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, 1997
                     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:   $3,360,703

As of March 20, 1998,  8,733,958  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 20, 1998 - $15,468,796.  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>



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

ITEM NO.                                                                                            PAGE
--------                                                                                            ----
                  Glossary                                                                              3

                                     PART I

     <S>                                                                                         <C>
     1.           Description of Business                                                         4  - 10

     2.           Description of Property                                                              11

     3.           Legal Proceedings                                                                    11

     4.           Submission of Matters to a Vote of Security Holders                                  11

                                     PART II

     5.           Market for Registrant's Common Equity and Related Stockholder Matters                12

     6.           Management's Discussion and Analysis of Financial Condition and Results
                  of Operations                                                                    12 -14

     7.           Consolidated Financial Statements                                               15 - 35

     8.           Changes in and Disagreements with Accountants on Accounting and Financial
                   Disclosure                                                                          35

                                    PART III

     9.           Directors, Executive Officers, Promoters and Control Persons; Compliance

                  with Section 16(a) of the Exchange Act                                               36

     10.          Executive Compensation                                                               36

     11.          Security Ownership of Certain Beneficial Owners and Management                       36

     12.          Certain Relationships and Related Transactions                                       36

     13.          Exhibits List and Reports on Form 8-K                                                38
</TABLE>


                                       2

<PAGE>


                                    GLOSSARY

Algorithm:          A step-by-step problem solving procedure.

Bandwidth:          The amount of information that can be transmitted  across an
                    information channel.

Intranet:           A private Internet.

ISDN:               (Integrated  Services  Digital  Network) - a digital network
                    that provides  seamless  communication  of voice,  video and
                    text between desktop and group systems.  ISDN is expected to
                    replace current telephone lines.

LAN:                (Local Area Network) - a private computer network connecting
                    computers  in the same  building  or  campus  using  coaxial
                    cable, twisted pair or multimode fiber.

Multimedia:         A combination of multiple digitized data types: text, sound,
                    computer-generated graphics and animations,  photographs and
                    video.

PCI Bus:            A fast 32 bit PC bus for peripherals.

Protocol:           A set of rules for data  communications;  a set of rules and
                    procedures for  establishing and controlling the exchange of
                    data between computers.

S Bus:              A proprietary high speed interface for Sun workstations.

Standards-based:    A  product  which  is  designed  to  comply  with  standards
                    promulgated by a recognized industry organization.

Switched  
    Architecture:   Any network or device in which  switching  is present and is
                    used to direct  messages  from the  sender  to the  ultimate
                    recipient.

UTP:                (Unshielded   Twisted  Pair)  -  standard   building  wiring
                    currently  used  to  transmit  voice  (telephone)  and  data
                    throughout an office or building.

WAN:                (Wide  Area  Network)  -  a  computer   network  covering  a
                    geographic  area  larger  than a campus,  generally  linking
                    multiple LANs.

World Wide Web:     A very large  collection of linked Internet  servers using a
                    standard linking and display language.


                                       3

<PAGE>

                                     PART I

Item 1.  Description of Business

GENERAL

   
     MultiMedia   designs,   develops,   manufactures   and   markets   advanced
standards-based  videocom  systems that provide  enterprise-wide  solutions  for
business  customers.  The Company's VBX video distribution and switching system,
Osprey(R)  video and  peripheral  products  and  ViewCast(R)  web-video  systems
deliver videocom applications, including videoconferencing,  video broadcasting,
video-based training, distance learning, telemedicine, surveillance and Internet
and intranet video communications.
    

     The Company's VBX system allows  customers to quickly and cost  effectively
obtain  videocom  capabilities  by creating a videocom  network through the same
wiring used by their existing telephone system.

   
     The Company's products and systems are marketed, installed and supported by
resellers,  system integrators,  OEMs and custom application developers. 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  the   convergence  of  multimedia  PCs,  the
establishment of new  standards-based  audio and video  technologies,  increased
utilization of the Internet and corporate  intranets,  combined with lower price
levels  for such  capabilities,  will  generate  a rapid  adoption  of  videocom
products and services.

BUSINESS STRATEGY

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

o    Provide Enterprise-Wide Video Communication Systems and Applications.

     The Company's strategy is to offer turn-key videocom systems, including the
individual  components  and  applications,  which  appeal to  customers  who are
looking  for a complete  solution to their  videocom  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.

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  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 videocom 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.

                                       4

<PAGE>
o     Develop Brand-Name Recognition.

     The  Company's  strategy  is to  develop  a strong  brand  identity  in the
videocom  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 acquire  companies
with  complementary  technologies,  products or customers and to integrate those
entities into the Company's operations. In addition, the Company seeks strategic
alliances  and joint  marketing  relationships.  The Company  believes  that the
videocom  industry is highly  fragmented and that this  environment  provides an
excellent opportunity to expand its business through acquisitions and alliances.

INDUSTRY BACKGROUND

     Videoconferencing was introduced in the late 1970s with the introduction of
video  tele-conferencing room systems.  Classic video  tele-conferencing room or
group systems permit  communication  only between compatible  facilities.  These
systems  currently  cost between  $10,000 and $100,000 and are typically used by
large businesses  primarily for  intra-company  communication  between different
locations.  The Company  believes that the high cost of video  tele-conferencing
room systems and the  logistical  problem of scheduling  and  availability  have
limited their use.

     Over the past decade, videoconferencing has begun to evolve from high-cost,
stand-alone   boardroom   systems  to  desktop   systems.   The  Company  offers
cost-effective video systems capable of providing  commercial-quality  video for
desktop video communications.  The Company believes its systems meet the growing
demand for business video applications at the desktop.

         To transmit  live video images  (which may contain over 90 million bits
per  second  of data)  over  communications  networks,  the  video  data must be
digitized and significantly compressed to fit the capacity of these networks (as
low as 28,800 bits per second).  Generally,  as video is  compressed,  redundant
data is eliminated.  After  transmission,  the video image is reconstructed  for
display at the receiving end.

     The  quality  of  the  reconstructed   image  is  a  function  of  (i)  the
sophistication of the video and audio compression algorithms, (ii) the amount of
real-time  data which can be transmitted  over networks,  (iii) the power of the
video  and  audio  Codec  hardware,  and (iv)  the  speed  and  power of PCs and
workstations.  The Company believes  cost-effective  videoconferencing and other
videocom  applications  services are now attainable  because the performance and
capabilities of these four key elements have recently improved significantly.

     According  to  industry  sources,  the market  for  videocom  products  and
services is forecast to be $3.6 billion by 1999 with the desktop segment of that
industry  forecast to exceed $1.2 billion by 1999.  The PC dominates the desktop
computing  market  with 1995 sales of over 57  million  units  worldwide  and an
estimated 100 million new PCs projected to be sold annually by 1999. The Company
believes it has developed  products which position it to benefit from the growth
of these  markets and which will have  functions,  performance  and  competitive
prices  to  compete   successfully   in  the   rapidly-emerging   desktop  video
communications industry.

PRODUCT FAMILY

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

                                       5

<PAGE>


     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 videocom  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 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.

     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 the 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 VBX as a shared Codec
server to enable  VBX  users to video  communicate  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(TM) video applications  software.  SLIC-Video(R) is a
video  capture  product  that  enables  Sun  S-bus  workstation  users  to  view

                                       6

<PAGE>


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  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(TM) product provides affordable,  consumer-quality video communications
capabilities over standard  telephone lines with 28.8 Kbps modems.  Typical 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.

     Internet Video. The Company designs, manufactures and markets several video
products  which  capitalize on the growth of the Internet and the Web.  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)  Web-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. (formerly Progressive Networks, 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 and other live
events from their respective Web sites through  Microsoft and Netscape  Internet
browsers.

APPLICATIONS

     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.

     Internet   Applications   --Videocom  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 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
products work 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.

                                       7
<PAGE>


     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 47
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.

     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.

     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.

     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.

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

                                       8
<PAGE>


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 videocom  applications.  The Company's recent
development  efforts  have been  devoted to the design  and  development  of its
products and software applications, including the VBX, the VBX Codec server, the
WorkFone(TM),  the Osprey(R)  line of Codecs and the  applications  software for
these systems.

     Total research and development  expense for 1996 and 1997 was approximately
$2.0 million and $2.7 million, respectively.

COMPETITION

         The market for videocom 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. In addition,  the Company is aware of others that are developing,  and
in some cases have  introduced,  new  videocom  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

                                       9
<PAGE>



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(TM)  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 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,  1997,  the  Company  had  fifty-five  (55)  full-time
employees, four (4) of whom are in executive positions,  twenty-six (26) of whom
are engaged in engineering,  research and development, thirteen (13) of whom are
engaged  in  marketing  and sales  activities,  five (5) of whom are  engaged in
operations  and seven (7) 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.

                                       10

<PAGE>



Item 2.  Description of Property

     The  Company's   executive  offices  and  some  of  its  sales  design  and
development activities are located in approximately 16,159 square feet of leased
space in Dallas,  Texas. The lease expires in September of 1998 and provides for
a base annual rent of $143,110. The Company's assembly operations are located in
approximately  4,065  square feet of leased  space in Dallas,  Texas.  The lease
expires in January 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 sales  offices  in  Arlington,  Virginia,  Burlingame,
California,  Atlanta,  Georgia and London,  England  consisting of approximately
613, 150, 150, and 375 square feet of leased space,  respectively.  These leases
expire in May 2000, month to month, January 1999 and February 1999 respectively,
and  provide  for base annual  costs of  $11,034,  $11,400,  $10,740 and $47,880
respectively.  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


                                       11

<PAGE>


                                     PART II

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

         The  Company's  Common  Stock is traded on the Nasdaq  under the symbol
"MMAC." The Public  Warrants are traded on the Nasdaq under the symbol  "MMACW."
As of  December  31,  1997,  there  were  8,733,958  shares of Common  Stock and
2,851,977  Public Warrants  outstanding.  The shares of Common Stock are held by
approximately 828 beneficial  holders and the Public Warrants are held of record
by  approximately  18 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.  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>

         On March 20, 1998,  the last reported sales prices for the Common Stock
and the  Public  Warrants  as  reported  on the Nasdaq  were  $3.50 and  $1.125,
respectively.

         The Company  declared no cash  dividends  in 1996 or 1997.  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.

     The  company  has  received a letter  from the Nasdaq  Stock  Market,  Inc.
notifying  the Company  that it is not in  compliance  with the new net tangible
assets/  market   capitalization/  net  income  requirements  pursuant  to  NASD
Marketplace  Rule  4310(c)(2)  which became  effective on February 23, 1998. The
Company has  requested a temporary  exception  to the new  requirements  and has
submitted  written  materials  supporting  its  position to Nasdaq.  The Company
expects to receive a response to its request  for a temporary  exemption  by the
end of April  1998.  In the event that the  Company's  request  is  denied,  the
Company  may request an  additional  oral or written  hearing  before the Nasdaq
Listing  Qualifications  Panel pursuant to NASD Marketplace Rule 4800 Series. In
the event  that the  Company  is not  granted an  exemption  to the new  listing
requirements  and does not regain  compliance,  the Company faces delisting from
the Nasdaq  SmallCap  Market.  The Company is currently  evaluating a variety of
alternatives  which would bring the Company into compliance with the new listing
criteria and will vigorously pursue all procedures available to it.

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

GENERAL

     MultiMedia  develops and markets  advanced  videocom  systems.  The Company
delivers   high-performance   cost-effective   products  that  integrate   video
capabilities  into  existing  desktop  computers,   applications  and  networks,
delivering   standards-based   video   solutions  to  the  PC  and   workstation
marketplace.

RESULTS OF OPERATIONS

Twelve Months Ended  December 31, 1997 compared to Twelve Months 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 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

                                       12
<PAGE>


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.
The Company  introduced a new product  family  during the third quarter of 1997,
the ViewCast(R) line of Web-video servers,  that is expected to begin generating
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  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 has endeavored to build an effective  marketing
and sales organization,  develop a network of independent  resellers and achieve
market  acceptance  of its  products  at prices and volumes  which will,  in the
future, result in profitable operations.  However, the Company expects operating
losses  to  continue  until  such  time as gross  margins  from the sales of its
products exceed its development, selling, administrative and financing costs.

     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. Through December 31, 1997, 821,667 of the Private Warrants
had been  exercised,  resulting  in net  proceeds to the Company of  $1,676,533.
These proceeds and any additional  proceeds will be used for working capital and
general corporate purposes and possible future acquisitions.

     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

                                       13
<PAGE>


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.
At December  31,  1997,  the Company  also had  outstanding  $324,363 of secured
senior  indebtedness,  most of  which  is due and  payable  in  early  1998 to a
principal stockholder and officer of the Company.

          Until the  completion of its IPO on February 7, 1997,  the Company was
dependent  upon  loans  from  its  principal  stockholders,  as well as  private
placements  of its debt and equity  securities,  to finance its working  capital
requirements.  It is believed that the anticipated proceeds from the exercise of
Private Warrants and Public Warrants,  the remaining net proceeds from the Notes
and the  anticipated  proceeds from an offering of convertible  preferred  stock
that is currently  contemplated will be sufficient to fund the operations of the
Company  through at least the end of 1998. In the event that the Company's plans
change or its  assumptions  change or prove to be  inaccurate  or such  proceeds
prove to be insufficient to fund  operations (due to  unanticipated  expenses or
difficulties  or  otherwise),  the Company  may be  required to seek  additional
financing sooner than currently  anticipated or could be required to curtail its
activities.  As a result of the  above,  the  Company's  auditors  have found it
necessary  to include a going  concern  emphasis in their  opinion.  The Company
believes that it will be able to raise sufficient  capital to fund its growth at
least through the end of 1998.

     The Company has had preliminary  discussions with several potential sources
of additional financing, and may seek additional financing to provide additional
working capital in the future. Such financing may include loans, lines of credit
and/or secured capital financing  through the issuance of convertible  preferred
stock or  other  equity  securities  and  could  include  factoring  agreements.
Although  the  Company  has no current  firm  arrangements  with  respect to any
additional  financing,  it is currently considering various proposals by several
potential  investors relating to the issuance of convertible  preferred stock or
other equity in exchange for a cash  investment  in the Company.  The Company is
also  considering  obtaining  a revolving  line of credit  which would rank pari
passu with the Notes, except to the extent of the collateral securing such debt.
There can be no assurance that any such  additional  financing will be available
to the Company on acceptable  terms,  or at all.  Additional  equity  financing,
including the issuance of convertible  preferred stock, may involve  substantial
dilution to the Company's  then existing  stockholders  and holders of the Notes
(assuming conversion thereof).

     At December 31, 1997, the Company had working capital of $4,547,850 and did
not have any material commitments for capital expenditures.

YEAR 2000 COMPLIANCE

     The Company is currently assessing the potential impact of the year 2000 on
the  processing of  date-sensitive  information  by the  Company's  computerized
information  systems and on products  sold as well as products  purchased by the
Company. The Company believes that its internal information systems and products
are  either  year 2000  compliant  or will be so prior to the year 2000  without
incurring  material  costs.  The  Company  is  also  assessing  whether  its key
suppliers are adequately addressing this issue and the effect this might have on
the Company.  The Company has not completed its analysis and,  therefore,  there
can be no assurance that the Company will not be adversely  impacted by the year
2000 problem as it relates to products purchased from key suppliers.


                                       14

<PAGE>



Item 7. Financial Statements

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent
  Auditors....................................................................16

Consolidated Balance Sheets at December 31, 1996 and 1997.....................17

Consolidated Statements of Operations for the years ended
  December 31, 1996 and 1997..................................................18

Consolidated Statements of Stockholders' Equity (Deficit) for
  the years ended December 31, 1996 and 1997 .................................19

Consolidated Statements of Cash Flows for the years ended
  December 31, 1996 and 1997 .................................................20

Notes to Consolidated Financial Statements....................................21


                                       15


<PAGE>

                         Report of Independent Auditors

The Board of Directors
MultiMedia Access Corporation

We have  audited the  accompanying  consolidated  balance  sheets of  MultiMedia
Access  Corporation  and  subsidiaries as of December 31, 1996 and 1997, and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and cash flows for the years then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
MultiMedia  Access  Corporation and  subsidiaries at December 31, 1996 and 1997,
and the consolidated  results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the  Company  will  continue  as a going  concern  which  contemplates  the
realization  of assets and  liquidation  of  liabilities in the normal course of
business.  As more fully  described in Note 1, the Company is dependent upon the
proceeds from  additional  sales of its equity  securities or other  alternative
financing,  has  incurred  recurring  losses  from  operations  and  anticipates
negative  cash  flow  from  operations   during  1998.  These  conditions  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The consolidated  financial statements do not include any adjustments to reflect
the possible future effects on the  recoverability  and classification of assets
or the  amounts  and  classification  of  liabilities  that may result  from the
outcome of this uncertainty.

                                               ERNST & YOUNG LLP
Dallas, Texas  
March 6, 1998



                                       16

<PAGE>


                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                           -----------------------------------------
                                                                                  1996                  1997
                                                                           -------------------   -------------------
                               ASSETS

Current assets:
<S>                                                                                  <C>                 <C>
  Cash and cash equivalents                                                       $    18,539          $  3,117,202
   Accounts receivable, less allowance for  doubtful accounts of
    $43,000 and $65,000 at December 31, 1996 and 1997, respectively                   185,564             1,195,230
  Inventory                                                                           310,133             1,762,186
  Prepaid expenses                                                                     46,239                75,096
  Deferred charges                                                                    504,295               191,287
                                                                           -------------------   -------------------
      Total current assets                                                          1,064,770             6,341,001

Property and equipment, net                                                           460,895               877,440
Software development costs, net                                                       147,321               203,858
Deferred charges                                                                            -               752,125
Deposits                                                                               18,272                36,991
                                                                           -------------------   -------------------
      Total assets                                                                 $ 1,691,258         $  8,211,415
                                                                           ===================   ===================
           LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                                                 $   682,689              759,319 
  Accrued compensation                                                                 239,707              313,634 
  Deferred revenue                                                                      15,591               52,784 
  Other accrued liabilities                                                            857,260              343,051 
  Short-term debt, officer                                                             533,089              311,243 
  Short-term debt, other                                                             1,966,202               13,120 
  Current portion of long-term debt                                                  3,177,550                    - 
                                                                           -------------------   ------------------
      Total current liabilities                                                      7,472,088            1,793,151 

Long-term debt                                                                               -            5,000,000

Commitments

Stockholders' equity (deficit):
  Preferred stock, $.0001 par value:
    Authorized shares - 5,000,000
    Issued shares - none
   Common stock, $.0001 par value:
    Authorized shares - 20,000,000                                                           -                    -
    Issued and outstanding shares -  5,315,811 and 8,995,455 
      at December 31, 1996 and 1997, respectively                                          532                   900
  Additional paid-in capital                                                         6,602,572            19,628,703
  Accumulated deficit                                                              (12,372,028)          (18,199,433)
  Treasury stock,  261,497 shares at December 31, 1996 and 1997                        (11,906)              (11,906)
                                                                           -------------------   -------------------
      Total stockholders' equity (deficit)                                          (5,780,830)            1,418,264
                                                                           -------------------   -------------------
      Total liabilities and stockholders' equity (deficit)                         $ 1,691,258          $  8,211,415
                                                                           ===================   ===================

</TABLE>

                            See accompanying notes.

                                       17
<PAGE>

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------
                                                                                   1996                   1997
                                                                          ------------------     -----------------
<S>                                                                         <C>                          <C>      
NET SALES                                                                   $     1,095,012        $     3,360,703
Cost of goods sold                                                                  393,918              1,695,922
                                                                          ------------------     -----------------
GROSS PROFIT                                                                        701,094              1,664,781

Operating expenses:
  Selling, general and administrative                                             2,378,653             4,243,485
  Research and development                                                        1,997,146             2,740,857
  Depreciation and amortization                                                     206,041               309,458
                                                                          ------------------     -----------------
      Total operating expenses                                                    4,581,840             7,293,800
                                                                          ------------------     -----------------
OPERATING LOSS                                                                   (3,880,746)           (5,629,019)

Other income (expense):
  Dividend and interest income                                                           36                63,613
  Interest expense                                                                 (513,979)             (290,492)
  Other                                                                                 724                28,493
                                                                          ------------------     -----------------
      Total other income (expense)                                                 (513,219)             (198,386)
                                                                          ------------------     -----------------
NET LOSS                                                                    $    (4,393,965)       $   (5,827,405)
                                                                          ==================     =================
NET LOSS PER SHARE: BASIC AND DILUTED                                       $         (0.91)       $        (0.75)
                                                                          ==================     =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING                                                                    4,844,706             7,806,378
                                                                          ==================     =================
</TABLE>


                             See accompanying notes.

                                       18

<PAGE>

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
                                                                           ADDITIONAL                                       
                                                  COMMON STOCK               PAID-IN         ACCUMULATED        TREASURY    
                                              SHARES       PAR VALUE         CAPITAL           DEFICIT           STOCK      
                                          --------------- ------------- ------------------ ----------------- ---------------
<S>                                            <C>         <C>                  <C>         <C>               <C>           
BALANCE,  DECEMBER 31, 1995                    4,721,268   $    472             4,736,933   $   (7,978,063)   $    (11,906) 

  Exchange of short-term debt for
    common stock                                 221,195         22               571,167                -               -  

  Sale of common stock,  net of
    of expenses                                  304,016         31               896,481                -               -  

  Exchange of trade payables for
    common stock                                  69,332          7               207,991                -               -  

  Fair market value of warrants
     issued for consulting services
     and inducement of debt                            -          -               190,000                -               -  

  Net loss                                             -          -                     -       (4,393,965)              -  
                                          --------------- ------------- ------------------ ----------------- ---------------
BALANCE,  DECEMBER 31, 1996                    5,315,811        532             6,602,572       12,372,028)        (11,906) 
  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                 -              -  

  Fair market value of warrants issued
    for inducement of debt                             -         -                191,500                 -              -  

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

  Net loss                                             -          -                     -        (5,827,405)             -  
                                          --------------- ------------- ------------------ ----------------- ---------------
BALANCE,  DECEMBER 31, 1997                    8,995,455   $    900        $   19,628,703     $ (18,199,433)   $    (11,906)
                                          =============== ============= ================== ================= ===============

<CAPTION>
                                                TOTAL
                                            STOCKHOLDERS'
                                           EQUITY (DEFICIT)
                                          -------------------
<S>                                        <C>           
BALANCE,  DECEMBER 31, 1995                $  (3,252,564)

  Exchange of short-term debt for
    common stock                                 571,189

  Sale of common stock,  net of
    of expenses                                  896,512

  Exchange of trade payables for
    common stock                                 207,998

  Fair market value of warrants
     issued for consulting services
     and inducement of debt                      190,000

  Net loss                                    (4,393,965)
                                          ----------------
BALANCE,  DECEMBER 31, 1996                   (5,780,830)
  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

  Fair market value of warrants issued
    for inducement of debt                       191,500

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

  Net loss                                    (5,827,405)
                                          -------------------
BALANCE,  DECEMBER 31, 1997                $   1,418,264 
                                          ===================

</TABLE>

                             See accompanying notes.

                                       19
<PAGE>

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                          ------------------------------------------
                                                                                 1996                   1997
                                                                          -------------------     ------------------
<S>                                                                          <C>                    <C>         
OPERATING ACTIVITIES:
  Net loss                                                                   $(4,393,965)           $(5,827,405)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
      Depreciation of fixed assets                                               155,233                229,659
      Amortization of software development                                        50,809                 79,799
      Non-cash charges to interest expense                                       165,001                168,691
      Changes in operating assets and liabilities:
        Accounts receivable                                                     (181,000)            (1,009,666)
        Inventory                                                               (112,664)            (1,452,053)
        Prepaid expenses                                                         (27,268)               (28,857)
        Due from debt holder                                                     315,300                      -
        Deferred charges                                                        (527,531)              (416,308)
        Deposits                                                                     (75)               (18,719)
        Accounts payable                                                         310,527                 76,630
        Accrued compensation                                                      13,220                 73,927
        Deferred revenue                                                         (59,922)                37,193
        Other accrued liabilities                                                541,605               (133,228)
                                                                          ---------------     ------------------
               Net cash used in operating activities                          (3,750,730)            (8,220,337)
                                                                          ---------------     -----------------

INVESTING ACTIVITIES:
  Purchase of property and equipment, net                                       (133,597)              (649,938)
  Software development costs                                                     (54,335)              (136,336)
  Other                                                                            3,169                  3,734
                                                                          ---------------     -----------------
               Net cash used in investing activities                            (184,763)              (782,540)
                                                                          ---------------     -----------------

FINANCING ACTIVITIES:
  Net proceeds from issuance of short-term debt                                2,550,000                212,202
  Repayment of short-term debt-officer                                                 -               (235,000)
  Other                                                                           (9,085)                 2,466
  Proceeds from issuance of long-term debt                                       500,000              5,000,000
  Proceeds from the exercise of options and warrants                                   -              1,694,634
  Net proceeds from sale of common stock                                         896,512              5,427,238
                                                                          ---------------     -----------------
               Net cash provided by financing activities                       3,937,427             12,101,540
                                                                          ---------------     -----------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                          1,934              3,098,663

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    16,605                 18,539
                                                                          ---------------     -----------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                     $    18,539            $ 3,117,202
                                                                          ===============     =================

</TABLE>

                            See accompanying notes.

                                       20


<PAGE>

                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. THE COMPANY AND DESCRIPTION OF BUSINESS

         The accompanying consolidated financial statements include the accounts
of MultiMedia  Access  Corporation  (MMAC),  and its wholly-owned  subsidiaries,
Viewpoint Systems,  Inc.  (Viewpoint),  VideoWare,  Inc.  (VideoWare) and Osprey
Technologies,  Inc.  (Osprey)  (collectively,  the  Company).  MMAC,  Viewpoint,
VideoWare and Osprey were  incorporated  in Delaware in February 1994,  November
1992, September 1994 and September 1995,  respectively.  The Company operates in
one business  segment and is engaged in developing and marketing  advanced video
communications  products that integrate video capabilities into existing desktop
computers,  applications and networks. The Company markets its products directly
to end-users,  through  value-added  resellers and computer system  integrators,
primarily in the continental United States.

         In February 1997, the Company completed an underwritten  initial public
offering ("the  Offering") of 1,400,000 shares of its common stock and 1,400,000
redeemable  common stock  purchase  warrants  (Public  Warrants).  The shares of
common  stock and the  Public  Warrants  were  sold on the  basis of one  Public
Warrant  for each share of common  stock at a unit price to the public of $4.60,
and were separately transferable  immediately upon issuance. Each Public Warrant
entitles  the holder to purchase  one share of common  stock at $4.50 per share,
subject to adjustment  under certain  circumstances,  at any time commencing six
months from the date of the Prospectus through and including five years from the
date of the Prospectus.  The Public  Warrants are redeemable by the Company,  at
any time commencing  twelve months from the date of the Prospectus,  upon notice
of not less than thirty days,  at a price of $.10 per Public  Warrant,  provided
that the closing  price or bid price of the common stock for any twenty  trading
days within a period of thirty consecutive  trading days ending on the fifth day
prior to the day on which the Company  gives  notice of  redemption  has been at
least 150%  (currently  $6.75,  subject to  adjustment)  of the  initial  public
offering  price per share of common  stock.  Additionally,  in March  1997,  the
Company issued an additional  210,000 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.
No Public Warrants have been exercised to date.

         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  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,  to the extent the warrants are exercised.  Such proceeds
will be used for working capital and general  corporate  purposes,  and possible
future  acquisitions.  In September and October 1997,  the Company  received net
proceeds of $1,676,533 upon the exercise of 821,667  private  warrants at prices
ranging from $1.00 to $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 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.




                                       21
<PAGE>

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

         During 1997, with the proceeds from the above mentioned financings, the
Company has endeavored to build an effective  marketing and sales  organization,
develop a network of independent  resellers and achieve market acceptance of its
products at prices and volumes which will,  in the future,  result in profitable
operations.  However,  the Company expects  operating  losses to continue during
1998 and  until  such  time,  if ever,  as gross  margins  from the sales of its
products exceed its development,  selling,  administrative  and financing costs.
The Company  anticipates  that additional  financing will be needed in the first
half of 1998 in order  to meet  its  working  capital  requirements  and has had
preliminary  discussions with several  potential  sources of financing,  and may
seek additional  financing to provide  additional working capital in the future.
Such  financing  may  include  loans,  lines of credit  and/or  secured  capital
financing  through the issuance of convertible  preferred  stock or other equity
securities and could include factoring agreements.

     Although the Company has no current firm  arrangements  with respect to any
additional  financing,  it is currently considering various proposals by several
potential  investors relating to the issuance of convertible  preferred stock or
other equity in exchange for a cash  investment  in the Company.  The Company is
also  considering  obtaining a revolving  line of credit,  which would rank pari
passu with the Notes, except to the extent of the collateral securing such debt.
There can be no assurance that any such  additional  financing will be available
to the Company on acceptable  terms,  or at all.  Additional  equity  financing,
including the issuance of convertible  preferred stock, may involve  substantial
dilution to the Company's  then existing  stockholders  and holders of the Notes
(assuming  conversion  thereof).  In the  event the  Company  is unable to raise
additional capital it may be required to curtail its activities.

         The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern.  As reflected in the
accompanying consolidated financial statements, the Company incurred significant
losses of $4,393,965 and $5,827,405 during the years ended December 31, 1996 and
1997,  respectively.  These  losses in  conjunction  with the matters  discussed
above,  raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  The  consolidated  financial  statements  do  not  include  any
adjustments which might be necessary should the Company be unable to continue as
a going concern.

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.



                                       22
<PAGE>
                 MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

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

SOFTWARE DEVELOPMENT COSTS

         Costs of developing new software products and substantial  enhancements
to existing  software  products  are  expensed as incurred  until  technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial  Accounting  Standards No.
86,  "Accounting  for the Costs of  Computer  Software  to be Sold,  Leased,  or
Otherwise  Marketed."  Amortization of capitalized  software  development  costs
begins when  products are available  for general  release to  customers,  and is
computed using the straight-line method over a period not to exceed three years.
Amortization  expense for the years ended December 31, 1996 and 1997 was $50,809
and $79,799, respectively.

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

         The Company has adopted Statement of Financial Accounting Standards No.
128  (SFAS  128),  "Earnings  per  Share,"  which has  changed  the  method  for
calculating  earnings  per share on the face of the  income  statement.  The new
standard  eliminates  primary and fully diluted  earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed.  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 8), warrants (see Note 8) and convertible debt (see
Note 6) since their effect is  anti-dilutive.  Loss per share  amounts for prior
periods have been restated to conform to SFAS 128 requirements.

DEFERRED CHARGES AND OTHER ASSETS

         Deferred  charges  at  December  31,  1997,  which  consist  of  legal,
accounting  and lead manager fees and expenses  associated  with the issuance of
the $5,000,000 8% senior  convertible notes due 2002 in December 1997, are being
amortized using the  straight-line  method over the term of the notes.  Net debt
issue costs at December 31, 1997 amounted to $943,412 of which $191,287 has been
classified as current.

         Deferred charges at December 31, 1996 consist of legal,  accounting and
other expenses associated with the Company's initial public offering consummated
in February 1997, as well as expenses  incurred in connection  with the issuance
of 8% debt in July  through  December of 1996.  During  February and March 1997,
$2,079,000 of legal,  accounting,  underwriting  and printing  costs incurred in
connection  with the initial public  offering were charged  against the proceeds
from the offering.



                                       23
<PAGE>

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

         Amortization of deferred debt issue costs charged to operations for the
years ended December 31, 1996 and 1997 was $165,001 and $168,691, 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, 1996 and 1997,  three
customers  accounted  for 37%  and  one  customer  accounted  for  14% of  total
consolidated  revenues,  respectively.  Balances  due from  these  customers  at
December 31, 1996 and 1997  represented  0% and 10% of net accounts  receivable,
respectively. The Company believes it has no significant concentration of credit
risk.

USE OF ESTIMATES

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

INCOME TAXES

         The Company  utilizes the  liability  method of  accounting  for income
taxes as set forth in  Statement  of  Financial  Accounting  Standards  No. 109,
"Accounting  for Income  Taxes."  Under  this  method,  deferred  tax assets and
liabilities  are  determined  based upon the  differences  between the financial
statement  and tax bases of assets and  liabilities,  as measured by the enacted
tax rates expected to be in effect when these differences reverse.

ADVERTISING COSTS

         Advertising  costs are  generally  expensed  as  incurred.  Advertising
expense was $89,414 and $226,413 for the years ended December 31, 1996 and 1997,
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,
1997 since actual  interest  rates were  consistent  with rates  estimated to be
available for obligations with similar terms and conditions.

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 8 to the  Consolidated  Financial
Statements for additional information concerning stock-based compensation.



                                       24
<PAGE>

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

NEW ACCOUNTING STANDARDS

         The Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards  No. 131 (SFAS  131),  "Disclosures  about  Segments of an
Enterprise and Related  Information,"  which  established  standards for the way
public business  enterprises report information in annual statements and interim
financial  reports  regarding   operating   segments,   products  and  services,
geographic  areas and major  customers.  SFAS 131 will first be reflected in the
Company's  1998  financial  statements.  The  Company's  management is currently
evaluating the impact of this statement.

3.  INVENTORY

         Inventory consists of the following:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                 ------------------------------------
                                                         1996              1997
                                                 ------------------------------------
<S>                                                     <C>             <C>       
        Purchased materials                             $180,149        $1,035,006
        Finished goods                                   129,984           727,180
                                                 ------------------------------------
                                                        $310,133        $1,762,186
                                                 ====================================
</TABLE>

      Inventory at December 31, 1996 is presented net of a reserve of $215,000.

4. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                 ------------------------------------
                                                         1996              1997
                                                 ------------------------------------
<S>                                                     <C>               <C>     
        Computer equipment                              $519,966          $933,767
        Software                                         141,841           270,386
        Leasehold improvements                            36,985            43,951
        Office furniture and equipment                    87,630           180,256
                                                 ------------------------------------
                                                         786,422         1,428,360

        Less accumulated depreciation
          and amortization                              (325,527)         (550,920)
                                                 ------------------------------------
                                                        $460,895          $877,440
                                                 ====================================
</TABLE>


                                       25
<PAGE>

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



5. SHORT-TERM DEBT

         Short-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                 -------------------------------
                                                                       1996           1997
                                                                 -------------------------------
<S>                                                                <C>               <C>      
     OFFICER:
       Secured note payable to an officer and affiliate of the
        Company, due on demand with interest at 15%.
        Collateralized by all assets of the Company.               $    533,089      $ 311,243
                                                                 ===============================
     OTHER:
       Secured note payable to an individual investor, due on
        demand with interest at 15%. Collateralized by all
        assets of the Company.                                     $     22,548      $       -

       Convertible  secured  debt  payable  to a  principal
        stockholder of the Company,  due on demand 10 days
        subsequent to an initial public offering or 180 days
        after date of issue, with interest at 8%.
        Collateralized by all assets of the Company.                    500,000              -

       Unsecured notes payable to principal  stockholders of
        the Company, due on demand 10 days subsequent to an
        initial  public  offering  or 180 days after date of
        issue, with interest at 8%                                    1,315,000              -

       Unsecured , non-interest bearing note payable to
         the Company's underwriter                                      120,000              -

       Other                                                              8,654         13,120
                                                                 -------------------------------
                Total short-term debt, other                        $ 1,966,202     $   13,120
                                                                 ===============================

</TABLE>

         In January and February 1996, the Company issued $650,000 of 10% 90-day
secured  notes to an existing  stockholder  of the  Company.  As an incentive to
advance these notes,  the  stockholder  received 65,000  three-year  warrants to
purchase  Company stock at $3.00 per share.  Based on an independent  appraisal,
the fair  market  value of these  warrants  of $.50 per  share  was  charged  to
interest expense over the term of the notes.

         In July 1996,  the Company  issued  $500,000 of 8% secured  convertible
debt to a principal  stockholder of the Company. The convertible debt was due on
demand 10 days subsequent to an initial public offering of the Company's  equity
securities  or 180 days from date of issue.  As an  incentive  to advance  these
notes, the stockholder  received 50,000 three-year  warrants to purchase Company
stock at $3.00 per share.  Based on an  independent  appraisal,  the fair market
value of these warrants of $.50 per share was charged to interest expense.

                                       26

<PAGE>

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

         Between  September and December of 1996, the Company issued  $1,315,000
of 8% unsecured notes to existing  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. As an incentive to advance the
notes, the stockholders received 131,500 three-year warrants to purchase Company
stock at $3.00 per share.  Based on an  independent  appraisal,  the fair market
value of these warrants of $1.00 per share was charged to interest expense.

         In October 1996, the Company  converted  salary and bonuses of $127,781
and  accrued  interest  of $41,154  owing to its Chief  Executive  Officer  into
$168,935 principal amount of 15% secured notes due in February of 1998.

         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,  $2,915,000 principal amount of secured and unsecured
notes were exchanged for 633,694  shares of Common Stock and Public  Warrants in
the  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.

         Interest paid was $1,287 and $253,675 for the years ended  December 31,
1996 and 1997, respectively.

6. LONG-TERM DEBT

         Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                        -----------------------------------
                                                                1996              1997
                                                        -----------------------------------
 <S>                                                     <C>                   <C>        
      U.S $5,000,000 Senior 8% Convertible
       Notes
          due December 2002 with interest payable       $             -       $ 5,000,000
          semi-annually in arrears

       Short-term notes converted to convertible notes          110,250                 -

       Convertible secured debt  payable to a
       principal
         stockholder of the Company, due January
         1998 with interest at 8% collateralized by all
         assets of the Company                                  500,000                 -

       Convertible notes                                      2,567,300                 -
                                                        ---------------------------------
                                                              3,177,550         5,000,000
                                                        
       Less: current portion                                  3,177,550                 -
                                                         ---------------------------------
                                                         $            -       $ 5,000,000
                                                         =================================

</TABLE>



                                       27
<PAGE>

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

         In July of 1996, the Company issued $500,000 of 18-month 8% convertible
debt to a principal stockholder of the Company. As an incentive to advance these
notes,  the  stockholder  was  granted  50,000  three-year  warrants to purchase
Company stock at $3.00 per share.  Based on an independent  appraisal,  the fair
market  value of these  warrants  of $.50 per  share  was  charged  to  interest
expense.

         In February 1997,  $2,430,300  principal amount of 8% convertible notes
together with accrued  interest of $367,827 were exchanged for 608,283 shares of
common  stock and Public  Warrants in the  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 (see
Note  1).  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.

     At December  31,  1997,  the Company  had  outstanding  $324,363 of secured
senior  indebtedness,  most of  which  is due and  payable  in  early  1998 to a
principal stockholder and officer of the Company.

7. INCOME TAXES

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards (SFAS) No. 109,  "Accounting for Income Taxes."
SFAS No. 109  requires a valuation  allowance  to be  recorded  when it is "more
likely than not that some  portion or all of the deferred tax assets will not be
realized."  In the  opinion of  management,  realization  of the  Company's  net
operating loss carryforward is not reasonably assured, and a valuation allowance
of $4,625,000 and $6,716,000  has been provided  against  deferred tax assets in
excess of deferred tax liabilities in the  accompanying  consolidated  financial
statements at December 31, 1996 and 1997, respectively.

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

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                    -------------------------------------
                                                                           1996              1997
                                                                    -------------------------------------
<S>                                                                    <C>                <C>         
      Deferred tax assets:
           Net operating loss carryforward                             $  4,349,000       $  6,357,000
           Excess of tax over financial statement basis of
           patent                                                            41,000             37,000
           Accruals deductible for tax purposes when paid                   236,000            241,000
           Excess of  tax over financial statement basis of
           software development costs                                        42,000            130,000
                                                                    -------------------------------------
                     Total deferred tax assets                            4,668,000          6,765,000
      Less: valuation allowance                                          (4,625,000)        (6,716,000)
                                                                    -------------------------------------
                                                                             43,000             49,000
      Deferred tax liabilities:
          Excess of financial statement over tax basis of
            of property and equipment                                        43,000             49,000
                                                                    -------------------------------------
                     Total deferred tax liabilities                          43,000             49,000
                                                                    =====================================
     Net deferred taxes                                                $          -       $          -
                                                                    =====================================

</TABLE>

                                       28
<PAGE>

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

         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:

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                    -------------------------------------
                                                                        1996              1997
                                                                    -------------------------------------
<S>                                                                    <C>                <C>          
      U.S. federal statutory rate applied to pretax loss               $ (1,494,000)      $ (1,981,000)
      Accrued compensation and other accruals                               (19,000)            70,000
      Amortization of patent                                                 (3,000)            (4,000)
      Depreciation of property and equipment                                 (5,000)           (12,000)
      Software development costs for financial  reporting
        purposes                                                            (11,000)           (43,000)
      Net operating loss carryforward not recognized for
        financial reporting purposes                                      1,476,000          1,966,000
      Inventory and doubtful account reserves                                 3,000            (66,000)
      Non-deductible interest expense                                        46,000             58,000
      Other                                                                   7,000             12,000
                                                                    -------------------------------------
                                                                       $          -       $          -
                                                                    =====================================
</TABLE>

     The Company has a federal  income tax net operating  loss  carryforward  of
approximately  $17,000,000  at  December  31,  1997.  Approximately  $2,700,000,
$4,700,000,  $4,300,000 and $5,300,0000 of the carryforward will expire in 2009,
2010,  2011 and 2012,  respectively.  The  Company  is  subject  to  limitations
existing under Internal Revenue Code Section 382 (Change of Control) relating to
the  availability  of the  operating  loss  carryforward.  Beginning  with 1994,
approximately  $790,000 of the carryforward  that will expire in 2009 is limited
to utilization at a rate of approximately $300,000 per year.

          No income  taxes were paid for the years ended  December  31, 1996 and
1997.

8. STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK

         In  September  1995,  the Company  began a private  placement  of up to
2,666,667  shares  of  common  stock to  qualified  investors.  In March  1996 a
principal  stockholder  of the company  exchanged  $663,589 of notes and accrued
interest for 221,195 shares of common stock and 65,000 warrants in the offering.
In April through June of 1996,  the Company sold 304,016  shares of the offering
to  individual  investors  at $3.00 per  share.  Proceeds  to the  Company  were
$912,054.  Additionally, in May and June of 1996, the Company converted $208,000
of accounts payable into 69,332 shares of the offering at $3.00 per share.

     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 (see Note 1). In March 1997, the Company
issued an  additional  210,000  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.



                                       29
<PAGE>

                 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 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  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, 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.

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 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.

         Following is a summary of stock option  activity from December 31, 1995
through December 31, 1997:

<TABLE>
<CAPTION>

                                                                       STOCK OPTIONS
                                                  --------------------------------------------------------
                                                                                           WEIGHTED-
                                                                                            AVERAGE
                                                       NUMBER           PRICE PER        EXERCISE PRICE
                                                      OF SHARES           SHARE            PER SHARE
                                                  --------------------------------------------------------
<S>                                                       <C>          <C>      <C>           <C>   
     Outstanding at December 31, 1995                     1,811,774    $  .04 - 3.00          $ 2.48
     Granted                                                870,400      3.00 - 4.00            3.32
     Exercised                                                    -                -               -
     Canceled/forfeited                                     588,213       .20 - 3.00            2.55
                                                  ------------------
     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
                                                  ==================
</TABLE>


                                       30
<PAGE>

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

         The weighted-average grant-date fair value of options granted was $0.86
and $2.23 for the years ended December 31, 1996 and 1997, respectively.

         The following  information  applies to options  outstanding at December
31, 1997:

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
      ----------------------------------------------------------------    ---------------------------------
                                         WEIGHTED-AVERAGE
                                           REMAINING    WEIGHTED-AVERAGE                   WEIGHTED-AVERAGE
         RANGE OF      OUTSTANDING AT     CONTRACTUAL     EXERCISE        EXERCISABLE AT      EXERCISE
         EXERCISE     DECEMBER 31, 1997      LIFE           PRICE          DECEMBER 31,         PRICE
          PRICES                                                               1997
      ----------------------------------------------------------------    ---------------------------------
<S>    <C>     <C>         <C>               <C>            <C>                <C>               <C>          
       $0.01 - 1.00        154,770           4.2            $   0.10           138,438           $ 0.10       
        1.01 - 2.00              -            -                    -                 -                -       
        2.01 - 3.00      1,488,040           6.7                2.85           988,255             2.80       
        3.01 - 4.00        381,000           6.1                3.71           115,914             3.63       
        4.01 - 5.00        542,500           9.5                4.37                 -                -       
        5.01 - 6.00        171,500           5.1                5.33                 -                -       
                      ---------------------------------------------------- ---------------------------------
                         2,737,810           6.9              $ 3.27          1,242,606            $2.58 
                                             
</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:

<TABLE>
<CAPTION>
                                                         1996                1997
                                                 -----------------------------------------
<S>                                                      <C>                  <C>
                 Risk-free interest rate                 6.4%                 6%
                 Dividend yield                            0%                 0%
                 Volatility factor of the
                    market price of the
                    Company's common stock                 0%                40%
                  Expected life of the options
                    (years)                                5                  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.



                                       31
<PAGE>

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

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the  options'  vesting  periods.  Pro forma
information for the years ended December 31, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                         1996                 1997
                                                  -------------------- -------------------
<S>                                                  <C>                 <C>          
                 Pro forma net loss                  $ (4,597,827)       $ (6,212,743)
                 Pro forma net loss per share:
                   basic and diluted                 $      (0.95)       $       (.80)

</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 is 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 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.

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 5 and 6), as  inducement  for early  exercise of private
warrants and as compensation for services rendered by various  consultants and a
financial consulting firm controlled by an officer, director, and stockholder of
the Company.  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 8).



                                       32
<PAGE>

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

         The  following is a summary of warrant  activity from December 31, 1995
through December 31, 1997:

WARRANTS

<TABLE>
<CAPTION>
                                                    -----------------------------------------------------------
                                                                                                WEIGHTED-
                                                                                                 AVERAGE
                                                         NUMBER OF          PRICE PER        EXERCISE PRICE
                                                          SHARES              SHARE             PER SHARE
                                                    -----------------------------------------------------------
<S>                                                       <C>              <C>      <C>             <C>   
      Outstanding at December 31, 1995                    1,147,500        $ 1.00 - 3.00            $ 1.77
      Granted                                               376,505                 3.00              3.00
      Exercised                                                   -                   -                  -
                                                    --------------------
      Outstanding at December 31, 1996                    1,524,005          1.00 - 3.00              2.07
      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
                                                    ====================
</TABLE>

         In addition,  at December  31, 1997 the  Company's  IPO  representative
holds warrants to purchase 140,000 units at $6.30 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.

         At December 31, 1997,  5,084,716  warrants at prices ranging from $1.00
to $4.50 with a weighted-average exercise price of $3.74 were exercisable.

9. 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 year
ended December 31, 1997 no matching or profit sharing contributions were made by
the Company.

10. 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:



                                       33
<PAGE>

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


                                                            OPERATING
                                                             LEASES
                                                        ----------------

                       Year ended December 31:
                          1998                            $ 343,663
                          1999                              145,172
                          2000                              125,247
                          2001                              122,029
                          2002                              122,029
                          Thereafter                         12,211
                                                         -------------
                       Total minimum lease payments       $ 870,351
                                                         =============

         Rent expense was $247,765 and $261,400 for the years ended December 31,
1996 and 1997, respectively.

         The Company  has entered  into an  employment  contract  with its Chief
Executive  Officer  through  February  1999 that  provides for a minimum  annual
salary and incentives based generally on the Company's performance.

11. RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENTS

         In February  1994 the Company  entered  into two  five-year  consulting
agreements  with two of its  former  directors,  pursuant  to which the  Company
agreed to pay monthly  consulting  fees of $5,000 to each  individual.  In March
1995 one of these consulting  agreements was canceled with no further  liability
to the Company.  In June 1996, the Company converted $80,000 of accounts payable
owed on the remaining consulting agreement into 26,666 shares of common stock at
$3.00 per share. By mutual agreement, effective May 1, 1996 consulting fees from
the remaining consulting contract were suspended until February 1997. Consulting
fees charged to expense with respect to the  aforementioned  agreements  for the
years ended  December 31, 1996 and 1997 were $20,000 and $50,000,  respectively.
Consulting fees of $12,500 and $62,500 remained accrued at December 31, 1996 and
1997, respectively.

         In May 1996, the Company issued  three-year  warrants to purchase 5,005
shares of Company stock at $3.00 per share to a company which is partially owned
by the Chief  Executive  Officer of the  Company.  The  warrants  were issued as
consideration  for  consulting  services  rendered  during 1996. The fair market
value of the warrants of $.50 as determined by independent appraisal and fees of
$2,503 were charged to expense during 1996.  Additionally,  $3,562 and $8,130 of
consulting  fees  were  paid in 1996  and  1997,  respectively,  for  consulting
services rendered in 1994.

     In January and February 1996, the Company issued to a principal stockholder
of the Company,  secured notes totaling $650,000 under the terms as described in
Note 5.  During  March  1996,  these  secured  notes were  exchanged  for equity
securities of the Company under the terms described in Note 5.

         During  July  1996,  the  Company  issued   $1,000,000  of  8%  secured
convertible debt to a principal  stockholder of the Company. The note matured 10
days subsequent an initial public offering of the Company's  equity  securities.
During  February  1997,  the note was  converted  into  common  stock and Public
Warrants in the  Offering as described in Note 5. As an incentive to advance the
debt, the stockholder was issued 100,000 three-year warrants to purchase Company
stock at $3.00 per share.  The fair  market  value of the  warrants  of $.50 per
share as determined by independent  appraisal  were charged to interest  expense
over the term of the notes.  Additionally,  the  stockholder  was issued 100,000
three-year   warrants  to  purchase  Company  Stock  at  $3.00  per  share  upon
conversion.  The  fair  market  value of the  warrants  of  $1.00  per  share as
determined by  independent  appraisal  were charged  against the proceeds of the
Offering.



                                       34
<PAGE>

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

         During  July  1996,  the  Company  issued to a  stockholder  and former
director of the Company, 75,000 three-year warrants to purchase Company stock at
$3.00 per share  pursuant  to the terms of a  consulting  agreement  more  fully
described in Note 10. Based on an independent  appraisal,  the fair market value
of these warrants of $15,000 was charged to consulting fees in 1996.

         During October 1996, the Chief Executive  Officer of the Company agreed
to defer  receipt of  $164,154  principal  amount of Secured  and Demand  Notes,
accrued  interest of $41,154 and  accrued  salary and bonuses of $127,781  until
February of 1998 under the terms described in Note 5.

         In November and  December of 1996,  the Company  issued  $700,000 of 8%
unsecured debt to two principal stockholders of the Company. The debt matured 10
days subsequent to an initial public offering of the Company's equity securities
or 180 days from the date of issue.  During  February  1997,  these  notes  were
converted into common stock and Public  Warrants in the Offering as described in
Note 5. As an  incentive  to advance  the debt,  the  stockholder's  were issued
70,000  three-year  warrants to purchase  Company stock at $3.00 per share.  The
fair market value of the warrants of $1.00 per share as  determined  independent
appraisal were chared to interest expense over the term of the notes.

         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 Offering as
described in Note 6.

         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 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 Offering at $4.60 per share.

         During February 1997, the Company repaid $235,000  principal  amount of
15% secured debt to its Chief Executive  Officer  together with accrued interest
of $10,399.

         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 8), 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
above mentioned warrants, the stockholders were issued 82,000 three-year private
warrants to purchase Company stock at $4.50 per share.

         During 1997 the Company paid $56,000 of consulting fees to the Chairman
of the Company.

         In February  1998,  the Company  repaid  $125,000  principal  amount of
secured  notes to its  Chief  Executive  Officer  and  converted  the  remaining
principal balance of $186,243 to a demand note.

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

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



                                       35
<PAGE>


                                    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
         the Proxy Statement.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

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

Item 12.  Certain 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 December 23, 1997,  the Company  filed a Form 8-K covering the
               private placement of $5,000,000  aggregate principal amount of 8%
               Senior Convertible Notes due 2002.



                                       36
<PAGE>

                                   SIGNATURES
                                   ----------

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

        Date                               MultiMedia Access Corporation
        ----

   March 27, 1998                          By:  /s/ William S. Leftwich
                                                -----------------------
                                                    William S. Leftwich
                                                    Chief Financial Officer and
                                                    Asst. Secretary

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

         Date                               MultiMedia Access Corporation
         ----

    March 27, 1998                          By:  /s/ Glenn A. Norem
                                                 -------------------------------
                                                     Glenn A. Norem
                                                     Director and Chief
                                                     Executive Officer

    March 27, 1998                          By:  /s/ William S. Leftwich
                                                 -------------------------------
                                                     William S. Leftwich
                                                     Chief Financial Officer and
                                                     Asst. Secretary

    March 27, 1998                          By:  /s/ William D. Jobe
                                                 -------------------------------
                                                     William D. Jobe
                                                     Director and Chairman of
                                                     the Board

    March 27, 1998                          By:  /s/ Joe C. Culp
                                                 -------------------------------
                                                     Joe C. Culp
                                                     Director

                                       37
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
<S>    <C>
EXHIBIT
PAGE                                                                                            SEQUENTIAL
NO.                                 DESCRIPTION OF EXHIBIT                                        PAGE NO.
-----------------------------------------------------------------------------------------------------------
2      Agreement and Plan of Merger and Reorganization (1)
3(a)   Certificate of Incorporation (1)
3(b)   Amendment to Certificate of Incorporation (1)
3(c)   Restated By-Laws (1)
4(a)   Form of Common Stock Certificate (1)
4(b)   Form of Warrant Certificate (1)
4(c)   Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust Company (1)
4(d)   Form of Representative's Warrant Agreement (1)
4(e)   Form of Trust Indenture - $5,000,000 8% Senior Convertible Notes Due 2002
4(f)   Form of Lead Managers Warrant Agreement   
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
10(aa) Lease between the Company and Airport Boulevard Parters, LLC
21     List of Subsidiaries of the Company (1)
23     Consent of Ernst & Young LLP (2)
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.

(2)  Incorporated  by  reference  to the  Annual  Report on Form  10-KSB for the
     period ended December 31, 1997.