TranSwitch Corporation Announces First Quarter 2006 Results

SHELTON, Conn.—(BUSINESS WIRE)—April 26, 2006— TranSwitch Corporation (NASDAQ: TXCC) today announced that it posted first quarter 2006 net revenues of approximately $9.6 million and a net loss of ($5.6) million, or ($0.05) per basic and diluted common share. This compares to first quarter 2005 net revenues of approximately $9.0 million and a net loss of ($6.3) million, or ($0.06) per basic and diluted common share.

"The first quarter, 2006 was a strong quarter for TranSwitch from a revenue, bookings, margin, and design-win point of view. As we enter the second quarter, 2006, we have strong confidence regarding the long-term prospects of the Company. This is based on the fact that we have design-wins in key platforms of most of the Tier-1 customers, we have a product portfolio second to none, our balance sheet is strong, and we have been successful in reducing our expenses systematically," commented Dr. Santanu Das, President and CEO of TranSwitch Corporation.

"We have been consistently securing significant design-wins, and the task at hand is to translate these wins to production volume, and this is where we are focused with our applications support," continued Dr. Das.

The net loss for the first quarter, 2006 includes the following non-cash items:

-- Other income of approximately $0.6 million reflecting the change in the fair value of the derivative liability relating to the Company's 5.45% Convertible Plus Cash NotesSM (the "Plus Cash Notes") due September 30, 2007, compared to other income of $1.6 million on the change in the fair value of the derivative liability in the first quarter of 2005;

-- A debt extinguishment loss of $3.1 million associated with the exchange of $24.6 million face value of the Company's Plus Cash NotesSM and accrued interest for 1.5 million shares of common stock, plus approximately $22.6 million of cash;

-- Interest expense of approximately $0.6 million relating to the on-going amortization of the debt discount related to the Company's Plus Cash Notes compared to such amortization of $1.2 million in the first quarter, 2005; and

-- Stock option expense of $0.4 million, as a result of the Company's adoption of FAS 123R, of which $0.1 million is included in research and development, $0.1 million is included in marketing and sales and $0.2 million is included in general and administrative.

During the first quarter, 2006, the Company reported a gross margin on product revenues of $7.5 million or 82%. This margin was impacted by a cost of sales benefit totaling $1.2 million from the sale of inventory that was previously written-off.

The Company had three significant transactions during the first quarter, 2006. On January 31, 2006, the Company announced that it had completed its acquisition of Mysticom Ltd., a privately-held developer of high-performance, low-power, multi-Gigabit Ethernet transceivers for the communications industry. TranSwitch acquired the Israel-based company through the issuance of approximately $5 million of TranSwitch common stock. Upon the satisfactory achievement of stipulated revenue objectives and a positive operating cash flow over the next 12 months, TranSwitch will pay up to an additional $10 million in the form of TranSwitch stock or cash, at its option. Mysticom Ltd. will operate as a wholly owned subsidiary of TranSwitch.

On February 1, 2006, the Company entered into Exchange Agreements with JMG Triton Offshore Fund, Limited and JMG Capital Partners, LP (the "Holders"), providing for the exchange of approximately $24.6 million in aggregate principal amount of the Company's Plus Cash Notes held by the Holders and accrued interest in exchange for an aggregate of 1,500,000 shares of the Company's common stock, plus cash of approximately $22.6 million. The issuance of the shares was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. No commission or other remuneration was paid or given directly or indirectly for these transactions.

On March 3, 2006, the Company announced the completion of its offering of shares of common stock resulting in the total sale of 13,766,667 shares, with proceeds to TranSwitch, after placement agency fees and expenses, of $18.9 million. The shares were offered under TranSwitch's previously filed shelf registration statement, which was declared effective by the Securities and Exchange Commission (SEC) on April 20, 2004, and a final prospectus supplement dated February 27, 2006.

"Based on our current visibility, we project revenue of around $9.5M in the second quarter, 2006 without Mysticom, and $0.3M from Mysticom, for a total of slightly under $10.0M for the quarter," stated Dr. Das. "Our opening product backlog was approximately $7.2 million for the second quarter. Our second quarter 2006 net loss is estimated to be in the range of ($0.03) to ($0.04) per basic and diluted common share. This net loss estimate for the second quarter of 2006 excludes any adjustment to the fair value of the derivative liability associated with our 5.45% Convertible Plus Cash NotesSM. The non-cash adjustment to fair value is based on several estimates, including our common stock price during the quarter ending June 30, 2006," concluded Dr. Das.

Additional details on TranSwitch's first quarter results will be discussed during a conference call regarding this announcement today at 5:30 pm eastern time. To listen to the live call, investors can dial 719-457-2645 and reference confirmation code: 6451987. The call will be recorded and a replay will be available two hours after the conclusion of the live broadcast through May 3, 2006. To access the replay, dial 719-457-0820 and enter confirmation code: 6451987. Investors can also access an audio webcast via by clicking on the TranSwitch Corporation conference call link. This audio webcast will also be available on a replay basis for 10 business days.

About TranSwitch Corporation

TranSwitch Corporation designs, develops and markets innovative semiconductors that provide core functionality and complete solutions for voice, data and video communications network equipment. As a leading supplier to telecom, datacom, cable television and wireless markets, TranSwitch customers include the major OEMs that serve the worldwide public network, the Internet, and corporate Wide Area Networks (WANs). TranSwitch devices are inherently flexible, many incorporating embedded programmable microcontrollers to rapidly meet customers' new requirements or evolving network standards by modifying a function via software instruction. TranSwitch implements global communications standards in its VLSI solutions and is committed to providing high-quality products and services. TranSwitch, Shelton, CT, is an ISO 9001:2000 registered company. For more information, visit

Forward-looking statements in this release, including statements regarding management's expectations for future financial results and the markets for TranSwitch's products, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements regarding TranSwitch, its operations and its financial results involve risks and uncertainties, including without limitation risks associated with acquiring new businesses; of downturns in economic conditions generally and in the telecommunications and data communications markets and the semiconductor industry specifically; risks in product development and market acceptance of and demand for TranSwitch's products and products developed by TranSwitch's customers; risks relating to TranSwitch's indebtedness; risks of failing to attract and retain key managerial and technical personnel; risks associated with foreign sales and high customer concentration; risks associated with competition and competitive pricing pressures; risks associated with investing in new businesses; risks of dependence on third-party VLSI fabrication facilities; risks related to intellectual property rights and litigation; risks in technology development and commercialization; and other risks detailed in TranSwitch's filings with the Securities and Exchange Commission.

                        TranSwitch Corporation
             (in thousands, except for per share amounts)

                                                    Three Months Ended
                                                                                March  31,
                                                                                                            2006            2005
Net  revenues:
  Product  revenues                                                                    $    9,214    $    9,038
  Service  revenues                                                                              432                  9
                                                                                                        --------    --------

    Total  net  revenues                                                                    9,646          9,047
Cost  of  revenues:
  Cost  of  product  revenues                                                          1,674          3,283
  Cost  of  service  revenues                                                              202                --
                                                                                                        --------    --------

Total  cost  of  revenues                                                                1,876          3,283
                                                                                                        --------    --------

Gross  profit                                                                                    7,770          5,764
Operating  expenses:
  Research  and  development                                                          5,486          6,212
  Marketing  and  sales                                                                    2,842          2,708
  General  and  administrative                                                      1,477          1,199
  Restructuring  charge  and  asset  impairments                          221          1,479
                                                                                                        --------    --------

    Total  operating  expenses  (Note  1)                                    10,026        11,598
                                                                                                        --------    --------

Operating  loss                                                                              (2,256)      (5,834)
Other  (expense)  income:
  Change  in  fair  value  of  derivative  liability                      637          1,627
  Loss  on  extinguishment  of  debt                                            (3,124)              --
  Interest  income  (expense):
    Interest  income                                                                              548              696
    Interest  expense                                                                      (1,352)      (2,787)
                                                                                                        --------    --------

      Interest  expense,  net                                                              (804)      (2,091)
                                                                                                        --------    --------

      Total  other  (expense)  income,  net                                  (3,291)          (464)
                                                                                                        --------    --------

Loss  before  income  taxes                                                          (5,547)      (6,298)
Income  tax  expense                                                                              39                25
                                                                                                        --------    --------

Net  loss                                                                                      $  (5,586)  $  (6,323)
                                                                                                        --------    --------

Basic  and  diluted  loss  per  common  share:
Net  loss                                                                                      $    (0.05)  $    (0.06)
                                                                                                        --------    --------

Basic  and  diluted  average  common  shares
  outstanding                                                                                116,215      103,476

Note  1:  For  the  three  months  ended  March  31,  2006,
operating  expenses  include  stock  option  expense
of  $0.1M  in  research  and  development,  $0.1M  in
marketing  and  sales,  and  $0.2M  in  general  and

                                                TranSwitch  Corporation
                      CONDENSED  CONSOLIDATED  BALANCE  SHEETS  (unaudited)
                                                        (in  thousands)

                                                                                          March  31,        December  31,
                                                                                                2006                    2005
                                                                                      -------------  -------------
Current  assets:
  Cash  and  short-term  investments                      $          67,256    $          72,702
  Accounts  receivable,  net                                                  4,061                  3,784
  Inventories                                                                            4,245                  2,375
  Prepaid  expenses  and  other  current  assets                2,265                  1,961
                                                                                      -------------  -------------

    Total  current  assets                                                      77,827                80,822

Property  and  equipment,  net                                              3,227                  3,508
Goodwill                                                                                    4,759                        --
Other  assets                                                                            3,198                  2,496
                                                                                      -------------  -------------

    Total  assets                                                          $          89,011    $          86,826
                                                                                      -------------  -------------

Current  liabilities:
  Accounts  payable,  accrued  expenses  and
    other  current  liabilities                                $            8,353    $            6,716
  Restructuring  liabilities                                                    638                      721
  Deferred  revenue                                                                      567                        --
                                                                                      -------------  -------------

    Total  current  liabilities                                              9,558                  7,437

Restructuring  liabilities  -  long-term                        20,973                21,038
5.45%  Convertible  Plus  Cash  NotesSM  due
  2007,  net  of  debt  discount  of  $2,686  and
  $5,695,  respectively                                                        27,468                49,102
Derivative  liability                                                            5,402                  6,040
                                                                                      -------------  -------------

    Total  liabilities                                                            63,401                83,617
                                                                                      -------------  -------------

Commitments  and  contingencies

    Total  stockholders'  equity                                          25,610                  3,209
                                                                                      -------------  -------------

    Total  liabilities  and  stockholders'
      equity                                                                    $          89,011    $          86,826
                                                                                      -------------  -------------


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