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EXHIBIT 99.1 TO 1996 FORM 10-K
Important Factors Regarding Future Results of IPL Systems, Inc.
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Information provided by IPL Systems, Inc. ("IPL" or the "Company") or its
spokespersons from time to time may contain forward-looking statements
concerning projected financial performance, product development or other aspects
of future operations. Such statements will be based on the assumptions and
expectations of the Company's management at the time such statements are made.
The Company cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance. Various factors, including but
not limited to the following, have affected the Company's results in the past
and may cause its future results to differ materially from those projects in the
forward-looking statements.
Rapid Technological and Market Changes. The market for the Company's products is
characterized by rapidly changing technology and evolving customer needs which
shorten the life cycles of existing products and require ongoing development and
introduction of new products. The Company's ability to realize its expectations
will depend on its success at enhancing its current offerings, developing new
products that keep pace with developments in technology and meet evolving
customer requirements for performance and price, and delivering those products
through distribution channels with appropriate customer service and support.
This will require, among other things, correctly anticipating customer needs,
hiring and retaining personnel with the necessary skills and creativity,
providing adequate resources for product development, and managing distribution
channels effectively. Failure by the Company to anticipate or respond adequately
to technological developments and customer requirements, significant delays in
the development, product, testing, or availability of new or enhanced products,
or the failure of customers to accept such products, could adversely affect the
Company's technological position and operating results. Furthermore, there can
be no assurance that the Company's competitors will not succeed in developing
products or technologies that have superior price/performance characteristics
compared to any products being offered or developed by the Company.
Competition. The computer data storage industry is intensely competitive and is
characterized by rapid technological change and constant pricing pressure. IPL
competes with a number of companies offering computer data storage, back-up and
recovery systems, including International Business Machines ("IBM"), EMC
Corporation ("EMC") and others, which have substantially greater financial,
product development, marketing and distribution resources than the Company. In
the open systems storage market, EMC , Data General Corporation, and the host
systems manufacturers are the major competitors, but the Company believes that
to date no dominant suppliers have emerged in the very large database ("VLDB")
segment of the open systems storage market. In the AS/400 market, IBM is the
major competitor. Because IPL's systems have to be compatible with the AS/400
computer systems or with the systems of the
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principal manufacturers of UNIX-based open systems computers and the relational
database software programs, IPL's competitive position and operating results may
be adversely affected by, among other factors, modifications in the design of
such systems or programs, the introduction of new products by such manufacturers
or other competitors, reductions in the pricing of storage solutions in these
markets, or the implementation of new marketing strategies by any of its
principal competitors. The same is also true for the Company's existing AS/400
products which the Company continues to support for its existing customers. The
Company has no plans for future development of AS/400 storage.
Fluctuations in Operating Results; Recent Losses. The Company has recently
experienced losses from operations and may in the future experience further
losses and significant period-to-period fluctuations in operating results. The
Company's revenues in any quarter are substantially dependent on the timing of
product shipments to third party distributors (sales to which are often
difficult to forecast) as well as the status of competing product introductions.
Like many other high technology companies, a disproportionately large percentage
of quarterly sales occur in the closing weeks of each quarter. Any
forward-looking statements about operating results made by members of management
will be based on assumptions about the likelihood of closing sales then in the
pipeline and other factors management considers reasonable based in part on
knowledge of performance in prior periods. The failure to consummate any of
those sales may have a disproportionately negative impact on operating results,
given the Company's relatively fixed costs, and may thus prevent management's
projections from being realized.
Other factors that affect the Company's operating results and that management
takes into account include competitive pricing trends and changes in the revenue
and gross margin mix among open systems and AS/400 disk systems and tape systems
for computer data storage. Changes in the factors underlying management's
assumptions may result in a material variation between actual results and those
forecast in any forward-looking statements made during a particular period.
Patents and Protection of Proprietary Technology. The Company believes that its
success in developing new products depends primarily upon the technical
competence and creative skills of its personnel rather than on the ownership of
copyrights or patents. The Company has no patents on its current products, but
in 1995 the Company filed applications for patents in the United States and
foreign countries with respect to new products scheduled to be introduced in
1996. The status of patents involves complex legal and factual questions and the
breadth of claims allowed is uncertain. There can be no assurance as to the
likelihood that pending patents will be issued or that any such patents will
afford protection against competitors with similar technology. In addition,
patent applications filed in foreign countries may provide significantly less
patent protection than the United States. No assurances can be given that
patents issued to the Company will not be infringed upon or designed around by
others.
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In addition, due to the rapid technological development of the computer
data storage industry with concurrent extensive patent coverage and with the
rapid rate of issuance of new patents, certain aspects of the Company's products
may infringe patents unknown to the Company. Patent protection may also be
obtained in the future on new inventions and designs for peripheral storage
subsystems or the computers to which the Company's subsystems attach. Although
the Company believes that its products and other proprietary rights do not
infringe the proprietary rights of third parties, there can be no assurance that
other third parties will not assert infringement claims against the Company or
that such claims will not be successful. If any infringement exists or any such
patents are issued, the Company would seek, based upon industry practice,
licenses to such patents, but there can be no assurance that the Company will be
able to obtain any such licenses on terms which would not have a material
adverse effect on its business.
The Company also relies on unpatented proprietary technology, and there can be
no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's proprietary technology.
To protect its rights in these areas, the Company requires all employees to
enter into confidentiality agreements. There can be no assurance that these
agreements will provide meaningful protection for the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company's business could be adversely affected.
Dependence on Key Personnel. The success of the Company's operations depends on
its ability to attract and retain experienced technical, sales, marketing and
management personnel. Such personnel are in great demand and the Company must
compete for their services. Management's projections necessarily assume that the
Company will continue to attract and retain such personnel, so the failure to do
so could have a material adverse effect on the Company's ability to develop and
market competitive products.
Dependence on Suppliers. The Company has and will continue to rely on outside
vendors to manufacture certain electronic components and subassemblies used in
the production of the Company's products. Certain components, subassemblies,
materials and equipment necessary for the manufacture of the Company's products
are obtained from a sole supplier or a limited group of suppliers. The Company's
reliance on sole suppliers or a limited group of suppliers involves several
risks, including a potential inability to obtain an adequate supply of required
products and reduced control over the price, timely delivery, reliability and
quality of finished products. The Company does not have any long-term supply
agreements with its suppliers. Certain of the Company's suppliers have
relatively limited financial and other resources. Any inability to obtain timely
deliveries of products and services having acceptable qualities or any other
circumstance that could require the Company to seek alternative sources of
supply or to manufacture its own electronic components, subassemblies and
manufacturing equipment internally, could delay the Company's ability to ship
its products. Any such delay could
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damage relationships with customers and could have a material adverse effect on
the Company's business and operating results.
Dependence on Distributors and OEMs. In March 1997, the Company transitioned out
of direct sales of its products to end users. It has non-exclusive distribution
arrangements with a number of distributors and Original Equipment Manufacturers,
all of which can and do sell products that are competitive with the Company's
products. The Company's principal distributor is now ANDATACO, which entered
into an OEM agreement with the Company as of February 25, 1997. All of the
Company's distribution agreements are short-term agreements which can be
terminated by either party within less than 30 days.
Future Capital Needs As of December 31, 1996, IPL had working capital of $4.9
million and cash and cash equivalent of $2.27 million, a decrease of $1.3
million, or approximately 21% from $6.2 million as of December 31, 1995. IPL's
current ratio remained stable at about 2.2:1 as of the end of both years. In the
year ended December 31, 1996, IPL used $1.2 million in cash to fund the losses
of its operating activities. If IPL's operating activities continue to generate
losses and use IPL's remaining cash, IPL will need to either liquidate assets or
seek outside sources of financing, which if available at all, may not be
available on reasonable terms. IPL's management does not anticipate any such
needs if the Merger is consummated by the end of May, but if there is any delay
in the Merger or if the Merger Agreement is terminated, IPL will proceed to seek
such additional sources of cash for the business.
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