<PAGE>
 
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB
(Mark One)
[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997

                                       OR
[_]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
          _____________________________TO_______________________________

                        COMMISSION FILE NUMBER:  0-22631

                       SYMPLEX COMMUNICATIONS CORPORATION
             (Exact name of Registrant as specified in its charter)

          DELAWARE                                      38-3338110
(State or other jurisdiction of                         (IRS Employer
incorporation or organization)                            Identification No.)

                     35 Research Drive, Ann Arbor, MI 48103
               (Address of principal executive offices, zip code)

Registrant's telephone number including area :  (313) 995-1555

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

Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, 
                                                              $.01 PAR VALUE

Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  YES   X   NO_____
           -----        

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

The Registrant's operating revenues for its most recent fiscal year were:
$3,938,000.

The aggregate market value of voting stock held by non-affiliates of the
Registrant, based on the average of the closing bid and asked prices of the
Registrant's Common Stock, as of a specified date within the past 60 days:

          $5,045,697 as of February 28, 1998

As of February 28, 1998 8,045,982 shares of Common Stock, $.01 par value, were
outstanding.

                   DOCUMENTS INCORPORATED BY REFERENCE: None
                                        


Transitional Small Business Disclosure Format:   Yes_____  No  X
                                                              ----
<PAGE>
 
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GLOSSARY


<TABLE>
<S>                                    <C>
 bandwidth                             A measure of how fast a network can move information, usually measured
                                       in millions or billions of bits, or units of data, per second.  The greater the
                                       bandwidth, the greater the speed of transmission information capacity.

 backbone                              A centralized high-speed network that connects smaller, independent
                                       networks.

 bps                                   Bits per second, the basic unit of data communications rate measurement.
                                       Usually refers to the rate of information bits transmitted.

 bridge                                A device that connects two networks using the same standards.

 client/server                         In its simplest form, this is an architecture in which one computer (the
                                       server) stores and manages data and another computer (the client) sends
                                       requests for that data to the server, and processes it and presents it to the
                                       end user in response to requests.  When implemented over a WAN,
                                       client/server architecture is described as "distributed".

 compression                           A technique to reduce the overall number of bits needed to transmit
                                       information so as to permit more signals to use the same channel.  A
                                       technique for reducing the bandwith necessary to carry information
                                       signals.
 
 digital                               A form of representation in which objects (digits) or bits are used to denote
                                       something so that counting and other operations such as communication
                                       technique can be performed precisely.

 distributed computing                 The process by which data and applications are distributed to multi-user
                                       computers, workstations and personal computers within a network rather
                                       than maintained on a centralized computer.

 encryption                            Any procedure used to convert normal data to encoded data for the purpose
                                       of maintaining information privacy.

 ethernet - fast ethernet              Ethernet is a wiring system and network access protocol originally
                                       developed by Xerox and used for LANs.  Ethernet transmits information
                                       between computers at speeds of 10 million bits per second.  Fast ethernet,
                                       first developed for backbone networks but now entering into desktops,
                                       accommodates transmission speeds up to 100 million bits per second.

 firewall                              A gateway between two networks that buffers and screens all information
                                       passing between them.

</TABLE> 
                                      -1-
<PAGE>
<TABLE> 
<S>                                    <C>
 frame relay                           An interface standard that defines how computing devices connect to a
                                       data network which is optimized for the transmission of data packets.
                                       Frame relay shifts responsibility for the integrity of the data away from the
                                       network and onto the end computing devices.

 host                                  A computer connected to a network that provides services to other
                                       computers.  A host computer is generally, but not necessarily a mainframe.

 hub                                   Hubs are boxes that connect and funnel network wiring, and are among the
                                       most widely used types of networking hardware.  Hubs enable fault-
                                       tolerant interconnect of loops by centralizing the wiring and allowing loop
                                       operations and recovery even if nodes fail.

 IP                                    Internet Protocol.  A set of rules used by data communications devices to
                                       exchange data among networks or computer systems.  The Internet
                                       Protocol permits dissimilar networks to communicate.

 Integrated Services Digital Network   A switched digital communications network that uses internationally
 (ISDN)                                recognized standards to transmit data, voice and images over digital lines.

 Internet                              An open global network of interconnected individual, commercial,
                                       educational and governmental computer networks which utilize a common
                                       communications protocol, TCP/IP.

 internetworking                       The process of connecting LANs together.

 inverse multiplexing                  A technique for taking multiple low speed channels and combining them
                                       into a channel of higher speed.

 kilobit (Kb)                          A thousand bits. Kbps refers to kilobits per second, and describes the speed
                                       with which data is transmitted.

 Local Area Network (LAN)              A network that is located in a small geographic area, such as an office, a
                                       building, a complex of buildings, or a campus, and whose communications
                                       technology provides a high bandwidth, low-cost medium to which many
                                       nodes can be connected.  These networks typically do not use public
                                       network circuits.

 Mbps                                  A million (Mega) bits per second.

 multiplexing                          The division of a channel in time or frequency so that more than one signal
                                       can be sent simultaneously over one physical channel.  Multiplexing is
                                       accomplished by a device called a multiplexer.

 multiprotocol                         Multiprotocol devices are devices that can route or otherwise handle
                                       several protocols simultaneously.

 node                                  A node is a connection point in a network that can create, receive or repeat
                                       a message.

 PBX (Private Branch Exchange)         A PBX is a telephone switching system that generally supports more than
                                       100 users.

 packet                                A block of data sent over a network that contains the message and the
                                       identities of the sending and receiving devices and information used.
</TABLE> 
                                      -2-
<PAGE>
<TABLE> 
<S>                                   <C>  
 protocol/standard                     A formal set of conventions governing the format and control of inputs and
                                       outputs between two communicating devices.  This includes the rules by
                                       which these two devices communicate.

 router                                A device that connects LANs. It also chooses the best route between two
                                       networks when there are multiple paths between them by dividing
                                       networks into segments and permitting only traffic destined for a particular
                                       segment of a network to be routed to that segment.

 server                                Software that allows a computer to offer a service to another computer.
                                       Other computers contact the server program by means of matching client
                                       software.  The term also refers to the computer on which the server
                                       software runs.

 statistical multiplexing              The dynamic combination of data from several channels or inputs
                                       according to the amount of activity on each, resulting in a combined single
                                       data output.

 switch                                A device used to route information to different destinations within a
                                       network. A traffic controller for communications networks. A switched
                                       network is any network that uses switches for directing messages from the
                                       sender to the recipient.

 E1                                    A European standard for a data communications line capable of
                                       transmission speeds of 2.064 Mbps.

 T1                                    A North American standard for a data communications line capable of
                                       transmission speeds of 1.54 Mbps.

 T3                                    A North American standard for a data communications line capable of
                                       transmission speeds of 45 Mbps.

 TCP/IP                                Transmission Control Protocol/Internet Protocol.  A compilation of
                                       network and transport level protocols that allows computers with different
                                       architectures and operating system software to communicate with other
                                       computers on the Internet.

 Wide Area Network (WAN)               A network covering a large geographical area.  Its nodes can span city,
                                       provincial/state or national boundaries, and it typically uses circuits
                                       provided by common carriers such as telephone companies.
</TABLE>

CORPORATE HISTORY

   Symplex Communications Corporation ("Symplex" or the "Company") is a Delaware
corporation based in Ann Arbor, Michigan.  It was formed on February 28, 1997
through the merger of a California corporation of the same name that was
incorporated and commenced business in 1982, into Symplex Acquisition
Corporation, a Delaware corporation formed in November 1996 for the sole purpose
of implementing the merger.  In connection with the merger,  Symplex Acquisition
Corporation changed its name to Symplex Communications Corporation.  In this
Registration Statement, all references to "Symplex" or  "the Company" include
references to the predecessor California corporation.  On February 11, 1998, the
Company completed its initial public offering in British Columbia, Canada (the
"Canadian IPO"), selling 3,500,000 shares of Common Stock at a price to public
of $1.00.

                                      -3-
<PAGE>
 
   The Company has experienced annual losses since 1993, and by the last quarter
of 1996 the Company had eroded its accumulated earnings and was fully extended
on its bank line of credit.  Being in need of and with a view to a fresh
infusion of capital to enable it to continue in business, the Company undertook
a comprehensive review of its financing, management and organizational
structure, and its product development and marketing and sales strategies.  This
resulted early in 1997 in the development of a new financing and operating plan,
and the reconstitution of the board of directors and senior management.  The
current senior management is either newly hired or has assumed new
responsibilities. Gary R. Brock, the President and Chief Executive Officer,
assumed his position on May 27, 1997, and Thomas Radigan, the Chief Financial
Officer, has been with the Company only since February, 1997.  Don Holland, the
Director of Engineering, was promoted to that position in November 1997.

BUSINESS OF THE COMPANY

   Symplex designs, develops, manufactures and markets remote access
communications switching systems and data compression devices that enhance the
performance of existing LANs and WANs.  The Company's products facilitate
migration to cost effective communications networks such as frame relay and
ISDN. The Company's switches and compression platforms are based on a
distributed and modular architecture that currently combines WAN switching,
compression and routing in a single product family.  Symplex products support
LAN, client server and host based applications with the ability to switch and
compress data onto public or private networks.

   The Company offers two internetworking product lines.  "Datamizer", first
introduced in 1983 and  with its fifth generation Datamizer V commercially
released in the third quarter of 1997, consists of a series of data transmission
products.  Datamizer units have been installed worldwide, and for the twelve
months ended December 31, 1997, Datamizer revenues were approximately
$2,495,000.  DirectRoute, first introduced in October 1994, consists of a wide
range of ISDN WAN access switches.  To December 31, 1997, DirectRoute products
have generated cumulative sales revenues of approximately $5,043,000.  In the
twelve months ended December 30, 1997,  DirectRoute revenues were approximately
$1,443,000.  A second generation of DirectRoute products, DirectRoute II, is
under development with initial product introduction currently scheduled for the
third quarter of 1998.

   Symplex products have been purchased by a broad variety of enterprises,
including Digital Equipment Corporation, Dow Chemical Co., Hewlett-Packard, IBM
Corporation, Eastman Kodak Co., The Coca-Cola Co., Goodyear Tire & Rubber Co.,
Metropolitan Life, Rockwell International, Merrill Lynch, Deutsche Bank AG,
Daimler-Benz AG, and Matsushita Corporation.  The Company's strategy is to
refocus on these customers with the Datamizer product line which complements
such customers' current installed Symplex products.

   In North America Symplex markets and sells its products to organizations with
a requirement for internetworking and data compression technology, through
direct sales, distributors and resellers.  The Company also has an office in the
Netherlands to support European sales.  The Company has entered into non-
exclusive distribution agreements covering a variety of geographic regions in
Asia (including Japan, Malaysia, and Taiwan) and Europe (including the United
Kingdom, Belgium, and the Netherlands), and in Saudi Arabia, Brazil, and
Colombia.

   The preponderant part of the Company's product revenues has been generated
outside the United States.  In the two fiscal years ended December 31, 1997 and
1996,  foreign sales, as a percentage of total product revenues, were
approximately 63% and 61%, respectively.  The Company has recently restructured
its North American direct sales force by introducing a performance based
compensation structure designed to enhance the sales and marketing efforts
directed to multinational corporations headquartered in the United States, and
enhanced its technical, marketing and sales support programs for foreign
customers and distributors.  There can be no assurance, however, that any of
these steps will be successful in increasing worldwide sales.

   The Company's North American headquarters are located in Ann Arbor, Michigan.

                                      -4-
<PAGE>
 
INDUSTRY BACKGROUND

   General

   The Symplex family of products is designed to respond to a need that
originates in several major trends over the past decade which have affected the
computer and communications industries generally.

   The first trend has been the growth of distributed computing.  Traditional
"mainframe" computing systems, based on closed, centralized, expensive,
relatively uniform and proprietary computer hardware and software, have been
displaced by decentralized server and PC based computer systems, with differing
operating systems, and often connected in either or both local area networks
("LANs") and wide area networks ("WANs").  This shift in emphasis to
"distributed computing" created a demand for seamless internetworking across
geographically dispersed areas among differing computer operating systems, both
within organizations and in their connections to external networks.  Initially,
this was achieved by using dial-up modems through the public telephone lines.
These operated slowly, however, leading to the leasing of dedicated telephone
lines which had to be paid for whether or not used.

   The second trend consisted of changes in telecommunications transmission
technology.  By the early 1990s, telephone companies in most of the
industrialized countries were able to provide high speed, error-free digital
services and many companies took advantage of this to build private networks
using digital telephone lines leased from the telephone companies, combined with
their own control systems.  These networks consist of high-speed digital
circuits, such as 56 Kbps, T1 and T3, as well as specialized networking
equipment, such as bridges, routers, channel service units ("CSUs"), digital
service units ("DSUs"), private branch exchanges ("PBXs") and T1 multiplexers,
and typically transmit large quantities of voice, video and data traffic.
Because of their expense and the high cost of managing them, however, private
digital networks have traditionally interconnected only larger corporate sites.
The growing availability of faster and less expensive personal computers,
workstations and portable PCs, has increased the number of remote offices,
telecommuters and mobile computer users.  This has placed new demands on
networks, since smaller sites require connectivity to corporate backbone
networks. Satisfying these demands, given the high cost and inflexibility of
dedicated digital circuits and low speed of modems, is costly for many remote
offices and users and for the applications for which such offices and users
require connectivity.

   The third trend has been the dramatic growth in the Internet, an open global
network of interconnected individual, commercial, educational and governmental
computer networks using TCP/IP as a common communications protocol. Internet
access providers can now provide reliable, high quality and relatively low-cost
access to the Internet across a range of bandwidths.  Router-based networks,
however, lacked the ability to switch communications vehicles.  This made it
necessary to divide network into separate and relatively inflexible segments,
and this in turn limited flexible and cost-efficient access to Internet and
intranet information.  In addition, as is evident from the recent Internet
failures resulting from demand overload, there is a need for routed networks to
implement automatic failure recovery systems and to cost- effectively compress
data so as to utilize network bandwidth more efficiently and cost effectively.
There is also a demand for remote access intelligent switching systems to
retrieve and collect data throughout an enterprise and to support branch
offices, power users and mobile users.

   These developments have led to an increase in demand for both switched LAN
and WAN networking components. In response, network carriers in the United
States, such as AT&T Corporation ("AT&T"), MCI Telecommunications Corporation,
Sprint Corporation and the regional Bell operating companies ("RBOCs"), and
numerous international carriers, have introduced switched digital network
services which allow users to access end-to-end digital circuits on an as-needed
basis, similar in concept to making a standard telephone call.  These services
typically have data rates of 56 Kbps, 64 Kbps or 128 Kbps, with other rates
available in limited areas.

   In addition to the introduction of these switched digital services, cost
effective digital access lines that provide access to these services from a
customer's location have become increasingly available from the network
carriers, permitting the creation of switched public networks.  These access
lines take the form of T1 (1.5 Mbps), E1 (2 Mbps), 

                                      -5-
<PAGE>
 
switched 56 (56 Kbps), ISDN Basic Rate Interface (two 64 Kbps channels) and ISDN
Primary Rate Interface (twenty-three 64 Kbps channels) and frame relay services.

   It has recently been independently estimated in Data Communications, a
leading industry trade publication, that worldwide spending on networking
products and services in 1996 was approximately $109 billion, up 21% from the
previous year total of $90 billion.  The United States accounted for
approximately 58% of the worldwide market, or $63 billion.  It was also
estimated that the comparable figures for 1997 will be $135 billion globally and
$78 billion in the United States, representing increases of 24% and 24%,
respectively, over 1996.

   In relation to the market segments currently addressed by Symplex products
and services, the same independent industry report gave the following global
revenue estimates for the years 1995 and 1996, and projections for 1997:
<TABLE>
<CAPTION>
                                                                       1996 GROWTH    1997 REVENUES       1997 GROWTH
                                     1995 REVENUES      1996 REVENUES      RATE        (PROJECTED)      RATE (PROJECTED)
PRODUCT                               ($ MILLIONS)      ($ MILLIONS)       (%)        ($ MILLIONS)            (%)
-------------------------------      -------------      -------------  -----------    -------------     ----------------
 
 
<S>                                    <C>             <C>             <C>            <C>             <C>
Remote access                                858           2,157           151             4,308            100
Frame relay switches and access
 devices                                     776           1,057            36             1,373             30
 
Multiprotocol gateways                       402             469            16               551             17
Multiplexers                               1,617           1,450           -10             1,248            -14
Routers                                    3,549           5,023            42             6,500             31
</TABLE>

   In 1992 the Company anticipated that the multiplexer market in which
Datamizer IV is sold would contract, and accordingly developed the DirectRoute
product family to address the remote access, frame relay and multiprotocol
gateway markets.  Additionally, the recently released Datamizer V  specifically
addresses the increased use of frame relay and multi-national connections using
routers.  Moreover, the Company expects to leverage and address its installed
base of Datamizer III and IV customers who are moving from traditional leased-
line point-to-point networks to multipoint frame relay networks using both the
public and private networks.

   Symplex, consistent with most industry experts, expects decreasing gross
margins in both the multiplexer and low end access markets to which the low-end
DirectRoute product is addressed.  The Company's strategy is to continue to
emphasize the development of high end DirectRoute products for the frame relay,
remote access and routing markets which generate margins of between 30% and 61%,
and Datamizer products for the data compression market which currently offers
margins between 70% and 80%.  See "Management's Discussion and Analysis."

   Evolving Applications Requirements

   The growing availability of distributed client-server applications known as
Enterprise Resource Planning (ERP) have had a dramatic effect on the data
communications infrastructure of companies.  These applications, supplied by
companies such as BAAN Company N.V., are heavily reliant upon large file
transfers that transcend a company's entire infrastructure.  This has led to
dramatic increases in the costs associated with the frame relay services used by
these companies, or the necessity to add additional bandwidth.  Moreover,
traditional host-based applications have migrated to client server based
applications to support the growing need of enterprises for communications links
among all functional business divisions.

                                      -6-
<PAGE>
 
   Examples of such applications include remote LAN access and telecommuting
applications, integrated access, and dedicated network back-up.  Backbone
networks are being extended beyond the dedicated digital circuit boundaries to
include remote offices, telecommuters, vendors and customers. Cost effective
remote LAN access requires solutions whose duration, ability to reach multiple
destinations and capacity for file transfers, database operations and other
applications are flexible enough to meet the application needs of a diversity of
users.  Many large organizations now use dedicated digital circuits for their
private networks. Integrated access technologies can be combined to result in an
overall reduction in the cost of these networks.  Switched digital networks can
also provide a complementary service to existing dedicated networks.
Communications equipment that provides not only bandwidth-on-demand but also
high performance, secure interoperability with existing routers and hub
networks, permits established networks to increase capacity during periods of
peak load, and to provide back-up and disaster coverage of the corporate network
to areas previously proven uneconomical when served by a dedicated private line.

   The Company's Focus: Switched Network Access and Bandwidth Enhancement

   The Company's business is focused on both dedicated links and the "switched
network access" segment of the internetworking industry.  Symplex products are
utilized for large enterprise networks and remote LAN access, integrated access
and digital network extensions.  The technologies involved are designed to
enhance current infrastructures such as frame relay networks and point-to-point
links, utilizing switched public networks such as ISDN by providing higher
throughput and reliable and secure network access for both the enterprise
customer and individual users.  In addition, the Company's earlier success in
marketing earlier generations of the Datamizer product has created an installed
base of satisfied customers and channel partners.  Symplex intends to focus on
this installed base and seek to penetrate these customers with Datamizer V. To
encourage sales of Datamizer V the Company has made available to its Datamizer
III and IV customers an upgrade and trade-in option.  Refurbished Datamizer III
and IV units taken in exchange for Datamizer V units are being refurbished and
resold to customers with a need for the narrower bandwidth application,
principally in South and Latin America.  Symplex also intends to direct a
focused marketing effort to the introduction of Datamizer V to its WAN
compression channel partners who have not been introduced to a new Datamizer
product for over five years.

PRODUCTS AND TECHNOLOGY

   Symplex designs, manufactures and sells two core technology platforms. The
DirectRoute product line addresses Internet access, routing and switching access
systems; and the current Datamizer product line provides statistical and inverse
multiplexing and compression technology connected to private and/or public
networks to enable customers to utilize leased line networks more effectively.
The Company's product development staff consists of a Director of Engineering,
three software engineers, one hardware engineer and two test and support
engineers.

   DirectRoute

   DirectRoute products are stand-alone hardware and software units which enable
a Local Area Network ("LAN") to efficiently route and switch data and
communications to enterprise-wide networks ("WANs") and the Internet.  The
DirectRoute product line, on which Symplex's development expenditures to date
aggregate approximately $7,000,000, offers a platform for WAN switching and
routing functionality, and combines dynamic scalable bandwidth and connection-
oriented internetworking with switched digital telecommunications services such
as ISDN.  The DirectRoute product family ranges from entry level, branch office
installed solutions, to flexible, robust solutions for the corporate backbone.
While certain versions of DirectRoute can be used for telecommuting and Internet
access, the product line has been positioned initially as a flexible WAN access
switch giving high performance LAN-to-LAN connectivity.  Currently, the platform
incorporates ethernet connectivity via frame relay, dedicated ISDN, and
traditional leased line WAN services.  Through the utilization of switched
digital services, DirectRoute allows LANs to communicate with one another
quickly, efficiently and cost effectively.  The product architecture allows LAN
users to access remote sites easily.

                                      -7-
<PAGE>
 
   DirectRoute products combine a number of performance enhancing features
embodying Symplex's proprietary technologies.  They allow up to 10 remote office
users to connect via DirectRoute using a single IP address; minimize the amount
of needless "chatter" in the WAN thus eliminating lines which are left connected
but are not actually transmitting data; and automatically open and close lines
to ensure maximum utilization and minimum cost of each open line.  DirectRoute
also uses bandwidth management to optimize the connections that are open to meet
customers' specific networking goals, whether by reducing cost through optimal
line usage, or increasing performance through maximum throughput, and has built
in, easy to control network security functions and network management software.

   DirectRoute products also feature Symplex's most advanced data compression
techniques.  Data compression reduces or compresses the amount of data
characters sent over a communications link in a given time, thus enabling the
use of lower-speed and less costly links for the same amount of traffic.  By
reducing the overall number of bits needed to transmit data, compression reduces
the bandwidth required, thus increasing efficiency and reducing cost.
DirectRoute optimizes compression on a destination-by-destination basis using a
variety of compression schemes, permitting the products to select the most
efficient technique automatically, based on the specifics of the traffic
patterns encountered.  The Symplex compression scheme features ongoing
diagnostics to ensure real time optimization.

   DirectRoute products can be used with existing networking software and
equipment.  They can therefore be incorporated into existing leased line router-
based networks to add functionality, flexibility and an alternative transmission
mode.  New locations which would not be cost effective to connect to an existing
network backbone can be linked through a DirectRoute unit.  DirectRoute can also
be added to sites which are running out of bandwidth on an existing leased line
to reduce overall transmission costs and increase the performance of the entire
network, obviating the need to add additional leased lines.

   Large complex internetworking on-line services have from time to time
experienced severe outages due to an inability to provide instantaneous, high
speed recovery systems.  Currently, manufacturers offer DSU/CSU recovery at
56Kbps for networks that are using speeds up to 45 Mbps.  DirectRoute provides a
lower cost, high performance alternative through a proprietary network recovery
technology, with recovery speeds from 128 Kbps to 2.048 Mbps. This technology
permits DirectRoute to transparently monitor the health of network connections
via the ethernet and backup the network.

   Finally, DirectRoute does not require lengthy set-up time since all
initialization functions are built into the unit. The user simply answers five
basic questions to make DirectRoute operational.

   The next generation of DirectRoute II products is currently scheduled for
initial introduction in the third quarter of 1998.

   The DirectRoute RO-1 and DR-1 products have suggested end-user prices ranging
from $599 to $4,999 depending on the model, volume and upgrades.

   Datamizer

   Datamizer was developed by Symplex in 1983 to respond to user requirements
for higher performance over existing transmission links.   Datamizer products
are bandwidth enhancers which can increase the throughput of existing WAN links
or be used to maintain throughput of an existing link with a more efficient
configuration.  They achieve high-speed transmission by taking advantage of
proven data communications technologies, including inverse multiplexing,
statistical multiplexing, data compression and automatic link restoration.  The
fifth generation Datamizer V, which includes the functionality, feature set and
performance of DirectRoute and the functionality and data compression capability
of Datamizer, was commercially released at the end of the third quarter of 1997,

                                      -8-
<PAGE>
 
and sales have commenced.  Datamizer units have been installed worldwide, many
in Fortune 1000 environments. Total development expenditures on the Datamizer
product family to date aggregate approximately $7.7 million.

   Inverse multiplexing enables multiple lower-speed links to be combined for
transmission to the same location. Statistical multiplexing enables multiple
data inputs to be sent over the same link, thus reducing the need for more
circuits.  Link restoration software enables a link failure or decrease in link
performance to automatically force the creation of a second or backup link.

   Datamizer IV was first shipped in 1992, and supports data compression on
point-to-point connections at speeds up to 1 Mbps.  It is an open-ended scalable
platform with upgradeable performance enhancements, snap-in interfaces and
reconfigurable ports.

   Datamizer V extends the WAN access capabilities to full T1/E1 speeds (up to 2
Mb), and provides data compression.  It will also be compatible with the most
recent advances in frame relay technology.  While frame relay networks allow
companies to use the public infrastructure to access information rather than
building costly point to point leased line routed networks, the packet-based
method of charging for frame relay networks has resulted in an explosion in the
monthly cost of frame relay networks.  Datamizer V is designed to reduce
companies' monthly public network bill, providing significant cost savings while
enhancing overall network reliability. Symplex considers that the biggest
potential market for Datamizer V is multinational corporations using
international public networks.  The Company also expects to be able to leverage
market access with its large installed base of Datamizer III and IV customers
who are moving to frame relay networks.

   The Datamizer III and IV products have suggested end-user prices ranging from
$5,950 to $7,950 depending on the model, volume and upgrades.  Datamizer V
products have suggested end-user prices ranging from $7,699 to $9,895.

BUSINESS STRATEGY

   The Company's principal business objective is to establish itself as a leader
in the development, distribution and support of high performance remote access
communications switching systems and data compression devices to enhance the
performance of existing LANs and WANs.

   There are seven broad elements to the Company's product development,
marketing and sales strategies:


   1. Successfully complete the introduction of Datamizer V to the Symplex
       customer base

   Datamizer IV, released in 1992, was the last Datamizer product announced
until the Datamizer V became available in the third quarter of 1997.  The
Datamizer customer base and distributor network has more than 15 years of
experience with the Datamizer product line, but not having seen enhancements,
upgrades, or new feature announcements since 1992, requires a reintroduction to
the features, advantages and benefits of Datamizer V.  The upgradability of this
base to Datamizer V represents immediate, short-term incremental revenue
potential to Symplex.  Since Datamizer V became available in the third quarter,
units have been shipped to customers in Australia, Singapore, Hong Kong, Europe,
South and Latin America, and the United States.  Moreover, to encourage sales of
Datamizer V the Company has made available to its Datamizer III and IV customers
an upgrade and trade-in option. Datamizer III and IV units taken in exchange for
Datamizer V units are being refurbished and resold to customers with a need for
the narrower bandwidth application, principally in South and Latin America.

   2. Complete development and commercial release of DirectRoute II

                                      -9-
<PAGE>
 
   In the short term Symplex plans to complete the development and initial
introduction of the next generation of its DirectRoute product line, currently
scheduled for the third quarter of 1998.

   3.    Enhancing Existing Products

   The Company intends to continue to invest in product development with a view
to enhancing and adding to its current product portfolio.  The development
effort consists of (i) establishing broad product requirements and
specifications, (ii) developing specific functional specifications based on
market knowledge and customer feedback, (iii) developing design documentation,
(iv) performing design review to verify product requirements, (v) fabricating
and testing a product prototype, and (vi) commencing production and delivery.

   Symplex plans to develop and integrate its core competency by continuing to
enhance its existing product lines through development of switching devices
incorporating industry standards.  The Company plans to continue to develop and
integrate core technologies, which include:

   .  Fast Ethernet.  The next generation of DirectRoute will support the new
emerging standard of fast ethernet. DirectRoute will incorporate this interface
as well as have an option for an integrated fast ethernet switching hub which
will allow customers to converge many technologies into one single managed
platform.

   .  Switching.  Symplex's current and future platforms are based on an
innovative, scalable IP switching and routing architecture.  Since IP is now an
industry standard protocol for both enterprise and Internet networks, and is the
basis for radically changing the cost, function and performance of Internet
Exchanges ("IX"), Network Access Points ("NAPs"), and enterprise networks.
Symplex intends to continue with its open systems architecture which allows for
interoperability with all major internetworking vendors including Ascend
Communications, Inc. ("Ascend"), Bay Networks, Inc. ("Bay Systems"), Cisco
Systems, Inc. ("Cisco"), Digital Equipment ("Digital") and 3Com Corporation
("3Com").

   Ascend, IBM and 3Com have formed an alliance to promote IP switching
platforms. This legitimizes the path that Symplex is pursuing, and allows the
Company to innovate by providing the combination of software with switching
hardware without the cost of special purpose "IP Hardware".

   This architecture differs from that currently used by most competitors which
requires either that expensive IP hardware be built into or slow and cumbersome
routing software be installed in their switches.  IP optimized switching allows
customers to build innovative IP networks that interoperate with their current
vendors by providing higher performance at lower cost than traditional network
hardware providers such as Ascend, Bay Systems, Cisco, Digital or 3Com.

   .  Routing.  Routing is a technology which is implemented into devices such
as routers, bridges and switches, and permits them to choose the best route
between two networks when there are multiple paths between them, by dividing the
networks into segments, with only traffic destined for a particular segment
being routed to it.  This core technology is paramount in building complex,
scalable and flexible networks.

   .  IPV6.  Due to its commitment to open standards architecture, the Company
expects that DirectRoute II will be among the first products capable of
interfacing with the equipment of other vendors using Internet Protocol Version
6 ("IPV6"), a new standard developed to facilitate a solution to the problem of
the limited availability of Internet addresses.

   . Secure Tunneling.  Secure tunneling allows companies to utilize the
Internet as a backbone technology while providing secure tunneling from their
facilities to other company locations. It uses both firewall and other software
to initiate secure paths across the Internet. DirectRoute II will include secure
tunneling technology, a feature which is expected to give the Company immediate
access to Internet Service Providers ("ISP") due to existing demand from
corporate network users.
 

                                      -10-
<PAGE>
 
   4.  Developing Alliances with Third Parties

   The cost of technology development is high and market conditions are
constantly changing and evolving. Because the Company has, in comparison to some
of its major competitors, relatively fewer resources, it plans to license its
technology to third parties to round out their product lines, fill product gaps
and thus enhance revenue growth. The Company will also seek to develop
strategic relationships with companies that can provide emerging technologies,
such as gigabit ethernet technology, and may seek licensing relationships with
original equipment manufacturers. The Company may also seek to expand its own
product portfolio through licensing or other arrangements with suppliers of such
products.

   5.  Expanding and Strengthening Sales and Marketing Team

   With a view to reaching its potential North American and international
markets effectively, Symplex plans to strengthen and expand its sales and
marketing effort by increasing its indirect and consulting sales force.  As of
December 31, 1997, the Company had, in addition to the Vice-President-Worldwide
Sales, 1 sales representatives, 2 inside sales representatives, 1 sales support
engineer, 1 marketing support representative, 3 sales support personnel in its
European office, 1 full-time sales consultant responsible for South and Latin
America, 1 full-time sales consultant responsible for the Far East and Asia, and
4 field service engineers.  The Company has selling partners in Australia,
Singapore, Europe, Germany, South America, the United States and elsewhere, and
expects that its present staffing levels will be sufficient to accommodate its
break-even financial plan over the next twelve months. Growing market acceptance
of the Datamizer V, and the planned introduction of DirectRoute II in the third
quarter of 1998 may necessitate the hiring of additional sales representatives
and consultants, most probably in the last half of 1998.

   6.  Managing Expenses Effectively

   During the fiscal years ended December 31, 1996 and 1997, Symplex's annual
revenue declined from $6.1 million to $3.9 million.  The revenue decline was
most acute in the Datamizer product line, with annual revenues falling from $4.0
million to $2.5 million during the period.  The DirectRoute family of products
was launched in 1994, generating revenues of $107,000, which grew to $1.4
million in 1995, $2.1 million in 1996 and fell to $1.4 million in 1997.
Although the industry grew significantly during this period, several factors
contributed to the Company's declining revenues.  Of particular significance was
the Company's change in focus from WAN products to LAN products and then back to
WAN products, a change in worldwide distribution channels, and significant
management turnover.  Such changes at a time when the Company had minimal cash
resources adversely affected the Company's sales efforts.

   The Company expects that future revenue growth will result principally from
sales of Datamizer products. Despite recent cutbacks in operating expenses,
Symplex's operating expenses in the next twelve months are expected to exceed
the gross margin contribution generated by its breakeven revenue stream unless
it is able to increase existing revenues.

                                      -11-

<PAGE>
 
"Management's Discussion and Analysis." Management will monitor operating
performance closely, however, and if it appears that the previously defined
strategies will not generate the desired revenues within a reasonable period,
will reduce expenses accordingly. Certain discrete activities, such as service
and some support functions and non-essential engineering of product
certifications, can if required by revenue volumes, be contracted out to third
party support organizations. However, the Company will likely have difficulty
achieving short-term sales and marketing objectives can be achieved
notwithstanding a reduction in advertising, trade show and related travel and
training expenditures. If it further reduces its nominal reductions in
administration, costs can be implemented pending the establishment of a more
robust revenue stream. Any such reduction will involve scaling back, delaying or
postponing those development activities which are least disabling to the
attainment of objectives.

   7.  Enhancing and Extending Relationships with Distributors

   To augment the efforts of its direct sales organization, the Company plans to
attempt to enhance its existing relationships with distributors, and build new
relationships with resellers and systems integrators (organizations that package
different technology together to provide solutions) with a view to the inclusion
of Symplex products in their product offerings. To accomplish this objective,
the Company may increase spending for advertising, attend trade shows, and
increase other promotional activities designed to generate demand for the
Company's products and services.  These marketing activities will be designed to
shorten the Company's sales cycle.

PRODUCT MANUFACTURING

   The Company does not operate or own any large scale manufacturing facilities.
The manufacture of the DirectRoute product line is subcontracted to IEC
Electronics Corp., under a Manufacturing Services Agreement dated July 5, 1995
(the "IEC Agreement").  The IEC Agreement has an initial term of three years and
is renewable automatically for successive 12 month periods unless notice of non-
renewal is given by any party at least 60 days prior to the end of any such
renewal term.  The vendors of the material components of the Direct Route
product line are Reptron Electronics, Inc., Arrow Electronics, Inc., and Avnet,
Inc.  The Company purchases such components on a purchase order basis and does
not have contracts with such vendors.

   The Datamizer product line is assembled by component vendors in the Ann
Arbor, Michigan, area. Final product testing and software loading is performed
by Symplex at its headquarters location.  The vendors of the material components
and subassemblies of the Datamizer product line are Reptron Electronics, Inc.,
Arrow Electronics, Inc., Avnet, Inc. and Design Electronic Corporation.  The
Company purchases such components on a purchase order basis and does not have
contracts with such vendors.

   The Company's reliance upon third parties for product manufacture and
assembly carries with it a number of risks, including the lack of adequate
capacity, the unavailability of, or interruption in access to, certain process
technologies and reduced control over delivery schedules, manufacturing yields
and costs.  The Company has occasionally experienced and may in the future
experience delays in delivery of its products, and this could have a material
adverse effect on its business, financial condition and results of operations.

                                      -12-
<PAGE>
 
MARKETING AND SALES

   Sales Plans

   The Company has historically sold its products and services in North and
Latin America with a centralized sales force located in Ann Arbor, Michigan.  In
Europe, sales are currently made through selected distributors supported by a
sales support staff of 3 based in The Hague, in the Netherlands.  Asian and
Latin American sales are also undertaken through selected distributors who are
supported by two international sales consultants.

   The Company has entered into non-exclusive distribution agreements with
distributors in North America, Japan, and a wide variety of other regions
including the United Kingdom, several countries in Europe, Asia, and Central and
South America.  While none of the distributor agreements is presently material
to Symplex, the Company expects to devote substantial efforts to strengthening
its existing distributorship arrangements and to developing further such
relationships and opportunities.  Several such opportunities have been
identified which Symplex believes represent a significant potential market to be
approached through established distributors.  The distribution agreements
generally provide for non-exclusive distribution rights in a defined geographic
area with a term of one year, automatically renewable for successive one year
terms, generally to a maximum of two renewals.

   Marketing Plans

   The Company intends to sell its products through direct and indirect sales
organizations, worldwide.  To enhance its sales organization, Symplex is
implementing a number of marketing programs, including direct mail campaigns,
advertising through the Internet and trade publications, customer testimonials,
trade-in programs (See "Business - Business Strategy"), distributor incentive
programs and volume purchase agreements.  In addition, the Company has commenced
a renewed telemarketing effort addressed to its existing customer base and
indirect sales partners.  Through this effort, the Company is exploiting the
credibility it established over the past 15 years with successful Datamizer
installations, and developing and implementing an extensive reseller/system
integrator marketing program, all with a view to introducing Datamizer V to the
installed base of Datamizer customers worldwide, re-establishing prior
relationships, and regenerating interest in the Datamizer product family among
value added resellers, distributors and systems integrators.  The Company plans
to market its products indirectly through its efforts to establish relationships
with resellers and system integrators, taking advantage of the credibility it
developed with the existing Datamizer installed base, and through extensive
advertising and integrated marketing programs.

PRODUCT LIABILITY

   The Company's agreements with its distributors typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
There can be no assurance that such provisions will protect the Company from
such claims in the markets in which it sells its products.  In addition, while
Symplex maintains product liability insurance under an umbrella liability policy
with a general aggregate limit of $7,000,000 and a separate general liability
policy which limits aggregate coverage to $2,000,000 with a policy limit of
$1,000,000 for each occurrence, a successful product liability claim brought
against it resulting in liability in excess of its insurance coverage could have
a material adverse effect upon the Company's business, results of operations and
prospects.

COMPETITION AND COMPETITIVE STRATEGY

   The  market for network switching products is extremely competitive and
subject to frequent product introductions with improved price/performance
characteristics, rapid technological change and continued emergence of new
industry standards.  Many networking companies, including Ascend Communications,
Inc., Bay Networks, Inc., Cabletron Systems, Inc., Cisco Systems, Inc., FORE
Systems, Inc., and 3Com Corporation have introduced 

                                      -13-
<PAGE>
 
or have announced their intention to develop products in the network switching
business. Many of Symplex's large competitors offer customers a broader product
line which provides a more comprehensive solution than the Company currently
offers. Symplex expects that other companies will also enter markets in which
the Company competes such as data compression and multiplexing technology. In
general, competition in the market for network switching products is less a
reflection of price considerations than of functionality.

   Additionally, Symplex expects to face competition from other vendors in the
networking market who may incorporate switching, routing or compression
technology into their products or provide alternative network solutions.  Many
of the large competitors have substantially greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and a larger
customer installed base than Symplex, and as a result may be able to devote
greater resources to the development, promotion, sale and support of their
products and services.  In addition, competitors with a larger customer
installed base may have a competitive advantage when selling similar products or
alternative networking solutions to their customers.  Increased competition
could result in downward price pressure, reduced profit margins or loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.  There can be no assurance
that the Company will be able to compete successfully against either current or
potential competitors.

   DirectRoute

   The market for internetworking products is highly competitive.  The principal
competition for DirectRoute consists of products manufactured by ISDN equipment
manufacturers and by internetworking equipment manufacturers.

   In the ISDN market, competing products are manufactured by many companies,
including Cisco Systems Inc., Ascend Communications, Inc., ADTRAN, Inc., Digi
International and Motorola.  The products of these manufacturers are currently
addressed to the single telecommuter and small office markets, typically limit
the number of connectable PCs to fewer than four, and have maximum transmission
speeds of 128 Kbps.  In contrast, DirectRoute, depending on configuration, can
handle from 25 to 1000 or more users transmitting simultaneously at speeds up to
512 Kbps, and incorporates the Company's proven data compression algorithms.
Symplex believes that compared to the offerings of its competitors in this
market area, the enhanced capabilities of DirectRoute will make it attractive to
small and medium-sized businesses as well as telecommuters.

   In the high-end internetworking market, the Company's products compete with
bridges, routers and switches designed by, among others, Cisco Systems, 3Com
Corporation, and Bay Networks.  Symplex believes that DirectRoute is currently
more flexible than competing routers, bridges and switches and offers the
possibility of high-bandwidth applications at a lower cost, taking advantage of
switched digital ISDN connectivity without the need for a full network support
structure. In addition, DirectRoute has the ability to establish and disable
connections, which enables connectivity speeds equal to a leased line T1 router
network at a lower cost through the use of multiple ISDN lines.  DirectRoute
incorporates in one comprehensive platform multiple carrier services such as
ISDN, frame relay and dedicated leased lines.
 
   DirectRoute's ability to dial up remote locations and disconnect when the
file transfer is completed obviates the need for expensive leased line networks.
Due to limited fixed costs and time-based charging for ISDN by most providers,
the ongoing cost of DirectRoute solutions is expected to be less than the
current cost of comparable traditional leased line router networks.

   Datamizer

   Datamizer V has been well received in the marketplace, and this has to some
extent bolstered demand for Datamizer products, particularly with the Company's
existing customer base.  While there are competing products offering some of the
functions of the Datamizer product line, these functions are handled by
discreetly housed 

                                      -14-
<PAGE>
 
components performing narrowly defined tasks. The principal competitor in the
data compression market is Telco Systems, Inc. Other competitors in the data
compression market include Cisco, Bay Systems and Ascend Communications. While
there are several smaller companies which have developed compression technology,
only those mentioned target the wide area access market.

INTELLECTUAL PROPERTY PROTECTION

   The Company's ability to compete may be affected by its ability to protect
its intellectual property.  It does not currently hold any patents nor does it
have any patent applications pending, and relies primarily on a combination of
common law copyrights in its software and design, trademark and trade secret
laws, confidentiality procedures, contractual provisions and the complex nature
of the technologies to protect its intellectual property. While the Company
believes that its products and technologies are adequately protected against
infringement, there can be no assurance of effective protection. Monitoring and
identifying unauthorized use of the Company's technology may prove difficult,
and the prohibitive cost of litigation may impair the Company's ability to
prosecute any infringement. The commercial success of the Company may also
depend upon its products not infringing any intellectual property rights of
others and upon no claims for infringement being made against the Company. The
Company believes that it is not infringing any intellectual property rights of
third parties, but there can be no assurance that such infringement will not
occur. An infringement claim against the Company by a third party, even if it
were eventually found to be invalid, could have a material adverse effect on the
Company because of the cost of defending against such a claim.

RESEARCH AND DEVELOPMENT

   Research and development expense was approximately $1,086,000 in 1997
compared to approximately $1,322,000 in 1996 reflecting a declining investment
in new product development due to cash constraints.  The amount of research and
development spending in 1998 is expected to remain relatively unchanged compared
to 1997.

EMPLOYEES

   At February 11, 1998 the Company employed 30 persons (including three in The
Netherlands), all but one of whom are full-time. Of these, seven are engaged in
product development work, four in manufacturing, nine in sales and marketing,
four in customer support and six in finance and administration.  None of the
Company's employees is represented by a labor union nor is the Company a party
to any collective agreement. The Company considers its relations with its
employees to be good.  Symplex has not entered into employment agreements with
any of its officers or employees.  The Company does not carry key man life
insurance on any of its employees.


ITEM 2.  DESCRIPTION OF PROPERTY.

   The Company's head office and principal place of business is at 35 Research
Drive, Ann Arbor, Michigan 48103, where it leases approximately 10,000 square
feet under a month-to-month lease, at a gross monthly rent of $9,500.  The
Company's product development, marketing and sales, and financial and
administrative functions are principally carried on from this location.  In
addition, the Company leases a small office in The Hague, Netherlands, from
which its European sales and sales support efforts are conducted.
 
 
ITEM 3.  LEGAL PROCEEDINGS.

   None.

                                      -15-
<PAGE>
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

   There were no matters submitted to a stockholder vote during the three month
period ended December 31, 1997.


                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

   Prior to the Canadian IPO there was no established public market for the
Company's Common Stock.  The Common Stock is listed on the Vancouver Stock
Exchange under the symbol "SYC.U" and such exchange is the primary market for
the Common Stock.  The Common Stock is quoted in and trades in U.S. dollars.

   The following table sets forth the range of high and low closing bid prices
of the Company's Common Stock as reported by the Vancouver Stock Exchange since
the Company's initial public offering on February 11, 1998.

<TABLE>
<CAPTION>
Market Price                               1998
------------                               ----
                                  High               Low
                                 ------             -----
<S>                              <C>                <C>
First Quarter                    $1.11*             $0.51

Second Quarter

Third Quarter

Fourth Quarter
</TABLE>
* Stock began trading on February 11, 1998.


There are approximately 250 holders of the Common Stock.  No dividends have been
paid since 1994.  The Company intends for the foreseeable future to retain all
future earnings, if any, for the development of its business. The payment of
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, capital requirements,
the Company's financial condition, and general business conditions.  The
Company's loan agreements with its principal lender provide that the Company may
not pay dividends while indebtedness remains outstanding.

   On March 31, 1998 the closing price of the Company's Common Stock on the VSE
was U.S.$.51.

RECENT SALES OF UNREGISTERED SECURITIES

   The Company did not sell any securities in 1996, 1995 or 1994.

   The Company sold the following unregistered securities in 1997.

  (1)    On March 5, 1997, the Company issued to George Brostoff, former
Chairman of the Board of the Company, a warrant to purchase 83,333 shares of
Common Stock at an exercise price of $0.825 per share in connection with his
loan of $250,000 to the Company in the fourth quarter of 1996.

                                      -16-
<PAGE>
 
  (2)    On March 5, 1997, the Company issued to Opus Capital Fund, LLC a
warrant to purchase 100,000 shares of Common Stock at an exercise price of
$0.825 per share in connection with its loan of $300,000 to the Company in
December 1996.

  (3)    On March 5, 1997, the Company issued to Opus Capital Fund, LLC a
warrant to purchase 33,333 shares of Common Stock at an exercise price of $0.825
per share in connection with its loan of $100,000 to the Company.

The Company believes these transactions were private in nature and was exempt
from the registration requirements of Section 5 of the Securities Act by virtue
of the exemption contained in Section 4(2) of the Securities Act.

  (4)    On March 5, 1997, the Company sold in a private placement (the "Private
Placement") 2,263,802 shares of Common Stock to 16 accredited investors, 15 of
whom were Canadian residents and one of whom was a U.S. resident, for an
aggregate purchase price of US$1,867,635.

The Company believes this sale was exempt from the registration requirements of
Section 5 of the Securities Act by virtue of the exemptions provided by Section
4(2) and Regulation S of the Securities Act.

  (5)    On March 5, 1997, in connection with the Private Placement, the Company
issued 57,916 shares of Common Stock to current and former employees upon
conversion of stock appreciation rights held at the time by such persons.

  (6)    On March 5, 1997, the Company issued 303,030 shares of Common Stock to
George Brostoff upon conversion of a $250,000 convertible promissory note.

  (7)    On March 5, 1997, the Company issued 484,849 shares of Common Stock to
Opus Capital Fund, LLC upon conversion of $400,000 of convertible promissory
notes.

  (8)    On March 5, 1997, the Company issued an aggregate of 113,833 shares of
Common Stock in consideration for the cancellation of $341,500 of obligations
for accrued royalties, wages and expenses of four employees and directors. The
shares were issued as follows: George Brostoff, 61,603; Connie Brown, 18,750;
Warren Avis, 3,705; Cyrus Azar, 29,775.

  (9)    On March 5, 1997, pursuant to an agreement with Opus Capital, LLP, the
Company granted to Opus Capital, LLP options to purchase 466,667 shares of
Common Stock at $.825 per share, expiring September 8, 1999.

  (10)   On April 15, 1997, the Company sold 77,965 shares of Common Stock for
aggregate consideration of $62,320 in principal amount of promissory notes and
$2,000 cash. The shares were sold to employees and officers of the Company.

  (11)   In May and September 1997, the Company sold an aggregate of 738,800
shares of Common Stock for aggregate consideration of $332,460 in principal
amount of promissory notes. The shares were sold to employees and officers of
the Company upon exercise of stock options under the February 1997 Option Plan.

The Company believes each of these transactions was private in nature and was
exempt from the registration requirements of Section 5 of the Securities Act of
1933 (the "Securities Act") by virtue of the exemption contained in Section 4(2)
of the Securities Act.

  (12)   On August 27, 1997, the Company sold for cash an aggregate principal
amount of $500,000 of subordinated promissory notes, and warrants to purchase
166,667 shares of Common Stock, to four accredited 

                                      -17-
<PAGE>
 
investors. The notes bear interest at 2% over the prime rate and mature on the
earlier of August 27, 1998 or 15 days after an initial public offering. The
warrants have an exercise price of $1.00 and expire August 27, 1998.

The Company believes the investor in this transaction is sophisticated and had
access to information about the Company, and that this transaction was private
in nature and was exempt from the registration requirements of Section 5 of the
Securities Act by virtue of the exemption contained in Section 4(2) of the
Securities Act.

  (13)   On August 29, 1997, the Company sold for cash an aggregate principal
amount of $700,000 of convertible subordinated promissory notes to 5 non-U.S.
residents.  The notes bear interest at 2% over the prime rate and mature on the
earlier of August 29, 1998 or 15 days after an initial public offering.  Upon an
initial public offering the notes are convertible into units at the rate of
$1.00 of principal per unit, each unit consisting of one share of Common Stock
and one-half of one warrant to purchase a share of Common Stock.  The warrants
have an exercise price of $1.00 and expire February 10, 1999.  A total of
187,500 warrants were issued upon conversion of $375,000 of such convertible
subordinated promissory notes.

The Company believes this transaction was exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Regulation S of the Securities Act.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS.

  The following discussion should be read in conjunction with the financial
statements and accompanying notes included elsewhere in this Prospectus.

BACKGROUND AND OVERVIEW

  Symplex was incorporated in California in 1982 and commenced operations
immediately thereafter.  On February 28, 1997 it merged with Symplex Acquisition
Corporation, a Delaware corporation which was subsequently renamed Symplex
Communications Corporation.  See "Business of the Company: Corporate history".
Initially and through October 1983 when it first generated revenue, the Company
was a development stage entity with activities focused on business planning,
product research and development, organizational infrastructure and hiring.
Symplex is now a two product family company.  These two products families are
Datamizer and, since 1994, DirectRoute.  Annual revenues from the Datamizer
product family increased from $130,000 in 1983 to a high of $21,700,000 in 1989.
Since that date, Datamizer revenues have continued to decline, reaching a low
point in 1997 of $2,495,000, with the Company realizing a profit in only one of
the last five years.  Historically, Datamizer generated gross margins exceeding
70%, and DirectRoute product margins have ranged from 30% to 61%. Although the
industry grew significantly during this period, several factors contributed to
the Company's declining revenues.  Of particular significance was the Company's
change in focus from WAN products to LAN products and then back to WAN products,
a change in worldwide distribution channels, and significant management
turnover. Such changes at a time when the Company had minimal cash resources
adversely affected the Company's sales efforts.

  To address the declining Datamizer revenues and moderate the gross margin
erosion that might otherwise occur, the Company in February 1997 adopted an
engineering, marketing and sales plan to combine the Datamizer and DirectRoute
product families under a single platform which includes the functionality,
feature set and performance of DirectRoute and the functionality and data
compression capability of Datamizer with encryption as a future enhancement.
Datamizer V, an example of this, was commercially released at the end of the
third quarter of 1997, and sales have commenced.  It is the strategy of Symplex
to market the Datamizer V to the Company's installed base of Datamizer
customers, and to re-engage the WAN compression channel partners who have been
representing the Datamizer product worldwide for greater than ten years.  In
addition, the Company continues to market the DirectRoute family of routers,
with an emphasis on major account customers with higher volume requirements.
Symplex has also adopted a commission incentive program for its direct sales
personnel which 

                                      -18-
<PAGE>
 
is designed to encourage sales of higher margin products to multi-national
corporations headquartered in the United States.

  In October 1997 Symplex initiated a corporate-wide reorganization in response
to changing market conditions with a view to positioning the Company more
effectively for future growth opportunities.  Donald Holland, a long time
employee of Symplex, replaced the former Director of Engineering, and twelve
employees, principally in the Engineering group, either left employment
voluntarily or were terminated.  In November 1997 the Company implemented a
further operational restructuring to effect significant reductions in annual
operating expenses, principally by converting the direct sales personnel from a
salary based to a performance based, commission-only, incentive program.

  As a result of the restructuring, completion of the development of DirectRoute
II will be delayed until the third quarter of 1998. The restructuring enhances
the Company's ability to manage its operating resources but has had a material
adverse effect on sales, marketing, production or shipping.  Symplex plans to
engage third parties and consultants to meet specific sales and marketing
requirements as they arise, and to supplement requirements dictated by changing
technology, evolving industry standards, and new product development issues.

  The preponderant part of the Company's product revenues has been generated
outside the United States.  In the two fiscal years ended December 31, 1997and
1996, foreign sales, as a percentage of total product revenues, were
approximately 63% and 61%, respectively.

  At December 31, 1997, the deficit in stockholders' equity was negative
$837,000.  As of December 31, 1996, Symplex had a deficit in stockholders'
equity of $247,000.

  In fiscal years prior to March 1, 1997 Symplex elected to be taxed as an S-
Corporation reporting entity for U.S. federal income tax purposes with the
result that, in lieu of corporation income taxes, the shareholders were taxed on
their proportionate share of the Company's taxable income.  Accordingly, the
financial statements make no provision for corporate income taxes.  On February
28, 1997, Symplex terminated its S-Corporation status and is subject to
corporate income taxes after that date.

FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1996

RESULTS OF OPERATIONS

  For the year ended December 31, 1997, Symplex incurred a loss from operations
of $3,457,000, and, after other income of $18,000, amortization expense of
discount on notes payable of $40,000 and interest expense of $209,000, a net
loss of $3,688,000 as compared to the year ended December 31, 1996 loss from
operations of $3,504,000, and, after other income of $8,000 and interest expense
of $149,000, a net loss of $3,645,000.

  Sales

  Symplex recorded total sales in the year ended December 31, 1997 of
$3,938,000, of which $2,495,000 was generated by Datamizer and $1,443,000 by
DirectRoute.  The comparable amounts in the year ended December 31, 1996 were
$6,081,000, $4,022,000 and $2,059,000.  63% and 61% of total sales in the years
ended December 31, 1997 and 1996, respectively, were generated outside the
United States with Japanese sales representing approximately $311,000 in the
1997 period and $905,000 in 1996.  European product sales were approximately
$1,650,000 in the year ended December 31, 1997 and $1,851,000 in comparable
period of 1996.  Datamizer revenue includes sales of maintenance contracts and
service generated.

  Gross margins at December 31, 1997 were approximately $2,037,000 or 51.7%
compared to approximately $2,953,000 or 48.6% at December 31, 1996.  Margins in
1997 were adversely impacted by cost overruns resulting 

                                      -19-
<PAGE>
 
from declining volumes and higher component costs and from competitive price
pressure in selected markets. Additionally, in the last three months of 1997,
sales volume included a significantly higher percentage of higher-margin
Datamizer products. In the fourth quarter of 1997, higher margins were achieved
from shipments of Datamizer V, resulting in overall improvement in 1997 annual
margins over comparables for 1996. The Company's sales emphasis on data
compression products should continue to improve overall margin performance.

  Product development, sales and marketing expenses

  Research and development expenses were approximately $1,086,000 in the year
ended December 31, 1997 as compared to $1,322,000 in the year ended December 31,
1996.  This reflected a declining investment in both payroll expenses of
$146,000, depreciation and other expenses of $23,000 and in new product
development of $90,000, offset by an increase in outside research expenses of
$23,000 due to cash constraints.  Sales and marketing costs in the year ended
December 31, 1997 were approximately $2,250,000, compared to $2,522,000 in 1996,
reflecting decreased commissions of $270,000 and payroll and benefits of
$88,000, offset by an increase in advertising and other expenses of $26,000 and
in international activities of $60,000 resulting from severe cash constraints.

  General and administrative, engineering and service expenses

  General and administrative expenses for the year ended December 31, 1997 were
$1,604,000 as compared to approximately $1,834,000 in the corresponding period
in the prior year.  This decrease resulted primarily from a reduction in payroll
and related expenses of $272,000, depreciation expense of $6,000 and outside
services of $35,000, offset by a net increase in general expenses of $83,000,
mostly attributable to the $225,000 cost of terminating the Stock Appreciation
Rights Plan and amortizing the compensation expense related to an Employee Share
Purchase Option Plan which has since been terminated.  During 1997 the Company
consolidated its space requirements resulting in a reduction of its leased space
by 17,000 square feet and a corresponding reduction in its monthly rental
expense of approximately $17,000.  It is expected that long-term leasing
arrangements will be settled in the first half of 1998.  Engineering expenses
declined to approximately $246,000, and service costs to $308,000 in the year
ended December 31, 1997 compared to $394,000 and $385,000, respectively, in
1996.  In both instances the decline was due to operating and payroll expense
reductions mandated by cash constraints.

  Other Income/Expense

  Interest expense in the year ended December 31, 1997 increased to
approximately $209,000 from approximately $149,000 in the year ended December
31, 1996 due to the full utilization by the end of the third quarter of 1996 of
the $1,000,000 bank line of credit and the incremental costs associated with the
restructuring of this debt.

LIQUIDITY AND CAPITAL RESOURCES

  The Company financed its 1997 operating losses principally through the
proceeds of $1,867,635 (before expenses) of a private placement, a second cash
infusion of $100,000 from a private investment group and $1,200,000 in bridge
loan financing (before expenses) from insiders and unrelated parties.  The
proceeds of the bridge loan financing were used to finance operating losses
generated in the third and fourth quarters of 1997.  In addition, liabilities
aggregating $991,500 were converted into equity.

  In the four years ended December 31, 1997 Symplex incurred losses and financed
its operations principally through accumulated retained earnings not distributed
to its stockholders, an advance from an outside lender and a bank line of
credit.

                                      -20-
<PAGE>
 
  Cash utilized in operating activities in the year ended December 31, 1997
amounted to $2,777,000 compared to $1,279,000 in 1996.

  Cash utilized by investing activities in the year ended December 31, 1997 was
$95,000 as compared to $38,000 in 1996.  Cash generated by financing activities
in the year ended December 31, 1997 amounted to $2,570,000 compared to
$1,543,000 in 1996.  As discussed in the opening paragraph in this Liquidity and
Capital Resources section, 1997 operations were financed by a private placement,
short-term borrowing and a bridge loan financing.  In 1996 the Company's major
borrowings included notes payable to a stockholder and an investor totaling
$550,000 and a fully utilized $1,000,000 secured bank line of credit.  In 1995,
Symplex had no bank debt and was principally funded from accumulated retained
earnings previously undistributed to stockholders.

  At December 31, 1997 the Company's principal sources of liquidity were cash of
$25,000 and trade receivables of $988,000.  The deficit in assets at that date
amounted to $837,000.  As of December 31, 1996, Symplex's principal sources of
liquidity represented cash of $320,000 and trade receivables of $529,000.  The
deficit in assets at that date was $247,000.  At December 31, 1997 Symplex had a
working Capital Deficit $1,504,000.

  The Company continues to experience significant sales declines and operating
losses. The Company expects to seek a significant capital infusion in 1998,
likely in the second or third quarter, in order to fund its ongoing operations.
There can be no assurance that the Company will successfully obtain additional
debt or equity financing, or that such financing would not result in substantial
dilution of current shareholders. If the Company is not able to raise sufficient
additional capital in 1998, it will not be able to continue in its current form
and will be required to undergo significant downsizing or restructuring. Such a
downsizing or restructuring could have a material adverse effect on the
Company's revenue, operating results and stock price.

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.

  The Company has recently examined its production and internal administrative
systems for year 2000 issues. As a result of that review, the Company has
determined that no significant modifications will be required to make their
systems year 2000 compliant and does not expect that any modifications required
will have a material impact on its business, operations or financial condition.


                               *       *       *
                           FORWARD-LOOKING STATEMENTS

  This Registration Statement contains certain 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-

                                      -21-
<PAGE>
 
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.

                                      -22-
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION


ITEM 7. FINANCIAL STATEMENTS.

                               TABLE OF CONTENTS
                               -----------------

 
                                                                       Page
                                                                       -----
 
Independent Auditors' Report of Ehrhardt Keefe Steiner & Hottman PC..  F - 1
 
Independent Auditors' Report of Deloitte & Touche LLP................  F - 2
 
Financial Statements
 
   Balance Sheets....................................................  F - 3
 
   Statements of Operations..........................................  F - 4
 
   Statement of Stockholders' Equity.................................  F - 5
 
   Statements of Cash Flows..........................................  F - 6
 
Notes to Financial Statements........................................  F - 7

                                     -23-
<PAGE>
 
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

  On March 16, 1998, the Registrant engaged the accounting firm of Ehrhardt
Keefe Steiner & Hottman P.C. ("EKSH") as its principal independent accountants
to audit the Registrant's financial statements for its fiscal year ending
December 31, 1997.  The appointment of new independent accountants was approved
by the Audit Committee and Board of Directors of the Registrant.  The Company
dismissed its former independent accountants, Deloitte & Touche LLP, effective
with the appointment of EKSH.

  Prior to the appointment of EKSH, management of the Registrant had not
consulted with EKSH.

  During the two most recent fiscal years ended December 31, 1997 and 1996, and
the interim period subsequent to December 31, 1997, there were no disagreements
with the former accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which would have
caused the former accountants to make reference in their report to such
disagreements if not resolved to their satisfaction.

  Deloitte & Touche LLP's reports on the financial statements for the past two
years have contained no adverse opinion or disclaimer of opinion and were not
modified as to uncertainty, audit scope or accounting principles except for an
explanatory paragraph in their report dated May 1, 1997 (December 19, 1997 with
respect to certain notes to the financial statements) regarding substantial
doubt about the Registrant's ability to continue as a going concern contained in
the financial statements for the year ended December 31, 1996.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

  Following are the names and ages of the directors, executive officers and
other key employees of the Company:

  DIRECTORS AND EXECUTIVE OFFICERS

Name                Age                       Position
----                ---                       --------
 
 
Gary R. Brock        47       Chief Executive Officer, President and Director
 
Thomas Radigan       53       Chief Financial Officer, Treasurer, Secretary and
                              Director
 
Patricia Kalmbach    38       Director
 
Thomas R. Mayer      62       Director

 
     KEY EMPLOYEES

Constance Brown      51       Director of Operations

                                      -24-
<PAGE>
 
Donald Holland       37       Director of Engineering



     Gary R. Brock has been Chief Executive Officer, President and a director of
the Company since May 27, 1997.  From October 1994 to May 1997 Mr. Brock was
Regional Vice President of General DataComm, Inc., a data communication company.
From 1991 to 1994 Mr. Brock was Vice President of Marketing of Ascom-Timeplex,
Inc., a telecommunications company.  He has over 25 years experience in the
computer, telecommunications and data networking industry, with over 13 years of
such experience in senior sales and marketing management positions.

     Thomas Radigan was appointed Acting Secretary, Treasurer and Chief
Financial Officer in February 1997 and assumed those positions on a permanent
basis in August 1997.  Mr. Radigan has been a director of the Company since
1997.  For the past nine years, Mr. Radigan has been an independent financial
consultant providing financial and related services on a contract basis to
several companies, mostly in high technology industries.  Such services have
been provided through Business of Finance, Inc., a financial consulting firm
wholly-owned by Mr. Radigan. Mr. Radigan has performed Chief Financial Officer
services on a contract basis to Opus Capital, LLP, a firm that provides
management and financial consulting services to the Company.  Mr. Radigan is a
Certified Public Accountant.

     Patricia Kalmbach has been a director of the Company since 1995.  For more
than five years, Ms. Kalmbach has been President of Avis Enterprises, Inc., a
holding company that owns or has owned a variety of businesses, including
condominium conversion, land development, construction, auto dealerships, and
distribution and manufacturing companies. Currently, Ms. Kalmbach holds director
and officer positions in several corporations owned by Avis Enterprises, Inc.

     Thomas R. Mayer has been a director of the Company since February 1997.
From February 1997 to May 26, 1997, he served as Acting President and Chief
Executive Officer of the Company.  Since November 1995,  Mr. Mayer has provided
business management consulting services as President of TRM Consultants, Inc.
From April 1992 to October 1995, Mr. Mayer was the Chairman, President and Chief
Executive Officer of Syntellect, Inc., a Phoenix, Arizona company devoted to the
development and sale of voice processing technology.

     Constance Brown is Director of Operations for the Company, responsible for
general administration, including human resources, and production/shipping,
banking, accounting and inventory.  Prior to joining the Company in 1983 Ms.
Brown was a sales associate with ARC Electronics.

     Donald Holland is Director of Engineering for Symplex, with more than 15
years experience developing telecommunications products and protocols.  Mr.
Holland has been managing data communications product development for more than
12 years, first at Bell Northern Research, then at Network Express, Inc., and
since 1992 at Symplex.  He was instrumental in the development of Datamizer V
architecture and of the DirectRoute product family.

     All executive officers are appointed by the Board of Directors and serve at
the Board's discretion.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than ten percent
(10%) of the Company's Common Stock to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock of the Company.  Except as stated below in this paragraph, based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
Company during the fiscal year ended December 31, 1997 and Form 5 and 

                                      -25-
<PAGE>
 
amendments thereto furnished to the Company with respect to the fiscal year
ended December 31, 1997, to the best of the Company's knowledge, the Company's
directors, officers and holders of more than ten percent (10%) of its Common
Stock complied with all Section 16(a) filing requirements. Gary R. Brock, Chief
Executive Officer and a director of the Company, Thomas Radigan, Chief Financial
Officer and a director of the Company, George Nagy, former Vice President
Marketing -Marketing and North American Sales of the Company, Patricia Kalmbach
and Thomas Mayer, directors of the Company, and Herbert Amster, a former
director of the Company, each filed one late initial statement of beneficial
ownership on Form 3 in connection with the Company's registration under the
Exchange Act in July 1997.


ITEM 10.   EXECUTIVE COMPENSATION

     Thomas Mayer, President and Chief Executive Officer of the Company from
January to May  1997, and Thomas Radigan, Chief Financial Officer, were each
appointed to their respective positions in February 1997.  Mr. Mayer, and Mr.
Radigan prior to his appointment as permanent Chief Financial Officer in August
1997, served the Company in such positions pursuant to an agreement between the
Company and Opus Capital, LLP ("Opus"), which provides consulting services to
the Company.  Pursuant to such agreement, Messrs. Mayer and Radigan (prior to
his appointment as permanent Chief Executive Officer) were paid directly by Opus
and neither received any cash compensation from the Company.  See "Item 7.
Certain Relationships and Related Transactions".

     The following table sets forth the compensation paid to the Company's Chief
Executive Officer, others who served as Chief Executive Officer during any part
of 1997, and its executive officers who were paid more than $100,000 in salary
and bonus during the year ended December 31, 1997 (the "Named Executive
Officers").


                      SUMMARY COMPENSATION TABLE 
<TABLE>
<CAPTION>                                                                                   Long Term
                                                                                           Compensation
                                                 Annual Compensation                         Awards
                                       ----------------------------------------          ----------------
  
                                                                                          Securities
                                                                       Other Annual       Underlying
Name and Principal Position       Year       Salary ($)      Bonus($)  Compensation($)   Options/SARS (#)
--------------------------------  ----       ----------      --------  ---------------   ----------------
 
<S>                               <C>         <C>           <C>       <C>                <C>
Gary R. Brock /(1)/               1997        84,808           - -              - -           260,000
Chief Executive Officer and
President

George Brostoff /(2)/             1997       104,292           - -              - -               - -
Former Chief Executive Officer    1996       276,671/(3)/      - -              - -               - -
and President

George J. Nagy /(4)/              1997       146,430           - -              - -           128,333
Vice President - Marketing and
North American Sales
</TABLE>
-------------
(1)  Mr. Brock joined the Company  in May 1997.
(2)  Mr. Brostoff resigned as Chief Executive Officer and President in January
     1997 at which time he was appointed Chairman of the Board.  Mr. Brostoff
     resigned as a director in September 1997.
(3)  Of this amount, $91,861 was paid and $184,810 was accrued.  The accrued
     amount was satisfied subsequent to December 31, 1996 by the issuance to
     Mr. Brostoff of 61,604 shares of Common Stock at a price of $3.00 per
     share.
(4)  Mr. Nagy joined the Company in February 1997 and resigned from the Company
     in March 1998.

                                      -26-
<PAGE>
 
     Gary R. Brock, Chief Executive Officer and President, is eligible for
a quarterly cash bonus of $31,250 if the Company meets mutually agreed upon
performance goals, which may include, among other things, revenue, gross margin,
operating profit and revenue growth.

     Thomas Radigan, Chief Financial Officer, is compensated at a daily
rate of $400 for each day spent after November 1, 1997 on the affairs of the
Company (to a maximum of $6,000 per month), plus reimbursement of his reasonable
expenses.  Mr. Radigan's appointment may be terminated by either party on 30
days notice.  He is expected to devote, on an annual basis, approximately 180
days to the affairs of the Company

     The following table presents information concerning individual grants
of options to purchase Common Stock of the Company made during the fiscal year
ended December 31, 1997 to each of the Named Executive Officers.

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                    Number of         Percent of Total
                    Securities          Options/SARs       Exercise
                    Underlying           Granted to           or
                    Options/SARs         Employees        Base Price
Name                Granted (#)        in Fiscal Year       ($/Sh.)      Expiration Date
----               --------------     -----------------   -----------    ---------------
 
 
<S>                <C>             <C>                <C>          <C>
Gary R. Brock       133,333/(1)/              6.4%           .45             5/27/02
                     66,667/(2)/              3.2%          1.00             3/31/01
                     60,000/(3)/              2.9%          1.00            11/19/01

George Brostoff      26,667/(4)/              1.3%          1.00             9/11/02

George J. Nagy       63,333/(1)/              3.0%           .45             3/31/02
                     20,000/(2)/              1.0%          1.00             3/31/01
                     45,000/(3)/              2.2%          1.00            11/19/01
</TABLE>
-------------------------
(1)  Options granted under the February 1997 Option Plan. Such options were
     exercised in full and the purchase price was paid by delivery of a non-
     recourse promissory note for the purchase price. Until repaid, the shares
     are held in escrow and are subject to repurchase by the Company. The shares
     vest in equal monthly installments over 36 months.
(2)  Options vest as to one-sixth of shares on 8/11/98 and thereafter at the
     rate of one-thirty-sixth (1/36) of the total shares each month.
(3)  Options vest as to one-half of the shares on 11/20/97, and the remaining
     one-half on 11/20/98.
(4)  At the time of Mr. Brostoff's resignation in September 1997, 11,552 of such
     options were vested.

                                      -27-
<PAGE>
 
     The following table sets forth the fiscal year-end value of unexercised
options to purchase Common Stock of the Company for each Named Executive
Officer.  Not options or SARs were exercised by the Named Executive Officers
during the fiscal year ended December 31, 1997.


            AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                       FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                    Number of Securities                Value of Unexercised
                                   Underlying Unexercised             the-Money Options/SARs
                                  Options/SARs at FY-End(#)              (at FY-End ($)/(1)/
                                  -------------------------           ------------------------
 

                  Name        Exercisable     Unexercisable       Exercisable        Unexercisable
                  ----        -----------     -------------       -----------        -------------
       <S>                       <C>          <C>                 <C>                <C>
       Gary R. Brock               30,000         96,667             -0-                  -0-

       George Brostoff             11,552            -0-             -0-                  -0-

       George J. Nagy              22,500         42,500             -0-                  -0-
</TABLE>
-----------------------------

(1)  The fair market value of Company Common Stock at December 31, 1997, as
reasonably determined by the Company's board of directors, was $1.00 per share.

DIRECTOR COMPENSATION

   Directors of the Company do not receive compensation as such, but are
reimbursed for travel costs and expenses incurred in attending Board and
Committee meetings.  In April1997, the Company granted nonstatutory stock
options under the April 1997 Plan to purchase 35,000 shares of Common Stock each
to non-employee directors Patricia Kalmbach, Herbert Amster and Thomas Mayer.
The options are exercisable at $1.00 per share and expire five years from the
date of grant.  As of February 28, 1998, each of such options is exercisable as
to 53,500 shares, and the balance vest at the rate of 1,000 shares for each
meeting of directors attended.  The Board of Directors meets monthly.  In March
1997, the Company granted to George Brostoff, a former director of the Company,
nonstatutory options to purchase 26,667 shares of Common Stock at an exercise
price of $1.00.  11,552 of such options were vested at the time of Mr.
Brostoff's resignation in September 1997.  Such options expire in 5 years from
date of grant.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

   The Company is a party to a Letter Agreement dated March 6, 1997 (the
"Brostoff Agreement") with George Brostoff, Former Chief Executive and Chairman
of the Board of the Company,  pursuant to which Mr. Brostoff agreed to make his
services available to the Company on an as needed basis, in the fields of sales,
marketing and investor relations.  It provides for the payment to Mr. Brostoff
of a daily or weekly fee of $500 or $2,500 respectively, depending on the length
of the engagement to be performed.  In addition, Mr. Brostoff is entitled to a
commission of 10% on all sales initiated by him; and 5% on all sales initiated
by the Company with his assistance. Compensation terms for other engagements are
to be separately negotiated from time to time as appropriate.  The Brostoff
Agreement expired on June 30, 1997, and through such date the Company paid a
total of $24,575 to Mr. Brostoff pursuant to the Brostoff Agreement.

                                      -28-
<PAGE>
 
STOCK OPTION PLANS

   February 1997 Option Plan

   The Company's Nonstatutory Stock Option Plan (the "February 1997 Option
Plan") was adopted by the Board of Directors of the Company in February 1997,
and was amended on April 11, 1997. The February 1997 Option Plan permits the
granting of non-statutory stock options only.    The February 1997 Option Plan
is administered by a committee appointed by the Board which determines optionees
and the terms of options granted, including the exercise price, number of shares
subject to the option, and the exercisability thereof.

   The Board of Directors capped the number of shares of the Company's Common
Stock reserved for issuance pursuant to options granted under the February 1997
Option Plan at 819,023.  During 1997 the Company granted an aggregate of 738,800
options to purchase Common Stock under the February 1997 Option Plan.  All
options were granted at the exercise price of $.45 per share.  Holders of an
aggregate of 738,800 options under the February 1997 Option Plan exercised their
options.  The purchase price for all such option exercises was paid by recourse
or non-recourse promissory notes from the optionees to the Company, secured by
the underlying shares.  As of February 28, 1998 542,501 of such shares are
subject to vesting and repurchase by the Company under the terms described in
the following paragraph.  77,965 of such shares were purchased by delivery of
six-month interest-free recourse promissory notes and were subject to repurchase
by the Company in the event of termination of employment prior to September 15,
1997.  No further options will be granted pursuant to the February 1997 Option
Plan.

   542,501 outstanding shares of Common Stock purchased with promissory notes
under the February 1997 Option Plan vest in equal monthly installments over 18
months.  Payment for such shares was by delivery to the Company of recourse or
non-recourse promissory notes, due in three years and bearing interest at 6.5%,
and the shares issued pursuant to such exercise are held in escrow pending
payment in full of the principal amount of the note and accrued interest.  The
employee has the right to prepay monthly 1/36th of the amount due under the note
and to obtain release from escrow of the appropriate number of shares.  If prior
to the due date under the note the participant's employment or other service to
the Company is terminated for any reason other than death and there is a balance
due under the note, the Company has the right to repurchase the shares held in
escrow to the extent not vested, at the exercise price per share plus interest,
to be paid and satisfied by set-off against the balance due under the Note.  The
Company's repurchase right does not apply in the event of a sale of all or
substantially all of the assets of the Company, or in the event of the death of
the employee while in employment, in which event the note will become
immediately due and payable and the employee's estate will have the right to
prepay the note at any time and obtain release of the shares from escrow.

   Stock options under the February 1997 Option Plan were granted to and
exercised by the Named Executive Officers as follows: 63,333 shares were granted
to and exercised by George Nagy at $.45 per share, and 133,333 shares were
granted to and exercised by Gary Brock at $.45 per share.  In addition, 41,667
and 20,833 shares under the February 1997 Option Plan were granted to and
exercised by Thomas Mayer and Thomas Radigan, respectively, at $.45 per share.
Shares purchased by Messrs. Mayer and Radigan are subject to vesting and
repurchase as follows: one-twelfth of the shares vest for each full month of
employment after January 1, 1997; provided, however, that if the holder's
employment is involuntarily terminated for any reason prior to July 31, 1997,
the holder will be vested as to seven-twelfths of such shares.  All other terms
are as described in the prior paragraph.

   April 1997 Option Plan

   The Company's IPO Stock Option Plan (the "April 1997 Plan") was adopted by
the Board of Directors of the Company on April 29, 1997.  The April 1997 Plan
provides that the aggregate number of shares reserved for issuance under the
April 1997 Plan, when added to shares reserved for issuance under any other
stock compensation arrangement, including other stock option plans and options
not granted under an option plan, may not exceed in the aggregate 1,500,000.
The April 1997 Plan provides for grants of non-statutory stock options only to
executive 

                                      -29-
<PAGE>
 
and other key employees (including officers who may be members of the Board of
Directors) of the Company, or any subsidiary or parent corporations of the
Company. The April 1997 Plan is administered by a committee appointed by the
Board which determines optionees and the terms of options granted, including the
exercise price, number of shares subject to the option, and the exercisability
thereof. The terms of options granted under the April 1997 Plan generally may
not exceed five years and the exercise price of stock options granted under the
April 1997 Plan must be at least equal to the fair market value of the
underlying shares on the date of grant. An option may not be granted under the
April 1997 Plan to any person if, as the result of such grant, such person would
at the time of such grant hold options, under the April 1997 Plan and any other
stock option plan, to acquire in the aggregate more than five percent (5%) of
the issued and outstanding shares of Common Stock of the Company.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

   The following table sets forth information regarding the beneficial ownership
of shares of Common Stock of the Company for each director and director nominee
of the Company, for the Chief Executive Officer, for others who served as Chief
Executive Officer during any part of 1997, for its executive officers who were
paid more than $100,000 in 1997, for all directors and executive officers of the
Company as a group, and for each shareholder who is known by the Company to own
more than 5% of the Company's Stock as of February 28, 1998.  All information in
this Registration Statement gives effect to a 2-for-3 reverse stock split which
was effective December 19, 1997.

<TABLE>
<CAPTION>
                                                        NUMBER OF                PERCENT OF
NAME AND ADDRESS                                      COMMON SHARES           OUTSTANDING SHARES
OF BENEFICIAL OWNER                                 BENEFICIALLY OWNED       --------------------
-------------------                               ----------------------

<S>                                               <C>                            <C>
Opus Capital, LLP/(1)/                               1,258,999/(2)/                15.5%
      1113 Spruce Street, Ste. 400
      Boulder, CO 80302

Opus Capital Fund, LLC/(3)/                            754,000/(4)/                 8.9%
      1113 Spruce Street, Ste. 400
      Boulder, CO 80302

George Brostoff                                        609,463/(5)/                 8.0%
      5 Research Drive
      Ann Arbor, MI 48103

Thomas R. Mayer.                                       145,242/(6)/                 1.9%
      5 Research Drive
      Ann Arbor, MI 48103

Thomas Radigan                                         144,773/(7)/                 1.9%
      5 Research Drive
      Ann Arbor, MI 48103

Gary R. Brock                                          142,964/(8)/                 1.9%
      5 Research Drive
      Ann Arbor, MI  48103

George J. Nagy.                                         61,205/(9)/                   *
      5 Research Drive
      Ann Arbor, MI 48103
</TABLE> 
                                      -30-
<PAGE>
<TABLE> 
<CAPTION> 
<S>                                                   <C>                         <C>   
Patricia Kalmbach                                      24,500/(10)/                   *
      5 Research Drive
      Ann Arbor, MI 48103

All directors and executive officers as a             518,684/(11)/                 6.5%
 group (5 persons )
----------------------------------------------
</TABLE>

*Less than one percent.

(1)   The general partners of Opus Capital, LLP are Dieter Heidrich and Daryl
      Yurek, 1113 Spruce Street, Boulder, CO 80302.
(2)   Includes warrants to purchase 504,999 shares which are currently
      exercisable or become exercisable within 60 days. Opus Capital, LLP is the
      manager of Opus Capital Fund, LLC (the "Fund"). Includes 620,667 shares
      owned by the Fund and warrants held by the Fund to purchase 133,333 shares
      which are currently exercisable or become exercisable within 60 days.
(3)   The manager of Opus Capital Fund, LLC is Opus Capital LLP.
(4)   Includes warrants to purchase 133,333 shares which are currently
      exercisable or become exercisable within 60 days .
(5)   Includes warrants to purchase 94,885 shares which are currently
      exercisable or become exercisable within 60 days.
(6)   Includes 24,305 shares purchased pursuant to the February 1997 Option Plan
      which are vested. Includes options to purchase 26,603 shares which are
      currently exercisable or become exercisable within 60 days. Includes
      warrants to purchase 94,334 shares which are currently exercisable or
      become exercisable within 60 days.
(7)   Includes 20,833 shares purchased pursuant to the February 1997 Option Plan
      which are vested.  Includes options to purchase 60,940 shares which are
      currently exercisable or become exercisable within 60 days. Includes
      warrants to purchase 63,000 shares which are currently exercisable or 
      become exercisable within 60 days.
(8)   Includes 96,297 shares purchased pursuant to the February 1997 Option Plan
      which are vested. Includes options to purchase 30,000 shares which are
      currently exercisable or become exercisable within 60 days. Includes
      warrants to purchase 16,667 shares which are currently exercisable or
      become exercisable within 60 days.
(9)   Includes 38,705 shares purchased pursuant to the February 1997 Option Plan
      which are vested.  Includes options to purchase 22,500 shares which are
      currently exercisable or become exercisable within 60 days.
(10)  Includes options to purchase 24,500 shares which are currently exercisable
      or become exercisable within 60 days.
(11)  Includes 180,140 shares purchased pursuant to the February 1997 Option
      Plan which are vested. Includes options and warrants to purchase 338,544
      shares which are currently exercisable or become exercisable within 60
      days.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   In the last quarter of 1996 George Brostoff, Chairman of the Board of the
Company, advanced an aggregate of $250,000 to the Company, which loan was
subsequently converted into 303,030 shares of Common Stock at $0.825 per share.
In consideration for these advances, the Company granted Mr. Brostoff a warrant
to purchase up to 83,333 shares of Common Stock at $0.825 per share.  The
warrant expires September 8, 1999.

   On March 5, 1997, the Company issued to George Brostoff 61,603 shares of
Common Stock at a value of $3.00 per share in satisfaction of arrears of salary
in the amount of $184,809 due to him as President and Chief Executive Officer of
the Company prior to his resignation from those positions in January 1997.

                                      -31-
<PAGE>
 
   The Company was a party to a Letter Agreement with George Brostoff which
expired June 30, 1997, pursuant to which he provided consulting services to the
Company.  See Part I, Item 6 - Executive Compensation -Employment Agreements.

   By a letter agreement dated February 12, 1997 (the "Opus Capital Agreement"),
Opus Capital, LLP ("Opus") agreed to provide a variety of  consulting and
related services for the Company.  These services included (i) the preparation
of an operating plan, (ii) making recommendations on executive staffing and
board composition, (iii) making available to the Company, pending the filling of
these positions on a permanent basis, the services of certain executives
associated with Opus, to serve as President and Chief Executive Officer of the
Company, and as its Chief Financial Officer, (iv) assisting in the completion of
a private placement, (v) introducing the Company to potential underwriters with
a view to their acting as its agents in connection with a public offering in
Canada, (vi) providing analytical coverage and investor introductions following
completion of such public offering, and (vii) arranging interim loan financing
on certain terms and conditions.

   Pursuant to the Opus Capital Agreement, Opus has made available to Symplex
the services of Thomas A. Mayer as Acting President and Chief Executive Officer,
and of Thomas Radigan as Acting Chief Financial Officer. Pursuant to such
agreement, neither Mr. Mayer nor Mr. Radigan received any cash compensation from
Symplex. Both of them were compensated directly by Opus.

   In addition, as contemplated by the Opus Capital Agreement, Opus (a) caused
Opus Capital Fund, LLC to advance an aggregate of $400,000 to the Company as
bridge financing (the "Bridge Loan")  which loan was subsequently converted into
484,849 shares of Common Stock at $0.825 per share, (b) assisted the Company in
March 1997 in completing a private placement of 2,263,800 shares of Common Stock
(of which Opus Capital Fund, LLC purchased 135,818 shares) at a price of $0.825
per share, and (c) introduced the Company to the agent for the Canadian IPO.  In
consideration for the Bridge Loan, the Company issued to Opus Capital Fund, LLC
a warrant (the "Opus Debt Consideration Warrant") to purchase 133,333 shares of
Common Stock at a price of $0.825 per share, exercisable at any time prior to
September 8, 1999.

   Pursuant to the Opus Capital Agreement the Company (i) agreed to reimburse
Opus for its out of pocket expenses, including reasonable living and travel
expenses for Messrs. Mayer and Radigan, and to pay Opus a per diem fee of $800
in respect of their services, (ii) granted Opus options to purchase 466,667
shares of Common Stock at a price of $0.825 per share, expiring March 5, 1999
(the "Opus Services Options"), and (iii) issued to Opus at the closing of the
Canadian IPO a warrant (the "Opus Services Warrant") to purchase 233,333 shares
of Common Stock at $1.00 per share, expiring February 10, 2000.


                                    PART IV

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K.

   (a)  Exhibits:

        See Index to Exhibits.

   (b)  Reports on Form 8-K for the quarter ended December 31, 1997:

        None.

                                      -32-
<PAGE>
 
                                   SIGNATURES

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


                  SYMPLEX COMMUNICATIONS CORPORATION


                  By: /s/ Gary R. Brock
                     _______________________________
                      Gary R. Brock
                      Chief Executive Officer

Date:  April 15, 1998


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


SIGNATURE                  TITLE                                  DATE
---------                  -----                                  ----

 
/s/ Gary R. Brock
_____________________      Chief Executive Officer,               April 15, 1998
Gary R. Brock              President and Director
 
/s/ Thomas Radigan             
_____________________      Chief Financial Officer,               April 15, 1998
Thomas Radigan             Treasurer, Secretary
                           and Director
 
/s/ Patricia Kalmbach
_____________________      Director                               April 15, 1998
Patricia Kalmbach
 
/s/ Thomas R. Mayer
_____________________      Director                               April 15, 1998
Thomas R. Mayer

                                      -33-
<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)/

4.1      Form of Certificate of Common Stock.

4.2      Form of warrant granted to holders of convertible promissory
         notes ("Note Conversion Warrants")./(2)/

4.3      Form of warrant granted to Canaccord Capital Corporation and
         C.M. Oliver & Co. ("Underwriter Warrants")./(2)/

4.4      Form of warrant granted to Opus Capital, LLP ("Opus Services
         Warrant")./(2)/

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)/

16.1     Letter of Deloitte & Touche LLP dated March 18, 1998./(3)/

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 Current Report on Form 8-K
     dated February 11, 1998.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
     dated March 16, 1998.

                                      -34-
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Symplex Communications Corporation
Ann Arbor, Michigan

We have audited the accompanying balance sheet of Symplex Communications
Corporation as of December 31, 1997, and the related statement of operations,
stockholders' equity (deficiency in assets), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, such financial statements referred to above present fairly, in
all material respects, the financial position of Symplex Communications
Corporation as of December 31, 1997 and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has a deficit in stockholders' equity of
$836,961 at December 31, 1997 and a net loss of $3,687,864 for the year then
ended. These conditions raise substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters also are described
in Note 14. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

As disclosed in Note 1 to the financial statements, the Company changed its
method of computing earnings per share.



                                             Ehrhardt Keefe Steiner & Hottman PC

March 25, 1998
Denver, Colorado

                                      F-1
<PAGE>
 
              [LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Symplex Communications Corporation
Ann Arbor, Michigan

We have audited the accompanying balance sheet of Symplex Communications
Corporation (the "Company") as of December 31, 1996, and the related statements
of operations, stockholders' equity (deficiency in assets) and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

We have not audited any financial statements of the Company for any period
subsequent to December 31, 1996. However, as discussed in Note 14, the Company
has continued to incur substantial losses in 1997 and had a working capital
deficiency of approximately $983,000 as of September 30, 1997. This matter
raises substantial doubt about its ability to continue as a going concern.
Management plans in regard to these matters are also described in Note 14. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



May 1, 1997 (December 19, 1997 as to Note 1, Earnings (Loss) Per Common Share,
paragraph 2; Note 3, paragraphs 4, 5 and 8; Note 7, paragraph 3; Note 8,
paragraph 4;Note 12, paragraphs 2 and 6, and Note 14.)

DELOITTE & TOUCHE LLP
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION

                                BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                        -------------------------------
                                                                                           1997                1996      
                                                                                        -----------         -----------        
<S>                                                                                     <C>                 <C>                
                                                  ASSETS 
                                                                                                                               
Current assets                                                                                                                 
  Cash                                                                                  $    24,554         $   320,290        
  Trade receivables, less allowance for doubtful accounts of $19,740                                                           
   (1997) and $30,000 (1996)                                                                988,133             529,180        
  Inventories                                                                               979,232           1,312,734        
  Prepaid expenses and other current assets                                                  40,043              48,710        
                                                                                        -----------         -----------        
    Total current assets                                                                  2,031,962           2,210,914        
                                                                                        -----------         -----------        
Property and equipment                                                                                                         
  Machinery and equipment                                                                 1,640,121           2,692,465        
  Office equipment                                                                          640,382           1,017,118        
  Leasehold improvements                                                                     19,590             188,853        
                                                                                        -----------         -----------        
                                                                                          2,300,093           3,898,436        
  Less accumulated depreciation                                                          (1,964,753)         (3,535,910)       
                                                                                        -----------         -----------        
    Net property and equipment                                                              335,340             362,526        
                                                                                        -----------         -----------        
Deferred offering and financing costs                                                       571,984              49,464        
                                                                                        -----------         -----------        
                                                                                        $ 2,939,286         $ 2,622,904        
                                                                                        ===========         ===========        

                                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) 
Current liabilities                                                                                                            
  Trade payables                                                                        $ 1,293,449         $   782,749        
  Accrued expenses (Note 5)                                                                 328,814             575,763        
  Notes payable - revolving (Note 3)                                                        500,000             500,000        
  Notes payable - current portion (Note 3)                                                  250,000              20,000        
  Notes payable - subordinated debt (Note 3)                                              1,163,984             510,000        
  Current portion of capital lease obligations                                                    -               1,637        
                                                                                        -----------         -----------        
    Total current liabilities                                                             3,536,247           2,390,149        
                                                                                                                               
Notes payable - less current portion (Note 3)                                               240,000             480,000        
                                                                                        -----------         -----------        
    Total liabilities                                                                     3,776,247           2,870,149        
                                                                                        -----------         -----------        
                                                                                                                               
Commitments and Contingency (Notes 3, 5, 13 and 15)
                                                                                                                               
Stockholders' equity (deficiency in assets)                                                                                    
  Common stock, $.01 par value; 20,000,000 shares authorized and                                                               
   4,475,982 shares issued, and outstanding (including 542,501 shares                                                          
   held in escrow) at (1997) and 608,753 shares issued and outstanding at                                                      
   (1996)                                                                                    67,841              39,150        
  Additional paid-in capital                                                              3,303,516                   -        
  Unearned compensation expense                                                             (25,933)                  -        
  Additional paid-in capital - warrants                                                      76,000              40,000        
  Notes receivable - recourse                                                               (55,818)                  -        
  Notes receivable - non recourse                                                          (188,308)                  -        
  Accumulated deficit                                                                    (4,014,259)           (326,395)       
                                                                                        -----------         -----------        
          Total stockholders' equity (deficiency in assets)                                (836,961)           (247,245)       
                                                                                        -----------         -----------        
                                                                                                                               
Total liabilities and stockholders' equity                                              $ 2,939,286         $ 2,622,904        
                                                                                        ===========         ===========         
</TABLE>

                      See notes to financial statements.

                                      F-3
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION

                           STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                        ---------------------------------
                                                                           1997                  1996
                                                                        -----------           -----------
<S>                                                                     <C>                   <C>
Net sales and revenues (Note 10)
  Manufactured products                                                 $ 3,761,185           $ 5,893,325
  Maintenance contracts and service                                         176,378               187,800
                                                                        -----------           -----------
      Total net sales and revenues                                        3,937,563             6,081,125
 
Costs and expenses            
  Cost of products sold                                                   1,900,625             3,127,809
  Selling and marketing                                                   2,250,216             2,522,327
  General and administrative (Notes 6 and 12)                             1,604,010             1,834,230
  Research and development                                                1,085,973             1,321,709
  Engineering                                                               245,713               393,915
  Service                                                                   308,389               384,684
                                                                        -----------           -----------
      Total costs and expenses                                            7,394,926             9,584,674
                                                                        -----------           -----------
 
Operating (loss) income                                                  (3,457,363)           (3,503,549)
 
Other (expense) income
  Interest expense                                                         (208,682)             (148,913)
  Amortization of discount on notes payable                                 (40,000)                    -
  Other income                                                               18,181                 7,825
                                                                        -----------           -----------
      Total other expense and income                                       (230,501)             (141,088)
                                                                        -----------           -----------
 
Net loss                                                                $(3,687,864)          $(3,644,637)
                                                                        ===========           ===========
 
Loss per basic and diluted common share (Note 1)                        $      (.55)          $      (.54)
                                                                        ===========           ===========
 
Weighted average common shares outstanding                                6,699,747             6,699,747
                                                                        ===========           ===========
</TABLE>

                      See notes to financial statements.

                                      F-4
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION

           STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
                FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                              Additional 
                                                                               Paid-in       Unearned      Additional     Note
                                                      Number of    Common      Capital     Compensation     Paid-in    Receivable
                                                       Shares      Stock       Warrants      Expense        Capital     Recourse   
                                                     ----------  ---------  ------------  -------------  ------------  ----------  
<S>                                                  <C>         <C>        <C>           <C>            <C>           <C>         
Balance, December 31, 1995                             608,753   $ 39,150   $          -  $          -             -   $       - 
                                                                                                                                   
Issuance of detachable warrants                              -          -         40,000             -             -           -   
                                                                                                                                   
Net loss                                                     -          -              -             -             -           -   
                                                     ---------   --------   ------------  ------------    ----------   ---------   
                                                                                                                                   
Balance, December 31, 1996                             608,753     39,150         40,000             -             -           -   
                                                                                                                                   
Statutory merger with wholly owned                                                                                                 
 subsidiary (Note 7)                                         -    (33,062)             -             -        33,062           -   
                                                                                                                                   
Issuance of common stock, net of $121,590                                                                                          
 costs - private placement (Note 11)                 2,263,802     22,638              -             -     1,723,407           -   
                                                                                                                                   
Conversion of notes payable to common stock                                                                                        
 (Note 3)                                              787,879      7,879              -             -       642,121           -   
                                                                                                                                   
Conversion of accrued liabilities to common                                                                                        
 stock (Note 5)                                        113,833      1,138              -             -       340,362           -   
                                                                                                                                   
Issuance of common stock - SAR plan termination                                                                                    
 (Note 6)                                               57,916        576              -             -        47,203           -   
                                                                                                                                   
Issuance of common stock - key employee plan                                                                                       
 (Note 12)                                              77,965        780              -             -        63,540     (62,319)  
                                                                                                                                   
Issuance of common stock - employee stock                                                                                          
 purchase plan - (Note 12)                             738,800      7,388              -      (277,050)      602,122     (84,450)  
                                                                                                                                   
Amounts paid on notes receivable issued under                                                                                      
 key employee stock plan (Note 12)                           -          -              -             -             -      62,318   
                                                                                                                                   
Compensation expense recognized on stock                                                                                           
 issued with stock option (Note 12)                          -          -              -       177,505             -           -   
                                                                                                                                   
Warrants issued with bridge financing (Note 3)               -          -         36,000             -             -           -   
                                                                                                                                   
Financing fee shares (Note 3)                           23,333        233              -             -        34,767           -   
                                                                                                                                   
Employee stock purchase plan - surrendered shares                                                                                  
 (Note 12)                                            (196,299)    (1,963)             -        73,612      (159,984)     28,633   
                                                                                                                                   
Net loss                                                     -          -              -             -             -           -   
                                                     ---------   --------   ------------  ------------    ----------   ---------   
                                                                                                                                   
Balance - December 31, 1997                          4,475,982   $ 44,757   $     76,000  $    (25,933)   $3,326,600   $ (55,818)  
                                                     =========   ========   ============  ============    ==========   =========   
</TABLE> 
<TABLE> 
<CAPTION> 
                                                                        Retained
                                                           Note         Earnings
                                                        Receivable    (Accumulated
                                                        Nonrecourse     Deficit)        Total    
                                                       ------------  -------------  ------------
<S>                                                    <C>           <C>            <C>         
Balance, December 31, 1995                             $         -    $ 3,318,242   $ 3,357,392 
                                                                                                
Issuance of detachable warrants                                  -              -        40,000 
                                                                                                
Net loss                                                         -     (3,644,637)   (3,644,637)
                                                       -----------   ------------   ----------- 
                                                                                                
Balance, December 31, 1996                                       -       (326,395)     (247,245)
                                                                                                
Statutory merger with wholly owned                                                              
 subsidiary (Note 7)                                             -              -             - 
                                                                                                
Issuance of common stock, net of $121,590                                                       
 costs - private placement (Note 11)                             -              -     1,746,045 
                                                                                                
Conversion of notes payable to common stock                                                     
 (Note 3)                                                        -              -       650,000 
                                                                                                
Conversion of accrued liabilities to common                                                     
 stock (Note 5)                                                  -              -       341,500 
                                                                                                
Issuance of common stock - SAR plan termination                                                 
 (Note 6)                                                        -              -        47,779 
                                                                                                
Issuance of common stock - key employee plan                                                    
 (Note 12)                                                       -              -         2,001 
                                                                                                
Issuance of common stock - employee stock                                                       
 purchase plan - (Note 12)                                (248,010)             -             - 
                                                                                                
Amounts paid on notes receivable issued under                                                   
 key employee stock plan (Note 12)                               -              -        62,318
                                                                                                
Compensation expense recognized on stock                                                        
 issued with stock option (Note 12)                              -              -       177,505  
                                                                                                 
Warrants issued with bridge financing (Note 3)                   -              -        36,000  
                                                                                                 
Financing fee shares (Note 3)                                    -              -        35,000  
                                                                                                 
Employee stock purchase plan - surrendered shares                                                
 (Note 12)                                                  59,702              -             -  
                                                                                                 
Net loss                                                         -     (3,687,864)   (3,687,864) 
                                                       -----------   ------------   -----------  
                                                                                                 
Balance - December 31, 1997                            $  (188,308)  $ (4,014,259)  $  (836,961) 
                                                       ===========   ============   ===========  
</TABLE> 

                      See notes to financial statements.

                                      F-5
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION

                           STATEMENTS OF CASH FLOWS

<TABLE> 
<CAPTION>  
                                                                                                 December 31,
                                                                                        -----------------------------
                                                                                           1997              1996      
                                                                                        -----------       -----------          
<S>                                                                                     <C>               <C>                  
Cash flows from operating activities                                                                                           
 Net income (loss)                                                                      $(3,687,864)      $(3,644,637)         
                                                                                        -----------       -----------          
 Adjustments to reconcile net loss to net cash provided by (used in)                                                           
  operating activities -                                                                                                       
  Allowance for doubtful accounts                                                           (10,260)                -          
  Allowance for inventory obsolescence                                                       67,916           641,637
  Depreciation                                                                              188,033           234,296          
  Loss on disposal of assets                                                                 11,577                 -          
  Amortization of discount on notes payable                                                  40,000                 -          
  Stock related compensation                                                                260,284                 -          
  Changes in assets and liabilities                                                                                            
   Trade receivables                                                                       (448,693)        1,122,805          
   Inventories                                                                              187,809           112,054          
   Prepaid expenses and other current assets                                                  8,667           (30,177)         
   Trade payables                                                                           510,700           152,810          
   Accrued expenses                                                                          94,551           132,462          
                                                                                        -----------       -----------          
                                                                                            910,584         2,365,887          
                                                                                        -----------       -----------          
     Net cash used in operating activities                                               (2,777,280)       (1,278,750)         
                                                                                        -----------       -----------          
                                                                                                                               
Cash flows from investing activities                                                                                           
 Purchases of property and equipment                                                       (102,763)          (37,833)         
 Proceeds from sales of equipment                                                             8,116                 -          
                                                                                        -----------       -----------          
     Net cash used in investing activities                                                  (94,647)          (37,833)         
                                                                                        -----------       -----------          
                                                                                                                               
Cash flows from financing activities                                                                                           
 Borrowings on line-of-credit                                                                     -         1,000,000          
 Borrowings of notes payable                                                                100,000           510,000          
 Payments of notes payable                                                                  (10,000)                -          
 Proceeds from bridge financing                                                           1,163,984                 -          
 Issuance of detachable warrants                                                             36,000            40,000          
 Proceeds from issuance of common stock                                                   1,810,364                 -          
 Deferred offering and financing costs                                                     (522,520)                -          
 Payments on capital lease obligations                                                       (1,637)           (6,548)         
                                                                                        -----------       -----------          
     Net cash provided by financing activities                                            2,576,191         1,543,452          
                                                                                        -----------       -----------          
                                                                                                                               
Net (decrease) increase in cash                                                            (295,736)          226,869          
                                                                                                                               
Cash - beginning of year                                                                    320,290            93,421          
                                                                                        -----------       -----------          
                                                                                                                               
Cash - end of year                                                                      $    24,554       $   320,290          
                                                                                        ===========       ===========           
</TABLE>

Supplemental disclosure of cash flow information
    Cash paid during the period for interest was $142,500 and $139,580 for
    December 31, 1997 and 1996, respectively.

Schedule of non-cash financing and investing activities:
    For the year ended December 31, 1997, the Company had the following non-cash
    financing and investing transactions: conversion of $77,777 of inventory to
    equipment; stock issued upon conversion of notes payable of $650,000; stock
    issued upon conversion of accrued liabilities of $341,500; stock issued for
    notes receivable and unearned compensation of $509,882.

                        Notes to financial statements.

                                      F-6
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------------

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.

Reorganization
--------------

On February 28, 1997, the Company merged with a wholly owned subsidiary which
had no assets (Note 7).  The transaction was accounted for as a pooling-of-
interest.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents includes all cash balances and highly liquid
investments with an original maturity of three months or less.

Property and Equipment
----------------------

Property and equipment are recorded at cost.  Depreciation is provided using the
straight-line method over the estimated useful life of the asset. The estimated
service lives used to compute depreciation are five years for equipment and the
shorter of the useful life or the lease term for leasehold improvements.

Research and Development
------------------------

Research and development costs related to new data communications products are
expensed as incurred.  Total research and development costs of approximately
$1,086,000 and $1,322,000 for December 31, 1997 and 1996 were expensed to
operations, respectively.

Deferred Offering Costs
-----------------------

Deferred offering costs relate to equity offerings not yet completed (Note 15)
and 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.

Revenue Recognition
-------------------

Revenue is recognized as product is shipped or delivered.

Advertising
-----------

The Company expenses advertising costs as incurred.

                                      F-7
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------------
(CONTINUED)
-----------

Product Warranty Costs
----------------------

Sales agreements provide for necessary warranty service for one year on new
installations.  The estimated future costs of warranty service for products sold
as of December 31, 1997 and 1996 is included in accrued expenses.

Stock-Based Compensation
------------------------

The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options in the accompanying statements
of operations is measured as the excess, if any, of the fair market value of the
Company's stock at the measurement date over the amount the employee must pay to
acquire the stock.

Income Taxes
------------

The Company recognizes deferred tax liabilities and assets based on differences
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.

Use of Estimates
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requirements management to make estimates and assumptions
that affect the reported amounts of asset and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Reclassifications
-----------------

Certain items in the 1996 financial statements have been reclassified to conform
with the 1997 presentation.

                                      F-8
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------------------------------------
(CONTINUED)
-----------

Earnings (Loss) Per Common Share
--------------------------------

In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, ("SFAS 128") which requires the presentation of basic
and diluted earnings per share on the face of the income statement for entities
with a complex capital structure.  Basic earnings per share is calculated by
dividing net income attributable to common shareholders by the weighted average
number of common shares outstanding.  Dilutive earnings per share is computed
similarly, but also gives effect to the impact dilutive potential common shares,
such as convertible debt, stock options and warrants, if dilutive, would have on
net income and average common shares outstanding if converted at the beginning
of the year.  SFAS 128 also requires a reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of diluted earnings per share computation.  The Company implemented
SFAS 128 effective with its December 31, 1997, financial statements.  The
Company has incurred losses in each of the periods covered in these financial
statements, thereby making the inclusion of dilutive potential common shares in
the 1997 and 1996 dilutive earnings per share computations antidilutive.
Accordingly, all dilutive potential common shares have been excluded from the
fully diluted earnings per share amounts and basic and dilutive earnings per
share are the same for each period presented.

However, according to Securities and Exchange Commission Staff Accounting
Bulletin 83, common stock and common stock equivalents issued during the twelve
months immediately preceding an initial public offering are included in this
calculation as if they were outstanding for all periods presented.  Under this
guidance, earnings (loss) per share is calculated without regard to
antidulution.  The following common stock and common stock equivalents have been
included in the number of common shares outstanding as if issued for all periods
presented (Note 15).

Common stock issued under private placement (Note 11)                2,263,802
Conversion of notes payable (Note 3)                                   787,879
Common stock exchanged for SAR Plan termination (Note 6)                57,916
Conversion of stockholders' liability (Note 5)                         113,833
Common stock issued under key employee plan (Note 12)                   77,965
Common stock issued under employee purchase plan (Note 12)             542,501
Warrants issued with convertible debt (Note 8)                         216,666
Warrants issued to private investment group (Note 8)                   466,667
Common stock issued to underwriter (Note 3)                             23,333
Issuance of options under employee share purchase plan (Note 12)     1,140,432
Warrants issued in connection with bridge loan financing
 (Notes 3 and 8)                                                       400,000
                                                                     ---------
 
                                                                     6,090,994
                                                                     =========

                                      F-9
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 2 - INVENTORIES
--------------------

Inventories consist of the following:

                                               December 31,            
                                        ------------------------- 
                                           1997           1996    
                                        ----------     ----------        
Raw materials                           $  304,884     $  371,244        
Work-in-process                            266,252        706,472        
Finished goods                             648,291      1,010,907        
                                        ----------     ----------        
                                         1,219,427      2,088,623        
     Less reserve for obsolescence        (240,195)      (775,889)       
                                        ----------     ----------        
                                                                         
                                        $  979,232     $1,312,734        
                                        ==========     ==========         


NOTE 3 - NOTES PAYABLE
----------------------

The Company has a line-of-credit agreement which provides for borrowings up to
$1,000,000 at 2% above the bank's prime rate (prime was 8.5% at December 31,
1997), secured by all assets of the Company. The Company had borrowings against
this line-of-credit of $500,000 and $1,000,000 at December 31, 1997 and 1996,
respectively.

The agreement for the line-of-credit contains 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.

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 15, 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 (prime was 8.5% at December 31, 1997).  Both
agreements are secured by all assets of the Company and contain restrictive
covenants.

                                      F-10
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 3 - NOTES PAYABLE (CONTINUED)
----------------------------------

Effective November 4, 1997, the bank reset the current ratio and net worth
covenants to be effective March 31, 1998. There can be no assurances that these 
covenants will be attainable on an ongoing basis. (Note 14)

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                         -----------------------------
                                                                            1997              1996    
                                                                         -----------       -----------                     
<S>                                                                      <C>               <C>               
Convertible subordinated notes payable.  Interest at the                                                     
 prime rate plus 2% (prime was 8.5% at December 31, 1997);                                                   
 due August 29, 1998; convertible within seven days 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 public offering has not closed by                                                   
 August 29, 1998, the noteholders will be entitled to receive                                                
 additional warrants to purchase up to 350,000 shares at                                                     
 $1.00 per share. (Note 15)                                              $   699,984         $       -          
                                                                                                             
Subordinated notes payable with detachable warrants.                                                         
 Interest at the prime rate plus 2% (prime was 8.5% at                                                       
 December 31, 1997); due within 15 days of the completion of                                                 
 a Canadian public offering but no later than August 27,                                                     
 1998.  The warrants allow the noteholders to purchase up to                                                 
 166,667 shares of common stock for $1.00 per share at any                                                   
 time prior to August 27, 1998 (Notes 8 and 15).                             500,000                 -         
                                                                                                             
Term notes payable.  Payments of $60,000 quarterly including                                                 
 interest at prime rate plus 2% (prime was 8.5% at December                                                  
 31, 1997).  Secured by all assets of the Company.                           490,000                 -         
                                                                                                             
Convertible subordinated note payable with detachable                                                        
 warrants to a private investment group.  Converted to equity                                                
 in 1997.                                                                          -           300,000         
                                                                                                             
Convertible subordinated note payable with detachable                                                        
 warrants to a stockholder.  Converted to equity in 1997.                          -           250,000         
                                                                         -----------         ---------         
                                                                           1,689,984           550,000         
Unamortized discount                                                         (36,000)          (40,000)        
Less current maturities                                                   (1,413,984)         (510,000)        
                                                                         -----------         ---------         
                                                                                                             
                                                                         $   240,000         $       -         
                                                                         ===========         =========          
</TABLE>

                                      F-11
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 3 - NOTES PAYABLE (CONTINUED)
----------------------------------

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 33,333
shares of common stock.  The warrants are exercisable at $.83 per share in year
one and $.95 per share thereafter and expire September 8, 1999.  On March 5,
1997, in conjunction with the private placement, this debt and the previously
issued $300,000 note were converted to 484,849 shares of common stock (Note 11).

On March 5, 1997, in conjunction with the private placement, the $250,000 debt
to a stockholder was converted to 303,030 shares of common stock (Note 11).

In connection with the issuance of the convertible subordinated notes in August
1997, the Company issued 23,333 shares of common stock as a financing fee.


NOTE 4 - EMPLOYEE SAVINGS AND RETIREMENT PLAN
---------------------------------------------

The Company has a 401(k) Employee Savings and Retirement Plan (the Plan), a
defined contribution plan, covering substantially all employees under which the
Company matches 50% per dollar of the employee contributions up to 4% of the
employees' eligible compensation.  The Plan also allows for additional
discretionary employer contributions.  Total expense for the Plan was $11,000
and $54,000 for the years ended December 31, 1997 and 1996, respectively.  The
Company discontinued employer matching in April 1997.


NOTE 5 - 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 Company incurred royalty expense of $40,368 and $76,000 for
the years ended December 31, 1997 and 1996, respectively.

A subordinated note payable to a stockholder was converted to common stock in
March 1997 (Note 3).

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 common stock for every $3 of indebtedness for 113,833 shares.

                                      F-12
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 6 - STOCK APPRECIATION RIGHTS
----------------------------------

The Company had previously adopted a stock appreciation right ("SAR") plan
granting certain selected employees incentive bonuses based on the performance
of the Company's stock and as determined according to the Plan.  In general,
such rights were not exercisable except in the event of an initial public
offering, a merger, or a sale of 50% or more of the Company's voting stock.

In March 1997, in conjunction with a private placement, the SAR plan was
terminated.  The selected employees received 57,916 shares of common stock
valued at $0.83 per share.  Compensation expense of $47,779 has been recognized
for the year ended December 31, 1997.


NOTE 7 - COMMON STOCK
---------------------

On November 18, 1996, the Board amended the articles of incorporation
authorizing an additional 2,970,000 shares of no-par common stock.  In
conjunction with the amendment, a stock split was also approved by the Board,
providing for the issuance of approximately 31 shares of new, no-par common
stock for one share of the previously outstanding, no-par 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.

In December 1997, the Board approved a 2 for 3 reverse stock split.  All periods
presented and related footnote disclosures have been adjusted to reflect the
reverse split.


NOTE 8 - WARRANTS
-----------------

In connection with the issuance of various convertible subordinated notes (Note
3), the Company issued warrants allowing the holders to purchase 216,666 shares
of common stock.  The holders may fund the purchase of shares through the
delivery of a recourse or non-recourse promissory note, bearing interest at the
Applicable Federal Rate ("AFR").  The AFR is the minimum allowable interest rate
that can be used before imputed interest is required by the Internal Revenue
Service.  Under the non-recourse note, the Company's sole recourse shall be to
cancel any shares that are being held in escrow.  The warrants are currently
exercisable at between $0.83 and $0.95 per share and expire on September 8,
1999.

                                      F-13
<PAGE>
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 8 - WARRANTS (CONTINUED)
-----------------------------

In February 1997, the Board granted warrants to purchase 466,667 shares of
common stock to a private investment group who facilitated the completion of the
March private placement (Note 11).  The holders may fund the purchase of shares
through the delivery of a recourse or non-recourse promissory note, bearing
interest at the AFR.  Under the non-recourse note, the Company's sole recourse
shall be to cancel any shares that are being held in escrow.  These warrants
expire on September 8, 1999 and are exercisable at $.83 per share in the first
year following the Canadian public offering and $0.95 in the second year.

In February 1997, the Company entered into an agreement with the same 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 (Note 15).  These warrants expire
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 August 1997, in connection with the issuance of certain subordinated notes
payable, the Company has issued warrants to purchase 166,667 shares of common
stock at $1.00 per share (Note 3).


NOTE 9 - INCOME TAXES
---------------------

The Company's provision for income taxes for the year ended December 31, 1997
consists of the following:

Federal
  Deferred benefit                                 $(1,526,606)
  Increase in valuation allowance                    1,526,606
                                                   -----------
 
Total                                              $         -
                                                   ===========

The net deferred income tax asset as of December 31, 1997 in the accompanying
balance sheet include the following:

  Deferred tax assets                              $ 1,526,606
  Valuation allowance                               (1,526,606)
                                                   -----------
 
Total                                              $         -
                                                   ===========

Deferred tax assets result primarily from timing in the recognition of certain
allowance and accrued expenses for tax and financial statement purposes, and net
operating loss carryforwards.

                                     F-14
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 9 - INCOME TAXES (CONTINUED)
---------------------------------

A valuation allowance has been provided for the deferred tax assets because of
the uncertainty surrounding their realization.

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 1997 do not include a provision for corporate income taxes. Had the S
election not been in place, the provision (tax benefit) for corporate income
taxes would have been $0 for the year ended December 31, 1996 based upon the
statutory rate of 34 percent.


NOTE 10 - EXPORT SALES
----------------------

Export sales for the years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
                                                         Years Ended  
                                                         December 31, 
                                               ------------------------------- 
                                                   1997                1996
                                               ----------           ----------
<S>                                           <C>                  <C>
U.S.                                           $1,411,348           $2,368,729 
Germany                                           390,117              145,866 
Belgium                                           198,928              338,710 
Japan                                             311,204              905,035 
Netherlands                                       373,464              405,923 
Other                                           1,252,502            1,916,862 
                                               ----------           ----------  
                                                                               
Total sales                                    $3,937,563           $6,081,125 
                                               ==========           ========== 
</TABLE>


NOTE 11 - PRIVATE PLACEMENT
---------------------------

In March 1997, the Company completed a private placement offering of 2,263,802
shares of common stock for a total of $1,746,045, net of offering costs of
approximately $121,000.  These shares were offered pursuant to the exemption
from registration under the Federal Securities Act of 1933 afforded by
Regulation D, Rule 505 and Regulation S of the United States Securities and
Exchange Commission and pursuant to applicable exemptions in Canada.

                                      F-15
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 12 - 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 1997, the Company awarded options, all of which were exercised, to
purchase 738,800 shares of common stock pursuant to this plan. According to the
terms of the employee share purchase program, the stock vests 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, 196,299
were forfeited as of December 31, 1997 pursuant to the vesting provisions. A
total of approximately $70,400 will be charged to compensation expense over the
18 month vesting period for the 187,667 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 will be recorded over the 18 month vesting period for the
495,285 outstanding 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
December 31, 1997, 354,888 shares were vested and the balance on the notes
receivable was $244,126. Total stock based compensation expense for the year
ended December 31, 1997 included in general and administrative expense was
$177,505.

In April 1997, the Board approved a key employee share program ("the key
employee program"). During the second quarter of 1997, the Company issued 77,965
shares of common stock. These shares were purchased by employees during the
second quarter of 1997 at a purchase price of $.83 per share with a 6 month
recourse note. As of December 31, 1997, there were no outstanding balances
remaining on the notes.

In September 1997, the February 1997 Plan expired and there are no remaining
options to be issued under this plan.

                                      F-16
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 12 - STOCK OPTIONS (CONTINUED)
-----------------------------------

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.
These shares vest 50% upon grant of the options and 50% one year thereafter
provided that the employee continues in the employment of the Company, except if
the employee is involuntarily terminated without cause prior to the expiration
of the one year vesting period, in which case the 50% vested upon grant is
guaranteed.  None of the options have been exercised and 1,140,432 remain
outstanding as of December 31, 1997 after taking into effect the cancellation of
143,669.

The following is a summary of options and warrants granted:

<TABLE>
<CAPTION>
                                                                            Exercise 
                                                                              Price
                                          Options           Warrants        Per Share
                                         ---------         ---------       ----------
<S>                                      <C>               <C>             <C> 
Outstanding December 31, 1996                    -                 -                -
        Options granted                  2,100,866                 -       .43 - 1.00
        Warrants granted                         -         1,083,333       .83 - 1.00
        Options exercised                 (816,765)                -       .43 -  .83
        Options expired                   (143,669)                -             1.00
                                        ----------         ---------       ----------
                                      
Outstanding December 31, 1997            1,140,432         1,083,333       .83 - 1.00
                                        ==========         =========       ==========
</TABLE>

The Company has the following stock options and warrants outstanding at December
31, 1997:

<TABLE>
<CAPTION>
                                                            Currently Exercisable                    
   Options      Warrants      Exercise      Expiration      ---------------------                              
Outstanding    Outstanding      Price          Date         Options      Warrants                              
-----------    -----------    --------    --------------    -------      --------                              
<S>            <C>            <C>         <C>               <C>          <C>                                   
          -        683,333         .83    September 1999          -       683,333                              
          -        233,333        1.00    February 2000           -             -                              
          -        166,667        1.00    August 1998             -       166,667                              
  1,140,432              -        1.00    November 2002     570,216             -                              
-----------    -----------    --------                      -------      --------                              
                                                                                                               
  1,140,432      1,083,333         .95                      570,216       850,000                              
===========    ===========    ========                      =======       =======                               
</TABLE>

                                      F-17

<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 12 - STOCK OPTIONS (CONTINUED)
-----------------------------------

Employee Incentive Plans - April 1997 Option Plan (continued)
-------------------------------------------------------------

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Accordingly, no compensation cost has been recognized using the fair value
approach for stock options and warrants granted pursuant to employee plans.  Had
compensation cost for the Company's stock options and warrants been determined
based on the fair value at the grant date for awards in 1996 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:

                                                      Years Ended
                                                      December 31,
                                            ---------------------------------
                                               1997                  1996
                                            -----------           -----------
                                  
Net loss - as reported                      (3,687,864)           (3,644,637)
Net loss - pro forma                        (3,732,145)           (3,644,637)
Loss per share - as reported                      (.55)                 (.54)
Loss per share - pro forma                        (.56)                 (.54)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants:  dividend yield and expected volatility of 0%;
discount rate of 6.0%; and expected lives of 5 years.


NOTE 13 - COMMITMENTS AND CONTINGENCY
-------------------------------------

Leases
------

The Company leases building space under an operating lease.  Total rent expense
was $298,136 and $323,541 for the years ended 1997 and 1996, respectively.  The
lease expired December 31, 1996, and the Company is currently leasing the space
on a month-to-month basis.  In addition, certain pieces of office equipment are
being leased under operating leases.  The monthly rent expense for these items
is $5,212.  Total rent expense for the office equipment was $81,142 and $68,532
for the years ended 1997 and 1996, respectively.

The following is a schedule of operating lease payments for office equipment.

     December 31,
     ------------

        1998                               $ 52,990
        1999                                 36,748
        2000                                 24,042
                                           --------
 
                                           $113,780
                                           ========

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.

                                     F-18
<PAGE>
 
                       SYMPLEX COMMUNICATIONS CORPORTION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 14 - CONTINUED EXISTENCE
-----------------------------

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  The Company has sustained
substantial operating losses in 1997 contributing to a deficit in stockholders'
equity of $836,961 and a working capital deficiency of approximately $1,504,285
at December 31, 1997. Additionally, the Company is experiencing declining sales
and a cash flow shortage. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a reasonable period of
time.

As discussed in Note 15, the Company completed an initial public offering of
3,500,000 shares of common stock at a price of US$1.00 per share.  After
deducting fees and expenses, the Company received net proceeds of approximately
$2,737,000. Additionally, the Company has established a marketing and sales plan
to substantially increase revenues over the revenues recognized in 1996 and
1997. In the fourth quarter of 1997, in connection with cost cutting efforts,
the Company eliminated certain engineering and other positions and is pursuing
other measures to return the Company to a profitable position. However, there
can be no assurances that the planned revenue increase will occur or that the
Company will be able to return to a profitable position.


NOTE 15 - SUBSEQUENT EVENT
--------------------------

Effective February 1998, the Company completed an initial public offering of
3,500,000 shares of common stock at a price of $1.00 per share on the Vancouver
Stock Exchange.  The net proceeds of the offering to the Company, after
deducting the underwriters' fee and other expenses of approximately $763,000,
were $2,737,000. Approximately $1,200,000 of the proceeds were used to satisfy 
debt outstanding as of December 31, 1997 with the remainder used for working 
capital purposes.

In connection with the offering, the Company entered into an agency agreement
with an underwriter under which the underwriter received a commission consisting
of cash, stock and warrants of the Company.  The Company paid all expenses of
the underwriter in connection with the IPO.  The commission consisted of 7.5% of
the offering price per share sold and 70,000 shares of common stock of the
Company.  As part of the agreement, the underwriter guaranteed to purchase all
shares which were unsubscribed on the offering day.  In compensation for the
guarantee, the underwriter received warrants to purchase up to 400,000 shares of
the Company's stock at the IPO price.  The warrants expire one year from their
issue date.

                                      F-19