<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 JUNE 30, 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 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
--- ---
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 JUNE 30, 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> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1995
(Unaudited) and December 31, 1994....................................... 3
Consolidated Statements of Operations (Unaudited) -
Six Months Ended June 30, 1995 and
June 30, 1994........................................................... 4
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1995 and June 30, 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 4. Submission of Matters to a Vote of Security Holders..................... 10
Item 6. Exhibits and Reports on Form 8-K........................................ 11
Signatures ............................................................. 12
</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)
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Current Assets:
Cash and equivalents $5,067 $ 2,239
Accounts receivable - net 3,610 8,615
Inventories 3,681 3,060
Refundable income taxes 140 1,425
Prepaid expenses and other current
assets 379 358
------- -------
Total Current Assets 12,877 15,697
Equipment and Improvements, net 2,889 3,067
------- -------
Total Assets $15,766 $18,764
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 5,580 $ 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 (6,453) (5,279)
Total Shareholders Equity 10,186 11,352
------- -------
Total Liabilities and Shareholders Equity $15,766 $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 Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 6,707 $ 6,158 $13,224 $13,700
Cost of sales 4,078 4,864 8,271 9,726
------- ------- ------- -------
Gross profit 2,629 1,294 4,953 3,974
Expenses:
Selling, general and administrative 2,824 4,039 5,657 8,046
Engineering and development 304 458 634 971
------- ------- ------- -------
Operating loss (499) (3,203) (1,338) (5,043)
------- ------- ------- -------
Other income:
Interest 59 43 94 65
Other, net 51 42 70 93
------- ------- ------- -------
110 85 164 158
------- ------- ------- -------
Loss before income taxes (389) (3,118) (1,174) (4,885)
Income tax benefit - 1,060 - 1,661
------- ------- ------- -------
Net loss $ (389) $(2,058) $(1,174) $(3,224)
------- ------- ------- -------
Net loss per share $ (0.07) $ (0.38) $ (0.22) $ (0.60)
------- ------- ------- -------
Common and common equivalent
shares used in the calculation
of loss per share 5,384,519 5,381,519 5,383,319 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>
Six Months Ended
----------------
June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $ (1,174) $(3,224)
-------- -------
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization............................ 605 893
Changes in assets and liabilities:
Accounts receivable.................................... 5,005 9,521
Inventories ........................................... (621) 1,692
Prepaid expenses and other current assets ............. 1,264 250
Accounts payable and accrued expenses ................. (1,832) (5,410)
------ -------
Total adjustments ........................ 3,816 6,053
------ -------
Net cash provided by operating activities.................... 3,247 3,722
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and improvements..................... (427) (1,176)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ............................ 8 0
------ -------
CASH AND EQUIVALENTS:
Net increase ............................................... 2,828 2,546
BALANCE, beginning of period................................ 2,239 4,131
------ -------
BALANCE, end of period...................................... $5,067 $ 6,677
====== =======
SUPPLEMENTARY CASH FLOW INFORMATION:
Taxes paid.................................................. $ 11 $ 23
====== =======
</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 June 30, 1995, and the
consolidated statements of operations and cash flows for the six months
ended June 30, 1995 and June 30, 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 June 30, 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 June 30, 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)
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Total accounts receivable $6,545 $ 12,283
Less allowance for doubtful
accounts 2,935 3,668
------ --------
Net Accounts Receivable $3,610 $ 8,615
====== ========
</TABLE>
6
<PAGE> 7
PART I. FINANCIAL INFORMATION - Continued
------------------------------------------
3. Equipment and Improvements
--------------------------
<TABLE>
Equipment and improvements at cost consist of the following:
<CAPTION>
(Thousands of dollars)
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
Customer support $ 3,541 $ 3,167
Manufacturing equipment 4,844 4,815
Office equipment & fixtures 2,436 2,412
Leasehold improvements 1,335 1,335
------- -------
$12,156 $11,729
======= =======
Less accumulated depreciation 9,267 8,662
------- -------
$ 2,889 $ 3,067
======= =======
</TABLE>
4. Income Taxes
------------
There was no income tax benefit recorded in the second quarter of
1995 as the Company fully utilized the benefit from its tax net
operating loss carryback in 1994. The $1,661,000 income tax
benefit recorded in the second 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 six months of 1995 and the accrual
at December 31, 1994 and June 30, 1995 are as follows:
<CAPTION>
Remaining
Accrual at Paid in Accrual at
December 31, 1994 First Six Months June 30, 1995
----------------- ---------------- -------------
<S> <C> <C> <C>
Occupancy costs $ 471 $ 135 $ 336
Severance costs 88 88 -
----- ----- -----
$ 559 $ 223 $ 336
===== ===== =====
</TABLE>
The occupancy costs will be paid out in 1995 through 1998 and the
remaining severance cost was 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
-----------------
Revenues for the second quarter of 1995 were $6,707,000 compared to $6,158,000
for the second quarter of 1994. This 9% increase in revenue is primarily the
result of the market acceptance of the Company's open systems products in the
U.S. In the second quarter of 1995, the Company achieved 44% of its total
revenue through open systems products, of which, 57% was achieved in the U.S.
International sales accounted for 24% of the total revenue in the second
quarter of 1995 compared to 42% of the total revenue in the second quarter of
1994. Total U.S. sales increased 44% in the second quarter of 1995 from the
second quarter of 1994, primarily the result of the addition of open systems
products sold through the Company s direct sales and STAR distribution
channels.
The Company's OEM business strategy is ongoing and it recently signed two
high-technology niche companies who are integrating IPL technology into their
own products. Initial revenues from these companies should begin in the third
quarter of 1995.
Disk revenues increased 37% to $5,105,000 in the second quarter of 1995
compared with $3,941,000 in the second quarter of 1994. Tape revenue decreased
64% to $634,000 in the second quarter of 1995 compared with $1,754,000 in the
second quarter of 1994.
In the second quarter of 1995, the gross margin was 39.2% compared with 21.0%
in the same period last year. This improvement is primarily the result of the
change to the open systems market, and a reduction in the allowance for
doubtful accounts receivable as well as the lower cost structure as a result of
the 1994 re-engineering.
Selling, general and administrative expenses decreased approximately 30% to
$2,824,000 in the second quarter of 1995 compared with $4,039,000 in the second
quarter of 1994. This $1,215,000 decrease is primarily due to the re
engineering of the Company's operations during 1994 and ongoing aggressive
expense management.
Engineering and development expenses were $154,000 lower in the second quarter
of 1995 compared to the second quarter of 1994. This decrease is due to lower
overhead and reduced costs associated with the development of open systems
products. Engineering headcount remained flat compared to the 1994 level.
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 second quarter of
1995 to the restructuring plan, the estimate of plan costs or to the original
plan assumptions.
The loss before income taxes for the second quarter of 1995 was $389,000
compared with $3,118,000 for the comparable period of 1994. The improvement is
primarily due to the 103% increase in gross margin dollars and the 30%
reduction in operating expenses. The Company's reported net loss was also
$389,000, or $(0.07) per share compared with a net loss of $2,058,000, or
$(0.38) per share, for the second quarter of 1994.
There was no income tax benefit recorded in the second quarter of 1995. The
Company plans to reduce taxes on anticipated future earnings. The Company
fully utilized the benefit from its tax net operating loss carryback in 1994.
The $1,060,000 income tax benefit recorded in the second quarter of 1994 was
the result of the operating loss.
8
<PAGE> 9
Six Month Results
-----------------
Revenue for the first six months of 1995 were $13,224,000 compared to
$13,700,000 for the first six months of 1994, primarily due to a reduction in
purchases made by the Company's European distributors, which was partially
offset by a 7% increase in U.S. sales, mainly open systems products. U.S.
sales accounted for 64% of the Company's revenue through the second quarter of
1995 compared with 58% in the comparable period in 1994. This improvement
reflects the continued progress of the Company's strategy in selling open
systems products, which accounted for 31% of the total six months revenue.
The revenue mix between disk and tape product lines in the first six months of
1995 reflects a 5% increase in disk products and a 37% decrease in tape
products compared to the same period of 1994. The disk product line
represented 78% and 74% of the Company's revenue in the first six months of
1995 and 1994, respectively. The tape product line accounted for 12% and 19%,
respectively, of the Company's revenue for the same period.
Gross margins in the first six months of 1995 were 37.5% compared with 29.0% in
the first six months of 1994. The improvement in gross margin is primarily due
to the reduction in the allowance for doubtful accounts receivable, as well as
to sales of open systems products and the lower cost structure resulting from
the 1994 re-engineering. (See Note 2 to the Consolidated Financial
Statements.)
Total operating expenses decreased 30% in the first half of 1995 compared
with the same period of 1994. Selling, general and administrative expenses
decreased in the first six months of 1995 by $2,389,000 or 29% compared to the
same period in 1994, primarily due to the 1994 restructure.
Engineering and development expenses decreased $337,000 during the first half
of 1995 in comparison to the first half of 1994. This decrease is due to
lower overhead and reduced costs associated with the development of open
systems products. Engineering headcount remained flat for both periods.
The loss before income taxes for the first six months of 1995 was $1,174,000
compared with $4.885,000 for the comparative period of 1994. The Company's net
loss was also $1,174,000, or $(0.22) per share compared with a net loss of
$3,224,000, or $(0.60) per share, for the same period of 1994.
There was no income tax benefit recorded in the first six months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and equivalents as of June 30, 1995 were $5,067,000,
reflecting an increase of $2,828,000, or 126% , from the balance at December
31, 1994. The cash balance increase reflects an aggregate of approximately $2
million received through a Federal income tax refund and a partial recovery of
a previously reserved accounts receivable balance. The accounts receivable
balance decreased by $5,005,000 or 58% due to the quarter-to-quarter
fluctuation in geographic mix of the Company s sales and improved collections
resulting in days-sales-outstanding of 48 days, compared with 96 days at
year-end. Inventories increased $600,000 from year-end as the Company
established adequate levels of inventory for open systems products. Accounts
payable and accrued expense decreased by $1,800,000 primarily due to reduced
material requirements and expenses.
The Company continues to evaluate 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
--------------------------
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
<TABLE>
The Company held its annual meeting of stockholders on Thursday,
May 25, 1995, which was adjourned to Friday, June 9, 1995 for the
purpose of electing the Class A Directors of the Company. The
following represents the results of the proposals submitted to a vote
of security holders:
<CAPTION>
Votes Cast Abstentions
Votes Cast Against or and Broker
For Withheld Non-Votes
---------- ---------- ----------
<S> <C> <C> <C>
Fix the Number of
Directors at Three 3,133,485 58,233 20,970
Election of Directors
A. By the Class A Common Shares
Gregory R. Grodhaus 2,278,087 54,858 0
Stephen J. Ippolito 2,278,087 54,858 0
B. By the Class C Common Shares
Jeanne M. Sullivan 879,743 0 0
</TABLE>
10
<PAGE> 11
PART II. OTHER INFORMATION - Continued
--------------------------------------
<TABLE>
<S> <C>
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
--------
Exhibit 11 - Computation of Net Loss Per Common Share - Page 13
(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 June 30, 1995.
</TABLE>
11
<PAGE> 12
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: August 2, 1995 By: /s/ Gregory R. Grodhaus
----------------------------
Gregory R. Grodhaus
President
Chief Executive Officer
By: /s/ Eugene F. Tallone
----------------------------
Eugene F. Tallone
Chief Financial Officer
Principal Accounting Officer
12
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<TABLE>
IPL SYSTEMS, INC.
FORM 10-Q, JUNE 30, 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 14-15
</TABLE>
13
<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
------------------
June 30, June 30,
Primary 1995 1994
-------- --------
<S> <C> <C>
Net loss $ (389) $ (2,058)
========== ==========
Weighted average shares outstanding 5,384,519 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 5,384,519 5,381,519
========== ==========
Net loss per share $ (0.07) $ (0.38)
========== ==========
Fully Diluted
-------------
Net loss $ (389) $ (2,058)
---------- ----------
Weighted average shares outstanding $5,384,519 $5,381,519
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 259,342 1,168
---------- ----------
Common shares used in calculation of
net loss per share 5,643,861 5,382,687
---------- ----------
Net loss per share $ (0.07) $ (0.38)
---------- ----------
<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>
14
<PAGE> 2
<TABLE>
EXHIBIT 11
(CONTINUED)
IPL SYSTEMS, INC.
-----------------
COMPUTATION OF NET LOSS PER COMMON SHARE
----------------------------------------
(Thousands of dollars except per share amounts)
-----------------------------------------------
<CAPTION>
Six Months Ended
----------------
June 30, June 30,
Primary 1995 1994
------- -------- --------
<S> <C> <C>
Net loss $ (1,174) $ (3,224)
========== ==========
Weighted average shares outstanding 5,383,319 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 5,383,319 5,381,519
========== ==========
Net loss per share $ (0.22) $ (0.60)
========== ==========
Fully Diluted
-------------
Net loss $ (1,174) $ (3,224)
---------- ----------
Weighted average shares outstanding $5,383,319 $5,381,519
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 303,261 26,693
---------- ----------
Common shares used in calculation of
net loss per share 5,687,780 5,408,212
---------- ----------
Net loss per share $ (0.21) $ (0.60)
---------- ----------
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF IPL SYSTEMS, INC. FOR THE THREE
MONTHS ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 5,067
<SECURITIES> 0
<RECEIVABLES> 6,545
<ALLOWANCES> 2,935
<INVENTORY> 3,681
<CURRENT-ASSETS> 12,877
<PP&E> 12,156
<DEPRECIATION> 9,267
<TOTAL-ASSETS> 15,766
<CURRENT-LIABILITIES> 5,580
<BONDS> 0
<COMMON> 54
0
0
<OTHER-SE> 10,132
<TOTAL-LIABILITY-AND-EQUITY> 15,766
<SALES> 6,707
<TOTAL-REVENUES> 6,707
<CGS> 4,078
<TOTAL-COSTS> 7,206
<OTHER-EXPENSES> (110)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (389)
<INCOME-TAX> 0
<INCOME-CONTINUING> (389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (389)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
