has experienced delays in developing and introducing new products.
Successful product development and introduction depends on a number of factors
including proper new product definition, timely completion of design and testing
of new products, achievement of acceptable manufacturing yields and market
acceptance of the Company's and its customers' products. Moreover, successful
product design and development is dependent on the Company's ability to attract,
retain and motivate qualified analog design engineers, of which there is a
limited number. There can be no assurance that the Company will be able to meet
these challenges or adjust to changing market conditions as quickly and cost-
effectively as necessary to compete successfully. Due to the complexity and
variety of analog circuits, the limited number of analog circuit designers and
the limited effectiveness of computer-aided design systems in the design of
analog circuits, there can be no assurance that the Company will be able to
continue to successfully develop and introduce new products on a timely basis.
Although the Company seeks to design products that have the potential to become
industry standard products, there can be no assurance that any products
introduced by the Company will be adopted by such market leaders, or that any
product initially accepted by the Company's customers that are market leaders
will become industry standard products. The Company's failure to continue to
develop and introduce new products successfully could materially and adversely
affect its business and operating results.
The Company's results of operations are dependent on the balance between
sales of relatively higher margin but lower volume proprietary products and
relatively higher volume but lower margin second source products. In order to
improve its margins, sales of proprietary products must in the future represent
a greater percentage of the Company's net revenues, requiring the Company to
successfully develop, introduce and market new proprietary products. There can
be no assurance that the Company will be successful in developing new
proprietary products with the features and functionality that customers in its
key markets will demand.
Manufacturing Risks. The fabrication of integrated circuits is a highly
complex and precise process. Minute impurities, contaminants in the
manufacturing environment, difficulties in the fabrication process, defects in
the masks used to print circuits on a wafer, manufacturing equipment failures,
wafer breakage or other factors can cause a substantial percentage of wafers to
be rejected or numerous die on each wafer to be nonfunctional. The majority of
the Company's costs of manufacturing are relatively fixed, and, consequently,
the number of shippable die per wafer for a given product is critical to the
Company's results of operations. To the extent the Company does not achieve
acceptable manufacturing yields or experiences product shipment delays, its
financial condition or results of operations would be materially and adversely
affected. The Company has from time to time in the past experienced lower than
expected production yields, which have delayed product shipments and adversely
affected gross margins. For example, in the quarter ended December 31, 1996,
the Company experienced lower production volumes in an effort to reduce
inventories, which adversely effected gross margins. As the Company continues
to increase its manufacturing output, there can be no assurance that the Company
will not experience a decrease in manufacturing yields. Moreover, there can be
no assurance that the Company will be able to maintain acceptable manufacturing
yields in the future. In order to meet anticipated future demand, the Company
believes that it will need to increase its manufacturing capacity. Failure to
do so could result in a loss of customers, which could materially and adversely
affect the Company's financial condition or results of operations.
11
<PAGE>
The Company currently manufactures substantially all of its products at its
wafer fabrication facility in Mountain View, California. Given the complex
nature of the Company's products, it would be difficult for the Company to
arrange for independent manufacturing facilities to supply such products. Any
prolonged inability to utilize the Company's manufacturing facility as a result
of fire, natural disaster or otherwise would have material adverse effect on the
Company's financial condition and results of operations. During periods of
decreased demand, high fixed wafer fabrication costs could have a material
adverse effect on the Company's financial condition or results of operations.
Furthermore, the Company is dependent on a number of local subcontractors for
certain of its manufacturing processes. The failure of any of these
subcontractors to perform these processes on a timely basis could result in
manufacturing delays, which could materially and adversely affect the Company's
results of operations.
Dependence on New Technologies; Technological Change. The markets for the
Company's products are characterized by rapid technological change and frequent
new product introductions. To remain competitive, the Company must develop or
obtain access to new semiconductor process technologies in order to reduce die
size, increase die performance and functional complexity and improve
manufacturing yields. Semiconductor designs and process methodologies are
subject to rapid technological change, requiring large expenditures for research
and development. If the Company is unable to define, design, develop and
introduce competitive new products on a timely basis, its future operating
results will be materially and adversely affected. In addition, the Company's
ability to compete successfully depends on being able to use advanced analog
process technologies to manufacture its products. There can be no assurance
that the analog process technology utilized by the Company will not become
obsolete.
Intense Competition. The analog semiconductor industry is highly
competitive and subject to rapid technological change. Significant competitive
factors in the analog market include product features, performance, price, the
timing of product introductions, the emergence of new computer standards and
other customer systems, product quality and customer support. Because the
standard products market for analog integrated circuits is diverse and highly
fragmented, the Company encounters different competitors in its various product
markets. The Company's principal competitors include Linear Technology
Corporation, Maxim Integrated Products and Harris Semiconductor in one or more
of its product areas. Other competitors include Motorola, National
Semiconductor Corporation, Unitrode Corporation and certain Japanese
manufacturers. Each of these competitors has substantially greater technical,
financial and marketing resources and greater name recognition than the Company.
The Company expects intensified competition from existing analog circuit
suppliers and the possible entry of new competition. Increased competition
could adversely affect the Company's financial condition or results of
operations. There can be no assurance that the Company will be able to compete
successfully in the future or that competitive pressures will not adversely
affect the Company's financial condition and results of operations. Competitive
pressures could reduce market acceptance of the Company's products and result in
price reductions and increases in expenses that could adversely affect the
Company's financial condition or results of operations.
Dependence on International Sales and Operations. International sales for
the three month and six month periods ended June 30, 1997 were 67% and 65%,
respectively, of total sales compared to 62% and 60% of total sales for the same
periods in the prior year. The Company expects international sales to continue
to represent a significant portion of product sales. International sales and
operations involve various risks, including unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. The Company is also subject to
general political risks in connection with its international operations, such as
political and economic instability and changes in diplomatic and trade
relationships. In addition, because a substantial majority of the Company's
international sales are denominated in United States dollars, increases in the
value of the dollar would increase the price in local currencies of the
Company's products in foreign markets and make the Company's products relatively
more expensive than competitors' products, the sales of which are denominated in
local currencies. There can be no assurance that regulatory, political and
other factors will not adversely affect the Company's operations in the future
or require the Company to modify its current business practices.
12
<PAGE>
Customer and Distributor Concentration. A limited number of customers and
distributors has accounted for a significant portion of the Company's net sales.
For the three month period ended June 30, 1997, two OEM customers, Motorola and
Compaq Computer, accounted for approximately 29% and 6%, respectively, of net
sales compared to 7% and 8%, respectively, of net sales for the same period in
the prior year. In the six month period ended June 30, 1997, Motorola and Compaq
Computer accounted for approximately 29% and 6%, respectively, of net sales
compared to 7% and 8%, respectively, of net sales for the same period in the
prior year. Future Electronics, one of the Company's distributors, accounted for
10% and 11%, respectively, of the Company's net sales during the three month and
six month periods ended June 30, 1997 compared to 13% of net sales for each of
the same periods in the prior year. The Company anticipates that it will
continue to be dependent or may increase its dependence on a number of key
customers and distributors for a significant portion of its net sales. The
reduction, delay or cancellation of orders from one or more significant
customers for any reason could materially and adversely affect the Company's
operating results. The Company is also dependent on sales representatives and
distributors for the sale of its products to many of its customers. Such
distributors sell competitors' products and are not within the control of the
Company. Loss of one or more of the Company's current distributors or
disruption of the Company's sales and distribution channels could materially and
adversely affect the Company's business and operating results.
Dependence on Key Suppliers; Outsourcing of Assembly Operations. The
packaging of the Company's products is performed by a limited group of
subcontractors and certain of the raw materials included in such products are
obtained from a limited group of suppliers. For example, 5 inch silicon
substrates, which are a key component of the Company's products, are currently
available from only two suppliers and are subject to long ordering lead times.
Although the Company seeks to reduce its dependence on its sole and limited
source suppliers, disruption or termination of any of these sources could occur
and such disruptions could have a material adverse effect on the Company's
financial condition or results of operations. Moreover, a prolonged inability
to obtain raw materials could have a material adverse effect on the Company's
financial condition or results of operations and could result in damage to
customer relationships.
The Company depends on and may in the future depend on third party
subcontractors. For example, all of the Company's products are currently
assembled by independent third parties in Asia. In the event that any of the
Company's subcontractors were to experience financial, operational, production
or quality assurance difficulties resulting in a reduction or interruption in
supply to the Company, the Company's operating results would be adversely
affected until alternative subcontractors, if any, became available.
Patents and Intellectual Property. The Company's success depends in part
in its ability to obtain patents and licenses and to preserve other intellectual
property rights covering its manufacturing processes, products and development
and testing tools. The Company seeks patent protection for those inventions and
technologies for which it believes such protection is suitable and is likely to
provide a competitive advantage to the Company. The process of seeking patent
protection can be long and expensive and there can be no assurance that its
current patents or any new patents that may be issued will be of sufficient
scope or strength to provide any meaningful protection or any commercial
advantage to the Company. The Company may in the future be subject to or
initiate interference proceedings in the United States Patent and Trademark
office, which can demand significant financial and management resources.
The Company regards elements of its manufacturing process, product design
and equipment as proprietary and seeks to protect its proprietary rights through
a combination of employee and third party non-disclosure agreements, internal
procedures and patent protection. Notwithstanding the Company's attempts to
protect its proprietary rights, the Company believes that its future success
will depend primarily upon the technical expertise, creative skills and
management abilities of its officers and key employees rather than on patent and
copyright ownership. The Company also relies substantially on trade secrets and
proprietary technology to protect technology and manufacturing know-how, and
works actively to foster continuing technological innovation to maintain and
protect its competitive position. There can be no assurance that the
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Company's competitors will not independently develop or patent substantially
equivalent or superior technologies.
Although the Company is not currently a party to any material litigation,
the semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. There can be no assurance that
any patent owned by the Company will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future patent
applications will be issued with the scope of the claims sought by the Company,
if at all. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries.
As is typical in the semiconductor industry, the Company has from time to
time received, and may in the future receive, communications from third parties
asserting patents, mask work rights, or copyrights on certain of the Company's
products and technologies. Although the Company is not currently a party to any
material litigation, in the event a third party were to make a valid
intellectual property claim and a license was not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation, which could result in substantial cost to the
Company and diversion of its resources, may also be necessary to enforce patents
or other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. The failure to obtain
necessary licenses or the occurrence of litigation relating to patent
infringement or other intellectual property matters could have a material
adverse effect on the Company's business and operating results. There can be no
assurance that the steps taken by the Company to protect its intellectual
property will be adequate to prevent misappropriation or that others will not
develop competitive technologies or products.
Environmental and Other Governmental Regulations. Federal, state and local
regulations impose various controls on the storage, handling, discharge and
disposal of chemicals and gases used in the Company's manufacturing process and
on the facility leased by the Company in Mountain View, California. The Company
believes that its activities conform to present governmental regulations
applicable to its operations and its current facilities including those related
to environmental, land use, public utility utilization and fire code matters.
Increasing public attention has, however, been focused on the environmental
impact of semiconductor operations and the risk to neighbors of chemical
releases from such operations. There can be no assurance that such governmental
regulations will not in the future impose the need for additional capital
equipment or other process requirements upon the Company or restrict the
Company's ability to expand its operations. In this regard, the City of
Mountain View, where the Company's wafer fabrication facility is located,
adopted an ordinance which restricts the storage and use of hazardous materials
within the proximity of certain sensitive uses, including hospitals, day care
facilities and schools. Although the Company's operations have not been
adversely affected by the ordinance, there can be no assurance that this
ordinance will not materially adversely affect the Company's future operations.
The adoption of this ordinance or similar measures or any failure by the Company
to comply with applicable environmental and land use regulations or to restrict
the discharge of hazardous substance could subject the Company to future
liability or could cause its manufacturing operations to be curtailed or
suspended.
The Company acquired the semiconductor manufacturing operations of
Teledyne, Inc. previously conducted at the Company's facility. The
semiconductor manufacturing operations conducted by Teledyne at the facility
allegedly contaminated the soil and groundwater of the facility and the
groundwater of properties located down-gradient of the facility. Although the
Company was indemnified by Teledyne as part of the acquisition transaction
against, among other things, any liabilities arising from any such
contamination, there can be no assurance that claims will not be made against
the Company or that such indemnification will be available or will provide
meaningful protection at the time any such claim is brought. To the extent the
Company is subject to a claim which is not covered by the indemnity from
Teledyne or as to which Teledyne is unable to provide indemnification, the
Company's financial condition or results of operations could be materially and
adversely affected.
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Semiconductor Industry. The semiconductor industry is characterized by
rapid technological change, cyclical market patterns, significant price erosion,
periods of over-capacity and production shortages, variations in manufacturing
costs and yields and significant expenditures for capital equipment and product
development. The industry has from time to time experienced depressed business
conditions. There can be no assurance that any future downturn in the industry
will not be severe or that any such downturn will not have a material adverse
effect on the Company's results of operations. There can be no assurance that
the Company will not experience substantial period-to-period fluctuations in
operating costs due to general semiconductor industry conditions or other
factors.
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed as part of this report.
10.14 Tenancy Agreements dated July 28, 1997 related to the premises
located at the Jing Wah Building No. 10 Sam Chuk Street, Hong
Kong
11.1 Statement re: Computation of Net Income (Loss) Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal quarter for which
this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELCOM SEMICONDUCTOR, INC.
(Registrant)
Date: August 4, 1997 By: /s/ Phillip M. Drayer
-------------------------
Phillip M. Drayer
President
Chief Executive Officer
Date: August 4, 1997 By: /s/ R. Michael O'Malley
-------------------------
R. Michael O' Malley
Chief Financial Officer
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EXHIBIT 10.14
AN AGREEMENT is made the 28th day of July, 1997
BETWEEN the Landlord and the Tenant whose names addresses and descriptions are
more particularly described and set out in the First Schedule hereto.
WHEREBY IT IS AGREED as follows :-
1. PREMISES/TERM/RENT
1.01 The Landlord shall let and the Tenant shall take All Those the
Premises more particularly described and set out in the Second Schedule hereto
(collectively "THE PREMISES") And Together with the right to use two car parking
spaces as designated from time to time by the Landlord ("CAR PARKING SPACES")
free of payment of rent (save and except the rates and management fees (if any)
And Together with the use in common with the Landlord and all others having the
like right of the entrance staircases passages landings and lavatories (if any)
of the building of which the Premises form part more particularly described in
the said Second Schedule ("THE BUILDING") in so far as the same are necessary
for the proper use and enjoyment of the Premises and the Car Parking Spaces (and
except in so far as the Landlord may from time to time restrict such use) and
together with the use in common with others of the lifts and escalators, if
any, (whenever the same shall be operating) for the term and at the rent ("THE
RENT") and in manner more particularly described and set out in the Third
Schedule hereto Subject to and with the benefit of the Deed of Mutual Covenant
and the Management Agreement (if any) of the Building.
2. TENANT'S COVENANTS
2.01 The Tenant hereby agrees with the Landlord as follows :-
(a) TO PAY RENT
To pay the Rent on the days and in manner described and set out in the
said Third Schedule.
(b) TO PAY OTHER CHARGES
To pay or discharge all maintenance or management fee or charges in
respect of the Premises and the Car Parking Spaces duly and in
accordance with the provisions of the Deed of Mutual Covenant and
Management Agreement (if any) of the Building.
(c) TO PAY RATES TAXES, ETC.
To pay and discharge all rates taxes assessments duties charges
impositions and outgoings of an annual or recurring nature now or
hereafter to be assessed imposed or charged by the Government of Hong
Kong or other lawful authority upon the Premises and the Car Parking
Spaces or upon the owner or occupier thereof (Government rent and
Property Tax (if any) and outgoings of a capital or non-recurring
nature only (if any) excepted) Provided That all charges and outgoings
in relation to the Tenant's own installations shall be borne by the
Tenant solely.
(d) TO PAY GAS, WATER AND ELECTRICITY CHARGES
To pay and discharge all charges for gas water electricity and
telephone rental and other outgoings now or at any time hereafter
consumed by the Tenant and chargeable in respect of the Premises and
to make all necessary deposits therefor.
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(e) USER
Not to use the Premises for any purpose other than for the purpose and
under the name as described and set out in the said Third Schedule and
not to use the Car Parking Spaces for other purposes except for
parking of vehicles belonged to the Tenant.
(f) NOT TO USE PREMISES AS SLEEPING QUARTERS OR DOMESTIC PREMISES
Not to use or permit or suffer the Premises or any part thereof to be
used as sleeping quarters or as domestic premises within the meaning
of the Landlord and Tenant (Consolidation) Ordinance ("THE ORDINANCE")
or similar legislation for the time being in force nor to allow any
person to remain in the Premises overnight except night-watchmen.
(g) NOT TO PERMIT ILLEGAL OR IMMORAL USE
Not to use or permit or suffer the Premises to be used for or any
illegal or immoral purpose or for any purpose which is in
contravention of the terms and conditions contained in the Government
Lease or Conditions under which the Premises are held from the
Government and not to carry on any trade or business thereon which is
now or may hereafter be declared to be an offensive trade under the
Public Health & Urban Services Ordinance or any other Ordinances or
Regulations and any enactment amending or substituting the same.
(h) TO KEEP INTERIOR ETC. IN REPAIR
To keep all the interior of the Premises including the flooring and
interior plaster or other finishes or rendering to walls floors and
ceilings and the Landlord's fixtures therein including all doors
windows installations/wiring/pipes/drains in the Premises for the
supply of water gas electricity and for sanitation (inclusive of
basins sinks baths and sanitary conveniences) in good clean and
tenantable repair and condition and properly preserved and painted and
so to maintain the same at the expense of the Tenant and to deliver up
the same to the Landlord at the expiration or sooner determination of
the term in like condition (fair wear and tear excepted).
(i) TO PROTECT INTERIOR FROM APPROACHING TYPHOONS
To take all reasonable precautions to proper the interior of the
Premises against damage by storm or typhoon or the like.
(j) TO REPAIR AND REPLACE ELECTRICAL WIRING ETC. WITHIN THE PREMISES
To repair or replace if so required by the appropriate supply
company statutory undertaker or authority (as the case may be) under
the terms of any Electricity Supply or similar Ordinance for the
time being in force or any Orders in Council or Regulations made
thereunder all electrical wiring installations and fittings within
the Premises from the Tenant's meter or meters to and within the
same.
(k) TO KEEP SANITARY AND WATER APPARATUS USED EXCLUSIVELY IN GOOD REPAIR
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To keep the sanitary and water apparatus used exclusively by the
Tenant and his servants agents and licensees in good clean and
tenantable repair and condition (fair wear and tear excepted) to the
satisfaction of the Landlord and in accordance with the Regulations
or by-laws of all Public Health and other Government Authorities
concerned.
(l) TO PERMIT LANDLORD TO ENTER AND VIEW TO REPAIR, ETC.
To permit the Landlord and all persons authorized by him at all
reasonable times upon prior appointment except in case of emergency
to enter and :-
(i) view the state of repair of the Premises, to take inventories of the
fixtures therein, to carry out any works or repairs which may be
required to be done and, during the last three months of the said
terms, to show the Premises to prospective tenants or purchasers
Provided That the Landlord shall cause as little interference to the
Tenant as reasonably possible; and
(ii) carry out any works or repairs in respect of the Premises in the
Building PROVIDED that in this connection the Landlord shall be
responsible to make good all damage done to the Premises.
(m) TO EXECUTE REPAIR ON RECEIPT OF NOTICE
On receipt of any reasonable notice from the Landlord or his
authorized representatives specifying any works or repairs which they
require to be done and which are the responsibility of the Tenant
within a reasonable times to put in hand and execute the same with
all possible despatch and without any delay.
(n) NOT TO ERECT INSTALL OR ALTER PARTITIONING FIXTURES ETC. WITHOUT
LANDLORD'S CONSENT
Not without the previous written consent of the Landlord (which
consent shall not be unreasonably withheld) to erect install or alter
any fixtures partitioning or other erection or installation in the
Premises or any part thereof.
(o) TO REMOVE ILLEGAL STRUCTURES
To remove at the cost of the Tenant any structure erections
partitions and other alterations put up by the Tenant at any time
during the said term if required by the Building Authority or other
competent Government Departments where the same were or have been put
up by the Tenant with or without the consent of the Landlord to make
good all damage caused by such removal. The Landlord shall not be
responsible to the Tenant for any loss suffered by the Tenant in any
way as a result of such renewal.
(p) NOT TO CUT INJURE OR MAIM WALLS, ETC.
Not to cut maim injure drill into mark or deface or permit or suffer
to be cut maimed injured drilled into marked or defaced any doors
windows walls beams structural members or any part of the fabric of
the Premises nor any of the plumbing or sanitary apparatus or
installations included therein without the previous consent of the
Landlord which consent shall not be unreasonably withheld.
(q) NOT TO DRIVE NAILS ETC. INTO CEILINGS WALLS OR FLOORS
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Not to drive or insert or permit or suffer to be driven or inserted
any nails screws hooks brackets or similar articles into the
ceilings walls or floor of the Premises without the previous consent
of the Landlord which shall not be unreasonably withheld nor without
the like consent to lay or use any floor covering which may damage
the existing flooring.
(r) NOT TO DISPLAY SIGNS EXCEPT NAME ETC. IN PLACES PROVIDED
Not to affix or display or permit or suffer to be affixed or
displayed outside the Premises any signboard sign decoration or
other device whether illuminated or not which may be visable from
outside the Premises save that :-
(i) the Tenant shall be entitled at his own expense to display his name
exhibited in English and Chinese in such form or lettering or
characters to be approved by the Landlord on the Directory Boards
(if the same are provided in the Building).
(ii) the Tenant shall be entitled at his own expense to have his name
painted or affixed in plain lettering and characters to be approved
by the Landlord on the Tenant's entrance door or doors. If the
Tenant carries on business under a name other than his own name, he
shall notify the Landlord of the name under which his business is
carried on and shall be entitled to have that name displayed painted
or affixed as aforesaid but the Tenant shall not be entitled to
change the business name without the previous written consent of the
Landlord which the Landlord may give or withhold at his discretion
and without prejudice to the foregoing, the Landlord may, in
connection with any application for consent under this Clause,
require the Tenant to produce such evidence as it may think fit to
show that no breach of Clause 2(al) has taken place or is about to
take place.
(s) NO HANGING IN COMMON PARTS
Not to use or cause or permit the use of the corridors staircases or
other common passages of the Building for the purpose of drying
laundry or hanging or placing or storing any article or thing
thereon or therein and not to permit the Tenant's agents servants
employees guests invitees to use the same for loitering or eating.
(t) NOT TO ENCUMBER OR OBSTRUCT PASSAGES AND COMMON AREAS, ETC.
Not to encumber or obstruct or permit to be encumbered or obstructed
with any box packaging or other obstruction of any kind or nature
any of the entrance staircases landings passages lifts lobbies or
other parts of the Building in common use and not to leave rubbish
or any other article or thing in any part of the Building not in the
exclusive occupation of the Tenant.
(u) NOT TO LAY WIRING OR CABLES ETC. IN THE PUBLIC AREAS
Not to lay install affix or attach any wiring cables or other
article or thing in or upon any of the entrances staircases landings
passage-ways lobbies or public areas.
(v) NO SUPPORTS ETC. ERECTED ON EXTERIOR WALLS
Not to install or fix or erect any supports or any iron brackets or
venetian blinds or
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sun blinds of any description to or on any part of the exterior
walls of the Building for any purpose including the installation of
air-conditioners without prior written approval of the Landlord.
(w) NO OPENINGS ON EXTERIOR WALL
Not to make any openings on any part of the exterior walls of the
Building.
(x) NO SHELTERS ON FLAT ROOFS ETC.
Not to erect any shelters or coverings on any part of the flat-
roofs or roof of the Building.
(y) NO WIRING FROM WINDOW
Not to erect or hang any wire or aerial wiring from the windows or
outside the exterior walls of the Building.
(z) NOT TO OVERLOAD
Not to store or place any goods machinery or other things on or in
any part of the Premises which impose a loading exceeding 150 lbs.
per square foot.
(aa) COMPLYING WITH GOVERNMENT REGULATIONS
All machinery placed on or affixed to the Premises must be cushioned
and the number of workers working or staying in the Premises must be
restricted in accordance with Government Regulations.
(ab) NOT TO INSTALL FURNACE, ETC. WITHOUT PRIOR GOVERNMENT PERMISSION
Not to install any furnace boiler or other plant or equipment in the
Premises or use any fuel that might in any circumstances produce
smoke without first obtaining permission in writing from the
Commissioner of Labour Provided That such installation or user shall
not amount to a breach of any terms and conditions in the Government
Grant or the Deed of Mutual Covenant and the Management Agreement
(if any) of the Building.
(ac) FIRE-FIGHTING EQUIPMENT
All fire-fighting equipment (if any) installed in the Premises shall
be and remain the property of the Landlord and the Tenant shall take
due care thereof and in particular the Tenant shall not allow such
equipment to be moved to any other position. The Tenant shall
further pay the annual charge or fees of all the fire-fighting
equipment installed in the Premises.
(ad) TO ELIMINATE AND REDUCE VIBRATION AND DUMPING PRODUCED BY MACHINERIES
The Tenant shall mount and equip his machinery particularly
machinery with horizontal reciprocating action and every part
thereof with anti-vibration absorbers and anti-dumping absorbers of
such types and designs as first approved of in writing by the
Landlord's architect and shall comply with all directions or orders
of the Land
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lord for eliminating and reducing vibrations and dumping produced by
the operation and running of any of the machinery installed at the
Premises.
(ae) NOT TO ALTER SMOKE LOBBY DOORS
Not to alter the position of the smoke lobby doors or to make any
additions to such doors.
(af) NOT TO OVERLOAD LIFTS
Not to overload the lifts in the Building in excess of their maximum
capacity and to be responsible for any damage caused by any breach
hereof.
(ag) NOT TO PREPARE FOOD OR PERMIT ODOURS
Not to prepare or permit or suffer to be prepared any food in the
Premises or to cause or permit any offensive or unusual odours to be
produced upon permeate through or emanate from the Premises.
(ah) NOT TO PRODUCE MUSIC OR NOISE AUDIBLE OUTSIDE
Not to produce or permit or suffer to be produced any music or noise
(including sound produced by broadcasting or any apparatus or
equipment capable of producing reproducing receiving or recording
sound) so as to cause a nuisance to other users of the Building and
where music is to be regularly played to install at the Tenant's
cost or expense and to the satisfaction of the Landlord adequate
sound proving or insulation devices in the Premises.
(ai) NOT TO PERMIT ANY NUISANCE OR ANNOYANCE
Not to do or permit or suffer to be done any act or thing which may
be or become a nuisance or annoyance to the Landlord or to the
tenant or occupiers of the other premises in the Building or in any
adjoining or neighboring building.
(aj) NOT TO KEEP ITEMS OF COMBUSTIBLE OR HAZARDOUS GOODS
Not to keep or store or permit or suffer to be kept or stored in the
Premises any arms ammunition gun-powder salt-petre kerosene or other
explosive or combustible substance or otherwise unlawful or
dangerous or hazardous goods.
(ak) NOT TO KEEP ANIMALS OR PETS AND TO PREVENT INFECTION
Not to keep or permit or suffer to be kept any animals or pets
inside the Premises and to take all such steps and precautions to
the satisfaction of the Landlord to prevent the Premises or any part
thereof from becoming infested by termites rates mice roaches or any
other pests or vermin.
(al) NOT TO ASSIGN UNDERLET, ETC.
Not to assign underlet part with the possession of or transfer the
Premises and/or Car Parking Spaces or any part thereof or any
interest therein nor permit or suffer any arrangement or transaction
whereby any person who is not a party to this Agreement obtains the
use possession occupation or enjoyment of the Premises and/or the
Car Parking Spaces or any part thereof irrespective of whether any
rental
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or other consideration is given therefor. The tenancy shall be
personal to the Tenant named in this Agreement and without in any
way limiting the generality of the foregoing, the following acts and
events shall, unless approved in writing be deemed to be breaches of
this Clause :-
i) in the case of a tenant which is a partnership, the taking in of one
or more new partners whether on the death or retirement of an
existing partner or otherwise.
ii) in the case of a tenant who is an individual (including a sole
surviving partner or a partnership tenant) the death insanity or
other disability of that individual to the intent that no right to
use possess occupy or enjoy the Premises and the Car Parking Spaces
or any part thereof shall vest in the executors administrators
personal representatives next of kin trustee or committee of any
such individual.
iii) in the case of a corporation any reconstruction amalgamation merger
or voluntary liquidation or any change in shareholding or in the
control of ultimate beneficial ownership.
iv) the giving by the Tenant of a Power of Attorney or similar authority
whereby the donee of the power obtains the right to use possess
occupy or enjoy the Premises or any part thereof or does in fact use
possess occupy or enjoy the same.
(am) NOT TO BREACH GOVERNMENT LEASE OR CAUSE INSURANCE TO BE VOIDED OR
PREMIUM INCREASED
Not to do or permit or suffer to be done any act deed matter or
thing whatsoever which amounts to a breach of any of the terms and
conditions under which the land on which the Building stands is held
from the Government or whereby any insurance on the Building against
loss or damage by fire and/or claims by third parties for the time
being in force may be rendered void or voidable or whereby the
premium thereon may be increased Provided That if as the result of
any act deed matter or thing done permitted or suffered by the
Tenant the premium on any such policy of insurance shall be
increased the Landlord shall be entitled at his option either to
terminate this Agreement or to continue the same upon payment by the
Tenant of the additional premium and upon such other terms and
conditions as the Landlord may at his discretion think fit to
impose.
(an) TO COMPLY WITH DEED OF MUTUAL COVENANT AND ORDINANCES, ETC.
To obey and comply with and to indemnify the Landlord against the
breach of the Deed of Mutual Covenant and Management Agreement (if
any) of the Building and all ordinances regulations by-laws rules
and requirements of any Governmental or other competent authority
relating to the conduct and carrying on of the Tenant's business on
the Premises or to any other acts deed matter or thing done
permitted suffered or omitted therein or thereon by the Tenant or
any employee agent or licensee of the Tenant.
(ao) TO MAKE GOOD DAMAGE TO BUILDING
To make good at the expenses of the Tenant any portion of the
Building which may be damaged through any omission act or default of
the Tenant or of any of his servants visitors or through the escape
of water fire smoke or fumes from or explosion in the Premises.
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(ap) TO REIMBURSE LANDLORD FOR WORK DONE
To reimburse the Landlord for the costs of any of work which the
Tenant is liable to perform hereunder and has defaulted in
performing the same including but not limited to all reasonable
costs incurred by the Landlord in cleansing or clearing any of the
drains pipes or sanitary or plumbing apparatus choked or stopped up
owing to the careless or improper use or neglect by the Tenant or
any employee agent or licensee of the Tenant.
(aq) TO BE RESPONSIBLE FOR LOSS OR DAMAGE CAUSED BY INTERIOR DEFECTS
To be wholly responsible for any loss damage or injury caused to any
other person whomsoever directly or indirectly through the defective
or damaged condition of any part of the interior of the Premises
save and except where such loss damage or injury arises through the
breach or non-observance or non-performance by the Landlord of the
Landlord's covenants or through the neglect or lack of proper skill
on the part of the Landlord or any employee contractor or agent of
the Landlord and Subject as aforesaid to make good the same by
payment or otherwise and to indemnify the Landlord against all
actions proceedings claims and demands made upon the Landlord in
respect of any such loss damage or injury and all costs and expenses
incidental thereto.
(ar) TO BE RESPONSIBLE FOR CONTRACTORS SERVANTS AGENTS AND LICENSEES
To be responsible to the Landlord for the acts neglects and defaults
of all contractors servants agents and licensees of the Tenant as if
they were the acts neglects and defaults of the Tenant himself and
for the purposes of this Agreement "Licensee" shall include any
person present in using or visiting the Premises with the consent of
the Tenant express or implied.
(as) TO NOTIFY LANDLORD OF ACCIDENTS AND DEFECTS IN FITTINGS AND FIXTURES
To notify the Landlord of any accidents to or defects in the water
pipes gas pipes electrical wire or fittings or other facilities
provided by the Landlord in the Premises whether or not the Tenant
is liable hereunder for the repair of the same upon the same coming
to the knowledge of the Tenant.
(at) TO REMOVE REFUSE TO A PLACE SPECIFIED BY LANDLORD
To remove each day from the Premises all refuse and rubbish to such
spot as shall be specified by the Landlord from time to time and
subject to such reasonable rules and regulations as the Landlord may
from time to time determine.
(au) RE-INSTATE PREMISES
Unless the Landlord otherwise agrees in writing to re-instate and
restore the Premises to their original condition and to make good
all damage caused or occasioned by the erection and removal of
alterations partitions or other erections.
(av) TO YIELD UP AT THE END OF THE TERM
-8-
<PAGE>
Quietly to yield up the Premises together with all fixtures fittings
and additions therein and thereto which the Landlord agrees to
retain and the Car Parking Spaces at the expiration or sooner
determination of this tenancy in good clean and tenantable repair
and condition (fair wear and tear excepted).
3. LANDLORD'S COVENANTS
3.01 The Landlord hereby agrees with the Tenant as follows :-
(a) TO PAY GOVERNMENT RENT ETC.
That the Landlord will pay the Government rent payable in respect of
the Premises and the Car Parking Spaces and the Property Tax (if
any) payable in respect of the Premises and any expenses of a
capital or non-recurring nature Provided That all charges and
outgoings in relation to the Tenant's own installations shall be
borne by the Tenant solely.
(b) THE TENANT SHALL HAVE QUIET ENJOYMENT
That the Tenant paying the Rent and management fees and maintenance
charges hereby agreed to be paid on the days and in manner herein
provided for payment of the same and observing and performing the
agreements stipulations and conditions herein contained and on the
Tenant's part to be observed and performed shall peaceably hold and
enjoy the Premises and the Car Parking Spaces during the Term
without any interruption by the Landlord or any person lawfully
claiming under or in trust for the Landlord.
(c) TO KEEP IN REPAIR THE OUTSIDE MAIN WALLS AND ROOF, ETC.
To keep the outside main walls structure foundations and roof of the
Building and the lift entrance hall corridor passages staircases and
the convenience (if any) intended for the common use of the occupants
at all times in complete repair (including drains gutters and
external pipes) in accordance with the relevant provisions of the
Deed of Mutual Covenant and/or Management Agreement.
4. It is hereby further expressly agreed and declared as follows :-
(a) OTHER PROVISIONS LANDLORD'S RIGHT OF RE-ENTRY
If the Rent and/or management fees and maintenance charges and/or
rates and/or other charges hereby agreed to be paid or any part
thereof shall be unpaid for seven days after the same shall become
payable (whether legally or formally demanded or not) or if the
Tenant shall fail or neglect to observe or perform any of the
agreements stipulations or conditions herein contained and on the
Tenant's part to be observed and performed or if the Tenant shall
become bankrupt or being a corporation shall go into liquidation
(save for the purposes of amalgamation or reconstruction) or if any
petition shall be filed for winding up of the Tenant or if the
Tenant otherwise becomes insolvent or makes any composition or
arrangement with creditors or shall suffer any execution to be
levied on the Premises and the Car Parking Spaces or otherwise on
the Tenant's goods then and in any such case it shall be lawful for
the Landlord at any time thereafter to re-enter the Premises and the
Car Parking Spaces or any part thereof in the name of the whole
whereupon this Agreement shall absolutely cease and determine but
without prejudice to any right of action by the Landlord in respect
of any outstanding breach or non-observance or
-9-
<PAGE>
non-performance of any of the agreements stipulations and conditions
herein contained and on the Tenant's part to be observed and
performed and to the Landlord's right to deduct all loss and damage
thereby incurred from the deposit paid by the Tenant in accordance
with Clause 5 hereof.
(b) WRITTEN NOTICE SUFFICIENT EXERCISE OF RIGHT
A written notice served by the Landlord on the Tenant in manner
hereinafter mentioned to the effect that the Landlord thereby
exercises the power of re-entry herein contained shall be full and
sufficient exercise of such power without actual entry on the part
of the Landlord.
(c) ACCEPTANCE OF RENT NOT WAIVER OF BREACH OF COVENANT
Acceptance of Rent (or management fees) by the Landlord shall not be
deemed to operate as a waiver by the Landlord of any right to
proceed against the Tenant in respect of any breach non-observance
or non-performance by the Tenant of any of the agreements
stipulations and conditions herein contained and on the Tenant's
part to be observed and performed.
(d) LANDLORD NOT LIABLE FOR OVERFLOW OF WATER/TENANT TO INDEMNIFY LANDLORD
AGAINST CERTAIN CLAIMS
The Landlord shall not be under any liability to the Tenant or to
any other person whomsoever in respect of any loss or damage to
person or property sustained by the Tenant or any such other person
caused by or through or in any way owing to the overflow of water
from any where within the Building save and except where such loss
or damage to person or property arises through the breach or non-
observance or non-performance by the Landlord of the Landlord's
covenants or through the neglect or lack of proper skill on the part
of the Landlord or any employee contractor agent of the Landlord.
Subject as aforesaid, the Tenant shall fully and effectually
indemnify the Landlord from and against all claims and demands made
against the Landlord by any person in respect of any loss damage or
injury caused by or through or in any way owing to the overflow of
water from the Premises or to the neglect or default of the Tenant
his servants agents or interior of the Premises or any fixtures or
fittings for the repair of which the Tenant is responsible hereunder
and against all costs and expenses incurred by the Landlord in
respect of any such claim or demand.
(e) NO ADVANCE PAYMENT OF RENT
No advance payment of Rent has been paid to the Landlord except in
pursuance to Clause 1 hereof.
(f) LANDLORD NOT LIABLE FOR BREAKDOWN IN LIFTS
The Landlord shall not in any circumstances be liable to the Tenant
for any defect in or failure or breakdown of electricity gas or
water supply or lifts services or nor shall the Rent or management
fees and maintenance charges abate or cease to be payable on account
thereof.
(g) SPENSION OR ABATEMENT OF RENT IN CASE OF FIRE, ETC.
If the Premises and the Car Parking Spaces or the Building or any
part thereof shall at any time during the tenancy rendered be
inaccessible or so destroyed or damaged
-10-
<PAGE>
owing to fire water storm wind typhoon defective construction white
ants earthquake subsidence of the ground or any calamity beyond the
control of the Landlord as to render the Premises and the Car
Parking Spaces unfit for habitation and use and the policy or
policies of insurance effected by the Landlord shall not have been
vitiated or payment of the policy moneys refused in whole or in part
in consequence of any act or default of the Tenant or if at any time
during the continuance of this tenancy the Premises and the Car
Parking Spaces or the Building shall be condemned as a dangerous
structure or a demolition order or closing order shall become
operative in respect of the Premises and the Car Parking Spaces or
the Building then the Rent hereby reserved or a fair proportion
thereof according to the nature and extent of the damage sustained
or order made shall after the expiration of the then current month
be suspended and ceased until the Premises and the Car Parking
Spaces or the Building shall again be rendered accessible or fit for
habitation and use (as the case may be) Provided That should the
Premises and the Car Parking Spaces or the Building not have been
reinstated in the meantime either the Landlord or the Tenant may at
any time after three months from the occurrence of such damage or
destruction or order give to the other of them notice in writing to
determine this present tenancy and thereupon the same and everything
herein contained shall determine as from the date of the occurrence
of such destruction or damage or order of the Premises and the Car
Parking Spaces or of the Building becoming inaccessible but without
prejudice to the rights and remedies of either party against the
other in respect of any antecedent claim or breach of the agreements
stipulations terms and conditions herein contained or of the
Landlord in respect of the Rent and management fees and other
charges payable hereunder prior to the coming into effect of the
suspension.
(h) OR THE PURPOSE OF DISTRAINT RENT IN ARREARS IF NOT PAID IN ADVANCE ON
DUE DATE
For the purposes of Part III of the Ordinance and of these presents
the Rent and management fees and other charges payable in respect of
the Premises and the Car Parking Spaces shall be and be deemed to be
in arrears if not paid in advance at the times and in manner
hereinbefore provided for payment thereof. All costs and expenses
for and incidental to any distraint shall be paid by the Tenant and
is recoverable from him as a debt on a full indemnity basis. For the
purpose of distraint and these presents, any outstanding management
fees payable in respect of the Premises and the Car Parking Spaces
shall be deemed to be arrears of rent.
(i) WAIVER BY LANDLORD
No condoning excusing or waiving by the Landlord of any default
breach or non-observance or non-performance by the Tenant at any
time or times of any of the Tenant's obligations herein contained
shall operate as a waiver of the Landlord's rights hereunder in
respect of any continuing or subsequent default breach or non-
observance or non-performance or so as to defeat or affect in any
way the rights and remedies of the Landlord hereunder in respect of
any such continuing or subsequent default or breach and no waiver by
the Landlord shall be inferred from or implied by anything done or
omitted by the Landlord unless expressed in writing and signed by
the Landlord. Any consent given by the Landlord shall operate as a
consent only for the particular matter to which it relates and in no
way shall be considered as a waiver or release of any of the
provisions hereof nor shall it be construed as dispensing with the
necessity or obtaining the specific written consent of the Landlord
in the future unless expressly so provided.
(j) LANDLORD CAN EXHIBIT LETTING NOTICES DURING LAST THREE MONTHS OF TERM
-11-
<PAGE>
During the three months immediately preceding the expiration of the
term hereby created, the Landlord shall be at liberty to affix and
maintain without interference upon any external part of the Premises
and/or the Car Parking Spaces a notice stating that the Premises
and/or the Car Parking Spaces are to be let and such other
information in connection therewith as the Landlord shall reasonably
require and the Landlord shall be at liberty with prior arrangement
with the Tenant to show the Premises to prospective tenants.
(k) LANDLORD IS ENTITLED TO CHANGE THE NAME OF THE BUILDING
The Landlord shall at any time during the term hereby granted be
entitled to change the name of the Building on giving reasonable
notice to the Tenant and in respect thereof the Landlord shall not
be liable in damages to the Tenant or be made a party to any other
proceedings or for costs or expenses of whatsoever nature incurred
by the Tenant as a result of such change.
(l) WARRANTY AS TO USER
The Landlord does not warrant that the Premises and the Car Parking
Spaces are suitable for any particular purpose.
(m) SERVICE OF NOTICE
Any notice required to be served hereunder shall if to be served on
the Tenant be sufficiently served if addressed to the Tenant and
sent by prepaid post to or delivered at the Premises or the Tenant's
last known place of business or residence in Hong Kong and if to be
served on the Landlord shall be sufficiently served if addressed to
the Landlord and sent by prepaid post to or delivered to the
Landlord's address as shown in this Agreement.
(n) STAMP DUTY AND COSTS
The legal costs of Messrs. Ng, Lie, Lai & Chan and the stamp duty
and other disbursements on this Agreement and its counterpart shall
be borne by the parties herein in equal shares.
5.(a) TENANT'S DEPOSIT
The Tenant shall on the signing hereof deposit and maintain with the
Landlord a deposit of the amount as set out in the Third Schedule
hereto to secure the due observance and performance by the Tenant of
the agreements stipulations and conditions herein contained and on
the Tenant's part to be observed and performed. The said deposit
shall be retained by the Landlord throughout the term free of any
interest to the Tenant and in the event of any breach or non-
observance or non-performance by the Tenant of any of the said
agreements stipulations or conditions aforesaid, the Landlord shall
be entitled to terminate this Agreement and to forfeit the said
deposit by way of liquidated damages without prejudice to the
Landlord's right to claim against the Tenant for further damages
suffered by the Landlord as a result of the Tenant's breach of this
Agreement. Notwithstanding the foregoing, the Landlord may in any
such event at his option elect not to terminate this Agreement and
forfeit the deposit but to deduct therefrom the amount of any
monetary loss incurred by the Landlord in consequence of the breach
non-observance or non-performance by the Tenant in which event the
Tenant shall as a condition precedent to the continuation of the
tenancy deposit with the Landlord the amount so deducted
-12-
<PAGE>
and if the Tenant shall fail so to do the Landlord shall forthwith
be entitled to re-enter the Premises and the Car Parking Spaces and
to determine this Agreement and forfeit the deposit as hereinbefore
provided.
(b) REPAYMENT OF DEPOSIT
Subject as aforesaid, the said deposit shall be refunded to the
Tenant by the Landlord without interest within thirty days after the
expiration or sooner determination of this Agreement and the
delivery of vacant possession to the Landlord or within thirty days
of the settlement of the last outstanding claim by the Landlord
against the Tenant in respect of any breach non-observance or non-
performance of any of the agreements stipulations or conditions
herein contained and on the part of the Tenant to be observed and
performed whichever is the later.
(c) TRANSFER OF DEPOSIT
In the event that the Landlord shall assign its reverionary interest
in the Premises, the Tenant shall agree to the Landlord transferring
the said deposit to the assignee and shall waive its right to
recover the said deposit from the Landlord upon receipt of a written
notice from the Landlord that such transfer has been effected.
6. COOLING TOWERS
6.01 It is hereby agreed by and between the parties hereto that in the
event of any competent authorities of the Government of Hong Kong serving notice
on the Landlord or the Tenant ordering to remove the cooling tower(s) which
was/were erected by the Tenant at the external walls of the Building, the Tenant
shall forthwith remove the same at its own costs and expenses and at the like
expenses reinstate the external walls to the condition as at the date(s) of the
said cooling tower(s) was/were erected and the Tenant shall indemnify the
Landlord for all loss and damages which the Landlord has suffered or may suffer
as a result of such removal and reinstatement. The Landlord will in such event
grant a license to the Tenant to use 2 areas of 11' x 11' each on the roof of
the Building to install 2-100 tons (RT) cooling tower(s) (weight 1500 kg. each)
such areas shall be designated by the Landlord Provided That subject to
compliance by the Landlord with Clause 6.02 :-
(a) the Tenant shall ensure that the installation of the said cooling
towers shall not cause damage to the Building;
(b) the Tenant shall be responsible for all expenses for the repair and
maintenance of the said cooling towers and the said areas to the
satisfaction of the Landlord;
(c) such installation shall not be in breach of any ordinances or
regulations of Hong Kong; and
(d) at the expiration or sooner determination of the tenancy hereby
created the Tenant shall at its own cost and expense remove the said
cooling towers and at like cost and expense reinstate the said areas
to their original condition to the satisfaction of the Landlord.
6.02 The Landlord shall ensure that the Building is at all times
constructed and/or reinforced so as to be able safely to carry the said cooling
towers and to be in compliance with all loading requirements of any ordinances
or regulations of Hong Kong in relation to the installation of the cooling
towers.
-13-
<PAGE>
7. LAWS
This Agreement shall be construed and take effect in accordance with
Hong Kong Law.
8. HEADING NOTES
The heading notes are intended for guidance only and do not form
part of this Agreement nor shall any of the provisions in this
Agreement be construed or interpreted by reference thereto or in any
way affected or limited thereby.
THE FIRST SCHEDULE ABOVE REFERRED TO
------------------------------------
LANDLORD : JING WAH GARMENTS MANUFACTORY COMPANY LIMITED (
) whose registered office is situate at 8th Floor, Jing Wah Building,
10 Sam Chuk Street, San Po Kong, Kowloon, Hong Kong.
TENANT : TELCOM SEMICONDUCTOR HONG KONG LIMITED (
) whose registered office is situate at Ground Floor, Jing Wah
Industrial Building, 10 Sam Chuk Street, Sanpokong, Kowloon, Hong Kong.
THE SECOND SCHEDULE ABOVE REFERRED TO
-------------------------------------
PREMISES : ALL THOSE UNITS B and C on the GROUND FLOOR, the whole of the
FIRST FLOOR, the whole of the SECOND FLOOR , UNIT A on the FIFTH
FLOOR and UNIT A on the SEVENTH FLOOR of NO.10 SAM CHUK STREET
Kowloon Hong Kong erected on NEW KOWLOON INLAND LOT NO.4437.
THE THIRD SCHEDULE ABOVE REFERRED TO
------------------------------------
TERM : For the term of THREE YEARS commencing on the 11th day of July
1997 and terminating on the 10th day of July 2000 (both days
inclusive).
RENT : HK$173,785.00 (apportionment of which is set out hereunder) per
calendar month (exclusive of rates) payable in advance clear of
all deductions on the 11th day of each and every calendar month.
The First payment to be made on the 11th day of July 1997.
Premises Area Monthly Rent
-------- ---- ------------
Unit B on Ground Floor 3,600 sq. ft. HK$34,200.00
Unit C on Ground Floor 50 sq. ft. HK$ 4,500.00
The whole of 1st Floor 10,000 sq. ft. HK$45,000.00
The whole of 2nd Floor 10,000 sq. ft. HK$45,000.00
Unit A on 5th Floor 5,769 sq. ft. HK$25,960.00
Unit A on 7th Floor 4,250 sq. ft. HK$19,125.00
USER : As factory use under the name of the Tenant.
DEPOSIT : HK$173,785.00.
AS WITNESS the hands of the parties hereto the day and year first
above written.
-14-
<PAGE>
SIGNED by Chan Kwok ) JING WAH GARMENTS MFG. CO., LTD
Wing, one of its Directors, )
for and on behalf of the )
Landlord in the presence ) Managing Director
of :- )
I hereby verify the signature
of Hong Po Kwan
Hong Po Kwan Brain S.W. Ng
Clerk to Messrs. Ng, Lie, Lai & Chan Solicitor, Hong Kong
Solicitor,
Hong Kong.
SIGNED by ) For and on behalf
) TELCOM SEMICONDUCTOR H.K. LTD
for and on behalf of the )
Tenant in the presence of :- )
WANG SHI HSIONG
Managing Director
For and on behalf of
TELCOM SEMICONDUCTOR H.K. LTD.
WONG KWOK BON
CONTROLLER
RECEIVED on the day and year first above written of and from the
Tenant the above mentioned deposit in the sum of HK$173,785.00
JING WAH GARMENTS MFG. CO., LTD.
Managing Director
_________________________________________
the Landlord.
-15-
<PAGE>
Dated this 28th day of July 1997
JING WAH GARMENTS MANUFACTORY COMPANY LIMITED
and
TELCOM SEMICONDUCTOR HONG KONG LIMITED
&&&&&&&&&&&&&&&&&&&&&&&&&&
TENANCY AGREEMENT
of
Units B and C on the Ground Floor, the whole
of the 1st and 2nd Floors, Unit A and on the
5th Floor and Unit A on the 7th Floor (together
with the right to use 2 Car Parking Spaces) of
No.10 Sam Chuk Street, Hong Kong).
&&&&&&&&&&&&&&&&&&&&&&&&&&
NG, LIE, LAI & CHAN,
Solicitors,
HONG KONG.
Ref. : CON/AT/PKH/J/51340(8)/97
Factory
-16-
<PAGE>
Exhibit 11.1
TELCOM SEMICONDUCTOR, INC.
STATEMENT RE COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six Months Ended
------------------------ ---------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 16,113 15,594 16,068 15,548
Dilutive effect of stock
options (1) 818 1,090 - 1,119
Dilutive effect of
warrants (1) - 233 - 233
--------- --------- --------- ---------
Number of shares used to
compute per share data 16,931 16,917 16,068 16,900
========= ========= ========= =========
Net income (loss) $ 1,634 $ 355 $(5,636) $ 726
========= ========= ========= =========
Net income (loss) per share $ 0.10 $ 0.02 $ (0.35) $ 0.04
========= ========= ========= =========
</TABLE>
(1) Computed using the treasury stock method. There is no dilutive effect of
options and warrants for the six months ended June 30, 1997 because the
Company incurred a net loss.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,732
<SECURITIES> 0
<RECEIVABLES> 6,871
<ALLOWANCES> 195
<INVENTORY> 7,116
<CURRENT-ASSETS> 36,432
<PP&E> 25,396
<DEPRECIATION> 7,627
<TOTAL-ASSETS> 54,201
<CURRENT-LIABILITIES> 12,327
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 33,669
<TOTAL-LIABILITY-AND-EQUITY> 54,201
<SALES> 24,856
<TOTAL-REVENUES> 24,856
<CGS> 14,386
<TOTAL-COSTS> 29,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (269)
<INCOME-PRETAX> (4,761)
<INCOME-TAX> 875
<INCOME-CONTINUING> (5,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,636)
<EPS-PRIMARY> (.035)
<EPS-DILUTED> (0.35)
</TABLE>
