<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1997
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the Transition period from_____________________to___________________________
Commission file number 000-22631
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SYMPLEX COMMUNICATIONS CORPORATION
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(Exact name of small business issuer as
specified in its charter)
Delaware 38-3338110
- ------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Research Drive, Ann Arbor, MI 48103
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(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (313) 995-1555
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________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[_] Yes [X] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
The number of shares of common stock, $.01 par value, at August 31, 1997 is
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6,908,322
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Transitional Small Business Disclosure Form (check one): [_] Yes [X] No
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
BALANCE SHEETS
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 171,743 $ 320,290
Trade receivables, less allowance for doubtful accounts of $30,000 671,166 529,180
Inventories (Note 2) 1,262,500 1,312,734
Prepaid expenses and other current assets 41,360 48,710
----------- ----------
Total current assets 2,146,769 2,210,914
PROPERTY AND EQUIPMENT:
Machinery and equipment 2,751,773 2,692,465
Office equipment 1,029,904 1,017,118
Leasehold improvements 188,853 188,853
----------- ----------
Total 3,970,530 3,898,436
Less accumulated depreciation 3,598,529 3,535,910
----------- ----------
Net property and equipment 372,001 362,526
----------- ----------
DEFERRED OFFERING COSTS (Note 1) 271,480 49,464
----------- ----------
TOTAL ASSETS (Notes 3 and 4) $ 2,790,250 $2,622,904
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Trade payables $ 969,276 $ 782,749
Accrued expenses (Note 7) 231,949 575,763
Notes payable - revolving (Note 3) 500,000 500,000
Notes payable - current portion (Note 3) 140,000 20,000
Notes payable - with detachable warrants (Note 4) 510,000
Current portion of capital lease obligations 1,637
----------- ----------
Total current liabilities 1,841,225 2,390,149
NOTES PAYABLE - LESS CURRENT PORTION (Note 3) 360,000 480,000
----------- ----------
Total liabilities 2,201,225 2,870,149
----------- ----------
COMMITMENTS (Note 15)
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS):
Common stock, $.01 par value, 20,000,000 shares authorized and 6,933,413
shares issued and outstanding, including 932,639 shares held in escrow at
June 30, 1997 (Notes 4, 7, 8, 11, and 13) 69,334 39,150
Additional paid-in capital 3,060,853
Additional paid-in capital - warrants 140,000 40,000
Notes receivable - recourse (115,519)
Notes receivable - non-recourse (236,010)
Retained earnings (accumulated deficit) (2,329,633) (326,395)
----------- ----------
Total stockholders' equity (deficiency in assets) 589,025 (247,245)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,790,250 $2,622,904
=========== ==========
</TABLE>
See notes to financial statements.
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<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES AND REVENUES (Note 12):
Manufactured products $ 916,675 $1,446,385 $ 2,042,278 $ 3,213,054
Maintenance contracts and service 58,954 54,036 102,795 105,468
----------- ---------- ----------- -----------
Total net sales and revenues 975,629 1,500,421 2,145,073 3,318,522
COSTS AND EXPENSES:
Cost of products sold 468,623 564,798 1,021,787 1,230,747
Selling and marketing 757,381 677,806 1,190,620 1,395,722
General and administrative (Note 8) 357,166 443,319 912,163 927,372
Research and development 301,295 390,423 586,239 776,376
Engineering 74,039 106,164 136,305 192,742
Service 76,706 95,957 167,939 195,453
----------- ---------- ----------- -----------
Total costs and expenses 2,035,210 2,278,467 4,015,053 4,718,412
----------- ---------- ----------- -----------
OPERATING INCOME (LOSS) (1,059,581) (778,046) (1,869,980) (1,399,890)
OTHER INCOME (EXPENSE):
Interest expense (25,657) (35,442) (103,701) (38,616)
Amortization of discount on notes payable (40,000)
Other income 7,531 700 10,443 956
----------- ---------- ----------- -----------
Total other income and
expenses (18,126) (34,742) (133,258) (37,660)
----------- ---------- ----------- -----------
NET LOSS (Note 11) $(1,077,707) $ (812,788) $(2,003,238) $(1,437,550)
=========== ========== =========== ===========
LOSS PER COMMON SHARE $ (0.25) $ (0.19) $ (0.46) $ (0.33)
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES 4,350,557 4,350,557 4,350,557 4,350,557
=========== ========== =========== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
SIX MONTH PERIOD ENDED JUNE 30, 1997
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<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ADDITIONAL NOTE NOTE EARNINGS
NUMBER COMMON CAPITAL PAID-IN RECEIVABLE RECEIVABLE (ACCUMULATED
OF SHARES STOCK WARRANTS CAPITAL RECOURSE NON-RECOURSE DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 913,129 39,150 40,000 (326,395)
Statutory merger with wholly owned subsidiary (30,019) $ 30,019
Issuance of common stock, net - private placement 3,395,700 33,957 100,000 1,612,088
Conversion of notes payable to common stock 1,181,818 11,818 638,182
Conversion of accrued liabilities to common stock 170,750 1,708 339,792
Issuance of common stock - SAR plan termination 86,871 869 46,910
Issuance of common stock - key employee plan 116,945 1,169 63,151 $(62,319)
Issuance of common stock - employee stock
purchase plan 1,068,200 10,682 309,778 (84,450)$(236,010)
Amounts paid on notes receivable issued under key
employee stock option plan 31,250
Compensation expense recognized on stock issued with
stock options 20,933
Net loss (2,003,238)
--------- -------- ---------- ---------- -----------
BALANCE AT JUNE 30, 1997 6,933,413 $ 69,334 $140,000 $3,060,853$(115,519)$(236,010) $(2,329,633)
========= ======== ========== ========== ======== ======== ===========
</TABLE>
See notes to financial statements.
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<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,003,238) $(1,437,550)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 84,620 115,891
Amortization of discount on notes payable 40,000
Compensation for termination of SAR plan 47,779
Compensation recognized for stock options 20,933
Changes in assets and liabilities that provided (used) cash:
Trade receivables (141,986) 563,341
Inventories 50,234 (202,640)
Prepaid expenses and other current assets 7,350 46,517
Organizational costs (222,016)
Trade payables 186,527 (4,618)
Accrued expenses (2,314) (67,032)
---------- ---------
Total adjustments 71,127 451,459
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Net cash used in operating activities (1,932,111) (986,091)
CASH FLOWS USED IN INVESTING ACTIVITIES -
Purchases of property and equipment (94,095) (14,056)
---------- ---------
Net cash used in investing activities (94,095) (14,056)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 910,000
Borrowings of notes payable 100,000
Issuance of detachable warrants
Distribution to stockholders
Proceeds from issuance of common stock 1,779,296
Common stock redemption
Payments on capital lease obligations (1,637) (3,274)
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Net cash provided by (used in) financing activities 1,877,659 906,726
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(DECREASE) INCREASE IN CASH $ (148,547) $ (93,421)
CASH AT BEGINNING OF PERIOD 320,290 93,421
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CASH AT END OF PERIOD $ 171,743 $
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the period for interest $ 103,651 $ 3,174
========== =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of amortized balance of notes payable
to common stock $ 650,000
==========
Conversion of accrue liabilities of common stock $ 341,500
==========
Issuance of common stock for SAR plan termination $ 47,779
==========
Notes receivable issued for purchase of common stock $ 382,779
==========
See notes to financial statements.
</TABLE>
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<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Symplex Communications Corporation (the "Company")
designs, manufactures and sells specialized data communications equipment
primarily used to create computer networks and send information
electronically.
The financial statements have been prepared on a basis consistent with
accounting principles generally accepted in the United States. The interim
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for such periods.
REORGANIZATION - On February 28, 1997, the Company merged with a wholly
owned subsidiary which had no assets. The transaction was accounted for as
a pooling of interest.
SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
DEFERRED OFFERING COSTS related to equity offerings are capitalized until
completion of the transaction. Once the transactions are complete, the
costs are netted against any proceeds and reclassified to additional paid-
in capital.
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<PAGE>
LOSS PER COMMON SHARE - Loss per share is computed using the weighted
average number of shares of common stock and common stock equivalents. In
accordance with Securities and Exchange Staff Accounting Bulletin 83,
common stock and common stock equivalents issued at prices below an initial
public offering price during the twelve months immediately preceding the
initial filing date are included in this calculation as if they were
outstanding for all periods presented using the treasury stock method and
the expected initial public offering price as the repurchase price. Under
this guidance, earnings (loss) per share is calculated without regard to
antidilution. The following common stock equivalents have been included in
the weighted average number of common shares outstanding as if issued for
all periods presented:
<TABLE>
<CAPTION>
COMMON
STOCK
EQUIVALENT
<S> <C>
Common stock issued under private placement 1,528,065
Conversion of notes payable 531,818
Common stock exchanged for SAR Plan termination 39,092
Common stock issued under key employee plan 52,625
Common stock issued under employee purchase plan 747,740
Accrued liabilities converted to common stock 76,838
Warrants issued with convertible debt 146,250
Warrants issued to private investment group 315,000
---------
Total common stock equivalents 3,437,428
=========
</TABLE>
2. INVENTORIES
Inventories as of June 30, 1997 consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
<S> <C>
Raw materials $ 94,406
Work-in-process 287,408
Finished goods 880,686
----------
Total $1,262,500
==========
</TABLE>
3. NOTES PAYABLE
In March 1997, the Company restructured its bank line of credit agreement.
Under the new agreement, $500,000 of the December 31, 1996 balance was
converted to a term note payable, with $500,000 remaining as the amount
available under the line of credit. The term note matures December 1, 1999
and requires quarterly principal payments, beginning September 1, 1997, of
$10,000 for the first two payments, and $60,000 for the remaining eight.
Both the new term agreement and the line of credit require monthly interest
payments at a variable rate of 2% above the bank's prime rate. Both
agreements
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<PAGE>
are secured by all assets of the Company and contain restrictive covenants.
The outstanding balances on the line of credit and term note at June 30,
1997 were $500,000 and $500,000, respectively.
4. NOTES PAYABLE - WITH DETACHABLE WARRANTS
In February 1997, the Company received an additional $100,000 from a
private investment group in exchange for a convertible subordinated note
payable with detachable warrants. The associated warrants allow the
purchase of 50,000 shares of voting, $.01 par value common stock. The
warrants are exercisable at $0.55 per share and expire March 5, 1999. On
March 5, 1997, in conjunction with the private placement, this debt and the
previously issued $300,000 note were converted to 727,273 shares of $.01
par value common stock.
On March 5, 1997, in conjunction with the private placement, the $250,000
debt to a shareholder was converted to 454,545 shares of $.01 par value
common stock.
-8-
<PAGE>
5. RELATED PARTY TRANSACTIONS
A subordinated note payable to a stockholder was converted to common stock
in March 1997 (Note 4).
In March 1997, certain stockholders converted $341,500 in accrued expenses
to equity as approved by the Board in November 1996. The stockholders
received one share of no-par, common stock for every $2 of indebtedness or
170,750 shares.
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<PAGE>
6. INCOME TAXES
Prior to March 1, 1997, the Company was taxed as an S corporation under the
U.S. Internal Revenue Code which provides that, in lieu of corporate income
taxes, the stockholders are taxed on their proportional share of the
Company's net income. Accordingly, the financial statements for all periods
presented prior to the quarter ended June 30, 1997 do not include a
provision for corporate income taxes. Had the S election not been in place,
the tax benefit for corporate income taxes would have been $289,000 based
upon the statutory rate of 34 percent for the year ended December 31, 1996.
7. STOCK OPTIONS
During the second quarter of 1997, the Company issued 1,068,200 shares of
$.01 par value, common stock pursuant to the exercise of stock options
under the employee share purchase stock option plan. These options were
granted to employees during the second quarter of 1997 and allowed the
employees to purchase $.01 par value, common stock at a purchase price of
$.30 per share with either a recourse or non-recourse note. According to
the terms of the employee share purchase stock option agreement, the stock
vests ratably over three years and is held in escrow until vested and
the attributable portion of any outstanding notes is paid. A total of
approximately $76,800 will be charged to compensation expense over the
three-year vesting period for the 281,500 shares issued with recourse notes
based upon the purchase price of $.30 per share, a market price of $.55 per
share. The options exercised with nonrecourse notes are treated as a
variable Plan. Compensation expense will be recorded over the three-year
vesting period plus interest on the nonrecourse notes for the 786,700
shares issued with non-recourse notes based upon the purchase price of $.30
per share and a
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<PAGE>
market price of $.55 per share as of June 30, 1997. As of June 30, 1997,
135,561 shares were vested and released from escrow, and the balance on the
notes receivable was $320,460.
During the second quarter of 1997, the Company issued 116,945 shares of
$.01 par value, common stock pursuant to the exercise of stock options
under the key employee option plan. These options were granted to employees
during the second quarter of 1997 and allowed the employees to purchase
$.01 par value, common stock at a purchase price of $.55 per share with a
recourse note. At June 30, 1996, the balance on the notes receivable was
$31,069.
8. COMMITMENTS
The Company intends to file a final prospectus with the British Columbia
Securities Commission to effect an initial public offering of its stock in
September 1997.
9. SUBSEQUENT EVENTS
BRIDGE LOAN FINANCING:
In August 1997, the Company obtained bridge financing of $1,200,000 in
subordinated promissory notes. The notes bear interest at prime plus 2% and
are due August 27, 1998 or such earlier date as described below.
Certain of the notes, aggregating $700,000, are convertible within 7 days
of receipt of the filing of a final prospectus, into 700,000 shares of
common stock and warrants to purchase 350,000 shares at $1.00 per share. If
the Canadian offering has not closed by August 28, 1998, in addition to the
principal and interest due under the note, the noteholders will be entitled
to receive warrants to purchase up to 350,000 shares at $1.00 per share.
Other notes aggregating $500,000 are due within 15 days of the completion
of the Canadian public offering. Concurrently with the issuance of these
notes the noteholders received warrants allowing the holders to purchase up
to 250,000 shares of common stock at any time prior to August 27, 1998 at
$1.00 per share.
The above notes are subordinated to amounts owed to Michigan National Bank
and are secured by all personal property of the Company.
OPTIONS:
Subsequent to June 30, 1997 the Company granted options to purchase 673,814
shares of common stock under the Key Employee Option Plan, exercisable at
$1.00 per share.
STOCK REDEMPTIONS:
In September, 1997 60,091 common shares originally issued under the
employee share purchase stock option plan were surrendered in exchange for
the cancellation of certain non-recourse notes totalling $18,027. Under the
terms of the plan employees not remaining with the Company for the
described vesting period are required to surrender shares according to a
vesting formulas.
* * * * * *
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the selected
financial data and the financial statements and notes thereto filed herewith.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
- -------------------------------------------------------------------------
Net Sales. Net sales from operations for the six months ended June 30, 1997
totaled $2,145,073 compared to $3,318,522 for the six months ended June 30,
1996. The decline of $1,173,449 or 35% is attributable to (i) the continued
decline in Datamizer product sales by $991,000 from $2,312,000 to $1,321,000
(ii) the decline in DirectRoute product sales by $183,000 from $1,007,000 to
$824,000 (iii) the cash constraints experienced by the Company during the first
quarter of 1997 reflecting in a significant reduction in sales and marketing
activity and (iv) a significant change in its senior management and the refocus
of the Company's overall business strategies.
Sales net of Direct Costs of Products Sold at June 30, 1997 were $1,123,286 or
52.4% compared to $2,087,775 or 62.9% at June 30, 1996. Margins in 1997 were
adversely impacted by cost overruns resulting from declining volumes and higher
component costs and from competitive price pressures in selected markets.
Additionally, product sales in 1997 included a higher percentage of lower margin
DirectRoute products and lower percentage of the higher margin Datamizer
products as compared to 1996.
Research and development costs. Research and development expenses were $586,239
in the first six months of 1997 as compared to $776,376 for the comparable six
month period in 1996. This $190,000 decline reflected reductions primarily in
payroll and related benefits of $100,000 and new product development of $90,000
due again to cash constraints.
Sales and marketing expenses. Sales and marketing expenses in the six months to
June 30, 1997 were $1,190,620 as compared to $1,395,722 for the same period in
1996. This $205,000 decline reflects decreased
<PAGE>
investment in payroll and related benefits of $163,000, commission expense of
$54,000 and international activities of $30,000, offset by an increase in
advertising of $42,000.
General and administrative, engineering and service expenses. General and
administrative expenses for the first six months of 1997 were $912,163 as
compared to approximately $927,372 in the corresponding period in the prior
year. This $15,000 decrease resulted primarily from a reduction in payroll and
related benefits of $23,000, depreciation of $5,000 and outside services of
$18,000, offset by a net increase in general expenses of $31,000, mostly
attributable to a $48,000 expense for terminating the Stock Appreciation Rights
Plan. Engineering expenses declined $56,000 to $136,305 through June 30, 1997
from $192,742 for the comparable period in 1996. The decline was due to payroll
expense reductions mandated by cash constraints. Service expenses declined
$28,000 to $167,939 through June 30, 1997 from $195,453 for the comparable
period in 1996. This decline again was attributable to payroll expense
reductions.
Net Loss. The Company reported a net loss of $2,003,238 for the six months
ended June 30, 1997 as compared to a net loss of $1,437,550 for the comparable
period in 1996. The Company continues to experience revenue and margin
shortfalls in both its product lines and to be adversely impacted by higher
interest expense.
Three Months Ended June 30,1997 Compared to Three Months Ended June 30, 1996
- ----------------------------------------------------------------------------
Net sales. Net sales for the three months ended June 30, 1997 were $975,629 as
compared to $1,500,421 for the same period in 1996. The decline of $525,000
can be attributed mostly to a $356,000 revenue decline from both product lines
in the international marketplace. Additionally, the domestic marketplace for
DirectRoute products experienced a $158,000 decline in revenue volume. The
gross margin for the second three months of 1997 was 52.0% as compared to 62.4%
for the comparable period in 1996. This 10.4% decline is attributable to
revenue volume shortfalls, higher component costs and competitive price
pressures in selected markets.
Research and development expenses. Research and development expenses for the
three months ended June 30, 1997 were $301,295 compared to $390,423 for the
comparable period in 1996, representing a $89,000 decline primarily from reduced
payroll and related benefit expenses.
Sales and marketing expenses. Sales and marketing expenses for the three months
ended June 30, 1997 were $757,381 as compared to $677,806 for the comparable
three month period in 1996. This $80,000 increase is attributable to renewed
selling and marketing activities subsequent to the private placement funding of
$1,867,045 secured in March 1997.
General and administrative, engineering and service expenses. General and
administrative expenses for the three months ended June 30,1997 were $357,166 as
compared to $443,319 for the comparable period in 1996. The $86,000 decline
resulted from expense reallocations and a reduction in general office expenses.
Engineering expenses for the three months ended June 30, 1997 were $74,039 as
compared to $106,164 for the comparable period in 1996. This $32,000 decline
resulted from reduced payroll and related benefit expenses. Service expenses
for the three months ended June 30, 1997 were $76,706 as compared to $95,957
for the comparable period in 1996. This $19,000 decline resulted from reduced
payroll and related benefit expenses.
Net loss. The Company reported a net loss of $1,077,707 for the three months
ended June 30, 1997 as compared to $812,788 for the comparable period in 1996.
The Company continues to experience revenue and margin shortfalls in both its
product lines and to be adversely impacted by higher interest expenses.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company financed its second quarter 1997 operating losses principally
through the proceeds of $1,867,045, before expenses, of a March 1997 private
placement and a second cash infusion of $100,000 from a private investment
group. In addition, several existing debt holders converted accrued liabilities
aggregating $991,500 to equity. Cash utilized in operating activities in the six
months ended June 30, 1997 approximated $1,932,000 compared to approximately
$986,000 in the corresponding period in 1996. Cash generated by financing
activities previously mentioned through June 30, 1997 totaled $1,878,000 as
compared to $907,000 in the corresponding period of 1996.
As of June 30, 1997, the Company's principal sources of liquidity were cash of
approximately $172,000, trade receivables approximating $671,000 and current and
long-term liabilities of approximately $2,201,000.
At December 31, 1996, Symplex was fully borrowed against its $1,000,000 line of
credit agreement accruing interest at 2% above the bank's prime lending rate.
The line is secured by the assets of the Company. In March 1997, Symplex
restructured its fully utilized bank line of credit into $500,000 of long-term
debt and $500,000 remaining as the amount available under the line of credit.
The term note matures December 1, 1999 and requires quarterly payments of
$10,000 for the first two quarters and $60,000 for each of the remaining eight
quarters. Both the new term loan agreement and the line of credit require
monthly interest payments at the variable rate of 2% above the bank's prime
rate. Both agreements are secured by all the assets of the Company and contain
restrictive covenants. As of June 30, 1997, the Company was in compliance with
the bank restrictive covenants and had fully utilized the $500,000 Line of
Credit.
The Company had net working capital approximating $89,000 and $1,710,000 for the
periods of June 30, 1997 and March 31, 1997, respectively. Symplex will require
additional debt or equity financing to implement its long-term strategies and
achieve its objectives. The Company has prepared a Canadian initial public
offering document and is negotiating with the underwriting agent to establish
the terms of this offering currently scheduled for the third quarter of 1997. In
the opinion of management, the proceeds from this offering, the existing sources
of liquidity and the funds generated from future operations will be sufficient
to meet the Company's short-term projected working capital and other cash
requirements assuming implementation of the operating objectives and attainment
of certain revenue expectations. Management will monitor operating performance
closely, however, and if it appears that the strategies implemented will not
generate the desired results within a reasonable period, will reduce expenses
accordingly. As the Company will require additional debt or equity financing to
satisfy its longer term working capital and other cash requirements, however,
Symplex will continually evaluate the availability and appropriateness of
various methods of securing additional financing.
<PAGE>
* * *
FORWARD-LOOKING STATEMENTS
The statements contained in this report which are not historical in nature
are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934 and the
Company intends that such forward-looking statements be subject to the safe
harbors for such statements under such sections. The forward-looking statements
herein are based on current expectations that involve a number of risks and
uncertainties. Such forward-looking statements are based on numerous
assumptions, including, but not limited to, the assumption: that the new
management team will function effectively; that significant increases in sales
and marketing personnel and expenditures will result in increased sales; that
the new generation Datamizer product will result in increased sales in the
Datamizer product line; that the new generation of Datamizer and DirectRoute
products will be developed on schedule and will provide the level of performance
and reliability demanded by the marketplace; that focusing sales efforts on
multinational companies in North America will generate revenue growth
internationally; that the Company can successfully compete with larger, more
established competitors; that market segments targeted by the Company will
continue to grow; that the Company will be successful in emphasizing the mid-and
high-range components of the DirectRoute product line; that pricing and other
competitive pressures worldwide will not cause margins to erode significantly;
and that currency fluctuations worldwide will not cause adverse pricing
pressures.
The foregoing assumptions are based on judgments with respect to, among other
things, future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the Company's control. Accordingly, although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any such assumption could prove to be inaccurate and therefore
there can be no assurance that the results contemplated in forward-looking
statements will be realized. The forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by the forward-looking statements, including, but
not limited to, the risk: associated with new management teams; that increased
sales and marketing personnel and expenditures will not increase sales
sufficiently to cover the associated costs; that the new generation of Datamizer
and DirectRoute products will experience development or product roll-out
problems; that the Company's current product line, the new generation Datamizer
and DirectRoute products, or future products will not keep up with the rapid
technological change in the marketplace or will otherwise not be well-accepted
in the market; that competitive conditions in the internetworking industry will
change adversely or otherwise become more intense; that changes in technology or
consumer preference could cause the growth rate in the markets the Company
serves to slow or halt; that demand for the DirectRoute product line will slow;
that sales of mid- and high-range DirectRoute components are not the significant
portion of DirectRoute sales; that worldwide pricing and other competitive
pressures could adversely affect the Company's margins; or that currency
fluctuations could result in international pricing pressures or could reduce the
value in U.S. dollar terms of the Company's international sales.
3
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Index to Exhibits.
(b) Reports on Form 8-K during the six months ended June 30, 1997 -
none.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYMPLEX COMMUNICATIONS CORPORATION
Date: September 17, 1997 By: /s/ Gary R. Brock
-----------------------------------
Gary R. Brock
President, Chief Executive Officer
(Principal Executive Officer)
Date: September 17, 1997 By: /s/ Thomas Radigan
-----------------------------------
Thomas Radigan
Chief Financial Officer, Treasurer, Secretary
(Principal Financial and Accounting Officer)
5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page No.
- ------ ----------- --------
3.1 Certificate of Incorporation of the Company, as amended
by Agreement of Merger by and between the Company and
Symplex Communications Corporation, a California
corporation./(1)/
3.2 Bylaws of the Company. /(1)/
10.1 Symplex Communications Corporation Amended and Restated
Nonstatutory Stock Option Plan./(1)/
10.2 Symplex Communications Corporation IPO Stock Option
Plan./(1)/
10.3 Letter Agreement dated March 6, 1997 between the
Company and George Brostoff./(1)/
10.4 Letter Agreement dated February 12, 1997 between the
Company and Opus Capital, LLP./(1)/
10.5 Manufacturing Services Agreement dated July 5, 1995
between the Company and IEC Electronics Corp./(1)/
10.6 Restructure Agreement dated March 25, 1997 between the Company
and Michigan National Bank./(1)/
10.7 Business Loan Agreement and Addendum to Business Loan Agreement, each
dated March 25, 1997, between the Company and Michigan National
Bank./(1)/
27.1 Financial Data Schedule.
____________________
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB filed May 30, 1997.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 171,743
<SECURITIES> 0
<RECEIVABLES> 701,166
<ALLOWANCES> 30,000
<INVENTORY> 1,262,500
<CURRENT-ASSETS> 2,146,769
<PP&E> 372,001
<DEPRECIATION> 42,775
<TOTAL-ASSETS> 2,790,250
<CURRENT-LIABILITIES> 1,841,225
<BONDS> 360,000<F1>
0
0
<COMMON> 69,334
<OTHER-SE> 519,691<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,790,250
<SALES> 916,675
<TOTAL-REVENUES> 975,629
<CGS> 468,623
<TOTAL-COSTS> 2,035,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,126
<INCOME-PRETAX> (1,077,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,077,707)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.25)
<FN>
<F1>Long Term Notes.
<F2>Other Shareholders' Equity.
</FN>
</TABLE>
