<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 SEPTEMBER 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
incorporation or organization) Identification No.)
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 SEPTEMBER 30, 1995
----- ---------------------------------
Class A $.01 par value 5,193,615
Class C $.01 par value 393,904
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<PAGE> 2
<TABLE>
IPL SYSTEMS, INC.
FORM 10-Q INDEX
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1995
(Unaudited) and December 31, 1994....................................... 3
Consolidated Statements of Operations (Unaudited) -
Nine Months Ended September 30, 1995 and
September 30, 1994...................................................... 4
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1995 and
September 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 .................................... 8-10
Part II. Other Information
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)
ASSETS
<CAPTION>
(Unaudited)
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and equivalents $3,623 $ 2,239
Accounts receivable - net 3,633 8,615
Inventories 4,637 3,060
Refundable income taxes - 1,425
Prepaid expenses and other current
assets 598 358
------- -------
Total Current Assets 12,491 15,697
Equipment and Improvements, net 2,564 3,067
------- -------
Total Assets $15,055 $18,764
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,132 $ 7,412
Shareholders' Equity:
Class A Common Stock, par value $.0l:
Authorized, 20,000,000 shares;
issued and outstanding, 5,193,615 and
4,501,776 shares 52 45
Convertible Class C Common Stock,
par value $.0l: Authorized, 2,250,000
issued and outstanding, 393,904 and
879,743 shares 4 9
Additional paid-in capital 17,230 16,577
Deficit (8,363) (5,279)
------- -------
Total Shareholders' Equity 8,923 11,352
------- -------
Total Liabilities and Shareholders' Equity $15,055 $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 Nine Months Ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 4,523 $ 8,025 $17,748 $21,724
Cost of sales 2,736 5,960 11,008 15,685
------- ------- ------- --------
Gross profit 1,787 2,065 6,740 6,039
Expenses:
Selling, general and administrative 2,923 3,504 8,581 11,550
Engineering and development 331 384 965 1,355
Restructure Expense 497 - 497 -
------- ------- ------- --------
Loss from operations (1, 964) (1,823) (3,303) (6,866)
------- ------- ------- --------
Other income 54 97 219 256
------- ------- ------- --------
Loss before income taxes (1,910) (1,726) (3,084) (6,610)
Income tax expense (benefit) - 494 - (1,167)
------- ------- ------- --------
Net loss $(1,910) $(2,220) $(3,084) $( 5,443)
------- ------- ------- --------
Net loss per share $ (0.35) $ (0.41) $ (0.57) $ (1.01)
------- ------- ------- --------
Common and common equivalent
shares used in the calculation
of loss per share 5,522,552 5,381,519 5,429,730 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>
Nine Months Ended
September 30,
-----------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................ $(3,084) $(5,443)
------- -------
Adjustments to reconcile net loss
to net cash provided by operating activities:
Restructure expense......................................... 497 -
Depreciation and amortization............................... 832 1,390
Changes in assets and liabilities:
Accounts receivable....................................... 4,982 8,611
Inventories .............................................. (1,577) 2,845
Prepaid expenses and other current assets ................ 1,185 393
Deferred income tax....................................... - 395
Accounts payable and accrued expenses .................... (1,777) (5,432)
------- -------
Total adjustments......................... 2,813 8,202
------- -------
Net cash provided by operating activities....................... 1,058 2,759
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and improvements........................ (329) (1,537)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ............................... 655 -
------- -------
CASH AND EQUIVALENTS:
Net increase .................................................. 1,384 1,222
BALANCE, beginning of period................................... 2,239 4,131
------- -------
BALANCE, end of period......................................... $ 3,623 $ 5,353
======= =======
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 September 30, 1995, and the
consolidated statements of operations and cash flows for the nine months
ended September 30, 1995 and September 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 September 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 September 30, 1995 are not
necessarily indicative of the operating results for the full year.
<TABLE>
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<CAPTION>
(Thousands of dollars)
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Total accounts receivable $6,330 $ 12,283
Less allowance for doubtful
accounts 2,697 3,668
------ --------
Net Accounts Receivable $3,633 $ 8,615
====== ========
</TABLE>
6
<PAGE> 7
PART I. FINANCIAL INFORMATION - Continued
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements at cost consist of the following:
<TABLE>
<CAPTION>
(Thousands of dollars)
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Customer support $ 3,499 $ 3,167
Manufacturing equipment 4,853 4,815
Office equipment & fixtures 2,370 2,412
Leasehold improvements 1,335 1,335
------- -------
12,057 11,729
======= =======
Less accumulated depreciation 9,493 8,662
------- -------
$ 2,564 $ 3,067
======= =======
</TABLE>
4. INCOME TAXES
There was no income tax benefit recorded in 1995 as the Company has fully
utilized the available net operating loss carryback in 1994. The $494,000
income tax charge recorded in the third quarter of 1994 was the result of a
significant reduction in the effective tax, and as a result, the Company's
income tax benefit for the nine months ended September 30, 1994 was $1,167,000.
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. The Company increased its estimate of the
remaining occupancy costs by $497,000 in the third quarter of 1995 to cover
the full occupancy costs for the balance of the lease term for unused space in
its Maynard facility.
<TABLE>
The changes in the restructuring accrual are as follows:
<CAPTION>
Balance Balance
December 31, 1994 Increase Paid September 30, 1995
----------------- -------- ---- ------------------
<S> <C> <C> <C> <C>
Occupancy costs $471 $497 $255 $713
Severance costs 88 - 88 -
---- ---- ---- ----
$559 $497 $343 $713
==== ==== ==== ====
</TABLE>
The occupancy costs will be paid through 1998.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTERLY RESULTS
Revenues for the third quarter of 1995 were $4,523,000 compared to
$8,025,000 for the third quarter of 1994. This 44% decrease in
revenue is primarily due to a substantial reduction in international
sales of the Company's AS/400 disk product line and a slow transition
to open system products in the Company's overseas markets. In the
third quarter of 1995, the Company 's sales of open systems products
were 40% of total revenue. In the U.S. 49% of their respective sales
were in open systems products while international was 8% of their
respective sales in open systems products. International sales
accounted for 23% of the total revenue in the third quarter of 1995
compared to 48% of the total revenue in the third quarter of 1994.
Total U.S. sales decreased 17% in the third quarter of 1995 from the
third quarter of 1994, mainly due to delays in certain large orders
which were not received by the Company until October 1995.
Disk sales accounted for 76% of revenue in the third quarter 1995
compared to 73% in the same period in 1994. Tape sales accounted for 12%
and 17% respectively for the comparable period.
In the third quarter of 1995, the gross margin was 39.5% compared to
25.7% in the same period last year. This improvement is the result
of the transition from the AS/400 to the open systems market, and a
partial recovery of a doubtful accounts receivable, as well as the
continuing lower cost structure for 1995.
Selling, general and administrative expenses decreased
approximately 17% to $2,923,000 in the third quarter of 1995 compared
with $3,504,000 in the third quarter of 1994. This $581,000
decrease is primarily due to the positive effect of reengineering of
the Company's operations during 1994 and ongoing expense management.
Engineering and development expenses were $53,000 lower in the third
quarter of 1995 compared to last year due to lower overhead and
reduced costs associated with the development of open systems
products. Engineering headcount remains unchanged from 1994.
In 1994 the Company's restructure accrual 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. In the third quarter 1995, the Company increased its
restructuring accrual by $497,000 to cover the occupancy costs for
the balance of the lease term for unused space in its Maynard
facility.
The loss before income taxes for the third quarter of 1995 was
$1,910,000 including the restructuring accrual of $497,000 compared
with $1,726,000 for the same period last year. The Company's
reported net loss was also $1,910,000, or $(0.35) per share compared
with a net loss of $2,220,000, or $(0.41) per share, for the third
quarter of 1994.
There was no income tax benefit recorded in the third quarter of
1995. The Company plans to reduce taxes on anticipated future
earnings. The Company fully utilized the benefit from its net
operating loss carryback in 1994. The $494,000 income tax provision
was the result of adjusting the 1994 annual estimated tax rate after
reevaluating the Company's projected annual operating results.
8
<PAGE> 9
NINE MONTH RESULTS
Revenue for the first nine months of 1995 were $17,748,000 compared
to $21,724,000 for the first nine months of 1994, primarily due to a
continued reduction in purchases made by the Company's European
distributors. International revenue declined to 33% of revenue in
1995 compared to 44% in 1994. The Company is planning to expand its
number of European distributors to more effectively penetrate the
European open systems market. U.S. revenue accounted for 67% of the
Company's revenue through the third quarter of 1995 compared with 56%
in the same period last year. This improvement reflects the
continued progress of the Company's strategy of selling open systems
products which accounted for 44% of the total nine months revenue.
There were no sales to the open systems market in the same period of
1994.
The disk product line represents 77% and 73% of the Company's
revenue in the first nine months of 1995 and 1994, respectively. The
tape product line accounted for 12% and 18%, respectively, of the
Company's revenue for the same period.
Gross margins in the first nine months of 1995 were 38% compared
with 28% in the first nine months of 1994. The improvement in gross
margin is primarily due to a partial recovery of a doubtful accounts
receivable, as well as sales of open systems products and the lower
cost structure resulting from the 1994 reengineering. (See Note 2 to
the Consolidated Financial Statements.)
Total operating expenses decreased 23% in the first nine months of
1995 compared with the same period of 1994. Selling, general and
administrative expenses decreased by $2,969,000 or 26% compared to
the same period in 1994, primarily due to the positive effect of the
Company's restructuring plan and ongoing expense control.
Engineering and development expenses decreased $390,000 during the
first nine months of 1995 in comparison to the first nine months of
1994. This decrease is due to lower overhead and reduced cost
associated with the development of open systems products.
Engineering headcount remains unchanged from 1994.
The loss before income taxes for the first nine months of 1995 was
$3,084,000 compared with $6,610,000 for the comparative period of
1994. The Company's net loss was also $3,084,000, or $(0.57) per
share compared with a net loss of $5,443,000, or $(1.01) per share,
for the same period of 1994.
There was no income tax benefit recorded in the first nine months of
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents as of September 30,1995 were $3,623,000,
reflecting an increase of $1,384,000, or 62%, from 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, net of cash used to
support operations and increased purchases of inventory. The accounts
receivable balance decreased by $4,982,000 or 58% primarily due to the
quarter to quarter fluctuation in channel mix of the Company's sales.
Inventories increased $1,577,000 from year-end as the Company has
established adequate levels of inventory for expected sales of open
systems products. Accounts payable and accrued expenses decreased
$1,280,000 primarily due to reduced operating expenses.
9
<PAGE> 10
The Company continues to evaluate external financing requirements
for the 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 meets its operating and capital requirements
for its existing business. The Company remains free of any
short-term and long-term obligations.
10
<PAGE> 11
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 14-15
(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
September 30, 1995.
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: November 10, 1995 By: /s/ Stephen J. Ippolito
------------------------------
Stephen J. Ippolito
Chairman
Chief Executive Officer
By: /s/ Eugene F. Tallone
------------------------------
Eugene F. Tallone
Chief Financial Officer
Principal Accounting Officer
12
<PAGE> 13
IPL SYSTEMS, INC.
FORM 10-Q, JUNE 30, 1995
EXHIBIT INDEX
-------------
<TABLE>
<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
EXHIBIT 11
<TABLE>
IPL SYSTEMS, INC.
COMPUTATION ON NET LOSS PER COMMON SHARE
(Thousands of dollars except per share amounts)
<CAPTION>
THREE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
PRIMARY 1995 1994
------- -------------- -------------
<S> <C> <C>
Net loss $ (1,910) $ (2,220)
========== ==========
Weighted average shares outstanding 5,522,552 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 5,522,552 5,381,519
========== ==========
Net loss per share $ (0.35) $ (0.41)
========== ==========
FULLY DILUTED
-------------
Net loss $ (1,910) $ (2,220)
---------- ----------
Weighted average shares outstanding 5,522,552 5,381,519
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 211,832 -
---------- ----------
Common shares used in calculation of
net loss per share 5,734,384 5,381,519
---------- ----------
Net loss per share $ (0.33) $ (0.41)
---------- ----------
<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
EXHIBIT 11
(CONTINUED)
<TABLE>
IPL SYSTEMS, INC.
COMPUTATION OF NET LOSS PER COMMON SHARE
(Thousands of dollars except per share amounts)
<CAPTION>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
PRIMARY 1995 1994
------- ------------- -------------
<S> <C> <C>
Net loss $ (3,084) $ (5,443)
========== ==========
Weighted average shares outstanding 5,429,730 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 5,429,730 5,381,519
========== ==========
Net loss per share $ ( 0.57) $ (1.01)
========== ==========
FULLY DILUTED
-------------
Net loss $ (3,084) $ (5,443)
---------- ----------
Weighted average shares outstanding 5,429,730 5,381,519
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 211,832 17,795
---------- ----------
Common shares used in calculation of
net loss per share 5,641,562 5,399,314
---------- ----------
Net loss per share $ (0.55) $ (1.01)
---------- ----------
<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>
15
<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 SEPTEMBER 1, 1995 AND THE SIX MONTHS ENDED SEPTEMBER 1, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JUL-01-1995 JUL-01-1994
<PERIOD-END> SEP-01-1995 SEP-01-1994
<EXCHANGE-RATE> 1 1
<CASH> 3,623 3,623
<SECURITIES> 0 0
<RECEIVABLES> 6,330 6,330
<ALLOWANCES> 2,697 2,697
<INVENTORY> 4,637 4,637
<CURRENT-ASSETS> 12,491 12,491
<PP&E> 12,057 12,057
<DEPRECIATION> 9,493 9,493
<TOTAL-ASSETS> 15,055 15,055
<CURRENT-LIABILITIES> 6,132 6,132
<BONDS> 0 0
<COMMON> 56 56
0 0
0 0
<OTHER-SE> 8,867 8,867
<TOTAL-LIABILITY-AND-EQUITY> 15,055 15,055
<SALES> 4,523 4,523
<TOTAL-REVENUES> 4,523 4,523
<CGS> 2,736 2,736
<TOTAL-COSTS> 6,487 6,487
<OTHER-EXPENSES> (54) (54)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,910) (1,910)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,910) (1,910)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,910) (1,910)
<EPS-PRIMARY> (.35) (.35)
<EPS-DILUTED> (.33) (.33)
</TABLE>
