<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------------------------
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934
FOR QUARTER ENDED MARCH 31, 1995.
---------------
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 0-10370
IPL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
-----------------------------
MASSACHUSETTS 04-2511897
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
124 ACTON STREET, MAYNARD, MASSACHUSETTS 01754
(Address of principal executive offices and Zip Code)
(508) 461-1000
(Registrant s Telephone Number, including area code)
-----------------------------
________________________________________________________________________
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by a check mark 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 preceding 12 months (or for such shorter periods 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 31, 1995
----- -----------------------------
Class A $.01 par value 4,504,776
Class C $.01 par value 879,743
1
<PAGE> 2
<TABLE>
IPL SYSTEMS, INC.
-----------------
FORM 10-Q INDEX
---------------
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1995
(Unaudited) and December 31, 1994....................................... 3
Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 1995
and March 31, 1994 ..................................................... 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1995 and March 31,
1994.................................................................... 5
Notes to Unaudited Quarterly Consolidated Statements.................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 8-9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ....................................... 10
Signatures ............................................................. 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
- - -----------------------------
Item 1. Consolidated Financial Statements
<TABLE>
IPL SYSTEMS, INC.
-----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of Dollars)
<CAPTION>
ASSETS
------
(Unaudited)
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 4,400 $ 2,239
Accounts receivable - net 4,477 8,615
Inventories 3,283 3,060
Refundable income taxes 1,425 1,425
Prepaid expenses and other current
assets 449 358
------- -------
Total Current Assets 14,034 15,697
Equipment and Improvements, net 2,820 3,067
------- -------
Total Assets $16,854 $18,764
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 6,279 $ 7,412
Shareholders' Equity:
Class A Common Stock, par value $.0l:
Authorized, 20,000,000 shares;
issued and outstanding, 4,504,776 and
4,501,776 shares 45 45
Convertible Class C Common Stock,
par value $.0l: Authorized, 2,250,000
issued and outstanding
879,743 shares 9 9
Additional paid-in capital 16,585 16,577
Deficit (6,064) (5,279)
------- -------
Total Shareholders' Equity 10,575 11,352
------- -------
Total Liabilities and Shareholders' Equity $16,854 $18,764
======= =======
</TABLE>
See notes to unaudited quarterly consolidated financial statements.
3
<PAGE> 4
PART I. FINANCIAL INFORMATION - Continued
- - -------------------------------------------
<TABLE>
IPL SYSTEMS, INC.
-----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
---------- ----------
<S> <C>
Revenue $ 6,517 $ 7,542
Cost of sales 4,193 4,861
---------- ----------
Gross profit 2,324 2,681
Expenses:
Selling, general and administrative 2,833 4,007
Engineering and development 330 513
---------- ----------
Operating loss ( 839) (1,839)
Other income:
Interest 35 22
Other, net 19 51
---------- ----------
54 73
---------- ----------
Loss before income taxes ( 785) ( 1,766)
Income tax benefit - 600
---------- ----------
Net loss $ ( 785) $ ( 1,166)
========== ==========
Net loss per share $ (0.15) $ (0.22)
========== ==========
Common and common equivalent
shares used in the calculation
of loss per share 5,382,119 5,381,519
========== ==========
</TABLE>
See notes to unaudited quarterly consolidated financial statements.
4
<PAGE> 5
PART I. FINANCIAL INFORMATION - Continued
- - ------------------------------------------
<TABLE>
IPL SYSTEMS, INC.
-----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (785) $ (1,166)
--------- ---------
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization.................................. 290 431
Changes in assets and liabilities:
Accounts receivable.......................................... 4,138 6,489
Inventories ................................................. (223) 1,034
Prepaid expenses and other current assets ................... (91) (849)
Accounts payable and accrued expenses ....................... (1,133) (4,429)
--------- ---------
Total adjustments .............................. 2,981 2,676
--------- ---------
Net cash provided by operating activities......................... 2,196 1,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and improvements........................... (43) (536)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock .................................. 8 -
--------- ---------
CASH AND EQUIVALENTS:
Net increase ..................................................... 2,161 974
BALANCE, beginning of period...................................... 2,239 4,131
--------- ---------
BALANCE, end of period............................................ $ 4,400 $ 5,105
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION:
Taxes paid........................................................ $ - $ 15
========= =========
</TABLE>
See notes to unaudited quarterly consolidated financial statements.
5
<PAGE> 6
PART I. FINANCIAL INFORMATION - Continued
- - ------------------------------------------
IPL SYSTEMS, INC.
-----------------
NOTES TO UNAUDITED QUARTERLY CONSOLIDATED STATEMENTS
----------------------------------------------------
1. Financial Statements
--------------------
The consolidated balance sheet as of March 31, 1995, and the consolidated
statements of operations and cash flows for the three month periods ended
March 31, 1995 and March 31, 1994 have been prepared by the Company without
audit. The consolidated financial statements include the accounts for the
Company and its wholly-owned subsidiaries, IPL Investments, Inc. and IPL
Foreign Sales Corporation. All intercompany accounts and transactions have
been eliminated. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of March 31, 1995, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the Securities and Exchange
Commission rules and regulations. It is suggested that these financial
statements be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1994, including the audited financial
statements and related notes included therein.
The results of operations for the period ended March 31, 1995 are not
necessarily indicative of the operating results for the full year.
2. Accounts Receivable
-------------------
<TABLE>
Accounts receivable consist of the following:
<CAPTION>
(Thousands of dollars)
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Total accounts receivable $7,776 $12,283
Less allowance for doubtful
accounts 3,299 3,668
------ -------
Net Accounts Receivable $4,477 $ 8,615
====== =======
</TABLE>
6
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PART I. FINANCIAL INFORMATION - Continued
- - ------------------------------------------
3. Equipment and Improvements
--------------------------
<TABLE>
Equipment and improvements consist of the following:
<CAPTION>
(Thousands of dollars)
March 31, 1995 December 31, 1994
-------------- -----------------
<S> <C> <C>
Customer support $3,191 $3,167
Manufacturing equipment 4,836 4,815
Office equipment & fixtures 2,410 2,412
Leasehold improvements 1,335 1,335
------ ------
11,772 11,729
Less accumulated depreciation 8,952 8,662
------ ------
$2,820 $3,067
====== ======
</TABLE>
4. Income Taxes
------------
There was no income tax benefit recorded in the first quarter of 1995
as the Company fully utilized the benefit from its tax net operating loss
carryback in 1994. The deferred tax asset of approximately $250,000
resulting from the operating loss has been fully reserved. The $600,000
income tax benefit recorded in the first quarter of 1994 was the result of
the operating loss and the anticipated utilization of that loss during the
remainder of 1994.
5. Restructuring
-------------
In November 1994, the Company approved and executed a restructuring program
(the "Plan") to focus future product development and sales efforts in the
open systems market. As a result of this change, the Company streamlined
its operations by reducing its workforce, consolidating and closing
certain facilities and writing off idle and excess assets. A
restructuring charge of $1,971,000 was recorded in 1994.
<TABLE>
The payments made in the first quarter of 1995 and the accrual at
December 31, 1994 and March 31, 1995 are as follows:
<CAPTION>
Remaining
Accrual at Paid in Accrual at
December 31, 1994 First Quarter March 31, 1995
----------------- ------------- --------------
<S> <C> <C> <C>
Occupancy Costs $ 471 $ 114 $ 357
Severance Costs 88 80 8
----- ----- -----
$ 559 $ 194 $ 365
===== ===== =====
</TABLE>
The occupancy costs will be paid out in 1995 through 1998 and the
remaining severance costs will be paid out in the second quarter of
1995. There have been no changes to the Plan, the estimate of Plan
costs or to the original Plan assumptions.
7
<PAGE> 8
Item 2. Management s Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
---------------------
Quarterly Results
-----------------
Revenue for the first quarter of 1995 was $6,517,000 compared with
$7,542,000 for the first quarter of 1994. This decline in revenue is
the result of the Company's 1994 reengineering of its sales strategy
focusing on new, more profitable markets. U.S. sales declined 22% from
$4,363,000 in the first quarter of 1994 to $3,400,000 in the first
quarter of 1995, primarily the result of reduced sales through the
AS/400 STAR channel of distribution. The Company's transition to sales
of open systems products is in the early stages and has not fully
offset the changes in AS/400 product sales. International revenues
were approximately the same in the first quarter of 1995 compared with
the first quarter of 1994.
Disk revenue decreased 21% to $4,876,000 in the first quarter of 1995
compared with $6,142,000 in the first quarter of 1994. Tape revenue
increased 18% to $976,000 in the first quarter of 1995 compared with
$830,000 in the first quarter of 1994.
The first quarter revenues are historically significantly lower than
the fourth quarter of the previous year. The first quarter of 1995
revenue was at 80% of the fourth quarter of 1994 revenue, following the
last three years in which the first quarter revenues were 50-60% lower
than the revenues of the prior fourth quarter. Management believes
this is the result of open systems sales which represented
approximately 18% of total first quarter sales and 26% of U.S. sales.
Gross margins in the first quarter of 1995 were 35.7% compared to 35.5%
in the first quarter of 1994. The gross margins for the second and
third quarters of 1994 were 21.0% and 25.7%. The gross margin was
(36.8%) for the fourth quarter of 1994 and 10% for the year ended 1994
and reflected certain charges recorded in the fourth quarter (see the
Company's Annual Report on Form 10-K for 1994). Compared with 1994,
the improved gross margin for the first quarter of 1995 reflected the
lower cost structures resulting from the 1994 reengineering, sales to
the open systems market, and a partial recovery of a doubtful accounts
receivable.
Selling, general and administrative expenses decreased approximately
29% to $2,833,000 in the first quarter of 1995 compared with $4,007,000
in the first quarter of 1994. This $1,174,000 decrease is primarily
related to the reengineering of the Company's operations during 1994
and ongoing aggressive expense management.
Engineering and development expenses declined $183,000 in the first
quarter of 1995 compared with the first quarter of 1994. This decrease
is principally due to lower overhead resulting from the 1994
restructuring and reduced costs associated with the development of open
systems products.
8
<PAGE> 9
In the fourth quarter of 1994, the Company recorded a $1,971,000 charge
to restructure the Company's operations. The Company's restructuring
plan substantially reduced its cost structure and refocused product
development and sales efforts on the open systems market in addition to
the Company's traditional AS/400 markets. There were no changes in the
first quarter of 1995 to the restructure plan, the estimate of plan
costs or to the original plan assumptions.
The loss before income taxes for the first three months of 1995 was
$785,000 compared with $1,766,000 for the comparable period of 1994.
The improvement is primarily due to the reduction in operating
expenses. Due to the absence of any income tax benefit, the Company's
reported net loss was also $785,000, or $(0.15) per share compared with
a net loss of $1,166,000, or $(0.22) per share, for the first quarter
last year.
There was no income tax benefit recorded in the first quarter of 1995
as the Company fully utilized the benefit from its tax net operating
loss carryback in 1994. The deferred tax asset of approximately
$250,000 resulting from the operating loss has been fully reserved.
The $600,000 income tax benefit recorded in the first quarter of 1994
was the result of the operating loss and the anticipated utilization of
that loss during the remainder of 1994.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and equivalents as of March 31, 1995 increased 97%
to $4,400,000 compared to the 1994 year end level of $2,239,000.
Accounts receivable balances decreased by 48% to $4,477,000 at March
31, 1995 from $8,615,000 at December 31, 1994. There was a 25 day
improvement in the days sales outstanding from 96 days in the fourth
quarter of 1994 to 71 days at March 31, 1995. Inventories increased
slightly from $3,060,000 at December 31, 1994 to $3,283,000 at March
31, 1995. Management continues to focus its efforts toward aggressive
asset management. Accounts payable and accrued expenses decreased by
$1,133,000, or 15%, primarily due to reduced material requirements.
Cash provided by operations through the first three months of 1995 was
$2,196,000 compared to $1,510,000 in the same period of 1994, an
increase of $686,000, or 45%. The Company is continuing to evaluate
its external financing requirements for future growth of its business
and alternatives for such financing during 1995. Management believes
that its cash and equivalents, cash provided by operations, and other
capital resources will be sufficient to meet its operating and capital
requirements for its existing business. The Company remains free of
any short-term and long-term debt obligations.
9
<PAGE> 10
PART II. OTHER INFORMATION - Continued
- - --------------------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
Exhibit 11 - Computation of Net Loss Per Common Share - Page 13
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fiscal quarter ended March 31, 1995.
10
<PAGE> 11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPL SYSTEMS, INC.
-----------------
DATE: May 8, 1995 By: Gregory R. Grodhaus
----------------------------
Gregory R. Grodhaus
President
Chief Executive Officer
By: Eugene F. Tallone
----------------------------
Eugene F. Tallone
Chief Financial Officer
Principal Accounting Officer
11
<PAGE> 12
<TABLE>
IPL SYSTEMS, INC.
FORM 10-Q, MARCH 31, 1995
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit
No. Description Page No.
------- ----------- --------
<S> <C> <C>
11 Computation of weighted average shares used in
computing earnings per share amounts. Filed herewith 13
27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
<TABLE>
EXHIBIT 11
IPL SYSTEMS, INC.
-----------------
COMPUTATION OF NET LOSS PER COMMON SHARE
----------------------------------------
(Thousands of dollars except per share amounts)
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1995 1994
---------- ----------
<S> <C> <C>
Primary
- - -------
Net loss $ ( 785) $ (1,166)
========== ==========
Weighted average shares outstanding 5,382,119 5,381,519
Dilutive stock options based on the
treasury stock method using average
market price for the period - -
---------- ----------
Common shares used in calculation of
net loss per share 5,382,119 5,381,519
========== ==========
Net loss per share $ ( 0.15) $ (0.22)
========== ==========
Fully Diluted
- - -------------
Net loss $ ( 785) $ (1,166)
========== ==========
Weighted average shares outstanding 5,382,119 5,381,519
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 179,680 52,218
---------- ----------
Common shares used in calculation of
net loss per share 5,561,799 5,433,737
========== ==========
Net loss per share $ (0.14) $ (0.21)
========== ==========
<FN>
(A) This calculation is presented in accordance with Item 601 of Regulation S-X although
it is not required by Paragraph 14 of APB Opinion No 15.
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,400
<SECURITIES> 0
<RECEIVABLES> 7,776
<ALLOWANCES> 3,299
<INVENTORY> 3,283
<CURRENT-ASSETS> 14,034
<PP&E> 11,772
<DEPRECIATION> 8,952
<TOTAL-ASSETS> 16,854
<CURRENT-LIABILITIES> 6,279
<BONDS> 0
<COMMON> 54
0
0
<OTHER-SE> 10,521
<TOTAL-LIABILITY-AND-EQUITY> 16,854
<SALES> 6,517
<TOTAL-REVENUES> 6,517
<CGS> 4,193
<TOTAL-COSTS> 4,193
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (785)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.14)
</TABLE>
