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 that could cause actual results to differ materially from those contained in the forward-looking statements, including without limitation the risks associated with 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 associated with foreign sales and high customer concentration; risks associated with competition and competitive pricing pressures; risks in technology development and commercialization; risks of failing to attract and retain key managerial and technical personnel; risks relating to TranSwitch’s available cash; risks associated with acquiring new businesses; risks of dependence on third-party VLSI fabrication facilities; risks related to intellectual property rights and litigation; and other risks detailed in TranSwitch's filings with the Securities and Exchange Commission.

TranSwitch expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based.

TranSwitch is a registered trademark of TranSwitch Corporation.

Reconciliation of Non-GAAP Financial Measures to Comparable U.S. GAAP Measures (Unaudited)

Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of each non-GAAP financial measure used in this earnings release and related conference call or webcast to the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The reconciliation for historic non-GAAP measures is provided herein on a quantitative basis and for non-GAAP measures that are forward-looking is provided herein on a qualitative basis.

The non-GAAP measures used in this earnings release and related conference call differ from GAAP in that they exclude expenses related to stock-based compensation, amortization of intangible assets, the effects of special charges such as asset impairments, restructuring charges and benefits from the reversal of accrued royalties. The Company’s basis for these adjustments is described below. Management uses these non-GAAP measures for internal reporting and forecasting purposes. The Company has provided these non-GAAP financial measures in addition to GAAP financial results because it believes that these non-GAAP financial measures provide useful information to certain investors and financial analysts for comparison across accounting periods not influenced by certain non-cash items that are not used by management when evaluating the Company’s historical and prospective financial performance.

Management uses these non-GAAP financial measures when evaluating the Company’s operating performance and believes that such measures are useful to investors and financial analysts in assessing the Company’s operating performance as the Company believes that the presentation of non-GAAP measures that adjust for the impact of stock-based compensation expenses, amortization of intangible assets, the effects of special charges such as asset impairments and restructuring charges and benefits from the reversal of accrued royalties provides investors and financial analysts with a consistent basis for comparison across accounting periods and, therefore, are useful to investors and financial analysts in helping them to better understand the Company’s operating results and underlying operational trends.

We do not provide forward-looking GAAP measures or a reconciliation of the forward-looking non-GAAP measures to GAAP measures because of our inability to project special charges, asset impairments, employee separation costs and stock-based compensation related expenses.

The non-GAAP financial measures we provide have certain limitations because they do not reflect all of the costs associated with the operation of our business as determined in accordance with GAAP. The non-GAAP measures are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. We endeavor to compensate for the limitations of these non-GAAP measures by providing GAAP financial statements, descriptions of the reconciling items and a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures so that investors can appropriately incorporate the non-GAAP measures and their limitations into their analyses. Please see our financial statements and "Management's Discussion and Analysis of Results of Operations and Financial Condition" that will be included in the periodic report we expect to file with the SEC with respect to the financial periods discussed herein.

TranSwitch Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except for per share amounts)
				Three Months Ended																		Six Months Ended
				Jun 30, 2013						Mar 31, 2013						Jun 30, 2012						Jun 30, 2013					Jun 30, 2012
Net revenues:
Product revenues				$	2,514					$	2,098					$	2,374					$	4,612				$	5,536
Intellectual property and service revenues					323						2,545						1,451						2,868					1,970
Total net revenues					2,837						4,643						3,825						7,480					7,506
Cost of revenues:
Cost of product revenues					438						686						866						1,124					1,985
Provision for excess and obsolete inventories					66						82						220						148					451
Cost of service revenues					271						119						175						390					336
Total cost of revenues					775						887						1,261						1,662					2,772
Gross profit					2,062						3,756						2,564						5,818					4,734
Operating expenses:
Research and development					2,994						3,781						4,678						6,775					9,014
Marketing and sales					902						975						1,317						1,877					2,959
General and administrative					1,747						1,784						1,930						3,531					4,062
Restructuring charges					665						254						1,001						919					1,001
Reversal of accrued royalties					(433	)					(179	)					(442	)					(612	)				(500	)
Total operating expenses					5,875						6,615						8,484						12,490					16,536
Operating loss (Note 1)					(3,813	)					(2,859	)					(5,920	)					(6,672	)				(11,802	)
Other (expense) income:
Other (expense) income					(9	)					(20	)					57						(29	)				(44	)
Change in fair value of derivative liability					246						-						-						246					-
Interest income (expense):
Interest income					9						3						17						12					40
Interest expense					(28	)					(58	)					(32	)					(86	)				(41	)
Interest (expense), net					(19	)					(55	)					(15	)					(74	)				(1	)
Total other income (expense), net					218						(75	)					42						143					(45	)
Loss before income taxes					(3,595	)					(2,934	)					(5,878	)					(6,529	)				(11,847	)
Income tax expense					192						173						119						365					233
Net loss				$	(3,787	)				$	(3,107	)				$	(5,997	)				$	(6,894	)			$	(12,080	)
Net loss per common share – basic and diluted				$	(0.08	)				$	(0.08	)				$	(0.19	)				$	(0.17	)			$	(0.39	)
Weighted average common shares outstanding – basic and diluted					45,961						36,873						31,617						41,417					31,151
Note 1: Stock-based compensation expense included in cost of revenues and operating expenses is as follows:
Cost of revenues				$	(5	)					7						(14	)					2					(8	)
Research and development					46						153						78						199					198
Marketing and sales					45						127						39						172					150
General and administrative					346						287						283						633					578
Total				$	432					$	574					$	386					$	1,006				$	918

TranSwitch Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
				June 30, 2013						December 31, 2012
ASSETS
Current assets:
Cash, cash equivalents, restricted cash and short-term investments				$	838					$	2,244
Accounts receivable, net					3,386						4,238
Inventories					1,073						748
Prepaid expenses and other current assets					1,406						1,409
Total current assets					6,703						8,639
Property and equipment, net					1,013						1,111
Goodwill					5,271						5,271
Other intangible assets, net					482						548
Other assets					1,950						2,028
Total assets				$	15,419					$	17,597
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank debt				$	1,700					$	2,432
Accounts payable, accrued expenses and other current liabilities					10,614						10,457
Current portion of restructuring liabilities					2,099						2,016
Total current liabilities					14,413						14,905
Restructuring liabilities					1,359						1,463
Derivative liability					927						-
Total liabilities					16,699						16,368
Total stockholders’ (deficit) equity					(1,280	)					1,229
Total liabilities and stockholders’ (deficit) equity				$	15,419					$	17,597

TRANSWITCH CORPORATION
Supplemental Reconciliation of GAAP Results to Non-GAAP
(Unaudited)
(In thousands, except per share data)
				Three Months Ended																		Six Months Ended
				Jun 30, 2013						Mar 31, 2013						Jun 30, 2012						Jun 30, 2013						Jun 30, 2012
GAAP gross profit				$	2,062					$	3,756					$	2,564					$	5,818					$	4,734
Add:
Stock-based compensation					(5	)					7						(14	)					2						(8	)
Non-GAAP gross profit				$	2,057					$	3,763					$	2,550					$	5,820					$	4,726
GAAP gross margin					72.7	%					80.9	%					67.0	%					77.8	%					63.1	%
Stock-based compensation					-0.2	%					0.2	%					-0.4	%					0.0	%					-0.1	%
Non-GAAP gross margin					72.5	%					81.0	%					66.7	%					77.8	%					63.0	%
GAAP research and development expenses				$	2,994					$	3,781					$	4,678					$	6,775					$	9,014
Less:
Amortization of purchase accounting intangibles					8						7						42						15						77
Stock-based compensation					46						153						78						199						198
Non-GAAP research and development expenses				$	2,940					$	3,621					$	4,558					$	6,561					$	8,739
GAAP selling, general, and administrative expenses				$	2,649					$	2,759					$	3,247					$	5,408					$	7,021
Less:
Amortization of purchase accounting intangibles					25						25						36						50						79
Stock-based compensation					391						414						322						805						728
Non-GAAP selling, general, and administrative expenses				$	2,233					$	2,320					$	2,889					$	4,553					$	6,214
GAAP operating expenses				$	5,875					$	6,615					$	8,484					$	12,490					$	16,536
Less:
Amortization of purchase accounting intangibles					33						32						78						65						156
Stock-based compensation					437						567						400						1,004						926
Reversal of accrued royalties and other					(433	)					(179	)					(442	)					(612	)					(500	)
Restructuring charges					665						254						1,001						919						1,001
Non-GAAP operating expenses				$	5,173					$	5,941					$	7,447					$	11,114					$	14,953
Non-GAAP operating loss				$	(3,116	)				$	(2,178	)				$	(4,897	)				$	(5,294	)				$	(10,227	)
GAAP net loss				$	(3,787	)				$	(3,107	)				$	(5,997	)				$	(6,894	)				$	(12,080	)
Add:
Amortization of purchase accounting intangibles					33						32						78						65						156
Stock-based compensation					432						574						386						1,006						918
Reversal of accrued royalties and other					(433	)					(179	)					(442	)					(612	)					(500	)
Restructuring charges					665						254						1,001						919						1,001
Non-GAAP net loss				$	(3,090	)				$	(2,426	)				$	(4,974	)				$	(5,516	)				$	(10,505	)
Non-GAAP basic net loss per share				$	(0.07	)				$	(0.07	)				$	(0.16	)				$	(0.13	)				$	(0.34	)
Basic shares used to calculate non-GAAP net loss per share					45,961						36,873						31,617						41,417						31,151

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