<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 0-25996
TRANSWITCH CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 06-1236189
(State of Incorporation) (I.R.S. Employer Identification Number)
3 ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484
(Address of Principal Executive Offices)
Telephone (203) 929-8810
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 ____________
-----------
COMMON STOCK, PAR VALUE $.001 PER SHARE, OUTSTANDING AT OCTOBER 30, 1998:
14,490,701 SHARES.
Page 1 of 15
<PAGE>
TRANSWITCH CORPORATION
INDEX
For the quarter ended September 30, 1998
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Three and
Nine Months Ended September 30, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Page 2 of 15
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
TRANSWITCH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share data) SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------ ---- ----
CURRENT ASSETS: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 20,892 $ 20,508
Short term investments 3,439 1,110
Accounts receivable, net 5,732 4,528
Inventories, net 6,166 4,812
Prepaid expenses and other current assets 870 815
-------- --------
Total current assets 37,099 31,773
PROPERTY AND EQUIPMENT, NET 4,928 3,816
PRODUCT LICENSES, NET 976 1,000
OTHER ASSETS 280 -
-------- --------
TOTAL ASSETS $ 43,283 $ 36,589
============ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,440 $ 1,350
Accrued liabilities 3,664 3,708
Product license fee payable, current portion 665 1,067
-------- --------
Total current liabilities 7,769 6,125
PRODUCT LICENSE FEE PAYABLE, LESS CURRENT PORTION - 303
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; authorized 1,000,000 shares;
Convertible Preferred Stock, issued and outstanding; none at
September 30, 1998 and 14,500 shares at December 31, 1997 - 14,357
Common Stock, $.001 par value; authorized 25,000,000 shares;
issued and outstanding; 14,315,104 shares at September 30, 1998,
and 12,318,271 shares at December 31, 1997 14 12
Additional paid in capital 61,959 45,753
Accumulated deficit (26,459) (29,961)
-------- --------
Total stockholders' equity 35,514 30,161
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,283 $36,589
========================================== ======== ========
</TABLE>
Page 3 of 15
See accompanying notes.
<PAGE>
TRANSWITCH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $12,264 $ 7,438 $30,477 $18,750
Cost of Revenues 4,537 2,828 11,619 8,005
Gross Profit 7,727 4,610 18,858 10,745
--------- --------- --------- -------
Operating Expenses:
Research and development 2,887 2,227 7,967 6,841
Marketing and sales 2,420 1,796 6,163 4,970
General and administrative 672 523 1,825 1,608
--------- --------- --------- -------
Total Operating Expenses 5,979 4,546 15,955 13,419
--------- --------- --------- -------
Operating Income (Loss) 1,748 64 2,903 (2,674)
Interest Income, net 265 114 763 368
--------- --------- --------- -------
Income (Loss) before income taxes 2,013 178 3,666 (2,306)
Provision for income taxes 92 - 164 -
--------- --------- --------- -------
Net Income (Loss) $ 1,921 $ 178 $ 3,502 $(2,306)
========= ========= ========= =======
Basic Earnings (Loss) per Common Share $ 0.13 $ 0.01 $ 0.26 $ (0.19)
Weighted Average Number of
Common Shares Outstanding 14,267 12,184 13,701 12,103
========= ========= ========= =======
Diluted Earnings (Loss) per Common Share $ 0.13 $ 0.01 $ 0.24 $ (0.19)
Weighted Average Number of
Common Shares and Equivalents Outstanding 15,101 12,867 14,579 12,103
========= ========= ========= =======
</TABLE>
Page 4 of 15
See accompanying notes.
<PAGE>
TRANSWITCH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,502 $(2,306)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,464 1,019
Stock compensation expense 334 248
Changes in assets and liabilities:
(Increase) in accounts receivable (1,204) (1,261)
(Increase) in prepaids and other current assets (335) (484)
(Increase) in inventories (1,354) (1,511)
Increase in accounts payable 2,090 1,225
(Decrease) increase in accrued liabilities (45) 1,411
------- -------
Total adjustments 950 647
------- -------
Net cash provided by (used in) operating activities 4,452 (1,659)
------- -------
Cash flows from investing activities:
Capital expenditures and cost of product licenses (2,552) (1,478)
Purchase of short term investments (4,424) (7,505)
Proceeds from sale of short term investments 2,096 13,283
------- -------
Net cash (used in) provided by investing activities (4,880) 4,300
------- -------
Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants 1,592 473
Payment of issuance costs for convertible preferred stock (75) -
Payments on product license obligations (705) (691)
------- -------
Net cash provided by (used in) financing activities 812 (218)
------- -------
Increase in cash and cash equivalents 384 2,423
Cash and cash equivalents at beginning of period 20,508 3,911
------- -------
Cash and cash equivalents at end of period $20,892 $ 6,334
======= =======
Supplemental disclosure of cash flows information:
Cash paid for interest $ 68 $ 5
</TABLE>
PAGE 5 of 15
See accompanying notes.
<PAGE>
TRANSWITCH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the third quarter ended September 30, 1998
(unaudited)
Note 1. Interim Financial Statements
- -------------------------------------
The accompanying unaudited consolidated interim financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission for reporting on Form 10-Q. Accordingly, certain
information and footnotes required by generally accepted accounting principles
for complete financial statements are not included herein. The financial
statements are prepared on a consistent basis with and should be read in
conjunction with the statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed
with the Securities and Exchange Commission on March 31, 1998.
In the opinion of management, these statements include all adjustments,
consisting of normal, recurring adjustments, which are necessary for a fair
presentation for such periods. The results of operations for any interim period
are not necessarily indicative of the results which may be achieved for the
entire fiscal year ending December 31, 1998.
Note 2. Inventories
- --------------------
Inventories are carried at the lower of cost (on a first in, first out
basis) or estimated net realizable value. Inventories are summarized as follows
(in thousands):
September 30, 1998 December 31, 1997
------------------ -----------------
Raw Materials $1,191 $1,086
Work in Process 1,137 1,654
Finished Goods 3,838 2,072
------ ------
Total Inventories $6,166 $4,812
====== ======
Note 3. Comprehensive Income
- ----------------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that companies disclose comprehensive income, which includes net
income, foreign currency translation adjustments, minimum pension liability
adjustments and unrealized gains and losses on marketable securities classified
as available for sale. For the Company, comprehensive income is the same as net
income (loss).
(continued)
Page 6 of 15
<PAGE>
Note 4. Consolidated Statement of Stockholders' Equity
- -------------------------------------------------------
(in thousands, except share data)
<TABLE>
<CAPTION>
Convertible Additional
Common Stock Preferred Paid-in Accumulated
Shares Amount Stock Capital Deficit Total
------------ ------------ ----------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 12,318,271 $ 12 $14,357 $45,753 ($29,961) $30,161
Shares of common stock issued upon exercise of stock
options 133,355 - 294 - 294
Deemed dividend on convertible preferred stock - - 143 (143) - -
Issuance cost of convertible preferred stock - (55) - (55)
Shares of common stock issued upon conversion of
preferred stock 846,267 1 (6,750) 6,749 - -
Compensation related to issuance of stock options - - 181 - 181
Net income - - - - 561 561
---------- ----------- ------- ------- -------- -------
Balance at March 31, 1998 13,297,893 $ 13 $ 7,750 $52,779 ($29,400) $31,142
Shares of common stock issued upon exercise of stock
options 160,785 - 606 - 606
Issuance cost of convertible preferred stock - (20) - (20)
Shares of common stock issued upon conversion of
preferred stock 212,664 1 (2,250) 2,249 - -
Compensation related to issuance of stock options - - - 69 - 69
Net income - - - - 1,020 1,020
---------- ----------- ------- ------- -------- -------
Balance at June 30, 1998 13,671,342 $ 14 $ 5,500 $55,683 ($28,380) $32,817
Shares of common stock issued upon exercise of stock
options 123,918 - 692 - 692
Shares of common stock issued upon conversion of
preferred stock 519,844 - (5,500) 5,500 - -
Compensation related to issuance of stock options - - - 84 - 84
Net income - - - - 1,921 1,921
---------- ----------- ------- ------- -------- -------
BALANCE AT SEPTEMBER 30, 1998 14,315,104 $ 14 - $61,959 ($26,459) $35,514
========== =========== ======= ======= ======== =======
</TABLE>
Page 7 of 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
TranSwitch Corporation, a Delaware corporation ("TranSwitch" or the
"Company") was organized and commenced operations in April 1988. Since its
incorporation, the Company has designed, sourced and marketed highly integrated
digital and mixed-signal semiconductor solutions for the telecommunications and
data communications markets. The Company's customers are the original
equipment manufacturers (OEM's) who serve three communications market segments:
worldwide public network infrastructure, including cable television (CATV);
internet infrastructure and corporate wide area networks (WAN). The Company's
products are generally incorporated into OEM's products at the design stage,
which often requires significant expenditures by the Company well in advance of
substantial orders from the customer.
The Company believes that period-to-period comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, the Company's results of
operations may fluctuate from period to period in the future.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUE
The Company derives its revenues from product sales. Total revenues for
the quarter ended September 30, 1998 were $12.3 million, representing a 66%
increase over the $7.4 million recorded in the prior year comparable period.
Total revenues for the nine months ended September 30, 1998 were $30.5 million,
an increase of 62% over the $18.8 million for the nine months ended September
30, 1997. The increase in revenue in the quarter and for nine months is
primarily attributable to the increase in the revenue of the SONET/SDH and ATM
product lines.
GROSS PROFIT
Gross profit was $7.7 million for the quarter ended September 30, 1998
compared to $4.6 million in the corresponding period of the prior year. Gross
profit for nine months ended September 30, 1998 was $18.9 million compared to
$10.7 million for the same period in 1997. Gross margin was 63.0% for the
quarter ended September 30, 1998 as compared to 62.0% for the quarter ended
September 30, 1997; gross margin for the nine months ended September 30, 1998
was 61.9% compared to 57.3% for the same period a year ago. The increase in
gross profit and margin is principally the results of improved costs from the
Company's vendors achieved as higher volumes of products were purchased by the
Company.
Page 8 of 15
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses were 23.5% of total revenues for the
quarter ended September 30, 1998 compared to 29.9% of total revenues for the
quarter ended September 30, 1997; total spending increased 29.6% to $2.9 million
for the quarter ended September 30, 1998 as compared to $2.2 million for the
quarter ended September 30, 1997. In the nine month period ended September 30,
1998, research and development expenses were 26.1% of revenues as compared to
36.5% for the same period a year ago; spending in the nine months ended
September 30, 1998 was $8.0 million, representing a 17.6% increase over the $6.8
million for the comparable period a year ago. The increases in period-over-
period expense were the result of the Company's continued investment in research
and development activities. The decreases as a percentage of total revenues in
the quarter and year-to-date were attributable to the growth in revenues from
the comparable periods in the prior year.
MARKETING AND SALES
Marketing and sales expenses were 19.7% of total revenues for the quarter
ended September 30, 1998 compared to 24.1% for the quarter ended September 30,
1997. The marketing and sales expenses increased 33.3% to $2.4 million for the
quarter ended September 30, 1998 compared to $1.8 million for the quarter ended
September 30, 1997. In the nine month period ended September 30, 1998,
marketing and sales expenses were 20.2% of total revenues compared to 26.5% for
the same period in 1997. Total spending increased 24.0% to $6.2 million for the
nine month period ended September 30, 1998 as compared to $5.0 million in the
comparable period in 1997. The increases in spending were primarily the result
of the increase in marketing and sales personnel and expansion of the Company's
distribution network as part of the Company's continued investment in its
marketing and sales infrastructure. The decreases as a percentage of total
revenues in the quarter and year-to-date were attributable to the growth from
revenues in the comparable periods in the prior year.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter ended September 30,
1998 increased to $672 thousand from $523 thousand for the same quarter in the
prior year, and as a percentage of total revenues decreased to 5.5% for the
quarter ended September 30, 1998 compared to 7.0% for the quarter ended
September 30, 1997. The total spending for the nine month period ended
September 30, 1998 increased 13.4% to $1.8 million as compared to $1.6 million
for the comparable period in 1997, and as a percentage of total revenues
decreased to 6.0% for the nine months ended September 30, 1998 as compared to
the 8.6% for the comparable period a year ago. The increases in period-over-
period expense were the result of the Company's continued investment in the
general and administrative area. The decreases as a percentage of total
revenues in the quarter and year-to-date were attributable to the growth in
revenues from the comparable periods in the prior year.
Page 9 of 15
<PAGE>
INTEREST INCOME, NET
Interest income, net of interest expense, was $265 thousand in the quarter
ended September 30, 1998 compared to $114 thousand in the corresponding period
in 1997 and for the nine month period was $763 thousand in 1998 as compared to
$368 thousand in the same period in 1997. The increases in interest income, net
were primarily the result of the increase in cash balances between the two
periods.
INCOME TAXES
The Company's effective tax rate was 4.5 percent in the first nine months
of 1998, which reflects the anticipated federal alternative minimum taxes and
states taxes estimated to be payable.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998 the Financial Accounting Standards Board issued Statement of
Financial Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," SFAS No. 133 requires companies to recognize all
derivatives as assets or liabilities measured at their fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The Company does not expect this statement to have a
material impact on its financial position or results of operations. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company expects to adopt this accounting standard beginning January 1, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital requirements
since it was incorporated in 1988 primarily through private placements of
preferred stock, borrowings from a working capital line and equipment financing
from Silicon Valley Bank, an initial public offering of its common stock in June
1995 and cash generated from its operations. In October 1997, the Company
received net cash proceeds of $13.7 million in connection with a private
placement of its Series A Convertible Preferred Stock, all such shares have been
converted into shares of Common Stock as of September 30, 1998.
In the first nine months of 1998, the Company generated $4.5 million of
cash from its operating activities, the result of a net income of $3.5 million
and non-cash items of $1.8 million, offset by a net increase in working capital
of $.8 million. Capital expenditures during this period totaled $2.6 million,
including purchases of computer equipment, tooling, software and product
licenses.
The Company's principal sources of liquidity as of September 30, 1998
consisted of cash and cash equivalents and short term investments of
approximately $24.3 million. In addition, in the
Page 10 of 15
<PAGE>
quarter ended September 30, 1998, the Company renewed its financing agreement
with Silicon Valley bank whereby the Company has a total credit facility of
$10.0 million, consisting of a $2 million line of credit for capital equipment
and a $8 million line of credit for working capital purposes. As of September
30, 1998, the Company had no outstanding balances under these lines of credit.
Pursuant to the working capital and equipment financing agreements with Silicon
Valley Bank, the Company is restricted from further pledging its assets or
granting additional security interests in such assets. The Company believes its
existing cash, the cash flow from operations, if any, and cash available under
its lines of credit will be sufficient to satisfy the Company's cash needs for
at least the next 12 months. However, there can be no assurance that events in
the future will not require the Company to seek additional capital sooner, or if
so required, that such capital will be available on terms favorable or
acceptable to the Company, if at all.
YEAR 2000
Many currently installed computer systems and software products are dependent
upon internal calendars coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21/st/ century dates from 20/th/ century dates. Computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements.
In the fourth quarter of 1997, the Company established a Year 2000 committee
(the "Committee"), chaired by the Company's Senior Vice President and Chief
Financial Officer, to assess the effects of the Year 2000 issue on the Company's
operations and to remediate such effects as necessary. The Committee focuses on
Year 2000 readiness of both the Company's internal systems and the Company's key
outside suppliers, financial institutions and other business partners.
To assess the Company's internal readiness, the Committee has examined and
tested the Company's current hardware and software to identify systems with
inherent Year 2000 problems. No hardware performing critical functions has been
found to have such problems. Although isolated hardware performing non-critical
functions has been found to have Year 2000 problems, these problems were not
judged likely to have a material impact on the Company's operations. As a
result, such non-critical hardware will not be replaced.
None of the Company's current products utilize internal calendars that are
dependent upon the input of a specific date. As a result, all of the Company's
current products are inherently Year 2000 compliant.
Moreover, the Committee has obtained certificates from its software vendors to
the effect that all the Company's key software systems, including its MRP, order
entry and customer service systems, are Year 2000 compliant. The Committee has
tested certain key software systems independently for Year 2000 functionality as
well.
To assess the Year 2000 readiness of the Company's key outside suppliers,
financial institutions and
Page 11 of 15
<PAGE>
other business partners, the Committee has requested a certification from each
that it has resolved any Year 2000 issues that might have a material impact on
the Company's operations. To date, approximately half of such parties have so
certified.
Currently, the Committee estimates that total expenditures to assess and remedy
Year 2000 issue will be less than $50,000, plus staff time. All expenditures
will be expensed as occurred and are not expected to have a material impact on
the Company's results of operations.
Based on Committee's assessment to date, the Company believes that it will not
experience any material disruption in its operations as a result of Year 2000
issues. However, if certain critical service providers, such as those providing
electricity, water or telephone service, experience difficulties resulting in
disruption of service to the Company, or to its key outside suppliers, financial
institutions or other business partners, a shutdown of the Company's operations
could occur for the duration of the disruption. At present, the Committee has
not developed contingency plans, but the Committee will determine whether to
develop any such plans as its assessment is completed. Accordingly, there can be
no assurance that Year 2000 issues will not have a material adverse effect on
the Company's business, results of operations or financial results.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide financial performance forecasts. The forward
looking statements in this Form 10-Q and presented elsewhere by management from
time to time are made under the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's operating results and
financial condition have varied and may vary in the future significantly
depending on a number of factors and involve risks and uncertainties that could
materially adversely affect revenues and profitability, including: competitive
pressures on selling prices; the timing and cancellation of customers' orders;
the timing and provision of pricing protections and returns from certain
distributors; availability of foundry capacity and raw materials; fluctuations
in yields; changes in product mix; the Company's ability to introduce new
products and technologies on a timely basis; introduction of products and
technologies by the Company's competitors; market acceptance of the Company's
and its competitors' products; the level of orders received which can be shipped
in a quarter; the amount and timing of recognition of non-recurring engineering
revenue; the timing of investments in research and development, including
tooling expenses associated with product development and pre-production; and
whether the Company's customers buy directly from the Company or a distributor.
Sudden shortages of raw materials or production capacity constraints can lead
producers to allocate available supplies or capacity to customers with resources
greater than those of the Company, which could interrupt the Company's ability
to meet its production obligations. Historically, average selling prices in the
semiconductor industry have decreased over the life of a product, and as a
result, the average selling prices of the Company's products may be subject to
significant pricing pressures in the future. The Company's business is
characterized by short-term orders and shipment schedules, and customer orders
typically can be canceled or rescheduled without significant penalty to the
customer. Due to the absence of
Page 12 of 15
<PAGE>
a substantial noncancellable backlog, the Company typically plans its production
and inventory levels based on internal forecasts of customer demand, which are
highly unpredictable and can fluctuate substantially. The Company derives a
significant portion of its revenue from foreign sales, which are subject to a
number of risks including unforseen changes in regulatory requirements, exchange
rates, tariffs and other instability. In particular, Japan, Korea and other
Asian countries have recently experienced significant economic turmoil. There
can be no assurance that this period of Asian economic turmoil will not result
in reduced sales by the Company's customers in Asia with a concomitant reduction
in such customers' orders for the Company's products, increase price
competition, restrictions of the transfer of funds overseas, employee turnover,
labor unrest, the reversal of current policies encouraging foreign investment
and trade of other domestic Asian economic problems. Because the Company is
continuing to increase its operating expenses for personnel and new product
development and for inventory in anticipation of future sales levels, operating
results would be adversely affected if increased sales are not achieved. In
addition, the Company is limited in its ability to reduce costs quickly in
response to any revenue shortfalls. From time to time, in response to
anticipated long lead times to obtain inventory and materials from its
foundries, the Company may order in advance of anticipated customer demand,
which might result in excess inventory levels if expected orders fail to
materialize or other factors render the customer's products less marketable. As
a result of the foregoing and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results and stock price.
Page 13 of 15
<PAGE>
Item 5. Other Information.
The Company's By-Laws establish an advance notice procedure with regard to
certain matters, including nominations of persons for election to the Board
of Directors and the proposal of business to be considered by the
stockholders entitled to vote at the next annual meeting of stockholders.
In general for the annual meeting to be held in 1999, notice must be
received, in writing, at the Company's principal executive offices not
later than December 21, 1998 and not before November 21, 1998. Notice
should be sent to the attention of the Secretary of the Company and must
contain specified information concerning the matters to be brought before
such meeting and concerning the stockholder proposing such matters. In
order to curtail any controversy as to the date on which notice was
received by the Company, it is suggested that proponents submit their
notice by Certified Mail, Return Receipt Requested.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11, Statement re: computation of per share earnings.
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended
September 30, 1998.
Page 14 of 15
<PAGE>
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.
TranSwitch Corporation
(Registrant)
Date: November 10, 1998 /s/ Dr. Santanu Das
----------------------------------------
Dr. Santanu Das
Chairman of the Board,
President, Chief Executive Officer
(Principal Executive Officer)
/s/ Michael F. Stauff
----------------------------------------
Michael F. Stauff
Senior Vice President and Chief
Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Page 15 of 15
<PAGE>
EXHIBIT 11:
TRANSWITCH CORPORATION
COMPUTATION OF EARNINGS PER SHARE (1)
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss) 1,921 178 3,502 (2,306)
====== ====== ====== ======
Weighted average number of common shares
outstanding during the period 14,267 12,184 13,701 12,103
------ ------ ------ ------
Basic earnings (loss) per share 0.13 0.01 0.26 (0.19)
====== ====== ====== ======
Diluted earnings (loss) per share:
Net income (loss) 1,921 178 3,502 -
====== ======= ====== ======
Weighted average number of common shares
outstanding during the period 14,267 12,184 13,701 -
Common stock issuable with respect to:
Stock options and warrants, net of assumed treasury 834 683 878 -
share re-purchases
Adjusted weighted average number of shares 15,101 12,867 14,579 -
outstanding during the period
Diluted earnings (loss) per share $ 0.13 $ 0.01 $ 0.24 - (2)
======= ======= ======== =======
</TABLE>
- ----------
(1) This exhibit should be read in connection with "Consolidated Statement of
Stockholders' Equity" in Note 4 of Notes to Consolidated Financial
Statements.
(2) Diluted loss per share is the same as basic given the net loss position of
the Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 20,892 20,892
<SECURITIES> 3,439 3,439
<RECEIVABLES> 5,993 5,993
<ALLOWANCES> 261 261
<INVENTORY> 6,166 6,166
<CURRENT-ASSETS> 37,099 37,099
<PP&E> 12,010 12,010
<DEPRECIATION> 7,082 7,082
<TOTAL-ASSETS> 43,283 43,283
<CURRENT-LIABILITIES> 7,769 7,769
<BONDS> 0 0
0 0
0 0
<COMMON> 14 14
<OTHER-SE> 35,500 35,500
<TOTAL-LIABILITY-AND-EQUITY> 43,283 43,283
<SALES> 12,264 30,477
<TOTAL-REVENUES> 12,264 30,477
<CGS> 4,537 11,619
<TOTAL-COSTS> 5,979 15,955
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,013 3,666
<INCOME-TAX> 92 164
<INCOME-CONTINUING> 1,921 3,502
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,921 3,502
<EPS-PRIMARY> 0.13 0.26
<EPS-DILUTED> 0.13 0.24
</TABLE>
