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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934
FOR QUARTER ENDED MARCH 31, 1996.
or
Transition report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-10370
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IPL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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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)
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<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last report.
</TABLE>
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, 1996
----- -----------------------------
Class A $.01 par value 5,595,819
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IPL SYSTEMS, INC.
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FORM 10-Q INDEX
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Page No.
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Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1996
(Unaudited) and December 31, 1995................... 3
Consolidated Statements of Operations (Unaudited) -
Three Months Ended March 31, 1996
and March 31, 1995.................................. 4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 1996 and March 31,
1995................................................ 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
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PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1. Consolidated Financial Statements
IPL SYSTEMS, INC.
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<TABLE>
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of Dollars)
<CAPTION>
ASSETS
------
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 3,452 $ 3,595
Accounts receivable - net 4,611 4,019
Inventories 3,646 3,375
Other current assets 340 405
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Total Current Assets 12,049 11,394
Equipment and Improvements, net 2,114 2,348
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Total Assets $14,163 $13,742
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 5,368 $ 5,199
Shareholders' Equity:
Class A Common Stock, par value $.0l:
Authorized, 20,000,000 shares;
issued and outstanding, 5,595,819 and
5,200,590 shares 56 52
Convertible Class C Common Stock,
par value $.0l: Authorized, 2,250,000
issued and outstanding, -0- Shares and 0 4
386,929 shares
Additional paid-in capital 17,250 17,230
Deficit (8,511) (8,743)
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Total Shareholders' Equity 8,795 8,543
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Total Liabilities and Shareholders' Equity $14,163 $13,742
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</TABLE>
See notes to unaudited quarterly consolidated financial statements.
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PART I. FINANCIAL INFORMATION - Continued
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IPL SYSTEMS, INC.
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<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited)
(Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues $ 7,101 $ 6,517
Cost of sales 4,289 4,193
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Gross profit 2,812 2,324
Expenses:
Selling, general & administrative 2,367 2,833
Engineering & development 365 330
Restructure expense (income) (100) --
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Operating income (loss) 180 (839)
Other income 50 54
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Income (loss) before income taxes 230 (785)
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Income tax -- --
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Net income (loss) $ 230 $ (785)
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Net Income (loss) per share $ 0.04 $ (0.15)
========== ==========
Common and common equivalent
shares used in calculation
of income (loss) per share 5,739,614 5,382,119
========== ==========
</TABLE>
See notes to unaudited quarterly consolidated financial statements.
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PART I. FINANCIAL INFORMATION - Continued
- ------------------------------------------
IPL SYSTEMS, INC.
-----------------
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(Thousands of Dollars)
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 230 $ (785)
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Adjustments to reconcile net income (loss) to net cash from
operating activities:
Restructure expenses (income) ............................. (100)
Depreciation and amortization .......................... 249 290
Changes in assets and liabilities:
Accounts receivable .................................. (592) 4,138
Inventories .......................................... (271) (223)
Prepaid expenses and other current assets ............ 65 (91)
Accounts payable and accrued expenses ................ 269 (1,133)
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Total adjustments ...................... (380) 2,981
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Net cash used by operating activities ..................... (150) 2,196
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment and improvements ................... (13) (43)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock ........................... 20 8
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CASH AND EQUIVALENTS:
Net increase (decrease) ................................... (143) 2,161
BALANCE, beginning of period .............................. 3,595 2,239
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BALANCE, end of period .................................... $3,452 $ 4,400
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SUPPLEMENTARY CASH FLOW INFORMATION:
Taxes paid ................................................ $ 3 $ --
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</TABLE>
See notes to unaudited quarterly consolidated financial statements.
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PART I. FINANCIAL INFORMATION - Continued
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IPL SYSTEMS, INC.
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NOTES TO UNAUDITED QUARTERLY CONSOLIDATED STATEMENTS
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1. Financial Statements
--------------------
The consolidated balance sheet as of March 31, 1996, and the consolidated
statements of operations and cash flows for the three month periods ended
March 31, 1996 and March 31, 1995 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, 1996, and for all periods
presented, have been made.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" which will be effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue
to apply APB Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share.
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, 1995, including the audited financial
statements and related notes included therein.
The results of operations for the period ended March 31, 1996 are not
necessarily indicative of the operating results for the full year.
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2. Accounts Receivable
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<TABLE>
Accounts receivable consist of the following:
<CAPTION>
(Thousands of dollars)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Total accounts receivable $6,450 $6,130
Less allowance for doubtful
accounts 1,839 2,111
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Net Accounts Receivable $4,611 $4,019
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</TABLE>
3. Equipment and Improvements
--------------------------
<TABLE>
Equipment and improvements consist of the following:
<CAPTION>
(Thousands of dollars)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Customer support equipment $ 3,514 $ 3,500
Manufacturing equipment 4,883 4,883
Office equipment & fixtures 2,318 2,320
Leasehold improvements 1,335 1,335
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12,050 12,038
Less accumulated depreciation 9,936 9,690
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$ 2,114 $ 2,348
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</TABLE>
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PART I. FINANCIAL INFORMATION - Continued
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4. Income Taxes
------------
The Company plans to offset its 1996 federal income tax obligations through
the use of prior unrecognized net operating loss carry forward amounts.
Accordingly, there was no income tax recorded in the first quarter of 1996.
There was not tax benefit recorded with the first quarter 1995 pre-tax
loss.
5. Restructuring
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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. In March 1996, a portion of the Maynard
facility was leased resulting in a $100,000 reduction in restructuring
expenses.
<TABLE>
The changes in the restructuring accrual are as follows:
Balance Balance
December 31, 1995 Decrease Paid March 31, 1996
----------------- -------- ---- --------------
<S> <C> <C> <C> <C>
Occupancy Costs $595 $100 $68 $427
The occupancy costs will be paid through March 31, 1998.
</TABLE>
8
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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 1996 increased 9% to $7,101,000 compared to
$6,517,000 for the first quarter of 1995. This increase is primarily due to
increased sales of open systems products in the U.S. which represented 65% of
its product sales. In the first quarter of 1996, the Company's worldwide sales
of open systems products were 49% of total product sales. U.S. sales increased
61% in the first quarter of 1996 compared with the same period in 1995, while
international sales decreased 48% compared to the same period a year ago. This
is due to the decrease in AS/400 disk product sales and slow acceptance of the
open systems products in overseas markets.
Disk sales accounted for approximately 72% of revenue in the first quarter of
1996 and 1995. Tape sales for the first quarter of 1996 and 1995 were flat at
14%.
Gross margins of 39.6% for the first quarter of 1996 increased from 35.7% for
the first quarter of 1995. The improvement is the result of greater percentage
of sales from open systems products, as well as continued cost control.
Selling, general and administrative expenses decreased 16% to $2,367,000 in the
first quarter of 1996 compared with $2,833,000 in the first quarter of 1995. The
decrease of $466,000 is mainly due to the reallocation of resources within the
Company's infrastructure and ongoing expense management.
Engineering and development expenses in the first quarter of 1996 increased 10%
over the same period in 1995 due, in part, to the development effort on
ParallelBACK TM. In April 1996, IPL introduced ParallelBACK TM, a strategic new
technology designed to back up or restore any database, regardless of size, in
under four hours. IPL's DatabaseRAID storage architecture was significantly
enhanced with the introduction of ParallelBACK.
The restructuring accrual was reduced by $100,000 in the first quarter of 1996,
as the Company sublet a portion of the unused space in its Maynard facility, the
liability for which was previously expensed in the third quarter of 1995.
The net income for the first quarter of 1996 was $230,000 compared with a loss
of ( $785,000) for the same period last year. The Company's reported net income
of $0.04 per share compared with a net loss of $(0.15) per share, for the first
quarter of 1995.
The Company plans to offset its 1996 federal income tax obligations through the
use of prior unrecognized net operating loss carry forward amounts. Accordingly,
there was no income tax recorded in the first quarter of 1996. There was no tax
benefit recorded with the first quarter 1995 pre-tax loss.
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and equivalents as of March 31, 1996 were $3,452,000,
reflecting a 4% decrease or $143,000 from December 31, 1995. Accounts
receivable balances increased by 15% to $4,611,000 due to large quarter end
shipments, even though Days Sales Outstanding was reduced by 9 days compared to
year end 1995. Inventories increased slightly from $3,375,000 at December 31,
1995 to $3,646,000 at March 31, 1996 primarily to establish adequate levels of
inventory for expected sales of open system products in the second quarter of
1996. Accounts payable and accrued expenses increased by 3% primarily due to
increased inventory levels.
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. The Company continues to evaluate its
operating capital requirements should the future growth of the business require
additional financial investment. Accordingly, the Company is pursuing
contingency arrangements should such financing be required.
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PART II. OTHER INFORMATION - Continued
- --------------------------------------
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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Exhibit 11 - Computation of Net Income (Loss) Per Common Share - Page 14
(b) Reports on Form 8-K
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No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fiscal quarter ended March 31, 1996.
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SIGNATURES
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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.
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DATE: May 10, 1996 By: /s/ Ronald J. Gellert
-----------------------
Ronald J. Gellert
President
Chief Executive Officer
By: /s/ Eugene F. Tallone
----------------------------
Eugene F. Tallone
Chief Financial Officer
Principal Accounting Officer
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EXHIBIT 11
IPL SYSTEMS, INC.
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<TABLE>
COMPUTATION OF NET LOSS PER COMMON SHARE
----------------------------------------
(Thousands of dollars except per share amounts)
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
--------- ---------
Primary
- -------
<S> <C> <C>
Net income (loss) $ 230 $ (785)
========== ==========
Weighted average shares outstanding 5,590,555 5,382,119
Dilutive stock options based on the
treasury stock method using average
market price for the period 149,059 --
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Common shares used in calculation of
net loss per share 5,739,614 5,382,119
========== ==========
Net income (loss) per share $ 0.04 $ (0.15)
========== ==========
Fully Diluted
- -------------
Net income (loss) $ 230 $ (785)
========== ==========
Weighted average shares outstanding 5,590,555 5,382,119
Dilutive stock options based on the
treasury stock method using the
higher of average or period end
market price (A) 246,343 179,680
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Common shares used in calculation of
net loss per share 5,836,898 5,561,799
========== ==========
Net income (loss) per share $ 0.04 $ (0.14)
========== ==========
<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
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,452
<SECURITIES> 0
<RECEIVABLES> 6,450
<ALLOWANCES> 1,839
<INVENTORY> 3,646
<CURRENT-ASSETS> 12,049
<PP&E> 12,050
<DEPRECIATION> 9,936
<TOTAL-ASSETS> 14,163
<CURRENT-LIABILITIES> 5,368
<BONDS> 0
<COMMON> 56
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,163
<SALES> 7,101
<TOTAL-REVENUES> 7,101
<CGS> 4,289
<TOTAL-COSTS> 6,921
<OTHER-EXPENSES> (50)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 230
<INCOME-TAX> 0
<INCOME-CONTINUING> 230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
