<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _________ to ____________
Commission file number 000-22235
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Objective Communications, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 54-1707962
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
50 International Drive
Portsmouth, NH 03801
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(Address of Principal Executive Offices)
(603) 334-6700
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(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 X No
--- ---
APPLICATION ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of August 13, 1999: 8,812,141
Transitional Small Business Disclosure Format (check one):
Yes X No
--- ---
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
---- ----
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 8,350,927 $ 8,532
Accounts receivable, less allowance for doubtful accounts of $ -0- and $22,246
at June 30, 1999 and December 31, 1998, respectively 1,033,919 184,670
Inventory 6,421,769 5,793,801
Other current assets 247,842 250,709
-------------- ---------------
Total current assets 16,054,457 6,237,712
Property and equipment, net 2,244,270 3,096,752
Trademarks and patents, less accumulated amortization of $ 30,241 and
$ 22,660 at June 30, 1999 and December 31, 1998, respectively 226,063 200,204
Other assets 70,404 88,321
-------------- ---------------
$ 18,595,194 $ 9,622,989
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 40,131 $ 125,543
Subordinated convertible debentures - 3,200,674
Accounts payable 1,961,514 6,748,538
Deferred revenue - 40,000
Accrued liabilities 999,929 841,526
Current portion of long term debt 743,322 -
Obligations under capital lease, current portion 101,079 187,220
-------------- ---------------
Total current liabilities 3,845,975 11,143,501
Obligations under capital lease 38,967 76,008
Long term debt 2,634,081 -
Commitments
Stockholders' equity (deficit):
Series B Convertible Preferred Stock, par value $.01, 954,545 shares authorized;
none and 209,091 issued and outstanding at June 30, 1999 and December 31, 1998,
respectively - 1,173,958
Common stock, par value $.01, 30,000,000 shares authorized; 8,812,141 and 820,147 issued and
outstanding at June 30, 1999 and December 31, 1998, respectively 88,121 8,201
Additional paid-in capital 56,936,015 36,770,004
Deficit accumulated during development stage (44,947,965) (39,548,683)
-------------- ---------------
Total stockholders' equity (deficit) 12,076,171 (1,596,520)
-------------- ---------------
$ 18,595,194 $ 9,622,989
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 3
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
-----------
<TABLE>
<CAPTION>
For the three months ended For the six months ended For the period
June 30, June 30, October 5, 1993
(date of inception)
1999 1998 1999 1998 to June 30, 1999
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Revenues - equipment $ 749,968 $ - $ 1,405,425 $ 110,505 $ 2,346,343
Revenues - services 460,070 - 460,070 - 780,429
------------- ------------ ------------ ------------- ---------------
Total revenues 1,210,038 - 1,865,495 110,505 $ 3,126,772
------------- ------------ ------------ ------------- ---------------
Cost of sales - equipment 319,818 - 688,520 64,304 1,402,682
Cost of sales - services 147,021 - 147,021 - 227,087
------------- ------------ ------------ ------------- ---------------
Cost of sales 466,839 - 835,541 64,304 1,629,769
------------- ------------ ------------ ------------- ---------------
Gross margin 743,199 - 1,029,954 46,201 1,497,003
------------- ------------ ------------ ------------- ---------------
Operating expenses:
Research and development 876,174 4,616,462 1,699,418 7,233,050 21,911,070
Selling, general and administrative 870,736 2,697,879 1,994,391 4,439,223 17,614,450
Depreciation and amortization 293,784 572,043 587,682 970,050 3,880,796
------------- ------------ ------------ ------------- ---------------
Total operating expenses 2,040,694 7,886,384 4,281,491 12,642,323 43,406,316
------------- ------------ ------------ ------------- ---------------
Loss from operations (1,297,495) (7,886,384) (3,251,537) (12,596,122) (41,909,313)
Interest (income) expense, net 1,687,168 (32,659) 2,147,745 (198,698) 2,631,755
------------- ------------ ------------ ------------- ---------------
Net loss (2,984,663) (7,853,725) (5,399,282) (12,397,424) $ (44,541,068)
------------- ------------ ------------ ------------- ---------------
Cumulative Series B dividend (8,297) - ( 22,672) -
------------- ------------ ------------ -------------
Net loss attributable to common stockholders $( 2,992,960) $(7,853,725) $(5,421,954) $(12,397,424)
============= ============ ============ =============
Net loss per common share -basic and
diluted $ (1.54) $ (9.62) $ (3.78) $ (15.24)
============= ============ ============ =============
Weighted average shares outstanding -
basic and diluted 1,944,127 816,480 1,433,186 813,744
============= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the period
October 5, 1993
Six months ended June 30, (Date of inception) to
1999 1998 June 30, 1999
---- ---- -------------
<S> <S> <C> <C>
Cash flows from operating activities:
Net loss $(5,399,282) $(12,397,424) $(44,541,068)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 580,101 965,193 3,597,090
Amortization 7,581 4,858 283,705
Interest expense related to issuance of warrants 23,745 - 730,534
Interest expense accrued on debentures 74,649 - 150,323
Amortization of debt discount 1,270,214 - 1,270,214
Amortization of debt issuance costs 472,313 - 472,313
Non-cash compensation expense 281,844 281,844 1,185,697
Stock issued in exchange for services rendered - - 55,834
Other non-cash charges - - 18,819
Changes in operating assets and liabilities:
Accounts receivable (849,249) - (1,033,919)
Other current assets (26,000) 367,812 (46,646)
Inventory 472,032 (6,430,104) (5,353,994)
Trademarks and patents (33,440) (64,071) (256,304)
Other assets - (17,447) (83,654)
Accounts payable (1,295,698) 4,274,815 5,492,981
Deferred revenue (40,000) (38,262) -
Accrued liabilities 340,081 (137,561) 1,181,607
------------ ------------- -------------
Net cash used in operating activities (4,121,109) (13,190,347) (36,876,468)
------------ ------------- -------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 80,580 - 85,580
Proceeds from sale of leasehold improvements - 1,470,000 1,470,000
Purchase of property and equipment - (3,636,549) (6,455,724)
------------ ------------- -------------
Net cash provided by (used in) investing activities 80,580 (2,166,549) (4,900,144)
------------ ------------- -------------
Cash flows from financing activities:
Net proceeds from the issuance of Series A Preferred Stock - - 1,810,643
Net proceeds from the issuance of Series B Preferred Stock - - 1,150,000
Net proceeds from the issuance of common stock 14,220,814 221,240 46,515,497
Net proceeds from the issuance of representative's purchase option 100 - 100
Net proceeds from the exercise of stock options - - 35,304
Net proceeds from the exercise of warrants - - 235,937
Net proceeds from the issuance of debentures - - 3,125,000
Net proceeds from the issuance of notes payable - - 2,550,000
Net proceeds from the issuance of unsecured promissory notes and common stock 2,395,604 - 2,395,604
Repayment of unsecured promissory notes (2,850,000) (2,850,000)
Repayment of notes payable (85,412) (62,715) (2,780,073)
Repayment of long term debt (1,175,000) - (1,175,000)
Proceeds from the issuance of notes payable to related parties 36,000 - 752,223
Repayment of notes payable to related parties (36,000) - (400,000)
Debt issuance costs - (258,131)
Principal payments on capital leases (123,182) (357,280) (979,565)
------------ ------------- -------------
Net cash provided by (used in) financing activities 12,382,924 (198,755) 50,127,539
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 8,342,395 (15,555,651) 8,350,927
Cash and cash equivalents, at beginning of period 8,532 18,199,434 -
------------ ------------- -------------
Cash and cash equivalents, at end of period $ 8,350,927 $ 2,643,783 $ 8,350,927
============ ============= =============
Supplemental disclosure of non-cash investing and
financing activities: See Note 8.
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Notes To Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements of Objective
Communications, Inc. (the "Company") as of June 30, 1999 and for the three and
six months ended June 30, 1999 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, such financial statements contain all adjustments consisting only
of normal recurring entries, necessary to present fairly the financial position
of the Company as of June 30, 1999 and the results of operations for the three
and six months ended June 30, 1999 and 1998. The interim financial statements
should be read in conjunction with the audited financial statements and notes
thereto for the year ended and as of December 31, 1998 included in the Objective
Communications, Inc. Annual Report on Form 10-KSB/A, as filed with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended. Certain prior year items have been reclassified to conform to the
current period's format. The results of operations for the three and six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year.
A one share for seven shares reverse stock split of the issued and outstanding
common stock of the Company became effective on April 14, 1999. The reverse
stock split had previously been approved by the Board of Directors and
stockholders of the Company. All references throughout these financial
statements to number of shares and per share information have been restated to
reflect this reverse stock split. The number of shares as restated to reflect
the reverse stock split has not been adjusted to give effect to the cashing out
of fractional shares in prior periods.
2. Net Loss Per Share
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Net
loss per common share is based on the weighted average number of common shares
and dilutive common share equivalents outstanding during the periods presented.
Basic earnings (loss) per share are calculated by dividing net income (loss) by
the weighted average shares outstanding. Diluted earnings (loss) per share
reflect the dilutive effect of stock options and warrants and are presented only
if the effect is not anti-dilutive. As the Company incurred losses for all
periods, there is no difference between basic and diluted earnings per share.
Had options and warrants been included in the computation, shares for the
diluted computation would have increased by 313,848 and 5,952,318 as of June 30,
1998 and 1999, respectively.
3. Income Taxes
The Company did not record a provision for income taxes for the three and six
months ended June 30, 1999 and 1998 since the Company had net operating losses
during each of those periods. The Company recorded a full valuation allowance
against the net deferred tax asset generated primarily from its net operating
loss carryforwards.
4. Inventory
Inventory consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Raw Materials $5,612,262 $5,750,733
Finished Goods 809,507 43,068
----------- ----------
$6,421,769 $5,793,801
=========== ==========
</TABLE>
4
<PAGE> 6
5. Debt
Subordinated convertible debentures. In accordance with letter agreements
reached with the holders of the subordinated convertible debentures in May 1999,
the principal amount of and accrued interest on the Company's outstanding 5%
Convertible Debentures due 2003, originally issued in July 1998, automatically
converted to 873,415 shares of common stock at a conversion price of $3.75 per
share on June 18, 1999, the date on which the Company completed a $15 million
public offering of units.
Sanmina Note. In January 1999, the Company converted outstanding accounts
payable to Sanmina Corporation of $3,200,000 and $1,100,000, the latter
representing the value of inventory and materials located at a subcontract
manufacturer, to a $4,300,000 three-year term note accruing interest at 7% per
year. The Company paid Sanmina $1,100,000 in principal on the note in June 1999
upon completion of its public offering of units and Sanmina transferred to the
Company the title to the inventory and materials located at Sanmina. During the
first year, the note requires interest-only payments, in arrears, semi-annually,
beginning in July 1999. Thereafter, the Company will amortize the remaining
principal and interest in equal monthly payments over the remaining life of the
note.
In connection with converting the accounts payable balance, the Company issued
to Sanmina warrants to purchase 39,286 shares of common stock, with a $19.25
exercise price per share. An independent appraisal assigned a market value of
$127,759 to these warrants. The Company has recorded the value of the warrants
as a discount against the face amount of the note and will amortize the value
over the life of the note.
Legal Counsel Note. In January 1999, the Company also converted $375,000 of
outstanding accounts payable to legal counsel to a two-year term loan accruing
interest at 7% per year. The Company has paid $75,000 of the principal balance
of this note through June 1999. The Company is obligated to make two semi-annual
interest-only payments commencing in July 1999. Commencing in February 2000, the
Company will commence making twelve equal monthly payments to fully amortize the
remaining balance of the note.
In connection with converting the accounts payable balance, the Company issued
to legal counsel warrants to purchase 5,714 shares of common stock, with a
$18.59 exercise price per share. An independent appraisal assigned a market
value of $18,583 to these warrants. The Company has recorded the value of the
warrants as a discount against the face amount of the note and will amortize the
value over the life of the note.
The following table details the principal payments on long term debt remaining
to be paid:
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENTS
-----------
<S> <C>
July 1 1999 to December 31, 1999 $ -
2000 1,660,873
2001 1,839,127
-----------
Total remaining principal of long term debt as of June 30, 1999 3,500,000
Unamortized debt discount as of June 30, 1999 (122,597)
-----------
Total long term debt as of June 30, 1999 $ 3,377,403
===========
</TABLE>
Private Placement of Units. In February 1999, the Company completed a private
placement of 28.5 units of unsecured promissory notes with a principal amount of
$2,850,000 and 160,701 shares of common stock, from which the Company received
net proceeds of approximately $2,396,000. The notes accrued interest at 10% per
year. Two principal officers of the Company invested a total of $125,000 in
units and were issued unsecured promissory notes with an aggregate original
principal amount of $125,000, and 4,999 shares of common stock. The principal
and accrued interest thereon, amounting to $2,955,000, were repaid to the note
holders in June 1999.
An independent appraisal assigned a market value of $1,305,000 to the common
stock issued in the February 1999 private placement. The Company has recorded
the value of the common stock as a discount against the face amount of the
unsecured promissory notes and will amortize the value over the life of the
notes. In the quarter ended June 30, 1999, two participants in the February 1999
private placement were required to return to the Company a total of 4,284 shares
of common stock, valued at $34,786. The Company amortized a total of $1,270,214
to interest expense in the first half of 1999 as a result of the repayment of
the note in June
5
<PAGE> 7
1999.
6. Series B Preferred Stock
Upon completion of the Company's public offering of units in June 1999, the
209,091 outstanding shares of the Company's Series B Convertible Preferred
Stock, and accreted dividends thereon, automatically converted to 62,162 shares
of common stock at a conversion price of $19.75 per share.
7. Public Offering of Units
In June 1999, the Company completed a public offering of 2,000,000 units from
which it received net proceeds of approximately $12.2 million, net of costs of
the offering. Each unit consists of three shares of common stock and two
warrants to purchase common stock at an exercise price of $4.00 per share. Also
in June, the underwriters exercised their 15% overallotment option and purchased
an additional 300,000 units, yielding an additional $2.0 million net proceeds to
the Company.
8. Non-cash Transactions
The following non-cash transactions occurred in the periods indicated:
<TABLE>
<CAPTION>
For the period
October 5, 1993
Six months ended June 30, (Date of inception) to
1999 1998 June 30, 1999
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited )
<S> <C> <C> <C>
Current asset financed by issuance of note payable $ - $ $230,063
230,063
Capital lease obligations - 701,640 1,119,612
Dividend on preferred stock 22,672 - 46,630
Conversion of notes payable to related parties and accrued
interest to common stock - - 352,223
Conversion of preferred stock to common stock 1,196,630 - 1,196,630
Conversion of subordinated debentures to common stock 3,275,323 - 3,275,323
Reclassification of inventory to fixed assets - 32,225 32,225
Accounts payable transferred to notes payable - - 40,141
Accounts payable transferred to long term debt 3,575,000 - 3,575,000
Common stock issued with private placement 1,270,214 - 1,270,214
Warrants issued with long term debt 146,342 - 146,342
Inventory financed with long term debt 1,100,000 - 1,100,000
Equity financing costs in prepaid expenses 28,867 28,867
Equity financing costs financed in accounts payable 93,797 - 93,797
Reduction in accrued liabilities due to sale of fixed assets 181,678 - 181,678
Cost of fixed assets sold - net 262,258 - 262,258
Vendor credit issued against formerly recorded fixed asset 10,123 - 10,123
Debt issuance costs in other assets - net 17,917 - 17,917
</TABLE>
9. Listing of Company Securities on the Nasdaq
Due to the Company's financial condition, in May 1999, the Nasdaq
determined that listing of the Company's common stock should be transferred from
The Nasdaq National Market to The Nasdaq SmallCap Market and would trade
conditionally on the Nasdaq SmallCap pursuant to an exception from certain of
the listing requirements. All conditions of the exception, including a public
filing with the SEC and Nasdaq evidencing a minimum of $9,000,000 in net
tangible assets, were met immediately after the closing of the Company's public
offering in June 1999. The Company's common stock and units currently are listed
on The Nasdaq SmallCap Market.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Quarterly Report on Form 10-QSB, other
than historical financial information, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
such forward-looking statements involve known and unknown risks, uncertainties
or other factors which may cause our actual results, performance or achievements
to be materially different from any future results, performance or achievement
expressed or implied by such forward-looking statements. Factors that might
cause such a difference include risks and uncertainties related to our
dependence on the emerging market for video broadcast, retrieval and
conferencing, development of additional products, protection of our intellectual
property, limited marketing experience, limited number of customers, and the
need for additional personnel, as well as risks and uncertainties associated
with our growth strategy, technological changes and competitive factors
affecting us. We urge you to read the "Risk Factors" section of our Prospectus
dated June 15, 1999, filed with the Securities and Exchange Commission as part
of our registration statement on Form SB-2 (No. 333-72429), for a more complete
description of the risks that affect our business, financial condition and
results of operations. A copy of that Prospectus is publicly available from the
Securities and Exchange Commission's public reference rooms, or via the Edgar
database on the Securities and Exchange Commission's website located at
www.sec.gov.
In this Quarterly Report of Form 10-QSB, we refer to Objective Communications,
Inc., a Delaware corporation as the Company, Objective Communications, "we",
"ours" or "us." We refer to our investors as "you" or as "investors."
We completed a one share for seven shares reverse split of our outstanding
common stock on April 14, 1999. Share and per share information presented in
this Quarterly Report on Form 10-QSB has been restated to give retroactive
effect to the reverse stock split.
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto appearing elsewhere in this Quarterly
Report on Form 10-QSB.
OVERVIEW
Our financial results for the three and six months ended June 30, 1999
reflect the positive effects of our cost reduction program, the introduction of
the first commercial version of the VidPhone(R) system, both of which occurred
in the second half of 1998 and the increasing acceptance in the market of
VidPhone system technology during the first half of 1999. We reported revenues
of $1,210,038 in the second quarter of 1999, an increase of $554,581, or 85%,
when compared with revenues reported in the first quarter of 1999. Total
operating expenses in the second quarter of $2,040,694 were approximately
$200,000, or 9%, lower than the first quarter of 1999. During the second quarter
of 1999 we completed a public offering of units, each consisting of three shares
of common stock and two redeemable common stock purchase warrants, from which we
raised approximately $14.2 million. We are using the net proceeds of the
offering to repay the unsecured promissory notes, to fund further research and
development, sales and marketing and customer support activities, to repay
certain outstanding indebtedness and other obligations, to invest in capital
equipment, to pay overdue amounts on capital lease obligations, and for working
capital and general corporate purposes. The Company believes that the resulting
financial stability contributed to the willingness of commercial customers to
invest in VidPhone systems during the second quarter of 1999. We believe that
our first and second quarter results reflect continuing positive achievements
toward our goal of broad commercial acceptance of our VidPhone system and its
technology.
Objective Communications was formed in 1993 to design, develop and market
full motion, high resolution, cost-effective video network systems, VidPhone
systems. Users of the VidPhone video network system can view broadcast video,
participate in multi-party videoconferences and, with the July introduction of
Release 1.5 of our VidPhone, users are also able to retrieve and view stored
video on demand. Within major buildings or campuses of buildings, our VidPhone
system distributes video to and from desktop or laptop personal computers and
conference rooms configured with a VidPhone station, over the same wiring used
by the telephone eliminating requirements for rewiring. The system also provides
for numerous interconnections with the wide area network (WAN).
Our operations focused on research and development until we shipped our
first commercial VidPhone system in the third quarter of 1998. Since shipping
the first commercial VidPhone system, we have focused on sales and marketing of
our product and customer support, while continuing to enhance our product's
development. To date we have not generated significant revenues from the sales
of VidPhone systems.
7
<PAGE> 9
In July 1998, we began a significant restructuring of our operations,
including changes in senior management. We hired James Bunker, who has extensive
experience "turning-around" businesses, as our President and Chief Executive
Officer. We shipped the first commercial version of our VidPhone system in
August 1998. To lower our operating expenses, in July 1998, we reduced the
number of our employees to approximately 90 from approximately 135. Since July
1998, we have reduced our staff by approximately 35 additional people. We also
implemented new cash management and expense policies. We believe that these
changes will reduce our total operating expenses in 1999 by approximately 50%
compared to 1998.
Our first commercial VidPhone system included Release 1.4 of our VidPhone
software. Release 1.4 added features to the VidPhone system, including
asynchronous transmission mode (ATM) and enhanced integrated services digital
network (ISDN) wide area connectivity. Release 1.5 was available in late July of
1999. Release 1.5 added additional features to our VidPhone system, including
the video server and enhancements to the VidPhone gateways. VidPhone gateways
can be used to connect VidPhone systems or a VidPhone system and another
vendor's video network across a wide area network. Our video server, the
VidServer, will permit VidPhone users access to and control of stored video on
demand. Release 1.5 of our VidPhone system offers a complete video network
system providing the three basic video functions to users: broadcast video,
videoconferencing, and retrieval of stored video.
We have a limited operating history and, therefore, we do not have any
substantial basis on which to predict our sales cycle. However, we expect that
the sales cycle for our products will be relatively long primarily for two
reasons. First, it takes substantial time for us to establish relationships with
our resellers. It also takes time to familiarize resellers with the VidPhone
system and to train their sales forces. Second, our VidPhone video network
system is a new product that requires a substantial capital commitment.
Accordingly, we believe that it is likely to take the end-user customer at least
several months to decide to purchase our VidPhone video network system. We
expect our sales cycle will decrease after we establish customer reference
accounts, create brand name recognition of the VidPhone system and have longer,
more established relationships with resellers.
Although we distribute and sell our products through resellers, we
typically ship VidPhone systems directly to end-user customers and install the
systems at customers' locations. The VidPhone system technology is new and the
purchase of a VidPhone system requires a significant capital investment.
Generally, our policy currently is to permit new prospective end-user customers
to evaluate the VidPhone system for 30 to 45 days. Following that period, our
policy generally requires customers to pay for the VidPhone system in full
within 30 days, or to return the product. In some cases, we require a down
payment at the time an order is placed.
For the remainder of 1999, we intend to focus on sales and marketing of the
VidPhone system, and continuing product development to meet customer demands for
new functionality and to lower costs. Specifically, we intend to: (i) use
current strategic and reseller arrangements to increase sales of the VidPhone
system and create brand name recognition of our product, (ii) distribute the
VidPhone system through established distribution channels, (iii) position the
VidPhone system as an enhancement to existing telephone and information systems,
(iv) develop our direct sales capabilities including the hiring of four new
sales staff in July of 1999, and (v) continue engineering on our VidPhone system
to refine and improve current functionality to meet new customer requirements
and to lower costs through improved design. However, we cannot assure you that
we will be able to meet these objectives. We plan to continue to subcontract all
major manufacturing and production activities for the foreseeable future, but we
will continue to retain test and quality assurance functions until all
subcontractors are certified with respect to quality.
In 1999, we expect to continue to incur operating expenses to support our
product development efforts and to enhance our sales and marketing capabilities
and organization but we anticipate that our development expenditures will be
lower than in prior years due to the commercial introduction of the VidPhone
system in 1998. Our results of operations may vary significantly from quarter to
quarter during this period of product introduction and initial sales.
YEAR 2000
As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the Year 2000 (or "Y2K") issue. The Y2K
issue can arise at any point in a company's supply, manufacturing, processing,
distribution, and financial chains.
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<PAGE> 10
We have evaluated the impact of the Y2K issue on our operations. This
evaluation consisted of identifying the sources of potential exposure to risk of
systems malfunction or failure in internal information technology ("IT")
infrastructure, in our product, including embedded systems and software, and in
systems utilized by significant vendors and customers. The evaluation process
also developed contingency plans in order to mitigate the negative effects to us
of any failure of these systems. We have completed our review process, and the
costs associated with our Y2K compliance evaluation were not material.
We believe that the VidPhone system is not susceptible to Y2K problems
because the VidPhone system does not contain an internal clock. We also have
evaluated whether equipment and software that we use or that is embedded in the
VidPhone system is Y2K compliant. Our evaluation consisted principally of
securing certifications from each of the vendors of these products that their
product is Y2K compliant and we did not independently assess whether a product
has Y2K problems. With respect to our internal IT infrastructure, including the
commercial financial software that we use, we have also obtained certifications
that the products that we use are Y2K compliant.
If, however, the equipment or software currently used or produced by us
proves to be susceptible to the Y2K issue, we may incur significant costs to
modify, re-program or replace the affected equipment or software. In addition,
because the VidPhone operates in a Windows environment, any susceptibility of
the Microsoft Windows operating system to Y2K issues could affect the operation
of the VidPhone system.
We began an evaluation of the compliance of our current and future major
supplier's systems in the fourth quarter of 1998. Failure of any of our
significant supplier's systems could result in our inability to supply products
to our customers and adversely affect our operating results and cash flow. Our
Y2K plan includes contingency plans to reduce the risk of a disruption to normal
access to required components and materials or services. Our evaluation consists
of obtaining Y2K compliance certification from major software and hardware
suppliers. Although the cost of assessing Y2K compliance by third parties has
not been material to date and we believe that it will not be material in the
future, at this time we cannot estimate the costs of any steps that will need to
be taken to resolve any problems or secure alternative relationships with Y2K
compliant third parties.
In addition, we have evaluated the impact of the existence of Y2K issues on
our customer base. Based on those evaluations, we do not expect our potential
customers to reduce their capital expenditure budgets or to defer purchases of
the VidPhone system because of concern about potential Y2K issues. We provide
all of our customers with Y2K certifications with respect to our VidPhone
system, and we do not believe that the existence of Y2K issues with respect to
other technologies will materially adversely impact sales of the VidPhone
system.
Our assessment of the impact of Y2K on our operations is based on current
facts and our assessment process is not complete. Accordingly, we cannot assure
you that there will not be interruptions or other limitations of financial and
operating systems functionality or that we will not incur greater costs than
projected to avoid such interruptions. Our expectations about future costs
associated with the Y2K issue are subject to uncertainties that could cause
actual results to have a greater financial impact than currently anticipated.
Factors that could influence the amount and timing of future costs include our
success in identifying Y2K issues, the costs of remediation or avoidance, the
costs of assessing third-party compliance and its impact on our operations, and
other factors. The forward-looking statements discussed in this section
regarding Y2K compliance involve a number of risks and uncertainties, including
those described above, and general economic conditions, the competitive
environment in which we operate, and other risks and uncertainties identified
elsewhere in this Form 10-QSB.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Revenues. We recognized $1,210,000 in revenues during the three months
ended June 30, 1999. We did not recognize any revenues in the comparable period
in 1998. The revenues recognized in the second quarter of 1999 consisted of
revenues related to equipment sales, $750,000, and services, $460,000. The
services revenues were related to completed and accepted installation activities
at one significant customer's multiple locations.
Cost of sales. Cost of sales for the three months ended June 30, 1999 was
approximately $467,000. We did not have any costs of sales in the comparable
period of 1998 because we did not have any revenues. Of the costs of sales
recognized in the sec-
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<PAGE> 11
ond quarter of 1999, $320,000 was related to the cost of equipment sold in the
quarter and $147,000 was related to the cost of providing installation services.
Gross Margin on Sales. Overall gross margin on revenues recognized in the
second quarter of 1999 was $743,000, yielding a gross margin percentage of 61%.
Of this gross margin, $430,000 was derived from equipment sales, and $313,000
was derived from services revenues. The gross margin percentages achieved for
equipment and services revenues were 57% and 68%, respectively. There was no
gross margin generated in the second quarter of 1998.
Research and Development. Research and development costs decreased to
$876,000 in the three months ended June 30, 1999, from $4,616,000 in the
comparable period of 1998, representing a decrease of approximately $3,740,000,
or 81%. The overall decrease in costs is a result of our cost-reduction plan
implemented in mid-1998. Approximately $896,000 of the reduction resulted from
reduced staffing costs as overall staffing in the research and development
departments declined from 59 at June 30, 1998 to 22 at June 30, 1999. We also
reduced contract labor. Materials and supplies purchased to support research and
development activities also decreased by approximately $1,945,000. In the three
months ended June 30, 1998, we wrote-off approximately $600,000 of previously
capitalized production department costs and increased our reserve for inventory
obsolescence by $300,000, which increased materials and supplies included in
research and development costs during the 1998 period by approximately $900,000.
We did not incur any comparable costs in the three months ended June 30, 1999.
The remainder of the reduction in materials and supplies related expenses was
achieved as a result of our cost containment efforts. In addition, we reduced
our use of rented or uncapitalized equipment, resulting in approximately
$344,000 in cost reductions. Reduced usage of design, consulting, and testing
services also contributed approximately $184,000 to the costs reductions during
the three months ended June 30, 1999, compared to the same period in 1998.
Allocated costs from service departments were reduced by approximately $207,000
as research and development benefited from cost reductions attained in those
departments.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased to approximately $871,000 during the three
months ended June 30, 1999, from approximately $2,698,000 during the three
months ended June 30, 1998, a decrease of approximately $1,827,000 or 68%. The
decrease in selling, general and administrative expenses reflects the results of
our cost reduction program implemented in mid-1998.
Sales and marketing expenses decreased approximately $1,153,000 in the
second quarter of 1999 compared to the same period of 1998. Approximately
$350,000 of this reduction was due to lower marketing personnel costs, partially
offset by an increase of approximately $7,000 in staffing costs related to
sales. Approximately $285,000 of the reduction was due to reduced costs
associated with advertising and trade-show attendance, and $16,000 was due to
lower professional services fees. In the second quarter of 1998, the Company
incurred a charge of $133,000 related to the cancellation of plans to open a new
sales office in the metropolitan Washington, D.C. area. Approximately $131,000
of the reduction in costs was related to reduced costs of equipment shipped to
demonstration and evaluation sites in the three months ended June 30, 1999
compared to the same period in 1998.
Customer support costs decreased by approximately $268,000 in the three
months ended June 30, 1999 compared to the same period in 1998. Approximately
$78,000 of the decrease was due to lower staffing costs, $15,000 was due to a
decline in travel costs, and $42,000 associated with reduced use of materials
and uncapitalized tools and equipment. Approximately $100,000 of the reduction
in customer service costs in the three months ended June 30, 1999 compared to
the same period in 1998 was due to the allocation of a portion of customer
service department costs to cost of scales-services.
General and administrative costs declined by approximately $406,000 in the
three months ended June 30, 1999 compared to the same period in 1998. General
and administrative staff costs were reduced by approximately $127,000. We
reduced professional services costs by approximately $108,000 and printing and
production costs associated with production of investor relations materials by
$79,000 in the three months ended June 30, 1999 compared to the same period in
1998. Overall costs allocated to the sales, general and administrative
departments from service departments were reduced by $132,000.
Depreciation and Amortization. Depreciation and amortization decreased to
approximately $294,000 during the three months ended June 30, 1999, from
$572,000 in the three months ended June 30, 1998, a decrease of approximately
$278,000, or 49%. We use the accelerated depreciation method for book purposes
and, accordingly, we experience higher levels of depreciation in the early years
of depreciable assets' service lives. Also contributing to the overall reduction
in depreciation expense was the disposition or retirement of assets held at one
of our locations in January 1999.
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<PAGE> 12
Net Interest (Income) Expense. We recorded approximately $1,687,000 of net
interest expense in the three months ended June 30, 1999, compared to
approximately $33,000 of net interest income in the comparable period of 1998.
Interest expense totaled approximately $1,702,000 during the second quarter of
1999, compared to approximately $33,000 during the second quarter of 1998. Of
the interest expense recorded in the 1999 period, approximately $1,542,000 was
interest expense on the outstanding unsecured promissory notes, with an
aggregate principal amount of $2,850,000, that we issued in a unit offering
completed in February of 1999. Included in the interest expense recorded in
connection with the unsecured promissory notes was approximately $1,072,000 of
amortization of debt discount and $405,000 of amortization of debt issuance
costs. In addition, during the second quarter of 1999, we incurred approximately
$96,000 in interest expense related to long-term debt issued in connection with
restructured vendor accounts payable (including $13,000 of amortization of debt
discount), $34,000 in interest incurred on our outstanding 5% Convertible
Debentures, which automatically converted to common stock in June 1999, and an
additional $6,000 related to capital lease obligations.
We earned approximately $11,000 in interest income during the second
quarter of 1999, compared to $65,000 in interest income during the second
quarter of 1998. The interest income recorded in the second quarter of 1999 was
earned on the invested proceeds of the public offering of common stock that we
completed in June 1999. We had lower average cash balances during the second
quarter of 1999 available for investment compared to 1998 and accordingly earned
less interest income.
Net Loss. As a result of the foregoing factors, the net loss for the three
months ended June 30, 1999 decreased to approximately $2,985,000, from
$7,854,000 in the three months ended June 30, 1998, a decrease of approximately
$4,869,000 or 62%.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Revenues. We recognized $1,865,000 in revenues during the six months ended
June 30, 1999 compared to $111,000 recognized in the comparable period in 1998.
We recognized $1,405,000 of equipment sales in the first half of 1999 compared
to $111,000 in the first half of 1998. Revenues related to installation services
were $460,000 in the first half of 1999 compared to no service revenues earned
in the comparable period of 1998.
Cost of sales. Cost of sales for the six months ended June 30, 1999 was
approximately $836,000 compared to $64,000 recognized in the comparable period
of 1998. Of the cost of sales recognized in the first half of 1999, $689,000 was
related to the cost of equipment and $147,000 was related to the cost of
providing installation services. Cost of sales recorded in the first six months
of 1998 was $64,000 relating entirely to equipment sales.
Gross Margin on Sales. Overall gross margin on revenues recognized in the
first six months of 1999 was $1,030,000 yielding a gross margin percentage of
55%. Of this gross margin, $717,000 was derived from equipment sales, and
$313,000 was derived from services revenues. The gross margin percentages
achieved for equipment and services revenues were 51% and 68%, respectively. The
gross margin on sales recorded in the first six months of 1998 was $46,000, or a
gross margin percentage of 42%.
Research and Development. Research and development costs decreased to
$1,699,000 in the six months ended June 30, 1999, from $7,233,000 in the
comparable period of 1998, representing a decrease of approximately $5,534,000,
or 77%. The overall decrease in costs is a result of our cost-reduction plan
implemented in mid-1998. Approximately $1,489,000 of the reduction resulted from
reduced staffing costs as overall staffing in the research and development
departments declined from 59 at June 30, 1998 to 22 at June 30, 1999 and the use
of contract labor was reduced. Materials and supplies purchased to support
research and development activities also decreased by approximately $2,581,000.
As discussed above, in the six months ended June 30, 1998, we wrote-off
approximately $600,000 of previously capitalized production department costs and
increased the reserve for inventory obsolescence by $600,000. We did not incur
any comparable costs in the six months ended June 30, 1999. The remainder of the
reductions in materials and supplies related expenses was achieved as a result
of our cost containment efforts. In addition, we decreased our usage of rented
or uncapitalized equipment, resulting in approximately $577,000 in cost
reductions. Reduced usage of design, consulting, and testing services also
contributed approximately $456,000 to the costs reductions during the six months
ended June 30, 1999, compared to the same period in 1998. Allocated costs from
service departments were reduced by approximately $310,000 as research and
development benefited by cost reductions attained in those departments.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses decreased to approximately $1,994,000 during the six
months ended June 30, 1999, from approximately $4,439,000 during the six months
ended June 30, 1998,
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<PAGE> 13
a decrease of approximately $2,445,000 or 55%. The decrease in selling, general
and administrative expenses reflects the results of our cost reduction program
implemented in mid-1998.
Sales and marketing expenses decreased approximately $1,570,000 in the
first half of 1999 as compared to the same period of 1998. Approximately
$573,000 of this reduction was due to lower marketing personnel costs, partially
offset by an increase of approximately $148,000 in staffing costs related to
sales personnel. Approximately $96,000 of the decrease was attributable to a
reduction in recruiting and relocation expenses in the first half of 1999
relative to the first half of 1998. Approximately $380,000 of the reduction was
due to reduced costs associated with advertising and trade-show attendance, and
$67,000 was due to lower professional services fees. In the first half of 1998,
we incurred a charge of $133,000 related to the cancellation of plans to open a
new sales office in the metropolitan Washington, D.C. area. Approximately
$131,000 of the reduction in costs was related to reduced costs of equipment
shipped to demonstration and evaluation sites in the six months ended June 30,
1999 compared to the same period in 1998.
Customer support costs decreased by approximately $405,000 in the six
months ended June 30, 1999 compared to the same period in 1998. Approximately
$115,000 of the decrease was due to lower staffing costs, $62,000 was due to a
decline in travel costs, and $128,000 associated with reduced use of materials
and uncapitalized tools and equipment. Approximately $100,000 of the reduction
in customer service costs in the six months ended June 30, 1999 compared to the
same period in 1998 was due to the allocation of a portion of customer service
department costs to cost of sales-services.
General and administrative costs declined by approximately $470,000 in the
six months ended June 30, 1999 compared to the same period in 1998. General and
administrative staff costs were reduced by approximately $66,000. Recruiting and
relocation expenses declined by approximately $34,000. We reduced professional
services costs by approximately $74,000 and printing and production costs
associated with production of investor relations materials by $161,000 in the
six months ended June 30, 1999 compared to the same period in 1998. Overall
costs allocated to the sales, general and administrative departments from
service departments were reduced by $242,000.
Depreciation and Amortization. Depreciation and amortization decreased to
approximately $588,000 during the six months ended June 30, 1999, from $970,000
in the six months ended June 30, 1998, a decrease of approximately $382,000, or
39%. We use the accelerated depreciation method for book purposes and,
accordingly, we experience higher levels of depreciation in the early years of
depreciable assets' service lives. Also contributing to the overall reduction in
depreciation expense was the disposition or retirement of assets held at one of
our locations in January 1999.
Net Interest (Income) Expense. We recorded approximately $2,148,000 of net
interest expense in the six months ended June 30, 1999, compared to
approximately $199,000 of net interest income in the comparable period of 1998.
Interest expense totaled approximately $2,167,000 during the first half of 1999,
compared to approximately $45,000 during the second quarter of 1998. Of the
interest expense recorded in the 1999 period, approximately $1,847,000 was
interest expense on the outstanding unsecured promissory notes with an aggregate
principal amount of $2,850,000, that we issued in a unit offering completed in
February of 1999. Included in the interest expense recorded in connection with
the unsecured promissory notes was approximately $1,270,000 of amortization of
debt discount and $472,000 of amortization of debt issuance costs. In addition,
during the first half of 1999, we incurred approximately $177,000 in interest
expense related to long-term debt issued in connection with restructured vendor
accounts payable (including $24,000 of amortization of debt discount), $75,000
in interest incurred on our outstanding 5% Convertible Debentures, which were
converted to common stock in June 1999, and an additional $28,000 related to
capital lease obligations.
We earned approximately $19,000 in interest income during the first half of
1999, compared to $244,000 in interest income during the first half of 1998. The
interest income recorded in the first half of 1999 was earned primarily on the
invested proceeds of the public offering of common stock that we completed in
June 1999. We had lower average cash balances during first half of 1999
available for investment compared to 1998 and accordingly earned less interest
income.
Net Loss. As a result of the foregoing factors, the net loss for the six
months ended June 30, 1999 decreased to approximately $5,399,000 from
$12,397,000 in the six months ended June 30, 1998, a decrease of approximately
$6,998,000 or 56%.
LIQUIDITY AND CAPITAL RESOURCES
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We have incurred cumulative losses aggregating approximately $44.5 million
from our inception through June 30, 1999. We expect to incur additional
operating losses for the foreseeable future, principally as a result of expenses
associated with product development efforts and anticipated sales, marketing,
and general and administrative expenses. During the first six months of 1999, we
satisfied our cash requirements principally from the approximately $2,396,000 in
net proceeds from the issuance of unsecured promissory notes in February 1999.
The face value of these notes, $2,850,000 and accrued interest thereon were
repaid from the $14.2 million in net proceeds received from a public offering of
units in June 1999. We anticipate that our current cash balances, together with
anticipated collections from existing and future customers, will be sufficient
to fund operations for the next twelve months.
We had cash and cash equivalents of $8,351,000 at June 30, 1999 compared to
$8,000 at December 31, 1998, an increase of approximately $8,343,000. Increases
in cash and cash equivalents were primarily the result of the net proceeds of
the June 1999 public offering of units and, to a lesser extent, cash generated
by sales of the VidPhone system during the first six months of 1999.
Net cash used in operations during the six months ended June 30, 1999 was
approximately $4,121,000. The net loss in the first six months of 1999, reduced
by depreciation, amortization, non-cash compensation and other non-cash charges
was approximately $2,689,000. Inventory decreased by approximately $472,000
during the first half of 1999, primarily as a result of sales made during the
first half of 1999, offset by an increase of $1.1 million in inventory acquired
from Sanmina upon issuance of long term debt. Accounts receivable increased by
$849,000 during the first six months of 1999 as a result of new sales during the
period, offset by cash received from customers relating to outstanding accounts
receivable. Accounts payable decreased by approximately $1,296,000 in the first
six months of 1999 due primarily to the repayment of overdue balances owed
vendors from the proceeds of the public offering competed in June 1999.
We generated $81,000 in cash from investing activities during the six
months ended June 30, 1999 through the sale of certain office furniture and
equipment to a third party who assumed a lease on property that we previously
occupied. We did not use any cash in investing activities during the period.
We generated approximately $12,383,000 in cash from financing activities
during the six months ended June 30, 1999. We received approximately $14,221,000
in net proceeds from the June 1999 public offering of units. The Company issued
2,300,000 units including the 15% underwriter's overallotment at $7.50 per unit.
Each unit consisted of three shares of common stock and two redeemable common
stock purchase warrants to purchase common stock for $4.00 per share.
In connection with the offering, we sold to the representative of the
underwriters of the offering for an aggregate of $100 a purchase option. The
representative's purchase option conveys the right to purchase up to an
aggregate of 200,000 units at a price of $12.375 per unit and is exercisable
anytime until June 15, 2004. The initial exercise price of the warrants included
in the units issuable upon exercise of the representative's purchase option is
$6.60 per share of common stock. The representative's purchase option may not be
transferred, sold, assigned or hypothecated until June 15, 2000 except to the
underwriters and certain other related parties. The representative's purchase
option also grants to the holders thereof certain "piggyback" and demand rights
for periods of five and seven years, respectively, from June 15, 1999, with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the representative's purchase option.
In February 1999, we issued unsecured promissory notes with a face value of
$2,850,000 and 160,701 shares of common stock in return for net proceeds of
approximately $2,396,000. The net proceeds from the February 1999 private
placement provided most of our operating funds during the first six months of
1999 until the completion of the public offering. These notes, and the accrued
interest thereon, were repaid in June 1999, using approximately $2,955,000 of
the funds raised in the public offering.
We also received $36,000 as an unsecured loan from an employee. That note
was repaid in June 1999.
In February, we renegotiated amounts due to two of our trade creditors and
converted $3,575,000 in accounts payable balance to long term debt. In addition,
we acquired an additional $1,100,000 in inventory from Sanmina by issuing long
term debt. In the first half of 1999, we paid $1,175,000 of the principal amount
of the $4,675,000 in long term debt added in the first half of 1999.
Following our public offering of units in June 1999, all of the 209,091
outstanding shares of our Series B Preferred Stock, and accreted dividends
thereon, automatically converted to 62,162 shares of common stock at a
conversion price of $19.75 per share.
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<PAGE> 15
In accordance with letter agreements reached with the holders of the
subordinated convertible debentures in May 1999, the convertible debentures, and
interest accrued thereon, were converted to 873,415 shares of common stock at an
agreed conversion price of $3.75 per share.
Also in the first half of 1999, we paid an additional $85,000 of other
notes payable and $123,000 in capital lease obligations.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.1 Third Amended and Restated Certificate of Incorporation (Incorporated
by reference to Exhibit No. 3.1 forming a part of the Company's
Registration Statement on Form SB-2 (File No. 333-72429) filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1999 Form SB-2")).
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
forming a part of Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended).
3.3 Certificate of Designations of the Series B 5% Cumulative Preferred
Stock of the Registrant (Incorporated by reference to Exhibit 4.10
forming a part of Amendment No. 1 to the Registrant's Registration
Statement on Form S-3 (File No. 333-62971) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended
(the "1998 S-3")).
3.4 Amendment to Amended and Restated Bylaws of the Company effective
June 8th, 1999.
4.1 Form of Warrant for the Purchase of Shares of Common Stock, issued in
connection with the private placement of $2,000,000 aggregate
principal amount of Bridge Notes (Incorporated by reference to
Exhibit 3.4 forming a part of the Company's Registration Statement on
Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.2 Form of Warrant to Purchase Common Stock of the Company, issued in
connection with the private placement of units in June 1995 and
August 1996 (Incorporated by reference to Exhibit 3.5 forming a part
of the Company's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended).
4.3 Form of Warrants for the Purchase of 100,000 Shares of Common Stock,
$.01 par value per share, issued in connection with the private
placement of Series A Convertible Preferred Stock and warrants in
December 1996 and January 1997 (Incorporated by reference to Exhibit
3.7 forming a part of the Company's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.4 Form of Option for the Purchase of 180,000 shares of Common Stock
issued to Barington Capital Group, L.P. (Incorporated by reference to
Exhibit 3.8 forming a part of the Company's Registration Statement on
Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
4.5 Form of Stock Option Agreement, dated December 18, 1997, by and
between the Company and Barington Capital Group, L.P. (Incorporated
by reference to Exhibit 10.8 forming a part of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).
4.6 Specimen certificate evidencing shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.5 forming a part of the 1999
Form SB-2).
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<PAGE> 16
4.7 Form of 5% Convertible Debentures due 2003 of the Registrant
(Incorporated by reference to Exhibits 4.3 and 4.4 forming a part of
the Registrant's Current Report on Form 8-K dated July 1, 1998 and
filed July 16, 1998 with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended (the "July 8-K")).
4.8 Form of Warrants to be issued upon redemption of the 5% Cumulative
Convertible Debentures due 2003 of the Registrant (Incorporated by
reference to Exhibit 4.5 forming a part of the July 8-K).
4.9 Specimen certificate evidencing shares of the Series B 5% Cumulative
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.9 forming a part of the 1998 S-3).
4.10 Form of Warrant issued in connection with the Series B 5% Cumulative
Convertible Preferred Stock of the Registrant (Incorporated by
reference to Exhibit 4.11 forming a part of the 1998 S-3).
4.11 Senior Note issued to Sanmina Corporation by the Registrant with a
principal amount of $4,300,000. (Incorporated by reference to Exhibit
4.10 forming a part of the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1998 (the "1998 Form 10-KSB").
4.12 Note issued to Shaw Pittman Potts & Trowbridge by the Registrant with
a principal amount of $400,000. (Incorporated by reference to
Exhibit 4.11 forming a part of the 1998 Form 10-KSB).
4.13 Form of Warrant for the purchase of 275,000 shares of common stock,
issued to Sanmina Corporation. (Incorporated by reference to Exhibit
4.12 forming a part of the 1998 Form 10-KSB).
4.14 Form of Warrant for the purchase of 40,000 shares of common stock,
issued to Shaw Pittman Potts & Trowbridge. (Incorporated by
reference to Exhibit 4.13 forming a part of the 1998 Form 10-KSB).
4.15 Form of Unsecured Promissory Note, issued on February 4, 1999 to
various subscribers in private placement. (Incorporated by reference
to Exhibit 4.14 forming a part of the 1999 Form SB-2).
10.1 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1
forming a part of the Company's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.2 1996 Stock Incentive Plan (Incorporated by reference to Exhibit No.
10.2 forming a part of the Company's Registration Statement on Form
SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.3 Form of Consulting Agreement by and between the Company and Barington
Capital Group, L.P. (Incorporated by reference to Exhibit No. 10.4
forming a part of the Company's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.4 Letter Agreement, dated October 7, 1996, between Barington Capital
Group and the Company (Incorporated by reference to Exhibit No. 10.5
forming a part of Amendment No. 2 to the Company's Registration
Statement on Form SB-2 (File No. 33-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended).
10.5 Letter Agreement, dated December 5, 1995, by and among PVR
Securities, Inc., the Company, Steven A. Rogers and John B. Torkelsen
(Incorporated by reference to Exhibit No. 10.6 forming a part of
Amendment No. 2 to the Company's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.6 Voting Agreement, dated December 19, 1996, by and among the Company,
Steven A. Rogers, Applewood Associates, L.P. and Acorn Technology
Partners, L.P. (Incorporated by reference to Exhibit No. 10.7 forming
a part of Amendment No. 2 to the Company's Registration Statement on
Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
15
<PAGE> 17
10.7 Subscription Agreement dated as of July 8, 1998, by and among the
Registrant and certain Investors (Incorporated by reference to
Exhibit 4.2 forming a part of the July 8-K).
10.8 Strategic Alliance and Marketing Agreement between the Registrant and
Unisys Corporation (Incorporated by reference to Exhibit 10.10
forming a part of the 1998 Form 10-KSB).
10.9 Letter of Intent dated January 14, 1999, between Southeast Research
Partners, Inc. and the Registrant (Incorporated by reference to
Exhibit 10.10 forming a part of the 1999 Form SB-2).
10.10 Agency Agreement dated as of January 25, 1999, between Southeast
Research and the Registrant (Incorporated by reference to Exhibit
10.11 forming a part of the 1999 Form SB-2).
10.11 Form of Subscription Agreement, dated January 25, 1999, between
Registrant and certain Investors (Incorporated by reference to
Exhibit 10.12 forming a part of the 1999 Form SB-2.)
10.12 Employment Agreement dated July 13, 1998, between the Registrant and
James F. Bunker (Incorporated by reference to Exhibit 10.13 forming a
part of the 1999 Form SB-2).
10.13 Letter Agreement dated January 12, 1999 between the Registrant and
Sanmina Corporation (Incorporated by reference to Exhibit 10.15 to
the 1999 Form 10-KSB).
10.14 Letter Agreement dated January 21, 1999 between the Registrant and
Shaw Pittman Potts & Trowbridge (Incorporated by reference to Exhibit
10.16 to the 1999 Form 10-KSB).
10.15 Form of letter agreement between the Registrant and the holders of
the Series B 5% Cumulative Convertible Preferred Stock(Incorporated
by reference to Exhibit 10.17 to the 1999 Form 10-KSB).
10.16 Form of letter agreement between the Registrant and the holders of
the 5% Convertible Debentures due 2003 (Incorporated by reference to
Exhibit 10.17 forming a part of the 1999 Form SB-2).
11 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule.
(b) Reports on Form 8-K during the quarter ended June 30, 1999.
Current Report on Form 8-K filed by the Company with the Securities and Exchange
Commission on June 18, 1999.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Objective Communications, Inc.
By: /s/ JAMES F. BUNKER
-----------------------------------
James F. Bunker
President and Chief Executive Officer
(duly authorized executive officer)
/s/ ROBERT H. EMERY
------------------------------
Robert H. Emery
Vice President, Administration and Finance
(principal financial officer)
August 16, 1999
17
<PAGE> 1
EXHIBIT 3.4
RESOLVED, that Section 5 of Article II of the Amended and Restated Bylaws
of the Corporation be and hereby is amended and restated to read as follows:
Section 5. Special Meetings.
Unless otherwise prescribed by statute or by the Certificate of
Incorporation, special meetings of the stockholders may be called for any
purpose or purposes, by the president or by the board of directors, and shall
also be called by the Secretary of the Corporation at the request in writing of
the holders of, in the aggregate, not less than 10% of the outstanding shares of
the Corporation entitled to vote at such meeting. Such request shall state the
purpose or purposes of the proposed meeting.
<PAGE> 1
EXHIBIT 11
Information regarding the computation of earnings per share is included
in Note 2 of the Notes to Financial Statements (unaudited).
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<PERIOD-START> JAN-01-1999
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<SECURITIES> 0
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0
0
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<INCOME-PRETAX> (5,399,282)
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<INCOME-CONTINUING> (5,399,282)
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<EPS-BASIC> (3.78)
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