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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 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.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1707962
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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)
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(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 May 12, 1999: 980,848
Transitional Small Business Disclosure Format (check one):
Yes X No
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This Amendment No. 1 to the Quarterly Report on Form 10-QSB/A of
Objective Communications, Inc. (the "Company") for the quarterly period ended
March 31, 1999, is being filed to correct the Cumulative Series B dividend
reported for the three months ended March 31, 1999 on the Form 10-QSB as
originally filed. The Cumulative Series B dividend was reported as $116,450 on
the Statements of Operations in the Form 10-QSB as originally filed. The
correct Cumulative Series B dividend for the three months ended March 31, 1999,
as reported in this Quarterly Report on Form 10-QSB/A, is $14,375. In addition,
the net loss attributable to common stockholders for the period changes to
$2,428,994, and the net loss per common share--basic and diluted, changes to
$2.65. Other than these changes, the information presented in this Form
10-QSB/A has not been changed from the information presented in the Form
10-QSB, as originally filed.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 640,349 $ 8,532
Accounts receivable, less allowance for bad debts of $25,952 and $22,246
at March 31, 1999 and December 31, 1998, respectively 596,439 184,670
Inventory 5,561,762 5,793,801
Advance payment 1,100,000 -
Other current assets 487,538 250,709
------------- ---------------
Total current assets 8,386,088 6,237,712
Property and equipment, net 2,544,353 3,096,752
Trademarks and patents, less accumulated amortization of $26,417 and
$ 22,660 at March 31, 1999 and December 31, 1998, respectively 200,327 200,204
Other assets-net 450,401 88,321
------------- ---------------
$ 11,581,169 $ 9,622,989
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 119,281 $ 125,543
Unsecured promissory notes - net of unamortized debt discount 1,743,360 -
Subordinated convertible debentures 3,241,450 3,200,674
Accounts payable 3,347,617 6,748,538
Deferred revenue 40,000 40,000
Accrued liabilities 840,871 841,526
Current portion of long term debt 1,448,254 -
Obligations under capital lease, current portion 120,684 187,220
------------- ---------------
Total current liabilities 10,901,517 11,143,501
Obligations under capital lease 60,358 76,008
Long term debt 3,066,180 -
Commitments
Stockholders' deficit:
Series B Convertible Preferred Stock, par value $.01, 954,545 shares authorized; 209,091
issued and outstanding at March 31, 1999 and December 31, 1998, respectively 1,188,333 1,173,958
Common stock, par value $.01, 30,000,000 shares authorized; 980,848 and 820,147 issued and
outstanding at March 31, 1999 and December 31, 1998, respectively 9,808 8,201
Additional paid-in capital 38,318,275 36,770,004
Deficit accumulated during development stage (41,963,302) (39,548,683)
------------- ---------------
Total stockholders' deficit (2,446,886) (1,596,520)
------------- ---------------
$ 11,581,169 $ 9,622,989
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
-----------
<TABLE>
<CAPTION>
For the three months ended For the period
March 31, October 5, 1993
(date of inception) to
1999 1998 March 31, 1999
---- ---- --------------
<S> <C> <C> <C>
Revenues - net $ 655,457 $ 110,505 $ 1,916,734
Cost of sales 368,702 64,304 1,162,930
------------------ --------------- --------------------
Gross margin 286,755 46,201 753,804
------------------ --------------- ---------------------
Operating expenses:
Research and development 823,244 2,616,588 21,034,896
Selling, general and administrative 1,123,655 1,741,344 16,743,714
Depreciation and amortization 293,898 398,008 3,587,012
----------------- --------------- --------------------
Total operating expenses 2,240,797 4,755,940 41,365,622
----------------- --------------- -------------------
Loss from operations (1,954,042) (4,709,739) (40,611,818)
Interest (income) expense, net 460,577 (166,040) 944,587
----------------- ---------------- ---------------------
Net loss (2,414,619) (4,543,699) $ (41,556,405)
----------------- ---------------- ===================
Cumulative Series B dividend (14,375) -
---------------- ----------------
Net loss attributable to common stockholders $ (2,428,994) $ (4,543,699)
================ ================
Net loss per common share - basic and diluted $ (2.65) $ (5.60)
================ ================
Weighted average shares outstanding - basic
and diluted 916,568 810,979
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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OBJECTIVE COMMUNICATIONS, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the period
October 5, 1993
Three months ended March 31, (Date of inception) to
1999 1998 March 31, 1999
---- ---- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,414,619) $ (4,543,699) $ (41,556,405)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 290,141 395,871 3,307,130
Amortization 3,757 2,137 279,881
Interest expense related to issuance of warrants 10,776 - 717,565
Interest accrued on debentures 40,776 - 116,450
Amortization of debt discount 198,360 - 198,360
Amortization of debt issuance costs 67,058 - 67,058
Non-cash compensation expense 140,922 140,922 1,044,775
Stock issued in exchange for services rendered - - 55,834
Other non-cash charges - - 18,819
Changes in operating assets and liabilities:
Accounts receivable (411,769) - (596,439)
Other current assets 19,088 (189,554) (1,558)
Inventory 232,039 (4,588,621) (5,593,987)
Trademarks and patents (3,880) (24,082) (226,744)
Other assets - 2,553 (83,654)
Accounts payable (81,838) 2,116,530 6,706,841
Deferred revenue - (54,746) 40,000
Accrued liabilities 181,023 (146,756) 1,022,549
---------------- --------------- ---------------
Net cash used in operating activities (1,728,166) (6,889,445) (34,483,525)
---------------- --------------- ---------------
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
Purchase of property and equipment - (2,615,306) (6,455,724)
---------------- --------------- ---------------
Net cash provided by (used in) investing activities 80,580 (2,615,306) (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 - - 32,294,683
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 2,392,851 - 2,392,851
Repayment of notes payable (42,262) - (2,736,923)
Repayment of long term debt (25,000) - (25,000)
Proceeds from the issuance of notes payable to related parties 36,000 - 752,223
Repayment of notes payable to related parties - - (364,000)
Debt issuance costs - - (258,131)
Principal payments on capital leases (82,186) (153,535) (938,569)
---------------- --------------- ---------------
Net cash provided by (used in)
financing activities 2,279,403 (153,535) 40,024,018
---------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 631,817 (9,658,286) 640,349
Cash and cash equivalents, at beginning of period 8,532 18,199,434 -
---------------- --------------- ---------------
Cash and cash equivalents, at end of period $ 640,349 $ 8,541,148 $ 640,349
================ =============== ===============
Supplemental disclosure of non-cash investing and
financing activities: See Note 6.
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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 March 31, 1999 and for the three
months ended March 31, 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 March 31, 1999 and the results of operations for the three
months ended March 31, 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, 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 months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
entire year.
To date, the Company has not generated substantial revenues from the sale of its
products and services. The Company earned $765,617 in revenues during the year
1998, and recognized $655,457 in revenues during the three months ended March
31, 1999. The Company has suffered recurring losses from operations, has
recurring negative cash flow from operations and had an accumulated deficit of
$41,963,302 at March 31, 1999 that raise substantial doubt about its ability to
continue as a going concern. The Financial Statements do not include any
adjustments that might result from the outcome of this uncertainty. The Company
has required substantial funding through debt and equity financings since its
inception to complete its development plans and commence full-scale operations.
The Company requires additional cash to fund operations. At December 31, 1998,
the Company had essentially no cash from which to fund operations. In February
1999, the Company completed a private placement of units consisting of an
aggregate of $2,850,000 unsecured promissory notes and 160,701 shares of common
stock, from which it received net proceeds of $2,393,000. The Company used the
net proceeds from the February 1999 private placement to fund its operations,
including approximately $560,000 used to repay certain outstanding accounts
payable. Before completing the February 1999 private placement, the Company was
able to pay only those expenses that were essential to continue operations and
has continued to monitor payments carefully.
At March 31, 1999, the Company had approximately $640,000 in cash and, as of
the date of this Quarterly Report on Form 10-QSB, the Company again was
essentially out of cash. The Company intends to fund operations until the
closing of its proposed public offering with cash generated from customer
payments on outstanding accounts receivable. However, the timing and amount of
customer payments is uncertain. The Company has filed a registration statement
relating to a proposed $15,000,000 underwritten offering of equity securities.
The Company anticipates that the offering will be completed in late May.
However, the Company's ability to complete the offering, the timing of the
offering and its terms are subject to a number of conditions, some of which
are beyond the Company's control including market conditions. There can be no
assurance that the Company will complete the public offering or, if completed,
the timing or the terms of the offering. As a result of the Company's
liquidity problems, the Company has not been able to fund any significant
further development of the VidPhone system or any expansion of the Company's
operations since mid-1998, and the Company anticipates that this will continue
until it completes the proposed public offering. In addition, the Company has
not paid many of its creditors, including trade creditors, on a timely basis
and remains in default on a number of significant overdue obligations. Some of
these creditors have initiated or threatened to initiate legal proceedings
against the Company to obtain repayment of these debts. If the Company
continues not paying its debts as they become due, it is likely that other
creditors will take legal action against the Company and that other firms will
refuse to sell the products and services the Company needs to continue
operations. If the Company is not successful in securing additional financing,
the Company will be forced to consider alternative methods of maximizing
stockholder value, which would include sales of the Company's assets, workout
alternatives or bankruptcy.
On April 14, 1999, the stockholders of the Company approved a one share for
seven shares reverse stock split of the issued and
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outstanding common stock, which was previously approved by the Board of
Directors. The reverse stock split was effected on April 14, 1999. 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. The Company
believes that the cashing out of fractional share interests will not materially
change the number of shares of common stock, as restated.
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, warrants, convertible preferred
stock, and convertible debentures 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, warrants
and convertible preferred stock been included in the computation, shares for the
diluted computation would have increased by 280,176 and 1,314,381 as of March
31, 1998 and 1999, respectively. The convertible debentures would also be
included in the diluted computation based on a conversion calculation. (See Note
7, regarding changes in the terms of the outstanding convertible debentures.)
3. Income taxes
The Company did not record a provision for income taxes for the three months
ended March 31, 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>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Raw Materials $4,794,179 $5,750,733
Finished Goods 767,583 43,068
----------- ----------
$5,561,762 $5,793,801
=========== ==========
</TABLE>
5. Debt
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 is obligated to pay Sanmina $1,100,000 in principal on the
note at the time the proposed public offering is completed and, at that time,
Sanmina will transfer 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
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two-year term loan accruing interest at 7% per year. The Company paid $25,000 of
this initial balance from the proceeds of the private placement in February 1999
and the Company is obligated to pay an additional $50,000 in principal on the
note at the time the proposed public offering is completed. Other than the
principal repayments noted above, 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.
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<PAGE> 8
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 $2,393,000. The notes accrue interest at 10% per
year. The principal and accrued interest are payable at the earlier of 1)
February 2000, 2) the closing date of the proposed public offering, or 3) one of
several specified events. 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.
An independent appraisal assigned a market value of $186,413 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.
6. Non-cash Transactions
The following non-cash transactions occurred in the periods indicated:
<TABLE>
<CAPTION>
For the period
October 5, 1993
Three months ended March 31, (Date of inception) to
1999 1998 March 31, 1999
---- ---- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current asset financed by issuance of note payable - $ 230,063 $ 230,063
Capital lease obligations - 587,073 1,119,612
Dividend on preferred stock $ 14,375 - 38,333
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 1,305,000 - 1,305,000
Warrants issued with long term debt 146,342 - 146,342
Advanced payment financed with long term debt 1,100,000 - 1,100,000
Reclassification of inventory to fixed assets - - 32,225
Prepaid equity financing costs financed in accounts payable 255,917 - 255,917
Reduction in accrued liabilities due to sale of assets 181,678 - 181,678
Cost of fixed assets sold - net 262,258 - 262,258
Debt issuance costs related to unsecured promissory notes 429,138 - 429,138
Costs related to issuing common stock with unit financing 28,011 - 28,011
</TABLE>
7. Subsequent Events
In July of 1998, the Company issued $3,125,000 aggregate principal amount of
convertible debentures. It was a condition precedent to the completion of the
February 1999 private placement that the Company enter into an agreement with
the holders of the convertible debentures, including the directors and officers
who hold convertible debentures, changing the terms upon which the convertible
debentures will convert to equity securities. Pursuant to letter agreements
dated May 1999, each of the holders of convertible debentures agreed that: (i)
it would not exercise its right to convert the convertible debentures to common
stock until the date on which a public or private equity financing with
specified minimum gross proceeds to the Company (a "qualified financing") is
completed; (ii) upon the closing of a qualified financing, the principal amount
of and accrued and unpaid interest of the convertible debentures will
automatically convert into common stock at a fixed conversion price of $3.75,
and that the anti-dilution provisions of the convertible debentures would not
apply to the conversion; and (iii) it waives any default by the Company with
respect to the Company's obligations to register or maintain the effectiveness
of a registration statement for the shares of common stock issuable upon
conversion of the convertible debentures. The holders of the convertible
debentures also agreed to hold the shares of common stock issued upon conversion
of the convertible debentures for at least 12 months following the effective
date of the registration statement that relates to the qualified financing. The
Company agreed to include the shares of common stock issuable upon conversion of
the convertible debentures in the registration statement filed with the SEC
relating to the qualified financing. In the event that the proposed public
offering is not completed on or before June 30, 1999, then the May 1999 letter
agreements will be null and void and the terms of conversion will revert to the
original terms.
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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 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 quarter ended March 31, 1999 reflect
the positive effects of our cost reduction program and the introduction of the
first commercial version of the VidPhone(R) system, both of which occurred in
the second half of 1998. We reported revenues of $655,457 in the first quarter
of 1999, an increase of $255,628, or 64% when compared with revenues reported in
the fourth quarter of 1998. Total operating expenses were reduced to $2,240,797
in the first quarter of 1999, a decrease of $2,058,291, or 48% compared to the
fourth quarter of 1998. We have filed a registration statement with the
Securities and Exchange Commission relating to a proposed offering of equity
securities with estimated gross proceeds of $15,000,000 to us, to provide cash
for operations and working capital. We believe that our first quarter results
reflect a positive first step towards our goal of achieving commercial
acceptance of our VidPhone system.
Objective Communications was formed in 1993 to design, develop and
market a full motion, high resolution, cost-effective video network system, the
VidPhone system. Users of the VidPhone video network system can view broadcast
video and participate in multi-party videoconferences. With the introduction of
Release 1.5 of our VidPhone software, which we expect to occur in June 1999,
users also will be able to retrieve stored video on demand. 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.
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.
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. Steven Rogers, our founder, became Chief Technology Officer and Vice
President, Engineering and assumed responsibility for completing the development
of our commercial VidPhone system. 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
40 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, which we expect to introduce
in June 1999, will add 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.
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With the introduction of Release 1.5, our VidPhone system will offer 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, 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.
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.
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.
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<PAGE> 11
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 MARCH 31, 1999 AND MARCH 31, 1998
Revenues. We recognized $655,457 in revenues during the three months
ended March 31, 1999 compared to approximately $110,500 in the comparable period
in 1998, representing an increase of approximately $545,000, or 493%. The
revenues recognized in 1999 relate primarily to shipments of VidPhone systems
shipped to and accepted by three customers in the first three months of 1999. We
believe that the significant increase in sales and revenues during the first
quarter of 1999 is reflective of initial commercial acceptance of our technology
incorporated into our VidPhone system. We believe that the sales and revenues
reflect customer acceptance of our VidPhone software Release 1.4, which added
features to the VidPhone system.
Cost of sales. Cost of sales for the three months ended March 31,
1999 was approximately $368,700. This represents an increase of approximately
$304,400 over the $64,300 recorded in the comparable period in 1998. Cost of
sales as a percentage of sales was approximately 56% and 58% in the periods
ending March 31, 1999 and 1998, respectively.
Gross Margin on Sales. Gross margin on sales was approximately
$286,800, or 44%, for the period ending March 31, 1999 compared to gross margin
of $46,200, or 42%, for the comparable period in 1998.
Research and Development. Research and development costs decreased
to $823,000 in the three months ended March 31, 1999, a decrease of
approximately $1,800,000, or 69%. The overall decrease in costs is a result of
our cost-reduction plan implemented in mid-1998. Approximately $407,000 of the
reduction resulted from reduced staffing costs as overall staffing in the
research and development departments declined from 56 at March 31, 1998 to 25 at
March 31, 1999, the use of contract labor was reduced, and recruiting costs were
eliminated. Materials and supplies purchased to support research and development
activities also decreased by approximately $811,000. In addition, decreased use
of rented or uncapitalized equipment resulted in approximately
11
<PAGE> 12
$181,000 in cost reductions. Lower fees associated with design and consulting
services also contributed approximately $254,000 to the costs reductions during
the three months ended March 31, 1999, compared to the same period in 1998.
Allocated costs from service departments were reduced by approximately $118,000
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 $1,124,000 during the three
months ended March 31, 1999, from approximately $1,740,000 during the three
months ended March 31, 1998, a decrease of approximately $616,000 or 35%. 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 $416,000 in the
first three months of 1999 as compared to the same period of 1998. Approximately
$225,000 of this reduction was due to lower marketing personnel costs, partially
offset by an increase of approximately $89,000 in staffing costs related to
sales personnel. Approximately $70,000 of the reduction was due to the
elimination of recruiting costs, $72,000 was due to reduced costs associated
with advertising and trade-show attendance, and $54,000 was due to lower
professional services fees. Customer support costs decreased by approximately
$138,000 in the three months ended March 31, 1999 compared to the same period in
1998. Approximately $56,000 of the decrease was due to lower costs associated
with materials and uncapitalized tools and equipment, $46,000 was due to a
decline in travel costs, and approximately $16,000 was due to lower staffing
costs.
General and administrative costs declined by approximately $64,000
in the three months ended March 31, 1999 compared to the same period in 1998.
General and administrative staff costs were reduced by approximately $55,000,
and recruiting and relocation costs were reduced by approximately $26,000.
Overall costs allocated to the sales, general and administrative department from
service departments also were reduced by $115,000.
Depreciation and Amortization. Depreciation and amortization
decreased to approximately $294,000 during the three months ended March 31,
1999, from $398,000 in the three months ended March 31, 1998, a decrease of
approximately $104,000, or 26%. 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 $460,600 of
net interest expense in the three months ended March 31, 1999, compared to
approximately $166,000 of net interest income in the comparable period of 1998.
Interest expense totaled approximately $464,000 during the first quarter of
1999, compared to approximately $12,000 during the first quarter of 1998. Of the
interest expense recorded in the 1999 period, approximately $309,000 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 $198,000 of amortization of
debt discount and $67,000 of amortization of debt issuance costs. In addition,
during the first quarter of 1999, we incurred approximately $81,000 in interest
expense related to long-term debt issued in connection with restructured vendor
accounts payable (including $11,000 of amortization of debt discount), $41,000
in interest incurred on our outstanding 5% Convertible Debentures due 2003, and
an additional $22,000 related to capital lease obligations.
We earned approximately $4,000 in interest income during the first
quarter of 1999, compared to $178,000 in interest income during the first
quarter of 1998. The interest income recorded in the first quarter of 1998 was
earned on the invested proceeds of the public offering of common stock that we
completed in November 1997. We had less cash during the first quarter of 1999
available for investment and accordingly earned less interest income.
Net Loss. As a result of the foregoing factors, the net loss for the
period ended March 31, 1999 decreased to approximately $2,400,000, from
$4,500,000 in the three months ended March 31, 1998, a decrease of approximately
$2,100,000 or 48%.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative losses aggregating approximately $41.6
million from our inception through March 31, 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 three months of 1999,
12
<PAGE> 13
we satisfied our cash requirements principally from the approximately $2,393,000
in net proceeds received from a $2,850,000 private unit offering, consisting of
$2,850,000 aggregate principal amount of unsecured promissory notes and 160,701
shares of common stock.
We had cash and cash equivalents of $640,000 at March 31, 1999
compared to $8,000 at December 31, 1998, an increase of approximately $632,000.
Increases in cash and cash equivalents were primarily the result of the net
proceeds from the February 1999 unit private placement and, to a lesser extent,
cash generated by sales of the VidPhone system during the first quarter of 1999.
Net cash used in operations during the three months ended March 31,
1999 was approximately $1,728,000. The net loss in the first quarter of 1999,
reduced by depreciation, amortization, non-cash compensation and other non-cash
charges was approximately $1,663,000. Inventory decreased by approximately
$232,000 during the first quarter of 1999, primarily as a result of sales made
during the quarter. Accounts receivable increased by $412,000 during the first
quarter of 1999 as a result of $619,000 of new sales during the quarter, offset
by approximately $207,000 cash received from customers relating to outstanding
accounts receivable.
We generated $81,000 in cash from investing activities during the
quarter ended March 31, 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 $2,280,000 in cash from financing
activities during the three months ended March 31, 1999. We received
approximately $2,393,000 in net proceeds from the February 1999 private
placement of units, consisting of $2,850,000 aggregate principal amount of
unsecured promissory notes and 160,701 shares of common stock. The net proceeds
from the February 1999 private placement provided most of our operating funds
during the period. We also received $36,000 as an unsecured loan from an
employee. Offsetting these sources of funds was the repayment of $42,000 of
notes payable, a payment of $25,000 against newly issued long-term debt, and the
payment $82,000 of capital lease obligations.
As of May 3, 1999, our common stock is traded on The Nasdaq SmallCap
Market (the "Nasdaq SmallCap") pursuant to an exception to the usual quotation
requirements. Previously from October 31, 1997 to April 30, 1999, the Company's
common stock traded on the Nasdaq National Market system (the "Nasdaq National
Market"). As a result of our failure to meet certain Nasdaq National Market
continued listing requirements, the Nasdaq determined to transfer the listing of
our common stock to the Nasdaq SmallCap Market effective as of the opening of
business on May 3, 1999. Our common stock will continue to be listed on the
Nasdaq SmallCap only if (i) on or before June 30, 1999, we make a public filing
with the SEC and Nasdaq including a pro forma balance sheet evidencing a minimum
of $9,000,000 in net tangible assets, and (ii) we demonstrate compliance with
all requirements for continued listing on the Nasdaq SmallCap. We believe that
we will be able to meet these requirements within the time specified provided we
complete our proposed public offering of equity securities by the end of May.
However, there can be no assurance that we will complete the offering, or
complete it within that time frame, or, if the offering is completed, that we
will be able to timely meet all of the Nasdaq's requirements. If we fail to meet
any of the Nasdaq's requirements within the time specified, our common stock
will be delisted from the Nasdaq SmallCap. If the common stock is delisted from
the Nasdaq SmallCap, investors' ability to trade in the common stock will be
significantly reduced and the market price of and trading market for the common
stock will be significantly and adversely affected.
To date, we have not generated substantial revenues from the sale of
our products and services. We earned $765,600 in revenues for the year 1998, and
recognized $655,457 in revenues for the three months ended March 31, 1999. We
have suffered recurring losses from operations, recurring negative cash flow
from operations and had an accumulated deficit of $41,963,300 at March 31, 1999
that raise substantial doubt about our ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. We have required substantial funding through
debt and equity financings since our inception to complete our development plans
and commence full-scale operations.
We require additional cash to fund operations. At December 31, 1998,
we had essentially no cash from which to fund operations. In February 1999, we
completed a private placement of units consisting of an aggregate of $2,850,000
unsecured promissory notes and 160,701 shares of common stock, from which we
received net proceeds of $2,393,000. We used the net proceeds from the February
1999 private placement to fund our operations, including approximately
$560,000 used to repay certain outstanding accounts payable. Before completing
the February 1999 private placement, we were able to pay only those expenses
that were essential to continue operations and have continued to monitor
payments carefully.
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<PAGE> 14
At March 31, 1999, we had approximately $640,000 in cash and, as of
the date of this Quarterly Report on Form 10-QSB, we again were essentially out
of cash. We intend to fund operations until the closing of our proposed public
offering with cash generated from payments by customers on outstanding accounts
receivable. However, the timing of those payments cannot be assured. We have
filed a registration statement relating to a proposed $15,000,000 underwritten
offering of equity securities. We anticipate that the offering will be completed
in late May. However, our ability to complete the offering, the timing of the
offering and its terms are subject to a number of conditions, some of which are
beyond our control including market conditions. There can be no assurance that
we will complete the public offering or, if completed, the timing or the terms
of the offering. As a result of our liquidity problems, we have not been able to
fund any significant further development of the VidPhone system or any expansion
of our operations since mid-1998, and we anticipate that this will continue
until we complete the proposed public offering. In addition, we have not paid
many of our creditors, including trade creditors, on a timely basis and remain
in default on a number of significant overdue obligations. Some of these
creditors have initiated or threatened to initiate legal proceedings against us
to obtain repayment of these debts. If we continue not paying our debts as they
become due, it is likely that other creditors will take legal action against the
Company and that other firms will refuse to sell the products and services we
needs to continue operations. If we are not successful in securing additional
financing, we will be forced to consider alternative methods of maximizing
stockholder value, which could include sales of our assets, workout alternatives
or bankruptcy.
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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)).
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).
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).
15
<PAGE> 16
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 Employment Agreement between the Company and Steven A. Rogers
(Incorporated by reference to Exhibit No. 10.3 forming 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
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<PAGE> 17
10.10 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).
10.11 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).
10.12 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.)
10.13 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).
10.14 Employment Agreement between the Registrant and Steven A. Rogers
(Incorporated by reference to Exhibit 10.3 forming a part of Amendment
No. 2 to the 1997 SB-2).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K during the quarter ended March 31, 1999.
None.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Amendment No. 1 to the Quarterly Report on
Form 10-QSB, filed on Form 10-QSB/A, 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
July 14, 1999
18
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The explanation of the computation of per share earnings can be found in
Note 2. to the Financial Statements.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 640,349
<SECURITIES> 0
<RECEIVABLES> 622,391
<ALLOWANCES> 25,952
<INVENTORY> 5,561,762
<CURRENT-ASSETS> 8,386,088
<PP&E> 5,629,214
<DEPRECIATION> 3,084,861
<TOTAL-ASSETS> 11,581,169
<CURRENT-LIABILITIES> 10,901,517
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1,188,333
<COMMON> 9,808
<OTHER-SE> (3,645,027)
<TOTAL-LIABILITY-AND-EQUITY> 11,581,169
<SALES> 655,457
<TOTAL-REVENUES> 655,457
<CGS> 368,702
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,240,797
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<INTEREST-EXPENSE> 460,577
<INCOME-PRETAX> (2,414,619)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,414,619)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,414,619)
<EPS-BASIC> (2.65)
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