Description of Business

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Basis of Accounting [Text Block]

Note 1. Description of Business

TranSwitch Corporation was incorporated in Delaware on April 26, 1988 and is headquartered in Shelton, Connecticut. TranSwitch Corporation and its subsidiaries (collectively, “TranSwitch” or the “Company”) provide innovative integrated circuit (IC) and intellectual property (IP) solutions that deliver core functionality for video, voice, and data communications equipment for the customer premises and network infrastructure markets.  For the customer-premises market, the Company offers multi-standard, high-speed interconnect solutions enabling the distribution and presentation of high-definition (HD) video and data content for consumer electronics applications. The Company also provides a family of best-in-class communications processors.  For the network infrastructure market, the Company provides integrated multi-core network processor system-on-a-chip solutions for fixed, 3G and 4G mobile, VoIP and multimedia applications.  TranSwitch’s customers are leading consumer electronics and telecom equipment companies around the globe.

Liquidity

The Company has incurred significant operating losses and has used cash in its operating activities for the past several years. Operating losses have resulted from inadequate sales levels for the cost structure. As of March 31, 2013, the Company has negative working capital of approximately $7.6 million. Included in negative working capital, the Company has outstanding indebtedness to Bridge Bank under its credit facility of $1.3 million.

On April 3, 2013 the Company raised $3.7 million in an underwritten public offering which improved the Company’s financial position from the end of the first quarter. The offering consisted of the sale of 8,300,000 units at a price to the public of $0.50 per unit. Each unit consists of one share of common stock and a warrant to purchase 0.50 of a share of common stock. The warrants have an exercise price of $0.58 per share.

In July of 2012, the Company announced a restructuring which primarily affected the telecom product unit and is expected to save $8.0 million in annual operating costs. The Company began to see these cost savings during the third quarter of 2012. With this restructuring, the Company has cancelled all development programs related to its telecom product lines and has redeployed all of its remaining research and development resources to focus on its interoperable connectivity solutions for consumer electronic and personal computer markets.  The Company also announced its intentions to sell its non-strategic assets. The Company is actively marketing its telecom related patent portfolio to provide additional liquidity. The Company continues to assess its cost structure in relationship to its revenue levels, which may necessitate further expense reductions. 

As with any operating plan, there are risks associated with the Company’s ability to execute it, including the current economic environment in which the Company operates. Therefore, there can be no assurance that the Company will be able to satisfy its obligations, or achieve the operating improvements absent an infusion of capital. If the Company is unable to execute this plan, it will need to find additional sources of cash not contemplated by the current operating plan and/or raise additional capital to sustain continuing operations as currently contemplated. There can be no assurance that the additional funding sources will be available to the Company at favorable rates or at all. If the Company cannot maintain compliance with its covenant requirements on its bank financing facility or cannot obtain appropriate waivers and modifications, the lenders may call the debt. If the debt is called, the Company would need to obtain new financing and there can be no assurance that it will be able to do so. If the Company is unable to achieve its operating plan and maintain compliance with its loan covenants and the debt is called, the Company will not be able to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that may result from the outcome of this uncertainty. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Consequently, the audit report prepared by the Company’s independent registered public accounting firm relating to its financial statements for the year ended December 31, 2012 includes an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to generate sufficient cash flows from operations to meet its anticipated needs for working capital and capital expenditures, it may need to raise additional funds. Such capital may not be available on terms favorable or acceptable to the Company, if at all. If the Company raises additional funds through the issuance of equity securities, its stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of the Company’s common stock.

On December 4, 2012, the Company received a letter from Nasdaq (the “Minimum Bid Price Notice”) notifying it that the closing bid price of its common stock was below the $1.00 minimum bid price requirement for 30 consecutive business days and, as a result, the Company no longer complied with the minimum bid price requirement under Listing Rule 5550(a)(2) for continued listing on Nasdaq. The Minimum Bid Price Notice also stated that the Company has been provided an initial compliance period of 180 calendar days, or until June 3, 2013, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must be at least $1.00 per share for a minimum of 10 consecutive business days prior to June 3, 2013. If the Company does not regain compliance by June 3, 2013, Nasdaq will provide notice to the Company that its securities will be subject to delisting.

On February 26, 2013, the Company received a letter from Nasdaq (the “Stockholders’ Equity Notice”) notifying it that the Company was no longer in compliance with the minimum stockholders’ equity requirement of at least $2.5 million for continued listing on Nasdaq. The Stockholders’ Equity Notice does not result in the immediate delisting of the Company’s common stock from Nasdaq. Rather, under the Nasdaq Listing Rules, the Company has 45 calendar days from the date of the Stockholders’ Equity Notice to submit to Nasdaq a plan to regain compliance. If the plan is accepted, Nasdaq may grant an extension of up to 180 calendar days from the date of the Stockholders’ Equity Notice for the Company to evidence compliance. Nasdaq is currently reviewing the Company’s plan and will determine whether to accept the plan, considering such criteria as the likelihood that the plan will result in compliance with Nasdaq’s continued listing criteria, the Company’s past compliance history, the reasons for the Company’s current non-compliance, other corporate events that may occur within the review period, the Company’s overall financial condition and its public disclosures. If Nasdaq does not accept the plan, the Company will have the opportunity to appeal that decision to a Hearings Panel.

If the Company is delisted and cannot obtain listing on another major market or exchange, its stock’s liquidity would suffer, and it would likely experience reduced investor interest. Such factors may result in a decrease in the Company’s stock’s trading price. In addition, the failure to trade on a national securities exchange may hinder the Company’s efforts to obtain financing.

As of March 31, 2013 and December 31, 2012, the Company had total cash, cash equivalents and restricted cash balances of approximately $0.6 million and $2.2 million, respectively. This and the Company’s credit facility are its primary sources of liquidity, as the Company is not currently generating any significant positive cash flow from our operations.

The Company has an active universal shelf registration statement with the Securities and Exchange Commission, which will enable the Company to raise funds through one or more issuances of the securities covered by such registration statement when and if such registration statement is declared effective by the Securities and Exchange Commission. An offering of securities covered by the shelf registration statement will be made only by means of a written prospectus and prospectus supplement, and the specific terms of any future offering will be subject to prevailing market conditions. If the Company were to undertake such an offering, it may use the net proceeds from the sale of such securities for general corporate purposes, which may include repayment or refinancing of existing indebtedness, acquisitions, investments, capital expenditures, repurchase of capital stock and for any other purposes that the Company may specify in any prospectus supplement.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

Cash and cash equivalents are held by high-quality financial institutions, thereby reducing credit risk concentrations. In addition, the Company limits the amount of credit exposure to any one financial institution.

At March 31, 2013 and December 31, 2012, approximately 69% and 71% of accounts receivable were due from five customers. The majority of the Company’s sales are to customers in the telecommunications and data communications industries. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

Customers that accounted for more than 10% of total accounts receivable at each period end follow:

	March 31,  2013			December 31,  2012
Customer A		26	%		29	%
Customer B		24	%		*
Customer C		*			26	%

* Accounts receivable due were less than 10% of the Company’s total accounts receivable.