<PAGE>   1


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

         [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE 
             SECURITIES EXCHANGE ACT OF 1934. 
         [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934.

                     For Fiscal Year Ended December 31, 1998
                     Commission File Number: 0-29020

                          MULTIMEDIA ACCESS CORPORATION
        (Exact Name of Small Business Issuer as Specified in its Charter)

            Delaware                                 75-2528700
    (State of Incorporation)            (I.R.S. Employer Identification No.)

      2665 VILLA CREEK DRIVE, SUITE 200 DALLAS, TEXAS 75234 (972) 488-7200

         (Address including zip code, area code and telephone number of
Registrant's executive offices.)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:


<TABLE>
<CAPTION>
            Title of Each Class               Name of Each Exchange on Which Registered
            -------------------               -----------------------------------------
<S>                                           <C>
       Common Stock, $.0001 par value                           NASDAQ
 Redeemable Common Stock Purchase Warrants                      NASDAQ
</TABLE>

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. 
Yes  X  No
    ---    ---

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year:   $8,027,948

As of March 22, 1999, 12,133,595 shares of the Registrant's common stock were
outstanding.

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 22, 1999 - $44,543,850. This amount was computed by reference
to the average of the bid and asked prices of registrant's common stock.

Documents incorporated by reference:  Proxy Statement, Part III


<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM NO.                                                                                           PAGE
--------                                                                                           ----
<S>               <C>                                                                             <C>
                                                      PART I

     1.           Description of Business                                                           3 - 9

     2.           Description of Property                                                               9

     3.           Legal Proceedings                                                                     9

     4.           Submission of Matters to a Vote of Security Holders                                   9

                                                      PART II

     5.           Market for Registrant's Common Equity and Related Stockholder Matters                10

     6.           Management's Discussion and Analysis of Financial Condition and Results         10 - 14
                  of Operations

     7.           Consolidated Financial Statements                                               15 - 36

     8.           Changes in and Disagreements with Accountants on Accounting and Financial            36
                  Disclosure

                                                      PART III

     9.           Directors, Executive Officers, Promoters and Control Persons; Compliance             37
                  with Section 16(a) of the Exchange Act

     10.          Executive Compensation                                                               37

     11.          Security Ownership of Certain Beneficial Owners and Management                       37

     12.          Certain Relationships and Related Transactions                                       37

     13.          Exhibits List and Reports on Form 8-K                                            37, 39
</TABLE>


                                       2
<PAGE>   3


                                     PART I

Item 1.  Description of Business

GENERAL

     MultiMedia Access Corporation develops, manufactures and markets
high-quality standards-based video communications equipment for businesses and
professional enterprises. The Company's solutions are used to enhance
communication and increase productivity in corporations, educational networks,
healthcare facilities, financial institutions and government agencies. The
Company's ViewCast(R) web-video systems, Osprey(R) video codecs and peripherals
and VBX(TM) enterprise video PBX deliver popular video communications
applications including Internet/intranet-based video streaming, distance
learning, telemedicine and video conferencing.

     The Company's products are available from leading resellers, systems
integrators, OEMs and application developers worldwide. Many of these resellers
are the same entities that market, install and support a customer's telephone
PBX, LAN, e-mail file servers, routers and other communication systems. The
Company's products are compatible with existing communications equipment and
infrastructure.

     The Company believes that increased utilization of the Internet and
corporate intranets, the convergence of multimedia PCs and the establishment of
new standards-based audio and video technologies, combined with lower price
levels for such capabilities, will generate a rapid adoption of video
communication products and services.

BUSINESS STRATEGY

     The Company is a leading provider of enterprise-wide video communications
solutions. Key elements of the Company's strategy include:

o    Provide Enterprise-Wide Video Communication Systems, Solutions and 
     Applications.

     The Company's practice is to offer turn-key video communications systems,
including the individual components and applications, which appeal to customers
who are looking for a complete solution to their video communications needs.
These systems are designed to be easy to install, cost-effective and
user-friendly. The Company believes its enterprise-wide systems and applications
approach provides a significant competitive advantage, whether dealing with
streaming video over the Internet or corporate intranet or distributing
full-motion video throughout the enterprise.

o    Distribute Through Established Channels of Distribution.

     The Company's strategy is to utilize resellers, system integrators, OEMs
and custom application developers to distribute its systems and applications.
These distributors are typically the same companies that market, install and
support an organization's Internet service, telephone PBX, LAN, e-mail file
servers, routers and other communication systems. These distributors offer
access to an existing customer base, along with continuing service and support
organizations.

o    Develop and Acquire New Applications.

     The Company believes that the continued growth of the video communications
market will be driven by the development of new applications in response to
customer needs. The Company intends to continue to invest significant resources
to develop and acquire value-added and technologically superior applications.


                                       3
<PAGE>   4


o    Develop Brand-Name Recognition.

     The Company's strategy is to develop a strong brand identity in the
Internet/intranet and video communications marketplace. The Company believes a
strong brand identity will result in a significant competitive advantage and
permit it to more easily introduce new products and applications.

o    Enhance Growth through Strategic Acquisitions and Alliances.

     An important part of the Company's growth strategy is to seek strategic
alliances and joint marketing relationships with companies that have
complementary technologies, products or customers. The Company believes that the
video communications industry is highly fragmented and that this environment
provides an excellent opportunity to expand its business through such alliances.

PRODUCT FAMILY

     The Company currently offers a broad array of products which when used
together provide an enterprise-wide solution for multiple video communications
applications for business customers. The MultiMedia product family includes: the
ViewCast(R) line of Internet streaming-video servers, the Osprey(R) line of
video peripheral products and Codec cards and the VBX video distribution and
switching system.

     Internet Video. The Company designs, manufactures and markets several video
products which capitalize on the growth of the Internet and corporate intranets.
Industry improvements in video and audio compression technology, the
establishment of standards and increased access to the Internet have made
delivering new forms of motion-video content over the Internet possible. The
Company's Osprey(R) Codecs provide the necessary capability at the Web site
server to allow the one-way transmission of live broadcasts over the Internet.
The Company has recently introduced a line of ViewCast(R) streaming video
servers that combine the Company's Osprey(R) Codecs with popular video-streaming
software to provide a complete hardware and software system for Internet video
broadcasting. The Company has announced video-streaming compatibility with the
following software providers: RealNetworks, Inc., VXtreme, Inc., Vosaic LLC,
Precept Software, Inc., Iterated Systems, Inc. and Microsoft Corporation.

     The Company's products have allowed Internet users to view live broadcasts
of the NASA Mars Pathfinder expedition, the Indy 500 time trials, the Pope's
visit to St. Louis and other live events from their respective Web sites through
Microsoft and Netscape Internet browsers.

     Codecs and Video Peripheral Products. The Company designs, develops,
manufactures and markets standards-based video and audio peripheral products and
Codecs that video enable individual PCs and workstations for multimedia
applications. The Company's Osprey(R) Codecs enable video transmissions across
several different types of existing communication networks. The Osprey(R) Codecs
perform this function by capturing, digitizing, compressing, transmitting,
receiving, decompressing and displaying full-motion video. The Osprey(R) Codecs
are compatible with multiple video and audio compression standards and are
available for PCs and workstations that are equipped with the standard PCI-bus
or Sun's S-bus. The Codecs also support Microsoft's WindowsNT, Windows 3.1 and
Windows95, and Sun's Solaris and UNIX operating systems. The Company believes
its Osprey(R)-1000 is the leading standards-based, multi-algorithm Codec for the
WindowsNT operating system and that its Osprey(R)-1500 is currently the only
Codec available for Sun's new family of Ultra Workstations.

     The Osprey(R) Codecs are used in connection with the Company's VBX video
distribution system as a shared Codec server to enable VBX users to communicate
by video with remote locations. In addition, the Osprey(R) Codecs may be used in
remote facilities to video enable individual desktop computers.

     The Company also offers a line of video peripheral products for PCs and
workstations, including SLIC-Video(R), Osprey(R)-100 and Osprey(R)-150 video
capture cards and WorkFone(R) video applications software. SLIC-Video(R) is a
video capture product that enables Sun S-bus workstation users to view
uncompressed, high-quality video and to capture full-motion video frames.
SLIC-Video(R) software also provides access to closed caption data which allows
key words to act as filters and thereby control video


                                       4
<PAGE>   5


displayed on the screen. SLIC-Video(R)'s compatibility with Sun products allows
this product to support a wide variety of video applications on existing Sun
workstations. The Company's WorkFone(R) product provides affordable,
consumer-quality video communications capabilities over standard telephone lines
with 28.8 Kbps modems. Examples of uses of this product include: families and
grandparents exchanging live video greetings, college students videoconferencing
with their parents, business workers accessing video-training courses or
videoconferencing with co-workers in remote locations.

     Video Switching and Distribution System. The Company's VBX is an
enterprise-wide video distribution and switching system, which can video enable
hundreds of desktops with multiple video communications applications. The VBX
switches and distributes video content throughout an organization in much the
same way as a telephone PBX switches and distributes voice communications. The
VBX provides workgroup video communications and connectivity via shared Codecs
and WAN gateways to remote users equipped with stand-alone desktop computers,
video tele-conferencing room systems or users on another VBX. The VBX, a
PC-based WindowsNT system, employs a switched architecture to distribute
uncompressed, TV-quality video within a building or campus using unshielded
twisted pair (UTP) wiring (which typically already exists within the
organization's infrastructure as part of its telephone system or which may be
installed more cost-effectively than coaxial cable). The VBX can support
hundreds of users and allows point-to-point, multipoint and broadcast modes of
operation. The VBX is compatible with standard cameras, audio components,
speakerphones, PC video peripherals, videoconferencing systems and other
videocom products produced by third-party manufacturers.

     A typical VBX system includes a video switch, a shared Codec server, WAN
interfaces and desktop components. Video and audio signals are distributed with
TV quality by utilizing the Company's VBX transceiver technology to send video
over existing UTP wiring at distances of up to 3,500 feet. An existing LAN or
telephone system is used only for non-video communications between the
multimedia switch and each user, requiring minimal use of the computer network.

     The VBX also provides shared access to video sources and storage devices
located anywhere within the network. VCRs, videodisk players, broadcast or cable
TV and Direct Broadcast Satellite programming sources may also be connected to
the switch over UTP wiring or coaxial cabling and distributed on-demand to any
equipped desktop or TV monitor.

     VBX transceivers allow desktop PCs, TV monitors, room systems and standard
video and audio devices to be connected to the VBX via UTP wiring. The VBX
client software allows users to place calls through a personal or system-wide
dialing directory, to subscribe to live video broadcasts, to access pre-recorded
video content or to establish a point-to-point or a multipoint videoconference.

     The Company believes the VBX appeals to businesses and other institutions
with multiple users and with multiple geographic locations, such as college
campuses, office complexes, government bases and organizations with regional
offices. The VBX permits these customers to communicate and share video-based
information and resources, to distribute business and financial TV broadcasts,
to videoconference with co-workers and to receive business or industry
presentations or live broadcasts from local or remote locations.

APPLICATIONS

     Internet Applications --Video communications products and technologies play
an important role in the development of live communications and entertainment on
the Internet. The Company markets its compression and video capture products to
many players in the Web video-streaming marketplace.

     Three key applications in the Internet video marketplace include: (i)
Internet video publishing, (ii) Internet video broadcasting and (iii) Internet
video call center. Internet Video publishing refers to stored-video content,
designed to be played back to a user's system in real-time. Internet video
publishing entails compressing a video "clip" and storing it on a server which
is available to the user by accessing the relevant Web page. Internet video
broadcasting has recently come to the Internet and is characterized by one-way
live audio and motion-video. Although video broadcasting presents technical
challenges such as 


                                       5
<PAGE>   6


the limited bandwidth and multi-cast capabilities of most Web sites, Internet
video broadcasting is well suited to delivering video to distant learning sites
and to special interest broadcast recipients. The Company's ViewCast(R)
streaming-video server works in conjunction with Web servers and browser
software to establish connections between multiple users and a broadcast source
allowing businesses to deliver live programs, commercials and other information
over the Internet. The Internet video call center is a new concept to the
Internet, allowing one-way live video and two-way audio across the Internet. The
term "call center" is used because the technology is well suited to utilize
existing call center staff such as help desks, catalog ordering centers,
reservation systems and corporate receptionists to provide live Web site sales
assistance.

     Videoconferencing -- The Company's products offer the business and
institutional customer a cost-effective and efficient means of establishing an
enterprise-wide videoconferencing system. The VBX and Osprey(R) Codecs permit
employees, students or other members of the organization in different offices or
geographic locations to communicate with each other via live video.

     Video Presentations or Live Video -- The Company's products offer
businesses or organizations the opportunity to broadcast live events. These
events could include educational seminars, management briefings, human resources
orientations or breaking news being created and transmitted by the organization
itself or by outside sources.

     Surveillance -- Video surveillance has expanded beyond internal systems
placed in businesses to monitor intrusions to include systems that monitor
daycare and nursing home facilities, traffic patterns and other relevant live
information which the Internet user can access from a Web site. The commercial
surveillance market represents strong business opportunity.

     Industry Specific Applications -- The Company's products offer a broad
array of applications within specific industries. For instance, in the health
and medical industry, the Company's products allow doctors to collaborate via
videoconferencing, to receive computed tomography (CT) scans, ultrasounds and
other diagnostic tests at locations remote from the hospital or patient and to
take part in educational and training broadcasts. The judicial system and
correctional institutions are also taking advantage of the Company's videocom
products. In addition to surveillance, the VBX and Osprey(R) Codecs enable
prisons to hold arraignments by videoconference, to allow prisoner visitation
and legal consultation with persons in remote locations and to provide
vocational training and counseling for prisoners from outside sources.

MARKETING AND SALES

     The Company markets its products primarily via third-party distribution
channels including, but not limited to, OEMs, resellers and system integrators.
The Company currently has distribution and reseller agreements with over 71
companies worldwide. In addition, the Company plans to continue to expand its
distribution channels both domestically and internationally.

     The Company establishes distribution relationships with resellers and
integrators who service corporate, institutional and government customers. These
relationships are non-exclusive and typically require that these resellers
participate in the marketing, installation and technical support of the
Company's products.

     The Company's Internet related products are marketed primarily to Web site
designers. The Company bundles its products with other popular Web-video
products and sells or licenses its subsystems to resellers to integrate with
their Web development products. Such strategic business alliances provide Web
developers with a rich array of innovative capabilities with the familiarity of
existing tools.

     For consumer products the Company will depend on major OEM customers who
provide access to consumer marketing channels. These OEMs have established
relationships with manufacturers and resellers and typically pay licensing fees
and royalties to bring new leading-edge products to market.


                                       6
<PAGE>   7


     The Company continues to expand its marketing activities over the Internet.
The Company's products enable new ways to promote products over the Internet.
The Company intends to use its own products to increase sales productivity and
to pursue alternate selling strategies. In addition, the Company utilizes press
releases, product literature, presentations to industry analysts and
participation in trade shows to enhance brand awareness.

PRODUCTION AND SUPPLY

     The Company builds its current products using contract manufacturers in the
United States. The Company's operations personnel in Dallas are responsible for
parts planning, procurement and final testing and inspection to quality
standards. The Company plans for most high-volume production to be handled
through large OEMs or contract manufacturers. The Company has been and will
continue to be dependent on third parties for the supply and manufacture of its
components and electronic parts, including standard and custom-designed
components. The Company generally does not maintain supply agreements with such
third parties but instead purchases components and electronic parts pursuant to
purchase orders in the ordinary course of business. The Company is substantially
dependent on the ability of its third-party manufacturers and suppliers to,
among other things, meet the Company's design, performance and quality
specifications.

     The electronics industry from time to time experiences short supplies of
certain high demand components, which may adversely affect the Company's ability
to meet its production schedules. Failure of manufacturers or suppliers to
supply or delays in supplying the Company with components, or allocations in the
supply of certain high-demand components, could adversely affect the Company's
operations and ability to meet delivery schedules on a timely and competitive
basis.

INSTALLATION, SERVICE AND MAINTENANCE

     Many of the Company's products are customer installable. The Company has
contracted with Data General Corporation to provide third-party field
installation and support. The Company maintains a small in-house technical
support group and also depends on its resellers to install and service its
products.

     The Company offers limited warranties covering workmanship and materials,
during which period the Company or its resellers will replace parts or make
repairs. The Company also maintains an in-house staff of engineering personnel
and offers telephone support to assist resellers and end-users during normal
business hours.

     In addition, the Company enters into annual contracts with end-users to
provide software and/or hardware maintenance on its products.

RESEARCH AND DEVELOPMENT

     The Company has focused and will continue to focus on research and
development activities related to video communications applications. The
Company's recent development efforts have been devoted to the design and
development of its products and software applications, including the ViewCast(R)
streaming video server, the VBX, the VBX Codec server, the WorkFone(R), the
Osprey(R) line of Codecs and the applications software for these systems.

     Total research and development expense for 1997 and 1998 was approximately
$2.7 million and $3.1 million, respectively.

COMPETITION

     The market for video communications systems is highly competitive and
characterized by the frequent introduction of new products based upon innovative
technologies. The Company competes with numerous well-established manufacturers
and suppliers of videoconferencing, networking, telecommunications and
multimedia products, certain of which dominate the existing videoconferencing
market for such products.


                                       7
<PAGE>   8


In addition, the Company is aware of others that are developing, and in some
cases have introduced, new video communications systems. Most of the Company's
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company, have established reputations relating to
product design, development, manufacture, marketing and service of networking,
telecom and video products and have significant budgets to permit them to
implement extensive campaigns to market new products in response to competitors.
The Company is not aware of any direct competitors that compete in all of the
Company's product families and applications. However, among the Company's direct
competitors competing in one or more of the Company's products or applications
are C-Phone Corporation, Zydacron, Inc., VCON, Ltd., Corel Computer Corporation,
Objective Communications, Inc. and Datapoint Corporation. In addition,
electronics manufacturers such as Intel actively compete for business in this
market.

PATENTS, COPYRIGHTS, TRADEMARKS AND PROPRIETARY INFORMATION

     The Company holds a United States patent covering certain aspects of
compressed video. Although the Company does not believe this patent or any other
patent is essential to its business operations, the Company may apply for
additional patents relating to other aspects of its products. The Company also
relies on copyright laws to protect its software applications, which it
considers proprietary. There can be no assurance as to the breadth or degree of
protection which existing or future patents, copyrights and trademarks, if any,
may afford the Company, that any patent, copyright or trademark applications
will result in issued patents, registered copyrights or registered trademarks,
as the case may be, that the Company's patents, copyrights or trademarks will be
upheld, if challenged, or that competitors will not develop similar or superior
methods, products or names outside the protection of any patent issued to or
copyright held by the Company.

     The Company believes that product recognition is an important competitive
factor and, accordingly, the Company promotes the ViewCast(R), Osprey(R),
SLIC-Video(R), Viewpoint VBX(TM) and WorkFone(R) names, among others, in
connection with its marketing activities, and has applied for or received
trademark registration for such names. The Company's use of those marks may be
subject to challenge by others, which, if successful, could have a material
adverse effect on the Company.

     The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford the Company
complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how or software codes, concepts, ideas and documentation. Furthermore,
although the Company has and expects to continue to have confidentiality
agreements with its directors, employees, consultants, manufacturers, and
appropriate vendors, there can be no assurance that such arrangements will
adequately protect the Company's trade secrets. The Company purchases certain
components that are incorporated into its products from third-party suppliers
and relies on their assurances that such components do not infringe on the
patents of others. A successful claim against any components used in the
Company's products could affect the ability of the Company to manufacture,
supply and support its products. The Company uses commercially reasonable
efforts to ensure third-party supplied components are non-infringing, but there
can be no assurances against future claims.

GOVERNMENT REGULATION

     The Company is subject to regulations relating to electromagnetic radiation
from its products, which impose compliance burdens on the Company. In the event
the Company redesigns or otherwise modifies its products or completes the
development of new products, it will be required to comply with Federal
Communications Commission regulations with respect to such products, of which
there can be no assurance prior to their commercialization. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations, at the federal, state and local levels may be proposed in the
future affecting the video communications industries. Such proposals could
affect the Company's operations, result in material capital expenditures, affect
the marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new


                                       8
<PAGE>   9


or proposed products or technologies. Expansion into foreign markets may also
require the Company to comply with additional regulatory requirements.
Currently, the Company is seeking certain foreign certificates in order to
expand its international marketing opportunities.

     There can be no assurance that such export controls, either in their
current form or as may be subsequently enacted, will not delay introduction of
new products or limit the Company's ability to distribute products outside of
the United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company.

EMPLOYEES

     As of December 31, 1998, the Company had sixty-five (65) full-time
employees, three (3) of whom are in executive positions, twenty-eight (28) of
whom are engaged in engineering, research and development, twenty (20) of whom
are engaged in marketing and sales activities, eight (8) of whom are engaged in
operations and six (6) of whom are in administration. None of the Company's
employees are represented by a labor union. The Company considers its employee
relations to be satisfactory.

Item 2.  Description of Property

     The Company's executive offices and some of its sales, design and
development activities are located in approximately 21,100 square feet of leased
space in Dallas, Texas. The lease expires in September of 1999 and provides for
a base annual rent of $316,512. The Company's assembly operations are located in
approximately 4,065 square feet of leased space in Dallas, Texas. The lease
expires in August 1999 and provides for a base annual rent of $33,372. Osprey's
design and development activities are located in approximately 10,000 square
feet of leased space in Morrisville, North Carolina. The lease expires in
December of 2002 and provides for a base annual rent of $99,000. The company
leases office space for a sales office in Fairfax, Virginia consisting of
approximately 2,152 square feet of leased space. This lease expires in February
2001 and provides for base annual costs of $55,952. The Company believes that
its facilities are adequate for its current and reasonable foreseeable future
needs and its current facilities can accommodate expansion, as required.

Item 3.  Legal Proceedings

     The Company is not currently a party to any litigation that it believes
could have a material adverse effect on the Company or its business.

Item 4.  Submission of Matters to a Vote of Security Holders

         None


                                       9
<PAGE>   10


                                     PART II

Item 5.  Market for Company's Common Equity and Related Stockholder Matters

    The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "MMAC." The Company's redeemable common stock purchase warrants (the
"Public Warrants") are traded on the Nasdaq Stock Market under the symbol
"MMACW." As of December 31, 1998, there were 11,063,477 shares of Common Stock
and 2,851,977 Public Warrants outstanding. The shares of Common Stock are held
by approximately 850 beneficial holders and the Public Warrants are held of
record by approximately 24 holders. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock and the
Public Warrants on the Nasdaq Stock Market. These over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The Company's IPO became
effective on February 4, 1997. Before this date, there was no public market for
the Company's securities.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                      COMMON STOCK                              PUBLIC WARRANTS
-------------------------------------------------------------------------------------------------------------
     FISCAL 1997                HIGH                  LOW                  HIGH                  LOW
     -----------                ----                  ---                  ----                  ---
-------------------------------------------------------------------------------------------------------------
<S>                            <C>                 <C>                   <C>                  <C>     
1st Quarter                    $ 5.8750            $ 4.1875              $ 2.3750             $ 1.0000
-------------------------------------------------------------------------------------------------------------
2nd Quarter                      6.5000              5.0000                2.3750               1.3750
-------------------------------------------------------------------------------------------------------------
3rd Quarter                      6.0000              4.0000                2.0000               1.0000
-------------------------------------------------------------------------------------------------------------
4th Quarter                      6.0000              3.8125                2.1250               0.9375
-------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                      COMMON STOCK                              PUBLIC WARRANTS
-------------------------------------------------------------------------------------------------------------
     FISCAL 1998                HIGH                  LOW                  HIGH                  LOW
     -----------                ----                  ---                  ----                  ---
-------------------------------------------------------------------------------------------------------------
<S>                            <C>                 <C>                   <C>                  <C>     
1st Quarter                    $ 5.0000            $3.0000               $1.8750              $0.8750
-------------------------------------------------------------------------------------------------------------
2nd Quarter                      3.8125             2.6875                1.2500               0.6563
-------------------------------------------------------------------------------------------------------------
3rd Quarter                      3.5000             1.8125                0.8750               0.3438
-------------------------------------------------------------------------------------------------------------
4th Quarter                      3.6875             0.8750                1.6875               0.2500
-------------------------------------------------------------------------------------------------------------
</TABLE>

On March 22, 1999, the last reported sales prices for the Common Stock and the
Public Warrants as reported on the Nasdaq Stock Market were $4.969 and $2.75,
respectively.

         The Company declared no cash dividends in 1997 or 1998. The Company
does not anticipate paying cash dividends in the future as it intends to retain
earnings to finance the growth of the business. The payment of future dividends
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Company's Board of Directors.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

GENERAL

     MultiMedia Access Corporation develops, manufacturers and markets advanced
video communications solutions for business and professional enterprises. The
Company's systems and solutions provide enhanced communication and increased
productivity for major corporations, educational institutions and healthcare,
financial and governmental organizations. The Company's products deliver popular
video communication applications including Internet and intranet media
streaming, live broadcasting, video-based training, surveillance, distance
learning, videoconferencing and telemedicine. Its products are available from
leading resellers, systems integrators, OEMs and application developers
worldwide.


                                       10
<PAGE>   11


RESULTS OF OPERATIONS

Year Ended December 31, 1998 compared to Year Ended December 31, 1997.

     Net Sales. Net sales for the year ended December 31, 1998 increased 139% to
$8,027,948 from $3,360,703 reported in 1997. This increase can be attributed to
significant growth in sales of both video peripheral products and video systems
during 1998 compared to 1997.

     During the year ended December 31, 1998, sales of video peripheral products
increased 69% over 1997 and represented approximately 45.5% of total 1998
revenues, compared to approximately 64% of total revenues in 1997. Sales of
video systems increased 296% in 1998, compared to the same period in 1997 and
represented approximately 53% of total 1998 revenues, compared to approximately
32% of total revenues in 1997. The Company expects its product mix to change
slightly in 1999 as sales of its video peripheral products and video systems
continue to increase while its newest product family, the ViewCast(R) Streaming
Video Server, which was introduced in late 1997, completes its beta testing and
begins generating revenue in 1999.

     Cost of Goods Sold. Cost of goods sold increased $2,485,206 to $4,181,128
for the year ended December 31, 1998 compared to the same period in 1997
primarily due to the increase in net sales described above. Gross profit margin
for 1998 was 47.9%, representing a decline from the 49.5% margin during 1997.
This decline in gross margin can be attributed to increased sales in 1998 to
distribution and OEM partners with contractual sales discounts. The Company does
not anticipate that this decline in gross profit margin is permanent but
believes that, over extended periods, its margins will remain in the range of
48 - 52%.

     Selling, General and Administrative Expense. Selling, general, and
administrative expense increased to $8,352,476 for the year ended December 31,
1998 from $4,243,485 in 1997 due to a significant expansion of the Company's
sales, marketing and customer support efforts in 1998. In late 1997, the Company
added 14 sales positions and three customer support positions, the full effect
of which was reflected in 1998. Also contributing to the increase are expenses
related to being a public company, including significant increases in investor
relations, legal and professional fees and consulting fees. Also, in 1998 the
Company incurred a $610,000 bad debt write-off that arose when a reseller failed
to meet its financial obligations.

     Research and Development Expense. Research and development expense
increased $349,245 to $3,090,102 for the year ended December 31, 1998 compared
to 1997, primarily due to an increase in the Company's manufacturing staff and
contract consultants during 1998. The new staff and consultants were principally
involved in the continued development of the Company's Viewpoint VBX(TM) system,
Osprey(R) video products and the newly announced ViewCast(R) Streaming-video
servers.

     Other Income (Expense). For the year ended December 31, 1998, other expense
increased $645,322 to $843,708, primarily as a result of an increase in interest
expense during the year. The changes to other expense can be attributed
principally to an increase in outstanding debt, reflecting the convertible debt
placed in December 1997 and the working capital lines of credit put in place
during 1998.

Year Ended December 31, 1997 compared to Year Ended December 31, 1996.

     Net Sales. Net sales for the year ended December 31, 1997 increased 206.9%
to $3,360,703 from $1,095,012 reported in 1996. This increase can be attributed
to significant growth in sales of both video peripheral products and video
systems during 1997 compared to 1996, offset in part by a decline in custom
programming and design revenue between the same periods.

     During the year ended December 31, 1997, sales of video peripheral products
increased 193.9% over 1996 and represented approximately 65.5% of total 1997
revenues, compared to approximately 68.4% of total revenues in 1996. Sales of
video systems increased 602.2% in 1997, compared to the same period in 


                                       11
<PAGE>   12


1996 and represented approximately 31.8% of total 1997 revenues, compared to
approximately 13.9% of total revenues in 1996. While sales of video peripheral
products are expected to continue to increase during 1998 as new products are
developed and marketed and new contracts are finalized, the percentage of
peripheral product sales to total sales is expected to decline as the Company
also expects to see a significant increase in video systems revenue during 1998.

     Cost of Goods Sold. Cost of goods sold increased $1,302,004 to $1,695,922
for the year ended December 31, 1997 compared to the same period in 1996
primarily due to the increase in net sales described above. Gross profit margin
for 1997 was 49.5%, representing a decline from the 64.0% margin during 1996.
This decline in gross margin can be attributed to greater custom programming and
design revenue in 1996, which had little or no associated costs, and to
increased sales in 1997 to distribution partners with contractual sales
discounts. The Company anticipates that its gross profit margin will generally
average 50% for the foreseeable future.

     Selling, General and Administrative Expense. Selling, general, and
administrative expense increased to $4,243,485 for the year ended December 31,
1997 from $2,378,653 in 1996 due to a significant expansion of the Company's
sales, marketing and customer support efforts in 1997. During 1997, the Company
added 14 sales positions and three customer support positions that did not exist
during 1996. Also contributing to the increase are expenses related to being a
public company that were incurred subsequent to the Company's initial public
offering in February 1997, including significant increases in insurance,
investor relations, travel, legal and professional fees.

     Research and Development Expense. Research and development expense
increased $743,711 to $2,740,857 for the year ended December 31, 1997 compared
to 1996, primarily due to an increase in the Company's development staff,
contract consultants and manufacturing staff during 1997. The new staff and
consultants were principally involved in the continued development of the
Company's Viewpoint VBX(TM) system, Osprey(R) video products and the newly
announced ViewCast(R) Web-video servers.

     Other Income (Expense). For the year ended December 31, 1997, other expense
decreased $314,833 to $198,386, primarily as a result of an increase in interest
income and a reduction in interest expense during the year. The changes to other
income and expense can be attributed principally to increased capital and
retirement of debt in conjunction with the Company's initial public offering in
February 1997.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary sources of funds for conducting its business
activities come from operations and from the sale of its debt and equity
securities. The Company requires liquidity and working capital primarily to fund
increases in inventories and accounts receivable associated with sales growth,
development of its products, debt service and for capital expenditures.

     The Company successfully completed an IPO of its Common Stock and Public
Warrants on February 7, 1997 and on March 13, 1997 sold the over-allotment
option, raising a total of $5,427,000 of net proceeds. During 1997, with the
proceeds of the IPO, the Company endeavored to build an effective marketing and
sales organization, develop a network of independent resellers and achieve
market acceptance of its products.

     In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of Common Stock underlying Private Warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one share of Common Stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three (3) years from the date of issuance.
The Company will not receive any of the proceeds of the sale of such shares of
Common Stock, but will receive proceeds of up to $7,529,719 from the exercise of
the Private Warrants. During the years ended December 31, 1997 and 1998, 821,667
and 976,557, respectively, of the Private Warrants were exercised, resulting in
net proceeds to the Company of $1,676,533 and $2,148,225,


                                       12
<PAGE>   13


respectively. These proceeds and any additional proceeds have been used for
working capital and general corporate purposes.

     On December 9, 1997 the Company sold, in a private placement, $5,000,000
aggregate principal amount of 8% Senior Convertible Notes due 2002 (the "Notes")
at an initial offering price of 100% of the principal amount thereof, less 8%
gross commission. The Notes are convertible into shares of Common Stock of the
Company at a conversion price of $4.625 per share of Common Stock, subject to
adjustment in certain circumstances (including upon certain issuances of Common
Stock or Common Stock Equivalents at less than the then effective conversion
price). The Notes rank senior to all existing and future subordinated
obligations and rank pari passu with all present and future senior indebtedness
of the Company, except to the extent of any collateral securing such debt. Net
proceeds to the Company in December 1997 after expenses amounted to $4,168,000.
In August 1998, the Company exchanged $3,640,000 of the Notes for 364,000 shares
of Series A Convertible Preferred Stock. The Series A preferred stock carries a
dividend of 8.5% per year payable in cash or common stock of the Company, at the
Company's option, and is convertible into Common Stock of the Company at a fixed
conversion price of $3.635 per share (subject to certain conditions). In
September 1998, holders of 30,000 shares of Series A preferred stock converted
their shares into 82,770 shares on the Company's Common Stock.

     In November 1998, the Company entered into a Working Capital Line of Credit
financing arrangement for up to $9 million with one of its principal
shareholders. The availability of funds under this facility is subject to
certain Borrowing Base limitations, based principally on qualifying accounts
receivable and inventory. The initial draw under this facility, which contains
terms that are more favorable to the Company than its existing facility, was
approximately $3.7 million, a portion of which was used to repay an existing
credit facility.

     In December 1998, the Company initiated a private placement of 945,000
shares of a newly created Series B Convertible Preferred Stock at $10 per share.
The Series B preferred stock is convertible into Common Stock of the Company at
a fixed price of $3.625 per share, subject to certain requirements, and carries
a dividend of 8% per year payable in cash or common stock of the Company, at the
Company's option. In December 1998, the Company received a $4,000,000
subscription for the Series B preferred stock from a principal shareholder of
the Company, of which $600,000 was paid in December 1998. The balance of
$3,400,000 was classified as a stock subscription receivable at December 31,
1998 and was received in January 1999. In January and February 1999, the Company
placed the balance of the Series B preferred stock, receiving an additional
$5,450,000 of new equity.

     The Company believes that the proceeds from the above offering together
with cash provided by operations will be sufficient to meet the Company's
operating expenses and capital requirements through at least the end of 1999. At
December 31, 1998, the Company had working capital of $1,452,778 and did not
have any material commitments for capital expenditures.

YEAR 2000 COMPLIANCE

     The "Year 2000" issue (Y2K) refers to potential complications that may be
caused by computer hardware and software that were not designed for the change
in the century. If not corrected, such computer hardware and software may cause
management information systems and devices with embedded microprocessors to fail
or miscalculate data.

     The Company has largely completed all phases of its Y2K readiness review,
except for contingency planning, with respect to the currently supported
versions of all of its products. As a result, the current versions of each of
the Company products are "Year 2000 Compliant" as defined below, when configured
and used in accordance with the related documentation, and provided that any
other software used with the Company's products are also Year 2000 Compliant.
The Company continues to respond to customer questions about prior versions of
its products on a case-by-case basis.


                                       13
<PAGE>   14


     "Year 2000 Compliant" is defined as the ability to:

     (a) correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;

     (b) function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new century,
assuming correct configuration;

     (c) where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and predetermined
manner;

     (d) if the date elements in interfaces and data storage specify the
century, store and provide output of date information in ways that are
unambiguous as to century; and

     (e) recognize year 2000 as a leap year.

     The Company has received assurances from its vendors that licensed software
incorporated in its products is Year 2000 Compliant. Despite testing by the
Company and by current and potential clients, and assurances from developers of
products incorporated into the Company's products, the Company's products may
contain undetected errors or defects associated with year 2000 date functions.
Known or unknown errors or defects in the Company's products could result in
delay or loss of revenue, diversion of development resources, damage to its
reputation, or increased service and warranty costs, any of which could
materially adversely affect its business, operating results, or financial
condition.

     The Company's internal systems include both information technology, or IT,
and non-IT systems. An assessment of the Company's material internal IT systems
has been initiated, including both its own software products and third-party
software and hardware technology, but the Company has not initiated an
assessment of its non-IT systems. The Company expects to complete testing its IT
and non-IT systems in 1999. To the extent that it is not able to test the
technology provided by third-party vendors, it is seeking assurances from such
vendors that their systems are Year 2000 Compliant. Although the Company is not
currently aware of any material operational issues or costs associated with
preparing its internal IT and non-IT systems for the Year 2000, the Company may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in its internal IT and non-IT systems.

     The Company does not currently have any information concerning the Y2K
compliance status of its customers. The Company's current and potential clients
may incur significant expenses to achieve Y2K compliance. If its clients are not
Y2K compliant, they may experience material costs to remedy problems or they may
face litigation costs. In either case, Y2K issues could reduce or eliminate
budgets that current or potential customers could have for purchases of the
Company's products and services. As a result, the Company's business, results of
operations or financial condition could be materially adversely affected.

     The Company has funded its Y2K plan from available cash and has not
separately accounted for these costs in the past. To date, these costs have not
been material. Any additional costs that may be incurred are not anticipated to
be material. The Company may experience material problems and costs with Y2K
compliance that could adversely affect its business, results of operations and
financial condition.

     The Company has not yet fully developed a contingency plan to address
situations that may result if it is unable to achieve Y2K readiness of its
critical operations. The costs of developing and implementing such a plan may
itself be material. Finally, the Company is also subject to external forces that
might generally affect industry and commerce, such as utility or transportation
company Y2K compliance failures and related service interruptions. There can be 
no assurance that Y2K will not adversely affect the Company and its operations.



                                       14
<PAGE>   15


Item 7.  Financial Statements


                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<S>                                                                           <C>
Report of Independent Auditors.................................................16

Consolidated Balance Sheets at December 31, 1997 and 1998......................17

Consolidated Statements of Operations for the years ended
  December 31, 1997 and 1998...................................................18

Consolidated Statements of Stockholders' Equity for
  the years ended December 31, 1997 and 1998 ..................................19

Consolidated Statements of Cash Flows for the years ended
  December 31, 1997 and 1998 ..................................................20

Notes to Consolidated Financial Statements.....................................21
</TABLE>


                                       15
<PAGE>   16


                         Report of Independent Auditors

The Board of Directors
MultiMedia Access Corporation

We have audited the accompanying consolidated balance sheets of MultiMedia
Access Corporation and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MultiMedia Access Corporation and subsidiaries at December 31, 1997 and 1998,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.



Dallas, Texas                                      ERNST & YOUNG LLP
February 25, 1999



                                       16
<PAGE>   17

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                       ----------------------------
                                                                           1997            1998
                                                                       ------------    ------------
<S>                                                                    <C>             <C>         
                               ASSETS
Current assets:
  Cash and cash equivalents                                            $  3,117,202    $    439,791
  Accounts receivable, less allowance for  doubtful accounts of
    $65,000 and $823,500 at December 31, 1997 and 1998, respectively      1,195,230       1,839,783
  Stock subscription receivable                                                  --       3,400,000
  Inventory                                                               1,762,186       3,110,588
  Prepaid expenses                                                           75,096          90,646
  Deferred charges, principally deferred debt issue costs                   191,287         568,252
                                                                       ------------    ------------
      Total current assets                                                6,341,001       9,449,060

Property and equipment, net                                                 877,440       1,382,044
Software development costs, net                                             203,858         431,500
Deferred charges                                                            752,125         213,048
Investment in equity securities                                                  --       2,000,000
Deposits                                                                     36,991         135,938
                                                                       ------------    ------------

      Total assets                                                     $  8,211,415    $ 13,611,590
                                                                       ============    ============

                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                     $    759,319    $  2,847,807
  Accrued compensation                                                      313,634         326,169
  Deferred revenue                                                           52,784         157,891
  Accrued restructuring charges                                                  --         275,000
  Other accrued liabilities                                                 343,051         488,337
  Short-term debt, officer                                                  311,243          96,285
  Shareholder line of credit                                                     --       3,687,513
  Short-term debt, other                                                     13,120         117,280
                                                                       ------------    ------------
      Total current liabilities                                           1,793,151       7,996,282

Long-term debt                                                            5,000,000       1,360,000

Commitments

Stockholders' equity:
  Convertible preferred stock, $.0001 par value:
    Authorized shares - 5,000,000
      Series A issued and outstanding shares - none at                           --              33
          December, 31, 1997 and 334,000 at December 31, 1998
      Series B shares subscribed - none at December 31, 1997
          and 400,000 at December 31, 1998                                       --              40
  Common stock, $.0001 par value:
    Authorized shares - 20,000,000 and 30,000,000 at
      December 31, 1997 and 1998, respectively
    Issued and outstanding shares -  8,955,455 and 11,324,974
      at December 31, 1997 and 1998, respectively                               900           1,132
  Additional paid-in capital                                             19,628,703      31,947,418
  Accumulated deficit                                                   (18,199,433)    (27,681,409)
  Treasury stock,  261,497 shares at December 31, 1997 and 1998             (11,906)        (11,906)
                                                                       ------------    ------------
      Total stockholders' equity                                          1,418,264       4,255,308
                                                                       ------------    ------------

      Total liabilities and stockholders' equity                       $  8,211,415    $ 13,611,590
                                                                       ============    ============
</TABLE>



                             See accompanying notes.
                                       17


<PAGE>   18

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                                           ----------------------------
                                               1997            1998
                                           ------------    ------------
<S>                                        <C>             <C>         
NET SALES                                  $  3,360,703    $  8,027,948

Cost of goods sold                            1,695,922       4,181,128
                                           ------------    ------------

GROSS PROFIT                                  1,664,781       3,846,820

Operating expenses:
  Selling, general and administrative         4,243,485       8,352,476
  Research and development                    2,740,857       3,090,102
  Restructuring charge                               --         402,800
  Depreciation and amortization                 309,458         524,427
                                           ------------    ------------
      Total operating expenses                7,293,800      12,369,805
                                           ------------    ------------

OPERATING LOSS                               (5,629,019)     (8,522,985)

Other income (expense):
  Dividend and interest income                   63,613          34,117
  Interest expense                             (290,492)       (877,873)
  Other                                          28,493              48
                                           ------------    ------------
      Total other income (expense)             (198,386)       (843,708)
                                           ------------    ------------

NET LOSS                                   $ (5,827,405)   $ (9,366,693)
                                           ============    ============

NET LOSS PER SHARE: BASIC AND DILUTED             (0.75)   $      (1.02)
                                           ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   outstanding                                7,806,378       9,367,537
                                           ============    ============
</TABLE>


                             See accompanying notes.
                                       18


<PAGE>   19

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998


<TABLE>
<CAPTION>
                                                 CONVERTIBLE                             ADDITIONAL 
                                               PREFERRED STOCK        COMMON STOCK        PAID-IN   
                                              SHARES  PAR VALUE    SHARES    PAR VALUE    CAPITAL    
                                             -------- --------- -----------  --------- ------------ 
<S>                                          <C>      <C>       <C>          <C>       <C>   
BALANCE, DECEMBER 31, 1996                         -- $      --   5,315,811  $     532 $  6,602,572 

  Sale of common stock and Public
    Warrants, net of expenses                      --        --   1,610,000        161    5,427,077 

  Exchange of short-term and
    long-term debt for common stock
    and Public Warrants                            --        --   1,241,977        124    5,713,003 

  Warrants issued for inducement
    of debt                                        --        --          --         --      191,500 

  Exercise of options and warrants, net            --        --     827,667         83    1,694,551 

  Net loss and comprehensive loss                  --        --          --         --           -- 

                                             -------- --------- -----------  --------- ------------ 
BALANCE, DECEMBER 31, 1997                         --        --   8,995,455        900   19,628,703 

  Conversion of long-term debt to
    convertible preferred stock - Series A    364,000        36          --         --    2,903,604 

  Sale of convertible preferred stock -
     Series B                                 400,000        40          --         --    3,999,960 

  Conversion of convertible preferred
     stock - Series A to common stock         (30,000)       (3)     82,770          8           (5)

  Common stock issued in exchange
     for equity securities                         --        --   1,000,000        100    1,999,900 

  Exercise of options and warrants                 --        --   1,043,374        104    2,185,392 

  Sale of common stock, employee
     stock purchase plan                           --        --      73,787          7      139,109 

  Value of options and warrants
      issued for consulting services               --        --          --         --      461,851 

  Warrants issued for inducement
     of debt                                       --        --          --         --      266,000 

  Accelerated vesting of employee
     stock options in connection with
     restructuring                                 --        --          --         --      127,800 

  Common stock issued for
     consulting services                           --        --      73,443          7      133,389 

  Convertible preferred stock
     dividends - Series A                          --        --      56,145          6      101,715 

  Net loss and comprehensive loss                  --        --          --         --           -- 


                                             ======== ========= ===========  ========= ============ 
BALANCE, DECEMBER 31, 1998                    734,000 $      73  11,324,974  $   1,132 $ 31,947,418 
                                             ======== ========= ===========  ========= ============ 
</TABLE>

<TABLE>
<CAPTION>
                                                                                TOTAL
                                             ACCUMULATED         TREASURY    STOCKHOLDERS'
                                               DEFICIT             STOCK        EQUITY
                                             ------------        ---------   -------------
<S>                                          <C>                 <C>         <C>          
BALANCE, DECEMBER 31, 1996                   $(12,372,028)       $ (11,906)  $ (5,780,830)

  Sale of common stock and Public
    Warrants, net of expenses                          --              --       5,427,238

  Exchange of short-term and
    long-term debt for common stock
    and Public Warrants                                --              --       5,713,127

  Warrants issued for inducement
    of debt                                            --              --         191,500

  Exercise of options and warrants, net                --              --       1,694,634

  Net loss and comprehensive loss              (5,827,405)             --      (5,827,405)

                                             ------------    ------------    ------------
BALANCE, DECEMBER 31, 1997                    (18,199,433)        (11,906)      1,418,264

  Conversion of long-term debt to
    convertible preferred stock - Series A             --              --       2,903,640

  Sale of convertible preferred stock -
     Series B                                          --              --       4,000,000

  Conversion of convertible preferred
     stock - Series A to common stock                  --              --              --

  Common stock issued in exchange
     for equity securities                             --              --       2,000,000

  Exercise of options and warrants                     --              --       2,185,496

  Sale of common stock, employee
     stock purchase plan                               --              --         139,116

  Value of options and warrants
      issued for consulting services                   --              --         461,851

  Warrants issued for inducement
     of debt                                           --              --         266,000

  Accelerated vesting of employee
     stock options in connection with
     restructuring                                     --              --         127,800

  Common stock issued for
     consulting services                               --              --         133,396

  Convertible preferred stock
     dividends - Series A                        (115,283)             --         (13,562)

  Net loss and comprehensive loss              (9,366,693)             --      (9,366,693)

                                             ============    ============    ============
BALANCE, DECEMBER 31, 1998                   $(27,681,409)   $    (11,906)   $  4,255,308
                                             ============    ============    ============
</TABLE>


                             See accompanying notes.
                                       19

<PAGE>   20

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                          ----------------------------
                                                                              1997            1998
                                                                          ------------    ------------
<S>                                                                       <C>             <C>          
OPERATING ACTIVITIES:
  Net loss                                                                $ (5,827,405)   $ (9,366,693)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Depreciation of fixed assets                                             229,659         380,742
      Amortization of software development                                      79,799         143,685
      Non-cash charges to interest expense                                     168,691         289,885
      Non-cash charge to restructuring costs                                        --         127,800
      Non-cash consulting fees exchanged for options, warrants
         and common stock                                                                      595,247
      Changes in operating assets and liabilities:
        Accounts receivable                                                 (1,009,666)       (644,553)
        Inventory                                                           (1,452,053)     (1,348,402)
        Prepaid expenses                                                       (28,857)        (15,550)
        Deferred charges                                                      (416,308)       (598,132)
        Deposits                                                               (18,719)        (98,947)
        Accounts payable                                                        76,630       2,088,488
        Accrued compensation                                                    73,927          12,535
        Accrued restructuring charges                                               --         275,000
        Deferred revenue                                                        37,193         105,107
        Other accrued liabilities                                             (133,228)        131,723
                                                                          ------------    ------------
               Net cash used in operating activities                        (8,220,337)     (7,922,065)
                                                                          ------------    ------------

INVESTING ACTIVITIES:
  Purchase of property and equipment, net                                     (649,938)       (885,350)
  Software development costs                                                  (136,336)       (371,323)
  Other                                                                          3,734              --
                                                                          ------------    ------------
               Net cash used in investing activities                          (782,540)     (1,256,673)
                                                                          ------------    ------------

FINANCING ACTIVITIES:
  Net proceeds from convertible preferred stock subscription - Series B             --         600,000
  Net proceeds from issuance of short-term debt                                212,202       3,687,512
  Repayment of short-term debt-officer                                        (235,000)       (214,958)
  Net proceeds from capital leases                                               2,466         104,161
  Proceeds from issuance of long-term debt                                   5,000,000              --
  Proceeds from the exercise of options and warrants                         1,694,634       2,185,496
  Net proceeds from sale of common stock and warrants                        5,427,238         139,116
                                                                          ------------    ------------
               Net cash provided by financing activities                    12,101,540       6,501,327
                                                                          ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         3,098,663      (2,677,411)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                  18,539       3,117,202
                                                                          ------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                  $  3,117,202    $    439,791
                                                                          ============    ============
</TABLE>



                             See accompanying notes.
                                       20



<PAGE>   21



                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

1. THE COMPANY AND DESCRIPTION OF BUSINESS

         The accompanying consolidated financial statements include the accounts
of MultiMedia Access Corporation (MMAC), and its wholly-owned subsidiaries,
Viewpoint Systems, Inc. (Viewpoint), VideoWare, Inc. (VideoWare) and Osprey
Technologies, Inc. (Osprey) (collectively, the Company). The Company operates in
one business segment and is engaged in developing and marketing advanced,
standards-based video communications products that integrate video capabilities
into existing desktop computers, applications and networks. The Company markets
its products directly to end-users, through value-added resellers and computer
system integrators, primarily in the continental United States.

         The Company has sustained operating losses since its inception in
February 1994, and expects losses to continue during the first half of 1999 and
until such time, if ever, as gross margins from the sales of its products exceed
its development, selling, administrative and financing costs. In December 1998
through February 1999, the Company received $9.45 million in gross proceeds from
the sale of 945,000 shares of a newly created Series B convertible preferred
stock at $10 per share (See Note 10). During 1999, with the proceeds from the
preferred stock sale, the Company will endeavor to introduce new products,
strengthen its sales and marketing organizations, increase its base of
value-added resellers and computer system integrators, and achieve market
acceptance of its products at prices and volumes which will, in the future,
result in profitable operations. However, there are no assurances that the
Company will be successful in its efforts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPALS OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.

INVENTORY

         Inventory consists primarily of purchased electronic components and
computer system products, along with the related documentation manuals and
packaging materials. Inventory is carried at the lower of cost or market, cost
being determined on a standard cost basis, which approximates average cost.

PROPERTY AND EQUIPMENT

         Property and equipment is recorded at cost. Depreciation is determined
using the straight-line method over the estimated useful lives, generally five
years, of the related assets. Leasehold improvements are amortized over the
lives of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred; renewals and betterments are capitalized.

SOFTWARE DEVELOPMENT COSTS

         Costs of developing new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.


                                       21
<PAGE>   22

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



REVENUE RECOGNITION

         Revenue from the sale of video communication systems and products and
licensing of the related software is recognized upon shipment to customers. With
pre-approval by a return merchandise authorization, a customer may return
undamaged product to the Company, subject to a 30-day money back guarantee. The
Company maintains an accrued warranty reserve for products which are returned
defective during the warranty period.

NET LOSS PER SHARE

         Basic earnings per share is calculated by dividing net income/loss by
the number of weighted average common shares outstanding for the period. Since
the Company has reported net losses for all periods presented, the computation
of diluted loss per share excludes the effects of options (see Note 10),
warrants (see Note 10) and convertible debt (see Note 8) since their effect is
anti-dilutive.

Loss per share calculations for the years ended December 31, 1997 and 1998 are
as follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                           DECEMBER 31,        
                                             -------------------------------------
                                                  1997                    1998
                                             -------------           -------------
<S>                                          <C>                     <C>
Net loss                                     $  (5,827,405)          $  (9,366,693)
Preferred dividends and accretion of
  issue costs                                           --                (175,945)
                                             -------------           -------------
Net loss applicable to common shareholders   $  (5,827,405)          $  (9,542,638) 
                                             =============           =============
Weighted average number of common shares
  outstanding                                    7,806,378               9,367,537
                                             =============           =============
Loss per share as reported in the financial
  statements: basic and diluted              $       (0.75)          $       (1.02)
                                             =============           =============
</TABLE>                                                                      


DEFERRED CHARGES AND OTHER ASSETS

         Deferred charges at December 31, 1998 consist of legal, accounting and
lead manager fees and expenses associated with the issuance of 8 % senior
convertible notes in December 1997 as well as fees and expenses associated with
the procurement of a $9 million working capital credit facility in October of
1998. During August 1998, the Company exchanged $3.64 million of its 8% senior
convertible notes for newly created shares of Series A convertible preferred
stock and, accordingly, a proportionate share of issue costs in the amount
$736,359 were charged against the exchange proceeds. Net debt issue costs at
December 31, 1998 were $781,300 of which $568,252 has been classified as
current.


                                       22
<PAGE>   23

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Deferred charges at December 31, 1997 were $943,412, of which $191,287
has been classified as current, consisting solely of fees and expenses
associated with the issuance of the 8% senior convertible notes.

     Deferred charges are being amortized using the straight-line method over
the term of the notes. Amounts charged to operations for the years ended
December 31, 1997 and 1998 were $168,691 and $289,885, respectively.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to credit risk
consist principally of cash, cash equivalents and trade accounts receivable. The
Company invests its cash and cash equivalents with a Texas commercial bank and a
commercial brokerage firm. The brokerage firm maintains accounts in several
banks throughout the country and in government securities. The Company sells its
products and services primarily to distributors and resellers without requiring
collateral; however, the Company routinely assesses the financial condition of
its customers and maintains allowances for anticipated losses. During the years
ended December 31, 1997 and 1998, one customer accounted for 14% and three
customers accounted for 41% of total consolidated revenues, respectively.
Balances due from these customers at December 31, 1997 and 1998 represented 10%
and 39% of net accounts receivable, respectively. During December 1998, the
Company provided an additional accounts receivable reserve and charge against
income of $610,000 when a major reseller of the Company failed to meet its
payment obligations in accordance with contracted terms. In January 1999, the
Company initiated legal action against the reseller and will vigorously pursue a
collection process to recover the receivable. The Company believes it has no
significant credit risk in excess of provided reserves.

USE OF ESTIMATES

     The preparation of financial  statements in conformity with generally 
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INCOME TAXES

     The Company utilizes the liability method of accounting for income taxes
wherein deferred tax assets and liabilities are determined based upon the
differences between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates expected to be in effect when
these differences reverse.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 1997 and 1998 was $353,024 and $226,413, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts receivable, accounts
payable, short-term debt and accrued expenses approximate fair value due to the
short-term maturities of these instruments. The Company also believes the
carrying value of its long-term debt approximates fair value at December 31,
1998 since actual interest rates were consistent with rates estimated to be
available for obligations with similar terms and conditions.


                                       23
<PAGE>   24

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


STOCK-BASED COMPENSATION

     In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. SFAS 123 defines a fair-value based method of accounting for an
employee stock option or similar equity instrument. As permitted by SFAS 123,
the Company has elected to continue to measure the cost of its stock-based
compensation plans using the intrinsic-value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. See Note 10 to the Consolidated Financial Statements for
additional information concerning stock-based compensation.

SEGMENT REPORTING

     During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. SFAS 131 supersedes SFAS 14, Financial Reporting for
Segments of Business Enterprise, replacing the "industry segment" approach with
the "management" approach. The management approach designates the internal
reporting that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. Under
this definition, the company operated, for all periods presented, in a single
segment.

COMPREHENSIVE INCOME

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. SFAS 130 requires that total comprehensive income and comprehensive
income per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholder's equity
exclusive of transactions with owners such as capital contributions and
dividends. The Company adopted the standard in 1998, however the Company had no
material comprehensive income transactions during the years ended December 31,
1997 and 1998.

IMPAIRMENT OF LONG-LIVED ASSETS

         In accordance with Statement of Accounting Standards No. 121(SFAS 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, the Company reviews its long-lived assets for impairment when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. This review consists of a comparison of the
carrying value of the asset with the asset's expected future undiscounted cash
flows without interest costs. Estimates of expected future cash flows represent
management's best estimate based on reasonable and supportable assumptions
and projections. If the expected future cash flow exceeds the carrying value of 
the asset, no impairment is recognized. If the carrying value of the asset 
exceeds the expected future cash flows, impairment is measured by the excess of
the carrying value over the fair value of the asset. Any impairment provisions 
recognized are permanent and may not be restored in the future. Impairment 
expense of $30,000 was recognized in 1998, and is included as a component of the
restructuring charge (See Note 3).

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for transactions
entered into after January 1, 2000. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. The Company's management is
currently evaluating the impact of the statement.


                                       24
<PAGE>   25

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


3.  BUSINESS RESTRUCTURING

     Results of operations for 1998 include charges of $402,800 for resizing and
restructuring the Company's operations and workforce. The charges were recorded
in the fourth quarter of 1998 in accordance with a plan of restructuring
approved by the Board of Directors. Charges include severance costs for work
force reductions of 16 employees including two Executive Officers of the
Company, closure of three sales offices and losses on impairment of certain
assets. Personnel reductions were made in the Company's sales, development and
finance and administration departments in an effort to reduce operating
expenses. At December 31, 1998 the Company had $275,000 of accrued restructuring
charges consisting mainly of severance to be paid in 1999.


4.  INVENTORY

     Inventory consists of the following:

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                      -----------------------
                                         1997         1998
                                      ----------   ----------
<S>                                   <C>          <C>       
          Purchased materials         $1,035,006   $  815,999
          Work in progress                    --      108,639
          Finished goods                 727,180    2,185,950
                                      ----------   ----------
                                      $1,762,186   $3,110,588
                                      ==========   ==========
</TABLE>

     Inventory at December 31, 1998 is presented net of a reserve of $199,255
for obsolete, slow moving and damaged inventory.


5. INVESTMENT IN EQUITY SECURITIES

     In September 1998, the Company entered into a strategic business alliance
with Tadeo Holdings, Inc. ("THI"), that included a stock purchase agreement
whereby the Company acquired 1,240,310 shares of THI common stock in exchange
for 1,000,000 shares of the Company's common stock. As specified in the purchase
agreement, the number of shares exchanged was determined by dividing $2,000,000
by the average closing price per share of each company's common stock for the
five trading days prior to September 24, 1998. The shares issued by the Company
and THI are not registered under the Securities Act of 1993, as amended, and may
not be sold, transferred or otherwise distributed in the absence of such
registration or an applicable exemption therefrom.

     At December 31, 1998, the Company valued its investment in THI common stock
at cost due to governmental limitations imposed by Rule 144 of the Securities
and Exchange Commission limiting trading for the first two years that the stock
is held. At December 31, 1998, the quoted market price of THI registered shares
was $1.00 per share.



                                       25
<PAGE>   26

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6. PROPERTY AND EQUIPMENT

     Property and equipment, at cost, consists of the following:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                          -------------------------
                                             1997          1998
                                          -----------   -----------
<S>                                       <C>         <C>       
       Computer equipment                 $   933,767   $ 1,397,444
       Software                               270,386       374,403
       Leasehold improvements                  43,951       100,779
       Office furniture and equipment         180,256       441,080
                                          -----------   -----------
                                            1,428,360     2,313,706
       Less accumulated depreciation
         and amortization                    (550,920)     (931,662)
                                          -----------   -----------
                                          $   877,440   $ 1,382,044
                                          ===========   ===========
</TABLE>


7. SHORT-TERM DEBT

     Short-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               -------------------------
                                                                  1997          1998
                                                               -----------   -----------
<S>                                                            <C>           <C>       
     OFFICER:
       Unsecured note payable to an officer and affiliate
        of the Company, due on demand with interest at 15%.    $   311,243   $    96,285
                                                               ===========   ===========

     OTHER:
       Fully secured $9,000,000 working capital credit
        facility payable to a principal shareholder of the
        Company, with interest payable monthly at 12%.         $        --   $ 3,687,513

       Other                                                        13,120       117,280
                                                               -----------   -----------
                Total short-term debt, other.                  $    13,120   $ 3,804,793
                                                               ===========   ===========
</TABLE>


     In January and February 1997, the Company issued $600,000 of 8% unsecured
debt to two principal stockholders of the Company. The unsecured debt was due on
demand 10 days subsequent to an initial public offering of the Company's equity
securities or 180 days from the date of issue. As an incentive to advance the
debt, the stockholders were issued 60,000 three-year warrants to purchase
Company stock at $3.00 per share. Based on independent appraisal, the fair
market value of these warrants of $1.00 per share was charged to interest
expense. In February 1997, the $600,000 unsecured debt was exchanged for shares
of common stock and public warrants in the Company's initial public offering.

     In February 1997, $2,915,000 principal amount of secured and unsecured
notes then outstanding were exchanged for 633,694 shares of common stock and
public warrants in the Company's initial public offering. Additionally, in
February 1997, the Company repaid $377,548 principal amount of secured and
demand notes together with total accrued interest of $90,745.


                                       26
<PAGE>   27

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



     In May 1998, the Company entered into an accounts receivable line of credit
financing arrangement with a Texas commercial bank for up to $1.5 million
(extended to $1.7 million in July 1998). The financing arrangement allowed the
bank to purchase all domestic and foreign accounts of the Company at a discount
from face value of each invoice and reserve 10% of the face amount of each
account receivable for doubtful accounts. The line of credit was collateralized
by the accounts receivable, inventory, furniture and fixtures of the Company
until the line was retired in November 1998.

     In November 1998, the Company entered into a working capital line of credit
facility for up to $9 million with one of its principal shareholders, H.T.
Ardinger, Jr. This one year, renewable facility, which contains terms more
favorable than the Company's prior facility, bears interest at 12% per annum and
is secured by all assets of the Company. The availability of funds under this
facility is subject to certain borrowing base limitations based principally on
qualifying accounts receivable and inventory. A portion of the proceeds from
this facility was used to retire the Texas commercial bank line of credit. As an
incentive to advance the line of credit, Mr. Ardinger was issued 200,000
three-year warrants to purchase Company stock at $4.50 per share. The value of
the warrants of $1.33 per share, as determined using the Black-Sholes option
valuation model, is being charged to interest expense over the term of the note.

     At December 31, 1998, the Company had $96,285 of 15% notes outstanding to
its former Chief Executive Officer. The 15% notes were due on demand with
interest payable monthly and were retired in January of 1999.

     Other notes payable at December 31, 1997 and 1998 of $13,120 and 117,280,
respectively, are comprised of various capital leases for telephone and voice
mail equipment and have been classified as current due to their immateriality.

     Interest paid was $253,675 and $528,301 for the years ended December 31,
1997 and 1998, respectively.


8. LONG-TERM DEBT

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               -------------------------
                                                                  1997          1998
                                                               -----------   -----------
<S>                                                            <C>           <C>       
      Senior 8% convertible notes issued December 9, 
       1997 due December 2002 with interest payable
       semi-annually in arrears.                               $ 5,000,000   $ 1,360,000
                                                               ===========   ===========
</TABLE>


     In February 1997, $2,430,300 principal amount of then outstanding 8% senior
convertible notes together with accrued interest of $367,827 were exchanged for
608,283 shares of common stock and public warrants in the Company's initial
public offering. Additionally, in February 1997, the Company repaid $247,250
principal amount of 8% convertible debt together with accrued interest of
$118,726. Converting noteholders received 1,215,150 three-year warrants to
purchase Company stock at $3.00 per share while repayment noteholders received
82,418 three-year warrants to purchase Company stock at $3.00 per share.

     On December 9, 1997 the Company sold $5,000,000 aggregate principal amount
of 8% senior convertible notes due 2002 (the "Notes") at an initial offering
price of 100% of the principal amount thereof, less 8% gross commission. The
Notes are convertible to common stock of the Company at the initial conversion
price of $4.625 per share. The Notes rank senior to all existing and future
subordinated obligations and rank pari passu with all present and future senior
indebtedness of the Company, except to the extent of any collateral securing
such debt. Lead managers in connection with the Notes offering received 108,108
warrants to purchase Company stock at an exercise price of $4.625 per share. In
December 1997, the Company received net proceeds of $4,168,000 from the Notes
offering.


                                       27
<PAGE>   28

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     In August 1998, the Company exchanged $3,640,000 of its 8% senior
convertible notes for 364,000 shares of its newly created Series A convertible
preferred stock. The Series A preferred stock carries a dividend of 8.5% per
year payable in cash or common stock of the Company, at the Company's option,
and is convertible into Common Stock of the Company at a fixed conversion price
of $3.625 per share (subject to certain conditions).


9. INCOME TAXES

         The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
SFAS 109 requires a valuation allowance to be recorded when it is "more likely
than not that some portion or all of the deferred tax assets will not be
realized." In the opinion of management, realization of the Company's net
operating loss carryforward is not reasonably assured, and a valuation allowance
of $6,716,000 and $9,327,000 has been provided against deferred tax assets in
excess of deferred tax liabilities in the accompanying consolidated financial
statements at December 31, 1997 and 1998, respectively.


     The components of the Company's net deferred taxes are as follows:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                       -------------------------
                                                                          1997          1998
                                                                       -----------   -----------
<S>                                                                    <C>           <C>       
Deferred tax assets:
     Net operating loss carryforward                                   $ 6,357,000   $ 8,182,000
     Revenue deferred for financial statements, recognized
        for tax                                                                 --        38,000
     Excess of tax over financial statement basis of patent                 37,000        33,000
     Accruals deductible for tax purposes when paid                        241,000       606,000
     Excess of  tax over financial statement basis of software
        development costs                                                  130,000       532,000
                                                                       -----------   -----------
               Total deferred tax assets                                 6,765,000     9,391,000
Less: valuation allowance                                               (6,716,000)   (9,327,000)
                                                                       -----------   -----------
                                                                            49,000        64,000
Deferred tax liabilities:
    Excess of financial statement over tax basis of
      of property and equipment                                             49,000        64,000
                                                                       -----------   -----------
               Total deferred tax liabilities                               49,000        64,000
                                                                       ===========   ===========
Net deferred taxes                                                     $        --   $        --
                                                                       ===========   ===========
</TABLE>

     A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:



                                       28
<PAGE>   29

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)



<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                       -------------------------------
                                                                           1997              1998
                                                                       ------------       ------------
<S>                                                                    <C>                <C>          
     U.S. federal statutory rate applied to pretax loss                $ (1,981,000)      $ (3,185,000)

     Accrued compensation and other accruals                                 70,000             31,000
     Amortization of patent                                                  (4,000)            (4,000)
     Depreciation of property and equipment                                 (12,000)           (28,000)
     Software development costs for financial reporting
       purposes                                                             (43,000)           121,000
     Net operating loss carryforward not recognized for
       financial reporting purposes                                       1,966,000          2,573,000
     Inventory and doubtful account reserves                                (66,000)           326,000
     Non-deductible restructuring charges                                        --             44,000
     Non-deductible interest expense                                         58,000             99,000
     Other                                                                   12,000             23,000
                                                                       ============       ============
                                                                       $         --       $         --
                                                                       ============       ============
</TABLE>


     At December 31, 1998 the Company has federal income tax net operating loss
carryforwards of approximately $24,100,000 which expire as follows:


<TABLE>
<CAPTION>
                          YEAR
                          ENDED          AMOUNT
                          -----       -----------
                          <S>         <C>        
                           2009       $ 2,700,000
                           2010         4,700,000
                           2011         4,000,000
                           2012         5,200,000
                           2013         7,500,000
</TABLE>


     The Company is subject to limitations existing under Internal Revenue Code
Section 382 (Change of Control) relating to the availability of the operating
loss carryforward. Beginning with 1994, approximately $21,000,000 of the
carryforward is limited.

     No income taxes were paid during the years ended December 31, 1997 and
1998, respectively.


10. STOCKHOLDERS' EQUITY

PREFERRED STOCK

         In August 1998, the Company exchanged $3,640,000 of its 8% senior
convertible notes for 364,000 shares of its newly created Series A convertible
preferred stock. The Series A preferred stock carries a dividend of 8.5% per
year payable in cash or common stock of the Company, at the Company's option,
and is convertible into Common Stock of the Company at a fixed conversion price
of $3.625 per share (subject to certain conditions).



                                       29
<PAGE>   30

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     In December 1998, the Company began a private placement of 945,000 shares
of a newly created Series B convertible preferred stock at $10 per share. The
Series B preferred stock is convertible into common stock of the Company at a
fixed price of $3.625 per share, subject to certain requirements, and carries a
dividend of 8% per year payable in cash or common stock of the Company, at the
Company's option. In December 1998, the Company received a $4,000,000
subscription for the Series B preferred stock from H.T. Ardinger Jr., a
principal shareholder of the Company, of which $600,000 was paid in December
1998 and the balance of $3,400,000 was classified as a stock subscription
receivable at December 31, 1998 and paid January 27, 1999.

     Holders of the Series A and Series B preferred stock have no voting rights
except on amendments to the Company's Articles of Incorporation to change the
authorized shares, or par value, or to alter or change the powers or preferences
of their respective preferred stock issues. Additionally, the holders of Series
A preferred stock have Board of Director representation privileges in instances
of dividend default by the Company.

COMMON STOCK

     In February 1997, the Company completed an underwritten initial public
offering of 1,400,000 shares of its common stock and 1,400,000 redeemable common
stock purchase warrants (public warrants). The shares of common stock and the
public warrants were sold on the basis of one public warrant for each share of
common stock at a unit price to the public of $4.60, and were separately
transferable immediately upon issuance. Each public warrant entitles the holder
to purchase one share of common stock at $4.50 per share, subject to adjustment
under certain circumstances, at any time commencing six months from the date of
the Prospectus through and including five years from the date of the Prospectus.
The public warrants are redeemable by the Company at any time commencing twelve
months from the date of the Prospectus, upon notice of not less than thirty
days, at a price of $.10 per public warrant, provided that the closing price or
bid price of the common stock for any twenty trading days within a period of
thirty consecutive trading days ending on the fifth day prior to the day on
which the Company gives notice of redemption has been at least 150% (currently
$6.285, subject to adjustment) of the initial public offering price per share of
common stock. In March 1997, the Company issued 210,000 additional shares of
common stock and public warrants upon exercise of the underwriter's
over-allotment option. The Company received net proceeds of $5,427,000 during
February and March 1997 related to this sale. Additionally, in February of 1997,
$5,345,300 principal amount of convertible and bridge notes together with
accrued interest of $367,827 were converted into 1,241,977 shares of common
stock and public warrants in the offering.

     In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of common stock underlying private warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one (1) share of common stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three years from date of issuance. The
Company does not receive any of the proceeds of the sale of such shares of
common stock, but will receive proceeds of up to $7,529,719 from the exercise of
the private warrants, to the extent the warrants are exercised. In September and
October 1997, the Company received net proceeds of $1,676,533 upon the exercise
of 821,677 private warrants at prices ranging from $1.00 to $3.00 per share. As
an inducement for early exercise of the private warrants, exercising warrant
holders received 82,000 three-year warrants to purchase Company stock at $4.50
per share. In June and July of 1998, the Company received $1,804,996 in net
proceeds from the exercise of 633,332 warrants to purchase Company common stock
at $3.00 per share. As an incentive for early exercise, warrant holders were
issued 1,266,664 warrants to purchase Company stock at $4.50 per share. The
warrants will expire in February 2002 and have exercise price adjustment terms
identical to the public warrants issued in connection with Company's initial
public offering.

     In September 1998, holders of 30,000 shares of Series A preferred stock
converted their shares into 82,770 shares of common stock of the Company.


                                       30
<PAGE>   31

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     In June through December of 1998, the Company received $343,225 in proceeds
from the exercise of 343,225 warrants to purchase Company common stock at an
exercise price of $1.00 per share.

     During 1998, the Company received proceeds of $37,275 from the exercise of
66,817 stock options with exercise prices ranging from $.04 to $3.00 per share.


     In September 1998, the Company entered into a strategic business alliance
with Tadeo Holdings, Inc. ("THI"), whereby the Company acquired 1,240,310 shares
of THI common stock in exchange for 1,000,000 shares of the Company's common
stock. The number of Company shares exchanged was determined by dividing
$2,000,000 by the average closing price per share of the Company's common stock
for the five trading days prior to September 24, 1998 which was $2.00 per share
(see Note 5).

     In December 1998, the Company issued 56,145 shares of Company common stock
to Series A preferred shareholders of record on December 15, 1998 as payment of
$101,721 of 8.5% dividends accrued from August 17, 1998 through December 15,
1998. Series A preferred dividends are paid semi-annually on June 15th and
December 15th of each year in cash or, at the option of the Company, in common
stock. The common stock is valued at the average of the market prices for the 20
consecutive stock exchange business days ending ten stock exchange business days
prior to the dividend payment date. The computed common stock value at December
15, 1998 was $1.812 per share.

     During 1998 the Company issued 73,443 shares of common stock to various
consultants in exchange for financial services. The number of common shares
issued was determined by dividing the fair market value of services by an
average of the common stock market prices on the date of issuance. Total value
of the consulting services provided during 1998 amounted to $133,396 and prices
for common stock shares issued ranged from $1.77 to $2.81 per share.

     During 1998, the Company received $139,117 in proceeds from the sale of
73,787 shares of common stock to employees under the terms of the Company's
Employee Stock Purchase Plan. The employee purchase price for the offering
periods ended April 30, 1998 and October 31, 1998 were $2.62 and $1.50 per
share, respectively.

     In May 1998, shareholders of the Company approved a proposal to increase
the number of authorized shares of common stock of the Company from 20,000,000
shares to 30,000,000 shares.

STOCK OPTION PLANS

     In April 1995, the Company adopted its 1995 Stock Plan (the 1995 Stock
Option Plan) under which 2,000,000 shares of the Company's common stock are
reserved for issuance to officers, key employees and consultants of the Company.
The objectives of the stock plan are to attract and retain qualified personnel
for positions of substantial responsibility, and to provide additional
incentives to employees and consultants to promote the success of the Company's
business. Options granted under the plan may be incentive stock options or
non-qualified stock options. The plan is administered by the Board of Directors.
The options are granted at the discretion of the Board of Directors at an option
price per share not less than fair market value at the date of grant. In May
1998, shareholders of the Company approved a proposal to increase the number of
shares available for issuance under the 1995 Stock Plan from 2,000,000 shares to
3,900,000 shares.

     In April 1995, the Company also adopted the 1995 Director Option Plan under
which 250,000 shares of the Company's common stock are reserved for issuance to
outside directors of the Company. The objective of the director plan is to
attract and retain qualified personnel for service as outside directors of the
Company, and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary, and are issued at an option price per share not less than
fair market value at the date of grant.


                                       31
<PAGE>   32

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     Following is a summary of stock option activity from December 31, 1996
through December 31, 1998:

<TABLE>
<CAPTION>
                                                                          STOCK OPTIONS
                                                       -------------------------------------------------- 
                                                                                             WEIGHTED-
                                                                                              AVERAGE
                                                          NUMBER          PRICE PER        EXERCISE PRICE
                                                         OF SHARES          SHARE            PER SHARE
                                                       ------------      ------------     --------------- 
<S>                                                    <C>               <C>              <C>   
     Outstanding at December 31, 1996                     2,093,961      $.04 - 4.00          $ 2.81

     Granted                                                780,666      3.00 - 5.84            4.55
     Exercised                                                6,000             3.00            3.00
     Canceled/forfeited                                     130,817      2.20 - 4.63            3.42
                                                       ------------
     Outstanding at December 31, 1997                     2,737,810       .04 - 5.84            3.27

     Granted                                              1,638,009      2.06 - 4.09            2.69
     Exercised                                               66,817       .04 - 3.00             .56
     Canceled/forfeited                                     654,999      2.06 - 5.84            3.58
                                                       ------------

     Outstanding at December 31, 1998                     3,654,003      $.10 - 5.84          $ 3.00
                                                       ============
</TABLE>

     The weighted-average grant-date fair value of options granted was $2.23 and
$1.60 for the years ended December 31, 1997 and 1998, respectively.


     The following information applies to options outstanding at December 31,
1998:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
    ------------------------------------------------------  -------------------------
                                   WEIGHTED-
                                    AVERAGE     WEIGHTED-                   WEIGHTED-
       RANGE OF   OUTSTANDING AT   REMAINING     AVERAGE    EXERCISABLE AT   AVERAGE   
       EXERCISE    DECEMBER 31,   CONTRACTUAL   EXERCISE     DECEMBER 31,    EXERCISE     
        PRICES         1998          LIFE         PRICE         1998          PRICE
    ------------- --------------  -----------  -----------  --------------  ---------
    <S>           <C>             <C>          <C>          <C>             <C>      
    $ 0.01 - 1.00        103,670          4.8  $      0.13         101,337  $    0.13
      1.01 - 2.00             --           --           --              --         --
      2.01 - 3.00      2,292,168          6.2         2.64       1,616,600       2.69
      3.01 - 4.00        782,750          6.4         3.45         238,649       3.53
      4.01 - 5.00        386,832          7.2         4.45         157,579       4.44
      5.01 - 6.00         88,583          4.9         5.23          66,891       5.17
                  --------------  -----------  -----------  --------------  ---------
                       3,654,003          6.3  $      3.00       2,181,056  $    2.87
</TABLE>

     Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
For Stock Based Compensation, requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:


                                       32
<PAGE>   33

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<TABLE>
<CAPTION>
                                                        1997     1998
                                                       ------   ------
                <S>                                    <C>      <C>  
                Risk-free interest rate                   6%     5.35%
                Dividend yield                            0%        0%
                Volatility factor of the
                   market price of the
                   Company's common stock                40%       60%
                Expected life of the options
                   (years)                                6         6
</TABLE>


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimated, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. In addition, because SFAS 123 is applicable only to
options granted subsequent to December 31, 1994, the pro forma information
presented below is not necessarily indicative of the effects on reported net
income in future years.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Pro forma
information for the years ended December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                                1997            1998
                                            ------------   -------------
<S>                                         <C>            <C>           
        Pro forma net loss                  $ (6,212,743)  $ (10,741,022)
        Pro forma net loss per share:
         basic and diluted                  $       (.80)  $       (1.15)
</TABLE>



EMPLOYEE STOCK PURCHASE PLAN

     In May 1995, the Company established an Employee Stock Purchase Plan (ESPP)
to provide employees of the Company with an opportunity to purchase common stock
through payroll deductions. Under the ESPP, up to 250,000 shares of common stock
have been reserved for issuance, subject to certain antidilution adjustments.
The ESPP, by its terms, became effective at the time of the Company's IPO. The
ESPP is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Internal Revenue Code.

     Each offering period will be for a period of six months except the first
offering period under the ESPP was from October 1, 1997 through April 30, 1998.
The ESPP terminates in April, 2005. Eligible employees may participate in the
ESPP by authorizing payroll deductions during an offering period within a
percentage range determined by the Board of Directors. Initially, the amount of
authorized payroll deductions is not more than ten percent of an employee's cash
compensation during an offering period, but not more than $25,000 per year.
Amounts withheld from payroll are applied at the end of each offering period to
purchase shares of common stock. Participants may withdraw their contributions
at any time before stock is purchased, and in the event of withdrawal such
contributions will be returned to participants. The purchase price of the common
stock is equal to eighty-five percent (85%) of the lower of (i) the market price
of common stock immediately before the beginning of the applicable offering
period or (ii) the market price of common stock at the end of each offering
period. The Company will pay all expenses incurred in connection with the
implementation and administration of the ESPP.


                                       33
<PAGE>   34

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


WARRANTS

     The Company has issued private warrants to purchase common stock of the
Company in connection with the issuance and repayment of certain notes payable
(as described in Notes 7 and 8), as inducement for early exercise of private
warrants and as compensation for services rendered by various consultants.
Additionally, the Company has issued public warrants to purchase common stock of
the Company in connection with its initial public offering and concurrent debt
retirement and debt for equity exchange (as described in the Common Stock
section of Note 10).

     The following is a summary of warrant activity from December 31, 1996
through December 31, 1998:

<TABLE>
<CAPTION>
                                                                             WARRANTS
                                                        ----------------------------------------------------
                                                                                                WEIGHTED-
                                                                                                 AVERAGE
                                                         NUMBER OF          PRICE PER         EXERCISE PRICE
                                                          SHARES              SHARE              PER SHARE
                                                        ----------------------------------------------------
<S>                                                     <C>                <C>                  <C>   
     Outstanding at December 31, 1996                     1,524,005        $ 1.00 - 3.00        $       2.07

     Granted - non-public warrants                        1,717,676          3.00 - 4.63                3.24
     Granted  - public warrants                           2,851,977                 4.50                4.50
     Exercised                                              821,667          1.00 - 3.00                2.13
                                                        -----------     
     Outstanding at December 31, 1997                     5,271,991          1.00 - 4.63                3.76

     Granted - non-public warrants                        1,796,664          3.00 - 4.50                4.02
     Exercised                                              976,557          1.00 - 3.00                2.30
     Canceled                                                23,442          1.00 - 4.50                3.49
                                                        -----------     

     Outstanding at December 31, 1998                     6,068,656        $ 1.00 - 4.50        $       3.91
                                                        ===========
</TABLE>

     In addition, at December 31, 1998 the Company's IPO representative holds
warrants to purchase 140,000 units at $6.44 per unit, each unit consisting of
one share of common stock and one common stock purchase warrant exercisable at
$4.50 per share through February 2002.

     In October 1998, the Company reduced the exercise price of 2,851,977
redeemable common stock purchase warrants (public warrants) that were issued in
connection with the Company's initial public offering, from $4.50 per share to
$4.19 per share in accordance with certain provisions in the warrant agreement.
Concurrently, the exercise price of 1,266,664 private warrants that were issued
in connection with the early exercise of warrants was also lowered from $4.50 to
$4.19 per share.

     At December 31, 1998, 6,043,656 warrants at prices ranging from $1.00 to
$4.50 with a weighted-average exercise price of $3.91 were exercisable.


11. EMPLOYEE BENEFIT PLAN

     Effective March 1, 1997, the Company adopted a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code whereby participants may elect to
contribute up to twenty percent (20%) of their compensation subject to statutory
limitations. The plan provides for discretionary matching and profit sharing
contributions by the Company. All full-time employees are eligible to
participate in the plan provided they meet a minimum service requirement of six
consecutive months and a minimum age requirement of twenty-one. For the years
ended December 31, 1997 and 1998, the Company made no matching or profit sharing
contributions.


                                       34
<PAGE>   35

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


12. COMMITMENTS AND CONTINGENCIES

     The Company leases various office and manufacturing space under
non-cancelable operating leases extending through 2003. The Company also leases
certain office and computer equipment under non-cancelable operating leases.
Future minimum operating lease payments with initial or remaining terms of one
year or more are as follows:


<TABLE>
<CAPTION>
                                                      OPERATING
                                                       LEASES
                                                      ---------
                      <S>                             <C>
                      Year ended December 31:
                         1999                         $ 445,587
                         2000                           191,854
                         2001                           149,890
                         2002                           134,529
                         2003                            12,211
                         Thereafter                           -
                                                      =========
                      Total minimum lease payments    $ 934,071
                                                      =========
</TABLE>


     Rent expense was $261,400 and $545,174 for the years ended December 31,
1997 and 1998, respectively.


13. RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENTS

         During January and February of 1997, the Company issued $600,000 of 8%
unsecured notes to two principal stockholders of the Company. The notes were due
on demand 10 days subsequent to an initial public offering of the Company's
equity securities or 180 days from date of issue. During February of 1997 these
notes were converted into common stock and public warrants in the Company's
initial public offering as described in Note 7.

         During February 1997, $1,915,000 principal amount of 8% unsecured
bridge notes and $1,000,000 principal amount of 8% secured convertible notes
owing to four principal stockholders of the Company were converted into 633,694
shares of common stock and public warrants in the Company's initial public
offering at $4.60 per share. Additionally, during February 1997, the Company
paid accrued interest of $76,634 to the stockholders.

         During February 1997, $1,905,000 principal amount of 8% convertible
debt and accrued interest of $282,992 owing to four principal stockholders, its
Chief Executive Officer and the spouse of another principal stockholder and
former director, were converted into 475,647 shares of common stock and public
warrants in the Company's initial public offering at $4.60 per share.

         During 1997, the Company repaid $235,000 principal amount of 15% debt
to its Chief Executive Officer together with accrued of $53,568. During 1998,
the Company repaid $214,958 principal amount of 15% debt together with accrued
interest of $27,036. In January 1999, the principal balance in the amount of
$96,285 was retired together with accrued interest of $719.


                                       35
<PAGE>   36

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


     In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of common stock underlying private warrants (see Note 9),
some of which are held by affiliates of the Company. In September and October of
1997, the Company received gross proceeds of $1,700,000 upon exercise of 805,000
private warrants from three principal stockholders of the Company and the spouse
of a principal stockholder. As an incentive for early exercise of the warrants,
the stockholders were issued 82,000 three-year private warrants to purchase
Company stock at $4.50 per share.

     During 1997 and 1998, the Company paid consulting fees to its Chairman in
the amount of $56,000 and $48,000, respectively.

     In June and July of 1998, the Company received $1,849,998 in gross proceeds
from the exercise of 616,666 warrants to purchase Company common stock at $3.00
per share from three principal shareholders. As an incentive for early exercise,
shareholders were issued 1,233,332 warrants to purchase Company stock at $4.50
per share. The warrants will expire in February 2002 and have exercise price
adjustment terms identical to the public warrants issued in connection with
Company's initial public offering.

     In November 1998, the Company entered into a working capital line of credit
facility for up to $9 million with one of its principal shareholders. This one
year, renewable facility, bears interest at 12% per annum and is secured by all
assets of the Company (See Note 6). At December 31, 1998 the outstanding
principal balance of the note was $3,687,513 and accrued interest thereon was
$77,692.

     In December 1998 through February 1999, the Company received $9.45 million
in gross proceeds from the sale of 945,000 shares of a newly created Series B
convertible preferred stock at $10 per share. Two principal shareholders of the
Company purchased $4,000,000 each and other existing shareholders purchased the
balance of $1.45 million. The Series B preferred stock is convertible into
common stock of the Company at a fixed price of $3.625 per share, subject to
certain requirements, and carries a dividend of 8% per year payable in cash or
common stock of the Company, at the Company's option.


Item 8. Changes and Disagreements with Accountants on Accounting and Financial
        Disclosure

     There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.


                                       36
<PAGE>   37


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
        with Section 16 (a) of the Exchange Act.

     The information required by this item is incorporated by reference to
     disclosure in the Company's Proxy Statement to be filed with the Securities
     and Exchange Commission pursuant to Regulation 14A within 120 days after
     the end of the fiscal year covered by this report ("Proxy Statement").

Item 10. Executive Compensation

     The information required by this item is incorporated by reference to Proxy
Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The information required by this item is incorporated by reference to
the Proxy Statement.

Item 12. Certain Relationship and Related Transactions

         The information required by this item is incorporated by reference to
the Proxy Statement.

Item 13. Exhibits and Report on Form 8-K

         a.) Exhibits
             See Exhibit index.

         b.) Reports on Form 8-K

               On November 30, 1998, the Company filed a Form 8-K describing
               the terms of a $9,000,000 working capital credit facility payable
               to a principal shareholder of the Company and the consummation of
               a strategic business alliance with Tadeo Holdings, Inc. that
               included a stock purchase of 1,240,310 shares of Tadeo Holdings,
               Inc. common stock in exchange for common stock of the Company.



                                       37
<PAGE>   38




                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



     Date                          MultiMedia Access Corporation

   March 23, 1999                     By:  /s/ William S. Leftwich
                                           -----------------------
                                            William S. Leftwich
                                             Chief Financial Officer and
                                             Secretary


     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.




         Date                      MultiMedia Access Corporation


    March 23, 1999                     By:  /s/ William D. Jobe
                                            -------------------
                                            William D. Jobe
                                             Director, Chairman of the Board and
                                             Chief Executive Officer


     Date                          MultiMedia Access Corporation

   March 23, 1999                     By:  /s/ William S. Leftwich
                                           -----------------------
                                            William S. Leftwich
                                             Chief Financial Officer and
                                             Secretary


   March 23, 1999                     By:  /s/ William E. Johnson
                                           ----------------------
                                            William E. Johnson
                                             Director


   March 23, 1999                     By:  /s/ Joseph W. Autem
                                           -------------------
                                           Joseph W. Autem
                                            Director


   March 23, 1999                     By:  /s/ Glenn A. Norem
                                           ------------------
                                            Glenn A. Norem
                                             Director


                                       38
<PAGE>   39



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                                           SEQUENTIAL
PAGE NO.                            DESCRIPTION OF EXHIBIT                                         PAGE NO.
------------------------------------------------------------------------------------------------------------
<S>        <C>                                                                                    <C>
2          Agreement and Plan of Merger and Reorganization (1)
3(a)       Certificate of Incorporation (1)
3(b)       Amendment to Certificate of Incorporation (1)
3(c)       Restated By-Laws (1)
3(d)       Certificate of Designations of Series B Convertible Preferred Stock (1)
4(a)       Form of Common Stock Certificate (1)
4(b)       Form of Warrant Certificate (1)
4(c)       Form of Warrant Agreement between the Company and Continental Stock Transfer &
           Trust Company (1)
4(d)       Form of Representative's Warrant Agreement (1)
4(e)       Form of Trust Indenture - $5,000,000  8% Senior Convertible Notes Due 2002 (1)
4(f)       Form of Lead Managers Warrant Agreement (1)
9(a)       Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown (1)
9(b)       Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi (1)
9(c)       Form of Lock-Up Agreement (1)
9(d)       Lock-Up Agreement with Robert Sterling Trust (1)
9(e)       Lock-Up Agreement with Robert Bernardi Trust (1)
9(f)       Lock-Up Agreement with Michael Nissenbaum (1)
10(a)      Modified Employment Agreement between the Company and Glenn A. Norem (1)
10(b)      Modified Consulting Agreement between the Company and Sterling Capital Group Inc. (1)
10(c)      Form of Indemnification Agreement between the Company and Executive Officers and Directors (1)
10(d)      1995 Stock Option Plan (1)
10(e)      1994 Stock Option Plan (1)
10(f)      1993 Viewpoint Stock Plan (1)
l0(g)      1995 Director Option Plan (1)
10(h)      Lease Agreement between the Company and Metro Squared, L P (1)
10(i)      Employee Stock Purchase Plan (1)
l0(j)      Licensing Agreement between the Company and Boca Research, Inc. (1)
10(k)      Agreement between the Company and Unisys(TM)(1)
10(l)      Employment Agreement between the Company and Philip M. Colquhoun (1)
10(m)      Employment Agreement between the Company and William S. Leftwich (1)
10(n)      Employment Agreement between the Company and David T. Stoner (1)
10(o)      Employment Agreement between the Company and Neal Page (1)
10(p)      Employment Agreement between the Company and A. David Boomstein (1)
10(r)      Lease between the Company and Burlingame Home Office, Inc. (1)
10(s)      Lease between the Company and Family Funds Partnership (1)
10(t)      Agreement between the Company and Catalyst Financial Corporation (1)
10(u)      Promissory Note by the Company payable to Robert Rubin dated September 5, 1996. (1)
10(v)      Promissory Note by the Company payable to M. Douglas Adkins dated November 15, 1996. (1)
10(w       Promissory Note by the Company payable to H.T. Ardinger dated November 15, 1996. (1)
10(x)      Promissory Note by the Company payable to H.T. Ardinger dated January 15, 1997. (1)
10(y)      Promissory Note by the Company payable to Adkins Family Partnership, Ltd. dated January 15,
           1997. (1)
10(z)      Lease between the Company and the Air Force Association. (1)
10(aa)     Lease between the Company and Airport Boulevard Partners, LLC. (1)
10(bb)     Stock Purchase Agreement between the Company and Tadeo Holdings, Inc.
10(cc)     Working Capital Line of Credit Loan Agreement by the Company payable to the Ardinger Family
           Partnership, Ltd.
21         List of Subsidiaries of the Company (1)
23         Consent of Ernst & Young LLP
27         Financial Data Schedule
</TABLE>

(1)  Incorporated by reference to the Registration Statement on Form SB-2 and
     all amendments thereto as declared effective on February 4, 1997 and to
     Forms 10-KSB and Form 8-K filed March 31,1998 and November 30, 1998,
     respectively.



                                       39