<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 March 31, 2000
---------------------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition period from to
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Commission file number 000-22631
-----------
Symplex Communications Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 38-3338110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Research Drive, Ann Arbor, MI 48103
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (734) 995-1555
----------------
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.
[X] Yes [_] 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 equivalents, $.01 par value, at March 31,
- ------------------------------------------------------------------------------
2000 is 8,676,743
- -----------------
Transitional Small Business Disclosure Form (check one): [_] Yes [X] No
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements.
Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999 3
Statements of Operations for the Three Months Ended March 31, 2000 (unaudited) 4
and 1999 (unaudited)
Statement of Stockholders' Equity for the Three Months Ended 5
March 31, 2000 (unaudited)
Statements of Cash Flows for the Three Months Ended March 31, 2000 (unaudited) 6
and 1999 (unaudited)
Notes to Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations.
PART II - OTHER INFORMATION 18
SIGNATURES 18
INDEX TO EXHIBITS 19
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Information
<TABLE>
<CAPTION>
SYMPLEX COMMUNICATIONS CORPORATION
Balance Sheets
- ------------------------------------------------------------------------------------------------------------------
March 31 December 31,
Assets 2000 1999
(unaudited)
------------ ------------
<S> <C> <C>
Currents assets
Cash and cash equivalents $ 336,851 $ 37,735
Trade receivables, less allowance for doubtful accounts of $36,464 in 2000 and 201,970 339,869
$36,464 in 1999, respectively
Inventories (Note 2) 362,553 441,112
Prepaid expenses and other current assets 79,314 51,786
------------ ------------
Total current assets 980,688 870,502
Property and equipment
Machinery and equipment 1,709,694 1,709,694
Office equipment 609,999 609,999
Leasehold improvements 19,590 19,590
------------ ------------
Total 2,339,283 2,339,283
Less accumulated depreciation (2,205,096) (2,188,783)
------------ ------------
Net property and equipment 134,187 150,500
------------ ------------
Total assets $ 1,114,875 $ 1,021,002
============ ============
Liabilities and stockholders' equity
Current liabilities
Trade payables 252,171 $ 465,540
Customer deposit 41,502 41,502
Accrued bonuses and commissions 112,388 104,523
Accrued expenses for European operations 173,206 187,488
Accrued contingent liability (Note 11) 125,000 125,000
Accrued employee incentive plans (Note 10) 177,463 --
Accrued expenses 126,725 175,221
Unearned revenue 24,918 111,432
Notes payable - line of credit (Note 3) -- 400,000
Notes payable - current portion (Note 3) -- 120,000
Notes payable - officer (Note 3) -- 50,000
------------ ------------
Total current liabilities 1,033,373 1,780,706
Total liabilities 1,033,373 1,780,706
------------ ------------
Common stock issued subject to redemption (Note 13) 500,000 500,000
Stockholders' equity (Notes 7, 10 and 13)
Common stock, $.01 par value; 24,000,000 shares authorized and 8,676,743
shares issued and outstanding (including 232,434 shares held in escrow) at
March 31, 2000 and 8,397,452 shares issued and outstanding at December 31, 1999 80,516 77,723
Preferred stock, $.01 par value; 6,000,000 shares authorized and 1,224,490
shares issued and outstanding at March 31, 2000 12,245 12,245
Additional paid-in capital 6,996,308 6,721,287
Additional paid-in capital - warrants 131,616 131,616
Notes receivable - recourse (22,351) (22,351)
Notes receivable - non-recourse (82,245) (82,245)
Retained earnings (accumulated deficit) (7,534,587) (8,097,979)
------------ ------------
Total stockholders' equity (deficit) (418,498) (1,259,704)
------------ ------------
Total liabilities and stockholders' equity $ 1,114,875 $ 1,021,002
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SYMPLEX COMMUNICATIONS CORPORATION
Statements of Operations
- ----------------------------------------------------------------------------------------
Three Months Ended March 31,
2000 1999
------------ ------------
(unaudited)
-----------------------------
<S> <C> <C>
Net sales and revenue (Note 9)
Manufactured products $ 157,969 $ 359,763
Licensing 1,000,000 --
Development fees 127,800 --
Maintenance contracts and service 33,253 16,652
------------ ------------
Total net sales and revenues 1,319,022 376,415
Costs and expenses
Cost of products sold 173,601 226,003
Selling and marketing 76,588 270,694
General and administrative 265,487 350,926
Research and development 154,429 263,527
Engineering 38,665 103,436
Service 21,770 60,177
------------ ------------
Total costs and expenses 730,540 1,274,763
------------ ------------
Operating income (loss) 588,482 (898,348)
Other income (expense)
Interest expense (7,361) (29,029)
Amortization of discount on notes payable -- (6,951)
Other income (expense) (17,729) 9,494
------------ ------------
Total other income and expense (25,090) (26,486)
Net income (loss) $ 563,392 $ (924,834)
============ ============
Income (loss) per basic common share
(Note 1) $ 0.07 $ (0.11)
============ ============
Weighted average common shares outstanding 8,400,521 8,694,269
============ ============
Income (loss) per diluted common share $ 0.06 $ (0.11)
============ ============
Weighted average diluted common shares outstanding 10,009,857 8,694,269
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SYMPLEX COMMUNICATIONS
CORPORATION
Statements of stockholders' equity
Three months ended March 31, 2000 (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Additional
Common Preferred Paid-in
----------------------- ----------------------- Capital
Shares Amount Shares Amount Warrants
--------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1999 8,397,452 77,723 1,224,490 12,245 131,616
Issuance of common stock, net of $1,478 in costs, - 279,291 2,793
conversion of debt to equity (Note 3)
Net Income (loss)
--------- ------- --------- ------- --------
Balance - March 31, 2000 8,676,743 $80,516 1,224,490 $12,245 $131,616
========= ======= ========= ======= ========
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Retained
Additional Notes Notes Earnings
Paid-in Receivable Receivable (Accumlated
Capital Recourse Non-recourse Deficit) Total
---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1999 6,721,287 (22,351) (82,245) (8,097,979) (1,259,704)
Issuance of common stock, net of $1,478 in costs, - 275,021 277,814
conversion of debt to equity (Note 3)
Net Income (loss) 563,392 563,392
---------- -------- -------- ----------- -----------
Balance - March 31, 2000 $6,996,308 $(22,351) $(82,245) $(7,534,587) $ (418,498)
========== ======== ======== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
SYMPLEX COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------
Three Months Ended March 31,
2000 1999
------------ ------------
(unaudited)
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 563,392 $ (924,834)
Adjustments to reconcile net (loss) to net cash provided by (used
in) operating activities:
Allowance for inventory obsolescence (1,856) 45,634
Depreciation 16,313 25,507
Loss (gain) on disposal of assets -- (1,560)
Amortization of discount on notes payable -- 6,951
(Gain) on forgiveness of debt -- (14,685)
Changes in assets and liabilities:
Trade receivables 137,899 993,442
Inventories 80,415 (273,810)
Prepaid expenses and other current assets (27,528) 31,007
Trade payables (213,369) (263)
Unearned maintenance revenue
Accrued expenses (86,514) 8,869
122,550 (70,940)
----------- -----------
Total adjustments 27,910 (750,152)
----------- -----------
Net cash provided (used) in operating activities 591,302 (174,682)
Cash flows from investing activities:
Purchases of property and equipment -- (36,975)
Proceeds from sales of equipment -- 1,560
----------- -----------
Net cash used in investing activities -- (35,415)
Cash flows from financing activities:
Payments on line of credit (120,708) (38,767)
Borrowings (payments) of notes payable (120,000) (109,265)
Payments of notes - officers (50,000) --
Payment of fees related to conversion of debt to equity (1,478) (2,363)
Deferred offering and financing costs -- 44,819
Proceeds (net) from issuance of preferred stock -- 1,085,992
----------- -----------
Net cash provided (used) by financing activities (292,186) 980,416
----------- -----------
Net increase in cash 299,116 770,319
Cash - beginning of period 37,735 154,058
----------- -----------
Cash - end of period $ 336,851 $ 924,377
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 60,538 $ 33,753
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of short-term debt to common stock $ 279,291 $ (500,000)
=========== ===========
Issuance of common stock as a financing fee $ -- $ 19,600
=========== ===========
Cancelled notes receivable and stock held in escrow returned to
treasury $ -- $ 7,400
=========== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF 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 Company's primary markets are North America and
Europe.
The financial statements have been prepared on a basis consistent with
accounting principles generally accepted in the United States.
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-QSB and consequently do not
include all of the disclosures normally made in the registrant's annual
Form 10-KSB filing. These financial statements should be read in
conjunction with the financial statements and notes thereto included with
Symplex Communications Corporation's latest annual report on Form 10-KSB.
Significant Accounting Policies - Inventories are stated at the lower of
cost (determined on the first-in, first-out method) or market (net
realizable value). Inventory reserves are established and recorded
periodically as such requirements can be identified and quantified based
on such factors as new product releases obsoleting existing products,
focused marketing activities effectively relieving excess inventories,
trends of ongoing specific product sales activities and, where possible,
alternative uses for slow moving inventory components.
Interim unaudited financial statements - Information with respect to March
31, 2000 and 1999, and the periods then ended, have not been audited by
the Company's independent auditors, but in the opinion of management,
reflect all adjustments (which include only normal recurring adjustments)
necessary for the fair presentation of the operations of the Company. The
results of operations for the three months ended March 31, 2000 and 1999
are not necessarily indicative of the results of the entire year.
2. INVENTORIES
Inventories as of March 31, 2000 and December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
----------- ------------
<S> <C> <C>
Raw materials $ 97,275 $ 97,276
Work-in-process 544,649 581,922
Finished goods 170,141 213,282
--------- ---------
812,065 892,480
Less reserve for obsolescence (449,512) (451,368)
--------- ---------
Total $ 362,553 $ 441,112
========= =========
</TABLE>
7
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
3. NOTES PAYABLE
The Company has a line-of-credit agreement, which provides for borrowings
up to $500,000 at 2% above the bank's prime rate (prime was 8.5% at March
31, 2000), secured by all assets of the Company. The Company had
borrowings against this line-of-credit of $400,000 at December 31, 1999.
The line-of-credit agreement matured June 30, 1999 and the bank indicated
its unwillingness to renew the line.
The Company had a term note, which matured December 1, 1999 and required
quarterly principal payments, beginning September 1, 1997, of $10,000 for
the first two payments, and $60,000 for the remaining eight. The term note
required quarterly interest payments at a variable rate of 2% above the
bank's prime rate. All assets of the Company secure the note. At December
31, 1999, the term note balance was $120,000.
The agreement for the line-of-credit and the term note contain restrictive
covenants, the most significant of which require the Company to 1)
maintain certain levels of net worth, as defined; 2) maintain certain
levels of working capital; and 3) maintain a certain level of total
liabilities to net worth. The Company was not in compliance with the
covenants at December 31, 1999. Further, there can be no assurances that
these covenants will be attainable on an ongoing basis. Any noncompliance
gives the bank the right to exercise its remedies under the loan
agreements, including but not limited to acceleration of repayment and
repossession of collateral.
In March 2000, the Company executed an agreement with the bank to
eliminate the outstanding indebtedness on the line of credit and the term
note, totaling $520,000. The terms of the agreement included a cash
payment of $240,708 plus interest of $38,583 and the issuance of 279,291
common shares of equity with the option for the Company to repurchase all
or part of these shares on or before March 31, 2002 at $1.00 per share.
In May 1998, the Company secured $500,000 in term note borrowings from a
private investor. The principal balance on the two-year note bears
interest at 15% payable quarterly with the entire principal balance due in
May 2000. In consideration of the borrowing, the Company issued to the
lender a warrant to purchase 350,000 shares of common stock at an exercise
price of $.20 per share in year one and $.23 per share in year two. In
quarter one 1999, the Company entered into an agreement with the private
investor to issue 625,000 shares of common stock in exchange for the
settlement of the $500,000 note payable. With the conversion of the note
to equity, the related unamortized discount was reclassed to
paid-in-capital. As part of the agreement, 500,000 shares are subject to
redemption (Note 13).
In October 1999, the Company executed a demand promissory note for $50,000
payable to the President of the Company. The principal balance bears
interest at 15%. The note was paid in January 2000.
8
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
3. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
----------- ------------
<S> <C> <C>
Term note payable. Payments of $60,000 quarterly including interest at
prime rate plus 2% (prime was 8.5% at December 31, 1999) with final
payment due on December 15, 1999. Secured by all assets of the Company. On
March 2000, a cash payment and the issuance of stock eliminated the note
payable. - 120,000
Term notes payable. Payable upon demand plus interest at 15%.
Paid in January 2000. - 50,000
----------- ------------
Total - 170,000
Unamortized discount -
Less current maturities - (170,000)
------------ ------------
Long term portion $ - $ -
============ ============
</TABLE>
4. LEASES
The Company leases building space under an operating lease. Total rent
expense was approximately $28,500 and $30,000 for the three months ended
March 31, 2000 and 1999, respectively. The lease expired on December 31,
1996, and the Company is currently leasing the space on a month-to-month
basis.
5. EMPLOYEE SAVINGS AND RETIREMENT PLAN
The Company has a 40l(k) Employee Savings and Retirement Plan (the
"Plan"), a defined contribution plan, covering substantially all
employees. The Plan allows for additional discretionary employer
contributions. The Company discontinued employer matching in April 1997.
9
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with a stockholder under which it annually
pays royalties in the amount of 2% of qualified sales or $150,000,
whichever is the lesser amount. The total royalty expense was $800 and
$900 for the three months ended March 31, 2000 and 1999, respectively.
7. COMMON AND PREFERRED STOCK
On November 28, 1996, the Company formed a wholly owned subsidiary in the
State of Delaware, "Symplex Acquisition Corporation", with no assets and
authorized capital of 10,000,000 shares of $.01 par value common stock. On
February 28, 1997 the Company statutorily merged with its wholly owned
subsidiary, forming one Delaware based C-corporation. Concurrent with the
merger, the articles of incorporation were amended to increase the
authorized shares of $.01 par value common stock from 10,000,000 to
20,000,000 shares. Each outstanding share of the former company was
converted into one share of the new company's common stock.
On December 2, 1998, the Company amended the articles of incorporation
increasing the authorized capital from 20,000,000 shares to 30,000,000
shares; as part of such increase in total authorized capital, increase the
number of authorized shares of Common Stock from 20,000,000 to 24,000,000;
and authorize a class of 6,000,000 shares of preferred stock.
8. WARRANTS
In February 1997, the Company entered into an agreement with a private
investment group to assist the Company with a Canadian initial public
offering. In consideration for the assistance, the Company granted
warrants to purchase 233,333 shares of common stock. The warrants vested
upon completion of the initial public offering on February 11, 1998. These
warrants expired on February 10, 2000, two years from the effective date
of the initial public offering. The warrants are exercisable at $1.00 per
share for the first twelve months and $1.15 per share thereafter.
In May 1998, in connection with the issuance of certain subordinated notes
payable, the Company issued a warrant to purchase 350,000 shares of common
stock at $0.20 per share if exercised by May 18, 1999 and $0.23 per share
if exercised by May 18, 2000 (Note 3).
10
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
9. SALES
All of the Company's business is transacted in U.S. dollars and the
Company has no foreign currency translation adjustments. Export sales for
the three months ended March 31, 2000 and 1999, respectively, were as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
(unaudited)
------------------------------
<S> <C> <C>
U.S. $1,206,031 $104,993
Canada 25,040 7,445
Germany 10,298 75,978
Japan 3,600 5,994
Netherlands 35,509 68,233
United Kingdom 38,260 14,549
Other 284 99,223
---------- --------
Total sales $1,319,022 $376.415
========== ========
</TABLE>
10. STOCK OPTIONS
Employee Incentive Plans - February 1997 Option Plan
----------------------------------------------------
In February 1997, the Board adopted a Nonstatutory Stock Option Plan ("the
February 1997 Plan"). Under this plan, the Board approved a program to
grant certain employees the right to purchase common stock of the Company
for $.45 per share ("the employee share purchase program"). Under the
employee share purchase program, the employees may fund the purchase of
shares through the delivery of a recourse or non-recourse promissory note,
bearing interest at the Applicable Federal Rate. Under the non-recourse
note, the Company's sole recourse shall be to cancel any shares that are
being held in escrow. Option grants under this plan expire prior to the
submission of a prospectus for an initial public offering. Certain
restrictions on the stock exist for an 18-month period.
11
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
10. STOCK OPTIONS - continued
During the second quarter of 1997, the Company awarded options, all of
which were exercised, to purchase 738,800 shares pursuant to this plan.
According to the terms of the employee share purchase program, the stock
vested incrementally over 18 months and is held in escrow until vested and
the attributable portion of any outstanding note is paid. Of the total
shares purchased under this plan, 466,606 were forfeited as of March 31,
2000 pursuant to the vesting provisions. A total of approximately $46,500
was charged to compensation expense over the 18 month vesting period for
the 124,039 shares issued with recourse notes based upon the purchase
price of $.45 per share and a market price of $.83 per share. The options
exercised with non-recourse notes are treated as a variable plan.
Compensation expense was recorded over the 18 month vesting period for the
614,761 shares issued with non-recourse notes, computed as the difference
between the $.45 per share purchase price plus accrued interest, and the
current market price which at the time of issuance was $.83 per share. As
of March 31, 2000, 272,194 shares were vested and the balance on the notes
receivable was $104,596. Total stock based compensation expense for the
three months ended March 31, 2000 and 1999 included in general and
administrative expense was $0 and $0, respectively.
On February 16, 2000, Symplex's Board of Directors authorized the
forgiveness of the Promissory Notes (and accrued interest) dated April 1,
1997, which was executed as consideration for the purchase of certain
shares of stock of the Company. In addition, the Company agreed to pay all
related taxes associated with this transaction on the employee behalf.
In September 1997, the February 1997 Plan expired and there are no
remaining options to be issued under this plan.
Employee Incentive Plans - April 1997 Option Plan
-------------------------------------------------
In April 1997, the Board adopted a Nonstatutory Stock Option Plan ("the
April 1997 Plan"). This plan provides for grants to executives and other
key employees including officers who may be members of the Board of
Directors. The plan is administered by a committee of Board members which
determines the issuance of options and their terms.
During the year ended December 31, 1997, the Company granted options to
purchase 1,284,101 shares of common stock at $1 per share under the April
1997 Plan. Of these options granted, 548,933 options remain outstanding
with 545,229 options are fully vested. The remaining options vest over
thirty-six months, however, no vesting shall occur prior to six months
from the date of grant. Additional grants as of March 31, 2000 under the
April 1997 Plan amounted to 948,833 shares. None of the options have been
exercised and 1,278,933 remain outstanding as of March 31, 2000 after
taking into effect the cancellation of 954,001. On August 14, 1998, the
majority of the options granted under the April 1997 Plan were re-priced
to $0.31 per common share.
11. LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's financial position, results of operations or liquidity.
12
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
11. LITIGATION- continued
In March 2000, the Company was named as the defendant in a lawsuit filed
by a former third party manufacturer. The claim for approximately $200,000
is for unpaid inventory components purchased on Symplex's behalf. Although
the Company no longer utilizes this third party manufacturer, it has
sparingly purchased these components for its current third party
manufacturer. Symplex believes it has an obligation to consume these
components. The Company is in active discussions to resolve this matter
out of court and believes it has adequately reserved for any exposure. The
complaint was filed in Washtenaw County Circuit Court in the State of
Michigan.
12. DEVELOPMENT CONTRACT
In November 1999, the Company entered into a partnership agreement with a
provider of network access equipment to develop customized DSL (Digital
Subscriber Line) versions of Symplex's RO-2. The estimated completion date
of the development work is in the second quarter of 2000. In 1999, the
Company received $200,000 related to the partial completion of the
contract, recognizing $120,000 in development fee income and deferring the
remaining $80,000. The deferred development fee income of $80,000 was
recognized in the three months ending March 31, 2000.
13. COMMON STOCK ISSUED SUBJECT TO REDEMPTION
As an Amendment to the Share for Debt Agreement, in which the Company
entered into an agreement with a private investor to issue 625,000 shares
of common stock in exchange for the settlement of a $500,000 note payable
(Note 3), the private investor granted to the Company the option to
purchase 500,000 common shares of the Company at the option price of $1.00
per share on or before May 18, 2000. As consideration for this option, the
Company is required to pay $18,750 quarterly, which began in February
1999. The foregoing notwithstanding, the Company is obligated to purchase
from the private investor the 500,000 common shares pursuant to the terms
of the option not later than May 18, 2000.
On April 19, 2000 the parties agreed to extend the terms of the option to
not later than May 18, 2001. In addition, the private investor may sell
the shares to the open market with the proceeds of these sales reducing
the Company's total obligation. Also, the Company will attempt to pay an
amount greater than the quarterly payment to the private investor reducing
the total obligation and the quarterly payments.
The Company incurred $92,425 in fees related to this transaction. $90,000
was incurred by the issuance of 125,000 common stock at the ten-day
trailing average stock price as quoted on the Canadian Venture Exchange
and $2,425 was paid for professional fees.
13
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
- --------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
In an effort to improve efficiencies and the bottom line, the Company also
announced that it will relocate its operations to smaller offices in the
Ann Arbor area by June 1, 2000. The Company is negotiating and expects to
sign a service agreement with a local engineering firm. The Company will
outsource ongoing support of current product lines as well as future
development efforts, and transfer its engineering team to the local firm.
This relationship will strengthen the Company's ability to take on more
projects sooner.
******
14
<PAGE>
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the selected
financial data and the financial statements and notes thereto filed herewith.
The statements contained in this report, if not historical, are forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, and involve risks and uncertainties that could cause actual results to
differ materially from the financial results described in such forward looking
statements. These risks and uncertainties include, among others, the level and
rate of growth in the Company's operations, the capital requirements of Symplex
and the ability of the Company to achieve earnings per share growth through
internal investment, strategic alliances, joint ventures and other methods. The
success of the Company's business operations is in part dependent on factors
such as the effectiveness of the Company's sales and marketing strategies to
reengage with its Datamizer install base, the appeal of the Company's family of
products, the Company's success at entering into and collaborating with others
to create effective strategic alliances and joint ventures, general competitive
conditions within the telecommunications market and general economic conditions.
Further, any forward looking statements speak only as of the date on which such
statement was made, and the Company undertakes no obligation to update any
forward looking statements to reflect events or circumstances after the date on
which such statements are made or to reflect the occurrence of unanticipated
events. Therefore, forward looking statements should not be relied upon as a
prediction of actual future results.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
- -------------------------------------------------------------------------------
Net Sales: Gross sales for the three months ended March 31, 2000 totaled
$1,326,522 before returns of $7,500, for net sales of $1,319,022 as compared to
gross sales of $432,659 before returns of $56,244, for net sales of $376,415 for
the same period in 1999. The increase in net sales of $942,607, or 250.4%, can
be attributed to (i) a significant increase in North America sales of $1,128,369
primarily from the initial payment of the licensing agreement of Symplex
Directroute software, (ii) a decline in Europe sales in both the DirectRoute and
Datamizer products of $156,690, and (iii) a decrease in Pacific Rim sales of
Datamizer products of $29,072. In February 2000, the Company entered into a
partnership agreement with a leading provider of network access equipment. The
agreement provides a worldwide, perpetual, irrevocable, non-exclusive license of
the Symplex RO-2 router software and an ongoing service agreement for the
customization and enhancement of the software to meet the needs and requirements
of the marketplace.
15
<PAGE>
The gross margin for the three months ended March 31, 2000 was $1,145,421, or
86.8%, as compared to $150,412, or 40.0%, for the comparable period in 1999.
This 46.8% increase is attributable to (i) a significant increase in revenue in
North America resulting from the licensing and partnership agreement executed in
February 2000 for the DirectRoute software which artificially overstates the
increase margin, (ii) a decrease in fixed operating expenses and (iii) no
additional inventory reserve in 2000 as compared to the same period 1999.
Sales and marketing expense: Sales and marketing expenses for the three months
ended March 31, 2000 were $76,588 as compared to $270,694 for the comparable
three-month period in 1999. This $194,106 decrease is attributable primarily to
reductions in compensation of $97,351, professional services of $22,219, travel
expenses of $46,229 and a modest decrease of $28,307 in facilities, advertising
and other expenses.
Research and development expenses: Research and development expenses for the
three months ended March 31, 2000 were $154,429 compared to $263,527 for the
first quarter of 1999. This $109,098 favorable impact results primarily from a
significant decrease in outside professional services of $95,761 and supplies
and equipment of $6,499 both relating to product development in 1999 and a
modest reduction of $6,838 for repair and maintenance and other expenses.
General and administrative, engineering and service expenses: General and
administrative expenses for the three months ended March 31, 2000 were $265,487
as compared to $350,926 for the similar period in 1999. The $85,439 decrease
resulted from a decrease of $48,948 in compensation and a decreases in travel &
entertainment, depreciation, insurance and supplies and other expenses of
$36,491. Engineering expenses for the three months ended March 31, 2000 were
$38,665 as compared to $103,436 for the comparable period in 1999. This $64,771
decrease resulted primarily from decreases in compensation of $31,025, decrease
in new product test expenses of $30,889 and other expenses of $2,857. Service
expenses for the three months ended March 31, 2000 were $21,770 as compared to
$60,177 for the comparable period in 1999. This $38,407 decrease resulted
primarily in a reduction in compensation expenses.
Net Income (Loss): The Company reported a net income of $563,392 or $.07 per
share for the three months ended March 31, 2000 as compared to a net loss of
$924,834 or $.11 per share for the comparable period in 1999. The increase in
quarterly income results primarily from the increase in North America revenue
and the absence of expenses incurred in 1999 relating to the new product
development and release efforts caused by the delays associated with the final
testing and commercial release of RO 2 and Datamizer 6 products.
Liquidity and Capital Resources
- -------------------------------
In quarter one 2000 as compared to the corresponding three-month period in 1999,
Symplex has experienced a significant increase in net income. The Company
operation and financial activities were met for the first three months of 2000
from operating cash flow. The positive cash flow enabled Symplex to execute an
agreement to eliminate the notes payable of $120,000 and line of credit of
$400,000, in the first quarter ending March 31, 2000. (Note 3)
16
<PAGE>
Operating activities provided cash for the three months ended March 31, 2000 of
$591,302 as compared to cash requirement of $174,682 in the same corresponding
period of 1999. Cash utilized for financing activities through March 31, 2000
totaled $292,186 as compared to $980,416 generated in the corresponding period
of 1999. The source of the funds in 1999 was the private placement proceeds of
$1,200,000 before expenses, offset by payments of borrowings of $148,032.
The Company's cash position has modestly improved. The accounts receivable
turnover at March 31, 2000 was 19.5 times annually or approximately 19 days to
collection while inventory turnover was 1.7 times annually or approximately 212
days in inventory. Management anticipates that the receivable and inventory
turnover ratios will decline in the second quarter of 2000 resulting from the
partnership agreement executed in February 2000.
As of March 31, 2000, the Company's principal source of liquidity was cash of
$336,851 and trade receivables of $ 201,970. The stockholders' equity (deficit)
at March 31, 2000 totaled $418,498 as compared to stockholders' equity (deficit)
of $1,259,704 at December 31, 1999. At March 31, 2000, The Company had a working
capital deficit of $52,685 as compared to a working capital deficit $910,204 at
December 31, 1999. If the Company is not able to raise sufficient additional
capital in 2000, it may not be able to achieve fully its performance
expectations for 2000 and may be required to undergo nominal downsizing or
restructuring.
While the Company has generated an operating profit in quarter one of 2000, it
also anticipates that the second half of 2000 will generate nominal net income.
In the opinion of management, the existing sources of liquidity and the funds
generated from anticipated future operations may not be sufficient to meet the
Company's second half 2000 projected working capital and other cash
requirements. As the Company may require additional capital to satisfy its
second half 2000 working capital and other cash requirements, Symplex will
continually evaluate the availability and appropriateness of various methods of
securing additional financing. There can be no assurances that the Company will
seek or successfully obtain additional debt or equity financing or that such
financing would not result in substantial dilution to current shareholders.
Directors, Exeutive Offices, Promoters and Contorl Persons
On April 19, 2000, Symplex Communications Corporation announced the retirement
of Gary R. Brock as Symplex's President and Chief Executive Officer. The Board
of Directors has appointed Symplex's Director of Marketing, Duane Gardner as
Acting President and Chief Executive Officer. Duane Gardner has 15 years of
experience in the computer, telecommunications and data networking industry.
From July 1985 to November 1990, he worked for Automatic Data Processing (ADP)
Network Services, a data communications and information services company. He has
been with Symplex since 1990 and has held numerous positions in Sales and
Marketing, the most recent as Director of Marketing
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of certain computer programs being
written using two digits rather than four to indicate the applicable year. As a
result, computer programs with date-sensitive software may incorrectly recognize
a date using "00" as the year 1900 rather than the year 2000. Such an error
could result in a system failure or miscalculations resulting in disruptions of
operations, including a temporary inability to process normal business
transactions.
17
<PAGE>
To date, the Company has not experienced any significant problems as a
result of the Year 2000. All analysis and testing was performed by the Company's
staff, and Symplex did not incur any significant costs to evaluate the Year 2000
issue. In addition, the Company is not aware that any of its suppliers or
customers have experienced any significant problems as a result of the Year
2000. As the Year 2000 continues, the Company will continue to assess the impact
on Symplex's business, financial condition and results of operations.
* * * * * *
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Included as exhibits are the items listed on the Exhibit Index.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months ended
March 31, 2000.
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: May 15, 2000 By: /s/ Duane Gardner
-----------------
Duane Gardner
President, Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By: /s/ Thomas Radigan
------------------
Thomas Radigan
Chief Financial Officer, Treasurer, Secretary
(Principal Financial and Accounting Officer)
19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
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)
3.3 Certificate of Amendment to Articles of Incorporation.(5)
4.1 Form of Certificate of Common Stock.(2)
4.2 Form of warrant granted to holders of convertible promissory notes
("Note Conversion Warrants").(3)
4.3 Form of warrant granted to Canaccord Capital Corporation and C.M.
Oliver & Co. ("Underwriter Warrants").(3)
4.4 Form of warrant granted to Opus Capital, LLP ("Opus Services
Warrant").(3)
4.5 Form of warrant issued to May 1998 private lender.(4)
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)
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
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.
</TABLE>
- -------------------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB filed May 30, 1997.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
dated February 11, 1998.
(4) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998.
(5) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1999.
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 336,851
<SECURITIES> 0
<RECEIVABLES> 238,434
<ALLOWANCES> 36,464
<INVENTORY> 362,553
<CURRENT-ASSETS> 980,688
<PP&E> 2,339,283
<DEPRECIATION> 2,205,096
<TOTAL-ASSETS> 1,114,875
<CURRENT-LIABILITIES> 1,033,373
<BONDS> 0
0
12,245
<COMMON> 80,516
<OTHER-SE> (511,259)
<TOTAL-LIABILITY-AND-EQUITY> 1,114,875
<SALES> 1,319,022
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 173,601
<OTHER-EXPENSES> 556,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,090
<INCOME-PRETAX> 563,392
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,392
<EPS-BASIC> .07
<EPS-DILUTED> .06
</TABLE>
