##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2002

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | 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 333-82540

IPC ACQUISITION CORP.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 74-3022102                       
|                                                               |  |                                  
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|88 Pine Street, Wall Street Plaza, New York, NY                |  | 10005                            
|                                                               |  |                                  
|(Address of principal executive offices)                       |  | (Zip Code)                       

Registrants telephone number, including area code: (212) 825-9060

Indicate by 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     þ      No     o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes     o     
No     þ

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 January 31, 2003
|                              |  |                                
|Common Stock, par value $0.01 |  | 14,060,000 shares              



---

---



---

TABLE OF CONTENTS



|                                |                                                                                                 |                                                                  |  |  |  |  |  | 
|------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|Part I  Financial Information:
|                                | Item 1. Financial Statements                                                                   
|                                |                                                                                                 | CONDENSED CONSOLIDATED BALANCE SHEETS                           
|                                |                                                                                                 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                 
|                                |                                                                                                 | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|                                |                                                                                                 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Unaudited)
|                                | 11Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                | Item 3. Quantitative and Qualitative Disclosure About Market Risk                              
|                                | Item 4. Controls and Procedures                                                                
|Part II  Other Information:   
|                                | Item 1. Legal Proceedings                                                                      
|                                | Item 2. Changes in Securities and Use of Proceeds                                              
|                                | Item 3. Defaults Upon Senior Securities                                                        
|                                | Item 4. Submission of Matters to a Vote of Security Holders                                    
|                                | Item 5. Other Information                                                                      
|                                | Item 6. Exhibits and Reports on Form 8-K                                                       
|SIGNATURE                      
|Certifications                 
|CERTIFICATION OF GREG KENEPP   
|CERTIFICATION OF TIMOTHY WHELAN



---



##### Table of Contents



IPC ACQUISITION CORP.

INDEX

|                               |         |                                                                                                                                                                                                                                                    |  |     
|------------------------------ | ------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |         |                                                                                                                                                                                                                                                    |  | Page
|                               |         |                                                                                                                                                                                                                                                    |  |     
|Part I. Financial Information:
|                               | Item 1. | Financial Statements                                                                                                                                                                                                                               |  |     
|                               |         | A) Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2002                                                                                                                                                            |  | 1   
|                               |         | B) Condensed Consolidated Statements of Operations for the period from October 1, 2001
to December 20, 2001, the period from November 15, 2001 (date of initial capitalization)
to December 31, 2001, and the Three Months ended December 31, 2002 |  | 2   
|                               |         | C) Condensed Consolidated Statements of Cash Flows for the period from October 1, 2001
to December 20, 2001, the period from November 15, 2001 (date of initial capitalization)
to December 31, 2001, and the Three Months ended December 31, 2002 |  | 3   
|                               |         | D) Notes to Condensed Consolidated Financial Statements                                                                                                                                                                                            |  | 4   
|                               | Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                              |  | 20  
|                               | Item 3. | Quantitative and Qualitative Disclosure About Market Risk                                                                                                                                                                                          |  | 28  
|                               | Item 4. | Controls and Procedures                                                                                                                                                                                                                            |  | 29  
|Part II. Other Information:   
|                               | Item 1. | Legal Proceedings                                                                                                                                                                                                                                  |  | 30  
|                               | Item 2. | Changes in Securities and Use of Proceeds                                                                                                                                                                                                          |  | 30  
|                               | Item 3. | Defaults Upon Senior Securities                                                                                                                                                                                                                    |  | 30  
|                               | Item 4. | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                |  | 30  
|                               | Item 5. | Other Information                                                                                                                                                                                                                                  |  | 30  
|                               | Item 6. | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                   |  | 30  
|                               |         | Signature                                                                                                                                                                                                                                          |  | 31  
|                               |         | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                           |  | 32  





---



##### Table of Contents












Part I  Financial Information:

Item 1. Financial Statements

IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
(Unaudited)

|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                   |         |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | ------------------ | - | ----------------- | ------- |  |  | 
|                              |                                                                                                                                                   |                                            |                                      |         |         | September 30, 2002 |   | December 31, 2002
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   |                                            |                                      | Assets  |         |                    |   |                   |         |  |  | 
|Assets:                       |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              | Cash                                                                                                                                              |                                            | $                                    | 25,294  |         |                    | $ | 38,759            |        
|                              | Restricted cash                                                                                                                                   |                                            |                                      | 7,272   |         |                    |   | 7,263             |        
|                              | Accounts receivable, net of allowance of $1,245 and $1,331, respectively                                                                          |                                            |                                      | 52,468  |         |                    |   | 40,591            |        
|                              | Inventories, net                                                                                                                                  |                                            |                                      | 22,218  |         |                    |   | 29,660            |        
|                              | Prepaid and other current assets                                                                                                                  |                                            |                                      | 4,614   |         |                    |   | 3,770             |        
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total current assets                       |                                      |         | 111,866 |                    |   |                   | 120,043 | 
|                              |                                                                                                                                                  
|                              | Property, plant and equipment, net                                                                                                                |                                            |                                      | 21,004  |         |                    |   | 20,536            |        
|                              | Goodwill                                                                                                                                          |                                            |                                      | 72,279  |         |                    |   | 73,321            |        
|                              | Intangible assets, net                                                                                                                            |                                            |                                      | 209,132 |         |                    |   | 206,585           |        
|                              | Deferred financing costs, net                                                                                                                     |                                            |                                      | 15,116  |         |                    |   | 14,528            |        
|                              | Other assets                                                                                                                                      |                                            |                                      | 835     |         |                    |   | 832               |        
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total assets                               |                                      | $       | 430,232 |                    |   | $                 | 435,845 | 
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   |                                            | Liabilities and Stockholders Equity |         |         |                    |   |                   |         |  | 
|Liabilities:                  |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              | Current portion of long term debt                                                                                                                 |                                            | $                                    | 6,460   |         |                    | $ | 7,301             |        
|                              | Accounts payable                                                                                                                                  |                                            |                                      | 4,530   |         |                    |   | 6,486             |        
|                              | Accrued expenses and other current liabilities                                                                                                    |                                            |                                      | 23,562  |         |                    |   | 18,565            |        
|                              | Current portion of deferred compensation                                                                                                          |                                            |                                      | 633     |         |                    |   | 633               |        
|                              | Income taxes payable                                                                                                                              |                                            |                                      | 2,373   |         |                    |   | 3,392             |        
|                              | Customer advances on installation contracts                                                                                                       |                                            |                                      | 11,232  |         |                    |   | 20,448            |        
|                              | Deferred revenue on maintenance contracts                                                                                                         |                                            |                                      | 12,261  |         |                    |   | 11,252            |        
|                              | Deferred purchase price obligation                                                                                                                |                                            |                                      | 7,272   |         |                    |   | 7,263             |        
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total current liabilities                  |                                      |         | 68,323  |                    |   |                   | 75,340  | 
|                              |                                                                                                                                                  
|                              | Term loan                                                                                                                                         |                                            |                                      | 64,602  |         |                    |   | 62,059            |        
|                              | Senior subordinated notes                                                                                                                         |                                            |                                      | 150,000 |         |                    |   | 150,000           |        
|                              | Deferred taxes, net                                                                                                                               |                                            |                                      | 7,190   |         |                    |   | 6,848             |        
|                              | Deferred compensation                                                                                                                             |                                            |                                      | 3,119   |         |                    |   | 3,095             |        
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total liabilities                          |                                      |         | 293,234 |                    |   |                   | 297,342 | 
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|Commitments and Contingencies |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|Stockholders equity:         |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              | Common
stock, $0.01 par value, authorized 25,000,000 shares; 14,060,000
shares issued and outstanding at September 30, 2002 and December 31,
2002 |                                            |                                      | 141     |         |                    |   | 141               |        
|                              | Paid in capital                                                                                                                                   |                                            |                                      | 140,159 |         |                    |   | 140,159           |        
|                              | Notes receivable for purchases of common stock                                                                                                    |                                            |                                      | (383    | )       |                    |   | (383              | )      
|                              | Accumulated deficit                                                                                                                               |                                            |                                      | (9,200  | )       |                    |   | (9,402            | )      
|                              | Accumulated other comprehensive income                                                                                                            |                                            |                                      | 6,281   |         |                    |   | 7,988             |        
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total stockholders equity                 |                                      |         | 136,998 |                    |   |                   | 138,503 | 
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  
|                              |                                                                                                                                                   | Total liabilities and stockholders equity |                                      | $       | 430,232 |                    |   | $                 | 435,845 | 
|                              |                                                                                                                                                   |                                            |                                      |         |         |                    |   |                  

The accompanying notes are an integral part of the condensed consolidated
financial statements.

1



---



##### Table of Contents



IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)




|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |        |        | 
|----------------------------------------------- | ------------------------------- | --------------------------------- | ------- | ------------ | ------- | ------------ | ------ | ------------ | ------ | - | ------ | ------ | ------ | 
|                                                |                                 |                                   |         | Predecessor  |         |              |        |              |        |   |        |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 |                                   |         | Period from  |         | Period from  |        |              |        |  
|                                                |                                 |                                   |         | October 1,   |         | November 15, |        | Three Months |       
|                                                |                                 |                                   |         | 2001 to      |         | 2001 to      |        | Ended       
|                                                |                                 |                                   |         | December 20, |         | December 31, |        | December 31,
|                                                |                                 |                                   |         | 2001         |         | 2001         |        | 2002        
|                                                |                                 |                                   |         |              |         |              |        |             
|Revenue:                                        |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                | Product sales and installations |                                   | $       | 35,691       |         |              | $      | 12,475       |        |   | $      | 23,751 |       
|                                                | Service                         |                                   |         | 23,089       |         |              |        | 1,854        |        |   |        | 24,632 |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 |                                   | 58,780  |              |         |              | 14,329 |              |        |   | 48,383 |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|Cost of goods sold (exclusive of depreciation): |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                | Product sales and installations |                                   |         | 18,869       |         |              |        | 12,673       |        |   |        | 12,254 |       
|                                                | Service                         |                                   |         | 13,953       |         |              |        | 1,267        |        |   |        | 13,035 |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 |                                   | 32,822  |              |         |              | 13,940 |              |        |   | 25,289 |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 | Gross profit                      |         |              | 25,958  |              |        |              | 389    |   |        |        | 23,094 | 
|                                               
|Research and development                        |                                 |                                   | 3,519   |              |         |              | 306    |              |        |   | 2,735  |       
|Selling, general and administrative expense     |                                 |                                   | 17,110  |              |         |              | 1,059  |              |        |   | 8,730  |       
|Depreciation and amortization                   |                                 |                                   | 10,737  |              |         |              | 555    |              |        |   | 5,028  |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 | Income (loss) from operations     |         |              | (5,408  | )            |        |              | (1,531 | ) |        |        | 6,601  | 
|Other income (expense):                         |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                | Interest expense, net           |                                   |         | (5,987       | )       |              |        | (849         | )      |   |        | (6,205 | )     
|                                                | Other income, net               |                                   |         | 49           |         |              |        | 29           |        |   |        | 525    |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|                                                |                                 | Income (loss) before income taxes |         |              | (11,346 | )            |        |              | (2,351 | ) |        |        | 921    | 
|Income tax expense (benefit)                    |                                 |                                   | (318    | )            |         |              | (969   | )            |        |   | 1,123  |       
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       
|Net loss                                        |                                 | $                                 | (11,028 | )            |         | $            | (1,382 | )            |        | $ | (202   | )     
|                                                |                                 |                                   |         |              |         |              |        |              |        |   |        |       

The accompanying notes are an integral part of the condensed consolidated
financial statements.

2



---



##### Table of Contents



IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)




|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |   |        |        |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------------------------------- | - | ------------ | ------- | ------------ | - | ------------ | -------- | ------ | - | ------ | ------ | -
|                                                   |                                                                                           |                                                                         |                                                     |   | Predecessor  |         |              |   |              |          |        |   |       
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |   |       
|                                                   |                                                                                           |                                                                         |                                                     |   | Period from  |         | Period from  |   |              |          |       
|                                                   |                                                                                           |                                                                         |                                                     |   | October 1,   |         | November 15, |   | Three Months
|                                                   |                                                                                           |                                                                         |                                                     |   | 2001 to      |         | 2001 to      |   | Ended       
|                                                   |                                                                                           |                                                                         |                                                     |   | December 20, |         | December 31, |   | December 31,
|                                                   |                                                                                           |                                                                         |                                                     |   | 2001         |         | 2001         |   | 2002        
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |             
|Cash flows from operating activities:              |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Net loss                                           |                                                                                           | $                                                                       | (11,028                                             | ) |              | $       | (1,382       | ) |              | $        | (202   | )
|                                                   | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                                         |                                                     |   |              |         |              |   |              |          |        |   |       
|                                                   |                                                                                           | Depreciation and amortization                                           |                                                     |   | 1,393        |         |              |   | 156          |          |        |   | 1,462  |       
|                                                   |                                                                                           | Amortization of intangibles                                             |                                                     |   | 9,344        |         |              |   | 399          |          |        |   | 3,566  |       
|                                                   |                                                                                           | Amortization of deferred financing costs                                |                                                     |   |             |         |              |   | 88           |          |        |   | 588    |       
|                                                   |                                                                                           | Provision for doubtful accounts                                         |                                                     |   | 1,018        |         |              |   | 135          |          |        |   | 86     |       
|                                                   |                                                                                           | Deferred income taxes                                                   |                                                     |   | (4,761       | )       |              |   | (1,490       | )        |        |   | (342   | )     
|                                                   |                                                                                           | Employee deferred compensation charge                                   |                                                     |   | (19          | )       |              |   | (4           | )        |        |   | (24    | )     
|                                                   | Changes in operating assets and liabilities:                                              |                                                                         |                                                     |   |              |         |              |   |              |          |        |   |       
|                                                   |                                                                                           | Accounts receivables                                                    |                                                     |   | 4,702        |         |              |   | 3,990        |          |        |   | 12,159 |       
|                                                   |                                                                                           | Inventories                                                             |                                                     |   | 1,823        |         |              |   | 11,034       |          |        |   | (7,442 | )     
|                                                   |                                                                                           | Prepaids and other current assets                                       |                                                     |   | (281         | )       |              |   | 368          |          |        |   | 132    |       
|                                                   |                                                                                           | Other assets                                                            |                                                     |   | 322          |         |              |   | (3           | )        |        |   | 3      |       
|                                                   |                                                                                           | Accounts payable and accrued expenses                                   |                                                     |   | 7,019        |         |              |   | (5,257       | )        |        |   | (3,176 | )     
|                                                   |                                                                                           | Income taxes payable                                                    |                                                     |   | (988         | )       |              |   | 522          |          |        |   | 1,019  |       
|                                                   |                                                                                           | Customer advances and deferred revenue                                  |                                                     |   | 9,326        |         |              |   | (8,958       | )        |        |   | 8,207  |       
|                                                   |                                                                                           | Other liabilities                                                       |                                                     |   | (2,623       | )       |              |   |             |          |        |   |       |       
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           |                                                                         | Net cash provided by (used in) operating activities |   |              | 15,247  |              |   |              | (402     | )      |   |        | 16,036 |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Cash flows from investing activities:              |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           | Capital expenditures                                                    |                                                     |   | (1,902       | )       |              |   | (242         | )        |        |   | (994   | )     
|                                                   |                                                                                           | Payment for acquisitions, net of cash acquired (net of restricted cash) |                                                     |   |             |         |              |   | (349,495     | )        |        |   |       |       
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           |                                                                         | Net cash used in investing activities               |   |              | (1,902  | )            |   |              | (349,737 | )      |   |        | (994   | )
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Cash flows from financing activities:              |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           | Repayments of intercompany borrowings                                   |                                                     |   | (15,134      | )       |              |   |             |          |        |   |       |       
|                                                   |                                                                                           | Principal payments on term loan                                         |                                                     |   |             |         |              |   |             |          |        |   | (1,702 | )     
|                                                   |                                                                                           | Proceeds from term loan, net of issuance costs                          |                                                     |   |             |         |              |   | 98,600       |          |        |   |       |       
|                                                   |                                                                                           | Proceeds from senior subordinated notes, net of issuance costs          |                                                     |   |             |         |              |   | 136,600      |          |        |   |       |       
|                                                   |                                                                                           | Proceeds from equity issuance, net                                      |                                                     |   |             |         |              |   | 139,700      |          |        |   |       |       
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           |                                                                         | Net cash provided by (used in) financing activities |   |              | (15,134 | )            |   |              | 374,900  |        |   |        | (1,702 | )
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Effect of exchange rate changes on cash            |                                                                                           |                                                                         | (1,996                                              | ) |              |         | 285          |   |              |          | 125    |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           |                                                                         | Net increase (decrease) in cash                     |   |              | (3,785  | )            |   |              | 25,046   |        |   |        | 13,465 |  
|Cash, beginning of period                          |                                                                                           |                                                                         | 4,536                                               |   |              |         |             |   |              |          | 25,294 |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Cash, end of period                                |                                                                                           | $                                                                       | 751                                                 |   |              | $       | 25,046       |   |              | $        | 38,759 |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|Supplemental disclosures of cash flow information: |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           | Cash paid during the periods for:                                       |                                                     |   |              |         |              |   |              |          |        |   |        |       
|                                                   |                                                                                           |                                                                         | Income taxes                                        |   | $            | 1,338   |              |   | $            |         |        |   | $      | 607    |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  
|                                                   |                                                                                           |                                                                         | Interest                                            |   | $            | 66      |              |   | $            |         |        |   | $      | 10,141 |  
|                                                   |                                                                                           |                                                                         |                                                     |   |              |         |              |   |              |          |        |  

The accompanying notes are an integral part of the condensed consolidated
financial statements.

3



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002




1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements
include the accounts of IPC Acquisition Corp. (the Company) and its wholly
owned subsidiaries. The unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial reporting and the requirements of
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
certain information and footnote disclosures required by accounting principles
generally accepted in the United States for annual financial reporting and
should be read in conjunction with the audited consolidated financial
statements included in the Companys Form 10-K for the fiscal year ended
September 30, 2002.

These unaudited condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, that are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the interim periods presented. Interim period operating results
may not be indicative of the operating results to be expected for the full year
or any other interim period.

The combined financial statements for the period from October 1, 2001 to
December 20, 2001 include the accounts of IPC Information Systems, Inc. (the
Predecessor), including the Trading Systems division and Information
Transport Systems division, operating divisions of a wholly owned subsidiary of
Global Crossing Ltd. (Global Crossing), and Asia Global Crossing IPC Trading
Systems Australia Pty. Ltd., an operating division of a wholly owned subsidiary
of Asia Global Crossing Ltd. Intercompany balances and transactions have been
eliminated.

The condensed consolidated financial statements for the period from
November 15, 2001 (date of initial capitalization) to December 31, 2001 and the
three months ended December 31, 2002 include the accounts of the Company and
its wholly owned subsidiaries. The principal activity of the Company consists
of the December 20, 2001 acquisition of the Predecessor (the IPC Information
Systems Acquisition), and the results of operations of the acquired business
from such date through December 31, 2002. Intercompany balances and
transactions have been eliminated.

Revenue Recognition

Revenue from product sales and installation is recognized upon completion
of the installation except for revenue from sales to distributors, which is
recognized upon shipment. Under contract provisions, customers are
progress-billed prior to the completion of the installations. The revenue
related to these advance payments is deferred until the system installations
are completed. All costs incurred on uncompleted contracts are accumulated and
recorded as inventory awaiting installation. In addition, contracts for annual
recurring turret and I.T.S. services are generally billed in advance, and are
recorded as revenue ratably (on a monthly basis) over the contractual periods.
Revenue from moves, additions and changes, commonly known as MACs, to turret
systems is recognized upon completion, which generally occurs in the same month
or the month following the order for services.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net of the fair value
of the identifiable tangible and intangible assets acquired and the fair value
of liabilities assumed in acquisitions. For the period from October 1, 2001 to
December 20, 2001 the costs allocated to goodwill were amortized on a
straight-line basis over the periods benefited, principally 10 years, and
resulted in amortization of $4.7 million.

The Company adopted Statement of Financial Accounting Standards (SFAS
No.142) Goodwill and Other Intangible Assets effective upon the IPC
Information Systems Acquisition and, in accordance with SFAS No.142, there is
no amortization of goodwill and intangible assets that have indefinite useful
lives for the period from November 15, 2001 to December 31, 2001 and the three
months ended December 31, 2002. However, such assets are tested for impairment
at least annually using the two-step process specifically provided in the
statement. Other intangible assets are carried at cost. Technology and customer
lists are amortized over the estimated useful lives of 7 and 20 years,
respectively. Tradenames have been deemed to have an indefinite life and will
not be subject to amortization expense, but instead are subject to annual
impairment tests in accordance with the provisions of SFAS No.142.

The Company completed the required initial impairment test within the
first six months of adoption as well as the annual impairment test as of July
1, 2002 (the first day of the fourth quarter of the 2002 fiscal year), and
concluded that there was no impairment to its recorded goodwill or indefinite
lived intangible assets. The Company believes the recorded values of goodwill
and tradenames at December 31, 2002 in the amounts of $73.3 million and $18.6
million, respectively, are fully recoverable.

4



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

Effects of Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.143, Accounting for Asset
Retirement Obligations (SFAS 143), which requires entities to record the
fair value of the estimated liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded, the
entity capitalizes an amount equal to the present value of the estimated
liability by increasing the carrying amount of the related long-lived asset.
Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective
for fiscal years beginning after June 15, 2002, with earlier application
encouraged. The Company adopted SFAS 143 on October 1, 2002. The adoption of
this standard did not have a material impact on the Companys condensed
consolidated financial statements.

In August 2001, the FASB issued SFAS No.144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No.144). SFAS No.144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes SFAS 121, Accounting for
Impairment of Long-Lived Assets and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary and Unusual
and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business (as previously defined in that Opinion). SFAS No.144 was
adopted by the Company on October 1, 2002. The adoption of this standard did
not have a material impact on the Companys condensed consolidated financial
statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145 eliminates the requirement under SFAS No.
4, Reporting Gains and Losses from Extinguishment of Debt, to report gains
and losses from extinguishments of debt as extraordinary items in the income
statement. Accordingly, gains or losses from extinguishments of debt for fiscal
years beginning after May 15, 2002 shall not be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30). Upon adoption of this pronouncement, any gain or loss on
extinguishment of debt previously classified as an extraordinary item in prior
periods that does not meet the criteria of Opinion 30 for such classification
should be reclassified to conform with the provisions of SFAS 145. The Company
adopted SFAS No.145 on October 1, 2002. The adoption of this standard did not
have a material impact on the Companys condensed consolidated financial
statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146) which nullified EITF
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring) (EITF No. 94-3). SFAS 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred, whereas EITF No. 94-3 had recognized the liability at
the commitment date to an exit plan. The Company is required to adopt the
provisions of SFAS 146 effective for exit or disposal activities initiated
after December 31, 2002. The Company adopted SFAS 146 on December 31, 2002.
The adoption of this standard did not have a material impact on the Companys
condensed consolidated financial statements.

In November 2002, the EITF reached a consensus on Issue 00-21,
Multiple-Deliverable Revenue Arrangements (EITF 00-21). EITF 00-21
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services, and/or rights to use assets. The
consensus mandates how to identify whether goods or services or both which are
to be delivered separately in a bundled sales arrangement should be accounted
for separately because they are separate units of accounting. The guidance
can affect the timing of revenue recognition for such arrangements, even though
it does not change rules governing the timing or pattern of revenue recognition
of individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted
to apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, Accounting Changes. The Company is assessing, but at this point does not
believe the adoption of EITF 00-21 will have a material impact on the Companys
condensed consolidated financial statements.

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN
45). This interpretation elaborates on disclosures to be made by a guarantor
in its interim and annual financial statements with regard to its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
disclosure

5



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

requirements of FIN 45 are effective for interim and annual periods
ending after December 15, 2002, and the Company has adopted those requirements
for its financial statements included in this Form 10-Q. The initial
recognition and initial measurement requirements of FIN 45 are effective
prospectively for guarantees issued or modified after December 31, 2002. The
adoption of the recognition and initial measurement requirements of FIN 45 is
not expected to have a material impact on the Companys
condensed consolidated financial statements.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure (SFAS 148). SFAS 148 amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS
148 also amends the disclosure requirements of SFAS 123 to require more
prominent and frequent disclosures in financial statements about the effects of
stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for financial statements issued for fiscal
years ending after December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of SFAS 148 is not
expected to have an impact on the Companys condensed consolidated financial
statements.

Comprehensive Income (Loss)

The balance sheets and statements of operations of the Companys foreign
operations are measured using the local currency as the functional currency.
Assets and liabilities of these foreign operations are translated at the
period-end exchange rate and revenue and expense amounts are translated at the
average rates of exchange prevailing during the year. The resulting foreign
currency translation adjustments are accumulated as a component of other
comprehensive income (loss).

|                                  |  |              |         |              |  |              |        |   |  |   |       |  
|--------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | - |  | - | ----- | -
|                                  |  | Predecessor  |         |              |  |              |        |   |  |  
|                                  |  |              |         |              |  |              |        |   |  |  
|                                  |  | Period from  |         | Period from  |  |              |        |  
|                                  |  | October 1,   |         | November 15, |  | Three Months
|                                  |  | 2001 to      |         | 2001 to      |  | Ended       
|                                  |  | December 20, |         | December 31, |  | December 31,
|(dollars in thousands)            |  | 2001         |         | 2001         |  | 2002        
|                                  |  |              |         |              |  |             
|Reported net loss                 |  | $            | (11,028 | )            |  | $            | (1,382 | ) |  | $ | (202  | )
|Translation adjustment            |  |              | (1,965  | )            |  |              | 285    |   |  |   | 1,707 |  
|                                  |  |              |         |              |  |              |        |   |  |   |       |  
|Total comprehensive income (loss) |  | $            | (12,993 | )            |  | $            | (1,097 | ) |  | $ | 1,505 |  
|                                  |  |              |         |              |  |              |        |   |  |   |       |  

2. The IPC Information Systems Acquisition

On December 20, 2001, the Company purchased 100% of the common stock of
IPC Information Systems, Inc. and 100% of the ordinary shares of Asia Global
Crossing IPC Trading Systems Australia Pty. Ltd. from Global Crossing Ltd. and
Asia Global Crossing, Ltd. and various of their affiliates. In addition, the
Company acquired various assets owned by affiliates of Global Crossing and Asia
Global crossing related to the operation of these businesses. Under the
purchase agreement, the total purchase price for the shares and assets was $360
million, subject to various adjustments for working capital and customer
advances.

At the closing, the purchase price was reduced by approximately $9.75
million for estimated working capital and customer advance adjustments. On
January 16, 2002, Global Crossing and its affiliates paid the Company $3.0
million based upon a revised estimate of the working capital and customer
advances adjustments. On January 28, 2002, Global Crossing and 54 of its
subsidiaries filed petitions for relief under Chapter 11 of Title 11 of the
United States Code. On January 31, 2002, the Company delivered to Global
Crossing and its affiliates its determination of the amount of working capital
and customer advances as of the closing. Based on the Companys determination
of these amounts, the Company believes Global Crossing or various of its
affiliates are obligated to pay the Company an additional amount of $4.8
million. The Company has not been paid this additional amount, nor has it been
reflected as a reduction of the purchase price. On September 30, 2002, the
Company filed a proof of claim in the bankruptcy case of Global Crossing and
one of its affiliates for approximately $4.5 million relating to their pro rata
portion of working capital and customer advance adjustments owed to the
Company.

The IPC Information Systems Acquisition was accounted for by the purchase
method and acquired intangible assets are recognized apart from goodwill in
accordance with SFAS No. 141, Business Combinations
(SFAS No. 141). The
purchase price exceeded the fair value of the net assets acquired by
approximately $69.9 million. This excess has been recorded in the

6



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

accompanying
consolidated balance sheet as goodwill and has not been amortized in accordance
with SFAS No.142. SFAS No.142 eliminates the requirement to amortize goodwill
and intangible assets that have indefinite useful lives. However, it requires
that such assets be tested for impairment at least annually using the guidance
specifically provided in the statement. Accordingly, the Companys condensed
consolidated financial statements for the three months ended December 31, 2002
are not comparable to the same three month period in the prior year.

In connection with the IPC Information Systems Acquisition, the Company
recorded the following amounts to reflect the purchase price allocation
described above at the date of the acquisition (in thousands):

|                                              |                |   |         |         | 
|--------------------------------------------- | -------------- | - | ------- | ------- | 
|Goodwill                                      |                | $ | 69,906  |        
|Fair value increase to inventory              |                |   | 34,300  |        
|Identified intangibles:                       |                |   |         |        
|                                              | Customer lists |   |         | 153,000 | 
|                                              | Technology     |   |         | 45,000  | 
|                                              | Tradenames     |   |         | 18,000  | 
|Deferred taxes                                |                |   | (14,360 | )      
|                                              |                |   |         |        
|Net impact of purchase accounting adjustments |                | $ | 305,846 |        
|                                              |                |   |         |        

The IPC Information Systems Acquisition was financed with the net proceeds
from the issuance of the outstanding senior subordinated notes, borrowings
under the senior secured credit facilities and a common equity contribution of
$140 million by a group led by Goldman Sachs Capital Partners, or GSCP 2000,
and its affiliates. Under the terms of the purchase agreement, approximately
$20.8 million of the purchase price was not paid to Global Crossing at the
closing. This deferred portion of the purchase price will not be paid to Global
Crossing unless various contingent liabilities of former affiliates that the
Company guaranteed have been paid by Global Crossing or the Company has been
released from these guarantees. Such contingent liabilities include equipment
lease, real estate lease and employee obligations and may include other third
party obligations. An amount equal to the $20.8 million deferred payment was
deposited into a bank account in the Companys name and will be released as the
guaranteed obligations and other liabilities are paid by Global Crossing or the
Company is released from these obligations and other liabilities. While the
Company has structured this agreement so that it retains ownership of the
deposited funds, there can be no assurance that a contrary position will not be
taken in Global Crossings bankruptcy case. As of December 31, 2002, the
Company has paid approximately $13.5 million of these contingent liabilities
and an equal amount has been withdrawn from the aforementioned bank account.

At the closing of the IPC Information Systems Acquisition, the Company and
various of its subsidiaries entered into a network services, channel sales and
transition services agreement with Global Crossing, Asia Global Crossing and
various other parties. Following the commencement of Global Crossings
bankruptcy case, Global Crossing failed to perform various obligations under
the network services, channel sales and transition services agreement and the
Company filed a motion with the United States Bankruptcy Court for the Southern
District of New York to compel Global Crossing to assume or reject this
agreement. Thereafter, the Company reached an agreement to amend the network
services, channel sales and transition services agreement.

On July 11, 2002, the bankruptcy court entered an order authorizing Global
Crossing and its related subsidiaries to assume the network services, channel
sales and transition services agreement, as amended. Asia Global Crossing was
not a party to the amendment. Under the amendment, certain of IPC Information
Systems, Inc.s obligations under the agreement, including the non-compete
restrictions, have been temporarily suspended until the effective date of a
plan of reorganization under applicable bankruptcy laws of Global Crossing and
its related subsidiaries. Following the emergence of Global Crossing and its
related subsidiaries from its bankruptcy reorganization, under the terms of the
agreement, as amended, IPC Information Systems, Inc. will be permitted to
continue to perform any activity or provide any service that would be
prohibited by the non-compete restriction so long as that activity or service
was commenced while the non-compete restriction was suspended or that activity
or service is performed pursuant to a definitive agreement entered into while
the non-compete was suspended.

On October 17, 2002, Global Crossing filed a Joint Plan of Reorganization,
or the Plan, with the bankruptcy court. Global Crossings Plan provides that
Global Crossing will assume various executory contracts and leases. The Plan
further provides that any executory contract or lease not specifically
identified by Global Crossing for assumption will be rejected as of the
effective date of the Plan. The purchase agreement was not included among the
contracts Global Crossing assumed under its Plan. As a result, the Company
filed an objection to Global Crossings proposed rejection of the purchase
agreement. The Company is currently involved in negotiations with Global
Crossing to resolve the issues raised in the Companys objections.

7



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

If the bankruptcy court permits Global Crossing to reject the purchase
agreement, Global Crossing would likely be relieved of its obligations under
the purchase agreement, including, among other things, its obligations to
indemnify the Company for any tax liabilities of IPC Information Systems, Inc.
and its subsidiaries prior to their purchase by the Company from Global
Crossing. In addition, any amounts owed by Global Crossing to the Company under
the purchase agreement would be pre-petition general unsecured claims and the
Company would receive only a portion of those amounts, if any.

Additionally, although the deferred portion of the purchase price is
currently held in a bank account under the Companys control and is only to be
paid upon fulfillment of certain obligations and liabilities by Global Crossing
or its affiliates there can be no assurance that the bankruptcy court will not
require the Company to make payments of any portion of the deferred purchase
price to Global Crossing.

Prior to the completion of the IPC Information Systems Acquisition, the
Company leased six floors at 67-73 Worship Street, London, England at an annual
rate of approximately £565,000, or $906,000, assuming an exchange rate of £1 to
$1.6044. Of these six floors, the Company uses one floor for office space and
an affiliate of Global Crossing uses five floors for telecommunications and
networking equipment. Under the lease, which expires in 2010, the Company
remains liable to the landlord for all six floors. Pursuant to the purchase
agreement with Global Crossing, the Company entered into a sublease for a
portion of these premises with an affiliate of Global Crossing, which filed a
petition for relief under Chapter 11 of Title 11 of the United States Code on
August 30, 2002, and the landlord has consented to that sublease. In accordance
with the procedures set forth in the Plan, the sublease will be assumed by
Global Crossings affiliate as of the effective date of the Plan. Through
January 30, 2003, Global Crossings affiliate has made all of its required
sublease payments. Additionally, at the closing of the IPC Information Systems
Acquisition, the Company deferred approximately $3.2 million of the purchase
price, which represents approximately two years of rental payments under the
sublease and the estimated costs to restore the premises for use as a general
office facility in the event Global Crossings affiliate were to vacate the
premises. In the event that the Company, rather than Global Crossing or its
affiliates, pay the landlord amounts up to $3.2 million with respect to Global
Crossings portion of this space, under the terms of the purchase agreement,
the Company will no longer be obligated to make a deferred purchase price
payment in the corresponding amount to Global Crossing.

Set forth below is the unaudited pro forma combined results of operations
of the Company for the period October 1, 2001 to December 20, 2001, assuming
the IPC Information Systems Acquisition and the related financings occurred as
of the beginning of the period.

The unaudited pro forma combined financial information is presented for
informational purposes only and does not purport to represent the results of
operations of the Company for the period described above had the IPC
Information Systems Acquisition and the related financings occurred as of the
beginning of the period, or to project the results for any future period.

The unaudited pro forma combined financial information gives effect to (a)
the IPC Information Systems Acquisition (b) the offering of the outstanding
senior subordinated notes, (c) term loan borrowings under the Companys senior
secured credit facilities, (d) the purchase accounting adjustments associated
with the IPC Information Systems Acquisition, (e) the common equity
contribution and (f) the related fees and expenses. The unaudited pro forma
financial information assumes that no post-closing working capital adjustments
have been made in connection with the IPC Information Systems Acquisition. The
unaudited pro forma financial information of the Company does not include
various one-time costs for operating expenses and capital expenditures
associated with establishing the Company as a stand-alone entity.

|                       |  |              |        |  
|---------------------- |  | ------------ | ------ | -
|                       |  | Predecessor 
|                       |  |             
|                       |  | Period from 
|                       |  | October 1,  
|                       |  | 2001 to     
|                       |  | December 20,
|(dollars in thousands) |  | 2001        
|                       |  |             
|Revenue                |  | $            | 58,780 |  
|Net loss               |  | $            | (3,870 | )

The Company has received notices of taxes due from various jurisdictions
related to Federal and state payroll taxes, state income taxes, state sales
taxes, VAT, and income taxes in several foreign countries. These notices are
for periods prior to the IPC Information Systems Acquisition. Under the
purchase agreement, Global Crossing is responsible for payment of these taxes.
Since Global Crossing is now under bankruptcy protection, the bankruptcy court
must approve any such tax payments by Global Crossing for periods prior to the
commencement of Global Crossings bankruptcy case. If the bankruptcy court does
not approve Global Crossings payment of all amounts that are due with respect
to these taxes, these jurisdictions may proceed against the

8



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

Company for these
amounts. Furthermore, if the purchase agreement is rejected by Global Crossing
in the bankruptcy proceeding (which rejection the Company is contesting),
Global Crossing may avoid its obligations to pay the taxes and to indemnify the
Company for payment of the taxes. Through January 31, 2003, the aggregate
amount of taxes for which the Company has received notices is approximately
$6.5 million and such amount is accrued in the Companys consolidated balance
sheet. The ultimate settlement of these liabilities may be for amounts which
are different from the amounts presently recorded.

Additionally, certain tax returns for periods prior to the IPC Information
Systems Acquisition are not yet due and have yet to be filed by Global Crossing
pursuant to the purchase agreement. Global Crossing has informed the Company
that as a result of its rejection of the purchase agreement, it may not include
IPC Information Systems, Inc. and its subsidiaries in such tax returns. If the
purchase agreement is rejected, and unless otherwise required or
permitted by law, Global
Crossing will no longer be obligated to include IPC Information Systems, Inc.
and its subsidiaries in certain of Global Crossings tax returns for periods
prior to the IPC Information Systems Acquisition, and as a result, IPC
Information Systems, Inc. may be required to pay certain taxes which the
Company estimates could be in the range of $0 to $36 million. These taxes could
have a material adverse effect on the Companys financial condition and results
of operations, and could require the Company to seek financing to pay any
additional pre-acquisition tax liabilities.

3. Inventories

|                                                  |  |               |        |              |  |   |        | 
|------------------------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|                                                  |  | September 30, |        | December 31,
|(dollars in thousands)                            |  | 2002          |        | 2002        
|                                                  |  |               |        |             
|Components and manufacturing work in process      |  | $             | 6,091  |              |  | $ | 8,219  | 
|Inventory on customer sites awaiting installation |  |               | 8,025  |              |  |   | 13,689 | 
|Parts and maintenance supplies                    |  |               | 8,102  |              |  |   | 7,752  | 
|                                                  |  |               |        |              |  |   |        | 
|                                                  |  | $             | 22,218 |              |  | $ | 29,660 | 
|                                                  |  |               |        |              |  |   |        | 

4. Goodwill and Intangible Assets

The Company adopted SFAS No. 142, effective December 20, 2001 (the date of
the IPC Information Systems Acquisition). Under SFAS No. 142, goodwill and
intangible assets that have indefinite useful lives are no longer amortized.
Rather, they are reviewed for impairment annually or more frequently if certain
indicators arise. Had the Company been accounting for its goodwill and
indefinite lived intangible assets under SFAS No. 142 for all periods
presented, the Companys net loss would have been as follows:

|                                                                     |  |              |         |              |  |              |        |   |  |   |      |  
|-------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | ------------ | ------ | - |  | - | ---- | -
|                                                                     |  | Predecessor  |         |              |  |              |        |   |  |  
|                                                                     |  |              |         |              |  |              |        |   |  |  
|                                                                     |  | Period from  |         | Period from  |  |              |        |  
|                                                                     |  | October 1,   |         | November 15, |  | Three Months
|                                                                     |  | 2001 to      |         | 2001 to      |  | Ended       
|                                                                     |  | December 20, |         | December 31, |  | December 31,
|(dollars in thousands)                                               |  | 2001         |         | 2001         |  | 2002        
|                                                                     |  |              |         |              |  |             
|Reported net loss                                                    |  | $            | (11,028 | )            |  | $            | (1,382 | ) |  | $ | (202 | )
|Add back goodwill amortization, net of tax                           |  |              | 2,978   |              |  |              |       |   |  |   |     |  
|Add back indefinite lived intangible assets amortization, net of tax |  |              | 950     |              |  |              |       |   |  |   |     |  
|                                                                     |  |              |         |              |  |              |        |   |  |   |      |  
|Adjusted net loss                                                    |  | $            | (7,100  | )            |  | $            | (1,382 | ) |  | $ | (202 | )
|                                                                     |  |              |         |              |  |              |        |   |  |   |      |  

The following table reflects the gross carrying amount and accumulated
amortization of the Companys goodwill and intangible assets included in the
condensed consolidated balance sheets as of the dates indicated:

|                       |                              |                                            |                     |      |               |         |              |   |         |         | 
|---------------------- | ---------------------------- | ------------------------------------------ | ------------------- | ---- | ------------- | ------- | ------------ | - | ------- | ------- | 
|                       |                              |                                            |                     |      | September 30, |         | December 31,
|(dollars in thousands) |                              | 2002                                       |                     | 2002
|                       |                              |                                            |                     |      |              
|Intangible assets:     |                              |                                            |                     |      |               |         |              |  
|                       | Amortized intangible assets: |                                            |                     |      |               |         |              |   |        
|                       |                              | Technology                                 |                     | $    | 45,000        |         |              | $ | 45,000  |        
|                       |                              | Customer lists                             |                     |      | 154,030       |         |              |   | 154,030 |        
|                       |                              | Effect of currency translation adjustments |                     |      | 2,754         |         |              |   | 3,621   |        
|                       |                              | Accumulated amortization                   |                     |      | (11,114       | )       |              |   | (14,680 | )      
|                       |                              |                                            |                     |      |               |         |              |  
|                       |                              |                                            | Net carrying amount |      | $             | 190,670 |              |   | $       | 187,971 | 
|                       |                              |                                            |                     |      |               |         |              |  

9



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
December 31, 2002

|                                 |                                            |                     |   |        |        |  |   |        |        | 
|-------------------------------- | ------------------------------------------ | ------------------- | - | ------ | ------ |  | - | ------ | ------ | 
|Non-amortized intangible assets: |                                            |                     |   |        |        |  |   |       
|                                 | Goodwill                                   |                     | $ | 70,636 |        |  | $ | 71,115 |       
|                                 | Tradenames                                 |                     |   | 18,000 |        |  |   | 18,000 |       
|                                 | Effect of currency translation adjustments |                     |   | 2,105  |        |  |   | 2,820  |       
|                                 |                                            |                     |   |        |        |  |   |       
|                                 |                                            | Net carrying amount |   | $      | 90,741 |  |   | $      | 91,935 | 
|                                 |                                            |                     |   |        |        |  |   |       

Amortization expense for those intangible assets required to be amortized
under SFAS No. 142 was $0.4 million and $3.6 million for the period from
November 15, 2001 to December 31, 2001 and the three months ended December 31,
2002, respectively. Amortization expense prior to the adoption of SFAS No. 142
was $9.3 million for the period from October 1, 2001 to December 20, 2001.

Estimated amortization expense for each of the five succeeding fiscal
years for identifiable intangible assets is as follows:

|                       |  |   |       
|---------------------- |  | - | ------
|(dollars in thousands) |  |   |       
|                       |  |   |       
|2003                   |  | $ | 14,264
|2004                   |  |   | 14,264
|2005                   |  |   | 14,264
|2006                   |  |   | 14,264
|2007                   |  |   | 14,264

5.     Accrued Expenses and Other Current Liabilities

|                                  |  |               |        |              |  |   |        | 
|--------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | 
|                                  |  | September 30, |        | December 31,
|(dollars in thousands)            |  | 2002          |        | 2002        
|                                  |  |               |        |             
|Accrued compensation and benefits |  | $             | 7,719  |              |  | $ | 8,865  | 
|Warranty reserves                 |  |               | 2,159  |              |  |   | 1,847  | 
|Sales taxes payable               |  |               | 1,267  |              |  |   | 286    | 
|Job accruals                      |  |               | 1,867  |              |  |   | 1,334  | 
|Accrued transaction costs         |  |               | 651    |              |  |   | 642    | 
|Accrued interest                  |  |               | 5,072  |              |  |   | 760    | 
|Other accruals                    |  |               | 4,827  |              |  |   | 4,831  | 
|                                  |  |               |        |              |  |   |        | 
|                                  |  | $             | 23,562 |              |  | $ | 18,565 | 
|                                  |  |               |        |              |  |   |        | 

6. Long Term Debt

Senior Secured Credit Facilities

On December 20, 2001, the Company entered into senior secured credit
facilities with a group of lenders comprised of (i) a $105 million term loan
with a variable interest rate (7.5% at December 31, 2002) and (ii) a $15
million revolving credit facility. The maturity date of the loans is December
31, 2006. The senior secured credit facilities are guaranteed by the Companys
domestic subsidiaries. The Company had no outstanding borrowings under the
revolving credit facility at December 31, 2002. However, the amount available
to the Company at December 31, 2002 under the revolving credit facility is
reduced by outstanding letters of credit of $4.3 million.

As
required under the terms of the senior secured credit facilities, the
Company made excess free cash flow repayments of $30.0 million and $0.8 million
on September 30, 2002 and December 29, 2002, respectively, based upon 75% of
the Companys free cash flow for the period ended September 30, 2002.

In addition to customary affirmative covenants, the senior secured credit facilities require the Company to enter into interest-rate hedging agreements to the extent necessary for 50% of the total outstanding consolidated indebtedness to be at a fixed rate. The senior secured credit facilities include negative covenants that, among other things, restrict the Companys and its subsidiaries ability to: incur additional indebtedness (including guarantees of certain obligations); engage in mergers, consolidations, liquidations and dissolutions; sell assets; enter into capital leases; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and advances; make payments with respect to or modify subordinated debt instruments; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

10



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


The senior secured credit facilities also contain minimum interest
coverage and fixed charge coverage ratios and maximum senior secured and total
leverage ratios. The senior secured credit facilities also contain a
restriction on the amount of capital expenditures.

As of December 31, 2002, annual principal payments required under the $105
million term loan, (excluding any future excess free cash flow amounts), by
fiscal year, are as follows (in thousands):

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 5,476  | 
|2004 |  |   | 7,301  | 
|2005 |  |   | 7,301  | 
|2006 |  |   | 37,418 | 
|2007 |  |   | 11,864 | 
|     |  |   |        | 
|     |  | $ | 69,360 | 
|     |  |   |        | 

Senior Subordinated Notes

The Company issued $150 million in aggregate principal amount of 11.50%
senior subordinated notes on December 20, 2001 to fund a portion of the
consideration for the IPC Information Systems Acquisition. Under the terms of
the indenture governing the senior subordinated notes, the Company may, subject
to certain restrictions, issue additional notes up to a maximum aggregate
principal amount of $250 million. The senior subordinated notes mature on
December 15, 2009. The senior subordinated notes are guaranteed by certain of
the Companys domestic restricted subsidiaries.

Interest on the senior subordinated notes accrue at the rate of 11.50% per
annum and is payable semi-annually in arrears on June 15 and December 15,
commencing on June 15, 2002. Pursuant to a registration rights agreement
entered into at the time the senior subordinated notes were issued, the Company
completed an exchange offer registered under the Securities Act of 1933, as
amended, in which all outstanding senior subordinated notes were exchanged for
a different series of senior subordinated notes having substantially identical
terms.

The indenture governing the senior subordinated notes contains covenants
that impose significant restrictions on the Company. These restrictions include
limitations on the ability of the Company and its restricted subsidiaries to:
incur indebtness or issue preferred shares; pay dividends or make distributions
in respect of capital stock or to make other restricted payments; create liens;
agree to payment restrictions affecting restricted subsidiaries; consolidate,
merge, sell or otherwise dispose of all or substantially all of its assets;
enter into transactions with affiliates; and designate subsidiaries as
unrestricted subsidiaries.

7. Employee Benefit Plans

2002 Stock Option Plan

In February 2002, the Company adopted the 2002 Stock Option Plan. The
option plan provides for the grant of options to purchase shares of the
Companys common stock to selected employees, officers, consultants and
directors. The purpose of the option plan is to provide an incentive to
employees, officers, consultants and directors to devote their abilities and
industry to the Companys success. The maximum number of shares that may be
made the subject of options granted under the option plan is 900,000. Through
December 31, 2002, the Company had granted 769,550 stock options with an option
price of $10 per share, which was the fair value of the Companys common stock
at such date. The Company accounts for these options pursuant to APB Opinion
No. 25 Accounting for Stock Options Issued to Employees. Accordingly, no
compensation expense was recognized for these grants.

The option plan is administered by the compensation committee of the
Companys board of directors, which determines the individuals to whom options
are awarded, the number of shares subject to each award, the exercise price of
the option and other terms and conditions of the awards. Unless otherwise
provided by the compensation committee, an option becomes exercisable for 25%
of the shares subject to the option on each of the first four anniversaries of
the date the compensation committee grants the option. Options granted under
the option plan are non-transferable and the shares acquired upon exercise of
options are subject to certain transfer restrictions. The terms and conditions
of each option are set forth in an option agreement.

The option plan provides that the effect, if any, on an option upon a
change in control or sale or the consummation of a merger, consolidation, or
reorganization which results in certain of the Companys current stockholders
no longer owning any

11



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


interests in the Company or any successor corporation will be set forth in the
option agreement. Under the form option agreements that have been approved by
the Companys compensation committee for current use under the plan, upon a
change in control, 50% of the unvested portion of each option will immediately
become vested and exercisable. In the event an option holders employment is
terminated by the Company for any reason other than cause or disability within
one year following the change in control, the option will immediately become
fully vested and exercisable and remain exercisable for 180 days. The form
agreements also provide that in the event of a sale or the consummation of a
merger, consolidation or reorganization which results in certain of the
Companys stockholders no longer having any ownership interest in the Company
or any successor corporation, the option will become fully vested and
exercisable.

Stock option transactions for the period from October 1, 2002 to December
31, 2002 are as follows:

|                                  |           |  |           |   |                  |   |       |   | 
|--------------------------------- | --------- |  | --------- | - | ---------------- | - | ----- | - | 
|                                  |           |  | Number of |   | Weighted Average
|                                  |           |  | Shares    |   | Exercise Price  
|                                  |           |  |           |   |                 
|Outstanding at September 30, 2002 |           |  | 751,025   |   |                  | $ | 10.00 |  
|                                  | Granted   |  |           |  |                  |   |       |  | 
|                                  | Exercised |  |           |  |                  |   |       |  | 
|                                  | Cancelled |  |           |  |                  |   |       |  | 
|                                  |           |  |           |   |                  |   |       |  
|Outstanding at December 31, 2002  |           |  | 751,025   |   |                  | $ | 10.00 |  
|                                  |           |  |           |   |                  |   |       |  

Of the total stock options outstanding, none were exercisable at December
31, 2002. The amount of additional options available to be granted pursuant to
the option plan was 148,975 at December 31, 2002.

Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS No. 123, Accounting for Stock Based Compensation
(SFAS No.123) and has been determined as if the Company had been accounting
for its employee stock options under the fair value method of that Statement.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions:
weighted-average risk-free interest rate of 3.5%; no dividends; volatility
factor of the expected market price of the Companys common stock of 74.2%,
and a weighted-average expected life of the options of 5 years (all such
amounts were for the period ended September 30, 2002; no grants were made
during the three months ended December 31, 2002).

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of options
granted is amortized to expense over their vesting periods. The
weighted-average grant date fair value of options granted during the period
ended September 30, 2002 was $6.28. The Companys pro forma net loss for the
period ended December 31, 2002 would be $0.3 million. This amount may not
necessarily be indicative of the pro forma effect of SFAS No. 123 for future
periods in which options may be granted.

Key Employee Equity Investment Plan

In February 2002, the Company adopted the Key Employee Equity Investment
Plan. Under the plan, certain key employees, officers and directors may be
given the opportunity to purchase shares of the Companys common stock at its
current fair market value. The plan is administered by the compensation
committee of the Companys board of directors, which determines the individuals
who may participate in the plan, the number of shares offered to each
participant and the terms and conditions of each offer. Up to 100,000 shares in
the aggregate may be sold under the plan. The shares will be subject to certain
transfer restrictions. Prior to the adoption of the Sarbanes-Oxley Act in July
2002, all participants were permitted to pay for up to two-thirds of the
purchase price with a promissory note that is secured by the purchased shares.
Since the adoption of the Sarbanes-Oxley Act, certain participants may no
longer be permitted to purchase shares under the plan with such promissory
notes. Through December 31, 2002, 60,000 shares were purchased under the plan
by certain directors, officers and other key employees. Promissory notes received
by the Company for shares purchased by directors, officers and other key employees
of the Company prior to the adoption of the Sarbanes-Oxley Act totaled $0.4 million.

12



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


8. Commitments and Contingencies

Warranties

The Company records a reserve for future warranty costs based on current
unit sales, historical experience and managements judgment regarding
anticipated rates of warranty claims and cost per claim. The adequacy of the
recorded warranty liabilities is assessed each quarter and adjustments are made
as necessary. The specific terms and conditions of the warranties vary
depending on the products sold and the countries in which the Company does
business. Changes in the warranty liability during the period are as follows:

|                              |                          |   |       |      |  
|----------------------------- | ------------------------ | - | ----- | ---- | -
|(dollars in thousands)        |                          |   |       |     
|Balance at September 30, 2002 |                          | $ | 2,159 |     
|                              | Warranty accrual         |   |       | 288  |  
|                              | Material and labor usage |   |       | (600 | )
|                              |                          |   |       |     
|Balance at December 31, 2002  |                          | $ | 1,847 |     
|                              |                          |   |       |     

Guarantees

The Company, through its subsidiaries, guaranteed certain equipment lease,
real estate, employee and other obligations of former affiliates. At the
closing of the IPC Information Systems Acquisition, the Company deferred
payment to Global Crossing of $20.8 million of the purchase price, which
represents the amounts of these guaranteed obligations as certified by Global
Crossing. There can be no assurance that the amounts certified by Global
Crossing included all of the amounts actually guaranteed. To date, the Company
has paid approximately $13.5 million with respect to the guaranteed
obligations. The Company may be liable for additional guaranteed obligations
to the extent claims are asserted by third parties against the Company.

Litigation

Except as described below and with respect to proceedings in the Global
Crossing bankruptcy, the Company is not a party to any pending legal
proceedings other than claims and lawsuits arising in the normal course of
business. Management believes these proceedings will not have a material
adverse effect on the Companys consolidated financial condition or results of
operations.

On June 27, 2000, an action was brought against several defendants,
including IPC Communications, Inc., in the United States District Court for the
Southern District of New York by two telecommunications cabling contractors
alleging that IPC Communications, Inc. violated federal antitrust and New York
state law by conspiring with the International Brotherhood of Electrical
Workers Local Union Number 3, AFL-CIO, and five electrical contractors, to
exclude plaintiffs from telecommunications wiring and systems installation jobs
in the New York City metropolitan area. Subsequently, the complaint was amended

to add an additional plaintiff and an additional defendant contractor. The
Company believes the suit is without merit. However, there can be no assurance
that the resolution of this lawsuit will ultimately be favorable. Plaintiffs
are seeking injunctive relief and damages from the defendants, jointly and
severally, in excess of an aggregate of $75 million.

9. Income Taxes

The Companys effective tax rate for Q1 2003 was 121.9% compared to 9.4%
for Q1 2002. The comparability of these periods is significantly impacted by
the IPC Information Systems Acquisition and reflects the tax impact of the
purchase accounting. The Companys effective tax rate reflects the Companys
federal and state taxes, non-deductibility of the Companys foreign losses for
federal tax purposes and the non-deductibility of certain expenses which,
combined with the lower absolute amount of pre-tax income for Q1 2003 as
compared to the absolute amount of pre-tax loss for Q1 2002, generates a more
significant impact on our effective tax rate in Q1 2003 than Q1 2002.

The Company has received notices of taxes due from various jurisdictions
related to Federal and state payroll taxes, state income taxes, state sales
taxes, VAT, and income taxes in several foreign countries. These notices are
for periods prior to the IPC Information Systems Acquisition. Under the
purchase agreement, Global Crossing is responsible for payment of these taxes.
Since Global Crossing is now under bankruptcy protection, the bankruptcy court
must approve any such tax payments by Global

13



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


Crossing for periods prior to the commencement of Global Crossings
bankruptcy case. If the bankruptcy court does not approve Global Crossings
payment of all amounts that are due with respect to these taxes, these
jurisdictions may proceed against the Company for these amounts. Furthermore,
if the purchase agreement is rejected by Global Crossing in the bankruptcy
proceeding (which rejection the Company is contesting), Global Crossing may
avoid its obligations to pay the taxes and to indemnify the Company for payment
of the taxes. Through January 31, 2003, the aggregate amount of taxes for which
the Company has received notices is approximately $6.5 million and such amount
is accrued in the Companys consolidated balance sheet. The ultimate settlement
of these liabilities may be for amounts which are different from the amounts
presently recorded.

Additionally, certain tax returns for periods prior to the IPC Information
Systems Acquisition are not yet due and have yet to be filed by Global Crossing
pursuant to the purchase agreement. Global Crossing has informed the Company
that as a result of its rejection of the purchase agreement, it may not include
IPC Information Systems, Inc. and its subsidiaries in such tax returns. If the
purchase agreement is rejected, and unless otherwise required or
permitted by law, Global
Crossing will no longer be obligated to include IPC Information Systems, Inc.
and its subsidiaries in certain of Global Crossings tax returns for periods
prior to the IPC Information Systems Acquisition, and as a result, IPC
Information Systems, Inc. may be required to pay certain taxes which the
Company estimates could be in the range of $0 to $36 million. These taxes could
have a material adverse effect on the Companys financial condition and results
of operations, and could require the Company to seek financing to pay any
additional pre-acquisition tax liabilities.

10. Business Segment Information

The Companys operations include the Trading Systems and Information
Transport Systems, or I.T.S. divisions. Trading Systems reports sales of turret
systems to distributors and direct sales and installations of turret systems as
Product sales and installations. It reports revenue from turret system
maintenance, including annual and multi-year service contracts, and from moves,
additions and changes to existing turret system installations as Service.
I.T.S. reports revenue from the design, integration and implementation of
cabling infrastructure projects including local and wide area networks, and
from the sales of intelligent network products, such as hubs, bridges and
routers as Product sales and installations. It reports revenue from on-site
maintenance of customer cable infrastructure, including annual and multi-year
contracts, and from the provision of outsourcing services for the support,
expansion and upgrading of existing customer networks, as Service. The
Company evaluates performance based on direct margin and income from
operations.

|                                                 |                                 |               |         |                        |        |              |        |       |        |   |         |        |        | 
|------------------------------------------------ | ------------------------------- | ------------- | ------- | ---------------------- | ------ | ------------ | ------ | ----- | ------ | - | ------- | ------ | ------ | 
|                                                 |                                 |               |         | Predecessor           
|                                                 |                                 |               |         |                       
|                                                 |                                 |               |         | Trading                |        |              |        |       |        |   |         |       
|Period from October 1, 2001 to December 20, 2001 |                                 | Systems       |         | I.T.S.                 |        | Consolidated
|                                                 |                                 |               |         |                        |        |             
|                                                 |                                 |               |         | (dollars in thousands)
|Revenue:                                         |                                 |               |         |                        |        |              |        |       |        |   |         |       
|                                                 | Product sales and installations |               | $       | 27,444                 |        |              | $      | 8,247 |        |   | $       | 35,691 |       
|                                                 | Service                         |               |         | 18,795                 |        |              |        | 4,294 |        |   |         | 23,089 |       
|                                                 |                                 |               |         |                        |        |              |        |       |        |   |         |       
|                                                 |                                 | Total revenue |         |                        | 46,239 |              |        |       | 12,541 |   |         |        | 58,780 | 
|Direct margin                                    |                                 |               | 28,690  |                        |        |              | 2,734  |       |        |   | 31,424  |       
|Income (loss) from operations                    |                                 |               | (6,498  | )                      |        |              | 1,090  |       |        |   | (5,408  | )     
|Depreciation and amortization                    |                                 |               | 10,729  |                        |        |              | 8      |       |        |   | 10,737  |       
|Interest expense, net                            |                                 |               | (5,987  | )                      |        |              |       |       |        |   | (5,987  | )     
|Income tax benefit                               |                                 |               | (318    | )                      |        |              |       |       |        |   | (318    | )     
|Goodwill, net                                    |                                 |               | 180,328 |                        |        |              |       |       |        |   | 180,328 |       
|Total assets                                     |                                 | $             | 350,787 |                        |        | $            | 29,179 |       |        | $ | 379,966 |       
|Capital expenditures                             |                                 | $             | 1,897   |                        |        | $            | 5      |       |        | $ | 1,902   |       

14



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


|                                                   |                                 |               |         |                        |        |              |        |       |       |   |         |        |        | 
|-------------------------------------------------- | ------------------------------- | ------------- | ------- | ---------------------- | ------ | ------------ | ------ | ----- | ----- | - | ------- | ------ | ------ | 
|                                                   |                                 |               |         | Trading                |        |              |        |       |       |   |         |       
|Period from November 15, 2001 to December 31, 2001 |                                 | Systems       |         | I.T.S.                 |        | Consolidated
|                                                   |                                 |               |         |                        |        |             
|                                                   |                                 |               |         | (dollars in thousands)
|Revenue:                                           |                                 |               |         |                        |        |              |        |       |       |   |         |       
|                                                   | Product sales and installations |               | $       | 9,623                  |        |              | $      | 2,852 |       |   | $       | 12,475 |       
|                                                   | Service                         |               |         | 1,687                  |        |              |        | 167   |       |   |         | 1,854  |       
|                                                   |                                 |               |         |                        |        |              |        |       |       |   |         |       
|                                                   |                                 | Total revenue |         |                        | 11,310 |              |        |       | 3,019 |   |         |        | 14,329 | 
|Direct margin                                      |                                 |               | 461     |                        |        |              | 28     |       |       |   | 489     |       
|Loss from operations                               |                                 |               | (1,354  | )                      |        |              | (177   | )     |       |   | (1,531  | )     
|Depreciation and amortization                      |                                 |               | 552     |                        |        |              | 3      |       |       |   | 555     |       
|Interest expense, net                              |                                 |               | (849    | )                      |        |              |       |       |       |   | (849    | )     
|Income tax benefit                                 |                                 |               | (969    | )                      |        |              |       |       |       |   | (969    | )     
|Goodwill                                           |                                 |               | 62,159  |                        |        |              | 15,151 |       |       |   | 77,310  |       
|Total assets                                       |                                 | $             | 480,220 |                        |        | $            | 37,450 |       |       | $ | 517,670 |       
|Capital expenditures                               |                                 | $             | 242     |                        |        | $            |       |       |       | $ | 242     |       

|                                             |                                 |               |         |                        |        |              |        |       |       |   |         |        |        | 
|-------------------------------------------- | ------------------------------- | ------------- | ------- | ---------------------- | ------ | ------------ | ------ | ----- | ----- | - | ------- | ------ | ------ | 
|                                             |                                 |               |         | Trading                |        |              |        |       |       |   |         |       
|For the Three Months Ended December 31, 2002 |                                 | Systems       |         | I.T.S.                 |        | Consolidated
|                                             |                                 |               |         |                        |        |             
|                                             |                                 |               |         | (dollars in thousands)
|Revenue:                                     |                                 |               |         |                        |        |              |        |       |       |   |         |       
|                                             | Product sales and installations |               | $       | 21,009                 |        |              | $      | 2,742 |       |   | $       | 23,751 |       
|                                             | Service                         |               |         | 21,516                 |        |              |        | 3,116 |       |   |         | 24,632 |       
|                                             |                                 |               |         |                        |        |              |        |       |       |   |         |       
|                                             |                                 | Total revenue |         |                        | 42,525 |              |        |       | 5,858 |   |         |        | 48,383 | 
|Direct margin                                |                                 |               | 27,189  |                        |        |              | 1,212  |       |       |   | 28,401  |       
|Income (loss) from operations                |                                 |               | 6,901   |                        |        |              | (300   | )     |       |   | 6,601   |       
|Depreciation and amortization                |                                 |               | 4,968   |                        |        |              | 60     |       |       |   | 5,028   |       
|Interest expense, net                        |                                 |               | (6,205  | )                      |        |              |       |       |       |   | (6,205  | )     
|Income tax provision                         |                                 |               | 1,123   |                        |        |              |       |       |       |   | 1,123   |       
|Goodwill                                     |                                 |               | 72,350  |                        |        |              | 971    |       |       |   | 73,321  |       
|Total assets                                 |                                 | $             | 419,507 |                        |        | $            | 16,338 |       |       | $ | 435,845 |       
|Capital expenditures                         |                                 | $             | 986     |                        |        | $            | 8      |       |       | $ | 994     |       

11. Guarantor Subsidiaries Financial Information

Certain of the Companys domestic restricted subsidiaries guarantee the
senior secured credit facilities and the senior subordinated notes. Information
regarding the guarantors is as follows (in thousands):

Condensed Combining Statement of
Operations
For the Period October 1, 2001 to December 20, 2001

|                                |              |   |             |   |              |   |              |        |              |   |          |       |  |   |        |     |   |   |         |        | 
|------------------------------- | ------------ | - | ----------- | - | ------------ | - | ------------ | ------ | ------------ | - | -------- | ----- |  | - | ------ | --- | - | - | ------- | ------ | 
|                                |              |   |             |   |              |   |              |        |              |   | Non-     |       |  |   |        |     |   |   |        
|                                |              |   | IPC         |   | Guarantor    |   | Guarantor    |        |              |   |          |       |  |   |       
|                                |              |   | Acquisition |   | Subsidiaries |   | Subsidiaries |        | Eliminations |   | Combined
|                                |              |   |             |   |              |   |              |        |              |   |         
|Revenue                         |              | $ |            |   |              | $ | 52,098       |        |              | $ | 13,777   |       |  | $ | (7,095 | )   |   | $ | 58,780  |       
|Cost of goods sold              |              |   |            |   |              |   | 30,610       |        |              |   | 9,226    |       |  |   | (7,014 | )   |   |   | 32,822  |       
|                                |              |   |             |   |              |   |              |        |              |   |          |       |  |   |        |     |   |   |         |       
|                                | Gross profit |   |             |  |              |   |              | 21,488 |              |   |          | 4,551 |  |   |        | (81 | ) |   |         | 25,958 | 
|Other operating expenses        |              |   |            |   |              |   | 28,427       |        |              |   | 2,939    |       |  |   |       |     |   |   | 31,366  |       
|                                |              |   |             |   |              |   |              |        |              |   |          |       |  |   |        |     |   |   |         |       
|Income (loss) from operations   |              |   |            |   |              |   | (6,939       | )      |              |   | 1,612    |       |  |   | (81    | )   |   |   | (5,408  | )     
|Interest expense and other, net |              |   |            |   |              |   | (6,218       | )      |              |   | 280      |       |  |   |       |     |   |   | (5,938  | )     
|Income tax provision (benefit)  |              |   |            |   |              |   | 639          |        |              |   | (957     | )     |  |   |       |     |   |   | (318    | )     
|                                |              |   |             |   |              |   |              |        |              |   |          |       |  |   |        |     |   |   |         |       
|Net income (loss)               |              | $ |            |   |              | $ | (13,796      | )      |              | $ | 2,849    |       |  | $ | (81    | )   |   | $ | (11,028 | )     
|                                |              |   |             |   |              |   |              |        |              |   |          |       |  |   |        |     |   |   |         |       

15



---



##### Table of Contents



IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


December 31, 2002


Condensed Combining Statement of Cash Flows
For the Period October 1, 2001 to December 20, 2001

|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|---------------------------------------------------------------------------------------------------- |  | ----------- | -------- | ------------ |  | ------------ | ------- | ------------ |  | ------------ | ------ | - |  | - | ------ | - |  | - | -------- | -
|                                                                                                     |  |             |          |              |  |              |         |              |  | Non-         |        |   |  |   |        |   |  |  
|                                                                                                     |  | IPC         |          | Guarantor    |  | Guarantor    |         |              |  |              |        |   |  |  
|                                                                                                     |  | Acquisition |          | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Combined    
|                                                                                                     |  |             |          |              |  |              |         |              |  |             
|Net cash provided by (used in) operating activities                                                  |  | $           |         |              |  | $            | 19,702  |              |  | $            | (4,455 | ) |  | $ |       |   |  | $ | 15,247   |  
|Capital expenditures                                                                                 |  |             |         |              |  |              | (1,875  | )            |  |              | (27    | ) |  |   |       |   |  |   | (1,902   | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net cash used in investing activities                                                                |  |             |         |              |  |              | (1,875  | )            |  |              | (27    | ) |  |   |       |   |  |   | (1,902   | )
|Repayment of intercompany borrowings                                                                 |  |             |         |              |  |              | (16,428 | )            |  |              | 1,294  |   |  |   |       |   |  |   | (15,134  | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net cash (used in) provided by financing activities                                                  |  |             |         |              |  |              | (16,428 | )            |  |              | 1,294  |   |  |   |       |   |  |   | (15,134  | )
|Effect of exchange rate changes on cash                                                              |  |             |         |              |  |              | (1,076  | )            |  |              | (920   | ) |  |   |       |   |  |   | (1,996   | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net increase (decrease) in cash                                                                      |  |             |         |              |  |              | 323     |              |  |              | (4,108 | ) |  |   |       |   |  |   | (3,785   | )
|Cash at beginning of period                                                                          |  |             |         |              |  |              | (703    | )            |  |              | 5,239  |   |  |   |       |   |  |   | 4,536    |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Cash at end of period                                                                                |  | $           |         |              |  | $            | (380    | )            |  | $            | 1,131  |   |  | $ |       |   |  | $ | 751      |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|                                                                                                    
|Condensed Consolidated Statement of Operations
For the Period November 15, 2001 to December 31,
2001
|                                                                                                    
|                                                                                                     |  |             |          |              |  |              |         |              |  | Non-         |        |   |  |   |        |   |  |  
|                                                                                                     |  | IPC         |          | Guarantor    |  | Guarantor    |         |              |  |              |        |   |  |  
|                                                                                                     |  | Acquisition |          | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Combined    
|                                                                                                     |  |             |          |              |  |              |         |              |  |             
|Revenue                                                                                              |  | $           |         |              |  | $            | 9,980   |              |  | $            | 4,761  |   |  | $ | (412   | ) |  | $ | 14,329   |  
|Cost of goods sold                                                                                   |  |             |         |              |  |              | 12,116  |              |  |              | 3,180  |   |  |   | (1,356 | ) |  |   | 13,940   |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Gross profit                                                                                         |  |             |         |              |  |              | (2,136  | )            |  |              | 1,581  |   |  |   | 944    |   |  |   | 389      |  
|Other operating expenses                                                                             |  |             |         |              |  |              | 1,590   |              |  |              | 330    |   |  |   |       |   |  |   | 1,920    |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Income (loss) from operations                                                                        |  |             |         |              |  |              | (3,726  | )            |  |              | 1,251  |   |  |   | 944    |   |  |   | (1,531   | )
|Interest expense and other, net                                                                      |  |             | (845     | )            |  |              | (5      | )            |  |              | 30     |   |  |   |       |   |  |   | (820     | )
|Income tax provision (benefit)                                                                       |  |             |         |              |  |              | (1,408  | )            |  |              | 439    |   |  |   |       |   |  |   | (969     | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net income (loss)                                                                                    |  | $           | (845     | )            |  | $            | (2,323  | )            |  | $            | 842    |   |  | $ | 944    |   |  | $ | (1,382   | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|                                                                                                    
|Condensed Consolidated Statement of Cash Flows
For the Period November 15, 2001 to December 31, 2001
|                                                                                                    
|                                                                                                     |  |             |          |              |  |              |         |              |  | Non-         |        |   |  |   |        |   |  |  
|                                                                                                     |  | IPC         |          | Guarantor    |  | Guarantor    |         |              |  |              |        |   |  |  
|                                                                                                     |  | Acquisition |          | Subsidiaries |  | Subsidiaries |         | Eliminations |  | Consolidated
|                                                                                                     |  |             |          |              |  |              |         |              |  |             
|Net cash provided by (used in) operating activities                                                  |  | $           |         |              |  | $            | 1,049   |              |  | $            | (1,451 | ) |  | $ |       |   |  | $ | (402     | )
|Capital expenditures                                                                                 |  |             |         |              |  |              | (120    | )            |  |              | (122   | ) |  |   |       |   |  |   | (242     | )
|Payment on acquisitions                                                                              |  |             | (350,246 | )            |  |              |        |              |  |              |       |   |  |   | 751    |   |  |   | (349,495 | )
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net cash provided by (used in) investing activities                                                  |  |             | (350,246 | )            |  |              | (120    | )            |  |              | (122   | ) |  |   | 751    |   |  |   | (349,737 | )
|Proceeds from debt, net of issuance costs                                                            |  |             | 235,200  |              |  |              |        |              |  |              |       |   |  |   |       |   |  |   | 235,200  |  
|Proceeds from equity issuances, net                                                                  |  |             | 139,700  |              |  |              |        |              |  |              |       |   |  |   |       |   |  |   | 139,700  |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net cash provided by financing activities                                                            |  |             | 374,900  |              |  |              |        |              |  |              |       |   |  |   |       |   |  |   | 374,900  |  
|Effect of exchange rate changes on cash                                                              |  |             |         |              |  |              |        |              |  |              | 285    |   |  |   |       |   |  |   | 285      |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Net increase (decrease) in cash                                                                      |  |             | 24,654   |              |  |              | 929     |              |  |              | (1,288 | ) |  |   | 751    |   |  |   | 25,046   |  
|Cash at beginning of period                                                                          |  |             |         |              |  |              | (380    | )            |  |              | 1,131  |   |  |   | (751   | ) |  |   |         |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  
|Cash at end of period                                                                                |  | $           | 24,654   |              |  | $            | 549     |              |  | $            | (157   | ) |  | $ |       |   |  | $ | 25,046   |  
|                                                                                                     |  |             |          |              |  |              |         |              |  |              |        |   |  |   |        |   |  |   |          |  

16



---



##### Table of Contents



IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS(Unaudited)


December 31, 2002


Condensed Consolidating Balance Sheet at September 30, 2002

|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |         |         | 
|------------------------------------- | ---------------------------------------------------------------- | ------------------------- | - | ----------- | ------- | ------------ | - | ------------ | ------- | ------------ | - | ------------ | ------ |  | - | -------- | -------- | - | - | ------- | ------- | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   | Non-         |        |  |   |          |          |   |   |        
|                                      |                                                                  |                           |   | IPC         |         | Guarantor    |   | Guarantor    |         |              |   |              |        |  |   |         
|                                      |                                                                  |                           |   | Acquisition |         | Subsidiaries |   | Subsidiaries |         | Eliminations |   | Consolidated
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |             
|Assets:                               |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Cash                                                             |                           | $ | 6,123       |         |              | $ | (1,610       | )       |              | $ | 20,781       |        |  | $ |         |          |   | $ | 25,294  |        
|                                      | Restricted cash                                                  |                           |   | 7,272       |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 7,272   |        
|                                      | Accounts receivable, net                                         |                           |   |            |         |              |   | 32,900       |         |              |   | 19,568       |        |  |   |         |          |   |   | 52,468  |        
|                                      | Inventories, net                                                 |                           |   |            |         |              |   | 20,089       |         |              |   | 5,518        |        |  |   | (3,389   | )        |   |   | 22,218  |        
|                                      | Prepaid and other current assets                                 |                           |   |            |         |              |   | 1,658        |         |              |   | 2,956        |        |  |   |         |          |   |   | 4,614   |        
|                                      | Due from affiliate                                               |                           |   | (20,023     | )       |              |   | 67,819       |         |              |   | (47,796      | )      |  |   |         |          |   |   |        |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total current assets      |   |             | (6,628  | )            |   |              | 120,856 |              |   |              | 1,027  |  |   |          | (3,389   | ) |   |         | 111,866 | 
|                                      | Investment in subsidiaries                                       |                           |   | 369,106     |         |              |   |             |         |              |   |             |        |  |   | (369,106 | )        |   |   |        |        
|                                      | Property, plant and equipment, net                               |                           |   |            |         |              |   | 18,988       |         |              |   | 2,016        |        |  |   |         |          |   |   | 21,004  |        
|                                      | Goodwill and intangibles, net                                    |                           |   |            |         |              |   | 205,298      |         |              |   | 76,113       |        |  |   |         |          |   |   | 281,411 |        
|                                      | Deferred financing costs, net                                    |                           |   | 15,116      |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 15,116  |        
|                                      | Other assets                                                     |                           |   |            |         |              |   | 662          |         |              |   | 173          |        |  |   |         |          |   |   | 835     |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total assets              |   | $           | 377,594 |              |   | $            | 345,804 |              |   | $            | 79,329 |  |   | $        | (372,495 | ) |   | $       | 430,232 | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|Liabilities and stockholders equity: |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Current portion of long-term debt                                |                           | $ | 6,460       |         |              | $ |             |         |              | $ |             |        |  | $ |         |          |   | $ | 6,460   |        
|                                      | Accounts payable, accrued expenses and
other current liabilities |                           |   | 5,072       |         |              |   | 15,196       |         |              |   | 10,830       |        |  |   |         |          |   |   | 31,098  |        
|                                      | Customer advances and deferred revenue                           |                           |   |            |         |              |   | 17,116       |         |              |   | 6,377        |        |  |   |         |          |   |   | 23,493  |        
|                                      | Deferred purchase price obligation                               |                           |   | 7,272       |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 7,272   |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total current liabilities |   |             | 18,804  |              |   |              | 32,312  |              |   |              | 17,207 |  |   |          |         |   |   |         | 68,323  | 
|                                      | Long-term debt                                                   |                           |   | 214,602     |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 214,602 |        
|                                      | Other long-term liabilities                                      |                           |   | 7,190       |         |              |   | 3,119        |         |              |   |             |        |  |   |         |          |   |   | 10,309  |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total liabilities         |   |             | 240,596 |              |   |              | 35,431  |              |   |              | 17,207 |  |   |          |         |   |   |         | 293,234 | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Total stockholders equity                                       |                           |   | 136,998     |         |              |   | 310,373      |         |              |   | 62,122       |        |  |   | (372,495 | )        |   |   | 136,998 |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Total liabilities and stockholders equity                       |                           | $ | 377,594     |         |              | $ | 345,804      |         |              | $ | 79,329       |        |  | $ | (372,495 | )        |   | $ | 430,232 |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        

17



---



##### Table of Contents



IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


December 31, 2002


Condensed Consolidating Balance Sheet at December 31, 2002

|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |         |         | 
|------------------------------------- | ---------------------------------------------------------------- | ------------------------- | - | ----------- | ------- | ------------ | - | ------------ | ------- | ------------ | - | ------------ | ------ |  | - | -------- | -------- | - | - | ------- | ------- | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   | Non-         |        |  |   |          |          |   |   |        
|                                      |                                                                  |                           |   | IPC         |         | Guarantor    |   | Guarantor    |         |              |   |              |        |  |   |         
|                                      |                                                                  |                           |   | Acquisition |         | Subsidiaries |   | Subsidiaries |         | Eliminations |   | Consolidated
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |             
|Assets:                               |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Cash                                                             |                           | $ | 12,185      |         |              | $ | 4,213        |         |              | $ | 22,361       |        |  | $ |         |          |   | $ | 38,759  |        
|                                      | Restricted cash                                                  |                           |   | 7,263       |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 7,263   |        
|                                      | Accounts receivable, net                                         |                           |   |            |         |              |   | 30,349       |         |              |   | 10,242       |        |  |   |         |          |   |   | 40,591  |        
|                                      | Inventories, net                                                 |                           |   |            |         |              |   | 26,962       |         |              |   | 6,584        |        |  |   | (3,886   | )        |   |   | 29,660  |        
|                                      | Prepaid and other current assets                                 |                           |   |            |         |              |   | 1,059        |         |              |   | 2,711        |        |  |   |         |          |   |   | 3,770   |        
|                                      | Due from affiliate                                               |                           |   | (38,153     | )       |              |   | 79,834       |         |              |   | (41,681      | )      |  |   |         |          |   |   |        |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total current assets      |   |             | (18,705 | )            |   |              | 142,417 |              |   |              | 217    |  |   |          | (3,886   | ) |   |         | 120,043 | 
|                                      | Investment in subsidiaries                                       |                           |   | 376,911     |         |              |   |             |         |              |   |             |        |  |   | (376,911 | )        |   |   |        |        
|                                      | Property, plant and equipment, net                               |                           |   |            |         |              |   | 18,530       |         |              |   | 2,006        |        |  |   |         |          |   |   | 20,536  |        
|                                      | Goodwill and intangibles, net                                    |                           |   |            |         |              |   | 201,955      |         |              |   | 77,951       |        |  |   |         |          |   |   | 279,906 |        
|                                      | Deferred financing costs, net                                    |                           |   | 14,528      |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 14,528  |        
|                                      | Other assets                                                     |                           |   |            |         |              |   | 660          |         |              |   | 172          |        |  |   |         |          |   |   | 832     |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total assets              |   | $           | 372,734 |              |   | $            | 363,562 |              |   | $            | 80,346 |  |   | $        | (380,797 | ) |   | $       | 435,845 | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|Liabilities and stockholders equity: |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Current portion of long-term debt                                |                           | $ | 7,301       |         |              | $ |             |         |              | $ |             |        |  | $ |         |          |   | $ | 7,301   |        
|                                      | Accounts payable, accrued expenses and
other current liabilities |                           |   | 760         |         |              |   | 17,806       |         |              |   | 10,510       |        |  |   |         |          |   |   | 29,076  |        
|                                      | Customer advances and deferred revenue                           |                           |   |            |         |              |   | 24,976       |         |              |   | 6,724        |        |  |   |         |          |   |   | 31,700  |        
|                                      | Deferred purchase price obligation                               |                           |   | 7,263       |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 7,263   |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total current liabilities |   |             | 15,324  |              |   |              | 42,782  |              |   |              | 17,234 |  |   |          |         |   |   |         | 75,340  | 
|                                      | Long-term debt                                                   |                           |   | 212,059     |         |              |   |             |         |              |   |             |        |  |   |         |          |   |   | 212,059 |        
|                                      | Other long-term liabilities                                      |                           |   | 6,848       |         |              |   | 3,095        |         |              |   |             |        |  |   |         |          |   |   | 9,943   |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      |                                                                  | Total liabilities         |   |             | 234,231 |              |   |              | 45,877  |              |   |              | 17,234 |  |   |          |         |   |   |         | 297,342 | 
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Total stockholders equity                                       |                           |   | 138,503     |         |              |   | 317,685      |         |              |   | 63,112       |        |  |   | (380,797 | )        |   |   | 138,503 |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        
|                                      | Total liabilities and stockholders equity                       |                           | $ | 372,734     |         |              | $ | 363,562      |         |              | $ | 80,346       |        |  | $ | (380,797 | )        |   | $ | 435,845 |        
|                                      |                                                                  |                           |   |             |         |              |   |              |         |              |   |              |        |  |   |          |          |   |   |        

Condensed Consolidated Statement of Operations
For the Three Months Ended December 31, 2002

|                                |  |              |        |             |   |              |        |              |        |              |        |              |       |   |        |   |      |   |        |   |        | 
|------------------------------- |  | ------------ | ------ | ----------- | - | ------------ | ------ | ------------ | ------ | ------------ | ------ | ------------ | ----- | - | ------ | - | ---- | - | ------ | - | ------ | 
|                                |  |              |        |             |   |              |        |              |        |              |        | Non-         |       |   |        |   |      |   |        |  
|                                |  |              |        | IPC         |   | Guarantor    |        | Guarantor    |        |              |        |              |       |   |        |  
|                                |  |              |        | Acquisition |   | Subsidiaries |        | Subsidiaries |        | Eliminations |        | Consolidated
|                                |  |              |        |             |   |              |        |              |        |              |        |             
|Revenue                         |  | $            |       |             |   | $            | 40,489 |              |        | $            | 11,721 |              |       | $ | (3,827 | ) |      | $ | 48,383 |  
|Cost of goods sold              |  |              |       |             |   |              | 21,916 |              |        |              | 6,703  |              |       |   | (3,330 | ) |      |   | 25,289 |  
|                                |  |              |        |             |   |              |        |              |        |              |        |              |       |   |        |   |      |   |        |  
|                                |  | Gross profit |        |             |  |              |        |              | 18,573 |              |        |              | 5,018 |   |        |   | (497 | ) |        |   | 23,094 | 
|Other operating expenses        |  |              |       |             |   |              | 12,875 |              |        |              | 3,618  |              |       |   |       |   |      |   | 16,493 |  
|                                |  |              |        |             |   |              |        |              |        |              |        |              |       |   |        |   |      |   |        |  
|Income (loss) from operations   |  |              |       |             |   |              | 5,698  |              |        |              | 1,400  |              |       |   | (497   | ) |      |   | 6,601  |  
|Interest expense and other, net |  |              | (6,300 | )           |   |              | (65    | )            |        |              | 685    |              |       |   |       |   |      |   | (5,680 | )
|Income tax provision (benefit)  |  |              |       |             |   |              | 28     |              |        |              | 1,095  |              |       |   |       |   |      |   | 1,123  |  
|                                |  |              |        |             |   |              |        |              |        |              |        |              |       |   |        |   |      |   |        |  
|Net income (loss)               |  | $            | (6,300 | )           |   | $            | 5,605  |              |        | $            | 990    |              |       | $ | (497   | ) |      | $ | (202   | )
|                                |  |              |        |             |   |              |        |              |        |              |        |              |       |   |        |   |      |   |        |  

18



---



##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

December 31, 2002


Condensed Consolidated Statement of Cash Flows
For the Three Months Ended December 31, 2002

|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  
|----------------------------------------- |  | ----------- | ------ | ------------ |  | ------------ | ------ | ------------ |  | ------------ | ------ | - |  | - | - |  |  | - | ------ | -
|                                          |  |             |        |              |  |              |        |              |  | Non-         |        |   |  |   |   |  |  |  
|                                          |  | IPC         |        | Guarantor    |  | Guarantor    |        |              |  |              |        |   |  |  
|                                          |  | Acquisition |        | Subsidiaries |  | Subsidiaries |        | Eliminations |  | Consolidated
|                                          |  |             |        |              |  |              |        |              |  |             
|Net cash provided by operating activities |  | $           | 7,764  |              |  | $            | 6,496  |              |  | $            | 1,776  |   |  | $ |   |  |  | $ | 16,036 |  
|Capital expenditures                      |  |             |       |              |  |              | (798   | )            |  |              | (196   | ) |  |   |  |  |  |   | (994   | )
|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  
|Net cash used in investing activities     |  |             |       |              |  |              | (798   | )            |  |              | (196   | ) |  |   |  |  |  |   | (994   | )
|Principal payments on term loan           |  |             | (1,702 | )            |  |              |       |              |  |              |       |   |  |   |  |  |  |   | (1,702 | )
|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  
|Net cash used in financing activities     |  |             | (1,702 | )            |  |              |       |              |  |              |       |   |  |   |  |  |  |   | (1,702 | )
|Effect of exchange rate changes on cash   |  |             |       |              |  |              | 125    |              |  |              |       |   |  |   |  |  |  |   | 125    |  
|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  
|Net increase in cash                      |  |             | 6,062  |              |  |              | 5,823  |              |  |              | 1,580  |   |  |   |  |  |  |   | 13,465 |  
|Cash at beginning of period               |  |             | 6,123  |              |  |              | (1,610 | )            |  |              | 20,781 |   |  |   |  |  |  |   | 25,294 |  
|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  
|Cash at end of period                     |  | $           | 12,185 |              |  | $            | 4,213  |              |  | $            | 22,361 |   |  | $ |  |  |  | $ | 38,759 |  
|                                          |  |             |        |              |  |              |        |              |  |              |        |   |  |   |   |  |  |   |        |  

12. Subsequent Events

Gains Transactions

On January 22, 2003, IPC Information Systems, Inc. reached an agreement
with Gains International (US) Inc. and Gains International (Europe) Limited to
co-market voice and data network services to financial institutions in the
Americas and Europe. On that same date, entities controlled by Goldman Sachs
Capital Partners 2000, or GSCP 2000, and other related funds that own
substantially all of the Companys common stock announced that they had reached
an agreement to purchase Gains International (US) Inc., Gains International
(Europe) Limited and Gains International Asia Holdings Limited. IPC Information
Systems, Inc. also entered into an agreement that grants the Company and IPC
Information Systems, Inc. the option to purchase all of the outstanding shares
of Gains International (US) Inc. and Gains International (Europe) Limited in
December 2003, subject to specified conditions. Both the co-marketing and
option agreements are contingent on the closing of the announced sale to the
entities controlled by GSCP 2000 and other related funds. The Company may
extend loans or a line of credit to Gains International (US) Inc. and Gains
International (Europe) Limited; however, the terms of such agreements have not
been finalized.

19



---



##### Table of Contents






|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

You should read the following discussion of our financial condition and
results of operations with our condensed consolidated financial statements and
related notes included elsewhere in this quarterly report.

Some of the matters discussed in this filing include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions or that include words such as expects,
anticipates, intends, plans, believes, estimates, thinks, and
similar expressions are forward-looking statements. These statements involve
known and unknown risks, uncertainties and other risk factors, including but
not limited to those described in our Registration Statement on Form S-4
(333-82540), that may cause our actual results and performance to be materially
different from any future results or performance expressed or implied by these
forward-looking statements.

Although we believe that these statements are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking statements
are made as of the date of this filing. We assume no obligation to update or
revise them or provide reasons why actual results may differ.

Overview

We are the leader in advanced trading room communications systems known as
turret systems, or dealerboards, based on our installed base of approximately
110,000 institutional trading positions worldwide. Our primary business is the
design, manufacture, installation and service of turret systems for the trading
operations of investment and commercial banks, foreign exchange and commodity
brokers and dealers, market exchanges, mutual and hedge fund companies, asset
managers, and insurance companies. We also install and service the cabling
infrastructure and networks within buildings that connect voice and data
communications devices for traders and others in the global financial, trading
and exchange trading industries.

Our two major operating units are Trading Systems and Information
Transport Systems, or I.T.S. Trading Systems reports (1) sales of turret
systems to distributors and direct sales and installations of turret systems as
Product sales and installation, and (2) revenue from turret system
maintenance, including annual and multi-year service contracts, and from moves,
additions and changes, commonly known as MACs, to existing turret system
installations as Service. I.T.S. reports (1) revenue from design,
integration and implementation of cabling infrastructure projects, including
local and wide area networks, and from sales of intelligent network products,
such as hubs, bridges and routers, as Product sales and installation and (2)
revenue from on-site maintenance of customer cable infrastructures and from the
provision of outsourcing services for the support, expansion and upgrading of
existing customer networks as Service.

Revenue from Trading Systems and I.T.S. sales and installation is
recognized upon completion of the installation, except for revenue from sales
of turret products to distributors, which is recognized upon shipment. Under
contract provisions, customers are progress-billed prior to the completion of
the installation. The revenue related to such advance payments is deferred
until system installation is completed. All costs incurred on uncompleted
contracts are accumulated and recorded as inventory on customer sites awaiting
installation. In addition, contracts for annual recurring turret and I.T.S.
services are generally billed in advance, and are recorded as revenue ratably
(on a monthly basis) over the contractual periods. Revenue from MACs to turret
systems is recognized upon completion, which generally occurs in the same month
or the month following the order for services.

Cost of revenue for Trading Systems and I.T.S. includes material and labor
associated with the installation of a project or the service performed.

Our revenues and operating results could fluctuate significantly from
period to period. Given the relatively large sales price of our trading systems
and our recognition of revenue only upon completion of installations, a limited
number of system installations may account for a substantial portion of
revenues in any particular period. As a result of these and other factors, we
could experience significant fluctuations in revenues and operating results in
future periods. In addition, our customers are concentrated in the global
financial, trading and exchange trading industries and our revenues may decline
during periods of economic downturn that impact those sectors.

Impact of the IPC Information Systems Acquisition

During the period that we were owned by Global Crossing, we provided
services to Global Crossing at cost and Global Crossing performed certain
administrative services on our behalf and allocated a charge for those services
to us. Since December 20, 2001, any services we provide to Global Crossing or
that Global Crossing provides to us have been on an arms-length basis. Since
the acquisition of IPC Information Systems was accounted for as an asset
purchase, the book value of our assets was adjusted to reflect the allocation
of the excess of the purchase price over the net book value of the assets
acquired. As a result, our historical results of operations and financial
condition are not necessarily indicative of our future results of operations or
financial condition. The amounts presented below for the three months ended
December 31, 2001 represent the sum of the amounts

20



---



##### Table of Contents



separately reported for the pre-acquisition period from October
1, 2001 to December 20, 2001 and the post-acquisition period from December 21,
2001 to December 31, 2001.

Recent Events

On January 22, 2003, IPC Information Systems, Inc. reached an agreement
with Gains International (US) Inc. and Gains International (Europe) Limited to
co-market voice and data network services to financial institutions in the
Americas and Europe. On that same date, entities controlled by Goldman Sachs
Capital Partners 2000, or GSCP 2000, and other related funds that own
substantially all of our common stock announced that they had reached an
agreement to purchase Gains International (US) Inc., Gains International
(Europe) Limited and Gains International Asia Holdings Limited. IPC Information
Systems, Inc. also entered into an agreement that grants us and IPC Information
Systems, Inc. the option to purchase all of the outstanding shares of Gains
International (US) Inc. and Gains International (Europe) Limited in December
2003, subject to specified conditions. Both the co-marketing and option
agreements are contingent on the closing of the announced sale to the entities
controlled by GSCP 2000 and other related funds. We may extend loans or a line
of credit to Gains International (US) Inc. and Gains International (Europe)
Limited; however, the terms of such agreements have not been finalized.

Comparison of the Three Months (Q1 2003) Ended December 31, 2002 to the Three
Months (Q1 2002) Ended December 31, 2001.

The following table sets forth, as a percentage of revenue, our condensed
consolidated statements of operations for the periods indicated.

|                                                |                                 |                                   |     |     |      |   |      |    |     |    | 
|----------------------------------------------- | ------------------------------- | --------------------------------- | --- | --- | ---- | - | ---- | -- | --- | -- | 
|                                                |                                 |                                   |     |     | Q1   |   | Q1  
|                                                |                                 |                                   |     |     | 2003 |   | 2002
|                                                |                                 |                                   |     |     |      |   |     
|Revenue:                                        |                                 |                                   |     |     |      |   |      |   
|                                                | Product sales and installations |                                   |     | 49  | %    |   |      | 66 | %  
|                                                | Service                         |                                   |     | 51  | %    |   |      | 34 | %  
|                                                |                                 |                                   |     |     |      |   |      |   
|                                                |                                 |                                   | 100 | %   |      |   | 100  | % 
|                                                |                                 |                                   |     |     |      |   |      |   
|Cost of goods sold (exclusive of depreciation): |                                 |                                   |     |     |      |   |      |   
|                                                | Product sales and installations |                                   |     | 25  | %    |   |      | 43 | %  
|                                                | Service                         |                                   |     | 27  | %    |   |      | 21 | %  
|                                                |                                 |                                   |     |     |      |   |      |   
|                                                |                                 |                                   | 52  | %   |      |   | 64   | % 
|                                                |                                 |                                   |     |     |      |   |      |   
|                                                |                                 | Gross profit                      |     |     | 48   | % |      |    | 36  | % 
|Research and development                        |                                 |                                   | 6   | %   |      |   | 5    | % 
|Selling, general and administrative expense     |                                 |                                   | 18  | %   |      |   | 25   | % 
|Depreciation and amortization                   |                                 |                                   | 10  | %   |      |   | 15   | % 
|                                                |                                 |                                   |     |     |      |   |      |   
|                                                |                                 | Income (loss) from operations     |     |     | 14   | % |      |    | (9  | %)
|Other income (expense):                         |                                 |                                   |     |     |      |   |      |   
|                                                | Interest expense, net           |                                   |     | (13 | %)   |   |      | (9 | %) 
|                                                | Other income, net               |                                   |     | 1   | %    |   |      | 0  | %  
|                                                |                                 |                                   |     |     |      |   |      |   
|                                                |                                 | Income (loss) before income taxes |     |     | 2    | % |      |    | (19 | %)
|Income tax expense (benefit)                    |                                 |                                   | 2   | %   |      |   | (2   | %)
|                                                |                                 |                                   |     |     |      |   |      |   
|Net income (loss)                               |                                 |                                   | 0   | %   |      |   | (17  | %)
|                                                |                                 |                                   |     |     |      |   |      |   

Revenue

The following table sets forth our consolidated revenue and revenue as
reported for our two major operating units.

|                       |                                 |       |   |              |        |        |   |        |        |   |   |         |         |   |  |     |     |   
|---------------------- | ------------------------------- | ----- | - | ------------ | ------ | ------ | - | ------ | ------ | - | - | ------- | ------- | - |  | --- | --- | --
|                       |                                 |       |   | Consolidated
|                       |                                 |       |   |             
|                       |                                 |       |   | Q1           |        | Q1     |   | $      |        | %
|(dollars in thousands) |                                 | 2003  |   | 2002         |        | Change |   | Change
|                       |                                 |       |   |              |        |        |   |       
|Revenue:               |                                 |       |   |              |        |        |   |        |        |   |   |         |         |   |  |    
|                       | Product sales and installations |       | $ | 23,751       |        |        | $ | 48,166 |        |   | $ | (24,415 | )       |   |  | (51 | %) 
|                       | Service                         |       |   | 24,632       |        |        |   | 24,943 |        |   |   | (311    | )       |   |  | (1  | %) 
|                       |                                 |       |   |              |        |        |   |        |        |   |   |         |         |   |  |    
|                       |                                 | Total |   | $            | 48,383 |        |   | $      | 73,109 |   |   | $       | (24,726 | ) |  |     | (34 | %)
|                       |                                 |       |   |              |        |        |   |        |        |   |   |         |         |   |  |    

|         |                                 |       |   |                          |        |      |   |        |        |        |   |         |         |   |  |     |     |   
|-------- | ------------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ------ | ------ | ------ | - | ------- | ------- | - |  | --- | --- | --
|         |                                 |       |   | Trading Systems Division
|         |                                 |       |   |                         
|         |                                 |       |   | Q1                       |        | Q1   |   | $      |        | %     
|         |                                 |       |   | 2003                     |        | 2002 |   | Change |        | Change
|         |                                 |       |   |                          |        |      |   |        |        |       
|Revenue: |                                 |       |   |                          |        |      |   |        |        |        |   |         |         |   |  |    
|         | Product sales and installations |       | $ | 21,009                   |        |      | $ | 37,067 |        |        | $ | (16,058 | )       |   |  | (43 | %) 
|         | Service                         |       |   | 21,516                   |        |      |   | 20,482 |        |        |   | 1,034   |         |   |  | 5   | %  
|         |                                 |       |   |                          |        |      |   |        |        |        |   |         |         |   |  |    
|         |                                 | Total |   | $                        | 42,525 |      |   | $      | 57,549 |        |   | $       | (15,024 | ) |  |     | (26 | %)
|         |                                 |       |   |                          |        |      |   |        |        |        |   |         |         |   |  |    

21



---



##### Table of Contents



|         |                                 |       |   |       |       |      |   |                 |        |        |   |        |        |   |  |     |     |   
|-------- | ------------------------------- | ----- | - | ----- | ----- | ---- | - | --------------- | ------ | ------ | - | ------ | ------ | - |  | --- | --- | --
|         |                                 |       |   |       |       |      |   | I.T.S. Division |        |        |   |       
|         |                                 |       |   |      
|         |                                 |       |   | Q1    |       | Q1   |   | $               |        | %     
|         |                                 |       |   | 2003  |       | 2002 |   | Change          |        | Change
|         |                                 |       |   |       |       |      |   |                 |        |       
|Revenue: |                                 |       |   |       |       |      |   |                 |        |        |   |        |        |   |  |    
|         | Product sales and installations |       | $ | 2,742 |       |      | $ | 11,099          |        |        | $ | (8,357 | )      |   |  | (75 | %) 
|         | Service                         |       |   | 3,116 |       |      |   | 4,461           |        |        |   | (1,345 | )      |   |  | (30 | %) 
|         |                                 |       |   |       |       |      |   |                 |        |        |   |        |        |   |  |    
|         |                                 | Total |   | $     | 5,858 |      |   | $               | 15,560 |        |   | $      | (9,702 | ) |  |     | (62 | %)
|         |                                 |       |   |       |       |      |   |                 |        |        |   |        |        |   |  |    

Consolidated

The decrease in product sales and installation revenue in Q1 2003 from Q1
2002 is primarily due to a higher volume of large installation projects
completed in Q1 2002 as compared to Q1 2003. Service revenue remained flat in
Q1 2003 from Q1 2002, with an increase in Trading Systems service revenue
offsetting a decrease in service revenue for our I.T.S. unit. In addition, Q1
2002 installation and service revenues were higher than installation and
service revenues in Q1 2003, principally due to disaster recovery projects
associated with the events of September 11th, 2001.

The uncertainty from the events of September 11th, 2001, combined with the
overall decline in the global economy, has caused our customers to extend their
planning and implementation cycles. While we expect this downward trend to
continue, there can be no certainty as to the degree or duration of this
downturn. We continue to expect our fiscal year 2003 revenues to be down 7-12%
compared to fiscal year 2002; however, the actual decline in fiscal year 2003
revenues could be greater.

Trading Systems

The decrease in product sales and installation revenue in Q1 2003 from Q1
2002 is primarily due to the higher volume of large installation projects
completed in Q1 2002 for disaster recovery projects resulting from the events
of September 11th, 2001.

The increase in service revenue in Q1 2003 from Q1 2002 is primarily due
to growth in our existing customer base, recovery of revenue lost as a result
of the events of September 11th, 2001, and the purchase of the Hitachi, Ltd.
trading system service base outside of Japan in March 2002.

I.T.S.

The decrease in product sales and installation revenue in Q1 2003 from Q1
2002 is primarily due to three large projects totaling $6.8 million completed
during Q1 2002, while there were no product installation projects of comparable
size completed in Q1 2003. In addition, there was a higher volume of
medium-size projects under $1.0 million completed in Q1 2002 as compared to Q1
2003. We believe the decline in large and medium-size projects was caused by
the general decline in the real estate and construction activities within our
customer base.

The decrease in service revenue in Q1 2003 from Q1 2002 is primarily due
to the additional customer service that was required in Q1 2002 as a result of
the events of September 11th, 2001.

Cost of Revenue

The following table sets forth our consolidated cost of revenue (excluding
depreciation and amortization) and our cost of revenue (excluding depreciation
and amortization) as reported for our two major operating units
(1) (including the
amortization of inventory step-up for Q1 2002, and (2) excluding the
amortization of inventory step-up for Q1 2002 (which is an
alternate presentation of our cost of revenue and is not a financial
measure under Generally Accepted Accounting Principles; we believe
this presentation is frequently
used by securities analysts, investors and other interested parties in
evaluating our cost of revenue).

|                                |       |   |              |        |      |                                               |      |    |      |   |        |        |      |  |      |                                               |      |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |    |   
|------------------------------- | ----- | - | ------------ | ------ | ---- | --------------------------------------------- | ---- | -- | ---- | - | ------ | ------ | ---- |  | ---- | --------------------------------------------- | ---- |  | ---- | --- | ------ | - | ------ | ------ |  |  | -- | -- | - | - | ------ | ------ |  |  | -- | -- | - |  | -- | -- | --
|                                |       |   | Consolidated
|                                |       |  
|                                |       |   | Q1           |        | % of |                                               | Q1   |    | % of |   | %      |        | Q1   |  | % of |                                               | Q1   |  | % of |     | %     
|                                |       |   | 2003         |        | Rev. |                                               | 2002 |    | Rev. |   | Change |        | 2003 |  | Rev. |                                               | 2002 |  | Rev. |     | Change
|                                |       |   |              |        |      |                                               |      |    |      |   |        |        |      |  |      |                                               |      |  |      |     |       
|(dollars in thousands)          |       |   |              |        |      | (including amortization of inventory step-up) |      |    |      |   |        |        |      |  |      | (excluding amortization of inventory step-up) |      |  |      |    
|                                |       |   |              |        |      |                                               |      |    |      |   |        |        |      |  |      |                                               |      |  |      |     |       
|Product sales and installations |       | $ | 12,254       |        |      |                                               | 52   | %  |      | $ | 31,542 |        |      |  | 65   | %                                             |      |  | (13  | %)  |        | $ | 12,254 |        |  |  | 52 | %  |   | $ | 24,755 |        |  |  | 51 | %  |   |  | 1  | % 
|Service                         |       |   | 13,035       |        |      |                                               | 53   | %  |      |   | 15,220 |        |      |  | 61   | %                                             |      |  | (7   | %)  |        |   | 13,035 |        |  |  | 53 | %  |   |   | 14,989 |        |  |  | 60 | %  |   |  | (7 | %)
|                                |       |   |              |        |      |                                               |      |    |      |   |        |        |      |  |      |                                               |      |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   
|                                | Total |   | $            | 25,289 |      |                                               |      | 52 | %    |   | $      | 46,762 |      |  |      | 64                                            | %    |  |      | (12 | %)     |   | $      | 25,289 |  |  |    | 52 | % |   | $      | 39,744 |  |  |    | 54 | % |  |    | (2 | %)
|                                |       |   |              |        |      |                                               |      |    |      |   |        |        |      |  |      |                                               |      |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   

22



---



##### Table of Contents



|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |    |  
|-------------------------------- | ----- | - | ------------------------ | ------ | ---- |  | ---------------------------------------------- | -- | ---- | - | ------ | ------ | ---------------------------------------------- |  | ---- | -- | ---------------------------------------------- |  | ---- | --- | ------ | - | ------ | ------ |  |  | -- | -- | - | - | ------ | ------ |  |  | -- | -- | - |  | -- | -- | -
|                                 |       |   | Trading Systems Division
|                                 |       |   |                         
|                                 |       |   | Q1                       |        | % of |  | Q1                                             |    | % of |   | %      |        | Q1                                             |  | % of |    | Q1                                             |  | % of |     | %     
|                                 |       |   | 2003                     |        | Rev. |  | 2002                                           |    | Rev. |   | Change |        | 2003                                           |  | Rev. |    | 2002                                           |  | Rev. |     | Change
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |       
|                                 |       |   |                          |        |      |  | (including amortization of inventory step-up): |    |      |   |        |        | (excluding amortization of inventory step-up):
|Product
sales and 
installations |       | $ | 9,679                    |        |      |  | 46                                             | %  |      | $ | 21,712 |        |                                                |  | 59   | %  |                                                |  | (13  | %)  |        | $ | 9,679  |        |  |  | 46 | %  |   | $ | 15,553 |        |  |  | 42 | %  |   |  | 4  | % 
|Service                          |       |   | 10,065                   |        |      |  | 47                                             | %  |      |   | 11,238 |        |                                                |  | 55   | %  |                                                |  | (8   | %)  |        |   | 10,065 |        |  |  | 47 | %  |   |   | 11,026 |        |  |  | 54 | %  |   |  | (7 | %)
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   
|                                 | Total |   | $                        | 19,744 |      |  |                                                | 46 | %    |   | $      | 32,950 |                                                |  |      | 57 | %                                              |  |      | (11 | %)     |   | $      | 19,744 |  |  |    | 46 | % |   | $      | 26,579 |  |  |    | 46 | % |  |    | 0  | %
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   
|                                
|                                 |       |   | I.T.S. Division         
|                                
|                                 |       |   |                          |        |      |  |                                                |   
|                                 |       |   | Q1                       |        | % of |  | Q1                                             |    | % of |   | %      |        | Q1                                             |  | % of |    | Q1                                             |  | % of |     | %     
|                                 |       |   | 2003                     |        | Rev. |  | 2002                                           |    | Rev. |   | Change |        | 2003                                           |  | Rev. |    | 2002                                           |  | Rev. |     | Change
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |       
|                                 |       |   |                          |        |      |  | (including amortization of inventory step-up): |    |      |   |        |        |                                                |  |      |    | (excluding amortization of inventory step-up): |  |      |     |       
|Product sales and installations  |       | $ | 2,575                    |        |      |  | 94                                             | %  |      | $ | 9,830  |        |                                                |  | 89   | %  |                                                |  | 5    | %   |        | $ | 2,575  |        |  |  | 94 | %  |   | $ | 9,202  |        |  |  | 83 | %  |   |  | 11 | % 
|Service                          |       |   | 2,970                    |        |      |  | 95                                             | %  |      |   | 3,982  |        |                                                |  | 89   | %  |                                                |  | 6    | %   |        |   | 2,970  |        |  |  | 95 | %  |   |   | 3,963  |        |  |  | 89 | %  |   |  | 6  | % 
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   
|                                 | Total |   | $                        | 5,545  |      |  |                                                | 95 | %    |   | $      | 13,812 |                                                |  |      | 89 | %                                              |  |      | 6   | %      |   | $      | 5,545  |  |  |    | 95 | % |   | $      | 13,165 |  |  |    | 85 | % |  |    | 10 | %
|                                 |       |   |                          |        |      |  |                                                |    |      |   |        |        |                                                |  |      |    |                                                |  |      |     |        |   |        |        |  |  |    |    |   |   |        |        |  |  |    |    |   |  |    |   

Consolidated

Consolidated cost of revenue (including the amortization of inventory
step-up) in Q1 2003 decreased from consolidated cost of revenue in Q1 2002.
This decrease reflects a charge in Q1 2002 resulting from the amortization of
the step-up in inventory of $7.0 million (relating to the IPC Information
Systems Acquisition in December 2001). There was no similar amortization charge
in Q1 2003. The purchase accounting inventory fair-value step-up is a non-cash
GAAP adjustment that is recorded when a company is acquired as we were in Q1
2002.

Consolidated product sales and installation cost of revenue (excluding the
inventory step-up and depreciation and amortization) as a percentage of revenue
was consistent in Q1 2003 as compared to Q1 2002, primarily due to a higher
percentage of Trading System revenue than ITS revenue in Q1 2003 as compared to
Q1 2002. Trading System revenue has a lower cost of revenue than ITS revenue
because of higher margins associated with turret sales.

Consolidated service cost of revenue (excluding the inventory step-up and
depreciation and amortization) as a percentage of revenue decreased in Q1 2003
from Q1 2002, primarily due to an increase in contract maintenance services for
our Trading Systems unit, which have a higher gross profit margin than
non-contract MAC services.

Trading Systems

Trading Systems product sales and installation cost of revenue (excluding
the inventory step-up and depreciation and amortization) as a percentage of
revenue increased in Q1 2003 from Q1 2002 primarily due to a $16.1 million
decrease in product sales and installation revenue in Q1 2003 as compared to Q1
2002, while our fixed product sales and installation costs remained consistent in
both periods.

Trading Systems service cost of revenue (excluding the inventory step-up
and depreciation and amortization) as a percentage of revenue decreased in Q1
2003 from Q1 2002 primarily due to an increase in contract maintenance
services, which have a higher gross profit margin than non-contract MAC
services.

I.T.S.

I.T.S. product sales and installation cost of revenue (excluding the
inventory step-up and depreciation and amortization) as a percentage of revenue
increased in Q1 2003 from Q1 2002, primarily due to an $8.4 million decrease in
revenue in Q1 2003 as compared to Q1 2002 while our fixed product and
installation costs remained consistent in both periods.

I.T.S. service cost of revenue (excluding the inventory step-up and
depreciation and amortization) as a percentage of revenue increased in Q1 2003
from Q1 2002 primarily due to the general decline in the real estate and
construction activities within our customer base.

23



---



##### Table of Contents

\

Research and Development Expense

|                         |  |              |       |      |  |        |       |        |  |   |        |   |  |  |     |   
|------------------------ |  | ------------ | ----- | ---- |  | ------ | ----- | ------ |  | - | ------ | - |  |  | --- | --
|                         |  | Consolidated
|                         |  |             
|                         |  | Q1           |       | Q1   |  | $      |       | %     
|(dollars in thousands)   |  | 2003         |       | 2002 |  | Change |       | Change
|                         |  |              |       |      |  |        |       |       
|Research and development |  | $            | 2,735 |      |  | $      | 3,825 |        |  | $ | (1,090 | ) |  |  | (29 | %)

Research and development efforts are focused on the next generation of the
Trading Systems products, applications, and enhancements of our current product
lines. Research and development expenses decreased in Q1 2003 from Q1 2002, due
primarily to planned reductions of both headcount and discretionary spending.

Selling, General and Administrative Expense

|                                          |  |              |       |      |  |        |        |        |  |   |        |   |  |  |     |   
|----------------------------------------- |  | ------------ | ----- | ---- |  | ------ | ------ | ------ |  | - | ------ | - |  |  | --- | --
|                                          |  | Consolidated
|                                          |  |             
|                                          |  | Q1           |       | Q1   |  | $      |        | %     
|(dollars in thousands)                    |  | 2003         |       | 2002 |  | Change |        | Change
|                                          |  |              |       |      |  |        |        |       
|Selling,
general & administrative
expense |  | $            | 8,730 |      |  | $      | 18,169 |        |  | $ | (9,439 | ) |  |  | (52 | %)

Selling, general and administrative expenses decreased in Q1 2003 from Q1
2002, as the 2002 period included $2.5 million of employee bonuses related to
the IPC Information Systems Acquisition and a $6.9 million charge for corporate
related services from Global Crossing.

Depreciation and Amortization

|                              |  |              |       |      |  |        |        |        |  |   |        |   |  |  |     |   
|----------------------------- |  | ------------ | ----- | ---- |  | ------ | ------ | ------ |  | - | ------ | - |  |  | --- | --
|                              |  | Consolidated
|                              |  |             
|                              |  | Q1           |       | Q1   |  | $      |        | %     
|(dollars in thousands)        |  | 2003         |       | 2002 |  | Change |        | Change
|                              |  |              |       |      |  |        |        |       
|Depreciation and
amortization |  | $            | 5,028 |      |  | $      | 11,292 |        |  | $ | (6,264 | ) |  |  | (55 | %)

The decrease in depreciation and amortization in Q1 2003 from Q1 2002 is
primarily due to the adoption of SFAS No.142 on November 15, 2001 (the date of
initial capitalization), in which goodwill and indefinite lived intangible
assets are no longer subject to periodic amortization, as well as a change in
the carrying amount of amortizable intangible assets resulting from the IPC
Information Systems Acquisition.

Interest Expense, net

|                       |  |              |       |      |  |        |       |        |  |   |      |   |  |  |    |   
|---------------------- |  | ------------ | ----- | ---- |  | ------ | ----- | ------ |  | - | ---- | - |  |  | -- | --
|                       |  | Consolidated
|                       |  |             
|                       |  | Q1           |       | Q1   |  | $      |       | %     
|(dollars in thousands) |  | 2003         |       | 2002 |  | Change |       | Change
|                       |  |              |       |      |  |        |       |       
|Interest expense, net  |  | $            | 6,205 |      |  | $      | 6,836 |        |  | $ | (631 | ) |  |  | (9 | %)

The decrease in interest expense, net in Q1 2003 from Q1 2002 is primarily
due to the fact that interest charged on our outstanding senior subordinated
notes and indebtedness under our senior secured credit facilities is lower than
the amounts charged by Global Crossing for cash funding of our operations.

Provision for Income Taxes

Our effective tax rate for Q1 2003 was 121.9% compared to 9.4% for Q1
2002. The comparability of these periods is significantly impacted by the IPC
Information Systems Acquisition and reflects the tax impact of the purchase
accounting for the IPC Information Systems Acquisition. Our effective tax rate reflects our federal and state taxes,
non-deductibility of our foreign losses for federal tax purposes and the
non-deductibility of certain expenses which, combined with the lower absolute
amount of pre-tax income for Q1 2003 as compared to the absolute amount of
pre-tax loss for Q1 2002, generates a more significant impact on our effective
tax rate in Q1 2003 than Q1 2002.

Liquidity and Capital Resources

Cash provided by operating activities was $16.0 million for Q1 2003 as
compared to $14.8 million for Q1 2002. This increase of $1.2 million
principally reflects a narrower net loss in Q1 2003 as compared to Q1 2002,
combined with the reduction

24



---



##### Table of Contents



of accounts receivable through improved
collections. This increase was partially offset by an increase in inventory in
Q1 2003 combined with decreased levels of accounts payable and accrued
expenses.

Cash used in investing activities was $1.0 million for Q1 2003 as compared
to $351.6 million for Q1 2002. Cash used in investing activities for Q1 2003
related exclusively to capital expenditures. Cash used in investing activities
for Q1 2002 related almost exclusively to cash used to fund the IPC Information
Systems Acquisition.

Cash used in financing activities was $1.7 million for Q1 2003 as compared
to cash provided by financing activities of $359.8 million for Q1 2002. Cash
used in financing activities in Q1 2003 represented repayment of principal as
required under the terms of our senior secured credit facilities. Cash provided
by financing activities in Q1 2002 included $140 million of common equity
contribution from a group led by GSCP 2000 and its affiliates, the proceeds
from the sale of $150 million of senior subordinated notes, and the borrowing
of $105 million under our senior secured credit facilities. These inflows were
partially offset by outflows of $15.1 million of intercompany activity that
occurred prior to the IPC Information Systems Acquisition and issuance costs
for the financing of the IPC Information Systems Acquisition.

The effect of exchange rate changes on cash represents increases and
decreases in various currencies when translated into US dollars. As an
international company, we are subjected to currency fluctuation risk, which
resulted in a net increase of cash of approximately $0.1 million in Q1 2003 as
compared to a decrease of $1.7 million in Q1 2002. Currently our largest
currency exposure is to the British Pound. The recent appreciation of the
British Pound against the US Dollar is largely responsible for the Q1 2003
effect of exchange rate changes on cash.

We expect that our capital expenditures for fiscal year 2003 will be
approximately $6.0 million; however, we cannot give any assurance that actual
capital expenditures may not be greater. We expect that capital expenditures
will be comparable in the next few years. We have no off balance sheet
arrangements or other relationships with unconsolidated affiliates.

Our primary future uses of cash will be to fund interest expense and
principal repayments on our debt, capital expenditures, research and
development efforts and working capital and as needed for potential strategic
acquisitions and/or alliances. Our primary future sources of cash will be cash
flows from operations and, if necessary, borrowings under the revolving credit
facility. At December 31, 2002, we had $38.8 million of unrestricted cash and
$7.3 million of restricted cash remaining from the $20.8 million deferred
purchase price obligation to Global Crossing. The restricted cash balance
relates to the deferred purchase obligation under the purchase agreement. While
we structured the purchase agreement so that we retain ownership of the
deposited funds, there can be no assurance that a contrary position will not be
taken in Global Crossings bankruptcy case. As of December 31, 2002, we have
paid approximately $13.5 million of the contingent liabilities related to the
deferred purchase obligation. Additionally, we had liquidity available to us of
$10.7 million through the $15 million revolving credit facility under our
senior secured credit facilities under which there were no amounts outstanding
at December 31, 2002. ($15 million revolving credit facility reduced by
outstanding letters of credit of $4.3 million at December 31, 2002).

Our ability to make payments on our indebtedness, including the senior
subordinated notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future,
which is subject, in part, to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.

We believe our cash flow from operations, available cash and available
borrowings under our revolving credit facility will be adequate to meet our
current and long-term liquidity needs. We cannot assure you, however, that our
business will generate sufficient cash flow from operations or that future
borrowings will be available to us under the revolving credit facility in an
amount sufficient to enable us to pay our indebtedness, including the senior
subordinated notes, or to fund our other liquidity needs. Although there are no
ratings triggers in our senior secured and unsecured financing agreements, we
may need to refinance all or a portion of our indebtedness, including the
senior subordinated notes, on or before maturity. We cannot assure you that we
will be able to refinance any of our indebtedness, including the senior
subordinated notes, on commercially reasonable terms, or at all.

We have received notices
of taxes due from various jurisdictions related to Federal and state payroll taxes, state
income taxes, state sales taxes, VAT, and income taxes in several foreign countries. These notices
are for periods prior to the IPC Information Systems Acquisition. Under the purchase agreement,
Global Crossing is responsible for payment of those taxes. Since Global Crossing is now under
bankruptcy protection, the bankruptcy court must approve any such tax payments by Global Crossing
for periods prior to the commencement of Global Crossings bankruptcy case. If the bankruptcy
court does not approve Global Crossings payment of all amounts that are due with respect to these taxes,
these jurisdictions may proceed against the Company for these amounts. Furthermore, if the purchase
agreement is rejected by Global Crossing in the bankruptcy proceeding (which rejection the Company is
contesting), Global Crossing may avoid its obligations to pay the taxes and to indemnify us for payment
of the taxes. Through January 31, 2003, the aggregate amount of taxes for which we have received notices
is approximately $6.5 million and such amount is accrued in our consolidated balance sheet. The ultimate
settlement of these liabilities may be for amounts which are
different from the amounts presently recorded.

Additionally, certain tax
returns for periods prior to the IPC Information
Systems Acquisition are not yet due and have yet to be filed by Global Crossing
pursuant to the purchase agreement. Global Crossing has informed us that as a
result of its rejection of the purchase agreement, it may not include IPC
Information Systems, Inc. and its subsidiaries in such tax returns. If the
purchase agreement is rejected, and unless otherwise required or
permitted by law, Global
Crossing will no longer be obligated to include IPC Information Systems, Inc.
and its subsidiaries in certain of Global Crossings tax returns for periods
prior to the IPC Information Systems Acquisition, and as a result, IPC
Information Systems, Inc. may be required to pay certain taxes which we
estimate could be in the range of $0 to $36 million. These taxes could have a
material adverse effect on our financial condition and results of operations,
and could require us to seek financing to pay any additional pre-acquisition
tax liabilities.

25



---



##### Table of Contents



Contractual Obligations and Other
Commercial Commitments

The following summarizes our contractual obligations at December 31, 2002,
and the effect such obligations are expected to have on our liquidity and cash
flow in future periods.

|                                          |                                    |                        |                                            |         |           |       |           |       |     |               |        |        |  |   |        |        |  |   |         |         | 
|----------------------------------------- | ---------------------------------- | ---------------------- | ------------------------------------------ | ------- | --------- | ----- | --------- | ----- | --- | ------------- | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|(dollars in thousands)                    |                                    | Payments Due by Period
|                                          |                                    |                       
|                                          |                                    |                        |                                            |         |           |       | Less than |       | 1-3 |               | 4-5    |        |  |   |       
|Contractual Obligations:                  |                                    | Total                  |                                            | 1 year  |           | years |           | years |     | After 5 years
|                                          |                                    |                        |                                            |         |           |       |           |       |     |              
|Deferred Compensation Agreements          |                                    | $                      | 5,509                                      |         |           | $     | 540       |       |     | $             | 970    |        |  | $ | 1,011  |        |  | $ | 2,988   |        
|Long-Term Debt                            |                                    |                        | 219,360                                    |         |           |       | 5,476     |       |     |               | 14,602 |        |  |   | 49,282 |        |  |   | 150,000 |        
|Operating Leases                          |                                    |                        | 26,313                                     |         |           |       | 3,805     |       |     |               | 8,205  |        |  |   | 6,302  |        |  |   | 8,001   |        
|                                          |                                    |                        |                                            |         |           |       |           |       |     |               |        |        |  |   |        |        |  |   |         |        
|                                          | Total Contractual Cash Obligations |                        | $                                          | 251,182 |           |       | $         | 9,821 |     |               | $      | 23,777 |  |   | $      | 56,595 |  |   | $       | 160,989 | 
|                                          |                                    |                        |                                            |         |           |       |           |       |     |               |        |        |  |   |        |        |  |   |         |        
|                                         
|                                          |                                    |                        | Amount of Commitment Expiration Per Period
|                                          |                                    |                        |                                           
|                                          |                                    |                        | Total Amounts                              |         | Less than |       | 1-3       |       | 4-5 |               |        |        | 
|Other Commercial Commitments:             |                                    | Committed              |                                            | 1 year  |           | years |           | years |     | Over 5 years 
|                                          |                                    |                        |                                            |         |           |       |           |       |     |              
|Line of Credit                            |                                    | $                      |                                           |         |           | $     |          |       |     | $             |       |        |  | $ |       |        |  | $ |        |        
|Standby Letters of Credit                 |                                    |                        | 4,250                                      |         |           |       | 4,250     |       |     |               |       |        |  |   |       |        |  |   |        |        
|Guaranties for Global Crossing Affiliates |                                    |                        | 7,613                                      |         |           |       | 3,496     |       |     |               | 4,117  |        |  |   |       |        |  |   |        |        
|                                          |                                    |                        |                                            |         |           |       |           |       |     |               |        |        |  |   |        |        |  |   |         |        
|                                          | Total Commercial Commitments       |                        | $                                          | 11,863  |           |       | $         | 7,746 |     |               | $      | 4,117  |  |   | $      |       |  |   | $       |        | 
|                                          |                                    |                        |                                            |         |           |       |           |       |     |               |        |        |  |   |        |        |  |   |         |        

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No.143, Accounting for Asset
Retirement Obligations, which requires entities to record the fair value of
the estimated liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes an amount equal to the present value of the estimated liability by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized
cost is depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. SFAS 143 is effective for
fiscal years beginning after June 15, 2002, with earlier application
encouraged. We adopted SFAS 143 on October 1, 2002. The adoption of this
standard did not have a material impact on our condensed consolidated financial
statements.

In August 2001, the FASB issued SFAS No.144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No.144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS 121, Accounting for Impairment of Long Lived
Assets and the accounting and reporting provisions of APB Opinion No.30,
Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary and Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). This statement was adopted by us on
October 1, 2002. The adoption of this standard did not have a material impact
on our condensed consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 eliminates the requirement under SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, to report gains and losses from
extinguishments of debt as extraordinary items in the income statement.
Accordingly, gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 shall not be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30). Upon adoption of this pronouncement, any gain or loss on
extinguishment of debt previously classified as an extraordinary item in prior
periods that does not meet the criteria of Opinion 30 for such classification
should be reclassified to conform with the provisions of SFAS 145. This
statement was adopted by us on October 1, 2002. The adoption of this standard
did not have a material impact on our condensed consolidated financial
statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) (EITF No. 94-3). SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred, whereas EITF No. 94-3 had recognized the liability at
the commitment date to an exit plan. We are required to adopt the provisions
of SFAS 146 effective for exit or

26



---



##### Table of Contents



disposal activities initiated after December
31, 2002. This statement was adopted by us on December 31, 2002. The adoption
of this standard did not have a material impact on our condensed consolidated
financial statements.

In November 2002, the EITF reached a consensus on Issue 00-21,
Multiple-Deliverable Revenue Arrangements. EITF 00-21
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services, and/or rights to use assets. The
consensus mandates how to identify whether goods or services or both which are
to be delivered separately in a bundled sales arrangement should be accounted
for separately because they are separate units of accounting. The guidance
can affect the timing of revenue recognition for such arrangements, even though
it does not change rules governing the timing or pattern of revenue recognition
of individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted
to apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, Accounting Changes. We are assessing, but at this point do not believe
the adoption of EITF 00-21 will have a material impact on our condensed
consolidated financial statements.

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on disclosures to be made by a guarantor
in its interim and annual financial statements with regard to its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
disclosure requirements of FIN 45 are effective for interim and annual periods
ending after December 15, 2002, and we have adopted those requirements for our
financial statements included in this Form 10-Q. The initial recognition and
initial measurement requirements of FIN 45 are effective prospectively for
guarantees issued or modified after December 31, 2002. The adoption of the
recognition and initial measurement requirements of FIN 45 is not expected to
have a material impact on our condensed consolidated financial statements.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure. SFAS 148 amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, and
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS
148 also amends the disclosure requirements of SFAS 123 to require more
prominent and frequent disclosures in financial statements about the effects of
stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for financial statements issued for fiscal
years ending after December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of SFAS 148 is not
expected to have a material impact on our condensed consolidated financial
statements.

Summary of Critical Accounting Policies

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we continually evaluate our estimates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
condensed consolidated
financial statements.

Revenue Recognition

Revenue from product sales and installation is recognized upon completion
of the installation, except for revenue from sales of turret products to
distributors, which is recognized upon shipment. Under contract provisions,
customers are progress-billed prior to the completion of the installation. The
revenue related to such advance payments is deferred until system installation
is completed. All costs incurred on uncompleted contracts are accumulated and
recorded as inventory awaiting installation. In addition, contracts for annual
recurring turret and I.T.S. services are generally billed in advance, and are
recorded as revenue ratably (on a monthly basis) over the contractual periods.
Revenue from moves, additions and changes, or MACs to turret systems is
recognized upon completion, which generally occurs in the same month or the
month following the order for services.

27



---



##### Table of Contents



Inventories

Inventories are stated at the lower of FIFO (first in, first out) cost or
market but not in excess of net realizable value. Inventory costs include all
direct manufacturing costs and applied overhead. Allowances are established
based on managements estimate of inventory on hand that is potentially
obsolete or for which its market value is below cost.

Impairment of Long-Lived Assets

We review long-lived assets, including property, plant and equipment and
intangible assets, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the assets and its
eventual disposition is less than its carrying amount. Impairment, if any, is
assessed using discounted cash flows. No impairments have occurred.

Income Taxes

In accordance with SFAS No.109, Accounting for Income Taxes, we
recognize deferred income taxes for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount that is more likely than not to be
realized. The provision for income taxes is the tax payable for the period and
the change during the period in deferred tax assets and liabilities. Although
realization is not assured, management believes it is more likely than not that
the recorded deferred tax assets will be realized. Additionally, deferred tax
liabilities are regularly reviewed to confirm that the amounts recorded are
appropriately stated. All such evaluations require significant management
judgments.

For periods prior to the acquisition of IPC Information Systems, we had
filed a consolidated federal tax return and separate and combined state tax
returns with our parent. For purposes of the accompanying combined financial
statements for the period October 1, 2001 to December 20, 2001, income taxes
have been prepared in accordance with SFAS No.109, Accounting for Income
Taxes and SEC Staff Accounting Bulletin Topic 1B, Allocation of Expenses and
Related Disclosure in Financial Statements of Subsidiaries, utilizing the
separate return method. Resulting payables for taxes have been recorded as
adjustments to the intercompany accounts. For periods subsequent to December
20, 2001, we are required to file separate stand-alone tax returns.

Other Matters

We do not have any off balance sheet financial arrangements.




Item 3. Quantitative and Qualitative Disclosure About Market Risk

Market risks relating to our operations result primarily from changes in
interest rates and changes in foreign exchange rates. We monitor our interest
rate and foreign exchange rate exposures on an ongoing basis. We have not
entered into any interest rate hedging contracts.

The following table provides information about our financial instruments
that are sensitive to changes in interest rates. For debt obligations, the
table presents principal cash flows and related weighted average interest rates
by expected maturity dates. The fair value of our long-term debt is shown
below. Due to current economic conditions, the fair value of our senior
subordinated notes and our senior secured credit facilities are below their
carrying amounts. Although there were reductions in the prime and LIBOR
interest rates in the period from issuance on December 20, 2001 to December 31,
2002, they did not affect the interest rate on our senior secured credit
facilities.

|                      |                |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |   |       | 
|--------------------- | -------------- | ----------------------------------------------------------------------- |  | ----------- | ----- | ---- |  | ---- | --- | ---- |  | ---- | --- | ------------------------- |  | ----- | --- |  |  | - | ---- |  |  | - | ---- |  |  | - | ----- |  |  | - | ----- | 
|                      |                |                                                                         |  | Fair Value  |       |      |  |      |     |      |  |      |     | Future Principal Payments |  |       |     |  |  |   |      | 
|                      |                |                                                                         |  | on December |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      | 
|(dollars in millions) |                | 31, 2002                                                                |  | 2003        |       | 2004 |  | 2005 |     | 2006 |  | 2007 |     | Thereafter                |  | Total
|                      |                |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |      
|Long-Term Debt:       |                |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |  
|                      | Fixed Rate:    |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |   |      
|                      |                | Senior
Subordinated Notes, interest payable at 11.50%, maturing 2009    |  | $           | 128.3 |      |  | $    |    |      |  | $    |    |                           |  | $     |    |  |  | $ |     |  |  | $ |     |  |  | $ | 150.0 |  |  | $ | 150.0 | 
|                      |                |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |  
|                      | Variable Rate: |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |   |      
|                      |                | Senior Secured
Credit Facilities Term Loan (7.50% at December 31, 2002) |  | $           | 68.7  |      |  | $    | 5.5 |      |  | $    | 7.3 |                           |  | $     | 7.3 |  |  | $ | 37.4 |  |  | $ | 11.9 |  |  | $ |      |  |  | $ | 69.4  | 
|                      |                |                                                                         |  |             |       |      |  |      |     |      |  |      |     |                           |  |       |     |  |  |   |      |  |  |   |      |  |  |   |       |  |  |  

28



---



##### Table of Contents






Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in the Companys Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified by the SEC and that such information is accumulated and communicated
to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and
procedures, the Companys management recognized that any controls and
procedures, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives and the
Companys management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

Within 90 days preceding the filing date of this report, the Company
performed an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures as defined in Exchange Act Rule 13a-14 and
15d-14. The evaluation was performed under the supervision and with the
participation of the Companys management, including the Companys Chief
Executive Officer and Chief Financial Officer. Based upon the evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective in ensuring that
material information relating to the Company (including its consolidated
subsidiaries) was made known to them by others within the Companys
consolidated group during the period in which this report was being prepared
and that the information required to be included in the report has been
recorded, processed, summarized and reported on a timely basis.

There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect these controls subsequent
to the date the Company completed its evaluation.

29



---



##### Table of Contents






Part II  Other Information:




Item 1. Legal Proceedings

Except as described below and with respect to proceedings in the Global
Crossing bankruptcy, we are not a party to any pending legal proceedings other
than claims and lawsuits arising in the ordinary course of business. We believe
these proceedings will not have a material adverse effect on our consolidated
financial condition or results of operations.

On June 27, 2000, an action was brought against several defendants,
including IPC Communications, Inc., in the United States District Court for the
Southern District of New York by two telecommunications cabling contractors
alleging that IPC Communications, Inc. violated federal antitrust and New York
state law by conspiring with the International Brotherhood of Electrical
Workers Local Union Number 3, AFL-CIO, and five electrical contractors, to
exclude plaintiffs from telecommunications wiring and systems installation jobs
in the New York City metropolitan area. Subsequently, the complaint was amended
to add an additional plaintiff and an additional defendant contractor. We
believe the suit is without merit. However, there can be no assurance that the
resolution of this lawsuit will ultimately be favorable. Plaintiffs are seeking
injunctive relief and damages from the defendants, jointly and severally, in
excess of an aggregate of $75 million.




|        |  |                                               
|------- |  | ----------------------------------------------
|Item 2. |  | Changes in Securities and Use of Proceeds
None




|        |  |                                     
|------- |  | ------------------------------------
|Item 3. |  | Defaults Upon Senior Securities
None




|        |  |                                                         
|------- |  | --------------------------------------------------------
|Item 4. |  | Submission of Matters to a Vote of Security Holders
None




|        |  |                       
|------- |  | ----------------------
|Item 5. |  | Other Information
None




|        |  |                                 
|------- |  | --------------------------------
|Item 6. |  | Exhibits and Reports on Form 8-K

| |  |      |  |                                                                                                                                                 
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (A)  |  | EXHIBITS                                                                                                                                        
| |  | 99.1 |  | Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |      |  |                                                                                                                                                 
| |  | 99.2 |  | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| |  |      |  |                                                                                                                                                 
| |  | (B)  |  | REPORTS ON FORM
8-K
The Company has filed no reports on Form 8-K during the quarter ended December 31, 2002.                                    

30



---



##### Table of Contents






SIGNATURE

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.



|                         | IPC Acquisition Corp.
|------------------------ | ---------------------
|                         |                      
|Dated: February 14, 2003 | By:                  
|                         |                      
|                         |                      

31



---



##### Table of Contents






Certifications

I, Greg Kenepp, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IPC Acquisition Corp.;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                                                    
|----------------------- |  | ---------------------------------------------------
|Date: February 14, 2003 |  | /s/ GREG KENEPP

Greg Kenepp
President and Director

32



---



##### Table of Contents



I, Timothy Whelan, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of IPC Acquisition
Corp.;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     

|
|
|
|
|
|
|



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |  |  |                                                          
|----------------------- |  |  |  | ---------------------------------------------------------
|Date: February 14, 2003 |  |  |  | /s/ TIMOTHY WHELAN
Timothy Whelan
Chief Financial Officer

33