[May 15, 2013] TRANSWITCH CORP /DE - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations Tweet (Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion and analysis in conjunction with our unaudited interim condensed consolidated financial statements and the related notes thereto contained in Part 1, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012 and Quarterly Reports on Form 10-Q filed subsequently thereto. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains, and any documents incorporated herein by reference may contain, forward-looking statements that involve risks and uncertainties. When used in this document, the words, "intend", "anticipate", "believe", "estimate", "plan", "expect" and similar expressions as they relate to us are included to identify forward-looking statements. Our actual results could differ materially from the results discussed in the forward-looking statements as a result of risk factors including those set forth in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012 and our other Quarterly Reports on Form 10-Q filed subsequently thereto. COMPANY OVERVIEW We 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, we offer multi-standard, high-speed interconnect solutions enabling the distribution and presentation of high-definition (HD) video and data content for consumer electronics applications. High-speed interconnect solutions include HDMI, Displayport and Ethernet IP cores and our recently introduced product family HDplay, which incorporates our proprietary HDP technology. Our HDP technology combines HDMI 1.4 and Displayport 1.1 and supports either standard with a single connector. The applications for this product include projectors, AVR systems and monitors. Our interoperable connectivity solutions are sold to original equipment manufacturers (OEMs) for use in consumer electronics and our licensees have included Samsung, Intel, Texas Instruments, IBM, NEC, TSMC and many others. For the network infrastructure market, we provide integrated multi-core network processor system-on-a-chip solutions for fixed, 3G and 4G mobile, VoIP and multimedia applications. Network infrastructure processing equipment includes multi-media processing engines to address multiple carrier segments such as wireline and wireless gateways, session border controllers, media resource functions, multi-service access nodes, passive optical network multi-dwelling units and translation gateways. Enterprise applications include VoIP private branch exchanges. Communication network premises equipment includes IP multimedia subsystem and Voice over LTE capable 4G/LTE fixed wireless gateways, residential gateway routers, small office, home office routers and secure VoIP private branch exchanges. We have developed and maintained a broad intellectual property portfolio. We have leveraged our portfolio by licensing our software and, from time to time, selling our patents. In connection with developments in our industry and our long-term growth strategy, we continually evaluate our portfolio of businesses to ensure that we are investing in those businesses that will contribute to shareholder value over the long term. While we continue to offer our suite of broadband wireline and wireless telecom products, we have strategically refocused our efforts to our interconnect technologies which we believe are differentiated and provide the greatest opportunity of future growth as further described below. We continue to reduce operating expenses. All product and software development programs related to our telecom product lines have been cancelled and all of our remaining research and development resources in India and Israel have been redeployed to our interoperable connectivity solutions for consumer electronic and personal computer markets. TranSwitch Corporation is a Delaware corporation incorporated on April 26, 1988. Our principal executive offices are located at 3 Enterprise Drive, Shelton CT 06484, and our telephone number at that location is (203) 929-8810. Our Internet address is www.transwitch.com. Our common stock trades on the Nasdaq Capital Market under the symbol "TXCC." 14 Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports are made available free of charge through the Investor Relations section of our Internet website (http://www.transwitch.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Material contained on our website is not incorporated by reference in this Quarterly Report on Form 10-Q. Our executive offices are located at Three Enterprise Drive, Shelton, CT 06484. 15 CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES Our unaudited interim condensed consolidated financial statements and related disclosures, which are prepared to conform with accounting principles generally accepted in the United States of America (U.S. GAAP), require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the period reported. We are also required to disclose amounts of contingent assets and liabilities at the date of the consolidated financial statements. Our actual results in future periods could differ from those estimates and assumptions. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. During the three months ended March 31, 2013, there were no significant changes to the critical accounting policies we disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, 2012. RESULTS OF OPERATIONS The results of operations that follow should be read in conjunction with our critical accounting policies and use of estimates summarized above as well as our accompanying unaudited interim condensed consolidated financial statements and notes thereto contained in Item 1 of this Quarterly Report on Form 10-Q. The following table sets forth certain unaudited interim condensed consolidated statements of operations data as a percentage of net revenues for the periods indicated. Three Months Ended March 31 2013 2012 Net revenues: Product revenues 45 % 86 % Intellectual property and service revenues 55 % 14 % Total net revenues 100 % 100 % Cost of revenues: Cost of product revenues 15 % 31 %Provision for excess and obsolete inventories 2 % 6 % Cost of intellectual property and service revenues 2 % 4 % Total cost of revenues 19 % 41 % Gross profit 81 % 59 % Operating expenses: Research and development 82 % 118 % Marketing and sales 21 % 45 % General and administrative 39 % 58 % Restructuring charges, net 5 % - Reversal of accrued royalties (4 )% (2 )% Total operating expenses 143 % 219 % Operating loss (62 )% (160 )% Net Revenues We have two product line categories: Customer Premises Equipment (CPE) and Network Infrastructure. Our CPE product line category includes HDMI, DisplayPort and Ethernet IP Cores which have been incorporated into a number of consumer electronics and PC appliances and Multi-Service Communications Processors used in broadband modems or to be added as part of a small office, home office, or SOHO network. Our CPE product line also includes our recently introduced product family HDplay, which incorporates our proprietary HDP technology. Our HDP technology combines HDMI 1.4 and Displayport 1.1 and supports either standard with a single connector. The applications for this product include projectors, AVR systems and monitors. Our interoperable connectivity solutions are sold to original equipment manufacturers (OEMs) for use in consumer electronics. 16 Our Network Infrastructure product line category includes our Optical Transport, Carrier Ethernet, Media Gateway/VoIP and Broadband Access product lines. The Optical Transport products are incorporated into OEM systems that improve the efficiency of fiber optic networks for packetized data traffic, thereby increasing the overall network capacity. Our Media Gateway/VoIP products provide Voice-over-IP and other packet processing functionality in a variety of equipment types deployed in wireless and wire-line carrier networks as well as in enterprise networks. These equipment types include large capacity media gateways in the core of the network, small-medium capacity access gateways in the 'last-mile' section of the network and customer premise equipment for business and residential subscribers. The Broadband Access product line is incorporated into equipment that provides high speed connections to subscribers using fiber (FTTx) or DSL technology, enabling telecommunications service providers to support next generation voice, data and video services. The Carrier Ethernet product line facilitates the transition of existing networks-based legacy voice oriented technologies to Ethernet technology which is more suitable and efficient for supporting next generation converged video, data and voice services. Our Network Infrastructure product line and our Multi-Service Communications Processors continue to show a decline year over year. As such, this may affect our goodwill impairment analysis in the future. The following table summarizes our net revenue mix by product line category: Three Months Ended Three Months Ended (in thousands) March 31, 2013 March 31, 2012 Percent of Percent of Percentage Net Total Net Net Total Net Increase in Revenues Revenues Revenues Revenues Revenues Network Infrastructure $ 2,944 63 % $ 2,942 80 % - % Customer Premises Equipment 1,699 37 % 739 20 % 130 % Total net revenues $ 4,643 100 % $ 3,681 100 % 26 % Total net revenues for the three months ended March 31, 2013 were $4.6 million as compared to $3.7 million for the three months ended March 31, 2012, an increase of $1.0 million, or 26%. Our Network Infrastructure revenues for the three months ended March 31, 2013 were essentially flat with Network Infrastructure revenues for the three months ended March 31, 2012. Within Network Infrastructure, we had increased service related revenues which were offset by decreased sales of our VoIP and Optical transport products. The Network Infrastructure service related revenues for the three months ended March 31, 2013 including IP licensing revenue and a 0.8 million patent sale. Our CPE revenues increase of approximately 130% was attributable to increased service revenues for IP licensing of our high speed interface technology of approximately $1.1 million. International net revenues represented approximately 35% of net revenues for the three months ended March 31, 2013 as compared to 84% for the three months ended March 31, 2012. Gross Profit Total gross profit for the three months ended March 31, 2013 increased by approximately $1.6 million or 73% as compared to the three months ended March 31, 2012. The increase in gross profit was primarily the result of an increase in total net revenues. The increased revenues were largely due to increased service revenues including licensing agreements and patent sales which had high gross profit percentages as compared to gross profit percentages in the same period last year. The total gross profit as a percentage of revenue was 81% and 59% for three months ended March 31, 2013 and 2012, respectively. Also during the three months ended March 31, 2013 and 2012, we recorded provisions for excess and obsolete inventories in the amounts of approximately $0.1 million and $0.2 million, respectively. We anticipate that gross profit will continue to be impacted by fluctuations in the volume and mix of our product shipments as well as material costs, yield and the fixed cost absorption of our product operations. Research and Development Research and development expenses consist primarily of salaries and related costs of employees engaged in research, design and development activities, costs related to electronic design automation tools, subcontracting and fabrication costs, depreciation and amortization, and facilities expenses. During the three months ended March 31, 2013, research and development expenses decreased $0.6 million, or 13% over the comparable period of 2012. These decreases were a result of decreased labor and other cost savings as a result of workforce reductions from a restructuring plan that was implemented during the second half of 2012. The workforce reductions principally affected our Network Infrastructure product line. The decreased expenses were partially offset by some non-recurring subcontracting and fabrications costs during the three months ended March 31, 2013. 17 All product and software development programs related to our telecom product lines have been cancelled and we have redeployed all of our remaining research and development resources in India and Israel to our interoperable connectivity solutions for consumer electronic and personal computer markets. We will continue to closely monitor both our costs and our revenue expectations in future periods. We will continue to concentrate our spending on research and development to meet our customer requirements and respond to market conditions. Marketing and Sales Marketing and sales expenses consist primarily of personnel-related, trade show, travel and facilities expenses. Marketing and sales expenses for the three months ended March 31, 2013 decreased by $0.7 million or 42% as compared to the three months ended March 31, 2012. These decreases were a result of decreased salaries and personnel related expenses as a result of workforce reductions from a restructuring plan that was implemented during the second half of 2012. General and Administrative General and administrative expenses consist primarily of personnel-related expenses, professional and legal fees, and insurance and facilities expenses. General and administrative expenses for the three months ended March 31, 2013 decreased $0.3 million or 16% as compared to the comparable period in 2012. This decrease was a result of decreased professional and legal fees, along with decreased salaries as a result of workforce reductions from a restructuring plan that was implemented during the second half of 2012. Restructuring Charges, net During the three months ended March 31, 2013 and 2012, we recorded net restructuring charges of $0.3 million and zero, respectively. Information on restructuring charges is located in Note 11 (Restructuring Charges) of the Notes to Unaudited Condensed Consolidated Financial Statements. Interest (Expense) Income, net Interest (expense) income, net was an expense of $0.1 million and income of less than $0.1 million for the three months ended March 31, 2013 and 2012, respectively. Interest expense increased approximately $0.1 million for the three months ended March 31, 2013 as compared to the comparable period of 2012 due to higher outstanding borrowings on our credit facility during the current year period. Interest income decreased less than $0.1 million for the three months ended March 31, 2013 as compared to the comparable period of 2012 due to lower cash balances during the current year period. Interest income may fluctuate in the future as it is affected by our cash and investment balances and the related interest rates. At March 31, 2013 and 2012, the effective interest rate on our interest-bearing securities was approximately 0.2% and 2.9%, respectively. Income Tax Expense Income tax expense was approximately $0.2 million and $0.1 million for the three months ended March 31, 2013 and 2012, respectively. The amounts that were recorded reflect income taxes on the earnings of certain of our foreign subsidiaries, principally, India. During the three months ended March 31, 2013 and 2012, we evaluated our deferred income tax assets as to whether it is "more likely than not" that the deferred income tax assets will be realized. In our evaluation of the realizability of deferred income tax assets, we consider projections of future taxable income, the reversal of temporary differences and tax planning strategies. We have evaluated the realizability of the deferred income tax assets, and have determined that it is "more likely than not" that all of the deferred income tax assets will not be realized. Accordingly, a valuation allowance was recorded for all of our domestic net deferred income tax assets. In future periods, we will not recognize a deferred tax benefit and will maintain a deferred tax valuation allowance until we achieve sustained U.S. taxable income. Additionally, in the future, we expect our current income tax expense to be related to taxable income generated by our foreign subsidiaries. 18 LIQUIDITY AND CAPITAL RESOURCES We have incurred significant operating losses and have used cash in our operating activities for the past several years. Operating losses have resulted from inadequate sales levels for our cost structure. As of March 31, 2013, we had negative working capital of approximately $7.6 million. Included in negative working capital, we had outstanding indebtedness to Bridge Bank under our credit facility of $1.3 million. On April 3, 2013 we raised $3.7 million in an underwritten public offering which improved our 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, we announced a restructuring which primarily affected the telecom product unit and is expected to save $8.0 million in annual operating costs. We began to see these cost savings during the third quarter of 2012. With this restructuring, we have cancelled all development programs related to our telecom product lines. We have redeployed all of our remaining research and development resources to focus on its interoperable connectivity solutions for consumer electronic and personal computer markets. We also announced our intentions to sell our non-strategic assets. We are actively marketing our telecom related patent portfolio to provide additional liquidity. We continue to assess our cost structure in relationship to our revenue levels, which may necessitate further expense reductions. As with any operating plan, there are risks associated with our ability to execute it, including the current economic environment in which we operate. Therefore, there can be no assurance that we will be able to satisfy our obligations, or achieve the operating improvements absent an infusion of capital. If we are unable to execute this plan, we 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 us at favorable rates or at all. If we cannot maintain compliance with our covenant requirements on our bank financing facility or cannot obtain appropriate waivers and modifications, the lenders may call the debt. If the debt is called, we would need to obtain new financing and there can be no assurance that we will be able to do so. If we are unable to achieve our operating plan and maintain compliance with our loan covenants and our debt is called, we 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 our ability to continue as a going concern. Consequently, the audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2012 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. If we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we may need to raise additional funds. Such capital may not be available on terms favorable or acceptable to us, if at all. If we raise additional funds through the issuance of equity securities, our stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of our common stock. On December 4, 2012, we received a letter from Nasdaq (the "Minimum Bid Price Notice") notifying us that the closing bid price of our 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 we have 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 our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days prior to June 3, 2013. If we do not regain compliance by June 3, 2013, Nasdaq will provide notice to us that our securities willbe subject to delisting. On February 26, 2013, we received a letter from Nasdaq (the "Stockholders' Equity Notice") notifying us that we were 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 our common stock from Nasdaq. Rather, under the Nasdaq Listing Rules, we have 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 us 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, our past compliance history, the reasons for our current non-compliance, other corporate events that may occur within the review period, our overall financial condition and our public disclosures. If Nasdaq does not accept the plan, we will have the opportunity to appeal that decision to a Hearings Panel. If we are delisted and cannot obtain listing on another major market or exchange, our stock's liquidity would suffer, and we would likely experience reduced investor interest. Such factors may result in a decrease in our stock's trading price. In addition, the failure to trade on a national securities exchange may hinder our efforts to obtain financing. As of March 31, 2013 and December 31, 2012, we had total cash, cash equivalents and restricted cash balances of approximately $0.6 million and $2.2 million, respectively. This and our credit facility are our primary sources of liquidity, as we are not currently generating any significant positive cash flow from our operations. A summary of our cash, cash equivalents, restricted cash, credit agreements and future commitments are detailed as follows: We have an active universal shelf registration statement with the Securities and Exchange Commission, which will enable us 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 we undertake such an offering, we 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 we may specify in any prospectus supplement. Operating Activities Operating activities used cash of $1.5 million for the three months ended March 31, 2013. This resulted from a net loss of $3.1 million which was offset by non-cash items of approximately $0.9 million. We also experienced cash usage for working capital from an increase in accounts receivable of $0.6 million, an increase in inventories of $0.2 million, an increase in prepaid and other current assets of $0.1 million and a decrease in restructuring liabilities of $0.6 million. These working capital uses were offset by a working capital increase to cash as a result of an increase accounts payable of $2.1 million and an increase in accrued expenses of $0.1 million. Investing Activities Net cash used in investing activities for the three months ended March 31, 2013 was less than $0.1 million from the purchases of fixed assets. Financing Activities Net cash used by financing activities for the three months ended March 31, 2013 was $0.1 million. This was the result of $1.1 million in cash used for payments on our credit facility partially offset by $1.0 million of cash provided bysales of our common stock. 19 Cash, Cash Equivalents, Restricted Cash, Investments, Credit Agreements and Issuances of Common Stock Our primary source of liquidity is cash, cash equivalents, restricted cash, short-term investment balances, a credit facility agreement and issuances of our common stock. Financing Activities: On April 3, 2013, we closed an underwritten public offering of 8,300,000 units, consisting of one share of common stock and a warrant to purchase 0.50 of a share of common stock, which included 1,245,000 units pursuant to the exercise in full of the over-allotment option granted to the underwriter. After the underwriting discount and estimated offering expenses payable by us, we received net proceeds of approximately $3.7 million. The warrants are exercisable on the earlier of the first anniversary of the date of issuance, or the day after the date on which we file a certificate of amendment increasing our number of authorized shares of Common Stock, and expire on the fifth anniversary of the date such amendment is filed. The exercise price and number of shares of Common Stock issuable upon exercise of the warrants will be subject to adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization, reorganization or similar transaction, among other events as described in the warrants. In addition, the warrants contain full ratchet anti-dilution protection upon the issuance of any common stock, securities convertible into common stock, or certain other issuances at a price below the then-existing exercise price of the warrants, with certain exceptions. We agreed with the investors in the offering to hold a stockholders' meeting by July 31, 2013 to seek stockholder approval for an increase in the authorized shares of our Common Stock. If we are unable to obtain the required stockholder approval by the day following the first anniversary of the issuance date, we will be required to pay liquidated damages of $1,000,000. On July 16, 2012, we entered into a Common Stock Purchase Agreement (the "Common Stock Purchase Agreement") with Aspire Capital Fund, LLC, an Illinois limited liability company ("Aspire Capital"), pursuant to which we, from time to time, could issue and sell to Aspire Capital shares of our common stock. Under the terms of the Common Stock Purchase Agreement, we could issue and sell to Aspire Capital shares of our common stock for aggregate gross sales proceeds of up to $11,000,000, subject to the terms and conditions set forth in such agreement. On March 27, 2013, we delivered to Aspire Capital notice of termination of the Common Stock Purchase Agreement, which termination became effective March 28, 2013. We decided to terminate the Common Stock Purchase Agreement because we did not intend to utilize such agreement to raise additional capital. We did not incur any termination fees or penalties as a result of such termination. In connection with the termination of the Common Stock Purchase Agreement, we also terminated the Registration Rights Agreement (the "Registration Rights Agreement") with Aspire Capital, dated July 16, 2012. Upon termination of the Registration Rights Agreement, we were no longer be under any obligation to register any of our securities for Aspire Capital. During the three months ended March 31, 2013, Aspire purchased a total of 1,250,000 shares under the Common Stock Purchase Agreement for net proceeds to us of approximately $1.0 million. Credit Facility: On April 4, 2011, the Company entered into an Amended and Restated Business Financing Agreement (the "Amended Financing Agreement") with Bridge Bank N.A. ("Bridge Bank") which amended and restated its existing credit facility. The Amended Financing Agreement provides a credit facility to the Company of up to $5.0 million which bears interest at the higher of (i) the prime rate plus 2.0% or (ii) 5.25% percent, plus the payment of certain fees and expenses (the "Facility"). The Facility is secured by substantially all the personal property of the Company, including its accounts receivable and intellectual property. Subject to the terms of the Amended Financing Agreement, availability under the Facility is based on a formula pursuant to which Bridge Bank would advance an amount equal to the lower of $5.0 million or 80% of the Company's eligible accounts receivable ($3.1 million at March 31, 2013) with account eligibility and advance rates determined by Bridge Bank in its sole discretion. Prior to the amendment of the Amended Financing Agreement described below, the term of the Facility was two years and at the expiration of such term, all loan advances under the Facility would have become immediately due and payable. Under the Facility, the Company had outstanding borrowings of $1.3 million at March 31, 2013 and $2.4 million at December 31, 2012. During the first quarter of 2013, the Company was not in compliance with a financial covenant under the Facility. On April 10, 2013, the Company entered into an agreement with Bridge Bank pursuant to which Bridge Bank agreed to waive such noncompliance, make certain other modifications and extend the maturity to July 3, 2013. The Company was in compliance with this financial covenant as of March 31, 2013 and all subsequent measurement periods. Although the Company is in discussions with Bridge Bank about extending the Facility beyond July 3, 2013, the Company cannot assure that it will be able to extend or renew the Facility on terms reasonably acceptable to the Company or at all. In the future, if the Company is unable to maintain its compliance or obtain a waiver of noncompliance with any covenants, Bridge Bank could accelerate the indebtedness, which could impair the Company's ability to continue to conduct its business. If the Company's indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for the Company to refinance its debt or obtain additional financing, which could adversely affect the Company's ability to continue its business. A summary of the net change in total cash and investments follows: March 31, December 31, March 31, December 31, (in thousands) 2013 2012 Change 2012 2011 ChangeCash and cash equivalents $ 514 $ 2,156 $ (1,642 ) $ 3,491 $ 5,453 $ (1,962 ) Restricted cash 88 88 - 88 98 (10 ) Short-term investments - - - 1,503 2,003 (500 ) Total cash and investments $ 602 $ 2,244 $ (1,642 ) $ 5,082 $ 7,554 $ (2,472 ) 20 Effect of Exchange Rates and Inflation: Exchange rates and inflation have not had a significant impact on our operations or cash flows. Commitments and Significant Contractual Obligations There have been no material changes to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on March 25, 2013. Additional comments related to our contractual obligations are presented below. We have outstanding operating lease commitments of approximately $12.6 million, payable over the next five years. Some of these commitments are for space that is not being utilized and for which we recorded restructuring charges in prior periods. As of March 31, 2013, we have sublease agreements totaling approximately $8.9 million to rent portions of our excess facilities over the next five years. We currently believe that we can fund these lease commitments in the future; however, there can be no assurances that we will not be required to seek additional capital or provide additional guarantees or collateral on these obligations. We also have pledged approximately $0.1 million as of March 31, 2013 and December 31, 2012 as collateral for stand-by letters of credit to support customer credit requirements. These amounts were in our bank accounts and are included in our restricted cash balances. 21 [ Back To TMCnet.com's Homepage ]