<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, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition period from ________________________________ to
Commission file number 000-22631
---------
Symplex Communications Corporation
-----------------------------------
(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.)
11060 Hi Tech Drive, Whitmore Lake, MI 48189
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (734) 449-9370
-------------
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
---------------------------------------------------------------------
August 13 is 8,998,409
----------------------
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 June 30, 2000 (unaudited) and December 31, 1999 3
Statements of Operations for the Three Months Ended June 30, 2000 (unaudited) and
1999 (unaudited) and for the Six Months Ended June 30, 2000 (unaudited)
and 1999 (unaudited) 4
Statement of Stockholders' Equity for the Six Months Ended
June 30, 2000 (unaudited) and Year Ended December 31, 1999 5
Statements of Cash Flows for the Six Months Ended June 30, 2000 (unaudited)
and 1999 (unaudited) 6
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
SYMPLEX COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
Balance Sheets
----------------------------------------------------------------------------------------------------------------------
June 30, December 31,
Assets (Note 3) 2000 1999
(unaudited)
------------- --------------
<S> <C> <C>
Currents assets
Cash and cash equivalents $ 87,663 $ 37,735
Trade receivables, less allowance for doubtful accounts of $17,370 in 2000 and 288,589 339,869
$36,464 in 1999, respectively
Inventories (Note 2) 265,052 441,112
Prepaid expenses and other current assets 30,482 51,786
------------ -------------
Total current assets 671,786 870,502
Property and equipment
Machinery and equipment 744,334 1,709,694
Office equipment 126,358 609,999
Leasehold improvements 9,336 19,590
------------ -------------
Total 880,028 2,339,283
Less accumulated depreciation (785,391) (2,188,783)
------------ -------------
Net property and equipment 94,637 150,500
------------ -------------
Total assets $ 766,423 $ 1,021,002
============ =============
Liabilities and stockholders' equity
Current liabilities
Trade payables $ 359,838 $ 465,540
Customer deposit 78,975 41,502
Accrued bonuses and commissions 83,874 104,523
Accrued expenses for European operations (Note 11) 173,206 187,488
Accrued contingent liability (Note 11) - 125,000
Accrued employee incentive plans (Note 10) - -
Accrued expenses 126,276 175,221
Unearned revenue 118,774 111,432
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 940,943 1,780,706
Total liabilities 940,943 1,780,706
------------ ------------
Common stock issued subject to redemption (Note 13) 500,000 500,000
Stockholders' equity (Notes 7, 8, 10 and 13)
Common stock, $.01 par value; 24,000,000 shares authorized and 8,998,409
shares issued and outstanding at June 30, 2000 and 8,397,452 shares issued
and outstanding at December 31, 1999 83,732 77,723
Preferred stock, $.01 par value; 6,000,000 shares authorized and 1,224,490
shares issued and outstanding at June 30, 2000 12,245 12,245
Additional paid-in capital 7,060,800 6,721,287
Additional paid-in capital - warrants 131,616 131,616
Notes receivable - recourse 0 (22,351)
Notes receivable - non-recourse 0 (82,245)
Retained earnings (accumulated deficit) (7,962,913) (8,097,979)
------------ ------------
Total stockholders' equity (deficit) (674,520) (1,259,704)
------------ ------------
Total liabilities and stockholders' equity $ 766,423 $ 1,021,002
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
SYMPLEX COMMUNICATIONS
CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
------------- -------------- -------------- --------------
(unaudited) (unaudited)
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net sales and revenue (Note 9)
Manufactured products $ 244,566 $ 311,277 $ 402,535 $ 651,339
Licensing - - 1,000,000 -
Development fees 79,523 - 207,323 -
Maintenance contracts and service 34,782 45,972 68,035 82,325
------------- ------------- ------------ ------------
Total net sales and revenues 358,871 357,249 1,677,893 733,664
Costs and expenses
Cost of products sold 222,093 289,138 395,694 515,141
Selling and marketing 62,753 254,877 139,341 525,572
General and administrative 261,634 254,293 527,121 605,218
Research and development 59,888 211,694 214,317 475,222
Engineering 25,236 95,813 63,900 199,249
Service 19,584 66,992 41,354 127,169
------------- ------------- ------------ ------------
Total costs and expenses 651,188 1,172,807 1,381,727 2,447,571
------------- ------------- ------------ ------------
Operating income (loss) (292,317) (815,558) 296,166 1,713,907)
------------- ------------- ------------ ------------
Other income (expense)
Interest expense (81,546) (14,963) (88,907) (43,992)
Amortization of discount on notes payable - (6,951) - (13,902)
Other income (expense) (54,464) (869) (72,193) 8,626
------------- ------------- ------------ ------------
Total other income and
Expenses (136,010) (22,783) (161,100) (49,268)
------------- ------------- ------------ ------------
Net income (loss) $ (428,327) $ (838,341) $ 135,066 $ (1,763,175)
============= ============= ============ ============
============= ============= ============ ============
Income (loss) per basic common share (Note 1) $ (0.05) $ (0.09) $ 0.01 $ (0.19)
============= ============= ============ ============
Weighted average common shares outstanding 8,833,611 9,692,013 8,615,532 9,448,460
============= ============= ============ ============
============= ============= ============ ============
Income (loss) per basic and diluted common share $ (0.05) $ (0.09) $ 0.01 $ (0.19)
============= ============= ============ ============
Weighted average diluted common shares outstanding 8,833,611 9,692,013 9,962,466 9,448,460
============= ============= ============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Statements of stockholders' equity
Six months ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in
Common Preferred 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)
Issuance of common stock, net of $41.51 in costs, - 350,000 3,500
warrants exercised (Note 8)
Employee stock purchase plan (Note 10) - Notes
exercised
Employee stock purchase plan (Note 10) (28,334) (284)
Net Income (loss)
------------ ---------- ------------ ------------ -----------
Balance - June 30, 2000 8,998,409 $ 83,732 1,224,490 $ 12,245 $ 131,616
============ ========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Retained
Additional Notes Notes Earnings
Paid-in Receivable Receivable (Accumulated
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)
Issuance of common stock, net of $41.51 in costs, - 76,958 80,458
warrants exercised (Note 8)
Employee stock purchase plan (Note 10) - Notes 9,601 82,245 91,846
excercised
Employee stock purchase plan (Note 10) (12,466) 12,750 -
Net Income (loss) 135,066 135,066
------------ ---------- ------------ ------------ ------------
Balance - June 30, 2000 $ 7,060,800 $ 0 $ 0 $ (7,962,913) $ (674,520)
============ ========== ============ ============ ============
</TABLE>
See notes to financial statements.
5
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
------------ ------------
(unaudited)
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 135,066 $ (1,763,175)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Allowance for inventory obsolescence (63,866) 49,934
Depreciation 29,998 51,652
Loss (gain) on disposal of assets 33,331 (1,560)
Amortization of discount on notes payable - 13,902
Compensation recognized for stock options 91,846 -
Loss (gain) on forgiveness of debt - (14,685)
Loss on issuance of common stock 80,500 -
Changes in assets and liabilities:
Trade receivables 51,280 1,037,100
Inventories 239,926 (248,273)
Prepaid expenses and other current assets 21,304 39,672
Trade payables (105,702) (2,236)
Unearned maintenance revenue 7,342 8,222
Accrued expenses (171,403) (95,836)
------------ ------------
Total adjustments 214,556 837,892
------------ ------------
Net cash provided (used) in operating activities 349,622 (925,283)
Cash flows from investing activities:
Purchases of property and equipment (9,336) (41,911)
Proceeds from sales of equipment 1,870 1,560
------------ ------------
Net cash used in investing activities (7,466) (40,351)
Cash flows from financing activities:
Payments on line of credit (120,708) (38,767)
Borrowings (payments) of notes payable (120,000) (169,265)
Payments of notes - officers (50,000) -
Payment of fees related to conversion of equity (1,520) (2,363)
Deferred offering and financing costs - 44,819
Proceeds (net) from issuance of preferred stock - 1,085,759
------------ ------------
Net cash provided (used) by financing activities (292,228) 920,183
------------ ------------
Net increase (decrease) in cash 49,928 (45,451)
Cash - beginning of period 37,735 154,058
------------ ------------
Cash - end of period $ 87,663 $ 108,607
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 98,038 $ 44,665
============ ============
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 $ 12,750 $ 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 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
June 30, 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 six
months ended June 30, 2000 and 1999 are not necessarily indicative of
the results of the entire year.
2. INVENTORIES
Inventories as of June 30, 2000 and December 31, 1999 consist of the
following:
June 30, December 31,
2000 1999
(unaudited)
------------ --------------
Raw materials $ 81,841 $ 97,276
Work-in-process 432,874 581,922
Finished goods 137,838 213,282
------------ --------------
652,553 892,480
Less reserve for obsolescence (387,501) (451,368)
------------ --------------
Total $ 265,052 $ 441,112
============ ==============
7
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
--------------------------------------------------------------------------------
3. NOTES PAYABLE
The Company had a line-of-credit agreement, which provided 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. 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 - continued
Notes payable consisted of the following:
<TABLE>
<CAPTION>
June 30, 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
In an effort to improve efficiencies and the bottom line, the Company
relocated its operations to two smaller offices in the Ann Arbor area on
June 1, 2000. The Company signed new leases that will expire in April and
June of 2002. Total rent expense was approximately $51,000 and $57,000 for
the six months ended June 30, 2000 and 1999, respectively.
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.
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
$1,200 for the six months ended June 30, 2000 and 1999, respectively.
9
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
--------------------------------------------------------------------------------
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 were 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.
In May 2000, the Company exercised the warrants on behalf of the private
investor and issued 350,000 shares of common stock at $0.23 per share in
exchange for an extension of the repurchase of common stock (Note 13). The
Company incurred $80,541.51 in interest and fees related to this
transaction. $80,500 was incurred by the issuance of 350,000 common stock
at $0.23 per share and $41.51 was paid for professional fees.
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 six months ended June 30, 2000 and 1999, respectively, were as
follows:
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
(unaudited) (unaudited)
--------------------------- --------------------------
U.S. $ 244,430 $ 113,188 $ 1,450,461 $ 225,626
Germany 1,526 53,656 11,824 129,634
Japan 22,004 1,821 25,604 7,815
Netherlands 38,171 133,914 73,680 202,147
Other 52,740 54,670 116,324 168,442
--------- ------ ----------- -------
Total sales $ 358,871 $ 357,249 $ 1,677,893 $ 733,664
========= ========== =========== =========
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.
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, 494,940 were forfeited as of June 30,
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
384,316 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 June 2000, no shares remain vested.
11
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to financial statements
--------------------------------------------------------------------------------
10. STOCK OPTIONS - continued
In February 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 April 2000, the Company processed the forgiveness of the Promissory
Notes for 204,100 shares of common stock and incurred $154,155 in expenses
related to this transaction of which $91,846.00 for the recourse and
non-recourse notes, $45,784 was for taxes and the $16,525 for interest.
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 shares, 454,367 remain outstanding and 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 June 30, 2000 under the April 1997 Plan amounted to 948,833 shares.
None of the options have been exercised and 929,367 remain outstanding as
of June 30, 2000 after taking into effect the cancellation of 1,303,567.
On August 14, 1998, the majority of these 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.
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 had
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.
On May 23, 2000, a settlement agreement was signed for $120,000. The terms
of the settlement required an initial payment of $50,000 upon execution
and four monthly payments of $17,500. On June 30, 2000, the Company is in
compliance of the settlement agreement.
12
<PAGE>
SYMPLEX COMMUNICATIONS CORPORATION
Notes to Financial Statements
--------------------------------------------------------------------------------
11. LITIGATION - continued
In July 2000, the Company was informed of a judgement dated March 22, 2000
as the defendant in a lawsuit filed by the landlord's in The Hague. The
judgement was filed in The Hague. The claim is for arrears of rent in
approximately Dfl 82,000.00 or approximately $36,000. Symplex believes it
has an obligation for the rent and is adequately reserved for the
exposure.
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.
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.
On April 19, 2000 the parties agreed to extend the terms of the repurchase
too 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. (Note 3)
14. SERVICE AGREEMENT
On June 15, 2000, the Company signed a software development and service
agreement with a local engineering firm and transferred its engineering
team. The Company will outsource ongoing support of current product lines
as well as future development efforts. This relationship will strengthen
the Company's ability to take more products to market.
******
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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 June 30, 2000 Compared to Three Months Ended June 30, 1999
-----------------------------------------------------------------------------
Net Sales: Gross sales for the three months ended June 30, 2000 totaled $378,773
before returns of $19,902, for net sales of $358,871 as compared to gross sales
of $411,040 before returns of $53,791, for net sales of $357,249 for the same
period in 1999. The increase in net sales of $1,625, or 0.5%, can be attributed
to an increase in sales in North America of approximately $156,000 of which
$80,000 is attributed to the an ongoing service agreement for the customization
and enhancement of software and $76,000 to an increase in sales of Datamizer
products. This increase was offset by a decline in sales in Europe associated
with the closing of our sales office in Europe of $161,00, from both the
Datamizer and DirectRoute products and a reduction in product returns in South
America of $6,000. 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.
The gross margin for the three months ended June 30, 2000 was $136,778, or
38.1%, as compared to $68,111, or 19.1%, for the comparable period in 1999. The
increase in gross margin is attributable to the sales increase in development
contracts, which contribute significant gross margins.
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<PAGE>
Sales and marketing expense: Sales and marketing expenses for the three months
ended June 30, 2000 were $62,753 as compared to $254,877 for the comparable
three-month period in 1999. This $192,124 decrease is attributable primarily to
reduction of in salary of $77,578, European and international expenses of
$78,618, advertisement expense of $17,319, travel expenses of $12,762 and
miscellaneous expenses of $5,847, associated with the closing of the European
facility in 1999.
Research and development expenses: Research and development expenses for the
three months ended June 30, 2000 were $59,888 compared to $211,694 for the
second quarter of 1999. This $151,806 favorable impact is the result in a
significant reduction in salary expense of $95,644 related to new software
development and service agreement signed with a local engineering firm, a
decrease in outside professional services of $31,760 relating to product
development expenses incurred in 1999 and $24,402 for other miscellaneous
expenses.
General and administrative and Engineering: General and administrative expenses
for the three months-ended June 30, 2000 were $261,634 as compared to $254,293
for the similar period in 1999. The $7,341 increase resulted from a increase in
professional fees of $63,891associated with the development agreement signed in
the first quarter, offset by an decrease in compensation of $24,816 related to
personnel reductions and a decrease in travel expenses, taxes and miscellaneous
expenses of $31,734. Engineering expenses for the three months ended June 30,
2000 were $25,236 as compared to $95,813 for the comparable period in 1999. This
$70,577 decrease is primarily from a reduction in salary of $41,866, new product
test expenses incurred in 1999 of $19,362 and other miscellaneous expense of
$9,349.
Net Loss: The Company reported a net loss of $428,327 or $.05 per share for the
three months ended June 30, 2000 as compared to a net loss of $838,341 or $.09
per share for the comparable period in 1999. The decrease in the quarterly loss
amount results from higher gross margins from the ongoing service agreement for
the customization and enhancement of software, reduction in personnel and the
closing of the European facility in the later of 1999 offset by an increase in
other expenses.
Liquidity and Capital Resources
-------------------------------
In the first six months of 2000 as compared to the corresponding six-month
period in 1999, Symplex experienced a significant increase in net income. The
Company's operation and financial activities were met for the first six months
of 2000 from operating cash flow. In contrast to the first six month of 1999 in
which the Company financed its operating loss primarily through a $1.2 million
private placement of preferred shares before expenses in the first quarter ended
March 31, 1999. 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.
Operating activities provided cash for the six months ended June 30, 2000 was
$349,622 as compared to cash requirement of $925,283 in the corresponding period
of 1999. Cash utilized by financing activities through June 30, 2000 totaled
$292,228 as compared to $920,183 generated in the corresponding period of 1999.
The source of these funds in 1999 was the private placement proceeds of
$1,200,000 before expenses, offset by payments of borrowings of $208,032. In a
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<PAGE>
non-cash transaction, the Company issued equity valued at $80,500 in exchange
for an extension on the common stock subject to redemption terms.
The Company's cash position has modestly improved. The accounts receivable
turnover at June 30, 2000 was 13.7 times annually or approximately 27 days to
collection while inventory turnover was 2.9 times annually or approximately 126
days in inventory. Management anticipates that the receivable and inventory
turnover ratios will decrease nominally in the remainder of 2000 as revenues
return to more normal quarterly levels.
As of June 30, 2000, the Company's principal sources of liquidity were cash of
$87,663 and trade receivables of $288,589. The stockholders' equity (deficit) at
June 30, 2000 totaled $674,520 as compared to stockholders' equity (deficit) of
$1,259,704 at December 31, 1999. At June 30, 2000, the Company had a working
capital deficit of $269,157 as compared to a working capital deficit of $910,204
at December 31, 1999.
While the Company has generated an operating profit in the first half 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, EXECUTIVE OFFICES, PROMOTERS AND CONTROL 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.
In June 2000, Ms. Patricia Kalmbach resigned as a director of the Company due to
too many commitments. Ms. Kalmbach had been a Symplex director for five years.
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.
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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 has
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
********
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<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 six months ended
June 30, 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: August 13, 2000 By: /s/ Duane Gardner
-----------------
Duane Gardner
President, Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2000 By: /s/ Thomas Radigan
------------------
Thomas Radigan
Chief Financial Officer, Treasurer,
Secretary
(Principal Financial and Accounting
Officer)
18
<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>
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<PAGE>
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.
(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.
20
