<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, 1998

                                      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 code: (734) 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 was:
$4,352,402.

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

    $5,084,826 as of February 26, 1999

As of February 26, 1999,  8,483,968 shares of Common Stock and 1,224,490 shares
of Common Stock Equivalents (resulting from potential conversion of  Preferred
shares to Common, see Item 7. Note 15 and Item 11), $.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

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 bandwidth
                                   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.

frame relay                        An interface standard that defines how
                                   computing devices connect to a data network
                                   that 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.



                                       2
<PAGE>
 
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        A switched digital communications network
Network (ISDN)                     that uses internationally 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.

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.




                                       3
<PAGE>
 
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.
 
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.

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
Report, 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.

     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
senior management was either hired or promoted to their current positions after
February 1997. 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 since February, 1997. Andy Brzozowicz was promoted to
Vice President of Worldwide Sales in March 1998. Don Holland, the Director of
Engineering, was promoted to that position in November 1997.



                                       4
<PAGE>
 
BUSINESS OF THE COMPANY


     Symplex designs, develops, manufactures and markets custom Internet
solutions for remote access communications switching and connectivity devices
with value added features such as data compression that enhance the performance
of existing LANs and WANs and their connectivity to the Internet. 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 the Internet or private networks.

     The Company has traditionally offered two internetworking product lines.
"Datamizer", first introduced in 1983 and currently in its sixth generation,
with Datamizer 6 commercial release scheduled in the first quarter of 1999.
Datamizer is principally a series of network products facilitating high-speed
data transmission.  Datamizer units have been installed worldwide, and for the
twelve months ended December 31, 1998, Datamizer revenues were approximately
$3,891,000.  DirectRoute, first introduced in October 1994, consists of a wide
range of ISDN WAN access switches.  In the twelve months ended December 31,
1998, DirectRoute products have generated revenues of approximately $461,000. A
second generation of DirectRoute products, RO-2, is under development with
commercial release of the product currently scheduled for the first quarter of
1999.

     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
provide custom network solutions to these Symplex customers utilizing the
Datamizer product line, and enhance such customers' current installed networks.

     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, Germany, Belgium, and the Netherlands), and in selected marketplaces in
South and Latin America.

     The dominant part of the Company's product revenues has been generated
outside North America. In the two fiscal years ended December 31, 1998 and 1997,
foreign sales, as a percentage of total product revenues, were approximately 82%
and 60%, respectively. In late 1998, the Company has refocused its North
American direct sales force toward providing a wide range of custom solutions of
Internet access devices. These sales and marketing efforts are directed
principally to multinational corporations headquartered in the United States and
Europe. In addition, the Company has been enhancing its technical, marketing and
sales support programs for foreign customers and distributors, worldwide. 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.


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 that had to be paid for whether or not used.



                                       5
<PAGE>
 
     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 networks 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 WorldCom Inc., Sprint
Communications Company 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), 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 1997 was approximately $180 billion, up 21% from the
previous year total of $149 billion. The United States accounted for
approximately 57% of the worldwide market, or $103 billion. It was also
estimated that the comparable figures for 1999 will be $217 billion globally and
$123 billion in the United States, representing increases of 21% and 19%,
respectively, over 1998. The most significant factor influencing these increases
can be attributed to the need for Internet access.




                                       6
<PAGE>
 
     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 1997 and 1998, and projections for 1999:



<TABLE>
<CAPTION>
                                                                1998 growth    1999 revenues     
                             1997 revenues    1998 revenues        rate         (projected)      1999 growth rate     
Product                      ($ millions)      ($ millions)         (%)         ($ millions)      (projected) (%)
<S>                         <C>              <C>               <C>            <C>               <C>
Remote access                   2,918             3,384              16             4,332             28
Frame relay switches and
 access devices                  888              1,025              33             1,209             34
Multiplexers                    1,335             1,315              -1             1,289             -2
Routers                         5,896             6,394               8             6,970              9
</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 scheduled release of Datamizer 6 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 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 approximately 46%,
and Datamizer products for the frame relay and multiplexer markets which
currently offer margins greater than 60%.  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.

     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, database operations,
ability to reach multiple destinations, capacity for file transfers 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, secures interoperability with existing routers and hub
networks, permits established networks to increase capacity during periods of
peak load, and provides 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 & 6.
To encourage sales 



                                       7
<PAGE>
 
of Datamizer V & 6 the Company has made available to its existing Datamizer
customers an upgrade and trade-in option. Datamizer IV units taken in exchange
for Datamizer V & 6 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 6 to its WAN compression channel partners. The Company
is developing a series of custom features and products designed specifically to
address existing customer infrastructures and Internet applications with
commercial release scheduled throughout 1999.

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 three 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 $11,000,000, 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.

     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 unable to cost effectively 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




                                       8
<PAGE>
 
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, RO-2, is currently scheduled for
commercial introduction in the first quarter of 1999.

     The DirectRoute RO-1and DR-1 products have suggested end-user prices
ranging from $599 to $995 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 that 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, 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. The sixth generation Datamizer, Datamizer 6, will include
the same features as Datamizer V plus additional ports and encryption.
technology. Datamizer 6 is scheduled to be commercially released in the first
quarter 1999. Datamizer units have been installed worldwide, many in Fortune
1000 environments. Total development expenditures on the Datamizer product
family to date aggregate approximately $8 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 512 Kbps.  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, Datamizer V is
designed to avoid the cost of higher speed connections, 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 II and IV customers who
are moving to frame relay networks.

     The Datamizer V products have suggested end-user prices ranging from $5,495
to $6,995 depending on the model, volume and upgrades. Datamizer 6 products have
suggested end-user prices ranging from $6,995 to $7,495.

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, WANs and Internet connectivity.

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

     1.    Successfully complete the introduction of Datamizer 6 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 



                                       9
<PAGE>
 
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 and Datamizer 6. The upgradability of
this base to Datamizer 6 represents immediate, short-term incremental revenue
potential to Symplex when Datamizer 6 becomes available in the first quarter of
1999. Moreover, to encourage sales of Datamizer 6, the Company has made
available to its Datamizer IV customers an upgrade and trade-in option.
Datamizer IV units taken in exchange for Datamizer 6 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 RO-2

     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 first quarter of 1999.

     3.    New Product Rollout and Incremental Inventory

     Symplex 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, building inventory, 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 and integrated on a single platform with the
Company's compression technology.

These technologies include:

Internet Access.  The next generation of DirectRoute will enhance internet
connectivity for the home and small office.  The follow-on to the RO-1 product,
currently scheduled for availability in the first quarter of 1999, will provide
increased processing, connectivity, performance and enhanced software to improve
security, firewalls, NAT, secure tunneling and initiate free WAN access.

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 Lucent, Nortel, Cisco Systems,
Digital, and 3Com.

Lucent, 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 expensive IP hardware to be built into the switches or slow and
cumbersome routing software be installed into the 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 Lucent, Nortel, 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, Symplex expects
that RO-2 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.



                                       10
<PAGE>
 
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.  RO-2 will include secure tunneling
technology, a feature which is expected to give Symplex immediate access to
Internet Service Providers (ISP) due to existing demand from corporate network
users.

     4.    Developing Alliances with Third Parties

     The cost of technology development is high and market conditions are
constantly changing and evolving.  Because Symplex has, in comparison to some of
its major competitors, relatively fewer resources, it plans to seek out and
license third party technology to round out its product lines and fill product
gaps.  An example would be to license worldwide the Company's low-end Datamizer
or DirectRoute products to a local original equipment manufacturer with a cost
effective sales channel, who will be able to benefit from the addition of such a
product to their product portfolio.  Symplex will also seek to expand its own
product portfolio through licensing or other arrangements with suppliers of such
products.  The Company is currently engaged in discussions with a number of
potential original equipment manufacturers and suppliers of complementary
products.

     5.    Expanding and Strengthening Sales and Marketing Team-Worldwide

     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 direct and indirect sales force.  As of
December 31, 1998, the Company had, in addition to the Vice-President, Worldwide
Sales, 1 sales representative, 1 Director of Marketing, 2 marketing support
representative, 3 sales support personnel in its European office, 1 full-time
sales consultant responsible for South and Latin America and 4 field service
engineers.  The Company has selling partners in Australia, Singapore, Europe,
South America, the United States and elsewhere.  Growing market acceptance of
the Datamizer V, and the planned introduction of Datamizer 6 and RO-2 in the
first quarter of 1999 may necessitate the hiring of additional sales
representatives, European sales professionals, and sales consultants, most
likely in mid-year 1999.

     6.    Managing Expenses Effectively

     During 1998, Symplex experienced its first revenue increase since 1993.
During the fiscal years ended December 31, 1994, 1995, 1996, and 1997 Symplex's
annual revenue constantly declined, being $10.9 million, $9.4 million, $6.1
million, and $3.9 million, respectively.  The revenue decline was most acute in
the Datamizer product line with annual revenues of $4.0 million for fiscal year
1996 and $2.5 million for fiscal year 1997.  The DirectRoute family of products
was launched in 1994, generating revenues of $107,000.  For fiscal year 1998
DirectRoute generated revenues of $461,000.

     The Company expects that its current emphasis on high volume, custom
product solutions represented by the merger of the Datamizer and DirectRoute
products under a single platform will produce a nominal decline in the gross
margin contribution offset partially by declines in product costs. Management
monitors operating performance closely and if it appears that the previously
defined strategies will not generate the desired results within a reasonable
period, will adjust expenses accordingly.

     The Company will require additional financing to satisfy its longer-term
working capital and cash requirements, and it intends to evaluate the
availability and appropriateness of various methods of raising such additional
funds.  There can be no assurance that such financing will be available, or that
if it is available it will not have the effect of diluting the ownership
interests of existing shareholders, or of diluting the value of those interests.

     During previous measurement periods, the Company was not in compliance with
certain of its debt covenants and received a waiver of such covenants from its
bank.  The Company and the bank reset such covenants and the Company was in
compliance with such covenants at December 31, 1998.

     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 technologies together to provide solutions) with a view to the
inclusion of Symplex products in their product offerings. Funds have been
allocated to accomplish this objective, primarily for advertising and training
activities designed to enhance demand and support of the Company's products and
services. The Company will undertake these marketing activities in order to
compress the Company's sales cycle and assist it in meeting its objectives.




                                       11
<PAGE>
 
PRODUCT MANUFACTURING

     Symplex does not operate nor does it own any manufacturing facilities.  The
manufacture of the Datamizer and DirectRoute product lines are subcontracted
with manufacturers not under contract.  Further, components for the Datamizer
and DirectRoute product lines are occasionally produced by component vendors.
Some product assembly, testing, and software loading are performed by Symplex at
its headquarters location.

     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.

SALES AND MARKETING

     Sales Plans

     Symplex sells its products and services in North America with a centralized
sales force located in Ann Arbor, Michigan.  European sales are made through
selected distributors supported by a sales support staff of three based in The
Hague, Netherlands. Asian and Latin American sales are also undertaken through
selected distributors who are supported by one international sales consultant.

     Symplex 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, Central, and
South America. Certain of these contracts provide for a good faith commitment on
the part of the distributor to purchase specified minimum quantities of product.
If not performed, this commitment, although not a binding obligation, gives
Symplex the right to adjust the price of products purchased. The Company expects
to devote substantial efforts to strengthening its existing distributorship
agreements and to improving such relationships and opportunities.

     The essential structure and terms of all of the Company's distributor
agreements is generally similar (although not all of them include the minimum
purchase commitment referred to above), though there are differences in detail.
All provide for the distributor to have non-exclusive distribution rights in a
defined geographic area, they generally have a term of one year, automatically
renewable for successive one-year terms, generally to a maximum of two renewals.
The agreements generally provide that the distributor will use its best efforts
to promote the sale of Symplex products.  All distributor agreements are
terminable without cause by either party upon 30 days written notice, and they
also provide for termination in the event of a material breach that remains
unremedied after 30 days, and in certain defined events such as bankruptcy,
insolvency, or the appointment of a receiver, and they also provide for
arbitration of disputes.

     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 6 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.



                                       12
<PAGE>
 
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 a general liability policy
which limits aggregate coverage to $2,000,000 with a policy limit of $1,000,000
for each occurrence and a separate umbrella liability policy with a general
aggregate limit to $7,000,000, 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 Lucent, Nortel,
Cabletron Systems, Inc., Cisco Systems, Inc., FORE Systems, Inc., and 3Com
Corporation have introduced 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 that 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
ability to compete successfully against either current or potential competitors.

     Datamizer

     Datamizer V has been well received in the marketplace, and this has to some
extent stimulated 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 components performing narrowly defined tasks. Competitors in
the data compression market include Cisco Systems, Nortel, and Lucent, all
publicly traded companies with financial resources much greater than the
Company's. While there are several smaller companies which have developed
compression technology, those mentioned are the only competitors known to the
Company who target the wide area access market.

     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 these
products limit the number of connectable PCs to fewer than four, and have
maximum transmission speeds of 128Kbps.  In contrast DirectRoute, depending on
the configuration, can handle 25 to 1000 or more users transmitting
simultaneously at speed up to 512Kbps, and incorporates the Company's proven
data compression algorithms.  Both the Company's internal testing and customer
response suggest that the enhanced capabilities of DirectRoute will make it
attractive to small and medium-sized business as well as telecommuters.



                                       13
<PAGE>
 
     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 Nortel.  Testing of the Company's products both internally and
independently by customers and distributors suggests that DirectRoute is
currently more flexible than competing routers, bridges, and switches.
DirectRoute 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.

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 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 to be
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 $679,000 in 1998
compared to approximately $1,086,000 in 1997 reflecting a declining investment
in new product development due to cash constraints. The amount of research and
development spending in 1999 is expected to materially increase as compared to
1998 due principally to the ongoing development of new products and the planned
merger of Datamizer and DirectRoute platform technology.

EMPLOYEES

     At February 10, 1999 the Company employed 31 persons (including three in
The Netherlands). Of these, eight are engaged in product development, five in
manufacturing, eight 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.  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.



                                       14
<PAGE>
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     A special meeting of stockholders of the Company was held on December 2,
1998 for consideration of an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized capital from 20,000,000
shares to 30,000,000 shares; as a part of such increase in total authorized
capital, increase the number of authorized shares of Common Stock from
20,000,000 to 24,000,000; and authorize a class of 6,000,000 shares of Preferred
Stock. The amendment was approved with 4,413,075 shares voting for the
amendment, 31,533 against and 1,403 abstained.

 

                                 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.


Market Price                       1998  
------------                       ----
                          High                Low
                          ----                ---

First Quarter            $1.11*              $0.49

Second Quarter           $0.66               $0.18

Third Quarter            $0.60               $0.25

Fourth Quarter           $0.84               $0.22

*    Stock began trading on February 11, 1998.

There are approximately 350 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 February 26, 1999, the closing price of the Company's Common Stock on
the VSE was U.S.$.65.

                                      15
<PAGE>
 
RECENT SALES OF UNREGISTERED SECURITIES

     The Company sold the following unregistered securities in 1998:

       (1) On May 19, 1998, the Company secured $500,000 in term note borrowings
from a private investor. The principal balance on the two-year note bears
interest at 15% payable quarterly with the entire principal balance due on May
18, 2000. In consideration of the borrowing, the Company issued to the lender a
warrant to purchase 350,000 shares of common stock at an exercise price of $.20
per share in year one and $.23 per share in year two. This note is secured by
all assets of the Company in a subordinated position to both agreements with the
Company's bank. In February 1999, this note was converted to a $500,000 equity
investment in Symplex.

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 Report.

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 that 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.
With the exception of 1998, Datamizer revenues have continued to decline since
1989, 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, changes 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.  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.

     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. It was these operating expense reductions coupled with
enhanced 1998 revenue and margin performance that enabled Symplex to
significantly reduce its 1998 losses.

     As a result of the restructuring in late 1997, completion of several
development projects was delayed including the RO-2, not released until the
first quarter of 1999.  The restructuring enhanced the Company's ability to
manage its 1998 operating resources although it did slow product development.
In 1998, Symplex was able to reengage with its third party distribution 



                                       16
<PAGE>
 
network in Europe through a series of discreet product trade-in programs. These
programs resulted in increased European revenue in fiscal year 1998 to
$3,217,000 from $1,792,000 in fiscal year 1997 and procurement of a significant
Datamizer contract with a German distributor. In 1998, the Company has utilized
consultants and contractors to meet specific sales and marketing requirements as
they arose, and similarly supplemented development 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, 1998 and
1997, foreign sales, as a percentage of total product revenues, were
approximately 82% and 60%, respectively.

     At December 31, 1998, stockholders' equity was $453,000. As of December 31,
1997, Symplex had a deficit in stockholders' equity of $837,000.

     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, 1998 and 1997


RESULTS OF OPERATIONS

     For the year ended December 31, 1998, Symplex incurred a loss from
operations of $1,168,000, and, after other income of $59,000, amortization
expense of discount on notes payable of $52,000 and interest expense of
$162,000, a net loss of $1,323,000 as compared to the year ended December 31,
1997 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. In fiscal year 1998, Symplex
recorded a reserve for slow-moving inventory totaling $610,000 as compared to a
reserve for slow-moving inventory of $68,000 in fiscal year 1997. A one-time
inventory trade-in program initiated with European distributors and a new
product release obsoleting existing products adversely impacted the Company.

     Sales

     Symplex recorded total sales in the year ended December 31, 1998 of
$4,352,000, of which $3,891,000 was generated by Datamizer and $461,000 by
DirectRoute.  The comparable amounts in the year ended December 31, 1997 were
$3,938,000, $2,495,000 and $1,443,000. 82% and 60% of total sales in the years
ended December 31, 1998 and 1997, respectively, were generated outside the
United States with German sales representing approximately $2,023,000 in the
1998 period and $390,000 in 1997.  European product sales were approximately
$3,217,000 in the year ended December 31, 1998 and $1,792,000 in comparable
period of 1997.  Datamizer revenue includes sales of maintenance contracts and
service generated.

     Gross margins at December 31, 1998 including the inventory reserves were
approximately $2,298,000 or 52.8% compared to approximately $2,037,000 or 51.7%
at December 31, 1997. Higher margins were achieved in 1998 from shipments of
Datamizer V, offset by the unfavorable recognition of a $610,000 reserve for
slow moving inventory.  Margins in 1997 were adversely impacted by cost overruns
resulting from declining volumes and higher component costs and from competitive
price pressure in selected markets.  The Company's development and sales
emphasis on a single platform product consisting of router and data compression
features should more effectively address market demand for the Symplex family of
products but will minimally degrade overall margin performance.




                                       17
<PAGE>
 
     Product development, sales and marketing expenses

     Research and development expenses were approximately $679,000 in the year
ended December 31, 1998 as compared to $1,086,000 in the year ended December 31,
1997.  This reflected a declining investment in both payroll expenses of
$423,000, depreciation and other expenses of $8,000 and in other research
expenses of $27,000, offset by an increase in new product development of
$51,000.  Sales and marketing costs in the year ended December 31, 1998 were
approximately $1,151,000 compared to $2,250,000 in 1997, reflecting decreases in
payroll and benefits of $549,000, in travel expense of $173,000, in advertising
of $177,000, in European rent expense of $124,000, in professional fees of
$4,000 and in other expenses of $97,000, offset by an increase in commissions of
$25,000.


     General and administrative, engineering and service expenses

     General and administrative expenses for the year ended December 31, 1998
were $1,184,000 as compared to approximately $1,604,000 in the corresponding
period in the prior year. This decrease resulted primarily from a reduction in
the performance stock options of $200,000, facility rent of $ 162,000, taxes of
$43,000, payroll expenses of $21,000, professional fees of $76,000, depreciation
expense of $12,000 and other expenses of $17,000, offset by an increase in the
reserve for bad debt of $59,000 and insurance expenses of $52,000. 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 and annual property taxes of $43,000.
The performance stock option program was significantly amortized in fiscal year
1997. Engineering expenses declined to approximately $237,000, and service costs
to $217,000 in the year ended December 31, 1998 compared to $246,000 and
$308,000, respectively, in 1997. 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, 1998 decreased to
approximately $162,000 from approximately $209,000 in the year ended December
31, 1997 due to the reduction in the notes payable (Note 3) in 1998.

LIQUIDITY AND CAPITAL RESOURCES


     The Company financed its 1998 operating losses principally through the
proceeds of $2,532,000 (after expenses) of a initial public offering and a
second cash infusion of $500,000 from a private investment group.  The proceeds
of the initial public offering and private placement were used to finance
operating losses generated in 1998 and to repay bridge loan financing from
insiders and unrelated parties in 1997.

     Cash utilized in operating activities in the year ended December 31, 1998
amounted to $1,823,000 compared to $2,777,000 in 1997.

     Cash utilized by investing activities in the year ended December 31, 1998
was $28,000 as compared to $95,000 in 1997. Cash generated by financing
activities in the year ended December 31, 1998 amounted to $1,981,000 compared
to $2,576,000 in 1997. As discussed in the opening paragraph in this Liquidity
and Capital Resources section, 1998 operations were financed by a $500,000 two-
year note and an initial public offering. In 1997, the Company's major
borrowings included a private placement, short-term borrowings and a bridge loan
financing.

     The Company's operating cash resources in 1998 improved from 1997 as a
result of revenue improvements, operating expense reductions and product margin
improvements. The accounts receivable turnover at December 31, 1998, was 3.76
times annually or approximately 97 days to collection while inventory turnover
was 2.60 times annually or approximately 140 days in inventory. For the year
ended December 31, 1997, accounts receivable turned 5.19 times annually or
approximately 70 days to collection while inventory turnover was 1.66 times
annually or approximately 220 days in inventory. The unfavorable increase in
accounts receivable turnover results from a larger percentage of annual sales,
approaching 29% , occurring in the latter part of the fourth quarter of 1998 as
compared to 19% of annual sales occurring in the comparable period of 1997. In
addition, international sales, which generally have a longer period to
collection, contributed to the unfavorably increase in accounts receivable
turnover with 82% of total annual sales being generated internationally in 1998
and 60% for 1997. The improvement in the inventory turnover resulted from the
recognition of a reserve of $610,000 for slow moving inventory in 1998.



                                       18
<PAGE>
 
     At December 31, 1998 the Company's principal sources of liquidity were cash
of $154,000 and trade receivables of $1,326,000. The shareholders' equity
reflected a surplus of $453,000. As of December 31, 1997, Symplex's principal
sources of liquidity represented cash of $25,000 and trade receivables of
$988,000. The deficit in shareholders' equity at December 31, 1997 was $837,000.
At December 31, 1998 Symplex had a working capital surplus of $657,000 as
compared to a working capital deficit of $1,504,000 at December 31, 1997.

     In fiscal year 1998, the Company experienced moderate annual sales
increases and significantly declining operating losses. In order to fund its
ongoing operations, the Company is seeking a significant capital infusion of $3
million in 1999, of which, $1.2 million was raised in the first quarter of 1999.
These funds are expected to be raised with the issuance of convertible preferred
shares and under terms and conditions outlined in the First of Michigan private
placement underwriting. There can be no assurance that the Company will
successfully obtain additional debt or equity financing beyond the initial $1.2
million raised, 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 1999, it may not be able to achieve fully its performance
expectations for 1999 and may be required to undergo nominal downsizing or
restructuring. Such a downsizing or restructuring could have an adverse effect
on the Company's revenue expectations, operating performance 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.

     In a review of the Company's risk and uncertainties regarding the Year 2000
issue, three primary areas have been identified that could significantly impact
the operations of Symplex, 1) the Company's products; 2) the reliance on third
party manufacturers; and 3) information technology. An internal analysis and
review of the Company's products determined that they are not date-sensitive and
the reliance on Symplex's products by a customer would not lead to any adverse
effect due to the Year 2000 issue. The Company performed tests simulating a
customer's application to support this conclusion and based on this, determined
there isn't any additional testing that is required on their products. Regarding
third party manufacturers, Symplex has addressed the issue with their two
principal contractors who manufacturer the Company's products. Both contractors
have assured the Company that they have performed adequate test of their systems
to ensure they will be compliant with the Year 2000 issue. Symplex is in the
process of obtaining written documentation supporting their claims and the
Company has determined no additional information is required. The third
significant area, the Company's internal information technology, has also been
addressed for Year 2000 problem. The Symplex's accounting program has been Year
2000 certified and Symplex has performed tests to verify this. In addition,
Symplex has verified and/or upgraded their personal computers to ensure
readiness for the Year 2000.

     As a result of the analysis, review and testing, the Company has determined
that no significant modifications and or additional testing will be required to
limit the Company's vulnerability and does not anticipate any adverse effect
will result from the Year 2000 issue. All analysis and testing has been
performed by the Company's staff and Symplex does not anticipate any additional
costs to evaluate the Year 2000 issue. As new information is presented regarding
the Year 2000 issue, the Company will continue to assess the impact on Symplex's
business, financial condition and results of operations. However, there can be
no assurance that the systems of other companies that interact with the Company
will be sufficiently Year 2000 compliant.

                            *          *          *
                          FORWARD-LOOKING STATEMENTS

     This Report 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-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
management team will function effectively; that 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


                                       19
<PAGE>
 
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; sufficient cash
generated from a successful private placement will be available to grow the
Company ; 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 the 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; that
additional private placement funds beyond the initial $1.2 million will not be
raised, 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.




                                       20
<PAGE>
 
ITEM 7.  FINANCIAL STATEMENTS


                               Table of Contents
                               -----------------
<TABLE>
<CAPTION>
                                                                                                 Page
                                                                                                 ----
<S>       <C>                                                                                  <C>
Independent Auditors' Report of Ehrhardt Keefe Steiner & Hottman PC...............................F-1

Financial Statements

          Balance Sheets..........................................................................F-2

          Statements of Operations................................................................F-3

          Statement of Stockholders' Equity (Deficit).............................................F-4

          Statements of Cash Flows................................................................F-5

Notes to Financial Statements.....................................................................F-6
</TABLE>



                                       21
<PAGE>
 
               (EHRHARDT KEEFE STEINER & HOTTMAN PC LETTERHEAD)
                                        

INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying balance sheets of Symplex Communications
Corporation as of December 31, 1998 and 1997, and the related statement of
operations, stockholders' equity (deficit), and cash flows for the years then
ended.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Symplex Communications
Corporation as of December 31, 1998 and 1997 and the results of its operations
and its cash flows for the years 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 incurred a net loss of $1,322,722 and
$3,687,864 for the years ended December 31, 1998 and 1997, respectively.  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.



Ehrhardt Keefe Steiner & Hottman PC
January 25, 1999
Denver, Colorado




                                      F-1
<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION


                                Balance Sheets


<TABLE> 
<CAPTION> 
                                                                                 December 31,
                                                                    ---------------------------------------
                                                                           1998                1997
                                                                    -------------------  ------------------- 
<S>                                                              <C>                   <C> 
                                          Assets (Note 3)
Current assets
 Cash                                                               $           154,058  $            24,554
 Trade receivables, less allowance for doubtful 
   accounts of $78,763 in 1998 and $19,740 in 1997, respectively              1,326,166              988,133
 Inventories (Note 2)                                                           601,641              979,232
 Prepaid expenses and other current assets                                      114,284               40,043
                                                                    -------------------  -------------------      
 Total current assets                                                         2,196,149            2,031,962
                                                                    -------------------  -------------------      
Property and equipment                                              
 Machinery and equipment                                                      1,668,919            1,640,121
 Office equipment                                                               639,642              640,382
 Leasehold improvements                                                          19,590               19,590
                                                                    -------------------  -------------------      
                                                                              2,328,151            2,300,093
 Less accumulated depreciation                                               (2,116,892)          (1,964,753)
   Net property and equipment                                       -------------------  -------------------
                                                                                211,259              335,340
 Deferred offering and financing costs                              -------------------  -------------------
                                                                                 44,819              571,984
                                                                    -------------------  -------------------
Total Assets                                                        $         2,452,227  $         2,939,286
                                                                    ===================  ===================


                             Liabilities and Stockholders' Equity (Deficit)

Current liabilities
 Trade payables                                                     $           406,222  $         1,293,449
 Accrued expenses (Note 5)                                                      378,830              328,814
 Unearned maintenance revenue                                                    12,945                    -
 Notes payable - line of credit (Note 3)                                        438,767              500,000
 Notes payable - current portion (Note 3)                                       240,000              250,000
 Notes payable - current portion (Note 3)                                        63,950                    -
 Notes payable - subordinated debt (Note 3)                                           -            1,163,984
                                                                    -------------------  -------------------
    Total current liabilities                                                 1,538,714            3,536,247
                                                                    -------------------  ------------------- 
 
Notes payable - less current portion (Note 3)                                   460,604              240,000
                                                                    -------------------  ------------------- 
    Total liabilities                                                         1,999,318            3,776,247
                                                                    -------------------  ------------------- 

Commitments and contingency (Notes 3, 5, 13 and 15)

Stockholders' equity (deficit) (Notes 6,7,8,11,12 and 15)
 Common stock, $.01 par value; 24,000,000 shares authorized and 
 7,838,968 shares issued, and outstanding (including 318,950 
 shares held in escrow at 1998 and 542,501 shares issued and 
 outstanding at 1997)                                                            78,388               44,757
 Preferred stock, $.01 par value; 6,000,000 shares authorized and 
 zero shares issued, and outstanding                                                  -                    -
 Additional paid-in capital                                                   5,723,414            3,326,600
 Unearned compensation expense                                                        -              (25,933)
 Additional paid-in capital  warrants                                           131,616               76,000
 Notes receivable - recourse                                                    (32,743)             (55,818)
 Notes receivable - non recourse                                               (110,785)            (188,308)
 Accumulated deficit                                                         (5,336,981)          (4,014,259)
                                                                    -------------------  ------------------- 
          Total stockholders' equity (deficit)                                  452,909             (836,961)
                                                                    -------------------  -------------------
Total liabilities and stockholders' equity                          $         2,452,227  $         2,939,286
                                                                    ===================  ===================

</TABLE> 
                      See notes to financial statements.



                                      F-2

<PAGE>
 
                      SYMPLEX COMMUNICATIONS CORPORATION

                           Statements of Operations


<TABLE> 
<CAPTION> 
                                                                   For the Years Ended  December 31,
                                                                       1998                 1997
                                                                -------------------  ------------------- 
<S>                                                           <C>                   <C> 
Net sales and revenues (Note 10)
  Manufactured products                                         $         4,231,202  $         3,761,185
  Maintenance contracts and service                                         121,200              176,378
                                                                -------------------  -------------------             
      Total net sales and revenues                                        4,352,402            3,937,563
                                                                                  
Costs and expenses
  Cost of products sold                                                   2,054,400            1,900,625
  Selling and marketing                                                   1,150,623            2,250,216
  General and administrative (Notes 6 and 12)                             1,183,968            1,604,010
  Research and development                                                  678,679            1,085,973
  Engineering                                                               236,510              245,713
  Service                                                                   216,531              308,389
                                                                -------------------  -------------------              
      Total costs and expenses                                            5,520,711            7,394,926
                                                                -------------------  -------------------              
Operating (loss)                                                         (1,168,309)          (3,457,363)
                                                                                  
Other (expense) income
  Interest expense                                                         (162,146)            (208,682)
  Amortization of discount on notes payable                                 (52,220)             (40,000)
  Other income                                                               59,953               18,181
                                                                -------------------  -------------------               
      Total other (expense) and income                                     (154,413)            (230,501)
                                                                -------------------  -------------------               

Net loss                                                        $        (1,322,722) $        (3,687,864)
                                                                ===================  ===================

Loss per basic and diluted common share (Note 1)                $              (.18) $              (.55)
                                                                ===================  ===================

Weighted average common shares outstanding                                7,548,518            6,699,747
                                                                ===================  ===================
</TABLE> 
                                        
                      See notes to financial statements.
                                        



                                      F-3
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

             Statement of Stockholders' Equity (Deficit)
                For the Years Ended December 31, 1998 and 1997



<TABLE>
<CAPTION>
                                                                                      Additional
                                                                                       Paid-in-          Unearned         Additional
                                                        Number of      Common         Capital         Compensation         Paid-in
                                                         Shares         Stock         Warrants           Expense           Capital
                                                      ------------  -----------    -------------   --------------     -------------
<S>                                                   <C>           <C>            <C>             <C>                <C> 
Balance, December 31, 1996                                608,753        39,150    $     40,000     $            -      $         -

Statutory merger with wholly owned subsidiary                   -       (33,062)              -                  -           33,062
(Note 7)

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

Issuance of common stock - employee stock
purchase plan - (Note 12)                                 738,800         7,388               -           (277,050)         602,122

Amounts paid on notes receivable issued under
key employee stock plan (Note 12)                               -             -               -                  -                -

Compensation expense recognized on stock
issued with stock option (Note 12)                              -             -               -            177,505                -

Warrants issued with bridge financing                           -             -          36,000                  -                -
(Note 3)

Financing fee shares (Note 3)                              23,333           233               -                  -           34,767

Employee stock purchase plan - 
surrendered shares (Notes 12)                            (196,299)       (1,963)              -             73,612         (159,984)

Net loss                                                        -             -               -                  -                -
                                                      ------------    -----------    -------------   --------------     ------------
Balance - December 31, 1997                             4,475,982        44,757          76,000            (25,933)       3,326,600


Issuance of common stock, Initial public
offering (Note 11) net of $1,038,225 in 
offering costs                                          3,500,000        35,000               -                  -        2,426,775

Underwriter's fee related to 
initial public offering (Note 11)                          70,000           700               -                  -           69,300

Employee stock purchase plan (Note 12)                   (222,496)       (2,224)              -             25,933         (110,718)

Shares issued for compensation                             15,482           155               -                  -           11,457


Issuance of detachable warrants 
(Note 3 and 8)                                                  -             -          55,616                  -                -

Net loss                                                        -             -               -                  -                -
                                                      ------------    -----------    -------------   --------------     ------------
Balance - December 31, 1998                             7,838,968     $    78,388    $  131,616      $           -      $  5,723,414
                                                      ============    ===========    =============   ==============     ============
</TABLE> 

<TABLE>
<CAPTION>
                                                                                      Retained   
                                                          Note         Note           Earnings     
                                                       Receivable    Receivable     (Accumulated                                  
                                                        Recourse    Nonrecourse       Deficit)         Total                      
                                                      ------------  -----------    -------------   --------------    
<S>                                                   <C>           <C>            <C>             <C>               
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)                                                 (62,319)            -               -              2,001                  
                    

Issuance of common stock - employee stock
purchase plan - (Note 12)                                 (84,450)     (248,010)              -                  -

Amounts paid on notes receivable issued under
key employee stock plan (Note 12)                          62,318             -               -             62,318

Compensation expense recognized on stock
issued with stock option (Note 12)                              -             -               -            177,505

Warrants issued with bridge financing                           -             -               -             36,000
(Note 3)

Financing fee shares (Note 3)                                   -             -               -             35,000

Employee stock purchase plan - 
surrendered shares (Notes 12)                              28,633        59,702               -                  -         

Net loss                                                        -             -      (3,687,864)        (3,687,864)
                                                      ------------    -----------    -------------   --------------
Balance - December 31, 1997                               (55,818)     (188,308)     (4,014,259)          (836,961)


Issuance of common stock, Initial public
offering (Note 11) net of $1,038,225 in 
offering costs                                                  -             -               -          2,461,775

Underwriter's fee related to 
initial public offering (Note 11)                               -             -               -             70,000                 

Employee stock purchase plan (Note 12)                     23,075        77,523               -             13,589

Shares issued for compensation                                  -             -               -             11,612

Issuance of detachable warrants 
(Note 3 and 8)                                                  -             -               -             55,616

Net loss                                                        -             -      (1,322,722)        (1,322,722)
                                                      ------------    -----------    -------------   --------------     
Balance - December 31, 1998                               (32,743)    $(110,785)    $(5,336,981)     $     452,909
                                                      ============    ===========    =============   ==============     
</TABLE> 


                       See note to financial statements.

<PAGE>
                      SYMPLEX COMMUNICATIONS CORPORATION
 
                           Statements of Cash Flows
                                        

<TABLE>
<CAPTION>
 
                                                                   For the Years Ended December 31,
                                                                      1998                 1997
                                                                   ------------        ------------
<S>                                                               <C>                 <C> 
Cash flows from operating activities                               $ (1,322,722)       $ (3,687,864)
                                                                   ------------         ----------- 
  Net income (loss)                                                                               
  Adjustments to reconcile net loss to net cash provided by (used in) 
  operating activities -
     Allowance for doubtful accounts                                     59,023             (10,260)
     Allowance for inventory obsolescence                               609,931              67,916
     Depreciation                                                       153,675             188,033
     Loss (gain) on disposal of assets                                   (1,535)             11,577
     Amortization of discount on notes payable                           52,220              40,000
     Stock related compensation                                          24,741             260,284
     Changes in assets and liabilities
       Trade receivables                                               (397,056)           (448,693)
       Inventories                                                     (232,340)            187,809
       Prepaid expenses and other current assets                        (74,241)              8,667
       Trade payables                                                  (755,777)            510,700
       Unearned maintenance revenue                                      12,945                   -
       Accrued expenses                                                  48,016              94,551
                                                                   ------------         ----------- 
                                                                       (500,398)            910,584
                                                                   ------------         ----------- 
          Net cash used in operating activities                      (1,823,120)         (2,777,280)
                                                                   -------------       ------------
Cash flows from investing activities
  Purchases of property and equipment                                   (29,593)           (102,763)
  Proceeds from sales of equipment                                        1,535               8,116
                                                                   ------------         ----------- 
          Net cash used in investing activities                         (28,058)            (94,647)
                                                                   ------------         ----------- 
Cash flows from financing activities
  Payments on line-of-credit                                            (61,233)                  -
  Borrowings of notes payable                                           444,384             100,000
  Issuance of detachable warrants with borrowing of notes payable        55,616              36,000
  Payments of notes payable                                            (317,500)            (10,000)
  Proceeds (payments) from bridge financing                          (1,200,000)          1,163,984
  Deferred offering and financing costs                                 527,165            (522,520)
  Proceeds from issuance of common stock                              2,531,775           1,810,364
  Proceeds from note receivable - non-recourse                              475                   -      
  Payments on capital lease obligations                                       -              (1,637)
                                                                   ------------         ----------- 
          Net cash provided by financing activities                   1,980,682           2,576,191
                                                                   ------------         -----------
 
Net (decrease) increase in cash                                         129,504            (295,736)
                                                                                  
Cash - beginning of year                                                 24,554             320,290
                                                                   ------------         ----------- 
Cash - end of year                                                 $    154,058        $     24,554
                                                                   ============         =========== 
</TABLE> 
Supplemental disclosure of cash flow information
    Cash paid during the period for interest was $216,288 and $142,500 for
    December 31, 1998 and 1997, respectively.

Schedule of non-cash financing and investing activities:
    For the year ended December 31, 1998, the Company had the following non-cash
    financing and investing transactions: notes payable issued upon conversion
    of accounts payable of $131,450; notes receivable retired in exchange for
    common stock $(16,888); Issuance of common stock as a financing fee $70,000;
    Cancelled notes receivable and stock held in escrow returned to treasury
    $100,123.

                      See notes to financial statements.
                                        

                                      F-5
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 1 - Description of Business and Summary of Significant Accounting Policies
-------------------------------------------------------------------------------

Nature of Business -
Symplex Communications Corporation (the Company) designs, manufactures and sells
specialized data communications equipment primarily used to create computer
networks and send information electronically.  The 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.

Significant Accounting Policies -
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.


Inventories
-----------
Inventories are stated at the lower of cost (determined on the first-in, first-
out method) or market (net realizable value). Inventory reserves are established
and recorded periodically as such requirements can be identified and quantified
based on such factors as new product releases obsoleting existing products
including technological advances, focused marketing activities relieving
effectively excess inventories, trends of ongoing specific product sales
activities and, where possible, alternative uses for slow moving inventory
components.

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
$679,000 and $1,086,000 for December 31, 1998 and 1997 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.



                                      F-6
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 1 - Description of Business and Summary of Significant Accounting Policies
-------------------------------------------------------------------------------
(continued)
-----------

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

Revenue is recognized as product is shipped or delivered.

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

The Company expenses advertising costs as incurred.

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, 1998 and 1997 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 (Note 12) 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.

Deferred Financing Costs
------------------------

Cost associated with obtaining debt financing are deferred and amortized on a
straight-line basis over the term of the debt.

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 1997 financial statements have been reclassified to conform
with the 1998 presentation.



                                      F-7
<PAGE>
                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 1 - Description of Business and Summary of Significant Accounting Policies
-------------------------------------------------------------------------------
(continued)
-----------

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

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. 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 1998 and 1997
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.

Recently Issued Accounting Pronouncements
-----------------------------------------

In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("Statement 132"), which revises employers' disclosures about pension
and other postretirement benefit plans. Statement 132 does not change the
measurement or recognition of those plans, but requires additional information
on changes in benefit obligations and fair values of plan assets and eliminated
certain disclosures previously required by SFAS Nos. 87, 88 and 106.  Statement
132 is effective for financial statements with fiscal years beginning after
December 15, 1997.

During June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement 133 establishes new standards by
which derivative financial instruments must be recognized in any entity's
financial statements.  Besides requiring derivatives to be included on balance
sheets at fair value, Statement 133 generally requires that gains and losses
from later changes in a derivative's fair value be recognized currently in
earnings. Statement 133 also unifies qualifying criteria for hedges involving
all kinds of derivatives, requiring that a company document, designate and
assess the effectiveness of its hedges. Statement 133 is required to be adopted
by the Company in 2000.  Management, however, does not expect the impact from
this statement to have a material impact on the financial statement
presentation, financial position or results of operations.

The Company has not determined what additional disclosures, if any, may be
required by the provisions of Statement 132 and 133 but does not expect adoption
of these statements to have  a material effect on its results of operations.



                                      F-8
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 2 - Inventories
--------------------

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                ---------------------------------------
                                                                       1998                1997
                                                                -------------------  ------------------- 
<S>                                                           <C>                   <C> 
Raw materials                                                   $           273,345  $           304,884
Work-in-process                                                             536,632              266,252
Finished goods                                                              546,163              648,291
                                                                -------------------  -------------------  
                                                                          1,356,140            1,219,427
   Less reserve for obsolescence                                           (754,499)            (240,195)
                                                                -------------------  -------------------   

                                                                $           601,641  $           979,232
                                                                ===================  ===================
</TABLE>


Note 3 - Notes Payable
----------------------

In March 1997, the Company restructured its bank line-of-credit agreement.
Under the new agreement, $500,000 of the December 31, 1996 balance was converted
to a term note payable, with $500,000 remaining as the amount available under
the line-of-credit.  The term note matures December 1, 1999 and requires
quarterly principal payments, beginning September 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 7.75% at December 31, 1998). The
Company had borrowings against this line-of-credit of $438,767 and $500,000 at
December 31, 1998 and 1997, respectively.

Both agreements are secured by all assets of the Company and contain restrictive
covenants. The most significant of which require the Company to 1) maintain
certain levels of net worth, as defined; 2) maintain certain levels of working
capital; and 3) maintain a certain level of total liabilities to net worth.

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



                                      F-9
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 3 - Notes Payable (continued)
----------------------------------

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                ---------------------------------------
                                                                       1998                 1997
                                                                -------------------  ------------------ 
<S>                                                            <C>                  <C>  
Convertible subordinated notes payable.  Paid in full in 1998.  $                 -  $          699,984 

Subordinated notes payable with detachable warrants (Note 8).
 Paid in full in 1998.                                                            -             500,000

Term notes payable.  Payments of $60,000 quarterly including
 interest at prime rate plus 2% (prime was 7.75% at December,
 1998) with final payment due on December 15, 1999.
 Secured by all assets of the Company.                                      240,000             490,000 

Term notes payable.  Payments of $7,500 monthly plus interest at
 9% with final payment due on September 1, 1999.                             63,950                   - 

Subordinated note payable with detachable warrant (Note 8).
 Interest of 15% due quarterly principal due May 18, 2000.
 Secured by all tangible and intangible personal property
 subordinated to bank term note and line of credit. Converted to            
 equity in February 1999.                                                   500,000                   -  
                                                                -------------------  ------------------  
                                                                            803,950           1,689,984
Unamortized discount                                                        (39,396)            (36,000)
Less current maturities                                                    (303,950)         (1,413,984)
                                                                -------------------  ------------------    

                                                                $           460,604  $          240,000
                                                                ===================  ==================
</TABLE> 

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
for the year ended December 31, 1997.  The Company discontinued employer
matching in April 1997.



                                     F-10
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements
 

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 $20,537 and $40,368 for
the years ended December 31, 1998 and 1997, 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 $3.00 of indebtedness for 113,833 shares.


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.

On December 2, 1998, the Company amended the articles of incorporation
increasing the authorized capital from 20,000,000 shares to 30,000,000 shares;
as part of such increase in total authorized capital, increase the number of
authorized shares of Common Stock from 20,000,000 to 24,000,000; and authorize a
class of 6,000,000 shares of preferred stock.



                                     F-11
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements
 

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 $.83 and $.95 per share and expire on September 8, 1999.

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 second
year following the Canadian public offering.

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 11).  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 U.S.
notes payable, the Company issued warrants to purchase 166,667 shares of common
stock at $1.00 per share (Note 3).  These warrants expired in August 1998.

In February 1998, in connection with the initial public offering (Note 11), the
Company entered into an agency agreement with an underwriter under which 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 common stock  $1.00
per share.  The warrants expired in February 1999.

In February 1998, in connection with the issuance of certain subordinated
Canadian notes payable (Note 3), the Company issued warrants to purchase 187,500
shares of common stock at $1.00 per share.  These warrants expired in February
1999.

In May, 1998, in connection with the issuance of certain notes payable (Note 3),
the Company has issued warrants to purchase 350,000 shares of common stock at
$.20 per share for the first year and $.23 per share the second year.  The
warrants expire on May 18, 2000.

In February 1999, in connection with a private placement (Note 15), the Company
issued warrants to purchase 612,245 shares of the Company's Series B Preferred
Stock at a price of U.S.$.98.  The warrants expire in August 1999.



                                     F-12
<PAGE>
                      SYMPLEX COMMUNICATIONS CORPORATION

                        Notes to Financial Statements 
Note 9 - Income Taxes
---------------------

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

Federal
  Deferred expense                                              $ 1,232,070
  Decrease in valuation allowance                                (1,232,070) 
                                                                -----------
Total                                                           $         -
                                                                 ==========   

The net deferred income tax asset as of December 31, 1998 in the accompanying
balance sheet include the following:

  Deferred tax assets                                           $   294,536
  Valuation allowance                                              (294,536)
                                                                -----------
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.

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.

Note 10 - Export Sales
----------------------

All of the Company's business is transacted in U.S. dollars and the company has
no foreign currency translation adjustments. Export sales for the years ended
December 31, 1998 and 1997 were as follows:

<TABLE> 
<CAPTION> 
                                
                                                                   Years Ended
                                                                   December 31,
                                                       --------------------------------------
                                                            1998                     1997
                                                       ------------             -------------
<S>                                                   <C>                       <C>
U.S.                                                   $  732,375                 $ 1,411,348
Germany                                                 2,023,021                     390,117
Belgium                                                         -                     198,928
Japan                                                     158,983                     311,204
Netherlands                                               560,553                     373,464
Spain                                                     203,221                     195,420
United Kingdom                                            251,701                     220,379
Other                                                     422,548                     836,703
                                                       ------------             -------------
Total sales                                            $4,352,402                 $ 3,937,563
                                                       ============             =============
</TABLE>

                                     F-13
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 11 - Private and Public Offerings
--------------------------------------

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.

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 $1,038,000, were
approximately $2,462,000. Approximately $1,164,000 of the proceeds was 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.


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,
380,090 were forfeited as of December 31, 1998 pursuant to the vesting
provisions.  A total of approximately $46,500 was charged to compensation
expense over the 18 month vesting period for the 124,039 shares issued with
recourse notes based upon the purchase price of $.45 per share and a market
price of $.83 per share.  The options exercised with non-recourse notes are
treated as a variable plan.  Compensation expense recorded over the 18 month
vesting period for

                                     F-14
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 12 - Stock Options (continued)
-----------------------------------

the 614,761 shares issued with non-recourse notes, computed as the difference
between the $.45 per share purchase price plus accrued interest, and the current
market price which at the time of issuance was $.83 per share.  As of December
31, 1998, 318,950 shares were vested and the balance on the notes receivable was
$143,528.  Total stock based compensation expense for the years ended December
31, 1998 and 1997 included in general and administrative expense was $24,741 and
$177,505, respectively.

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 six 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.

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.
673,017 of these shares are fully vested.  The remaining options vest over
thirty-six months, however, no vesting shall occur prior to six months from the
date of grant.  Additional grants in 1998 under the April 1997 Plan amounted to
288,833.  None of the options have been exercised and 1,159,790 remain
outstanding as of December 31, 1998 after taking into effect the cancellation of
413,144.

On August 14, 1998, the majority of the options granted under the April 1997
Plan were re-priced to $.31 per common share.



                                     F-15
<PAGE>
                      SYMPLEX COMMUNICATIONS CORPORATION

                        Notes to Financial Statements 


Note 12 - Stock Options (continued)
-----------------------------------
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, 1997                                   1,140,432           850,000     $.31 - 1.00
  Options granted                                                 288,833                 -      .31 -  .45
  Warrants granted                                                      -         1,170,833      .20 - 1.15
  Options exercised                                                     -                 -               -
  Expired                                                        (269,475)         (166,667)     .31 - 1.00
                                                          ---------------   ---------------  ---------------
Outstanding December 31, 1998                                   1,159,790         1,854,166     $.20 - 1.15
                                                          ===============   ===============  ===============
</TABLE> 

The Company has the following stock options and warrants outstanding at December
31, 1998:

<TABLE>
<CAPTION>
                                         
                                                                                              Exercisable
    Options          Warrants          Exercise             Expiration              -------------------------------
  Outstanding       Outstanding          Price                 Date                    Options           Warrants
--------------   ----------------  ----------------     ----------------------      --------------  ---------------
<S>             <C>                  <C>                <C>                         <C>               <C> 
             -            587,500             $1.00         February 1999                        -          587,500
             -            683,333               .95        September 1999                        -          683,333
             -            233,333              1.15         February 2000                                   233,333
             -            350,000        . 20 - .23           May 2000                                      350,000
       673,017                           .31 - 1.00         November 2001                  673,017
       247,940                           .31 - 1.00        September 2002                  169,270
       238,833                  -        .31 -  .45     August - November 2003              38,023                -
--------------   ----------------                                                   --------------  ---------------
     1,159,790          1,854,166                                                          880,310        1,854,166
==============   ================                                                   ==============  ===============
Weighted average information                  $ .79           22.0 months
                                   ================     ======================
</TABLE>


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 1997 and 1998 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:

<TABLE> 
<CAPTION> 
                                                                              Years Ended
                                                                             December 31,
                                                                ---------------------------------------
                                                                       1998                  1997
                                                                ----------------      -----------------
<S>                                                             <C>                   <C> 
Net loss - as reported                                          $     (1,322,722)     $      (3,687,864)
Net loss - pro forma                                            $     (1,408,570)     $      (3,732,145)
Loss per share - as reported                                    $           (.18)     $            (.55)
Loss per share - pro forma                                      $           (.19)     $            (.56)
</TABLE> 
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 146%;
discount rate of 5.5%; and expected lives of 5 years.

                                     F-16
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 13 - Commitments and Contingency
-------------------------------------

Leases
------

The Company leases building space under an operating lease.  Total rent expense
was $121,960 and $298,136 for the years ended 1998 and 1997, 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 $5,691.  Total rent expense for the office equipment was $77,771 and $81,142
for the years ended 1998 and 1997, respectively.

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


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

              1999                     $  57,618  
              2000                        39,463   
              2001                        27,594   
                                       ---------   

                                       $ 124,675 
                                       ========= 


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.

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 1998 and has a surplus in stockholders' equity
of $453,000 and working capital of $657,000 at December 31, 1998.  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 11, the Company completed an initial public offering of
3,500,000 shares of common stock at a price of US$1.00 per share. Additionally,
the Company has established a marketing and sales plan to substantially increase
revenues over the revenues recognized in 1997 and 1998.  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.

As discussed in Note 15, the Company completed a private placement raising an
additional $1.2 million of equity in February 1999.




                                     F-17
<PAGE>

                      SYMPLEX COMMUNICATIONS CORPORATION

                         Notes to Financial Statements

 
Note 15 - Subsequent Event
--------------------------

In February 1999, the Company entered into an agreement with a creditor to issue
625,000 shares of common stock in exchange for the settlement of a $500,000 note
payable by the Company to the Creditor pursuant to a promissory note issued by
the Company on May 19, 1998.

In February 1999, the Company closed with a private investment group to issue
1,224,490 Series A Preferred shares at a price of U.S.$.98.  Each Series A
Preferred share is convertible into one common share of the Company.  In
addition, the investment group will receive warrants (Note 8) to purchase
612,245 Series B Preferred shares at a price of U.S.$.98.  Each Series B
Preferred share is convertible into 1.08 common share of the Company.  These
warrants expire six months from date of issue.

In February 1999, warrants issued in connection with the initial public offering
(Note 11) to purchase up to 400,000 shares of the Company's common stock at
$1.00 per share expired. At the same time, warrants issued in connection with
the issuance of certain subordinated Canadian notes payable (Note 3) to purchase
187,500 shares of common stock at $1.00 per share expired.


                                     F-18
<PAGE>
 
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 

  None

                                   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
<TABLE> 
<CAPTION> 
<S>                 <C>        <C> 
Name                  Age                       Position
----                  ---                       --------

Gary R. Brock          49        Chief Executive Officer, President and Director

Thomas Radigan         54        Chief Financial Officer, Treasurer, Secretary and Director

Andrew Brzozowicz      45        Vice-President, Worldwide Sales

Patricia Kalmbach      39        Director

Thomas R. Mayer        63        Director


  Key Employees

Donald Holland         39        Director of Engineering
</TABLE> 


     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 14 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 ten 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 has provided
management and financial consulting services to the Company.  Mr. Radigan is a
Certified Public Accountant.

     Andrew Brzozowicz  is Vice-President of Worldwide Sales for Symplex , with
15 years industry experience, having amassed numerous distinctions for sales and
marketing efforts with Fortune 1000 companies such as Sprint International and
General DataComm.  Mr. Brzozowicz's command of Sprint's sales and marketing
campaign in Saudi Arabia and Canada enabled him to gain extensive knowledge of
worldwide networking requirements.  Mr. Brzozowicz has also served as Director
of Sales, Sprint-Canada, Director of Sales, Telenet International, Director of
Sales, Gulfnet-Saudi Arabia and his U.S. assignments have been with General
DataComm, a worldwide leader in ATM deployment.

 

                                      39
<PAGE>
 
     Patricia Kalmbach has been a director of the Company since 1995.  For more
than six 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.

     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
13 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 amendments
thereto furnished to the Company with respect to the fiscal year ended December
31, 1998, 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.


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 12.
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 1998, and its executive officers who were paid more than $100,000 in salary
and bonus during the year ended December 31, 1998 (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)/              1998        130,000         27,188             --                  --
Chief Executive Officer and            
 President

Andrew Brzozowicz                1998         85,833           --             50,162              50,000 
Vice-President of Worldwide                                                   
 Sales
</TABLE> 
 
(1) Mr. Brock joined the Company in May 1997.



                                      40
<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, 1998 to each of the Named Executive Officers.


OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                         Number of Securities          Percent of Total           
                         Underlying Unexercised       Options/SARs Granted      Exercise or
                              Options/SARs                to Employees           Base Price
    Name                      Granted (#)               in Fiscal Year            ($/Sh.)       Expiration Date
    ----                ------------------------         --------------            ------        ---------------
   <S>                    <C>                             <C>                      <C>           <C> 
   Gary R. Brock                      -                            -                     -                 -
   Andrew Brzozowicz              50,000/(1)/                    17.3%                  0.31             8/13/03


</TABLE>
----------------
(1) Options vest as to one-sixth of shares on 9/01/98 and thereafter at the
rate of one thirty-sixth (1/36) of the total shares each month.



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, 1998.


            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      In-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       95,185        31,482             79,955         26,445

         Andrew Brzozowicz       50,555        42,278             42,466         35,514
                                                 
</TABLE>


----------------
(1)  The fair market value of Company Common Stock at December 31, 1998, as
determined by the last trade on the Vancouver Stock Exchange, was $0.84 per
share.

                                       41
<PAGE>
 
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 and Thomas Mayer.  The options are
exercisable at $0.31 per share and expire five years from the date of grant.  As
of February 28, 1999, Ms. Kalmbach's options are fully exercisable and 31,673
shares of Mr. Mayer's are exercisable, the balance vest at the rate of 667
shares for each meeting of directors attended.  The Board of Directors meets
monthly.

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, 1999 318,950 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.

318,950 outstanding shares of Common Stock purchased with promissory notes under
the February 1997 Option Plan vest in equal monthly installments over 36 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: 133,333 shares were
granted to and exercised by Gary Brock at $.45 per share.  In addition, 20,833
shares under the February 1997 Option Plan were granted to and exercised by
Thomas Radigan at $.45 per share.  Shares purchased by Mr. 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 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 

                                       42
<PAGE>
 
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 and of Common Stock Equivalents (resulting from
potential conversion of Preferred shares to Common, see Item 7. Note 15) 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 1998, for its executive officers who were paid more than $100,000 in
1998, 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, 1999.

<TABLE>
<CAPTION>
                                                          Number of                   
Name and Address                                       Common Shares                       Percent of
Of Beneficial Owner                                   Beneficially Owned                Outstanding Shares
-------------------                                   ------------------                ------------------
<S>                                                 <C>                                <C> 
Surinder S. Chandok/(1)/                                1,885,715/(2)/                          18.2% 
  35 Research Drive                                            
  Ann Arbor, MI  48103
Opus Capital, LLP/(3)/                                  1,409,999/(4)/                          13.6% 
  1113 Spruce Street, Ste. 400                                 
  Boulder, CO 80302
Opus Capital Fund, LLC/(5)/                               905,000/(6)/                           9.2% 
  1113 Spruce Street, Ste. 400                                   
  Boulder, CO 80302
Gary R. Brock                                             658,704/(7)/                           6.7% 
  35 Research Drive                                              
  Ann Arbor, MI 48103
Thomas Radigan                                            182,773/(8)/                           1.9% 
  35 Research Drive                                              
  Ann Arbor, MI 48103
Thomas R. Mayer.                                          186,333/(9)/                           1.9% 
  35 Research Drive                                              
  Ann Arbor, MI 48103
Andrew Brzozowicz                                          53,898/(10)/                            * 
  35 Research Drive                                               
  Ann Arbor, MI  48103
Patricia Kalmbach                                          35,000/(11)/                            * 
  35 Research Drive                                               
  Ann Arbor, MI 48103
All directors and executive officers as a               3,002,423/(12)/                         27.7% 
 group (six persons )                                              

</TABLE> 
---------------------------------------------

*Less than one percent.

(1)    Became beneficial owner of shares of Common Stock and director in
       February 1999 after completion of a private placement by the Company.
(2)    Includes 1,224,490 preferred shares convertible on demand into an
       equivalent amount of common shares. Includes warrants to purchase
       preferred shares convertible into 661,225 common shares, which are
       currently exercisable or become exercisable within 60 days.
(3)    The general partners of Opus Capital, LLP are Dieter Heidrich and Daryl
       Yurek, 1113 Spruce Street, Boulder, CO 80302.
(4)    Includes warrants to purchase 504,999 common 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 771,667
       common shares owned by the Fund and warrants held by the Fund to purchase
       133,333 common shares which are currently exercisable or become
       exercisable within 60 days.
(5)    The manager of Opus Capital Fund, LLC is Opus Capital LLP.
(6)    Includes warrants to purchase 133,333 common shares, which are currently
       exercisable or become exercisable within 60 days.
(7)    Includes options to purchase 98,704 common shares, which are currently
       exercisable or become exercisable within 60 days.
(8)    Includes options to purchase 78,940 common shares, which are currently
       exercisable or become exercisable within 60 days.    Includes warrants to
       purchase 63,000 common shares, which are currently exercisable or become
       exercisable within 60 days.

                                      43
<PAGE>
 
(9)    Includes option to purchase 31,673 common shares, which are currently
       exercisable or become exercisable within 60 days.  Includes warrants to
       purchase 94,334 common shares, which are currently exercisable or become
       exercisable within 60 days.
(10)   Includes options to purchase 53,898 common shares, which are currently
       exercisable or become exercisable within 60 days.
(11)   Includes option to purchase 35,000 common shares, which are currently
       exercisable or become exercisable within 60 days.
(12)   Includes options to purchase 298,215 common shares, which are currently
       exercisable or become exercisable within 60 days. Includes warrants to
       purchase 157,334 common shares and warrants to purchase preferred shares
       convertible into 661,225 common shares, which are currently exercisable
       or become exercisable within 60 days.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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.

The Company was 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.

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 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.

                                      44
<PAGE>
 
                                    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, 1998:

     None.


                                  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:  March 18, 1999


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             March 18, 1999
-----------------------       President and Director
Gary R. Brock                 
 
/s/ Thomas Radigan            Chief Financial Officer             March 18, 1999
-----------------------       Treasurer, Secretary and Director
Thomas Radigan                
 
/s/ Patricia Kalmbach         Director                            March 18, 1999
-----------------------
Patricia Kalmbach
 
/s/ Thomas R. Mayer           Director                            March 18, 1999
-----------------------
Thomas R. Mayer


                                      45
<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. /(2)/

4.2        Form of warrant granted to holders of convertible promissory
           notes ("Note Conversion Warrants"). /(3)/

4.3        Form of warrant granted to Canaccord Capital Corporation and
           C.M. Oliver & Co. ("Underwriter Warrants"). /(3)/

4.4        Form of warrant granted to Opus Capital, LLP ("Opus Services
           Warrant"). /(3)/

4.5        Form of warrant issued to May 1998 private lender. /(4)/

10.1       Symplex Communications Corporation Amended and Restated
           Nonstatutory Stock Option Plan. /(1)/

10.2       Symplex Communications Corporation IPO Stock Option Plan. /(1)/

10.3       Letter Agreement dated March 6, 1997 between the Company and
           George Brostoff. /(1)/

10.4       Letter Agreement dated February 12, 1997 between the Company
           and Opus Capital, LLP. /(1)/

10.6       Restructure Agreement dated March 25, 1997 between the
           Company and Michigan National Bank. /(1)/

10.7       Business Loan Agreement and Addendum to Business Loan Agreement, each
           dated March 25, 1997, between the Company and Michigan National Bank.
           /(1)/

27.1       Financial Data Schedule.

_______________________________
(1) Incorporated by reference from the Company's Registration Statement on
    Form 10-SB filed May 30, 1997.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
    for the year ended December 31, 1997.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
    dated February 11, 1998.
(4) Incorporated by reference from the Company's Quarterly Report on Form 
    10-QSB for the quarter ended June 30, 1998.

                                      46