U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For Fiscal Year Ended December 31, 1996
Commission File Number: 333-09935
MULTIMEDIA ACCESS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 75-2528700
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(State of Incorporation) (I.R.S. Employer Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200 DALLAS, TEXAS 75234 (972) 488-7200
(Address including zip code, area code and telephone number of
Registrant's executive offices.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- - ------------------- -----------------------------------------
Common Stock, $.0001 par value NASDAQ
Redeemable Common Stock Purchase
Warrants NASDAQ
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 No X
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $1,095,012
As of March 25, 1997, 7,906,291 shares of the Registrant's common stock were
outstanding.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 25, 1997 - $23,667,473. This amount was computed by reference
to the average of the bid and asked prices of registrant's common stock.
Documents incorporated by reference: Proxy Statement, Part III
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TABLE OF CONTENTS
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Item No. Page
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Glossary 3
Part I
<S> <C>
1. Description of Business 4 - 10
2. Description of Property 10
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters 11
6. Management's Discussion and Analysis of Financial Condition and Results 11 - 12
of Operations
7. Consolidated Financial Statements 13 - 32
8. Changes in and Disagreements with Accountants on Accounting and Financial 33
Disclosure
Part III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance 33
with Section 16(a) of the Exchange Act
10. Executive Compensation 33
11. Security Ownership of Certain Beneficial Owners and Management 33
12. Certain Relationships and Related Transactions 33
13. Exhibits List and Reports on Form 8-K 33
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GLOSSARY
Algorithm: A step-by-step problem solving procedure.
Asynchronous: That which takes place in different time frames and
is accessed at the user's convenience.
Bandwidth: The amount of information that can be transmitted
across an information channel.
Frame Relay: Packet data protocol with less error correction to
speed up communication over high quality connections.
Intranet: A private Internet.
Internet: A network of computer networks using TCP/IP protocol.
ISDN: (Integrated Services Digital Network) - a digital
network that provides seamless communication of
voice, video and text between desktop and group
systems. ISDN is expected to replace current
telephone lines.
Kilobits: A thousand bits; a measure of the rate of data
transmission.
LAN: (Local Area Network) - a private computer network
connecting computers in the same building or campus
using coaxial cable, twisted pair or multimode fiber.
MBONE: Multimedia broadcast capability over the Internet.
Multimedia: A combination of multiple digitized data types: text,
sound, computer-generated graphics and animations,
photographs and video.
NTSC: The standard for scanning television signals in the
US, Canada and Japan.
Packet: A grouping of data, typically from one to 512
characters in size, which usually represents one
transaction.
PCI Bus: A fast 32 bit PC bus for peripherals.
Protocol: A set of rules for data communications; a set of
rules and procedures for establishing and controlling
the exchange of data between computers.
S Bus: A proprietary high speed interface for Sun
workstations.
Switched Architecture: Any network or device in which switching is present
and is used to direct messages from the sender to the
ultimate recipient.
TCP/IP: (Transmission Control Protocol/Internet Protocol) -
the protocol used for packet oriented communication
between networked computers.
UTP: (Unshielded Twisted Pair) - standard building wiring
currently used to transmit voice (telephone) and data
throughout an office or building.
WAN: (Wide Area Network) - a computer network covering a
geographic area larger than a campus, generally
linking multiple LANs.
Whiteboard: A shared drawing or graphics session or capability
between two remote computers.
World Wide Web: A very large collection of linked Internet servers
using a standard linking and display language.
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PART I
Item 1. Description of Business
GENERAL
MultiMedia Access Corporation develops and markets advanced video
communications products for the PC and workstation marketplaces. Applications
include desktop videoconferencing ("DVC"), Internet and Intranet video
communications, video-based training, video surveillance, distance learning and
high quality workgroup video communications. While the Company sells its core
video Codec and video switching technologies to value-added resellers ("VARs")
and systems integrators, its primary strategy is to develop and market video
communications applications using its technologies.
The Company, in September 1996, entered into a reseller agreement with
Unisys, a nationwide systems integrator and reseller, to purchase and resell the
Company's Viewpoint VBX(TM). The Viewpoint VBX(TM) is a PC-based video switch
which provides workgroup video communications over existing telephone or network
wiring commonly found throughout office buildings. Unlike commercially available
competitive products, the Viewpoint VBX(TM) connects over 100 users per switch
and distributes full-motion video at distances up to 3,500 feet via existing UTP
wiring.
The Company entered into a licensing agreement with Boca Research, Inc.
(Boca), a major modem and PC peripheral supplier, to manufacture and market the
Company's FamilyFone(TM) and its ISDN videoconferencing upgrades in January 1996
and delivered its first video surveillance system to Alcatel, a major
communications systems integration company, in the first quarter of 1996. The
Company believes it sells the only currently available standards-based,
multi-algorithm video and audio Codec product for WindowsNT and is developing a
multi-algorithm Codec for Sun workstations.
INDUSTRY BACKGROUND
Videoconferencing was introduced in the late 1970s with the establishment
of videoconferencing room systems. To transmit "live" video images (which may
contain over 90 million bits per second of data) over telecommunications lines,
the video data must be digitized and significantly compressed to fit the
capacity of data networks and telephone lines (as low as 28,800 bits per
second). As video data is compressed, redundant data is eliminated. After
transmission, the video image is reconstructed for display at the receiving end.
The quality of the reconstructed image is a function of (1) the
sophistication of the video and audio compression algorithms, (2) the amount of
real-time data which can be transmitted over networks, (3) the power of the
video and audio coder-decoder hardware, and (4) the speed and power of PCs and
workstations.
The Company believes low-cost videoconferencing and other video network
services are now attainable because the performance and capabilities of these
four key elements have recently improved significantly, making video
communications available at reasonable cost.
Videoconferencing room systems use expensive digital lines and permit
communication only between compatible facilities. These systems currently cost
between $20,000 and $100,000 and are typically used by large corporations
primarily for intra-company communication between different locations. The
Company believes that the high cost of videoconferencing room systems and the
logistical problem of scheduling and availability have limited their use to
large corporations.
According to industry sources, the video communications industry is
forecast to be $3.6 billion by 1999 and the emerging desktop segment of that
industry is forecast to exceed $1.2 billion by 1999. The PC dominates the
desktop computing market with 1995 sales of over 57 million units worldwide and
an estimated 100 million new PCs projected to be sold annually by 1999. Industry
sources estimate that over 30% of the new PCs sold in 1996 (principally
multimedia capable PCs) will be purchased by consumers for use in the home. The
Company believes it has developed products which position it to benefit from the
growth of these markets and which will have functions, performance and cost to
successfully compete in the rapidly emerging desktop video communications
industry.
The Company currently offers a variety of products with differing video
quality levels: NTSC TV quality with the Viewpoint VBX(TM) video switch,
business quality with the Osprey-1000(TM) using ISDN lines and consumer quality
video
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with FamilyFone(TM) using modems over ordinary telephone lines. The resolution
and framerate of the video varies with the bandwidth of the communications
connection. The Company has designed its products in response to the increasing
demand for low-cost desktop videoconferencing and for real-time collaborative
computing applications using telephone and computer networks. The Company is
also preparing to market video products for the Internet and corporate
Intranets.
CORPORATE INTRANET VIDEO
The Company first demonstrated its packet (TCP/IP-based) network video
technologies on the Internet's MBONE and on corporate Intranets in 1993. The
Company introduced its first commercial product, Viewpoint-PRO(TM), one of the
first TCP/IP-based videoconferencing systems designed specifically for LAN and
WAN applications in 1994. This system enables users to engage in real-time,
full-color, full-motion video over their existing computer networks.
Viewpoint-PRO(TM) provides both point-to-point and up to five site multipoint
videoconferences. The system does not require expensive MCUs, which typically
cost $20,000 or more, that ISDN-based products require to complete a multipoint
vidcoconference. Viewpoint-PRO(TM) also includes a one-to-many broadcasting
capability called ViewCast(TM). With ViewCast(TM), "live" broadcasts, such as
corporate briefings or news broadcasts, or pre-recorded content, such as
training videos and product and services information, can be multicast over an
existing corporate data network. Viewpoint-PRO(TM) was the first commercial
product offering video multicast using both FTP Software, Inc.'s and Microsoft
Corporation's TCP/IP-multicast PC software. Each Viewpoint-PRO(TM) includes
software to enable a Windows PC with a sound card to receive and display a
ViewCast(TM). Viewpoint-PRO(TM) bundles, as an option, third-party collaborative
computing software which allows videoconference participants to share a
whiteboard or a PC application.
CONSUMER VIDEO
The Company's FamilyFone(TM) and WorkFone(TM) products are expected to
provide affordable, good quality video communications capabilities to consumers,
small businesses and corporations over standard telephone lines with 28.8 Kbps
modems and over the Internet. Examples of FamilyFone(TM) uses might include:
families and grandparents exchanging "live" video birthday greetings with each
other, college students videoconferencing with their parents or small
office/home office business owners accessing video training courses over the
Internet.
In January 1996, the Company signed a licensing agreement with Boca. In
this multi-year contract, the Company licensed its hardware and related firmware
and application software for videoconferencing over standard telephone lines and
over the Internet. Pursuant to the licensing agreement, the Company receives
license fees for the design and on-going royalties for its firmware and its
videoconferencing applications with every shipment of the BocaPRO Video Phone
Elite, which was introduced by Boca in August 1996 at a suggested retail price
of $399. The Company's prospects will be significantly affected by Boca's
ability to market the product and upon the marketing efforts of Boca's
resellers.
VIDEO CODECS
The Company develops and markets standards-based video and audio Codec
products that enable multimedia applications for both PCs and workstations. The
Osprey Codec captures, digitizes, compresses, transmits, receives, decompresses
and displays full-motion video. The Osprey-1000(TM) product line supports
multiple video and audio compression formats for both PCs and workstations which
are equipped with the now standard PCI-bus. The Company is developing the
Osprey-1100(TM) multi-algorithm Codec for the existing workstations from Sun
that are equipped with the S-bus. The Company believes it is the only company
currently providing standards-based, multi-algorithm Codec products for
WindowsNT. The Osprey Codecs also support Windows 3.1, Windows95, Solaris and
UNIX operating systems.
SLIC-Video(TM) is a video capture product that enables Sun workstation
users to view uncompressed, high-quality video and to capture full-motion video
frames. SLIC-Video(TM) software also provides access to closed caption data
which allows key words to act as filters and thereby control video displayed on
the screen. SLIC-Video's(TM) compatibility with standard Sun products allows
this product to support a wide variety of video applications on existing Sun
workstations.
The Company intends to continue to establish strategic product development
alliances with companies whose products and technologies complement the
Company's strategic direction. With rapidly evolving technologies in the areas
of video, audio and networks, the Company intends to engage in strategic
alliances that offer expanding access to key new technologies that can be part
of current and future products.
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VIDEO SWITCHING HUB AND UTP VIDEO DISTRIBUTION
The Company's Viewpoint VBX(TM) product provides high-quality workgroup
video communications with shared gateways to WANs and legacy video
teleconferencing room systems. The Viewpoint VBX(TM), a PC-based video switch,
employs a switched architecture to distribute uncompressed, full-motion video
within a building or campus via existing UTP wiring. Shared wide area gateways
allow other Viewpoint VBX(TM) networks to be interconnected and enable
connection to standards-based room or desktop videoconferencing products from
third-party manufacturers. The switching architecture employed by Viewpoint
VBX(TM) allows point-to-point, multipoint and broadcast modes of operation to be
supported. Both small workgroups and large building or campus networks of
hundreds of users can be supported.
The Viewpoint VBX(TM) product line includes a multimedia switch, WAN
interfaces and desktop components. The multimedia switch utilizes standard PC
components and the Company's video switching technology and software to provide
an expandable solution for video communications within an office building or
campus. Video and audio are distributed with NTSC quality by utilizing the
Company's UTP transceiver technology to send video over existing wiring at
distances of up to 3,500 feet. An existing LAN or telephone system is used only
for non-video communications (control signals) between the multimedia switch and
each user, eliminating overload of the computer network as workgroups are
video-enabled.
The Viewpoint VBX(TM) also provides shared-resource access to video
sources and storage devices located anywhere within the network. VCRs, videodisk
players, broadcast or cable TV and Direct Broadcast Satellite (DBS) programming
sources may be connected to the switch over unshielded twisted pair or coaxial
cabling and distributed on-demand to any equipped desktop or room.
Desktop PCs, TV monitors and room audio and video system connections are
accommodated using the UTP transceivers which connect standard NTSC video and
audio devices to existing building wiring systems. Viewpoint VBX(TM) is
compatible with standard NTSC cameras, audio components, speakerphones and PC
video peripherals to form a complete solution. The Viewpoint VBX(TM) client
software allows users to place calls through a personal or system-wide dialing
directory, to originate and subscribe to "1ive" video broadcasts, to access
pre-recorded video content or to establish a multipoint videoconference.
INTERNET VIDEO
The Company is developing and plans to market a variety of Internet video
products that take advantage of the growing popularity of the World Wide Web.
The popularity of the Web has resulted in subscribers seeking to improve their
Internet access capabilities which in turn has driven growth in the installed
base of 28.8 Kbps modems, ISDN adapters and cable modems. These improvements in
access along with advances in video and audio compression technology and
standards make possible new forms of motion-video content for Internet
publishers and their target audiences.
The Internet has taken on new dimensions including real-time communication
and entertainment. In both cases, the Company believes video communication
products and technologies will play an important role. While certain types of
information on an Internet Web page can be conveyed with graphics, animation and
static images, others require or are enhanced by audio and motion-video.
The Company is currently developing and plans to market three new Internet
video products and software players (downloaded freely to end-users). Each
product is an enhancement of or modification to existing Company designs, but
incorporates new software and firmware modules. These products address the
rapid-growth, emerging market opportunity for the Internet video publishing,
Internet video broadcasting and Internet video call center applications which
are described below.
INTERNET VIDEO PUBLISHING
Internet video publishing (or video-on-demand) is currently the most
widespread implementation of video on the Internet. Video publishing refers to
stored-video content, designed to be played back to a user's system in
real-time. The Company believes video publishing is becoming popular because it
is far less technically demanding than "live" video production and transmission.
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Internet video publishing entails compressing a video "clip" and storing
it on a server. The user is connected to the server by accessing a Web page that
holds the address for the target video server and then establishing a direct
connection to that server. The Company's video Codec technologies will be
utilized with Internet publishing software applications currently under
development by the Company.
INTERNET VIDEO BROADCASTING
Video broadcasting has recently come to the Internet and is characterized
by one-way "live" audio and motion-video. Video broadcasting presents technical
challenges such as the limited bandwidth and multi-cast capabilities of most Web
sites. However, Internet video broadcasting is well suited to delivering video
to the office (without additional hardware), to distance learning sites and to
special interest broadcast recipients. The Company's proposed products are being
designed to work in conjunction with Web server software to establish
connections between multiple users and a broadcast source.
INTERNET VIDEO CALL CENTER
The Internet video call center is a new concept to the Internet, allowing
one-way "live" video and two-way audio across the Internet. The term "call
center" is used because the technology is well suited to replacing existing call
centers such as help devices, catalog ordering centers, reservation systems
(hotels, airlines) and corporate receptionists. The Company believes that the
entertainment possibilities are also significant. The Internet video call center
has the potential to increase on-line purchases over the Internet. The Company
believes its core technologies can be used in video call center applications and
is in the early stages of product development.
VIDEO SURVEILLANCE
The Company believes that commercial and residential video-based
surveillance products represent another strong business opportunity. The Company
is creating effective solutions for customers that are unique in the
marketplace. In the Company's opinion, today's expensive closed circuit
surveillance systems can be replaced with systems that include more
functionality at lower cost. The Company intends to develop alliances with
communication system integrators and security resellers, distributors and/or
suppliers to address this market.
The Company has delivered its first video surveillance system to Alcatel,
a major communications systems integration company in Richardson, Texas. This
industrial surveillance system integrates standard alarm and sensing devices
(e.g. door magnets, motion detectors, cameras, etc.), and allows a central
operator to monitor and inspect hundreds of remote sites over the customer's
existing frame relay computer network.
Following an alarm, the surveillance system selects the appropriate camera
and one of its preset positions and captures 10 frames of full resolution NTSC
video. The system also sends an alarm signal to a central monitoring computer
via a frame relay packet network. The security personnel at the central
monitoring station can then observe the remote alarmed location, via the
network, using the camera's remote pan, tilt and zoom features. The Company
believes that high quality video images will assist security personnel in
verifying the accuracy of alarms and in prosecuting intruders.
The surveillance system delivered to Alcatel is based upon existing
Viewpoint-PRO(TM) technology. Another version of the system designed to operate
over phone lines is scheduled to be available in early 1997.
MARKETING AND SALES
The Company will market its products primarily via third-party resellers
including, but not limited to, OEMs, VARs and system integrators. In addition,
the Company plans to enter into strategic alliances with carriers,
telecommunications suppliers and information providers.
For mass market and high volume products the Company will depend on its
major OEM customers who provide access to significant marketing channels. These
OEMs have established relationships with manufacturers and resellers and will
pay licensing fees and royalties to bring new leading edge products to market.
The Company also intends to establish distribution relationships with resellers
and integrators who service corporate, institutional and government customers.
These relationships are expected to be non-exclusive and may require that these
partners participate in the marketing, advertising and technical support of the
Company's products.
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The Company believes its Viewpoint VBX(TM) product will have an appeal to
resellers such as PBX suppliers, carriers (including cable companies) and
network equipment suppliers. The Company additionally intends to form strategic
alliances with resellers outside the US, where it is especially important to
partner with entrenched suppliers.
The Company intends to expand its marketing activities over the Internet.
The Company believes its products enable new and inventive ways to sell products
over the Internet. The Company intends to use its own products to increase sales
productivity and to pursue alternate low cost selling strategies. The Company
plans to continue modest trade show participation and advertising in trade
publications.
The Company's Internet related products will be marketed primarily to Web
designers and early sales will be conducted primarily through the Company's Web
page with minimal sales support. The Company plans to bundle its products with
other popular Web development products and/or license its subsystems to
resellers to integrate with their Web development products. Such strategic
business alliances are expected to provide Web developers with a rich array of
innovative capabilities with the familiarity of existing tools.
TARGET MARKETS
The Company's target markets can be defined broadly to be anywhere video
communications can be added as a peripheral to installed desktop computers, or
to narrower vertical markets in distance learning, video-based training,
multimedia authoring, Internet and Intranet broadcasting and surveillance. The
Company believes that the growth of video communications during the late 1990s
will be as significant as the growth of LANs in the 1980s. The Company's
strategy is to provide video communications products which will connect to
available networks, including standard telephone lines, data networks and the
Internet. The Company believes that its video communications products will
enhance the increasing demand for connectivity between today's homes and
offices.
Strategic alliances with large OEMs, communication-oriented system
integrators and other resellers should enhance the Company's ability to supply
video communication products to Fortune 1000 companies, federal and state
governments, PC manufacturers, peripheral suppliers and Internet service
providers.
PRODUCTION AND SUPPLY
The Company builds its current products in small quantities using contract
manufacturers in Texas and North Carolina. The operations personnel in Dallas
are responsible for parts planning, procurement and final test and inspection to
quality standards. While the Company believes its products are not difficult to
manufacture, there can be no assurance that the Company's products can be
manufactured on a wide-scale basis on commercially reasonable terms, or at all.
The Company plans for most high volume production to be handled through large
OEMs or contract manufacturers.
The Company has been and will continue to be dependent on third parties
for the supply and manufacture of its components and electronic parts, including
standard and custom designed components. The Company generally does not maintain
supply agreements with such third parties but instead purchases components and
electronic parts pursuant to purchase orders in the ordinary course of business.
The Company is substantially dependent on the ability of its third-party
manufacturers and suppliers to, among other things, meet the Company's design,
performance and quality specifications.
The electronics industry from time to time experiences short supplies of
certain high demand components, which may adversely affect the Company's ability
to meet its production schedules. Failure of manufacturers or suppliers to
supply, or delays in supplying, the Company with components, or allocations in
the supply of certain high-demand components could adversely affect the
Company's operations and ability to meet delivery schedules on a timely and
competitive basis.
INSTALLATION, SERVICE AND MAINTENANCE
Many of the Company's new products will be customer installable. The
Company plans to contract with independent third parties to provide field
installation and support. The Company also plans to maintain a small technical
support group and will also depend on its resellers to install and service its
products.
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The Company offers 12 to 36 month limited warranties covering workmanship
and materials, during which period the Company or its resellers will replace
parts or make repairs. The Company also maintains an in-house staff of
engineering personnel and offers telephone support to assist resellers and
end-users during normal business hours.
RESEARCH AND DEVELOPMENT
The Company's development efforts during 1995 were devoted to the design
and development of the Osprey-1000(TM) PCI-based multi-algorithm video Codec,
the SLIC-Video(TM) video capture card, enhancements to the Viewpoint-PRO(TM),
design and integration of the surveillance system delivered to Alcatel, and the
development of the Viewpoint VBX(TM) video switching hub.
Total research and development expense for 1996 was approximately $ 2.0
million.
The Company utilizes its core technologies to create multiple products
aimed at different markets. Software modularity is a major strategy which allows
the Company to develop different vertical applications using modules and
components previously developed for other products. The Company's products are
characterized by rapidly changing technology and evolving standards, often
resulting in product obsolescence or short product life cycles. Accordingly, the
Company's ability to compete will depend in large part on its ability to
introduce its products in a timely manner, to continually enhance and improve
its hardware and software products and to maintain development capabilities to
adapt to technological changes and advances in the video communications
marketplace. There can be no assurance that competitors will not develop
technologies or products that render the Company's systems obsolete or less
marketable, or that the Company will be able to keep pace with the technological
demands of the marketplace or successfully enhance and adapt its products to be
compatible with newly developed products, technologies and software, or satisfy
industry standards and the needs of its consumers and potential consumers.
COMPETITION
The market for DVC systems is highly competitive and characterized by the
frequent introduction of new products based upon rapidly changing technologies.
The Company competes with numerous well-established manufacturers and suppliers
of videoconferencing, networking, telecommunications and multimedia equipment
and products, some of which dominate certain market segments. In addition, the
Company is aware of others that are developing, and in some cases have
introduced, new DVC systems. Most of the Company's competitors possess
substantially greater financial, marketing, personnel and other resources than
the Company, have established reputations relating to product design,
development, manufacture, marketing and service of networking,
telecommunications and video products and have significant budgets to permit
them to implement extensive advertising and promotional campaigns to market new
products in response to competitors. Among the Company's direct competitors are
Target Technologies, Inc., VIVO Software, Inc., Zydacron, Inc., VCON, Ltd.,
Corel Corporation and VideoLAN Technologies, Inc. In addition, electronics
manufacturers such as Intel actively compete for business in this market.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds a United States patent covering certain fundamental
aspects of the compressed packet video Codec incorporated into the
Viewpoint-PRO(TM) system. The Company may apply for additional patents relating
to other aspects of its products. There can be no assurance as to the breadth or
degree of protection which existing or future patents, if any, may afford the
Company, that any patent applications will result in issued patents, that the
Company's patents will be upheld, if challenged, or that competitors will not
develop similar or superior methods or products outside the protection of any
patent issued to the Company.
The Company believes that product recognition is an important competitive
factor and, accordingly, the Company promotes the Viewpoint-PRO(TM),
ViewCast(TM), MultiView(TM), Osprey-1000(TM), SLIC-Video(TM), Viewpoint-VBX(TM),
FamilyFone(TM) and WorkFone(TM) names, among others, in connection with its
marketing activities, and has applied for trademark registration for such names.
The Company's use of those marks may be subject to challenge by others, which,
if successful, could have a material adverse effect on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford the Company
complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how or
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software codes, concepts, ideas and documentation. Furthermore, although the
Company has and expects to continue to have confidentiality agreements with its
directors, employees, consultants, manufacturers, and appropriate vendors, there
can be no assurance that such arrangements will adequately protect the Company's
trade secrets.
The Company purchases certain components that are incorporated into its
products from third party suppliers and relies on their assurances that such
components do not infringe on the patents of others. A successful claim against
any components used in the Company's products could affect the ability of the
Company to manufacture, supply and support its products. The Company uses its
best efforts to ensure third party supplied components are non-infringing, but
there can be no assurances against future claims.
GOVERNMENT REGULATION
The Company is subject to regulations relating to electromagnetic
radiation from its products, which impose compliance burdens on the Company. In
the event the Company redesigns or otherwise modifies its products or completes
the development of new products, it will be required to comply with Federal
Communications Commission regulations with respect to such products, of which
there can be no assurance prior to their commercialization. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations, at the federal, state and local levels may be proposed in the
future affecting the video communications industries. Such proposals could
affect the Company's operations, result in material capital expenditures, affect
the marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new or proposed
products or technologies. Expansion into foreign markets may also require the
Company to comply with additional regulatory requirements. The technology
contained in the Company's products may be subject to U.S. export controls.
There can be no assurance that such export controls, either in their current
form or as may be subsequently enacted, will not delay introduction of new
products or limit the Company's ability to distribute products outside of the
United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1996, the Company had 39 employees, 4 of whom are in
executive positions, 23 of whom are engaged in engineering, research and
development, 6 of whom are engaged in marketing and sales activities and 6 of
whom are in administration. None of the Company's employees is represented by a
labor union. The Company considers its employee relations to be satisfactory.
Item 2. Description of Properties
The Company's executive offices and assembly operations and some of its
design and development activities are located in approximately 16,159 square
feet of leased space in Dallas, Texas. The lease expires in September of 1997
and provides for a base annual rent of $143,110. Osprey's design and development
activities are located in approximately 2,783 square feet of leased space in
Cary, North Carolina. The lease expires in December of 1997 and provides for a
base annual rent of $38,334. The Company leases an office suite in Burlingame,
California of approximately 100 square feet on a month-to-month basis for a base
annual rent of $4,800. The Company believes that its facilities are adequate for
its current and reasonably foreseeable future needs and its current facilities
can accommodate expansion, if required.
Item 3. Legal Proceedings
The Company is not currently a party to any litigation that it believes
could have a material adverse effect on the Company or its business.
Item 4. Submission of Matters to a Vote of Security Holders
None
10
<PAGE>
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
At December 31, 1996, there was no public trading market for the Company's
Common Stock.
On February 7, 1997, the Company completed an initial public offering of
its Common Stock and Redeemable Common Stock Purchase Warrants (the "Redeemable
Warrants"). The Common Stock and Redeemable Warrants are currently listed on the
NASDAQ Small Cap Market under the Symbols "MMAC" and "MMACW".
As of March 26, 1997, there were 107 registered owners and approximately
500 beneficial owners of the Common Stock of the Company.
The Company declared no cash dividends in 1995 or 1996. The Company does
not anticipate paying cash dividends in the future as it intends to retain
earnings to finance the growth of the business. The payment of future dividends
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Company's Board of Directors..
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
MultiMedia Access Corporation develops and markets advanced video
communications products. The Company delivers high-performance, low-cost
products and integrates video capabilities into existing desktop computers,
applications and networks. The Company delivers standards-based video solutions
to the PC and workstation marketplace.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 increased to
$1,095,012 from $285,354 reported for the same period last year. This increase
is the result of an increase in system and product sales for the period,
particularly the Osprey-1000(TM) and the Viewpoint VBX(TM), neither of which
were available during the first half of 1995 and approximately $106,000 of
consulting and custom programming revenues during the last half of 1996.
Cost of Goods Sold. Cost of goods sold increased $257,537 to $393,918 for
the year ended December 31, 1996, an increase that primarily is the result of
increased product and system sales. The Company realized an overall gross margin
percentage for 1996 of 64.0% which represents a substantial increase from the
52.2% experienced during 1995. This increase can be attributed primarily to
consulting and custom programming revenues in 1996 that were substantially
greater than the same period in 1995 and which have little or no associated cost
of goods sold.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense of $2,378,653 for the year ended December 31,
1996 was essentially unchanged from the same period of 1995.
Research and Development Expense. Research and Development expense of
$1,997,146 for the year ended December 31, 1996 was essentially unchanged from
the same period in 1995.
Other Income (Expense). For the year ended December 31, 1996, other
expense decreased approximately $330,073 to $513,219 compared to the same period
in 1995. This decrease is primarily the result of decreased interest expense,
reflecting an overall decrease in average borrowings at a slightly lower blended
interest rate.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had a working capital deficit of
$(6,407,318). Through December 31, 1996, the Company was dependent upon loans
from its principal stockholders, as well as private placements of its debt and
equity securities, to finance its working capital requirements.
11
<PAGE>
Net cash used in operating activities for the year ended December 31, 1996
was $3,751,417. Increases in inventory were a result of an increase in
production levels to meet anticipated sales.
Cash used in investing activities for the year ended December 31, 1996
consisted of $184,076 of capital expenditures. At December 31, 1996, the Company
did not have any material commitments for capital expenditures.
Cash provided by financing activities for the year ended December 31, 1996
was primarily a result of the receipt of the proceeds of the Secured Notes II in
January through February 1996, receipt of the proceeds of the Convertible Bridge
Debt in September 1996 and the private placement of Common Stock during the
second quarter of 1996. At December 31, 1996, the Company had cash and cash
equivalents of $18,539.
As discussed in the footnotes to the financial statements, during 1996 the
Company was primarily dependent upon debt financing from its existing
shareholders and the private placement of equity securities to fund its
operations. The majority of this debt financing converted into equity in the
Company's initial public offering. On February 7, 1997 the Company completed an
initial public offering of its Common Stock and Redeemable Common Stock Purchase
Warrants and on March 13, 1997 sold the over-allotment option, raising a total
of $5,342,000 of net proceeds. It is anticipated that the proceeds from the
initial public offering, together with the cash flow generated from operations
in 1997 will be sufficient to fund the operations of the Company for at least
the next twelve months. During 1997, with the proceeds of the offering, the
Company will endeavor to build an effective marketing and sales organization,
develop a network of independent resellers and achieve market acceptance of its
products at prices and volumes which will, in the future, result in profitable
operations. However, the Company expects operating losses to continue until such
time, if ever, as gross margins from the sales of its products exceed its
development, selling, administrative and financing costs. In the event that the
Company's plans change or its assumptions change or prove to be inaccurate or if
the proceeds of this offering prove to be insufficient to fund operations (due
to unanticipated expenses or difficulties or otherwise), the Company may be
required to seek additional financing sooner than currently anticipated. The
Company has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that existing stockholders will provide any
portion of the Company's future financing requirements. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. Additional equity financing may involve substantial
dilution to the Company's then existing stockholders.
The Company currently has no plans or agreements to seek loan financing.
The Company may choose to seek additional financing to provide additional
working capital at some time in the future. Such financing may include loans or
lines of credit and could include factoring agreements. However, the Company
believes that the proceeds of the initial public offering will be sufficient to
meet its capital requirements for at least the next twelve months.
At December 31, 1996, the Company had net operating loss carry forwards
for federal tax purposes of approximately $11,700,000, utilization of prior net
operating loss carry forwards is limited after an ownership change, as defined
in Section 382, to an annual amount equal to the value of the loss corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the federal long-term tax-exempt rate. Beginning with 1994, approximately
$790,000 of the carry forward is limited to utilization at a rate of
approximately $300,000 per year. The Company may in the future be subject to
further significant limitations on the use of its net operating loss carry
forwards. In the event the Company achieves profitable operations, any
significant limitation on the utilization of net operating loss carry forwards
would have the effect of increasing the Company's tax liability and reducing net
income and available cash resources.
12
<PAGE>
Item 7: Financial Statements
MultiMedia Access Corporation and Subsidiaries
Index to Consolidated Financial Statements
Report of Independent Auditors................................................14
Consolidated Balance Sheets at December 31, 1995 and 1996.....................15
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996..................................................16
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1995 and 1996..................................17
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996..................................................18
Notes to Consolidated Financial Statements....................................19
13
<PAGE>
Report of Independent Auditors
The Board of Directors
MultiMedia Access Corporation
We have audited the accompanying consolidated balance sheets of MultiMedia
Access Corporation and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MultiMedia Access Corporation and subsidiaries at December 31, 1995 and 1996,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Dallas, Texas ERNST & YOUNG LLP
March 10, 1997
14
<PAGE>
<TABLE>
<CAPTION>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PRO FORMA AT
DECEMBER 31, DECEMBER 31,
--------------------------------------- 1996
1995 1996 (SEE NOTE 12)
------------------- ----------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 16,605 $ 18,539 $ 5,899,577
Accounts receivable, less allowance for doubtful accounts of
$30,000 and $43,000 at December 31, 1995 and 1996, respectively 4,564 185,564 185,564
Inventory 197,469 310,133 310,133
Prepaid expenses 18,971 46,239 46,239
Due from debt holder 315,300
- -
Deferred charges 44,165 504,295
155,666
------------------- ----------------- -----------------
Total current assets 597,074 1,064,770 6,597,179
Property and equipment, net 485,700 460,895 460,895
Software development costs, net 143,795 147,321 147,321
Deposits 18,197 18,272 18,272
------------------- ----------------- -----------------
Total assets $ 1,244,766 $ 1,691,258 $ 7,223,667
=================== ================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 580,160 $ 682,689 $ 622,778
Accrued compensation 354,268 239,707 239,707
Deferred revenue 75,513 15,591 15,591
Other accrued liabilities 370,398 857,260 597,885
Short-term debt, officer 364,154 533,089 298,089
Short-term debt, other 66,633 1,966,202 8,654
Current portion of long-term debt 2,677,550 3,177,550
-
------------------- ----------------- -----------------
Total current liabilities 4,488,676 7,472,088 1,782,704
Long-term debt 8,654
- -
Commitments
Stockholders' equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Issued shares - none
- - -
Common stock, $.0001 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 4,721,268 and 5,315,811
at December 31, 1995 and 1996, respectively and 8,167,788
pro forma at December 31, 1996 (unaudited) 472 532 817
Additional paid-in capital 4,736,933 6,602,572 17,824,080
Accumulated deficit (7,978,063) (12,372,028) (12,372,028)
Treasury stock, 261,497 shares at December 31, 1995 and 1996 (11,906) (11,906) (11,906)
------------------- ----------------- -----------------
Total stockholders' equity (deficit) (3,252,564) (5,780,830) 5,440,963
------------------- ----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 1,244,766 $ 1,691,258 $ 7,223,667
=================== ================= =================
</TABLE>
See accompanying notes.
15
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996
----------------- ------------------
NET SALES $ 285,354 $ 1,095,012
Cost of goods sold 136,381 393,918
----------------- ------------------
GROSS PROFIT 148,973 701,094
Operating expenses:
Selling, general and administrative 2,297,497 2,378,653
Research and development 1,983,310 1,997,146
Depreciation and amortization 439,752 206,041
----------------- ------------------
Total operating expenses 4,720,559 4,581,840
----------------- ------------------
OPERATING LOSS (4,571,586) (3,880,746)
Other income (expense):
Dividend and interest income 5,372 36
Interest expense (847,905) (513,979)
Other (759) 724
----------------- ------------------
Total other income (expense) (843,292) (513,219)
----------------- ------------------
NET LOSS $ (5,414,878) $ (4,393,965)
================= ==================
NET LOSS PER SHARE $ (1.06) $ (0.73)
================= ==================
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 5,124,411 5,999,752
================= ==================
See accompanying notes.
16
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON STOCK PAID-IN SUBSCRIPTIONS ACCUMULATED TREASURY
SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT STOCK
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 3,507,231 $ 350 $ 1,163,274 $ (191) $ (2,563,185) $ --
Payment of stock subscriptions -- -- -- 191 -- --
Repurchase of 255,880 shares
of common stock at par -- -- -- -- -- (26)
Sale of common stock, net
of expenses 833,333 83 2,166,811 -- -- --
Satisfaction of trade receivable
for 5,617 shares of common stock -- -- -- -- -- (11,880)
Exchange of short-term debt
for common stock 380,704 39 1,406,848 -- -- --
Net loss -- -- -- -- (5,414,878) --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 4,721,268 472 4,736,933 -- (7,978,063) (11,906)
Exchange of short term debt for
common stock 221,195 22 571,167 -- -- --
Sale of common stock, net of
of expenses 304,016 31 896,481 -- -- --
Exchange of trade payables for
common stock 69,332 7 207,991 -- -- --
Fair market value of warrants
issued for consulting services
and inducement of debt -- -- 190,000 -- -- --
Net loss -- -- -- -- (4,393,965) --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 5,315,811 $ 532 $ 6,602,572 $ -- $(12,372,028) $ (11,906)
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(Continued)
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
------------
BALANCE, DECEMBER 31, 1994 $ (1,399,752)
Payment of stock subscriptions
191
Repurchase of 255,880 shares
of common stock at par
(26)
Sale of common stock, net
of expenses 2,166,894
Satisfaction of trade receivable
for 5,617 shares of common stock (11,880)
Exchange of short-term debt
for common stock 1,406,887
Net loss (5,414,878)
------------
BALANCE, DECEMBER 31, 1995 (3,252,564)
Exchange of short term debt for
common stock 571,189
Sale of common stock, net of
of expenses 896,512
Exchange of trade payables for
common stock 207,998
Fair market value of warrants
issued for consulting services
and inducement of debt 190,000
Net loss (4,393,965)
============
BALANCE, DECEMBER 31, 1996 $ (5,780,830)
============
See accompanying notes.
17
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996
---------------------- ----------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (5,414,878) $ (4,393,965)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 126,443 155,233
Amortization of software development 222,632 50,809
Amortization of patent 90,677 -
(Gain) Loss on asset dispositions 1,955 (687)
Non-cash charges to interest expense 264,777 165,001
Inventory reserve adjustment 220,000 (5,000)
Write off of deferred charges 376,633 -
Changes in operating assets and liabilities:
Accounts receivable 32,208 (181,000)
Inventory (52,366) (107,664)
Prepaid expenses 17,360 (27,268)
Due from debt holder (315,300) 315,300
Deferred charges 38,089 (527,531)
Deposits (368) (75)
Accounts payable 147,537 310,527
Accrued compensation 100,513 13,220
Deferred revenue 58,042 (59,922)
Other accrued liabilities 219,696 541,605
---------------------- ----------------------
Net cash used in operating activities (3,866,350) (3,751,417)
---------------------- ----------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (108,143) (132,910)
Software development costs (156,171) (54,335)
Other 28,076 3,169
---------------------- ----------------------
Net cash used in investing activities (236,238) (184,076)
---------------------- ----------------------
FINANCING ACTIVITIES:
Net proceeds from issuance (repayment) of short-term
debt 1,096,000 2,550,000
Net proceeds from issuance (repayment) of short-term
debt-officer 345,000 -
Other (8,270) (9,085)
Proceeds from issuance of long term-debt 500,115 500,000
Purchase of treasury stock (11,906) -
Net proceeds from sale of common stock 2,166,894 896,512
---------------------- ----------------------
Net cash provided by financing activities 4,087,833 3,937,427
---------------------- ----------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,755) 1,934
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,360 16,605
---------------------- ----------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,605 $ 18,539
====================== ======================
</TABLE>
See accompanying notes.
18
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. THE COMPANY AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts
of MultiMedia Access Corporation (MMAC), and its wholly-owned subsidiaries,
Viewpoint Systems, Inc. (Viewpoint), VideoWare, Inc. (VideoWare) and Osprey
Technologies, Inc. (Osprey) (collectively, the Company). MMAC, Viewpoint,
VideoWare and Osprey were incorporated in Delaware in February 1994, November
1992, September 1994 and September 1995, respectively. The Company operates in
one business segment and is engaged in developing and marketing advanced video
communications products that integrate video capabilities into existing desktop
computers, applications and networks. The Company markets its products directly
to end-users, through value-added resellers and computer system integrators,
primarily in the continental United States.
In February 1997, the Company completed an underwritten initial public
offering of 1,400,000 shares of its Common Stock and 1,400,000 Redeemable Common
Stock Purchase Warrants (Public Warrants). The shares of Common Stock and the
Public Warrants were sold on the basis of one Public Warrant for each share of
Common Stock at a unit price to the public of $4.60, and were separately
transferable immediately upon issuance. Each Public Warrant entitles the holder
to purchase one share of Common Stock at $4.50 per share, subject to adjustment
under certain circumstances, at any time commencing six months from the date of
the Prospectus through and including five years from the date of the Prospectus.
The Public Warrants are redeemable by the Company, at any time commencing twelve
months from the date of the Prospectus, upon notice of not less than thirty
days, at a price of $.10 per Public Warrant, provided that the closing price or
bid price of the Common Stock for any twenty trading days within a period of
thirty consecutive trading days ending on the fifth day prior to the day on
which the Company gives notice of redemption has been at least 150% (currently
$6.75, subject to adjustment) of the initial public offering price per share of
Common Stock.
The Company received net proceeds of $5,342,000 during February and
March 1997 related to this sale. The proceeds, net of expenses related to the
offering, are to be used primarily for marketing activities in connection with
the Company's products, to complete the development of additional product and
software applications, for repayment of certain loans and to fund its working
capital requirements (See Note 12).
During 1997, with the proceeds of the offering, the Company will
endeavor to build an effective marketing and sales organization, develop a
network of independent resellers and achieve market acceptance of its products
at prices and volumes which will, in the future, result in profitable
operations. However, the Company expects operating losses to continue until such
time, if ever, as gross margins from the sales of its products exceed its
development, selling, administrative and financing costs. In the event that the
Company's plans change or prove to be inaccurate or if the proceeds of the
offering prove to be insufficient to fund operations, the Company could be
required to seek additional financing sooner than currently anticipated. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. The possible inability to obtain further
financing would have a material adverse effect on the Company, including
possibly requiring the Company to curtail or cease its activities.
Prior to December 31, 1996, the Company's financial statements were
presented as those of a development stage company.
19
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of purchased electronic components and
computer system products, along with the related documentation manuals and
packaging materials. Inventory is carried at the lower of cost or market.
Effective January 1, 1995, the Company changed its method of costing inventory
from the first-in, first-out method to the standard cost method, which
approximates average cost. This change did not result in any material change in
the valuation of inventory.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is determined
using the straight-line method over the estimated useful lives, generally five
years, of the related assets. Leasehold improvements are amortized over the
lives of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred; renewals and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS
Costs of developing new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.
Amortization expense for the years ended December 31, 1995 and 1996 was $222,632
(including $155,597 to fully amortize remaining costs of a Viewpoint product
line) and $50,809, respectively.
PATENT
The Company holds a patent related to its proprietary technology and
trade secrets. The costs associated with obtaining and defending the patent were
amortized on the straight-line basis over its estimated remaining life, not to
exceed five years. During 1995, the Company fully amortized its patent. Total
amortization expense for the year ended December 31, 1995 was $90,677.
20
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REVENUE RECOGNITION
Revenue from the sale of video communication systems and licensing of
the related software is recognized upon shipment to customers. With pre-approval
by a return merchandise authorization, a customer may return undamaged product
to the Company, subject to a 30-day money back guarantee. The Company maintains
an accrued warranty reserve for products which are returned defective during the
warranty period.
NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of
common and common equivalent shares outstanding. The Company has computed common
and common equivalent shares in determining the number of shares used in
calculating earnings per share for all periods presented pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83. SAB
No. 83 requires the Company to include all common shares and all common share
equivalents issued in the 12 month period preceding the filing date of the
initial public offering in its calculation of the number of shares used to
determine earnings per share as if the shares had been outstanding for all
periods presented. Options and warrants issued more than 12 months prior to the
initial public offering have been excluded since their effect is antidilutive.
Supplemental loss per share is $.71 for year ended December 31, 1996,
assuming (1) issuance of the securities sold in February 1997 in the initial
public offering, receipt by the Company of the net proceeds thereof and use of
the proceeds to repay $377,548 principal amount of secured and demand notes at
December 31, 1996, and to repay $247,250 principal amount of convertible debt
and (2) weighted average common and common equivalent shares of 6,138,596 for
the year ended December 31, 1996.
As described in Note 12, substantially all the Company's outstanding
short-term and long-term debt was converted to common stock in the Company's
initial public offering. Had those conversions taken place at the beginning of
1996, or date of issuance of the debt if later, supplemental loss per share
would have been $.58 for the year ended December 31, 1996.
DEFERRED CHARGES AND OTHER ASSETS
During 1995, the Company incurred $333,106 of legal, accounting and
underwriting costs in connection with a private placement of common stock which
have been charged against the proceeds from the sale of the common stock. During
1995, the Company wrote off deferred charges consisting of legal, accounting,
underwriting and printing costs incurred in connection with a canceled initial
public offering of common stock which resulted in a charge against income of
$376,633.
Deferred charges at December 31, 1996 consist of legal, accounting and
other expenses associated with the initial public offering which was consummated
in February 1997, as well as expenses incurred in connection with the issuance
of 8% debt in July through December of 1996.
During September 1995, the Company advanced a debt holder of the
Company $315,300 which was repaid in the first quarter of 1996.
21
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company invests its cash with financial institutions that include a
Texas commercial bank and a commercial brokerage firm. The brokerage firm
maintains accounts in several banks throughout the country and in government
securities. Cash balances at the Texas commercial bank are insured by the
Federal Deposit Insurance Corporation up to $100,000. The Company believes it
has no significant concentration of credit risk.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based upon the differences between the financial
statement and tax bases of assets and liabilities, as measured by the enacted
tax rates expected to be in effect when these differences reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The initial public offering resulted in the conversion to common stock
or settlement in cash of substantially all of the Company's outstanding
short-term and long-term debt. However, because the initial public offering had
not yet been completed, management was unable to estimate the fair values at
December 31, 1996 of its short-term and long-term debt.
3. INVENTORY
Inventory consists of the following:
DECEMBER 31,
-----------------------------------
1995 1996
-----------------------------------
Purchased materials $144,986 $180,149
Finished goods 52,483 129,984
-----------------------------------
$197,469 $310,133
===================================
Results of operations for 1995 reflects a charge of $220,000 for
technological obsolescence of component parts and finished goods associated with
one of the Company's early-developed product lines. Inventory at December 31,
1995 and 1996 is presented net of a reserve of $220,000 and $215,000,
respectively.
22
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
December 31,
----------------------------------
1995 1996
----------------------------------
Computer equipment $455,055 $519,966
Software 79,552 141,841
Leasehold improvements 36,985 36,985
Office furniture and equipment 85,090 87,630
----------------------------------
----------------------------------
656,682 786,422
Less accumulated depreciation
and amortization (170,982) (325,527)
----------------------------------
$485,700 $460,895
==================================
5. SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996
-------------------------------
<S> <C> <C>
Officer:
Secured note payable to an officer and affiliate of
the Company, due on demand with interest at 15%.
Collateralized by all assets of the Company.
$364,154 $533,089
===============================
Other:
Secured note payable to an individual investor, due on
demand with interest at 15%. Collateralized by all
assets of the Company. $ 22,548 $ 22,548
Convertible secured debt payable to a principal
stockholder of the Company, due on demand 10 days
subsequent to an initial public offering or 180
days after date of issue, with interest at 8%.
Collateralized by all assets of the Company.
- 500,000
Unsecured notes payable to principal stockholders of the
Company, due on demand 10 days subsequent to an initial
public offering or 180 days after date of issue, with
interest at 8% - 1,315,000
Unsecured , non-interest bearing note payable to
the Company's underwriter 35,000 120,000
Other 9,085 8,654
-------------------------------
Total short-term debt, other $ 66,633 $1,966,202
===============================
</TABLE>
23
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Between February and May 1995, the Company issued $1,096,000 of 15%
90-day secured notes to existing stockholders, an officer and director of the
Company and two individual investors. The secured notes were collateralized by
all assets of the Company. As an incentive to lend the secured debt to the
Company, an officer and director and two former directors of the Company (all
three founders and significant stockholders of the Company), sold 202,750 of
their common shares to the lenders at par value. The excess of the fair market
value of the shares of $.50 per share as determined by independent appraisal
sold to the note holders over their purchase price, was charged to expense over
the term of the notes as additional interest expense.
During June and July 1995, $310,000 of 15% unsecured demand notes were
issued to existing stockholders, note holders and an officer and director of the
Company. As an incentive to lend the unsecured debt to the Company, the Company
issued 77,500 three-year warrants to purchase common stock at $1.00 per share to
the lenders. The fair market value of the warrants of $.50 per share as
determined by independent appraisal, was charged to interest expense over the
term of the notes.
In December 1995, $791,000 of the secured notes and $250,000 of the
unsecured notes, along with accrued interest of $101,109, were exchanged for
380,704 shares of common stock plus 520,500 three-year warrants to purchase
common stock at $1.00 per share. As determined by independent appraisal, the
fair market value of the equity instruments exchanged equaled the carrying value
of the debt and accrued interest and, accordingly, no gain or loss was recorded.
Additionally, in December 1995, in connection with the exchange of
secured notes for demand notes, the Company issued 109,500 three-year warrants
to purchase common stock at $1.00 per share to the holders of the secured and
unsecured notes remaining outstanding. 103,500 of these warrants were issued to
the Company's Chief Executive Officer. Based on an independent appraisal, the
fair market value of these warrants of $.60 per share was charged to interest
expense.
In January and February 1996, the Company issued $650,000 of 10% 90-day
secured notes to an existing stockholder of the Company. As an incentive to
advance these notes, the stockholder received 65,000 three-year warrants to
purchase Company stock at $3.00 per share. Based on an independent appraisal,
the fair market value of these warrants of $.50 per share was charged to
interest expense over the term of the notes.
In July 1996, the Company issued $500,000 of 8% secured convertible
debt to a principal stockholder of the Company. The convertible debt is due on
demand 10 days subsequent to an initial public offering of the Company's equity
securities or 180 days from date of issue. As an incentive to advance these
notes, the stockholder received 50,000 three-year warrants to purchase Company
stock at $3.00 per share. Based on an independent appraisal, the fair market
value of these warrants of $.50 per share is being charged to interest expense
over the term of the debt.
Between September and December of 1996, the Company issued $1,315,000
of 8% unsecured notes to existing stockholders of the Company. The notes are due
on demand 10 days subsequent to an initial public offering of the Company's
equity securities or 180 days from date of issue. As an incentive to advance the
notes, the stockholders received 131,500 three-year warrants to purchase Company
stock at $3.00 per share. Based on an independent appraisal, the fair market
value of these warrants of $1.00 per share is being charged to interest expense
over the term of the notes.
In October 1996, the Company converted salary and bonuses of $127,781
and accrued interest of $41,154 owing to its Chief Executive Officer into
$168,935 principal amount of 15% secured notes due in February of 1998.
Interest paid was $23,811 and $1,287 for the years ended December 31,
1995 and 1996, respectively.
24
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1996
----------------------------------
<S> <C> <C>
Convertible notes $2,567,300 $2,567,300
Short-term notes converted
to convertible notes 110,250 110,250
Convertible secured debt
payable to a principal
stockholder of the Company,
due January 1998 with interest
at 8% collateralized by all
assets of the Company - 500,000
Other 8,654 -
----------------------------------
2,686,204 3,177,550
Less: current portion
of convertible notes 2,677,550 3,177,550
----------------------------------
$ 8,654 $ -
==================================
</TABLE>
In September 1994 the Company began a private placement of convertible
debt (the Agreements) and through March 31, 1995, received $2,567,300. The
unsecured convertible promissory notes, which were sold in units of $10,000,
bear interest at 8%. As of December 31, 1995 and 1996, all of the convertible
notes were scheduled to mature within twelve months and, therefore, have been
classified as a current liability.
The Agreements allow convertible note holders, upon a public offering
of the Company's equity securities with proceeds exceeding $2,000,000, the right
to convert their notes to registered equity securities of the Company at the
public offering price and receive 5,000 three-year warrants to purchase the
Company's common stock at $3.00 per share for each $10,000 unit. Alternatively,
the convertible note holders may elect to request repayment of their notes from
the proceeds of the public offering and receive 3,334 three-year warrants to
purchase the Company's common stock at $3.00 for each $10,000 unit. In June of
1996, holders of $2,430,300 principal amount of the convertible notes elected to
convert into securities hereby and holders of $247,250 principal amount elected
to be repaid from the proceeds of the offering. In addition, by virtue of the
aforementioned elections, the convertible notes, which originally matured
between March and July of 1996, were extended to the closing date of the initial
public offering.
In July of 1996, the Company issued $500,000 of 18-month 8% convertible
debt to a principal stockholder of the Company. As an incentive to advance these
notes, the stockholder was granted 50,000 three-year warrants to purchase
Company stock at $3.00 per share. Based on an independent appraisal, the fair
market value of these warrants of $.50 per share is being charged to interest
expense over the term of the notes.
25
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires a valuation allowance to be recorded when it is "more
likely than not that some portion or all of the deferred tax assets will not be
realized." In the opinion of management, realization of the Company's net
operating loss carryforward is not reasonably assured, and a valuation allowance
of $2,966,000 and $4,625,000 has been provided against deferred tax assets in
excess of deferred tax liabilities in the accompanying consolidated financial
statements at December 31, 1995 and 1996, respectively.
The components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1996
-----------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 2,860,000 $ 4,349,000
Excess of tax over financial statement
basis of patent 45,000 41,000
Accruals deductible for tax purposes
when paid 156,000 236,000
Excess of tax over financial statement
basis of software development costs - 42,000
-----------------------------------
Total deferred tax assets 3,061,000 4,668,000
Less: valuation allowance (2,966,000) (4,625,000)
-----------------------------------
95,000 43,000
Deferred tax liabilities:
Excess of financial statement over tax
basis of property and equipment 42,000 43,000
Excess of financial statement over tax
basis of software development costs 53,000 -
-----------------------------------
Total deferred tax liabilities 95,000 43,000
===================================
Net deferred taxes $ - $ -
===================================
</TABLE>
A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:
26
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1996
-----------------------------------
<S> <C> <C>
U.S. federal statutory rate applied to pretax $ (1,841,000) $ (1,494,000)
loss
Accrued compensation and other accruals 2,500 (19,000)
Amortization of patent 27,500 (3,000)
Depreciation of property and equipment (27,000) (5,000)
Software development costs for financial
reporting purposes (29,000) (11,000)
Net operating loss carryforward not recognized
for financial reporting purposes 1,714,000 1,476,000
Inventory and doubtful account reserves 50,500 3,000
Non-deductible interest expenses 90,000 46,000
Other 12,500 7,000
===================================
$ - $ -
===================================
</TABLE>
The Company has a federal income tax net operating loss carryforward of
approximately $11,700,000 at December 31, 1996. Approximately $2,700,000,
$4,700,000, and $4,300,000 of the carryforward will expire in 2009, 2010, and
2011, respectively. The Company is subject to limitations existing under
Internal Revenue Code Section 382 (Change of Control) relating to the
availability of the operating loss carryforward. Beginning with 1994,
approximately $790,000 of the carryforward that will expire in 2009 is limited
to utilization at a rate of approximately $300,000 per year.
No income taxes were paid for the years ended December 31, 1994, 1995
and 1996.
9. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
In September 1995, the Company began a private placement of up to
2,666,667 shares of common stock to qualified investors. In September 1995, the
Company sold 833,333 shares to an existing stockholder at $3.00 per share.
Proceeds to the Company were $2,166,894 net of related offering costs of
$333,106. The offering costs have been charged against additional paid-in
capital. As described in Note 6, in December 1995 and March 1996, certain
secured and demand note holders of the Company exchanged $1,805,698 of notes and
accrued interest for 601,899 shares of common stock and 520,500 warrants in the
offering. In April through June of 1996, the Company sold 304,016 shares of the
offering to individual investors at $3.00 per share. Proceeds to the Company
were $912,054. Additionally, in May and June of 1996, the Company converted
$208,000 of accounts payable into 69,332 shares of the offering at $3 per share.
27
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK OPTION PLAN
In April 1995, the Company adopted its 1995 Stock Plan (1995 Stock
Option Plan) under which 2,000,000 shares of the Company's common stock are
reserved for issuance to officers, key employees and consultants of the Company.
The objectives of the stock plan are to attract and retain qualified personnel
for positions of substantial responsibility, and to provide additional
incentives to employees and consultants to promote the success of the Company's
business. Options granted under the plan may be incentive stock options or
non-qualified stock options. The plan is administered by the Board of Directors.
The options are granted at the discretion of the Board of Directors at an option
price per share not less than fair market value, as determined by the Board of
Directors, at the date of grant.
In April 1995, the Company also adopted the 1995 Director Option Plan
under which 250,000 shares of the Company's common stock are reserved for
issuance to outside directors of the Company. The objective of the director plan
is to attract and retain qualified personnel for service as outside directors of
the Company, and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary, and are issued at an option price per share not less than
fair market value, as determined the Board of Directors, at the date of grant.
Following is a summary of stock option activity from December 31, 1994
through December 31, 1996:
<TABLE>
<CAPTION>
Stock Options
---------------------------------------------------------
Weighted-
Average
Number Price Per Exercise Price
of Shares Share Per Share
---------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 1,643,536 $ .04 - 3.00 $2.25
Granted 693,258 3.00 3.00
Exercised - - -
Forfeited 507,020 2.20 - 3.00 2.46
---------------------
Outstanding at December 31, 1995 1,811,774 .04 - 3.00 2.48
Granted 870,400 3.00 - 4.00 3.32
Exercised -
Forfeited 588,213 .20 - 3.00 2.55
---------------------
Outstanding at December 31, 1996 2,093,961 $ .04 - 4.00 $2.81
=====================
</TABLE>
The weighted average grant-date fair value of options granted was $0.76
and $0.86 for the years ended December 31, 1995 and 1996, respectively.
At December 31, 1996, 727,928 stock options at prices ranging from $.04
to $3.00 with a weighted- average exercise price of $2.29 and weighted-average
remaining contractual life of 8.50 years were exercisable.
28
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
WARRANTS
The Company has issued warrants to purchase common stock of the Company
in connection with certain notes payable (as described in Note 5) and as
compensation for services rendered by various consultants and a financial
consulting firm controlled by an officer, director, and stockholder of the
Company. All warrants issued prior to 1995 have been exercised with the
exception of the rights available to convertible debt holders as described in
Note 6. The following is a summary of warrant activity from December 31, 1994
through December 31, 1996:
<TABLE>
<CAPTION>
Warrants
-----------------------------------------------------------
Weighted-
Average
Number of Price Per Exercise Price
Shares Share Share
-----------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1994 - $ 0.00 $ 0.00
Granted 1,147,500 1.00 - 3.00 1.77
Exercised - - -
--------------------
Outstanding at December 31, 1995 1,147,500 1.00 - 3.00 1.77
Granted 376,505 3.00 3.00
Exercised - - -
--------------------
Outstanding at December 31, 1996 1,524,005 $ 1.00 - 3.00 $ 2.07
====================
</TABLE>
At December 31, 1996, 1,449,005 warrants at prices ranging from $1.00
to $3.00 with a weighted-average exercise price of $2.02 were exercisable.
Statement of Financial Accounting Standards No. 123, "Accounting For
Stock Based Compensation," (SFAS123) requires the disclosure of pro forma net
income and earnings per share information computed as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method set forth in SFAS 123. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1995 and 1996,
respectively: risk-free interest rates of 6.4% and 6.1%, expected life of 5
years, zero dividend yield. Because the Company was not a public company until
February 1997, the minimum value method provided by SFAS 123 was utilized for
1995 and 1996 assuming no volatility.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimated, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. In addition, because SFAS 123 is applicable only to
options granted subsequent to December 31, 1994, the pro forma information
presented below is not necessarily indicative of the effects on reported net
income in future years.
29
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. Pro forma
information for the years ended December 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------------------- -------------------
<S> <C> <C>
Pro forma net loss $ (5,506,909) $ (4,597,827)
Pro forma net loss per share $ (1.09) $ (0.78)
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under non-cancelable operating
leases extending through 1998 with an average monthly rental of $15,793. The
landlords pay all operating costs and real estate taxes associated with the
office leases, which are subject to cost escalation not to exceed 4% annually.
The Company is amortizing the total rent payments over the lease term on a
straight-line basis. The Company also leases certain office and computer
equipment under non-cancelable operating leases. Future minimum operating lease
payments with initial or remaining terms of one year or more are as follows:
OPERATING
LEASES
----------------
Year ended December 31:
1997 $176,715
1998 14,843
----------------
Total minimum lease payments $191,558
================
Rent expense was $233,305 and $247,765 for the years ended December 31,
1995 and 1996, respectively.
The Company has entered into an employment contract with its Chief
Executive Officer through February 1999 that provides for a minimum annual
salary and incentives based generally on the Company's performance. Total
compensation, including incentives, which was accrued and included in accrued
compensation in the accompanying consolidated financial statements at December
31, 1995 was $112,929. No amounts were accrued at December 31, 1996 (See Note
5).
11. RELATED PARTY TRANSACTIONS AND OTHER MATTERS
In February 1994 the Company entered into two five-year consulting
agreements with two of its former directors, pursuant to which the Company
agreed to pay monthly consulting fees of $5,000 to each individual. In March
1995 one of these consulting agreements was canceled with no further liability
to the Company. In June 1996, the Company converted $80,000 of accounts payable
owed on the remaining consulting agreement into 26,666 shares of common stock at
$3.00 per share. By mutual agreement, effective May 1, 1996 consulting fees from
the remaining consulting contract were suspended until the effective date of the
initial public offering. Consulting fees charged to expense with respect to the
aforementioned agreements for the years ended December 31, 1995 and 1996 were
$72,500 and $20,000, respectively. Consulting fees of $72,500 and $12,500
remained accrued at December 31, 1995 and 1996, respectively.
30
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In May 1996, the Company issued 5,005 three-year warrants to purchase
Company stock at $3.00 per share to a company which is partially owned by the
Chief Executive Officer of the Company. The warrants were issued as
consideration for consulting services rendered during 1996. The fair market
value of the warrants of $.50 as determined by independent appraisal and fees of
$2,503 were charged to expense during 1996. Consulting fees of $11,692 and
$8,130 remained accrued at December 31, 1995 and 1996, respectively for
consulting services rendered during 1994. Additionally, $12,500 and $3,562 of
consulting fees were paid in 1995 and 1996, respectively for consulting services
rendered in 1994.
From October 1994 through January 1995, the Company issued to four
principal stockholders, a principal stockholder and director of the Company and
the spouse of another principal stockholder and former director, convertible
notes totaling $1,905,000 under the terms described in Note 6. Holders of this
debt elected to convert their convertible notes into common stock of the Company
at the initial offering price per share upon consummation of the initial public
offering.
From February through April 1995, the Company issued to five principal
stockholders of the Company secured notes totaling $1,070,000 under the terms
described in Note 5. During December 1995, $781,000 of these secured notes were
exchanged for equity securities of the Company under the terms described in Note
5.
During June and July 1995, the Company issued to three principal
stockholders of the Company demand notes totaling $310,000 under the terms
described in Note 5. During December 1995, $250,000 of these secured notes were
exchanged for equity securities of the Company under the terms described in Note
5.
In January and February 1996, the Company issued to a principal
stockholder of the Company, secured notes totaling $650,000 under the terms as
described in Note 5. During March 1996, these secured notes were exchanged for
equity securities of the Company under the terms described in Note 5.
During July 1996, the Company issued $1,000,000 of secured convertible
debt to a principal stockholder of the Company. The convertible debt bears
interest at 8% . Principal of $500,000 matures on demand 10 days subsequent an
initial public offering of the Company's equity securities or 180 days from date
of issue, and the balance matures in 18 months. As an incentive to advance the
debt, the stockholder was issued 100,000 three-year warrants to purchase Company
stock at $3.00 per share.
During July 1996, the Company issued to a stockholder and former
director of the Company, 75,000 three-year warrants to purchase Company stock at
$3.00 per share pursuant to the terms of a consulting agreement more fully
described in Note 10. Based on an independent appraisal, the fair market value
of these warrants of $15,000 was charged to consulting fees in 1996.
During October 1996, the Chief Executive Officer of the Company agreed
to defer receipt of $164,154 principal amount of Secured and Demand Notes,
accrued interest of $41,154 and accrued salary and bonuses of $127,781 until
February of 1998 under the terms described in Note 5.
In November and December of 1996, the Company issued $700,000 of
unsecured debt to two principal stockholders of the Company. The unsecured debt
bears interest at 8% and matures on demand 10 days subsequent to an initial
public offering of the Company's equity securities or 180 days from the date of
issue. As an incentive to advance the debt, the stockholder's were issued 70,000
three-year warrants to purchase Company stock at $3.00 per share.
31
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. Subsequent Events and Pro Forma Adjustments to Balance Sheet (Unaudited)
In January and February of 1997, the Company issued $600,000 of
unsecured debt to two principal stockholders of the Company. The unsecured debt
bears interest at 8% and is due on demand 10 days subsequent to an initial
public offering of the Company's equity securities or 180 days from the date of
issue. As an incentive to advance the debt, the stockholders were issued 60,000
three-year warrants to purchase Company stock at $3.00 per share.
The pro forma balance sheet as of December 31, 1996 (unaudited) gives
effect to the following transactions in connection with the initial public
offering which occurred in February 1997:
o Issuance of $600,000 of additional 8% bridge notes.
o Receipt of net proceeds of $5,342,000 from the issuance of 1,400,000 shares
of Common Stock and 1,400,000 Public Warrants in the initial public offering,
and 210,000 shares of Common Stock and 210,000 Public Warrants upon exercise
of the underwriters over-allotment option.
o Conversion of $5,345,300 principal amount of convertible and bridge notes
together with accrued interest of $367,827 into 1,241,977 shares of Common
Stock and Public Warrants in the offering.
o Repayment of $247,250 principal amount of convertible notes and $377,548
principal amount of secured and demand notes together with total accrued
interest of $209,473.
32
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of the Exchange Act.
The information required by this item is incorporated by reference to
disclosure in the Company's Proxy Statement cl to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days after the end
of the fiscal year covered by this report ("Proxy Statement").
Item 10. Executive Compensation
The information required by this item is incorporated by reference to the
Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Proxy Statement.
Item 12. Certain Relationships and Related Transactions
The infomation required by this item is incorporated by reference to the
Proxy Statement.
Item 13. Exhibits and Report on Form 8-K
a) Exhibits
See Exhibit index.
b) Reports on Form 8-K
None
33
<PAGE>
SIGNATURES
---------------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date MultiMedia Access Corporation
------
March 28, 1997 By: /s/ William S. Leftwich
------------------------------------
William S. Leftwich
Chief Financial Officer and
Asst. Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date MultiMedia Access Corporation
------
March 28, 1997 By: /s/ Glenn A. Norem
------------------------------------
Glenn A. Norem
Director and Chief Executive Officer
March 28, 1997 By: /s/ William S. Leftwich
------------------------------------
William S. Leftwich
Chief Financial Officer and
Asst. Secretary
March 28,1997 By: /s/ William D. Jobe
------------------------------------
William D. Jobe
Director and Chairman of the Board
March 28, 1997 By: /s/ Joe C. Culp
------------------------------------
Joe C. Culp
Director
34
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Page No Description of Exhibit Number
- - ------- ----------
1 Form of Underwriting Agreement (1)
2 Agreement and Plan of Merger and Reorganization (1)
3(a) Certificate of Incorporation (1)
3(b) Amendment to Certificate of Incorporation (1)
3(c) Restated By-Laws (1)
4(a) Form of Common Stock Certificate (1)
4(b) Form of Warrant Certificate (1)
4(c) Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (1)
4(d) Form of Representative's Warrant Agreement (1)
5 Opinion of The Stoppelman Law Firm, P.C. on Legality
of Securities Being Registered (1)
9(a) Voting Trust Agreement between Robert M. Sterling,
Jr. and Thomas E. Brown (1)
9(b) Voting Trust Agreement between Robert P. Bernardi
and Richard Bernardi (1)
9(c) Form of Lock-Up Agreement (1)
9(d) Lock-Up Agreement with Robert Sterling Trust (1)
9(e) Lock-Up Agreement with Robert Bernardi Trust (1)
9(f) Lock-Up Agreement with Michael Nissenbaum (1)
10(a) Modified Employment Agreement between the Company
and Glenn A. Norem (1)
10(b) Modified Consulting Agreement between the Company
and Sterling Capital Group Inc. (1)
10(c) Form of Indemnification Agreement between the
Company and Executive Officers and Directors (1)
10(d) 1995 Stock Option Plan (1)
1O(e) 1994 Stock Option Plan (1)
10(f) 1993 Viewpoint Stock Plan (1)
10(g) 1995 Director Option Plan (1)
10(h) Lease Agreement between the Company and Metro
Squared, L P(1)
10(i) Employee Stock Purchase Plan (1)
10(j) Licensing Agreement between the Company and Boca
Research, Inc. (1)
10(k) Agreement between the Company and UniSyS(TM) (1)
10(l) Employment Agreement between the Company and Philip
M. Colquhoun (1)
10(m) Employment Agreement between the Company and William
S. Leftwich (1)
10(n) Employment Agreement between the Company and David
T. Stoner (1)
10(o) Employment Agreement between the Company and Neal
Page (1)
10(p) Employment Agreement between the Company and A.
David Boomstein (1)
1O(q) Employment Agreement between the Company and Daniel
W. Dodson (1)
10(r) Lease between the Company and Burlingame Home
Office, Inc. (1)
10(s) Lease between the Company and Family Funds
Partnership (1)
10(t) Agreement between the Company and Catalyst Financial
Corporation (1)
10(u) Promissory Note by the Company payable to Robert
Rubin dated September 5, 1996. (1)
10(v) Promissory Note by the Company payable to M. Douglas
Adkins dated November 15, 1996. (1)
1O(w) Promissory Note by the Company payable to H.T.
Ardinger dated November 15, 1996. (1)
1O(x) Promissory Note by the Company payable to H.T.
Ardinger dated January 15, 1997. (1)
10(y) Promissory Note by the Company payable to Adkins
Family Partnership, Ltd. dated January 15, 1997. (1)
11 Calculation of Net Loss Per Share
21 List of Subsidiaries of the Company (1)
27 Financial Data Schedule
(1)Incorporated by reference to the Registration Statement on Form SB-2 and all
amendments thereto as declared effective on February 4, 1997.
35
<TABLE>
<CAPTION>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES EXHIBIT 11
STATEMENT RE: CALCULATION OF NET LOSS PER SHARE
Year ended December 31,
-------------------------------------------
<S> <C> <C>
LOSS PER SHARE DATA: 1995 1996
------------------- -------------------
Net loss as reported in the financial statements $ (5,414,878) $ (4,393,965)
------------------- -------------------
Weighted average number of common shares
outstanding 3,528,536 4,844,706
Common and common equivalent shares issued in the twelve month period preceding
the filing date of the initial public offering as required by SAB No. 83:
Common stock 510,698 69,869
Incentive stock options 266,356 266,356
Non-qualified stock options 40,208 40,208
Warrants 778,613 778,613
Weighted average number of common and common
equivalent shares outstanding as reported in the
------------------- -------------------
financial statements 5,124,411 5,999,752
------------------- -------------------
Loss per share as reported in the financial
statements $ (1.06) $ (0.73)
=================== ===================
SUPPLEMENTAL LOSS PER SHARE DATA:
Net loss as reported in the financial statements $ (5,414,878) $ (4,393,965)
Interest saved on debt to be retired:
$257,548 of 15% secured debt 38,632 38,632
$247,250 of 8% convertible debt 19,780 19,780
$35,000 of non-interest debt at 12/31/95 - -
$120,000 of non-interest debt at 12/31/96 - -
------------------- -------------------
Adjusted net loss $ (5,356,466) $ (4,335,553)
------------------- -------------------
Weighted average number of common and common
equivalent shares outstanding as reported in the
the financial statements 5,124,411 5,999,752
Shares necessary to pay off debt:
Total proceeds to retire debt of $539,798 at December 31, 1995 and $624,798
at December 31, 1996 divided by
the offering price of $4.50 per share 119,955 138,844
------------------- -------------------
Adjusted weighted average number of shares outstanding 5,244,366 6,138,596
------------------- -------------------
Supplemental loss per share $ (1.02) $ (0.71)
=================== ===================
SUPPLEMENTAL LOSS PER SHARE DATA INCLUDING
DEBT CONVERTED TO EQUITY IN THE OFFERING:
Adjusted net loss $ (4,335,553)
Interest saved on debt to be converted to equity:
$2,430,300 principal amount of convertible debt 194,957
$2,915,000 principal amount of bridge debt 141,055
---------
Further adjusted net loss $ (3,999,541)
===================
Adjusted weighted average number of shares outstanding 6,138,596
Shares added from conversion of debt:
Weighted average shares - convertible debt 608,283
Weighted average shares - bridge debt 150,119
---------
Further adjusted weighted average number of shares outstanding 6,896,998
===================
Further adjusted supplemental loss per share $ (0.58)
===================
36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES AS
OF DECEMBER 31,1995 AND 1996, AND THE RELATED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 18,539
<SECURITIES> 0
<RECEIVABLES> 228,564
<ALLOWANCES> 43,000
<INVENTORY> 310,133
<CURRENT-ASSETS> 1,064,770
<PP&E> 786,422
<DEPRECIATION> 325,527
<TOTAL-ASSETS> 1,691,258
<CURRENT-LIABILITIES> 7,472,088
<BONDS> 0
0
0
<COMMON> 532
<OTHER-SE> (5,781,362)
<TOTAL-LIABILITY-AND-EQUITY> 1,691,258
<SALES> $901,262
<TOTAL-REVENUES> 1,095,012
<CGS> 393,918
<TOTAL-COSTS> 393,918
<OTHER-EXPENSES> 2,203,187
<LOSS-PROVISION> 42,777
<INTEREST-EXPENSE> 513,979
<INCOME-PRETAX> (4,393,965)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,393,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,393,965)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
