UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~[x]~~þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~December 3031, 2004

[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 x 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 x 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 ~~July~~January 31, ~~2004~~2005
Common Stock, par value $0.01		14,718,592 shares

IPC ACQUISITION CORP.

INDEX

	Page
Part I. Financial Information:
Item 1. Financial Statements
A) Condensed Consolidated Balance Sheets as of June 30, 2004 and September 30, 2003		1
A) Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004		2
B) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2004 and 2003		2
B) Consolidated Statements of Operations for the Three Months Ended December 31, 2004 and 2003		3
C) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2004 and 2003		3
C) Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2004 and 2003		4
D) Notes to Condensed Consolidated Financial Statements		4
D) Notes to Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2122
Item 3. Quantitative and Qualitative Disclosure About Market Risk		3534
Item 4. Controls and Procedures		3534
Part II. Other Information:
Item 1. Legal Proceedings		3635
Item 2. Changes in Securities and Use of Proceeds		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 3. Defaults Upon Senior Securities		36
Item 4. Submission of Matters to a Vote of Security Holders		36
Item 5. Other Information		36
Item 6. Exhibits and Reports on Form 8-K		36
Item 6. Exhibits		36
Signature		3837
EX 10.18: AMENDED & RESTATED LABOR POOLING AGREEMENT
EX-31.1: CERTIFICATION
EX 10.19: AMENDED & RESTATED LABOR POOLING AGREEMENT
EX-31.2: CERTIFICATION
EX 10.20: EMPLOYMENT AGREEMENT
EX-32.1: CERTIFICATION
EX 31.1: CERTIFICATE
EX-32.2: CERTIFICATION
EX 31.2: CERTIFICATE
EX 32.1: CERTIFICATE
EX 32.2: CERTIFICATE

Part I —– Financial Information:

Item 1. Financial Statements

IPC ACQUISITION CORP.

~~CONDENSED~~ CONSOLIDATED BALANCE SHEETS ~~(In Thousands Except Share Amounts) (Unaudited)~~

	June 30,			September 30,
	2004			2003
Assets
Assets:
Cash	$	17,403		$	25,800
Accounts receivable, net of allowance of $1,400 and $732, respectively		42,180			40,409
Inventories, net		25,054			22,728
Prepaid and other current assets		4,029			5,427
Current assets of discontinued operations		9,918			27,556
Total current assets		98,584			121,920
Property, plant and equipment, net		24,142			23,851
Goodwill		89,746			82,108
Intangible assets, net		196,394			197,930
Deferred financing costs, net		12,909			14,146
Other assets		1,095			1,221
Non-current assets of discontinued operations		287			3,734
Total assets	$	423,157		$	444,910
Liabilities and Stockholders’ Equity
Liabilities:
Current portion of long term debt	$	550		$	550
Accounts payable		6,169			2,753
Accrued expenses and other current liabilities		25,286			27,023
Income taxes payable		2,538			4,208
Customer advances on installation contracts		18,453			16,754
Deferred revenue on maintenance contracts		14,248			13,095
Current portion of guarantees on former parent obligations		1,353			1,353
Deferred purchase consideration		—			6,722
Current liabilities of discontinued operations		1,794			3,820
Total current liabilities		70,391			76,278
Term loan		54,175			54,450
Senior subordinated notes		150,000			150,000
Deferred taxes, net		13,324			12,182
Deferred compensation		2,874			2,936
Guarantees on former parent obligations and other long-term liabilities		208			1,885
Total liabilities		290,972			297,731
Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.01 par value, (25,000,000 shares authorized; 14,718,592 shares issued and outstanding at June 30, 2004; 14,724,380 shares issued and outstanding at September 30, 2003)		147			147
Paid in capital		145,796			145,846
Notes receivable for purchases of common stock		(275	)		(393	)
Accumulated deficit		(23,358	)		(5,161	)
Accumulated other comprehensive income		9,875			6,740
Total stockholders’ equity		132,185			147,179
Total liabilities and stockholders’ equity	$	423,157		$	444,910

(In Thousands Except Share Amounts)

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


	December 31,			September 30,
	2004			2004
	(Unaudited)
Assets
Assets:
Cash	$	8,737		$	27,270
Accounts receivable, net of allowance of $1,605 and $1,264, respectively		55,214			57,259
Inventories, net		42,312			31,176
Due from former affiliate		4,986			7,117
Prepaid and other current assets		4,256			4,041
Deferred taxes		13,751			13,132
Current assets of discontinued operations		145			2,548

Total current assets		129,401			142,543

Property, plant and equipment, net		24,648			24,846
Customer relationships, net		147,701			147,939
Technology, net		26,007			27,692
Trade name		16,300			16,300
Goodwill		92,260			82,621
Deferred financing costs, net		11,866			12,283
Other assets		1,252			1,035
Non-current assets of discontinued operations		40			40

Total assets	$	449,475		$	455,299


Liabilities and Stockholders’ Equity
Liabilities:
Current portion of long term debt	$	483		$	2,157
Accounts payable		6,641			14,594
Accrued expenses and other current liabilities		24,402			35,984
Income taxes payable		7,888			9,147
Customer advances on installation contracts		30,177			21,984
Deferred revenue on maintenance contracts		14,628			14,007
Current portion of guarantees on former parent obligations		—			155
Current liabilities of discontinued operations		668			639

Total current liabilities		84,887			98,667

Term loan		47,239			47,293
Senior subordinated notes		150,000			150,000
Deferred purchase consideration		3,000			—
Deferred taxes		25,212			23,150
Deferred compensation		2,673			2,686
Guarantees on former parent obligations and other long-term liabilities		260			260

Total liabilities		313,271			322,056


Commitments and Contingencies

Stockholders’ equity:
Common stock, $0.01 par value, (25,000,000 shares authorized; 14,718,592 shares issued and outstanding at December 31, 2004 and September 30, 2004)		147			147
Paid in capital		146,759			146,479
Notes receivable for purchases of common stock		(278	)		(276	)
Deferred stock compensation		(871	)		(645	)
Accumulated deficit		(21,441	)		(21,672	)
Accumulated other comprehensive income		11,888			9,210

Total stockholders’ equity		136,204			133,243

Total liabilities and stockholders’ equity	$	449,475		$	455,299

1The accompanying notes are an integral part of the consolidated financial statements.

IPC ACQUISITION CORP.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF OPERATIONS ~~(Unaudited) (In Thousands)~~

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Revenue:
Product sales and installations	$	21,527		$	18,157		$	75,228		$	63,068
Service		38,786			26,349			107,603			69,056
		60,313			44,506			182,831			132,124
Cost of goods sold (depreciation shown separately):
Product sales and installations		10,423			10,123			35,595			30,937
Service		19,101			12,577			53,082			32,060
Depreciation and amortization		1,029			556			2,739			1,152
		30,553			23,256			91,416			64,149
Gross profit		29,760			21,250			91,415			67,975
Research and development		3,809			2,784			10,817			8,447
Selling, general and administrative		13,556			10,883			41,229			29,225
Depreciation and amortization		5,535			4,678			15,970			14,087
Income from operations		6,860			2,905			23,399			16,216
Other income (expense):
Interest expense, net		(5,391	)		(6,008	)		(16,727	)		(18,690	)
Other income, net		223			2,012			530			3,339
Income (loss) from continuing operations before income taxes		1,692			(1,091	)		7,202			865
Income tax (benefit) expense		(368	)		303			3,821			2,655
Income (loss) from continuing operations		2,060			(1,394	)		3,381			(1,790	)
Discontinued operations (Note 3):
Income (loss) from operations of I.T.S. division (including loss on disposal of $4,110 for the 2004 periods)		(6,095	)		763			(6,375	)		17
Income tax (benefit) expense		(2,761	)		336			(2,761	)		7
Income (loss) on discontinued operations		(3,334	)		427			(3,614	)		10
Net loss	$	(1,274	)	$	(967	)	$	(233	)	$	(1,780	)

(In Thousands) (Unaudited)

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


	Three Months Ended
	December 31,
	2004			2003
Revenue:
Product sales and installations	$	22,470		$	21,458
Service		43,455			31,236

		65,925			52,694


Cost of goods sold (depreciation shown separately):
Product sales and installations		12,414			11,138
Service		21,240			15,541
Depreciation and amortization		1,082			742

		34,736			27,421


Gross profit		31,189			25,273

Research and development		4,031			3,409
Selling, general and administrative		17,133			12,924
Depreciation and amortization		1,479			1,331
Amortization of intangibles		4,021			3,776

Income from operations		4,525			3,833

Other income (expense):
Interest expense, net		(5,629	)		(5,522	)
Other income, net		1,405			447

Income (loss) from continuing operations before income taxes		301			(1,242	)

Income tax expense		127			372

Income (loss) from continuing operations		174			(1,614	)

Discontinued operations (Note 3):
Income (loss) from discontinued operations		100			(265	)
Income tax expense (benefit)		43			(115	)

Income (loss) from discontinued operations, net of tax		57			(150	)


Net income (loss)	$	231		$	(1,764	)

2The accompanying notes are an integral part of the consolidated financial statements.

IPC ACQUISITION CORP.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS ~~(Unaudited) (In Thousands)~~

	Nine Months Ended
	June 30,
	2004			2003
Cash flows from operating activities:
Net loss	$	(233	)	$	(1,780	)
Income (loss) from discontinued operations		(3,614	)		10
Income (loss) from continuing operations		3,381			(1,790	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization		6,859			4,521
Amortization of intangibles		11,850			10,718
Amortization of deferred financing costs		1,462			2,016
Provision for (reversal of) doubtful accounts		(231	)		118
Deferred income taxes		(530	)		(2,533	)
Amortization of guarantees on former parent obligations		(1,015	)		(338	)
Changes in operating assets and liabilities:
Accounts receivable		2,878			6,331
Inventories		(2,042	)		(10,525	)
Prepaids and other current assets		1,830			(1,598	)
Other assets		145			36
Accounts payable, accrued expenses and other liabilities		(556	)		(9,719	)
Income taxes payable		(2,513	)		1,305
Customer advances and deferred revenue		2,302			20,362
Net cash provided by continuing operations		23,820			18,904
Net cash provided by (used in) discontinued operations		15,445			(7,791	)
Net cash provided by operating activities		39,265			11,113
Cash flows from investing activities:
Capital expenditures		(5,955	)		(3,832	)
Global Crossing Settlement:
Proceeds from restricted cash account and other amounts		—			9,419
Cash payments		—			(5,200	)
Payment of Gains US and UK earn-out consideration and deferred purchase price		(6,756	)		—
Cash acquired as a result of the acquisition of Gains US and UK		—			4,087
Acquisition of Purple Voice		(517	)		—
Acquisition of Gains Asia, net of cash acquired		(15,197	)		—
Net cash provided by (used in) continuing operations		(28,425	)		4,474
Net cash provided by (used in) discontinued operations		—			(19	)
Net cash provided by (used in) investing activities		(28,425	)		4,455
Cash flows from financing activities:
Principal payments on term loan		(275	)		(18,616	)
Issuance costs for term loan amendment		(225	)		(310	)
Deferred compensation payments		(62	)		(70	)
Payment of special cash dividend		(17,964	)		—
Net cash used in financing activities		(18,526	)		(18,996	)
Effect of exchange rate changes on cash		(711	)		(850	)
Net decrease in cash		(8,397	)		(4,278	)
Cash, beginning of period		25,800			25,294
Cash, end of period	$	17,403		$	21,016
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Income taxes	$	3,077		$	4,320
Interest	$	20,094		$	21,403
Supplemental disclosures of non-cash investing activities:
Value of common stock issued for the acquisition of Gains US and UK:				$	5,693

(In Thousands) (Unaudited)

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


	Three Months Ended
	December 31,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	231		$	(1,764	)
Income (loss) from discontinued operations		57			(150	)

Income (loss) from continuing operations		174			(1,614	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization		2,561			2,073
Amortization of intangibles		4,021			3,776
Amortization of deferred financing costs		530			464
Provision for doubtful accounts		208			74
Deferred income taxes		(47	)		(792	)
Amortization of guarantees on former parent obligations		(155	)		(339	)
Changes in operating assets and liabilities:
Accounts receivable		4,659			7,965
Due from former affiliate		2,131			—
Inventories		(6,740	)		(907	)
Prepaids and other current assets		(131	)		786
Other assets		(157	)		(326	)
Accounts payable, accrued expenses and other liabilities		(22,754	)		(4,335	)
Income taxes payable		(1,810	)		(127	)
Customer advances and deferred revenue		6,289			1,182

Net cash provided by (used in) continuing operations		(11,221	)		7,880
Net cash provided by discontinued operations		2,489			11,620

Net cash provided by (used in) operating activities		(8,732	)		19,500


Cash flows from investing activities:
Capital expenditures		(1,893	)		(1,741	)
Payment of Gains US and UK earn-out consideration and deferred purchase price		—			(6,756	)
Acquisitions, net of cash acquired		(5,936	)		(5,528	)

Net cash used in investing activities		(7,829	)		(14,025	)


Cash flows from financing activities:
Principal payments on term loan		(1,728	)		(137	)
Issuance costs for term loan amendment		(113	)		—
Deferred compensation payments		(13	)		(27	)
Payment of special cash dividend		—			(17,839	)

Net cash used in financing activities		(1,854	)		(18,003	)


Effect of exchange rate changes on cash		(118	)		16

Net decrease in cash		(18,533	)		(12,512	)
Cash, beginning of period		27,270			25,800

Cash, end of period	$	8,737		$	13,288


Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Income taxes	$	1,706		$	945

Interest	$	9,195		$	9,656

3The accompanying notes are an integral part of the consolidated financial statements.

IPC ACQUISITION CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS ~~(Unaudited) June 30, 2004~~-Continued

December 31, 2004 (Unaudited)

1. Basis of Presentation

The accompanying unaudited ~~condensed~~ consolidated financial statements include the accounts of IPC Acquisition Corp. (the “Company”) and its wholly and partially owned subsidiaries. The unaudited ~~condensed consolidated~~ consolidated financial statements have been prepared in accordance with ~~accounting principles~~U.S. generally accepted accounting inprinciples ~~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~~U.S. ~~principles~~ generally accepted inaccounting ~~the~~principles ~~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, ~~2003~~2004, as filed with the Securities and Exchange Commission.

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 unaudited ~~condensed~~ consolidated financial statements for the three ~~and~~ ~~nine~~ months ended ~~June~~December 3031, 2004 and 2003 include the accounts of the Company and its wholly ~~owned subsidiaries. The Company’s operations primarily consist of the December 20, 2001 acquisition of IPC Information Systems, Inc.~~ and ~~Asia~~partially ~~Global~~owned ~~Crossing IPC Trading Systems Australia Pty~~subsidiaries. Ltd. (the “IPC Information Systems Acquisition”), the April 30, 2003 purchase of Gains International (US) Inc. and Gains International (Europe) Limited and the January 6, 2004 purchase of Gains International Asia Holdings Limited. The results of operations of ~~the~~any acquired businesses have been included in the Company’s financial statements from their respective acquisition dates through ~~June~~ December 3031, 2004. Intercompany balances and transactions have been eliminated.

Summary of Significant Accounting Policies

Revenue Recognition

Revenue from product sales and installation is recognized upon completion of the installation or, for contracts that are completed in stages and include contract specified milestones, upon achieving such contract milestones, and the delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers are generally progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as ~~inventory~~ inventory awaiting installation. The cost of providing a warranty on the Company’s equipment is estimated and accrued at the time the equipment is sold. In addition, contracts for annual recurring ~~turret~~ services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from moves, ~~additions~~ adds 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. Revenue from ~~the~~network ~~Company’s Network Services division, which provides voice and data~~ services ~~to the financial community,~~ is generally billed at the beginning of the month and recognized in the same month.

~~Goodwill~~ Revenue from software licenses is recognized in accordance with SOP No. 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Software revenue is recognized when a customer enters into a non-cancelable contract or license agreement, the software product has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the contract or license fees are fixed or determinable and collection ~~Other~~is ~~Intangible~~considered ~~Assets~~probable. Amounts received in advance of meeting these criteria are deferred. Revenue from support and maintenance contracts is recognized ratably over the contract period.

~~Goodwill~~For ~~represents~~certain ~~the~~installation ~~excess~~contracts, ofrevenue ~~the~~from ~~cost~~product ~~over~~installation ~~the~~sales ~~net~~is ofrecognized ~~the fair value~~in ofaccordance ~~the~~with ~~identifiable~~EITF ~~tangible~~00-21, ~~and~~“Revenue ~~intangible~~Arrangements ~~assets~~with ~~acquired~~Multiple ~~and~~Deliverables,” ~~the~~which ~~fair~~was ~~value of liabilities assumed in acquisitions. The Company~~ adopted ~~Statement of~~in ~~Financial~~the ~~Accounting~~2003 ~~Standards~~fiscal ~~(“SFAS”) No~~year. ~~142~~ ~~“Goodwill~~Under ~~and~~this ~~Other Intangible Assets” (“SFAS 142”) in December 2001 and~~pronouncement, inproducts ~~accordance~~or ~~with SFAS 142, there~~services issold noto ~~amortization~~the ofsame ~~goodwill~~entity ~~and intangible assets~~ that ~~have indefinite~~ ~~useful~~are ~~lives.~~entered ~~However,~~into ~~goodwill~~at isor ~~tested~~near ~~for impairment annually using~~ the ~~two-step~~ ~~process~~same ~~specifically~~time ~~provided in SFAS 142. Other intangible assets~~ are ~~carried~~ atpresumed ~~cost. Technology is amortized over its estimated useful life of between 3~~ to ~~7 years,~~have ~~customer~~been ~~relationships~~negotiated ~~are~~as ~~amortized~~a ~~over~~package ~~their~~and ~~estimated~~are ~~useful~~evaluated ~~lives~~as ofa 8single toarrangement ~~20 years,~~when ~~and~~considering ~~proprietary~~whether ~~software~~there isare ~~amortized~~one ~~over~~or ~~its estimated~~more ~~useful~~units ~~life~~ of ~~7 years~~ accounting. ~~Trade~~In ~~name~~arrangements ~~has~~when ~~been~~multiple ~~deemed~~products toor ~~have~~services ~~an indefinite~~are ~~life~~sold, ~~and~~the isdelivered ~~not~~items ~~subject~~are considered toseparate ~~amortization~~units ~~expense,~~of ~~but~~accounting ~~instead~~if ~~is subject~~the todelivered anitem ~~annual~~has ~~fair~~ value ~~test~~to ~~in accordance with~~ the ~~provisions~~customer ofon ~~SFAS~~a ~~142.~~standalone Inbasis ~~determining~~and ~~that~~there ~~the~~is ~~trade~~objective ~~name~~and ~~has~~reliable anevidence ~~indefinite~~of ~~life,~~fair ~~the~~value ~~Company considered~~of the ~~following factors: the ongoing active use of its trade name,~~undelivered ~~which~~items. isUndelivered ~~directly~~item ~~associated~~revenues ~~with~~are aincluded ~~leading position~~ in ~~turret~~ ~~solutions,~~ the ~~lack~~liability ofsection ~~any~~as ~~legal,~~deferred ~~regulatory~~revenue oron ~~contractual provisions~~the ~~that~~balance ~~may~~sheet ~~limit~~at ~~the~~their ~~useful~~fair ~~life~~value ofwith the ~~trade~~corresponding ~~name, the lack of any substantial~~ costs toheld ~~maintain~~as ~~the~~an asset, ~~the~~in ~~positive~~inventory ~~impact on its trade name generated by~~until ~~its~~delivery other ongoing business activities (including marketing and development of new technology and new products) and its commitment to products branded with its trade name over its 30 year history. The Company’s acquired trade name has ~~significant~~ ~~market~~occurred ~~recognition~~ and ~~the~~revenue ~~Company~~is ~~expects to derive benefits from the use of such asset beyond the foreseeable future~~earned.

~~The~~Cash ~~Company most recently completed the required annual impairment~~ and ~~fair~~ ~~value~~Cash ~~tests as of July 1, 2003 (the first day of the fourth quarter of the~~Equivalents ~~2003 fiscal year), and concluded that there was no impairment to its recorded~~ ~~goodwill or trade name. There have been no indicators of impairment during the~~ ~~nine months ended June 30, 2004 that would require the Company to~~

4 The Company maintains cash with several high credit quality financial institutions. Temporary cash investments with original maturities of three months or less are considered cash equivalents. Temporary cash investments are stated at cost, which approximates fair value. These investments are not subject to significant market risk.

IPC ACQUISITION CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued (Unaudited) June 30, 2004

perform an impairment test for this period. The Company believes the recorded values of goodwill and trade name in the amounts of $89.7 million and $16.3 million, respectively, at June 30, 2004 are fully recoverable.

Special Cash Dividend

On December 31, 2003, the Company declared a special cash dividend of approximately $18.0 million, or $1.22 per share, to stockholders of record on December 31, 2003, of which approximately $17.9 million was paid on December 31, 2003. The remaining $0.1 million was paid in January 2004.

Stock-Based Compensation

As permitted by Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for its employee option plans. Under APB 25, no compensation expense is recognized at the time of an option grant if the exercise price of the employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant.

Pro forma information regarding net income (loss) is required by SFAS 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 the grant using a Black-Scholes option pricing model with the following assumptions for the periods ended June 30, 2004 and 2003: weighted-average risk-free interest rate of 3.5% and 2.1%, respectively; weighted-average volatility factor of the expected market price of the Company’s common stock of 90% for both periods; dividend yield of 14.2% for 2004 only and a weighted-average expected life of the options of 4 years for both periods.

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 three months ended June 30, 2004 was $2.44. The Company’s pro forma net loss for all periods is shown below. These amounts may not necessarily be indicative of the pro forma effect of SFAS 123 for future periods in which options may be granted.

The Company recorded no compensation expense under APB 25 for the periods presented. If the Company elected to recognize compensation expense based on the fair value of the options granted at grant date, as prescribed by SFAS 123, net loss would have been adjusted to the pro forma amounts indicated in the table below:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(dollars in thousands)	2004			2003			2004			2003
Reported net loss	$	(1,274	)	$	(967	)	$	(233	)	$	(1,780	)
Add back total stock-based employee compensation reported, net of tax		—			—			—			—
Deduct total stock-based employee compensation expense determined under SFAS 123 fair value based method for all awards, net of tax		(364	)		(165	)		(1,115	)		(536	)
Net loss, pro forma	$	(1,638	)	$	(1,132	)	$	(1,348	)	$	(2,316	)

The special cash dividend that was declared by the Company on December 31, 2003 reduced the market value per share of the Company’s common stock. As a result, in order to provide equitable treatment to holders of stock options to purchase the Company’s common stock, the Company repriced the exercise price of all of its outstanding stock options from $10.00 per share to $8.78 per share on December 31, 2003. This repricing does not require variable accounting treatment for such options (recording future compensation expense based upon changes in the fair value of the options). The reduction in the exercise price of $1.22 per share is equivalent to the per share amount of the special cash dividend to stockholders at that date and to the reduction in market value per share of the Company’s common stock.

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

~~Comprehensive~~ Trade ~~Income (Loss)~~Receivables

~~The~~Trade ~~balance~~accounts ~~sheets~~receivable ~~and~~potentially ~~statements~~expose ofthe ~~operations~~Company to concentrations of ~~the~~credit ~~Company’s~~risk, ~~foreign~~as ~~operations~~a ~~are~~large ~~measured~~volume ~~using~~of ~~the~~business ~~local~~is ~~currency~~conducted aswith ~~the~~several ~~functional~~major ~~currency.~~financial institutions, primarily ~~Assets~~companies ~~and~~in ~~liabilities~~the ofbrokerage, ~~these~~banking ~~foreign~~and ~~operations~~financial ~~are~~services ~~translated~~industries. atTo ~~the period-end~~help ~~exchange~~reduce ~~rate~~this ~~and~~risk, ~~revenue~~customers ~~and expense amounts~~ are ~~translated~~progress-billed atprior to the ~~average~~completion ~~rates~~ of ~~exchange prevailing during~~ the ~~period~~contract. ~~The~~Uncollected ~~resulting~~accounts receivable ~~foreign~~recorded ~~currency~~in ~~translation adjustments~~customer ~~are~~advances ~~accumulated~~amounted asto a$11.4 million ~~component~~at ofDecember 31, ~~other~~2004 ~~comprehensive~~and ~~income~~$12.4 ~~(loss)~~million at September 30, 2004.

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
(dollars in thousands)	2004			2003			2004			2003
Reported net loss	$	(1,274	)	$	(967	)	$	(233	)	$	(1,780	)
Translation adjustment, net of tax		(353	)		1,916			3,135			2,077
Total comprehensive income (loss)	$	(1,627	)	$	949		$	2,902		$	297

The Company performs periodic credit evaluations of its customers’ financial condition and although the Company does not generally require collateral, it does require cash payments in advance when the assessment of credit risk associated with a customer is substantially higher than normal. Credit losses have consistently been within management’s expectations and are provided for in the consolidated financial statements.

2. Allowance ~~Acquisitions~~for Doubtful Accounts

~~IPC~~ The ~~Information~~Company ~~Systems~~evaluates ~~Acquisition~~the collectibility of its accounts receivable based on a combination of factors. Where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to it and thereby reduces the net receivable to the amount the Company reasonably believes is likely to be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and its historical experience. If the financial condition of the Company’s customers deteriorates or if economic conditions worsen, additional allowances may be required.

~~The Company was formed in November 2001 by a group led by GS Capital~~Inventories ~~Partners 2000, L.P. (“GSCP 2000”), and other private equity funds affiliated~~ ~~with Goldman, Sachs & Co., to acquire IPC Information Systems, Inc. and Asia~~ Global Crossing IPC Trading Systems Australia Pty. Ltd (collectively, “IPC Information Systems”). The Company did not have any assets or operations prior to the IPC Information Systems Acquisition. On December 20, 2001, the Company purchased IPC Information Systems from Global Crossing and Asia Global Crossing, Ltd. and various of their affiliates. Under the purchase agreement, the total purchase price for the shares and assets was $360.0 million, subject to various adjustments for working capital and customer advances. As a result of the IPC Information Systems Acquisition, the Company owns a leader in turret solutions, based on its base of approximately 110,000 turrets and related equipment installed in trading positions worldwide.

OnInventories ~~January 28,~~are ~~2002,~~stated ~~Global~~at ~~Crossing~~the ~~and~~lower 54 of ~~its~~FIFO ~~subsidiaries~~(first ~~filed petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. On March 13~~in, ~~2003,~~first ~~the~~out) ~~Company~~cost ~~entered~~or ~~into~~market abut ~~settlement~~not ~~and~~in ~~rejection~~excess ~~agreement~~of ~~with~~net ~~Global~~realizable ~~Crossing~~value. ~~Pursuant~~Inventory tocosts ~~the~~include ~~settlement and rejection agreement,~~ all ofdirect ~~the~~manufacturing ~~remaining~~costs ~~obligations~~and ~~under the purchase~~applied ~~agreement~~overhead. ~~relating~~Allowances toare ~~the~~established ~~IPC~~based ~~Information~~on ~~Systems Acquisition were terminated, including Global Crossing~~management’s ~~obligation~~estimate ~~to pay any portion~~ of ~~the~~inventory ~~deferred purchase~~on ~~price~~hand ~~and~~that ~~Global Crossing’s obligation to indemnify the Company for~~is ~~specific~~potentially ~~tax~~obsolete ~~liabilities.~~or ~~In addition, the Company and Global Crossing mutually released each other~~ for ~~all~~which ~~prior~~its ~~claims.~~market ~~The~~value ~~bankruptcy~~is ~~court~~below ~~entered an order on March 14, 2003 approving the settlement and rejection agreement~~cost.

~~Prior to the completion of the IPC Information Systems Acquisition~~Property, ~~a subsidiary~~Plant of IPC Information Systems leased six floors at 67-73 Worship Street, London, England at an annual rate of approximately £565,000, or $1.0 million, assuming an exchange rate of £1 to $1.8195. Of these six floors, the Company uses one floor for office space and ~~an affiliate of Global Crossing~~Equipment ~~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 and the landlord has consented to that sublease. Through June 30, 2004, Global Crossing’s affiliate has made all of its required sublease payments.

~~Under~~Property, ~~the~~plant ~~terms of the settlement~~ and ~~rejection~~equipment ~~agreement,~~are ~~the~~stated ~~Company deposited~~at ~~$5.2 million~~cost inand andepreciated ~~escrow~~on ~~account.~~a ~~Global~~straight-line ~~Crossing~~basis ~~received $3.2~~over ~~million from~~ the ~~escrow~~shorter ~~account~~of ~~upon~~their ~~the~~estimated ~~filing~~useful oflives ~~certain~~or ~~tax~~related ~~returns.~~contract ~~Global Crossing~~terms ~~will~~beginning ~~receive~~in the ~~remaining~~year ~~$2.0 million from~~ the asset ~~escrow~~was ~~account~~placed ~~after a~~into $2service.~~0 million~~ ~~irrevocable~~Normal ~~letter~~repair ofand ~~credit~~maintenance iscosts ~~issued~~are onexpensed ~~behalf~~as ~~of the Company~~incurred. ~~The~~ ~~Company will have the right to draw on that letter of credit in the event~~The ~~Global~~useful ~~Crossing’s~~lives ~~affiliate~~by ~~fails~~asset tocategory ~~make~~are ~~any~~as ~~payments due to the Company~~follows: ~~pursuant to the sublease for office space at 67-73 Worship Street in London,~~ ~~England.~~

The Company believes that all tax returns required to be filed in respect of IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition have now been filed. These returns consist of consolidated tax returns with Global Crossing, and, where required by law, separate tax returns for IPC Information Systems, Inc. and/or its subsidiaries.


Buildings	20	years
Furniture fixrures and equipment	5	years
Network equipment	3	years
Computer software	3	years

AsLeasehold aimprovements ~~result~~are ofamortized ~~the~~over ~~termination of~~ the ~~purchase~~lesser ~~agreement, Global Crossing has been relieved~~ of ~~all of its obligations under~~ the ~~purchase~~lease ~~agreement, including,~~term ~~among~~or ~~other things, indemnifying~~ the ~~Company~~estimated ~~for tax liabilities~~useful ~~that~~life ~~may be imposed upon IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date~~ of the ~~IPC Information Systems~~improvements.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including property, plant and equipment and definite lived 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 the aggregate of estimated undiscounted future cash flows expected to result from the use of the assets and the eventual disposition is less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. No impairments have occurred to date.

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. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), effective upon the acquisition of IPC Information Systems and, in accordance with SFAS No. 142, there is no amortization of goodwill and intangible assets that have

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

~~Acquisition~~indefinite useful lives. ~~Therefore~~However, insuch ~~the~~assets ~~event~~are ~~that~~tested ~~any~~for ~~tax~~impairment ~~liabilities~~annually ~~are~~using ~~imposed,~~the ~~as a~~two-step ~~result~~process ofspecifically anprovided ~~audit~~in orSFAS ~~otherwise,~~No. 142. onOther ~~IPC~~intangible ~~Information~~assets ~~Systems,~~are ~~Inc.~~carried ~~and/or~~at ~~its~~cost. ~~subsidiaries~~Technology ~~for~~is ~~periods~~amortized ~~prior~~over toestimated ~~and~~useful ~~including~~lives ~~the date~~ of ~~the~~between ~~IPC~~3 ~~Information Systems~~to ~~Acquisition~~7 years, ~~the~~customer ~~Company~~relationships ~~may~~are beamortized ~~required~~over toestimated ~~pay~~useful ~~those~~lives ~~taxes~~of ~~and~~8 ~~is no longer able~~ to ~~seek~~20 years, ~~indemnification~~and proprietary ~~from~~software ~~Global~~is ~~Crossing.~~amortized Asover ofits ~~the~~estimated ~~date~~useful ~~of this~~life ~~filing, the aggregate amount~~ of ~~taxes~~7 years. ~~for~~Trade ~~which~~name ~~the Company~~ has ~~received~~been ~~notices~~deemed ofto ~~taxes~~have ~~due~~an ~~from~~indefinite ~~various~~life ~~jurisdictions~~ and ~~recognized~~will asnot ~~tax liabilities~~be ~~under~~subject ~~purchase~~to ~~accounting~~amortization, isbut ~~approximately~~instead ~~$6.5 million~~will ~~and, as of~~be ~~June 30,~~subject ~~2004,~~to ~~the~~annual ~~Company~~impairment ~~has~~tests ~~made~~in ~~settlement~~accordance ~~payments~~with ~~aggregating~~the ~~$1.9 million,~~provisions ~~including~~of aSFAS $1No.1 ~~million~~142. ~~payment~~In determining ~~made~~that tothe ~~one~~trade ~~jurisdiction~~name inhas ~~May 2004. The~~an ~~Company~~indefinite ~~estimates~~life, ~~that~~ the ~~range~~Company ofconsidered ~~its~~the ~~exposure~~following factors: ~~for~~the ~~additional~~ongoing ~~tax liabilities~~active isuse ~~from~~of ~~$0.0~~its totrade ~~$18.0 million~~name, which ~~has~~is ~~been reduced~~directly ~~from~~associated ~~$36.0 million~~with asits amarket leading ~~result~~position ofin the ~~Company’s~~mission-critical ~~settlement negotiations.~~voice Incommunications ~~computing~~business, ~~its~~the ~~estimated~~lack ~~range~~ of ~~potential~~any ~~tax liabilities~~legal, ~~the~~ ~~Company~~regulatory ~~took~~or ~~into~~contractual provisions ~~account~~that ~~tax~~may ~~returns~~limit inthe ~~certain~~useful ~~jurisdictions~~life ~~where~~of the ~~statutes~~ oftrade ~~limitations~~name, ~~have~~the ~~not~~lack ~~yet~~of ~~expired.~~any ~~Under~~substantial ~~those~~costs ~~tax~~to maintain ~~returns~~the ~~as filed~~asset, ~~the~~ ~~remaining liability is zero. Although~~ the ~~Company~~positive ~~believes~~impact ~~that~~on ~~all~~its ~~those tax~~trade ~~returns~~name ~~have~~generated ~~been~~by ~~filed~~its ~~correctly,~~other ~~such~~ongoing ~~returns~~business activities ~~may~~(including bemarketing ~~audited~~ and ~~additional~~ ~~taxes~~development ~~may~~of benew ~~assessed~~technology ~~(or~~and ~~refunds~~new ~~may be granted~~products). ~~Payment~~and ~~by the~~its ~~Company~~commitment ofto aproducts ~~significant~~branded ~~amount~~with ofits ~~these~~trade ~~potential~~name ~~tax~~over ~~liabilities~~its ~~could~~30 year ~~have~~history. ~~a material~~The ~~adverse effect on the~~ Company’s ~~financial condition and results of~~acquired ~~operations,~~trade ~~requiring~~name ~~the~~has ~~Company~~significant tomarket ~~seek~~recognition ~~additional~~and ~~financing. In that event,~~ the Company ~~cannot~~expects ~~make~~to ~~assurances~~derive ~~that~~benefits itfrom ~~will be able to obtain additional~~the ~~financing~~use onof ~~commercially~~such ~~reasonable~~assets ~~terms,~~beyond orthe atforeseeable ~~all~~future.

~~Pursuant~~The toCompany completed the ~~settlement~~required ~~and~~annual ~~rejection~~fair ~~agreement,~~value ~~Global~~test ~~Crossing~~as ~~has also~~of ~~paid~~July 1, ~~over~~2004 to (the ~~Company~~first ~~approximately~~day ~~$2.2 million~~of the ~~for~~fourth ~~payroll~~quarter of 2004), and ~~federal~~ ~~tax~~concluded ~~refunds~~that ~~received~~there ~~for~~was ~~periods~~no ~~prior~~impairment to ~~and~~its ~~including~~recorded ~~the~~goodwill ~~date of the~~or ~~IPC~~trade ~~Information~~name. ~~Systems~~There ~~Acquisition.~~have ~~Global~~been ~~Crossing~~no isindicators ~~also~~of ~~required~~impairment toduring ~~pay~~ the ~~Company~~first ~~any~~quarter ~~future~~of ~~tax~~the ~~refunds~~2005 orfiscal year. ~~credits~~The itCompany ~~receives~~believes ~~that~~the ~~are~~recorded ~~applicable to~~values ~~IPC~~of ~~Information~~goodwill ~~Systems,~~of ~~Inc~~$92.3 million and ~~its~~trade ~~subsidiaries~~name ~~for~~of ~~these~~$16.3 million ~~periods~~at December 31, 2004 are fully recoverable.

AsDeferred ~~part~~Financing ~~of the settlement and rejection agreement, the Company also~~Costs ~~entered into an amendment to the network services, channel sales and transition~~ ~~services agreement. Under the amendment, the Company no longer has any~~ obligation to market or resell Global Crossing’s channel network services to its customers. Additionally, pursuant to the amendment, the Company is permitted to use any other provider of network services for its own internal purposes so long as the Company’s aggregate annual payments to Global Crossing and its subsidiaries are at least $48,000.

~~Gains~~ As USpart of the acquisition of IPC Information Systems in December 2001, the Company capitalized certain debt issuance costs in the amount of $17.4 million relating to the establishment of the senior secured credit facilities and UKthe ~~Acquisition~~issuance of the senior subordinated notes. These costs are being amortized over the respective lives of the debt using the effective interest method. In September 2003 and December 2004, the Company amended and restated its senior secured credit facilities to more favorable terms. Additional debt issuance costs of $1.6 million in September 2003 and $0.1 million in December 2004 were incurred and are also being amortized using the effective interest method according to EITF Issue No. 96-19 “Debtors Accounting for a Modification or Exchange of Debt Instruments”. Amortization expense related to deferred financing costs is included in interest expense in the accompanying consolidated statements of operations and aggregated approximately $0.5 million for each of the three months ended December 31, 2004 and 2003.

OnResearch ~~April 30, 2003, the Company exercised its option to purchase Gains International (US) Inc.~~ and ~~Gains International (Europe) Limited (collectively~~Development ~~“Gains US and UK”) from GSCP 2000 and other private equity funds affiliated~~ ~~with Goldman, Sachs & Co., who own substantially all of the Company’s common~~ stock, for 664,380 shares of common stock valued at approximately $5.7 million, deferred purchase consideration of $3.1 million and earn-out consideration of approximately $3.6 million. There is no further contingent consideration in connection with this acquisition. With the acquisition of Gains US and UK, the Company now offers voice and data services primarily to the financial services community under the name Network Services. This transaction followed the completion of a transaction involving the sale of Gains International (US) Inc., Gains International (Europe) Limited and Gains International Asia Holdings Limited to entities formed by GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.

~~The~~Research ~~following table summarizes the fair value of the assets acquired~~ and ~~the~~ ~~liabilities~~development ~~assumed~~expenditures atare ~~the~~charged ~~date~~to ofexpense ~~the acquisition. The purchase price on the date of the acquisition exceeded the fair market value of the net assets acquired by approximately $11.3 million and was recorded~~ as ~~goodwill on the consolidated balance sheet~~incurred. ~~The primary factor that contributed to a purchase~~ ~~price that resulted in the recognition of goodwill is the potential ability of~~ ~~the Network Services division to generate income from operations and cash flows~~ ~~from operating activities in the future. The goodwill and intangible assets are not amortizable for income tax purposes.~~

Condensed Balance Sheet (dollars in thousands)
Current assets	$	6,115
Property, plant and equipment, net		2,645
Goodwill		11,324
Intangible assets		1,664
Other long-term assets		12
Total assets acquired		21,760
Current liabilities		9,345
Deferred purchase consideration		3,128
Earn-out consideration		3,594
Total liabilities assumed		16,067
Acquisition consideration at closing	$	5,693

Income Taxes

In accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), the Company recognizes 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.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

~~The~~Foreign ~~acquisition~~Currency ofTranslation ~~Gains US and UK was accounted for using the purchase~~Adjustment ~~method of accounting in accordance with FASB Statement No. 141, “Business~~ ~~Combinations” (“SFAS 141”) and accordingly, the Company’s consolidated results~~ of operations for the nine months ended June 30, 2004 include the operating results of Gains US and UK from the date of purchase. The following table represents the allocation of the excess of the purchase price over the historical cost of the net tangible assets acquired:

(dollars in thousands)
Common stock issued at closing			$	5,693
Deferred purchase price payment				3,128
Earn-out consideration				3,594
Transaction costs				1,703
Total consideration				14,118
Historical cost of net tangible assets acquired				(1,130	)
Excess of purchase price over net tangible assets acquired			$	12,988
Allocation of excess purchase price:
Residual goodwill (indefinite life)			$	11,324
Identified intangibles:
Customer relationships (8 year life)	$	1,200
Proprietary software (7 year life)		464
Total identified intangibles				1,664
Total allocation of excess purchase price			$	12,988

The balance sheets and statements of operations of the Company’s foreign operations are measured using the local currency as the functional currency except for its subsidiaries in Hong Kong and Singapore, whose functional currency is the U.S. dollar. 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 period. The resulting foreign currency translation adjustments are accumulated as a component of other comprehensive income. Gains and losses resulting from foreign currency transactions are recognized in other income (expense), including net gains of approximately $1.2 million for the three months ended December 31, 2004 and $0.1 million for the three months ended December 31, 2003.

~~Gains~~ Fair ~~Asia~~Value ~~Acquisition~~of Financial Instruments

OnThe ~~January~~Company’s financial instruments at December 631, 2004, ~~the~~consist ~~Company~~of ~~purchased~~accounts ~~Gains International Asia~~receivable, ~~Holdings~~accounts ~~Limited~~payable ~~(“Gains~~and ~~Asia”)~~debt. ~~from~~As ~~GSCP~~of ~~2000~~December 31, ~~and~~2004, ~~other~~the ~~private~~Company ~~equity~~did ~~funds affiliated~~not ~~with~~have ~~Goldman,~~any ~~Sachs~~derivative &financial Coinstruments. ~~for~~The ~~approximately~~Company believes ~~$17.4 million~~the inreported ~~cash consideration,~~carrying ~~including~~amounts anof ~~advance~~its ~~payment~~accounts ofreceivable ~~$5.5 million~~and ~~made~~accounts inpayable ~~October~~approximates ~~2003~~fair value, abased ~~$11.7~~upon ~~payment~~the ~~million~~short atterm ~~closing,~~nature ~~and~~of athese $0accounts.~~2 million~~ ~~payment~~The infair ~~April 2004.~~value ~~This~~of ~~transaction~~borrowings ~~followed~~ under the ~~acquisition~~senior ofsecured ~~Gains~~credit USfacilities ~~and~~was UK$48.1 million inat ~~April 2003~~December 31, ~~and~~2004 ~~completes~~as ~~the~~it ~~purchase~~bears ofinterest ~~all~~at a ~~the~~floating ~~Gains related entities~~rate. ~~With~~The ~~the acquisition~~fair value of ~~Gains Asia,~~ the ~~Company~~senior ~~expanded~~subordinated ~~its~~notes ~~private~~was ~~global~~$166.5 million ~~voice~~at ~~and~~December 31, ~~data network~~2004, ~~which~~based itupon ~~operates~~quoted ~~under~~trading ~~the~~prices ~~name~~at ~~Network~~such ~~Services, into the Asia Pacific region~~date.

~~The~~Stock–Based ~~following table summarizes the fair value of the assets acquired and~~Compensation ~~the liabilities assumed at the date of the acquisition. The purchase price on~~ ~~the date of the acquisition exceeded the fair market value of the net assets~~ acquired by approximately $5.3 million and was recorded as goodwill on the consolidated balance sheet. The primary factor that contributed to a purchase price that resulted in the recognition of goodwill is the ability of Gains Asia, along with Gains US and UK, to generate income from operations and cash flows from operating activities in the future. The goodwill and intangible assets are not amortizable for income tax purposes.

Condensed Balance Sheet (dollars in thousands)
Current assets	$	5,010
Property, plant and equipment, net		991
Goodwill		5,316
Intangible assets		8,700
Total assets acquired		20,017
Current liabilities		2,252
Advance payment and other liabilities		5,848
Total liabilities assumed		8,100
Acquisition consideration at closing	$	11,917

As permitted by Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for its employee option plans. Under APB 25, no compensation expense is recognized at the time of an option grant if the exercise price of the employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant.

~~The~~Pro ~~acquisition~~forma ofinformation ~~Gains~~regarding ~~Asia~~net ~~was~~income ~~accounted~~(loss) and ~~for~~earnings ~~using~~(loss) per ~~the~~share ~~purchase~~is ~~method~~required by ofSFAS ~~accounting~~123, inand ~~accordance~~has ~~with~~been ~~SFAS~~determined ~~141~~as ~~and~~if ~~accordingly,~~ the Company~~’s consolidated~~ ~~results~~had ofbeen ~~operations~~accounting for ~~the~~its ~~three~~employee ~~and nine months ended June 30,~~stock ~~2004~~options ~~include~~under the ~~operating~~fair ~~results~~value method of ~~Gains~~that ~~Asia~~Statement. ~~from~~The ~~the~~fair ~~date~~value of ~~purchase.~~each ~~The following~~option ~~table~~grant ~~represents~~is ~~the~~estimated ~~allocation~~on of the ~~excess~~date of ~~the~~grant ~~purchase~~using ~~price~~the Black-Scholes ~~over~~option-pricing model with the ~~historical~~following ~~cost~~weighted ofaverage ~~the~~assumptions ~~net~~used ~~tangible~~for ~~assets~~grants ~~acquired~~in the following periods:


	Three Months Ended
	December 31,
	2004			2003
Risk free interest rate		3.75	%		2.1	%
Expected life	4 years			4 years
Expected volatility		41.7	%		71.2	%

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 was $14.49 for the three months ended December 31, 2004 and $4.24 for the three months ended December 31, 2003. The Company’s pro forma net income (loss) for all periods presented is shown below. These amounts may not necessarily be indicative of the pro forma effect of SFAS 123 for future periods in which options may be granted.

As a result of the dividend paid in December 2003, the fair value of the Company’s common stock was reduced by the amount of the dividend, or $1.22 per share. The exercise price of certain stock option grants was modified to reflect the revised fair value and additional compensation expense has been included in the pro forma disclosure to account for the incremental fair

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

(dollars in thousands)
Cash paid at closing	$	11,917
Advance payment		5,528
Transaction costs		425
Total consideration		17,870
Historical cost of net tangible assets acquired		(3,854	)
Excess of purchase price over net tangible assets acquired	$	14,016
Allocation of excess purchase price:
Residual goodwill (indefinite life)	$	5,316
Identified intangibles:
Customer relationships (9 year life)		8,700
Total allocation of excess purchase price	$	14,016

value of the modified options that have vested. The effect of the modification relating to unvested options will be recognized over the vesting period.

~~Proforma~~ If ~~Financial~~the ~~Information~~Company ~~for~~elected ~~Gains~~to USrecognize ~~and~~compensation UKexpense ~~and~~based ~~Gains~~on ~~Asia~~the ~~Acquisitions~~fair value of the options granted at grant date, as prescribed by SFAS 123, net income (loss) would have been adjusted to the pro forma amounts indicated in the table below (in thousands):

Set forth below is the unaudited pro forma consolidated results of operations of the Company for the three and nine months ended June 30, 2004 and 2003, assuming the Gains US and UK and Gains Asia acquisitions occurred as of the beginning of the period.


	Three Months Ended
	December 31,
	2004			2003
Reported net income (loss)	$	231		$	(1,764	)
Add back total stock-based employee compensation determined under APB 25 intrinsic value method, net of tax		28			—
Deduct total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effect		(427	)		(438	)

Pro forma net loss	$	(168	)	$	(2,202	)

~~The unaudited pro forma condensed financial information is presented for~~Reclassifications ~~informational purposes only and does not purport to represent the results of~~ ~~operations of the Company for the periods described above had the Gains Asia~~ ~~acquisition occurred as of the beginning of the period, or to project the results for any future period.~~

	Three Months Ended						Nine Months Ended
	June 30 ,						June 30,
(dollars in thousands)	2004			2003			2004		2003
Revenue	$	60,313		$	49,579		$	186,358	$	153,480
Net income (loss)	$	(1,274	)	$	(985	)	$	386	$	(2,669	)

Certain items in the December 31, 2003 consolidated financial statements have been reclassified from amounts previously reported to conform to the presentation of the December 31, 2004 consolidated financial statements.

~~Investment in Purple Voice~~ Guarantees

~~IPC~~FASB UKInterpretation ~~Holdings~~No. 45 ~~Limited~~ (“~~IPC~~FIN UK45”), arequires ~~subsidiary~~that upon issuance of ~~the~~a ~~Company~~guarantee, ~~entered~~the ~~into~~guarantor amust ~~series~~disclose ofand ~~transactions~~recognize ~~with~~a ~~Purple~~liability ~~Voice,~~for athe ~~business-to-business Internet~~fair ~~Protocol~~value ~~(“IP”)~~of ~~software~~the ~~company~~obligation it assumes under that ~~provides~~guarantee. ~~Voice~~The ~~over~~requirements IPof ~~(“VoIP”) solutions~~FIN 45 are applicable to the ~~financial~~Company’s ~~community~~guarantee of a real estate lease for a former affiliate. ~~VoIP~~The isCompany’s ~~the~~guarantees ~~method~~subject byto ~~which~~the ~~voice~~recognition and ~~communication~~disclosure isrequirements ~~delivered~~of ~~over~~FIN an45 ~~electronic~~were ~~network.~~not Asmaterial aas ~~result~~ of ~~these transactions~~December 31, ~~which~~2004 ~~closed~~and ~~on August~~September 130, ~~2003:~~2004.

• The ~~IPC~~Company UKprovides ~~acquired~~certain ~~approximately~~indemnification ~~40%~~provisions ofwithin ~~the~~its ~~outstanding~~product ~~common~~sales ~~shares~~agreements, to ~~(calculated~~protect onits acustomers ~~non-diluted~~from ~~basis)~~any liabilities or damages resulting from a claim of ~~Purple~~misappropriation or ~~Voice~~infringement ~~together~~by ~~with~~third parties relating to its software. The Company has never incurred a liability ~~warrant~~relating ~~for~~to ~~additional~~one ~~shares~~of ~~from~~these ~~certain~~indemnification ~~minority~~provisions ~~shareholders~~in the past and management believes that the likelihood of ~~Purple~~any ~~Voice~~future ~~for~~payout ~~approximately~~relating ~~$120~~to these provisions is unlikely. Therefore,~~000;~~ the Company has not recorded a liability during any period for these indemnification provisions.

• Comprehensive ~~IPC~~Income ~~UK invested $1.0 million in a 7% secured convertible note, due September 2007, issued by Purple Voice, which is convertible into 49% of Purple Voice’s share capital on a fully diluted basis;~~(Loss)

• The ~~remaining~~balance ~~shareholders~~sheets and statements of ~~Purple~~operations ~~Voice~~of ~~granted~~the aCompany’s ~~call~~foreign ~~option~~operations toare measured ~~IPC~~using ~~UK,~~the ~~which~~local ~~permits~~currency ~~IPC~~as UKthe tofunctional ~~acquire~~currency except for its subsidiaries in Hong Kong and Singapore, whose functional currency is the ~~remaining~~U.S. ~~issued~~dollar. ~~share~~Assets ~~capital~~and liabilities of ~~Purple~~these foreign ~~Voice~~operations ~~for~~are antranslated ~~aggregate~~at ~~amount~~the period-end exchange rate and revenue and expense amounts are translated at the average rates of $0exchange prevailing during the period.8 ~~million;~~The ~~and~~resulting foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss).

• IPC Information Systems, Inc. and Purple Voice entered into an agreement under which IPC Information Systems, Inc. has been appointed Purple Voice’s exclusive reseller worldwide.


	Three Months Ended
	December 31,
(dollars in thousands)	2004		2003
Reported net income (loss)	$	231	$	(1,764	)
Translation adjustment, net of tax		2,678		3,114

Total comprehensive income	$	2,909	$	1,350

OnRecent aAccounting ~~pro forma basis, this acquisition did not have a material impact on~~Pronouncements ~~the Company’s results of operations for the three and nine months ended June~~ ~~30, 2003.~~

~~During~~On December 16, 2004, the ~~three~~FASB ~~months~~issued ~~ended~~Statement ~~June~~No. ~~30,~~123 (revised 2004), ~~IPC~~Share-Based ~~UK acquired additional~~Payment, ~~shares~~which ~~and~~is ~~share~~a ~~warrants~~revision inof ~~Purple~~FASB ~~Voice~~Statement ~~from~~No. 123, ~~Scipher~~Accounting ~~PLC~~for ~~and~~Stock-Based ~~certain~~Compensation. Statement ~~individual~~123(R) ~~shareholders~~supersedes APB Opinion No. 25, Accounting for aStock ~~total~~Issued ~~consideration~~to ofEmployees, ~~approximately~~and ~~$517~~amends FASB Statement No. 95,~~000~~ Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar ~~Following~~to ~~those~~the ~~acquisitions~~approach described in Statement 123. However, ~~IPC~~Statement UK123(R) ~~holds~~requires ~~approximately~~all ~~99%~~share-based payments to employees, including grants of employee stock options, to be recognized in the ~~currently~~income ~~outstanding~~statement ~~common~~based ~~shares~~on their fair values. Pro forma disclosure is no longer an alternative. The Company will adopt Statement 123(~~calculated~~R) on aJuly 1, ~~non-diluted~~2005. ~~basis~~Statement 123(R) permits public companies to adopt its requirements using one of ~~Purple~~two ~~Voice.~~methods:

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

3.1) ~~Discontinued~~A ~~Operations~~“modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

In2) ~~May 2004,~~A ~~the~~“modified ~~Board~~retrospective” ofmethod ~~Directors~~which ofincludes the ~~Company~~requirements ~~approved~~of athe ~~formal plan~~modified toprospective ~~sell~~method ~~certain~~described ~~assets~~above, ~~related~~but toalso ~~its~~permits ~~Information~~entities ~~Transport Systems (“I.T.S.”) division~~ to arestate ~~group~~based ofon ~~private investors. The I.T.S. division was a low margin business that no longer fit into~~ the ~~Company’s long-term growth plans. The sale~~amounts ~~closed~~previously inrecognized ~~July 2004.~~under ~~For~~Statement ~~the~~123 ~~nine~~for ~~months~~purposes ~~ended~~of ~~June 30,~~pro ~~2004,~~forma ~~the~~disclosures ~~Company recorded~~either (a ~~$3.6~~) ~~million loss from discontinued operations, net of tax which~~all ~~included~~prior aperiods ~~cash~~presented ~~requirement~~or ~~of $0.8~~(b) ~~million,~~prior ~~primarily~~interim ~~for~~periods ~~existing equipment and property leases and other expenses, operating losses~~ of ~~$2.3 million, and non-cash charges of $3.3 million for~~ the ~~write~~year ~~down~~ of ~~goodwill, other intangibles and owned equipment, partially offset by a tax benefit of $2~~adoption.8 ~~million.~~

~~In accordance with FASB Statement No. 144 “Accounting for the Impairment~~The ~~or Disposal of Long-Lived Assets”, the~~ Company ~~has~~will ~~reported~~adopt ~~the~~Statement ~~results of operations of this business as income~~ 123(~~loss~~R) ~~from~~ ~~discontinued~~on ~~operations.~~July 1, ~~All prior~~2005, ~~periods have been restated to conform to this presentation. As a result~~however, ~~the~~ ~~assets~~management ~~and~~is ~~liabilities of this discontinued operation have been~~still ~~reclassified~~evaluating onwhich ~~the~~method ~~balance~~to ~~sheet from the historical classifications and presented under the captions “assets of discontinued operations” and “liabilities of discontinued operations,” respectively~~adopt.

~~The~~ As ~~assets~~permitted by Statement 123, the company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, ~~liabilities~~as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of ~~discontinued~~Statement 123(R)’s fair value method will have a significant impact on our result of operations, asalthough it will have no impact on our overall financial position. The impact of ~~June 30~~adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, ~~2004~~had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements. Statement 123(R) ~~September 30~~also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, ~~2003~~rather ~~are~~than as ~~follows:~~an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company cannot estimate what those amounts will be in the future because they depend on, among other things, when employees exercise stock options.

	June 30,		September 30,
(dollars in thousands)	2004		2003
Assets of discontinued operations:
Accounts receivable, net	$	9,563	$	19,792
Inventories, net		—		7,668
Intangibles and other assets		642		3,830
	$	10,205	$	31,290
Liabilities of discontinued operations:
Accounts payable and accrued expenses	$	1,787	$	1,552
Customer advances		—		2,235
Other liabilities		7		33
	$	1,794	$	3,820

In November 2004, the FASB issued FAS 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4” (“FAS 151”). FAS 151 amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). FAS 151 requires that these costs be recognized as current period charges regardless of whether they are abnormal. In addition, FAS 151 requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. The provisions of FAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect this new standard to have a material effect on its consolidated financial position or results of operations.

~~The~~2. ~~results of operations related to discontinued operations for the three and~~Acquisitions ~~nine months ended June 30, 2004 and 2003 are as follows:~~

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
(dollars in thousands)	2004			2003		2004			2003
Revenue	$	4,794		$	16,486	$	21,482		$	33,556
Costs of goods sold		6,317			15,162		22,412			31,728
Gross profit		(1,523	)		1,324		(930	)		1,828
Operating expenses		462			561		1,335			1,811
Operating income (loss) before loss on disposal and income taxes		(1,985	)		763		(2,265	)		17
Loss on disposal of operations		(4,110	)		—		(4,110	)		—
Income tax expense (benefit)		(2,761	)		336		(2,761	)		7
Income (loss) from discontinued operations	$	(3,334	)	$	427	$	(3,614	)	$	10

Orbacom Acquisition

4 On November 30, 2004, IPC Information Systems Holdings, Inc, a subsidiary of the Company, acquired 100% of the common stock of Orbacom Systems, Inc. ~~Inventories~~(“Orbacom”) for a maximum purchase price of $18 million in cash, including up to $7 million in contingent earnout commitments. Orbacom provides specialized radio consoles and computer aided dispatch software for use in command and control communications and serves the mission–critical communications needs of government agencies and corporations responsible for public safety dispatch, management of natural gas and energy infrastructures, air, freight and rail transportation, government command applications including homeland security, and critical industrial communications. The Company will report the operations of Orbacom in its Command and Control segment.

	June 30,		September 30,
(dollars in thousands)	2004		2003
Components and manufacturing work in process	$	8,046	$	5,980
Inventory on customer sites awaiting installation		9,050		10,196
Parts and maintenance supplies		7,958		6,552
	$	25,054	$	22,728

The following table summarizes preliminary estimates, pending completion of a third-party valuation of acquired intangible assets, of the fair value of the assets acquired and the liabilities assumed at the date of the acquisition. The purchase price on the date of the acquisition exceeded the fair market value of the net assets acquired by approximately $7.8 million and was preliminarily recorded as goodwill on the consolidated balance sheet. The primary factor that contributed to a purchase price that resulted in the recognition of goodwill is that this acquisition enables the Company to expand its range of products and services available to industries that address mission-critical command and control operations. The goodwill and intangible assets identified are not amortizable for income tax purposes.

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

5. Goodwill and Intangible Assets


Condensed Balance Sheet (dollars in thousands)
Current assets	$	7,676
Property, plant and equipment, net		258
Goodwill		7,816

Total assets acquired		15,750


Current liabilities		3,829
Other long-term liabilities		667
Deferred purchase price		3,000

Total liabilities assumed		7,496

Consideration at closing	$	8,254

The ~~Company~~acquisition ~~adopted~~of ~~SFAS~~Orbacom ~~142~~was inaccounted ~~December 2001.~~for ~~Under~~using ~~SFAS~~the ~~142,~~purchase ~~goodwill~~method of accounting in accordance with SFAS 141 and accordingly the purchase price was allocated to the tangible and intangible assets ~~that~~acquired ~~have~~and ~~indefinite~~liabilities ~~useful~~assumed ~~lives~~on ~~are~~the nobasis ~~longer amortized~~of their respective fair values. The ~~Rather,~~Company’s ~~they~~consolidated ~~are~~results ~~reviewed~~of operations for ~~impairment~~the ~~annually~~three ormonths ~~more~~ended ~~frequently~~December 31, 2004 ifinclude ~~certain~~the ~~indicators~~operating ~~arise~~results of Orbacom from November 30, 2004, the closing date of the acquisition, and is included in the Command and Control segment. The following table ~~reflects~~represents the preliminary ~~changes~~allocation ~~in goodwill~~of ~~for~~the excess of the ~~nine~~purchase ~~months~~price ~~ended~~over ~~June 30,~~the ~~2004~~historical cost of the net tangible assets acquired (dollars in thousands):

(dollars in thousands)
Cash paid at closing	$	8,000
Balance at September 30, 2003	$	82,108
Deferred purchase price		3,000
Gains Asia acquisition		5,316
Transaction costs		354
Write-offs		—
Total consideration		11,354
Effects of currency translation adjustments		2,322
Historical cost of net tangible assets acquired		(2,345	)
Balance at June 30, 2004	$	89,746
Excess of purchase price over net tangible assets acquired	$	9,009
Preliminary allocation of excess purchase price:
Residual goodwill (indefinite life)	$	7,816
Deferred taxes		(474	)
Step-up inventory to fair value		1,667
Total allocation of excess purchase price	$	9,009

The ~~following~~Company ~~table~~is in ~~reflects~~the process of finalizing its plans for the ~~gross~~integration ~~carrying~~of ~~amount~~the ~~and~~Orbacom ~~accumulated amortization~~purchase into the rest of the business. There may be additional accruals for restructuring as the Company’s evaluates ~~intangible~~and ~~assets~~integrates ~~included~~real inestate ~~the~~and ~~consolidated~~leases, personnel, product ~~balance~~lines ~~sheets~~and asselling ofand marketing strategies. Any such adjustments, if incurred, will be reflected in the ~~dates~~final ~~indicated:~~purchase price allocation.

	June 30,			September 30,
(dollars in thousands)	2004			2003
Intangible assets:
Amortized intangible assets:
Technology	$	46,044		$	46,346
Customer relationships		163,430			154,730
Effect of currency translation adjustments		7,946			6,081
Accumulated amortization-technology		(16,667	)		(11,517	)
Accumulated amortization-customer relationships		(20,659	)		(14,010	)
Net carrying amount		180,094			181,630
Non-amortized intangible assets:
Trade name		16,300			16,300
Net carrying amount	$	196,394		$	197,930

On a proforma basis, the Orbacom acquisition did not have a material impact on the Company’s consolidated results of operations for the three months ended December 31, 2004 and 2003.

~~Amortization~~Gains ~~expense~~Asia ~~for those intangible assets required to be amortized~~Acquisition ~~under SFAS 142 was $4.1 million and $11.9 million for the three and nine months~~ ~~ended June 30, 2004 and $3.6 million and $10.7 million for the three and nine~~ ~~months ended June 30, 2003.~~

~~Estimated~~On ~~annual~~January 6, ~~amortization~~2004, ~~expense~~the Company purchased Gains International Asia Holdings Limited (“Gains Asia”) from GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. for approximately ~~fiscal~~$17.4 million ~~year~~in ~~2004~~cash consideration, including an advance payment of $5.5 million made in October 2003, an $11.7 million payment at closing, and ~~each~~a $0.2 million payment in April 2004. This transaction followed the acquisition of Gains US and UK in April 2003 and completes the ~~four~~purchase ~~succeeding~~of ~~fiscal~~all ~~years~~the ~~for~~Gains ~~identifiable~~related ~~intangible~~entities. ~~assets~~With ~~required~~the toacquisition beof Gains Asia, the Company ~~amortized~~expanded ~~under~~its ~~SFAS~~private ~~142~~global ~~are~~voice asand ~~follows:~~data network into the Asia Pacific region.

(dollars in thousands)		2004				2005				2006				2007				2008
Estimated annual amortization expense		$	15,842			$	15,842			$	15,842			$	15,495			$	15,495

The following table summarizes the carryover basis of the assets acquired and the liabilities assumed at the date of the acquisition. The Company paid approximately $5.5 million in excess of the carryover basis of the net assets acquired to GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. This excess payment has been treated as a distribution and the assets and liabilities have been recorded at carryover basis based on the amount GSCP 2000 paid for them. The intangible assets are not amortizable for income tax purposes.

6. Accrued Expenses and Other Current Liabilities


Condensed Balance Sheet (dollars in thousands)
Current assets	$	5,123
Property, plant and equipment, net		991
Intangible assets		8,393

Total assets acquired		14,507

Current liabilities		2,252
Advance payment and other liabilities		5,848

Total liabilities assumed		8,100
Distribution to parent		5,510

Consideration at closing	$	11,917

	June 30,		September 30,
(dollars in thousands)	2004		2003
Accrued compensation and benefits	$	8,703	$	7,469
Warranty reserves		2,118		1,889
Sales taxes payable		542		137
Accrued job costs		1,009		1,758
Accrued transaction costs		2,163		2,124
Accrued carrier costs		5,317		3,650
Current portion of deferred compensation		692		692
Accrued interest		835		5,299
Other accruals		3,907		4,005
	$	25,286	$	27,023

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

Set forth below is the unaudited pro forma consolidated results of operations of the Company for the three months ended December 31, 2003, assuming the acquisition of Gains Asia occurred as of the beginning of the period. The unaudited pro forma condensed financial information is presented for informational purposes only and does not purport to represent the consolidated results of operations of the Company for the period described above had the Gains Asia acquisition occurred as of the beginning of the period, or to project the results for any future period.


	Three Months
	Ended
	December 31,
(dollars in thousands)	2003
Revenue	$	56,221
Loss from continuing operations	$	(986	)
Net loss	$	(1,136	)

3. Discontinued Operations

In May 2004, the Board of Directors of the Company approved a formal plan to sell certain assets related to its Information Transport Systems (“I.T.S.”) segment to a group of private investors. The I.T.S. segment was a low margin business that no longer fit into the Company’s long-term growth plans. The sale closed in July 2004.

Under the terms of the sale agreement and the transition services agreement, the Company agreed to continue funding payroll and material procurement through October 31, 2004. Such amounts are due to the Company by the new company (“Newco”) and are secured by the billings on such work to the customer as well as all the assets sold to Newco. The Company has agreed to provide billing and collection services and the collection of amounts due to the Company by Newco is through the right of offset of collections on Newco customer billings. The Company has also agreed to allow Newco to obtain labor through the Company’s labor pooling agreement with Kleinknecht Electric Company–New York (“KEC-NY”) and Kleinknecht Electric Company–New Jersey (“KEC-NJ”) for one year and has obtained consent from KEC-NY and KEC-NJ for such use.

As of December 31, 2004, the amount outstanding due to the Company from Newco and collectible by the right of offset through Newco’s billings and collections is $5.0 million.

In accordance with FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has reported the results of operations of this business as income (loss) from discontinued operations. All prior periods

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

have been restated to conform to this presentation. As a result, the assets and liabilities of this discontinued operation have been reclassified on the balance sheet from the historical classifications and presented under the captions “assets of discontinued operations” and “liabilities of discontinued operations,” respectively.

The assets and liabilities of discontinued operations as of December 31, 2004 and September 30, 2004 are as follows (dollars in thousands):


	December 31,		September 30,
	2004		2004
Assets of discontinued operations:
Accounts receivable, net	$	145	$	2,518
Other current assets		—		30
Other assets		40		40

	$	185	$	2,588


Liabilities of discontinued operations:
Accounts payable and accrued expenses	$	668	$	639

The results of operations related to discontinued operations for the three months ended December 31, 2004 and 2003 are as follows (dollars in thousands):


	Three Months Ended
	December 31,
	2004			2003
Revenue	$	—		$	7,473
Costs of goods sold		—			7,314

Gross profit		—			159
Operating expenses		(100	)		424

Operating income (loss) before income taxes		100			(265	)
Income tax expense (benefit)		43			(115	)

Income (loss) from discontinued operations	$	57		$	(150	)

4. Inventories (dollars in thousands)


	December 31,		September 30,
	2004		2004
Components and manufacturing work in process	$	13,344	$	13,450
Inventory on customer sites awaiting installation		24,226		15,401
Parts and maintenance supplies		4,742		2,325

	$	42,312	$	31,176

5. Goodwill and Intangible Assets (dollars in thousands)

The Company adopted SFAS 142 in December 2001. Under SFAS 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. The following table reflects the changes in goodwill for the three months ended December 31, 2004:


	Financial		Command
	Services		and Control		Consolidated
Balance at October 1, 2004	$	82,621	$	—	$	82,621
Additions (primarily related to the acquisition of Orbacom)		—		7,816		7,816
Effect of currency translation adjustments		1,823		—		1,823

Balance at December 31, 2004	$	84,444	$	7,816	$	92,260

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

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)


	December 31,			September 30,
	2004			2004
Intangible assets:
Amortized intangible assets:
Technology	$	46,044		$	46,044
Customer relationships		163,123			163,123
Effect of currency translation adjustments		9,802			7,721
Accumulated amortization-technology		(20,037	)		(18,352	)
Accumulated amortization-customer relationships		(25,224	)		(22,905	)

Net carrying amount		173,708			175,631
Non-amortized intangible assets:
Trade name		16,300			16,300

Net carrying amount	$	190,008		$	191,931

Amortization expense for those intangible assets required to be amortized under SFAS 142 was $4.0 million for the three months ended December 31, 2004 and $3.8 million for the three months ended December 31, 2003.

Estimated annual amortization expense for fiscal year 2005 and each of the four succeeding fiscal years for identifiable intangible assets required to be amortized under SFAS 142 are as follows:


	2005		2006		2007		2008		2009
Estimated annual amortization expense	$	16,052	$	15,948	$	15,740	$	15,740	$	10,423

6. Accrued Expenses and Other Current Liabilities (in thousands)


	December 31,		September 30,
	2004		2004
Accrued compensation and benefits	$	9,231	$	12,851
Warranty reserves		1,697		1,577
Sales taxes payable		10		2,698
Job accruals		1,518		1,093
Accrued transaction costs		2,100		1,885
Accrued carrier costs		4,480		5,621
Current portion of deferred compensation		856		856
Accrued interest		1,227		5,232
Other accruals		3,283		4,171

	$	24,402	$	35,984

7. Long Term Debt

Senior Secured Credit Facilities

On December 20, 2001, the Company entered into the senior secured credit ~~facilities~~ facilities comprised of a $105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003, the Company amended and restated its senior secured credit facilities. The amended and restated senior secured credit facilities consisted of a $25.0 million revolving credit ~~facility~~ facility and a $55.0 million term loan. The term loan was borrowed in full at closing. On April 20, 2004, the Company completed an agreement to increase the availability under the revolving credit facility by $10.0 million. As of ~~June 30~~December 31, 2004 the total amount available for borrowing and letters of credit under the revolving credit facility is $3035.70 million, (of which $3530.07 million ~~reduced~~was byavailable as ~~outstanding~~of ~~letters~~December 31, ~~of credit~~2004, ofafter taking into account $4.3 million) of outstanding letters of credit, provided, however, that the Company can increase the committed amount under these facilities by up to $15.0 million so long as one or more lenders agrees to provide this incremental commitment and ~~other~~ other customary conditions are satisfied. The Company’s senior secured credit facilities mature on September 2, 2008. For the three months ended ~~June~~December 3031, 2004, the weighted average interest rate for borrowings outstanding under the ~~amended~~senior secured credit facilities was 5.54%. The senior secured credit facilities and ~~restated~~related interest expense is recorded on the Company’s Financial Services segment with no allocation of interest expense made to the Command and Control segment. The Company is also required to pay a commitment fee equal to 0.50% per annum of the average daily unused amount of the committed amount of the revolving credit facility, a fronting fee in an amount not to exceed 0.50% per annum of the average aggregate daily amount available to be drawn under all letters of credit issued under the Company’s senior secured credit facilities ~~was~~and 4customary administrative agent and letter of credit charges.~~94%.~~

~~Mandatory prepayments of the amended and restated senior secured credit~~14 facilities are required upon the occurrence of certain events, including certain asset sales, equity issuances and debt issuances, as well as from 50% of the Company’s excess cash flow in the 2004 fiscal year and thereafter. Excess cash flow is defined in the Company’s amended and restated credit agreement as: (1) the sum of net income, interest expense, provisions for taxes, depreciation expense, amortization expense, other non-cash items affecting net income and to the extent included in calculating net income, expenses incurred by the Company in connection with an amendment of the then existing credit agreement, certain restructuring expenses and prepayment premiums in connection with prepayment of loans under the then existing credit agreement, plus (2) a working capital adjustment less (3) scheduled repayments of debt, capital expenditures, cash interest expense and provisions for taxes based on income.

AsTable required under the terms of the Company’s senior secured credit facilities, the Company made mandatory excess cash flow repayments of $30.0 million and $0.8 million on September 30, 2002 and December 29, 2002, respectively, based upon 75% of its excess cash flow for the period ended September 30, 2002. On March 3, 2003, the Company also voluntarily prepaid $14.0 million in debt on its then existing senior secured credit facilities. For the year ended September 30, 2003, the Company was not required to make a mandatory excess cash flow repayment under the terms of the amended and restated senior secured credit facilities. Contents

~~Obligations~~IPC ~~under~~ACQUISITION the amended and restated senior secured credit facilities are secured by a first priority security interest in substantially all of the Company’s assets and the assets of its domestic subsidiaries and by a pledge of 100% of the shares of its domestic subsidiaries and 65% of the shares of direct foreign subsidiariesCORP. ~~The Company’s domestic subsidiaries have~~ ~~unconditionally~~NOTES ~~guaranteed~~TO ~~its~~CONSOLIDATED ~~obligations~~FINANCIAL ~~under the amended and restated~~STATEMENTS-Continued ~~senior~~December 31, ~~secured~~2004 ~~credit facilities.~~(Unaudited)

~~The~~Borrowings ~~amended~~under ~~and~~the ~~restated~~Company’s senior secured credit facilities ~~contain customary~~bear ~~affirmative~~interest, ~~covenants~~at asthe Company’s ~~well~~election, aseither ~~negative~~based ~~covenants~~on ~~that,~~a ~~among~~prime ~~other things,~~rate ~~restrict~~index plus the ~~Company’s~~applicable ~~and~~margin ~~its~~or ~~subsidiaries’~~a ~~ability~~LIBOR ~~to: incur~~rate ~~additional~~index ~~indebtedness~~plus ~~(including~~the ~~guarantees~~applicable ofmargin. ~~certain~~The ~~obligations);~~applicable ~~create liens;~~margin ~~engage~~is: inbased ~~mergers,~~on ~~consolidations,~~the ~~liquidations~~Company’s ~~and~~senior ~~dissolutions; sell~~secured ~~assets;~~leverage ~~enter~~ratio, ~~into~~as ~~capital~~defined ~~leases;~~in ~~pay~~the ~~dividends~~senior orsecured ~~make~~credit ~~other~~facilities. ~~payments~~If ~~in respect~~the ofsenior ~~capital~~secured ~~stock;~~leverage ratio ~~make~~is ~~acquisitions;~~greater ~~make~~than ~~investments~~1.00:1.00, ~~loans~~the ~~and advances;~~allocable ~~enter~~margin ~~into~~is ~~transactions~~ with ~~affiliates;~~respect ~~make~~to ~~payments~~LIBOR rate loans, 4.00% per annum and with respect to orprime ~~modify~~rate ~~subordinated~~loans, ~~debt~~3.00% ~~instruments;~~per ~~enter~~annum, ~~into~~and ~~sale~~if ~~and~~the ~~leaseback~~Company’s senior ~~transactions;~~secured ~~change~~leverage ~~the~~ratio ~~fiscal~~is ~~year~~less orthan ~~lines~~1.00:1.00, ofwith ~~business;~~respect ~~and~~to ~~enter~~LIBOR ~~into~~rate loans, 3.50% per annum ~~agreements~~and with ~~negative~~respect ~~pledge~~to ~~clauses~~prime orrate ~~clauses~~loans, ~~restricting~~2.50% ~~subsidiary distributions~~per annum.

~~The~~Mandatory ~~amended~~prepayments ~~and~~of ~~restated~~the senior secured credit facilities ~~also~~are ~~contain~~required upon the occurrence ~~minimum~~of ~~interest~~certain ~~coverage~~events, ~~and~~including ~~fixed~~certain ~~charge~~asset ~~coverage~~sales, ~~ratios~~equity issuances and ~~maximum~~debt ~~senior~~issuances, as well as from 50% of the Company’s excess cash flow, as defined in the senior secured credit facilities, in 2005 and ~~total~~thereafter. ~~leverage~~Excess ~~ratios~~cash asflow ~~well~~is defined in the Company’s credit agreement as: a(1) the ~~restriction~~sum of onnet income, interest expense, provisions for taxes, depreciation expense, amortization expense, other non-cash items affecting net income and to the ~~amount~~extent included in calculating net income, expenses incurred by the Company in connection with an amendment of the then existing credit agreement, certain restructuring expenses and prepayment premiums in connection with prepayment of loans under the then existing credit agreement, plus (2) a working capital adjustment less (3) scheduled repayments of debt, capital expenditures, cash acquisitions and certain investments, cash interest expense and provisions for taxes based on income. As required, the Company ~~can~~made ~~incur~~the mandatory inexcess acash flow payment of $6.6 million for the fiscal year ended September 30, 2004, of which $5.0 million was paid at September 30, 2004 and $1.6 million was paid on December 29, 2004.

AsObligations under the senior secured credit facilities are secured by a first priority security interest in substantially all of ~~June 30,~~the ~~2004,~~Company’s ~~remaining~~assets ~~annual~~and ~~principal~~the ~~repayments~~assets ~~required~~of ~~under~~its domestic subsidiaries and by a pledge of 100% of the ~~$55.0 million~~shares ~~term~~of ~~loan,~~its ~~(excluding~~domestic ~~any~~subsidiaries ~~future~~and ~~excess~~65% ~~free~~of ~~cash~~the shares ~~flow~~of direct foreign subsidiaries. The Company’s domestic subsidiaries have unconditionally ~~amounts),~~guaranteed byits ~~fiscal~~obligations ~~year,~~under ~~are~~the assenior ~~follows~~secured ~~(in~~credit ~~thousands):~~facilities.

	2004		2005		2006		2007		2008		Total
	$275		$550		$550		$550		$52,800		$54,725

The senior secured credit facilities contain customary affirmative covenants as well as negative covenants that, among other things, restrict the Company’s and its subsidiaries’ ability to: incur additional indebtedness (including guarantees of certain obligations); create liens; 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; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal year or lines of business; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

The senior secured credit facilities also contain minimum interest coverage and fixed charge coverage ratios and maximum senior secured and total leverage ratios as well as a restriction on the amount of capital expenditures the Company can incur in a fiscal year. At December 31, 2004, the Company was in compliance with all requirements of the senior secured credit facilities.

As of December 31, 2004, remaining annual principal repayments required under the term loan are as follows (in thousands):


2005		2006		2007		2008		2009		Total
	$ 483	$	483	$	11,961	$	34,795		—	$	47,722

Senior Subordinated Notes

The Company issued $150.0 million in aggregate principal amount of 11.50% ~~senior~~ senior subordinated notes on December 20, 2001 to fund a portion of the consideration for the acquisition of IPC Information Systems. 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 $250.0 million. The senior subordinated notes mature on December 15, 2009 and are callable, at the Company’s option, beginning in December 2005. The senior subordinated notes are general unsecured obligations of the Company, are subordinated in right of payment to all existing and future senior debt, including the senior secured credit facilities, are pari passu in right of payment with any future senior subordinated indebtedness of the Company, and are unconditionally guaranteed by certain of the Company’s domestic restricted subsidiaries. The senior subordinated notes and related interest expense is recorded on the Company’s Financial Services segment with no allocation of interest expense made to the Command and Control segment.

12 Interest on the senior subordinated notes accrues at the rate of 11.50% per annum and is payable semi-annually in arrears on June 15 and December 15. Pursuant to a registration rights agreement entered into at the time the senior subordinated notes were issued, on June 21, 2002 the Company completed an exchange offer registered under the Securities Act of 1933, as amended, in

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

~~maximum aggregate~~which ~~principal~~100% ~~amount~~ of ~~$250.0 million. The senior subordinated notes mature on December 15, 2009 and are callable, at~~ the ~~Company’s~~outstanding ~~option, beginning in December 2005. The~~ senior subordinated notes ~~are~~were ~~general~~exchanged ~~unsecured obligations~~for ofa ~~the~~different ~~Company,~~series ~~are subordinated in right~~ of ~~payment to all~~ ~~existing and future~~ senior ~~debt, including the senior secured credit facilities, are pari passu in right of payment with any future senior~~ subordinated ~~indebtedness~~notes ofhaving ~~the~~substantially ~~Company,~~identical ~~and are unconditionally guaranteed by certain of the Company’s domestic restricted subsidiaries~~terms.

~~Interest~~The onindenture governing the senior subordinated notes ~~accrues~~contains atcovenants ~~the~~that ~~rate of 11.50%~~impose ~~per~~significant ~~annum~~restrictions ~~and~~on isthe ~~payable~~Company. ~~semi-annually~~These inrestrictions ~~arrears~~include limitations on ~~June 15~~the ~~and~~ability ~~December 15,~~of ~~commencing~~the onCompany ~~June 15,~~and ~~2002.~~its ~~Pursuant~~restricted subsidiaries to: aincur ~~registration~~indebtedness ~~rights~~or ~~agreement entered~~issue ~~into~~preferred atshares; ~~the~~pay dividends ~~time~~or ~~the~~make ~~senior~~distributions ~~subordinated~~in ~~notes~~respect ~~were~~of ~~issued,~~capital onstock ~~June 21, 2002~~or ~~the~~to ~~Company~~make ~~completed~~other anrestricted ~~exchange~~payments; create ~~offer~~liens; ~~registered~~agree ~~under~~to ~~the~~payment ~~Securities Act~~restrictions ofaffecting ~~1933,~~restricted assubsidiaries; ~~amended~~consolidate, inmerge, sell ~~which~~or ~~100%~~otherwise dispose of ~~the~~all ~~outstanding~~or ~~senior~~substantially ~~subordinated notes~~all ~~were~~of ~~exchanged~~its ~~for~~assets; aenter ~~different~~into ~~series~~transactions ofwith affiliates; ~~senior~~and ~~subordinated~~designate ~~notes~~subsidiaries ~~having substantially~~as ~~identical~~unrestricted ~~terms~~subsidiaries.

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.

8. Commitments and Contingencies

Warranties

The Company records a reserve for future warranty costs based on current ~~unit~~ segment sales, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The adequacy of the recorded warranty ~~liabilities~~liability 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 periods presented are as follows:

	Nine Months Ended
	Three Months Ended
	June 30,
	December 31,
(dollars in thousands)	2004			2003
	2004			2003
Balance at beginning of period	$	1,~~889~~577		$	21,~~159~~889
Warranty accrual		1,300			1,186
Provision for current period		338			321
Material and labor usage		(1,071	)		(1,945	)
Liability assumed with purchase of Orbacom		262			—
Balance at end of period	$	2,118		$	1,400
Material and labor usage		(480	)		(425	)
Balance at end of period	$	1,697		$	1,785

Guarantees

The Company, through its subsidiaries, guaranteed certain equipment lease, real estate and other obligations of its former affiliate, Global Crossing. The Company remains a guarantor of certain real estate lease obligations on behalf of Global Crossing including a sublease for office space at 67-73 Worship Street in London, England. The terms of these guarantees will expire in November 2004 and December 2005. These obligations were entered as a result of Global Crossing’s ownership of the Company and the Company is responsible for any payments if Global Crossing fails to make the required payments under the lease agreements. However, under the settlement and rejection agreement (as discussed in Note 2), $2.0 million has been placed in an escrow account pending the issuance of an irrevocable letter of credit from Global Crossing to the Company as beneficiary in the event that Global Crossing fails to make the required payments under the Worship Street sublease. The carrying value of these guarantees as of June 30, 2004 is $1.6 million, and such amount has been recorded on the Company’s consolidated balance sheet in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). Such amount has been reduced by the $2.0 million escrow account. The maximum potential future payments the Company could be required to make under these obligations is $3.0 million. Through June 30, 2004, Global Crossing’s affiliate has made all of the required Worship Street sublease payments.

Litigation

Except for the ~~two~~ lawsuits described below, of which the first two involve the Company’s former I.T.S. ~~division~~ segment, the Company is not a party to any pending legal proceedings other than claims and lawsuits arising in the normal course of business. Under the terms of the sale agreement, the Company remains liable for all pre-closing liabilities relating to the I.T.S. ~~division~~segment, including the two lawsuits described below. Management believes the proceedings will not have a material adverse effect on the Company’s consolidated financial condition or results of operations.

IPC ACQUISITION CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued (Unaudited) June 30, 2004

On June 27, 2000, an action was brought against several defendants, including the Company’s subsidiary, 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 $75.0 million.

On September 8, 2003, an action was brought against several defendants, including the Company’s subsidiary, IPC Information Systems, Inc. and its President, in the United States District Court for the Eastern District of New York by Advance Relocation & Storage Co., Inc., a moving company. The complaint alleges that IPC Information Systems, Inc. and 23 other defendants violated the Racketeer Influenced and Corrupt Organizations Act and engaged in tortious interference with prospective business advantage by preventing the plaintiff from obtaining work as a mover in jobs performed in large commercial buildings in New York City. The Company believes the suit is without merit and intends to vigorously defend against all claims alleged against it in the complaint. Plaintiffs are seeking injunctive relief and damages from the defendants, jointly and severally, in an aggregate amount of approximately $7.0 million.

9 On December 3, 2003, Hamilton County Emergency Communications District sued a former affiliate of Orbacom in the United States Court for the Eastern District of Tennessee at Chattanooga. ~~Income~~The complaint ~~Taxes~~asserts claims for breach of contract in connection with the installation of public safety communications systems and the provision of services to Hamilton County. The complaint seeks damages of approximately $600,000.

The Company’s effective tax rate for the nine months ended June 30, 2004 was 53.1% and 307.0% for the nine months ended June 30, 2003. The Company’s effective tax rates reflect the Company’s foreign, federal and state taxes, the non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain expenses and taxable income at several of the Company’s foreign subsidiaries, which, as compared to the absolute amount of pre-tax earnings (or loss), has a significant impact on the Company’s effective tax rates.

As of September 30, 2003, the Company has recognized deferred tax assets related to its US federal and state net operating loss carryforwards of approximately $8.5 million. In determining whether it is more likely than not that the Company will realize the benefits of the net deferred tax assets from US operations, the Company considered all available evidence, both positive and negative. The principal factors that led the Company to recognize these benefits were: (1) US results of operations for the period ended September 30, 2002 reported a loss before income taxes of $22.1 million, after reflecting charges of $34.3 million resulting from the fair-value inventory adjustments under the purchase price allocation of the IPC Information Systems Acquisition (which, as a result of the Internal Revenue Code Section 338(h)(10) tax election, jointly made by the Company and Global Crossing, also generate deductions for income tax purposes); (2) US results of operations for subsequent fiscal years are expected to generate sufficient taxable income to fully utilize these tax loss carryforwards; and (3) the Company’s conclusion that the net US deferred tax assets were generated by an event (the Company’s purchase of the business), rather than a continuing condition. As of June 30, 2004, no circumstances have arisen that would require the Company to change such conclusion.

As a result of the termination of the purchase agreement, Global Crossing has been relieved of all of its obligations under the purchase agreement, including, among other things, indemnifying the Company for tax liabilities that may be imposed upon IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition. Therefore, in the event that any tax liabilities are imposed, as a result of an audit or otherwise, on IPC Information Systems, Inc. and/or its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition, the Company may be required to pay those taxes and is no longer able to seek indemnification from Global Crossing. As of the date of this filing, the aggregate amount of taxes for which the Company has received notices of taxes due from various jurisdictions and recognized as tax liabilities under purchase accounting is approximately $6.5 million and, as of June 30, 2004, the Company has made settlement payments aggregating $1.9 million, including a $1.1 million payment made to one jurisdiction in May 2004. The Company estimates that the range of its exposure for additional tax liabilities is from $0.0 to $18.0 million, which has been reduced from $36.0 million as a result of the Company’s settlement negotiations. In computing its estimated range of potential tax liabilities, the Company took into account tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under those tax returns as filed, the remaining liability is zero. Although the Company believes that all those tax returns have been filed correctly, such returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by the Company of a significant amount of these potential tax liabilities could have a material adverse effect on the Company’s financial condition and results of operations, requiring the Company to seek additional financing. In that event, the Company cannot make assurances that it will be able to obtain additional financing on commercially reasonable terms, or at all.

IPC ACQUISITION CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued (Unaudited) June 30, 2004

10. Business Segment Information

The Company’s operations include the Trading Systems and Network Services 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 MACs to existing turret system installations as “Service.” Revenue from the Company’s Network Services division, which provides voice and data services to the financial community, is generally billed at the beginning of the month and recognized in the same month, is reported as “Service”. The Company’s primary measures to evaluate performance are direct margin (revenue less cost of goods sold, excluding indirect costs and depreciation and amortization) and income from operations.

For the Three Months Ended June 30, 2004

				Network
	Trading Systems			Services			Consolidated
				(dollars in thousands)
Revenue:
Product sales and installations	$	21,527		$	—		$	21,527
Service		25,560			13,226			38,786
Total revenue		47,087			13,226			60,313
Direct margin		29,586			6,912			36,498
Depreciation and amortization		5,342			1,222			6,564
Income from operations		5,476			1,384			6,860
Interest income (expense), net		(5,394	)		3			(5,391	)
Other income (expense), net		266			(43	)		223
Income before income taxes		348			1,344			1,692
Income tax expense (benefit)		30			(398	)		(368	)
Goodwill as of June 30, 2004	$	72,377		$	17,369		$	89,746
Total assets as of June 30, 2004 (1)	$	371,073		$	41,879		$	423,157
Capital expenditures	$	883		$	851		$	1,734

(1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. division of $10,205.

For the Three Months Ended June 30, 2003

				Network
	Trading Systems			Services			Consolidated
				(dollars in thousands)
Revenue:
Product sales and installations	$	18,157		$	—		$	18,157
Service		22,349			4,000			26,349
Total revenue		40,506			4,000			44,506
Direct margin		24,287			1,760			26,047
Depreciation and amortization		4,980			254			5,234
Income (loss) from operations		3,246			(341	)		2,905
Interest income (expense), net		(6,013	)		5			(6,008	)
Other income, net		2,004			8			2,012
Loss before income taxes		(763	)		(328	)		(1,091	)
Income tax expense		245			58			303
Goodwill as of June 30, 2003	$	70,362		$	8,859		$	79,221
Total assets as of June 30, 2003 (1)	$	392,348		$	18,844		$	440,544
Capital expenditures	$	1,199		$	357		$	1,556

(1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. division of $29,352.

IPC ACQUISITION CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued (Unaudited) June 30, 2004

For the Nine Months Ended June 30, 2004

				Network
	Trading Systems			Services			Consolidated
				(dollars in thousands)
Revenue:
Product sales and installations	$	75,228		$	—		$	75,228
Service		75,224			32,379			107,603
Total revenue		150,452			32,379			182,831
Direct margin		95,115			16,407			111,522
Depreciation and amortization		16,010			2,699			18,709
Income from operations		21,054			2,345			23,399
Interest expense, net		(16,701	)		(26	)		(16,727	)
Other income (expense), net		585			(55	)		530
Income before income taxes		4,938			2,264			7,202
Income tax expense		3,529			292			3,821
Capital expenditures	$	3,598		$	2,357		$	5,955

For the Nine Months Ended June 30, 2003

				Network
	Trading Systems			Services			Consolidated
				(dollars in thousands)
Revenue:
Product sales and installations	$	63,068		$	—		$	63,068
Service		65,056			4,000			69,056
Total revenue		128,124			4,000			132,124
Direct margin		80,096			1,760			81,856
Depreciation and amortization		14,985			254			15,239
Income (loss) from operations		16,557			(341	)		16,216
Interest income (expense), net		(18,695	)		5			(18,690	)
Other income net		3,331			8			3,339
Income (loss) before income taxes		1,193			(328	)		865
Income tax expense		2,597			58			2,655
Capital expenditures	$	3,475		$	357		$	3,832

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

11 The Company acquired Orbacom on November 30, 2004. ~~Guarantor~~On ~~Subsidiaries’~~January 6, ~~Financial~~2005, Hamilton amended its complaint to add IPC Information Systems, LLC as a defendant. The amended complaint alleges new claims against IPC Information Systems, LLC for violations of the Uniform Fraudulent Transfer Act by entering into a concerted plan to take actions to place the assets of an affiliate of Orbacom beyond the reach of the court.

~~Certain~~The ofCompany is fully indemnified by the ~~Company’s~~selling ~~domestic~~Orbacom ~~restricted~~shareholders ~~subsidiaries~~for ~~guarantee~~all ~~the~~costs incurred by ~~senior~~the ~~secured~~Company ~~credit~~in ~~facilities~~the action and have held back $3 million of the purchase ~~senior~~price ~~subordinated~~payable ~~notes~~to the former Orbacom shareholders. ~~These~~On January 7, 2005, the Company served ~~subsidiary~~the ~~guarantees~~Orbacom ~~are~~shareholder ~~both~~representative ~~full~~notice ~~and~~of ~~unconditional~~its request for indemnification under the Stock Purchase Agreement, dated as ~~well~~of asOctober 1, ~~joint~~2004, ~~and~~among the Company, IPC Information Systems ~~several~~Holdings, Inc. ~~Information~~and ~~regarding~~Orbacom ~~the~~and ~~guarantors~~each isof asthe ~~follows~~sellers ~~(in~~listed ~~thousands):~~therein.

~~Condensed~~ On ~~Consolidating~~December 15, ~~Balance~~2004, ~~Sheet~~IPC atInformation ~~June~~Systems, LLC commenced two lawsuits arising out of the unauthorized copying of its proprietary software. The first action was filed in the Southern District of New York against The Odyssey Group, Inc. doing business as The O&R Group, Inc. The complaint alleges that the Odyssey Group infringed the Company’s copyrights by soliciting and obtaining an unauthorized copy of its proprietary software from Advanced Business Communications Ltd. (‘ABC”), a Canadian company. The Company’s complaint seeks recovery of the software, injunctive relief and unspecified damages from the defendants. The Odyssey Group has asserted counterclaims against us seeking aggregate damages of approximately $3 30million for injurious falsehood, ~~2004~~slander per se and interference with prospective economic advantage. The Company believes the counterclaims are without merit and intends to vigorously defend against them.

						Non-
	IPC		Guarantor			Guarantor
	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	8,008	$	3,239		$	6,156		$	—		$	17,403
Accounts receivable, net		—		20,568			21,612			—			42,180
Inventories, net		—		20,374			8,794			(4,114	)		25,054
Prepaid and other current assets		—		1,848			2,303			(122	)		4,029
Due from (to) affiliate		185,073		(168,089	)		(16,984	)		—			—
Current assets of discontinued operations		—		9,918			—			—			9,918
Total current assets		193,081		(112,142	)		21,881			(4,236	)		98,584
Investment in subsidiaries		139,945		10,524			19,517			(169,986	)		—
Property, plant and equipment, net		—		19,360			4,782			—			24,142
Goodwill and intangibles, net		—		189,541			96,599			—			286,140
Deferred financing costs, net		12,909		—			—			—			12,909
Other assets		—		371			724			—			1,095
Non-current assets of discontinued operations		—		287			—			—			287
Total assets	$	345,935	$	107,941		$	143,503		$	(174,222	)	$	423,157
Liabilities and stockholders’ equity:
Current portion of long-term debt	$	550	$	—		$	—		$	—		$	550
Accounts payable, accrued expenses and other current liabilities		835		16,204			18,307			—			35,346
Customer advances and deferred revenue		—		16,707			15,994			—			32,701
Current liabilities of discontinued operations		—		1,794			—			—			1,794
Total current liabilities		1,385		34,705			34,301			—			70,391
Long-term debt		204,175		—			—			—			204,175
Other long-term liabilities		8,190		3,082			6,134			(1,000	)		16,406
Total liabilities		213,750		37,787			40,435			(1,000	)		290,972
Total stockholders’ equity		132,185		70,154			103,068			(173,222	)		132,185
Total liabilities and stockholders’ equity	$	345,935	$	107,941		$	143,503		$	(174,222	)	$	423,157

The second action was filed in the Alberta Court of Queen’s Bench against ABC and its two principals. The statement of claim against ABC alleges misappropriation of the Company’s software, breach of contract, breach of fiduciary and common law duties and conversion and seeks injunctive relief and monetary damages. ABC has asserted counterclaims against the Company seeking aggregate damages of approximately $450,000 for breach of contract. The Company believes the counterclaims are without merit and intends to vigorously defend against them.

9. Income Taxes

The Company’s effective tax rate for the three months ended December 31, 2004 was 42.1% and was 29.9% for the three months ended December 31, 2003. The Company’s effective tax rate reflects the Company’s foreign, federal and state taxes, the non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain expenses and, for the three months ended December 31, 2003, taxable income at several of the Company’s foreign subsidiaries.

The Company has U.S. federal net operating loss carryforwards of approximately $16.9 million at September 30, 2004, which expire through September 30, 2022. As of September 30, 2004, the Company has recognized deferred tax assets related to its US federal and state net operating loss carryforwards of approximately $6.8 million. In determining whether it is more likely than not that the Company will realize the benefits of the net deferred tax assets from US operations, the Company considered all available evidence, both positive and negative. The principal factors that led the Company to recognize these benefits were: (1) US results of operations for the period ended September 30, 2002 reported a loss before income taxes of $22.1 million, after reflecting charges of $34.3 million resulting from the fair-value inventory adjustments under the purchase price allocation (which, as a result of the Internal Revenue Code Section 338(h)(10) tax election, jointly made by the Company and Global Crossing, also generated deductions for income tax purposes); (2) US results of operations for subsequent fiscal years are expected to generate sufficient taxable income to fully utilize these tax loss carryforwards; and (3) the Company’s conclusion that the net US deferred tax assets were generated by an event (the Company’s purchase of the business), rather than a continuing condition. As of December 31, 2004, no circumstances have arisen that would require the Company to change such conclusion.

The aggregate amount of taxes for which the Company has received notices of taxes due and estimated amounts for probable assessments from various jurisdictions and recognized as tax liabilities under purchase accounting is approximately $6.5 million and, as of December 31, 2004, the Company has made settlement payments aggregating $1.9 million, including a $1.1 million payment made to one jurisdiction in May 2004. The Company estimates that its exposure for additional tax liabilities relating to periods prior to the acquisition in excess of amounts accrued is zero, which has been reduced from an original range of zero to $36.0 million as a result of the Company’s settlement negotiations. In computing its estimated potential tax liabilities, the Company took into account tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under those tax returns as filed, the remaining liability is zero. Although the Company believes that all those tax returns have been filed correctly, such returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by the Company of a significant amount of these potential tax liabilities should not have a material adverse effect on the Company’s financial condition and results of operations.

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

~~Condensed~~10. ~~Consolidating~~Business ~~Balance~~Segment ~~Sheet at~~Information ~~September 30, 2003~~

						Non-
	IPC		Guarantor			Guarantor
	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	9,088	$	3,135		$	13,577		$	—		$	25,800
Accounts receivable, net		—		27,233			13,176			—			40,409
Inventories, net		—		20,916			4,666			(2,854	)		22,728
Prepaid and other current assets		—		2,014			3,413			—			5,427
Due from (to) affiliate		213,600		(190,517	)		(23,083	)		—			—
Current assets of discontinued operations		—		27,556			—			—			27,556
Total current assets		222,688		(109,663	)		11,749			(2,854	)		121,920
Investment in subsidiaries		129,364		10,524			1,375			(141,263	)		—
Property, plant and equipment, net		—		19,865			3,986			—			23,851
Goodwill and intangibles, net		—		192,676			87,362			—			280,038
Deferred financing costs, net		14,146		—			—			—			14,146
Other assets		—		815			406			—			1,221
Non-current assets of discontinued operations		—		3,734			—			—			3,734
Total assets	$	366,198	$	117,951		$	104,878		$	(144,117	)	$	444,910
Liabilities and stockholders’ equity:
Current portion of long-term debt	$	550	$	—		$	—		$	—		$	550
Accounts payable, accrued expenses and other current liabilities		5,299		13,832			16,206			—			35,337
Customer advances and deferred revenue		—		23,775			6,074			—			29,849
Deferred purchase price consideration		—		6,722			—			—			6,722
Current liabilities of discontinued operations		—		3,820			—			—			3,820
Total current liabilities		5,849		48,149			22,280			—			76,278
Long-term debt		204,450		—			—			—			204,450
Other long-term liabilities		8,720		4,159			5,124			(1,000	)		17,003
Total liabilities		219,019		52,308			27,404			(1,000	)		297,731
Total stockholders’ equity		147,179		65,643			77,474			(143,117	)		147,179
Total liabilities and stockholders’ equity	$	366,198	$	117,951		$	104,878		$	(144,117	)	$	444,910

The Company, headquartered in New York, provides mission-critical voice communications solutions to the financial services trading industry as well as the command and control operations including power, energy, utility and transportation companies, public safety organizations and government and military agencies.

~~Condensed~~ Through ~~Consolidated~~September ~~Statement~~30, of2004, ~~Operations~~the Company’s operations included three segments named Trading Systems, I.T.S. and ~~For~~Network ~~the~~Services. ~~Three~~The ~~Months~~I.T.S. ~~Ended~~segment was sold in June 302004 and is reported as discontinued operations for all periods presented. With the sale of I.T.S. and the acquisition of Orbacom, ~~2004~~the Company has now realigned its operations and has two segments named Financial Services and Command and Control. Both the Financial Services and Command and Control segments report revenue as follows:

							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenue	$	—		$	37,895		$	26,416	$	(3,998	)	$	60,313
Cost of goods sold		—			19,538			14,860		(3,845	)		30,553
Gross profit		—			18,357			11,556		(153	)		29,760
Other operating expenses		—			15,724			7,176		—			22,900
Income (loss) from operations		—			2,633			4,380		(153	)		6,860
Interest income (expense) and other, net		(5,560	)		275			117		—			(5,168	)
Income tax provision		—			(628	)		260		—			(368	)
Income (loss) from continuing operations		(5,560	)		3,536			4,237		(153	)		2,060
Income (loss) from discontinued operations, net of tax		—			(3,334	)		—		—			(3,334	)
Net income (loss)	$	(5,560	)	$	202		$	4,237	$	(153	)	$	(1,274	)

	•	sales of equipment to distributors and direct sales and installations of turret systems, radio consoles and computer aided dispatch software as “Product sales and installations”; and

	•	revenue from equipment maintenance, including annual and multi-year service contracts, sales of network voice and data services and from MACs to existing equipment installations as “Service.”

The Company’s primary measures to evaluate performance are direct margin (revenue less cost of goods sold, excluding indirect costs and depreciation and amortization) and income from operations.

The following tables represent business segment information for the Company’s two operating segments, Financial Services and Command and Control, for the three months ended December 31, 2004 and 2003 (in thousands):


	Financial		Command
For the Three Months Ended December 31, 2004	Services		and Control			Consolidated
Revenue:
Product sales and installations	$	22,249	$	221		$	22,470
Service		42,944		511			43,455

Total revenue		65,193		732			65,925
Direct cost of goods sold		25,707		360			26,067

Direct margin		39,486		372			39,858
Research and development		3,181		239			3,420
Selling, general and administrative		9,388		888			10,276

Segment profit		26,917		(755	)		26,162
Other segment data:
Corporate research and development		611		—			611
Corporate selling, general and administrative		6,857		—			6,857
Depreciation and amortization		2,553		8			2,561
Intangibles amortization		4,021		—			4,021
Indirect cost (fixed and variable)		7,452		135			7,587
Interest expense, net		5,629		—			5,629
Other income, net		1,405		—			1,405
Income tax provision (benefit)		127		—			127

Goodwill as of December 31, 2004	$	84,444	$	7,816		$	92,260
Total assets as of December 31, 2004 (1)	$	433,899	$	15,391		$	449,475
Capital expenditures	$	1,893	$	—		$	1,893

(1)

Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $ 185

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

Condensed Consolidated Statement of Operations For the Three Months Ended June 30, 2003


	Financial		Command
For the Three Months Ended December 31, 2003	Services		and Control		Consolidated
Revenue:
Product sales and installations	$	21,388	$	70	$	21,458
Service		30,926		310		31,236

Total revenue		52,314		380		52,694
Direct cost of goods sold		21,391		150		21,541

Direct margin		30,923		230		31,153
Research and development		2,668		—		2,668
Selling, general and administrative		7,166		—		7,166

Segment profit		21,089		230		21,319
Other segment data:
Corporate research and development		741		—		741
Corporate selling, general and administrative		5,758		—		5,758
Depreciation and amortization		2,073		—		2,073
Intangibles amortization		3,776		—		3,776
Indirect cost (fixed and variable)		5,138		—		5,138
Interest expense, net		5,522		—		5,522
Other income (expense), net		447		—		447
Income tax provision (benefit)		372		—		372
Goodwill as of December 31, 2003	$	83,956	$	—	$	83,956
Total assets as of December 31, 2003 (1)	$	400,453	$	—	$	421,692
Capital expenditures	$	1,741	$	—	$	1,741

							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	34,330		$	14,783		$	(4,607	)	$	44,506
Cost of goods sold		—			17,626			9,368			(3,738	)		23,256
Gross profit		—			16,704			5,415			(869	)		21,250
Other operating expenses		—			13,670			4,675			—			18,345
Income (loss) from operations		—			3,034			740			(869	)		2,905
Interest income (expense) and other, net		(5,982	)		265			1,721			—			(3,996	)
Income tax provision		—			(1,038	)		1,341			—			303
Income (loss) from continuing operations		(5,982	)		4,337			1,120			(869	)		(1,394	)
Income (loss) from discontinued operations, net of tax		—			427			—			—			427
Net income (loss)	$	(5,982	)	$	4,764		$	1,120		$	(869	)	$	(967	)
Condensed Consolidated Statement of Operations For the Nine Months Ended June 30, 2004
							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	127,044		$	66,215		$	(10,428	)	$	182,831
Cost of goods sold		—			63,892			36,570			(9,046	)		91,416
Gross profit		—			63,152			29,645			(1,382	)		91,415
Other operating expenses		—			48,367			19,649			—			68,016
Income (loss) from operations		—			14,785			9,996			(1,382	)		23,399
Interest income (expense) and other, net		(16,720	)		828			(305	)		—			(16,197	)
Income tax provision		—			3,532			289			—			3,821
Income (loss) from continuing operations		(16,720	)		12,081			9,402			(1,382	)		3,381
Income (loss) from discontinued operations, net of tax		—			(3,614	)		—			—			(3,614	)
Net income (loss)	$	(16,720	)	$	8,467		$	9,402		$	(1,382	)	$	(233	)
Condensed Consolidated Statement of Operations For the Nine Months Ended June 30, 2003
							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	104,263		$	39,253		$	(11,392	)	$	132,124
Cost of goods sold		—			50,754			23,704			(10,309	)		64,149
Gross profit		—			53,509			15,549			(1,083	)		67,975
Other operating expenses		—			39,662			12,097			—			51,759
Income (loss) from operations		—			13,847			3,452			(1,083	)		16,216
Interest income (expense) and other, net		(18,750	)		123			3,276			—			(15,351	)
Income tax provision (benefit)		—			(1,168	)		3,823			—			2,655
Income (loss) from continuing operations		(18,750	)		15,138			2,905			(1,083	)		(1,790	)
Income (loss) from discontinued operations, net of tax		—			10			—			—			10
Net income (loss)	$	(18,750	)	$	15,148		$	2,905		$	(1,083	)	$	(1,780	)

(1)

Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $ 21,239

11. Guarantor Subsidiaries’ Financial Information

Certain of the Company’s domestic restricted subsidiaries guarantee the senior secured credit facilities and the senior subordinated notes. These subsidiary guarantees are both full and unconditional, as well as joint and several. Information regarding the guarantors is as follows (in thousands):


						Non-
	IPC		Guarantor			Guarantor
Condensed Consolidated Balance Sheet at December 31, 2004	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	43	$	(199	)	$	8,893		$	—		$	8,737
Accounts receivable, net		—		23,724			31,490			—			55,214
Inventories, net		—		25,997			30,210			(13,895	)		42,312
Prepaid and other current assets		13,751		7,147			2,217			(122	)		22,993
Due from (to) affiliate		171,422		(141,456	)		(29,966	)		—			—
Current assets of discontinued operations		—		145			—			—			145

Total current assets		185,216		(84,642	)		42,844			(14,017	)		129,401
Investment in subsidiaries		157,207		10,524			12,632			(180,363	)		—
Property, plant and equipment, net		—		19,697			4,951			—			24,648
Goodwill and intangibles, net		—		190,166			92,102			—			282,268
Deferred financing costs, net		11,866		—			—			—			11,866
Other assets		—		474			778			—			1,252
Non-current assets of discontinued operations		—		40			—			—			40

Total assets	$	354,289	$	136,259		$	153,307		$	(194,380	)	$	449,475


Liabilities and stockholders’ equity:
Current portion of long-term debt	$	483	$	—		$	—		$	—		$	483
Accounts payable, accrued expenses and other current liabilities		1,227		22,252			15,452			—			38,931
Customer advances and deferred revenue		—		21,134			23,671			—			44,805
Current liabilities of discontinued operations		—		668			—			—			668

Total current liabilities		1,710		44,054			39,123			—			84,887
Long-term debt		197,239		—			—			—			197,239
Other long-term liabilities		19,136		5,933			6,076			—			31,145

Total liabilities		218,085		49,987			45,199			—			313,271
Total stockholders’ equity		136,204		86,272			108,108			(194,380	)		136,204

Total liabilities and stockholders’ equity	$	354,289	$	136,259		$	153,307		$	(194,380	)	$	449,475

IPC ACQUISITION CORP. NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS—-Continued ~~(Unaudited) June~~December 3031, 2004 (Unaudited)

Condensed Consolidated Statement of Cash Flows For the Nine Months Ended June 30, 2004


						Non-
	IPC		Guarantor			Guarantor
Condensed Consolidated Balance Sheet at September 30, 2004	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	3,028	$	13,057		$	11,185		$	—		$	27,270
Accounts receivable, net		—		23,054			34,205			—			57,259
Inventories, net		—		22,164			17,388			(8,376	)		31,176
Prepaid and other current assets		13,132		9,863			1,417			(122	)		24,290
Due from (to) affiliate		181,288		(156,593	)		(24,695	)		—			—
Current assets of discontinued operations		—		2,548			—			—			2,548

Total current assets		197,448		(85,907	)		39,500			(8,498	)		142,543
Investment in subsidiaries		146,692		10,524			12,632			(169,848	)		—
Property, plant and equipment, net		—		20,077			4,769			—			24,846
Goodwill and intangibles, net		—		185,341			89,211			—			274,552
Deferred financing costs, net		12,283		—			—			—			12,283
Other assets		—		335			700			—			1,035
Non-current assets of discontinued operations		—		40			—			—			40

Total assets	$	356,423	$	130,410		$	146,812		$	(178,346	)	$	455,299


Liabilities and stockholders’ equity:
Current portion of long-term debt	$	2,157	$	—		$	—		$	—		$	2,157
Accounts payable, accrued expenses and other current liabilities		5,232		32,408			22,240			—			59,880
Customer advances and deferred revenue		—		16,907			19,084			—			35,991
Current liabilities of discontinued operations		—		639			—			—			639

Total current liabilities		7,389		49,954			41,324			—			98,667
Long-term debt		197,293		—			—			—			197,293
Other long-term liabilities		18,498		2,946			4,652			—			26,096

Total liabilities		223,180		52,900			45,976			—			322,056
Total stockholders’ equity		133,243		77,510			100,836			(178,346	)		133,243

Total liabilities and stockholders’ equity	$	356,423	$	130,410		$	146,812		$	(178,346	)	$	455,299

							Non-
	IPC			Guarantor			Guarantor
Condensed Consolidated Statement of Operations	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations			Consolidated
For the Three Months Ended December 31, 2004	Acquisition			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net cash provided by (used in) continuing operations	$	(20,379	)	$	27,812		$	16,387		$	—		$	23,820
Revenue	$	—		$	53,312		$	27,774		$	(15,161	)	$	65,925
Net cash provided by discontinued operations		—			15,445			—			—			15,445
Cost of goods sold		—			27,960			16,418			(9,642	)		34,736
Net cash provided by (used in) operating activities		(20,379	)		43,257			16,387			—			39,265
Gross profit		—			25,352			11,356			(5,519	)		31,189
Capital expenditures		—			(4,148	)		(1,807	)		—			(5,955	)
Other operating expenses		55			18,622			7,987			—			26,664
Payment of Gains US and UK earn-out and deferred purchase price		—			(6,756	)		—			—			(6,756	)
Income (loss) from operations		(55	)		6,730			3,369			(5,519	)		4,525
Intercompany borrowings		49,485			(26,659	)		(22,826	)		—			—
Interest income (expense) and other income (expense), net		(5,596	)		107			1,265			—			(4,224	)
Acquisition of Gains Asia, net of cash acquired and Purple Voice		(11,722	)		(5,528	)		1,536			—			(15,714	)
Income tax provision		—			87			40			—			127
Net cash provided by (used in) investing activities		37,763			(43,091	)		(23,097	)		—			(28,425	)
Equity in earnings (losses) from investees		5,882			1,955			—			(7,837	)		—
Principal payments on term loan		(275	)		—			—			—			(275	)
Income (loss) from continuing operations		231			8,705			4,594			(13,356	)		174
Deferred compensation payments		—			(62	)		—			—			(62	)
Income (loss) from discontinued operations, net of tax		—			57			—			—			57
Issuance costs for term loan amendment		(225	)		—			—			—			(225	)
Net income (loss)	$	231		$	8,762		$	4,594		$	(13,356	)	$	231
Special cash dividend paid		(17,964	)		—			—			—			(17,964	)
Net cash used in financing activities		(18,464	)		(62	)		—			—			(18,526	)
Effect of exchange rate changes on cash		—			—			(711	)		—			(711	)
Net increase (decrease) in cash		(1,080	)		104			(7,421	)		—			(8,397	)
Cash at beginning of period		9,088			3,135			13,577			—			25,800
Cash at end of period	$	8,008		$	3,239		$	6,156		$	—		$	17,403

Condensed Consolidated Statement of Cash Flows For the Nine Months Ended June 30, 2003


							Non-
Condensed Consolidated Statement of Operations	IPC			Guarantor			Guarantor
For the Three Months Ended December 31, 2003	Acquisition			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenue	$	—		$	37,370		$	17,098	$	(1,774	)	$	52,694
Cost of goods sold		—			19,817			9,659		(2,055	)		27,421

Gross profit		—			17,553			7,439		281			25,273

Other operating expenses		—			15,863			5,577		—			21,440


Income from operations		—			1,690			1,862		281			3,833
Interest income (expense) and other income (expense), net		(5,468	)		278			115		—			(5,075	)
Income tax provision (benefit)		—			(205	)		577		—			372
Equity in earnings (losses) from investees		3,704			98			—		(3,802	)		—

Income (loss) from continuing operations		(1,764	)		2,271			1,400		(3,521	)		(1,614	)
Loss from discontinued operations, net of tax		—			(150	)		—		—			(150	)

Net income (loss)	$	(1,764	)	$	2,121		$	1,400	$	(3,521	)	$	(1,764	)

							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by continuing operations	$	(23,649	)	$	32,362		$	10,191		$	—	$	18,904
Net cash used in discontinued operations		—			(7,791	)		—			—		(7,791	)
Net cash provided by (used in) operating activities		(23,649	)		24,571			10,191			—		11,113
Capital expenditures		—			(3,032	)		(800	)		—		(3,832	)
Intercompany borrowings		40,436			(22,447	)		(17,989	)		—		—
Proceeds from restricted cash account and other amounts in connection with Global Crossing settlement		—			9,419			—			—		9,419
Cash acquired as a result of the acquisition of Gains US and UK		—			1,135			2,952			—		4,087
Cash payments in connection with Global Crossing settlement		—			(5,200	)		—			—		(5,200	)
Net cash provided by (used in) continuing operations		40,436			(20,125	)		(15,837	)		—		4,474
Net cash used in discontinued operations		—			(19	)		—			—		(19	)
Net cash provided by (used in) investing activities		40,436			(20,144	)		(15,837	)		—		4,455
Debt issue costs		(310	)		—			—			—		(310	)
Deferred compensation payments		—			(70	)		—			—		(70	)
Principal payments on term loan		(18,616	)		—			—			—		(18,616	)
Net cash used in financing activities		(18,926	)		(70	)		—			—		(18,996	)
Effect of exchange rate changes on cash		—			—			(850	)		—		(850	)
Net increase (decrease) in cash		(2,139	)		4,357			(6,496	)		—		(4,278	)
Cash at beginning of period		6,123			(1,610	)		20,781			—		25,294
Cash at end of period	$	3,984		$	2,747		$	14,285		$	—	$	21,016

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)


							Non-
Condensed Consolidated Statement of Cash Flows	IPC			Guarantor			Guarantor
For the Three Months Ended December 31, 2004	Acquisition			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) continuing operations	$	(11,058	)	$	6,451		$	(6,614	)	$	—	$	(11,221	)
Net cash provided by discontinued operations		—			2,489			—			—		2,489

Net cash provided by (used in) operating activities		(11,058	)		8,940			(6,614	)		—		(8,732	)

Capital expenditures		—			(1,062	)		(831	)		—		(1,893	)
Intercompany borrowings		9,914			(15,185	)		5,271			—		—
Acquisitions, net of cash		—			(5,936	)		—			—		(5,936	)

Net cash provided by (used in) investing activities		9,914			(22,183	)		4,440			—		(7,829	)

Principal payments on term loan		(1,728	)		—			—			—		(1,728	)
Deferred compensation payments		—			(13	)		—			—		(13	)
Issuance costs for term loan amendment		(113	)		—			—			—		(113	)

Net cash used in financing activities		(1,841	)		(13	)		—			—		(1,854	)

Effect of exchange rate changes on cash		—			—			(118	)		—		(118	)


Net increase (decrease) in cash		(2,985	)		(13,256	)		(2,292	)		—		(18,533	)
Cash at beginning of period		3,028			13,057			11,185			—		27,270

Cash at end of period	$	43		$	(199	)	$	8,893		$	—	$	8,737


							Non-
Condensed Consolidated Statement of Cash Flows	IPC			Guarantor			Guarantor
For the Three Months Ended December 31, 2003	Acquisition			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) continuing operations	$	(10,259	)	$	14,592		$	3,547		$	—	$	7,880
Net cash provided by discontinued operations		—			11,620			—			—		11,620

Net cash provided by (used in) operating activities		(10,259	)		26,212			3,547			—		19,500

Capital expenditures		—			(1,437	)		(304	)		—		(1,741	)
Intercompany borrowings		23,273			(12,393	)		(10,880	)		—		—
Payment of Gains US and UK earnout and deferred purchase price		—			(6,756	)		—			—		(6,756	)
Advance payment on acquisition of Gains Asia		—			(5,528	)		—			—		(5,528	)

Net cash provided by (used in) investing activities		23,273			(26,114	)		(11,184	)		—		(14,025	)

Principal payments on term loan		(137	)		—			—			—		(137	)
Deferred compensation payments		—			(27	)		—			—		(27	)
Payment of special cash dividend, net		(17,839	)		—			—			—		(17,839	)

Net cash used in financing activities		(17,976	)		(27	)		—			—		(18,003	)

Effect of exchange rate changes on cash		—			—			16			—		16


Net increase (decrease) in cash		(4,962	)		71			(7,621	)		—		(12,512	)
Cash at beginning of period		9,088			3,135			13,577			—		25,800

Cash at end of period	$	4,126		$	3,206		$	5,956		$	—	$	13,288

12. Subsequent Events

The Company declared a special cash dividend of approximately $20 million, or $1.36 per share, which will be payable on February 14, 2005 to all shareholders of record of its outstanding common stock as of that date. As a result of this dividend, the Company intends to reprice the exercise price of all of its outstanding stock options in order to provide equitable treatment to holders of stock options to purchase the Company’s common stock.

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 consolidated financial statements and related notes included elsewhere in this filing.

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~~like as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “thinks”, ~~and~~ and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other risk factors, including but not limited to:

• risks associated with substantial indebtedness, leverage and debt service; • performance of our business and future operating results; • risks of competition in our existing and future markets; • loss or retirement of any key executives; • general business and economic conditions; • market acceptance issues, including the failure of products or services to generate anticipated sales levels; and • other risks described in our ~~Registration~~10-K ~~Statement~~for onthe ~~Form~~year ~~S-1~~ended ~~(333-103264).~~September 30, 2004

Our actual results and performance may 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.

Business Overview

~~Our~~We ~~primary~~provide ~~business~~mission-critical isvoice ~~the~~communications ~~design,~~solutions ~~manufacture,~~to ~~installation~~enterprises ~~and~~globally, ~~service of~~primarily ~~turret~~in ~~systems for~~ the ~~trading operations of the~~ financial ~~community,~~services ~~which includes~~industry. ~~investment~~Since ~~and commercial banks~~1973, ~~foreign~~we ~~exchange~~have ~~and commodity brokers and dealers~~designed, ~~market exchanges~~manufactured, ~~mutual~~installed and ~~hedge~~serviced ~~fund companies, asset managers and insurance companies. Turrets are~~ specialized ~~telephone~~telephony systems ~~that~~, ~~are~~also ~~designed~~referred ~~for high reliability and provide users instant access~~ to ~~hundreds~~ ofas ~~dedicated~~“turrets,” ~~telephone~~which ~~lines that~~ are ~~directly~~used ~~connected~~on ~~to other~~ trading ~~partners~~floors ~~and~~across ~~customers~~the world. ~~Traders,~~We ~~brokers~~manage ~~and~~our ~~salespersons~~business ~~occupy~~through ~~desks known~~two asmajor ~~trading~~operating ~~positions~~segments ~~from~~called ~~which~~Financial ~~they~~Services ~~trade~~and ~~various~~Command ~~financial~~and ~~instruments~~Control. ~~including~~In ~~stocks,~~October ~~bonds,~~2004 ~~currencies~~we ~~and~~formed ~~futures~~the ~~using~~Command ~~turrets.~~and WeControl ~~are~~segment ~~a leader~~ in ~~turret~~connection ~~solutions,~~with ~~based~~a onsubstantial ~~our~~increase ~~base of approximately 110,000 turrets and related equipment installed~~ in ~~trading~~our ~~positions~~efforts ~~worldwide.~~to Weaddress ~~also~~what ~~sell network~~we ~~voice~~identified ~~and~~as ~~data~~growth ~~services~~opportunities ~~to customers primarily~~ in ~~the~~that ~~financial community~~market.

~~Our~~We ~~major~~are ~~operating~~a ~~divisions~~leader ~~are~~within ~~Trading~~the ~~Systems~~financial ~~and~~trading ~~Network~~community ~~Services. Trading~~based ~~Systems~~on ~~reports~~the number ~~(1) sales~~ of turret ~~systems~~“positions” toand ~~distributors~~related ~~and~~equipment ~~direct sales~~installed ~~and~~worldwide. ~~installations~~We ofare ~~turret~~also ~~systems~~a asleader ~~“Product~~in ~~sales~~technology ~~and~~innovation ~~installations~~in our industry,” ~~and~~ ~~(2) revenue~~particularly ~~from~~in ~~turret~~the ~~system~~area ~~maintenance,~~of ~~including~~Voice-over ~~annual~~Internet ~~and~~Protocol, ~~multi-year service~~or ~~contracts~~VoIP, ~~and~~communications ~~from~~solutions. ~~MACs~~We tobuilt ~~existing~~additional ~~turret~~lines ~~system~~of ~~installations~~business ~~as “Service.”~~upon ~~Network~~that ~~Services~~core ~~records~~offering, ~~the~~expanding ~~sale~~our ofproduct ~~voice~~ and ~~data~~service ~~services~~portfolio ~~such~~to asaddress other communications needs of the financial ~~ring~~services ~~down~~industry. ~~connection~~Additionally, T1we ~~high~~recently ~~speed~~increased ~~digital~~our ~~connections~~efforts ~~and~~to ~~hoot~~address the needs of customers involved in command and ~~holler~~control operations centers ~~broadcasts,~~of the following industries which iswe atarget: ~~dedicated~~public ~~line~~safety; ~~used~~government toand ~~link~~military; ~~different~~power, ~~locations together~~energy, asand ~~“Service~~utility; and transportation.”

InWe ~~May 2004,~~plan ~~our~~to ~~Board~~expand ofthe ~~Directors~~offerings ~~approved~~and aoperations ~~formal~~of ~~plan~~our toCommand ~~sell~~and ~~assets related~~Control tosegment ~~our~~both ~~I.T.S.~~through ~~division~~internal toinvestments ain ~~group~~our ofproduct ~~private~~offerings ~~investors.~~and ~~The~~professional ~~sale~~staff, ~~was completed~~as inwell ~~July 2004.~~as ~~The~~through ~~I.T.S.~~acquisitions ~~division~~that ~~provided~~we ~~cabling~~believe ~~infrastructure within~~will ~~buildings~~supplement ~~among~~our ~~both~~portfolio ~~voice~~of offerings and ~~data~~our ~~communications~~distribution ~~devices~~channels. ~~The I.T.S.~~In ~~division~~November ~~was~~2004, awe ~~low~~completed ~~margin~~our ~~business~~first ~~that~~acquisition noin ~~longer~~the ~~fit~~Command ~~into~~and ~~our~~Control ~~long-term~~segment, ~~growth plans~~Orbacom Systems, Inc.

Revenue from product sales and installations is recognized upon completion of the installation or, for contracts that are completed in stages and include contract specified milestones, upon achieving ~~such~~those contract milestones, and ~~delivery~~ delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. ~~Customers are generally~~ ~~progress-billed~~Revenue ~~prior~~from to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as inventory awaiting installation. In additionmoves, ~~contracts~~adds ~~for annual recurring turret services are generally billed in advance,~~ and ~~are~~changes ~~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. Revenue from ~~our~~network ~~Network Services division, which provides voice and data~~ services ~~to the financial community,~~ is generally billed atin the beginning of the month and recognized in the same month.

~~Cost of goods sold for our Trading Systems division includes the costs of~~22 ~~equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold, labor to provide service, warehouse and project management costs and the~~

~~depreciation~~ Large ofinstallation ~~the~~projects are ~~equipment~~not innumerous; ~~our~~however, ~~manufacturing~~their ~~and~~occurrence ~~assembly~~causes ~~facility.~~fluctuations when comparing periods, as ~~Cost~~revenue is not recognized until completion of ~~goods~~the ~~sold~~installation ~~for~~or ~~our~~achievement ~~Network~~of ~~Services~~contract milestones. ~~division~~We ~~includes~~believe the ~~costs~~demand tofor new turret systems is primarily event driven, the ~~lease~~result ~~local~~of ~~and~~physical ~~long~~facility ~~distance~~moves ~~circuits~~of trading positions, the ~~cost~~addition of ~~our~~new ~~network~~trading ~~provisioning~~positions ~~and~~ ~~operations~~due ~~organizations~~to customer growth and ~~depreciation~~the ofneed ~~equipment~~to upgrade older technology. Large facility moves and mergers can also result in large installation projects, which cause uneven revenue streams period over period. For a description of our critical accounting policies, see “—Summary of Critical Accounting Policies” below.

~~Our~~Operating ~~revenues~~Focus ~~and~~since ~~operating~~December ~~results fluctuate significantly from period to~~2001 ~~period for our Trading Systems division. Given the relatively large sales price~~ of our trading systems and our recognition of revenue only upon completion of installations or specified contract milestones, 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 will likely decline during periods of economic downturn that impact those sectors.

~~Our~~ In ~~Strategy~~December 2001, Global Crossing and its affiliates sold IPC Information Systems to a group of investors led by GS Capital Partners 2000, L.P. Since that time, we operated as an independent company and focused our efforts on five key initiatives to improve our operating performance. These initiatives included:

~~The~~• Upgrade ~~key~~our ~~elements~~portfolio of businesses and quality of financial results. We made changes to our ~~strategy~~portfolio ~~are~~of business in order to: focus on businesses we believe have the most attractive operating margins and growth profiles, to add complementary products or distribution channels, and to increase the percentage of services revenues relative to the more cyclical equipment sales revenues.

• In ~~Generate~~March ~~revenue growth through replacement sales~~2002, ~~technology~~in ~~upgrades~~order ~~and~~to ~~trading~~expand ~~floor expansions. Regular turnover of~~ our ~~installed~~geographic ~~base~~presence isin ~~driven~~the ~~primarily~~Asia byPacific ~~customers’ facility moves~~region, ~~mergers~~we orpurchased ~~consolidations and~~ the ~~development of new trading markets and products. Additionally, other factors, such as~~ customer ~~business~~base ~~initiatives, including global trading platform standardization, regulatory developments,~~ and ~~customer~~related ~~expansion~~assets ~~affect~~outside ~~turnover,~~of asJapan ~~customers~~of ~~require~~the ~~more flexible, efficient and technologically advanced~~ turret ~~systems.~~business Byof ~~developing new systems~~Hitachi, such as our IQMXÔ turret system, that address these factors in a timely, proactive fashion, we believe we can increase overall turnover rates, as customers are motivated to replace older, less-advanced equipment with our latest most-advanced product offeringsLtd.

• In ~~Expand~~April by2003, ~~developing~~in ~~new~~order ~~products~~to ~~and~~supplement ~~services~~our ~~and~~equipment ~~capitalizing~~business onwith complementary ~~new~~offerings ~~trends.~~of Wespecialized ~~believe~~network ~~there~~services, iswe anpurchased ~~opportunity~~Gains toInternational ~~increase~~(US) ~~our revenues by strategically broadening our product portfolio~~Inc, ~~enhancing our technology architecture~~ and ~~addressing~~Gains ~~new~~International ~~developments~~(Europe) ~~in the marketplace~~Limited. ~~Examples of our efforts include:~~

• In ~~Providing~~August ~~voice~~2003, data and video communications. The introduction of our IQMX product with expansion modules provides the ability to communicate by exchanging text (such as Chat and Instant Messaging programs) and video (such as popular desktop video conferencing systems) as quickly and easily as the communications systems currently allow traders to do so with voice. By creating a communications system that utilizes IP to deliver communications, and by combining this delivery methodology with the expansion modules that support exchanging text and video in ~~addition~~order to ~~voice,~~expand ~~we eliminate the need for~~ our ~~customers~~product tooffering ~~purchase stand-alone equipment~~ to ~~deliver~~include these solutions and leverage opportunities to sell additional solutions to our established customers. • Developing applications. Application integration and development is driven by the need to create a ~~seamless and efficient work environment in much the same way that increasingly sophisticated call centers were developed in the mid~~software-~~1990s.~~based We have demonstrated our capability in this market through sales of our Computer Telephony Integration, or CTI, products which allow telephony devices to communicate with computers. • Increasing our penetration of disaster recovery and contingency planning sales. We intend to further penetrate the growing demand for disaster recovery and business continuity solutions. We believe we can effectively capitalize on our strong track record and customer relationships to drive future business in this area from both existing customers and emerging third-party providers. • Penetrating middle office support positions. In June 2002, we released the ICMX, a VoIP ~~intercom~~hoot ~~module,~~ and ~~a member of our IQMX family of turret products. The ICMX extends~~ intercom ~~functionality by providing hands-free communication between sites~~product, awe ~~unified~~invested numbering plan, group calls and all calls and support for hoot and holler applications, an open broadcast system that allows a trader to communicate with a large group of traders located around the world. Compact in ~~size~~ and ~~with~~gained ~~features designed specifically for support functions~~ control of aPurple ~~trading floor~~Voice, weand ~~believe~~subsequently ~~the~~completed ~~ICMX positions us to penetrate a large number of trading support positions. • Increase our product offerings. With~~ the acquisition of Gains US and UK, and Gains Asia, we created a new business division called Network Services. Our Network Services division provides network voice and data services that connect traders across six continents. In addition, in ~~June~~September 2003, we launched a suite of services under the name Managed Services. Managed Services are a set of premium, specialized services that deliver fully managed connectivity to trading floors worldwide. We believe we can provide these services to customers in combination with sales of our turrets. In February 2004, we launched Advanced Fault Management, or AFM, which is a proactive, real-time monitoring service designed to optimize trader voice system availability from the trading desk to the carrier network and Total Circuit Management, or TCM, which is for customers that seek a partner to manage.

22• In January 2004, we purchased Gains International Asia Holdings to extend our network services presence in the Asia Pacific region.

~~Table~~• In July 2004, we divested the operations and assets of ~~Contents~~our Information Transport Systems, or I.T.S., segment in order to exit a construction-related cabling business we viewed as highly cyclical and moderately profitable.

~~their~~• In ~~entire~~November ~~circuit provisioning and maintenance process. With several different service products being offered~~2004, weto ~~believe~~expand wethe ~~can~~product beofferings ~~successful~~and indistribution ~~marketing~~channels ~~these services to customers~~ of our ~~turrets.~~newly ~~Also,~~formed ~~with~~Command ~~our~~and ~~purchase~~Control ~~of Purple Voice in August 2003~~segment, we ~~can~~acquired ~~provide~~Orbacom ~~users~~Systems such as researchers, analysts, and retail brokers who are based off the main trading floor with seamless access to audio broadcasts, intercom calls, group calls and hoot and holler broadcasts regardless of the user’s locationInc.

• Our ~~Increase~~services ~~our~~revenues ~~sales~~have ~~through~~increased ~~organic~~from ~~growth and opportunistic acquisitions~~$85.7 Wemillion ~~intend~~in to2002 ~~continue~~ to ~~enhance~~$148.7 ~~our~~million ~~competitive~~in ~~position by (1) converting customers from competitors’ systems to our own~~2004, ~~(2)~~representing ~~further~~36% ~~expanding~~of ~~into~~total ~~currently~~revenues ~~under-penetrated~~in ~~business opportunities~~2002, ~~(3)~~and ~~winning~~56% ~~competitive~~of ~~bids~~total ~~for~~revenues ~~new~~in ~~installation opportunities, and (4) expanding geographically~~2004. We ~~plan~~believe toour services ~~achieve~~businesses ~~these~~are ~~objectives~~less ~~through~~subject ato ~~combination~~industry ofcapital ~~expanding~~spending ~~our~~cycles ~~direct~~than ~~presence, continuing~~ our ~~new~~equipment ~~product~~sales ~~development efforts and making strategic acquisitions and/or alliances~~businesses.

• Increase ~~Continue~~ our ~~track~~geographic ~~record~~reach ofand ~~customer~~penetration ~~service~~in ~~excellence~~selected countries. Since 2001 we opened direct offices in Japan, Germany, Italy, and France. We ~~believe~~also ~~our~~acquired ~~high~~operations ~~level~~and ofoffices ~~customer~~in ~~service~~the ~~differentiates~~Asia usPacific ~~from~~and EMEA regions through our ~~competition,~~acquisitions ~~positions~~of usHitachi's toturret ~~capture~~business ~~more~~and ~~revenue~~the ~~from~~Gains ~~our~~International ~~existing~~business. Our ~~client~~penetration ~~base~~in bythe ~~providing~~EMEA ~~value-added~~and ~~services~~Asia Pacific regions has increased as a result of these activities, ~~and~~as ~~allows~~measured usby tonumber ~~maintain~~of ~~our~~turrets ~~pricing~~installed and ~~profitability~~circuits of network services.

~~Comparison~~• Expand ofour ~~the~~portfolio ~~Three~~of ~~Months~~product ~~(“Q3 2004”)~~ and ~~Nine~~service ~~Months~~offerings. ~~(“YTD~~Since ~~2004”)~~2001 ~~Ended June 30,~~we ~~2004~~expanded toour ~~the~~offerings ~~Three~~through ~~Months~~investment ~~(“Q3~~in ~~2003”)~~internal research and ~~Nine~~development ~~Months~~as ~~(“YTD~~well ~~2003”) Ended~~as ~~June 30~~through acquisitions of products, ~~2003~~services and technologies.

~~The~~• Network ~~following~~and ~~tables~~Related ~~set~~Services. ~~forth~~Through the acquisitions of the Gains International business, aswe acquired a ~~percentage~~base of ~~consolidated~~customers, ~~revenue~~a global network, operations centers, personnel and expertise to enable us to offer specialized network services to the same client base served by our ~~condensed~~communications equipment ~~consolidated~~business. ~~statements~~Since that acquisition we increased the revenues and operating profits of ~~operations~~the ~~for~~acquired entities by adding those services to the ~~periods~~portfolio ~~indicated.~~of offerings ~~The~~sold ~~following~~by ~~table~~our account representatives. We also ~~presents~~added other related services, asincluding aofferings ~~percentage~~to ofaudit ~~division~~and ~~revenue,~~groom our ~~statements~~ ofcustomers' ~~operations~~networks, ~~for~~and ~~our~~continuity ~~two~~services ~~major~~designed ~~operating~~to ~~divisions~~monitor ~~for~~both ~~the~~equipment ~~periods indicated~~and network resources and proactively address potential disruptions to service.

	Q3 2004									Q3 2003
				Trading			Network						Trading			Network
	Consolidated			Systems			Services			Consolidated			Systems			Services
Revenue:
Product sales and installations		36	%		46	%		0	%		41	%		45	%		0	%
Service		64	%		54	%		100	%		59	%		55	%		100	%
		100	%		100	%		100	%		100	%		100	%		100	%
Cost of goods sold (depreciation shown separately):
Product sales and installations		17	%		22	%		0	%		23	%		25	%		0	%
Service		32	%		24	%		58	%		28	%		25	%		56	%
Depreciation and amortization		2	%		1	%		5	%		1	%		1	%		6	%
		51	%		47	%		63	%		52	%		51	%		62	%
Gross profit		49	%		53	%		37	%		48	%		49	%		38	%
Research and development		6	%		8	%		0	%		6	%		7	%		0	%
Selling, general and administrative expense		23	%		22	%		23	%		24	%		22	%		46	%
Depreciation and amortization		9	%		11	%		4	%		11	%		12	%		0	%
Income (loss) from operations		11	%		12	%		10	%		7	%		8	%		(8	%)
Other income (expense):
Interest expense, net		(9	%)		(11	%)		0	%		(14	%)		(15	%)		0	%
Other income (expense), net		0	%		0	%		0	%		5	%		5	%		0	%
Income (loss) before income taxes		2	%		1	%		10	%		(2	%)		(2	%)		(8	%)
Income tax expense (benefit)		(1	%)		0	%		(3	%)		1	%		1	%		1	%
Income (loss) from continuing operations		3	%		1	%		13	%		(3	%)		(3	%)		(9	%)
Income (loss) from discontinued operations		(5	%)		0	%		0	%		1	%		0	%		0	%
Net income (loss)		(2	%)		1	%		13	%		(2	%)		(3	%)		(9	%)

• VoIP and Software Offerings. Leveraging the potential of VoIP technology, we internally developed technologies that enhance the capabilities of our equipment offerings with new solutions for business continuity, compliance, user productivity, converged voice, video and data, and system administration on an enterprise level. Additionally, through the acquisition of Purple Voice, we added to our portfolio a set of software-based, VoIP offerings that extend core trading room functionality to off-floor individuals and offices, including retail brokerages.

	YTD 2004									YTD 2003
				Trading			Network						Trading			Network
	Consolidated			Systems			Services			Consolidated			Systems			Services
Revenue:
Product sales and installations		41	%		50	%		0	%		48	%		49	%		0	%
Service		59	%		50	%		100	%		52	%		51	%		100	%
		100	%		100	%		100	%		100	%		100	%		100	%
Cost of goods sold (depreciation shown separately):
Product sales and installations		20	%		24	%		0	%		24	%		24	%		0	%
Service		29	%		22	%		60	%		24	%		23	%		56	%
Depreciation and amortization		1	%		1	%		6	%		1	%		1	%		6	%
		50	%		47	%		66	%		49	%		48	%		62	%
Gross profit		50	%		53	%		34	%		51	%		52	%		38	%
Research and development		6	%		7	%		0	%		6	%		7	%		0	%
Selling, general and administrative expense		22	%		22	%		25	%		22	%		21	%		46	%
Depreciation and amortization		9	%		10	%		2	%		11	%		11	%		0	%
Income (loss) from operations		13	%		14	%		7	%		12	%		13	%		(8	%)
Other income (expense):
Interest expense, net		(9	%)		(11	%)		0	%		(14	%)		(15	%)		0	%
Other income (expense), net		0	%		0	%		0	%		3	%		3	%		0	%
Income (loss) before income taxes		4	%		3	%		7	%		1	%		1	%		(8	%)
Income tax expense		2	%		2	%		1	%		2	%		2	%		1	%
Income (loss) from continuing operations		2	%		1	%		6	%		(1	%)		(1	%)		(9	%)
Income (loss) from discontinued operations		(2	%)		0	%		0	%		0	%		0	%		0	%
Net income (loss)		0	%		1	%		6	%		(1	%)		(1	%)		(9	%)

• Command and Control Offerings. With the acquisition of Orbacom Systems, Inc, and through internal development efforts, we added proprietary radio integration, computer aided dispatch, and console offerings, as well as integrated third-party offerings for records management and other functions required in command and control applications.

~~Revenue~~• Establish technical leadership and market penetration of our VoIP platform. In 2001, we introduced the first VoIP trading floor communications systems to the market. We succeeded in building market adoption of our technologies and have added to the platforms capabilities through continuous research and development efforts. As of September 30, 2004, we had shipped approximately 20,000 positions of our VoIP platform, and have gradually increased the percentage of positions shipped that are VoIP to 70% of shipments in the fourth quarter of 2004. In 2005 we expect more than 75% of our positions shipped will be VoIP solutions.

~~The~~• Extend ~~following~~our ~~table~~offerings ~~sets~~into ~~forth~~new ~~our~~markets ~~consolidated~~with ~~revenue~~similar demand characteristics. We believe that the market for command and ~~revenue~~control ascommunications solutions shares many common demand characteristics with those of the financial services industry. Our experience has shown us that they share similar communications needs, including intercom, broadcast intercom, private lines, integration of various communications ~~reported~~sources ~~for~~and media in common consoles. We also observed that the mission-critical nature of communications in each setting drive other business similarities, resulting in what we concluded are favorable industry dynamics that are well suited to our ~~two~~product ~~major~~offerings, ~~operating~~expertise, ~~divisions~~and corporate resources.

	Consolidated
	Q3		Q3		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Product sales and installations	$	21,527	$	18,157	$	3,370		19	%	$	75,228	$	63,068	$	12,160		19	%
Service		38,786		26,349		12,437		47	%		107,603		69,056		38,547		56	%
Total	$	60,313	$	44,506	$	15,807		36	%	$	182,831	$	132,124	$	50,707		38	%

Recent Events

	Trading Systems
	Q3		Q3		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Product sales and installations	$	21,527	$	18,157	$	3,370		19	%	$	75,228	$	63,068	$	12,160		19	%
Service		25,560		22,349		3,211		14	%		75,224		65,056		10,168		16	%
Total	$	47,087	$	40,506	$	6,581		16	%	$	150,452	$	128,124	$	22,328		17	%

We declared a special cash dividend of approximately $20 million, or $1.36 per share, which will be payable on February 14, 2005 to all shareholders of record of our outstanding common stock as of that date. As a result of this dividend, we intend to reprice the exercise price of all of our outstanding stock options in order to provide equitable treatment to holders of stock options to purchase our common stock.

	Network Services
	Q3		Q3		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Product sales and installations	$	—	$	—	$	—		—	%	$	—	$	—	$	—		—	%
Service		13,226		4,000		9,226		231	%		32,379		4,000		28,379		709	%
Total	$	13,226	$	4,000	$	9,226		231	%	$	32,379	$	4,000	$	28,379		709	%

Summary of Critical Accounting Policies

~~Comparison~~ The discussion and analysis of Q3our ~~2004~~financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to Q3make ~~2003~~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 periodically 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.

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

WeRevenue ~~believe our customers are beginning to plan and implement changes,~~Recognition ~~expansions, and re-configurations to their current trading floors. We expect~~ ~~this activity to continue for the remainder of the fiscal year 2004 and into~~ our fiscal year 2005; however, there can be no certainty as to the degree or duration that this will continue. We expect our fiscal year 2004 total consolidated revenues to be approximately $255 million to $260 million, which has been revised since the three months ended

Revenue from product sales and installations is recognized upon completion of the installation or, for contracts that are completed in stages and include contract specified milestones, upon achieving such contract milestones, and delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers are generally progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as inventory awaiting installation. The cost of providing a warranty are estimated and accrued at the time the equipment is sold. In addition, contracts for annual recurring 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. Revenue from network services is generally billed in the beginning of the month and recognized in the same month.

Revenue from software licenses is recognized in accordance with SOP No. 97-2, “Software Revenue Recognition,” as amended by SOP 98- 9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Software revenue is recognized when a customer enters into a non-cancelable contract or license agreement, the software product has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the contract or license fees are fixed or determinable and collection is considered probable. Amounts received in advance of meeting these criteria are deferred. Revenue from support and maintenance contracts is recognized ratably over the contract period.

For certain installation contracts, revenue from product installation sales is recognized in accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” which was adopted in the 2003 fiscal year. Under this pronouncement, products or services sold to the same entity that are entered into at or near the same time are presumed to have been negotiated as a package and are evaluated as a single arrangement when considering whether there are one or more units of accounting. In arrangements when multiple products or services are sold, the delivered items are considered separate units of accounting if the delivered item has value to the customer on a standalone basis and there is objective and reliable evidence of fair value of the undelivered items. Undelivered item revenues are included in the liability section as deferred revenue on the balance sheet at their fair value with the corresponding costs held as an asset in inventory until delivery has occurred and revenue is earned.

~~March 31,~~ Allowance ~~2004~~for ~~(“Q2~~Doubtful ~~2004”) due to~~Accounts ~~the sale of the I.T.S. division in Q3 2004; however, the actual total~~ ~~consolidated revenues could be lower.~~

~~Product~~We ~~Sales~~evaluate ~~and~~the ~~Installations.~~collectibility ~~The~~of ~~increase~~our inaccounts ~~product~~receivable ~~sales~~based ~~and installation~~on ~~revenue~~a combination of $3factors.~~4 million~~ Where inwe Q3are ~~2004~~aware ~~from~~of Q3circumstances ~~2003~~that ~~was~~may ~~primarily~~impair ~~due~~a specific customer’s ability to meet its financial obligations to us, we record a ~~higher~~specific ~~volume~~allowance ofagainst ~~small~~amounts ~~(less~~due ~~than~~to ~~$1.0 million)~~us ~~installation~~and ~~projects~~thereby ~~offset~~reduce bythe anet ~~lower~~receivable ~~volume~~to ofthe ~~medium~~amount ~~(between~~we ~~$1.0 million~~reasonably ~~and~~believe $2is likely to be collected.~~0 million)~~ For all ~~installation~~other ~~projects~~customers, inwe Q3recognize ~~2004~~allowances ~~compared~~for todoubtful Q3accounts ~~2003.~~based ~~There~~on ~~were~~the nolength ~~large~~of time the ~~(greater~~receivables ~~than~~are $2outstanding, industry and geographic concentrations, the current business environment and our historical experience.~~0 million)~~ ~~installation~~If ~~projects~~the infinancial ~~either~~condition Q3of ~~2004~~our orcustomers Q3deteriorates ~~2003~~or if economic conditions worsen, additional allowances may be required.

	Number of				Total amount
	installations				(in millions)
Product installation size:	Q3 2004		Q3 2003		Q3 2004		Q3 2003		$ Change
Large (greater than $2.0 million)		—		—	$	—	$	—	$	—
Medium (between $1.0 million and $2.0 million)		1		3	$	1.5	$	5.0	$	(3.5	)
Small (less than $1.0 million)		*		*	$	20.1	$	13.2	$	6.9

Inventories

* due to Inventories are stated at the ~~high~~lower ~~volume~~of ~~and~~FIFO ~~wide~~(first ~~range~~in, first out) cost or market but not in excess of ~~sales~~net ~~values~~realizable value. Inventory costs include all direct manufacturing costs and applied overhead. Allowances are established based on management’s estimate of ~~small~~inventory on hand that is ~~installations,~~potentially ~~this~~obsolete ~~number~~or for which its market value is ~~not~~below ~~meaningful~~cost.

WeImpairment ~~expect our fiscal year 2004 product sales and installation revenue to be approximately $115 million to $118 million, which has been revised since Q2 2004 due to the sale~~ of ~~the~~Long-Lived ~~I.T.S. division in Q3 2004. However, customer~~Assets ~~commitments could be delayed due to budgetary constraints, changes to real~~ ~~estate planning, merger and acquisitions activity in our customer base, a~~ ~~decrease in our customers’ headcount or changes in our customers’ technology needs. As a result, actual product sales and installation revenue in the 2004 fiscal year could be lower.~~

~~Service.~~We ~~The~~review ~~increase~~long-lived inassets, ~~service~~including ~~revenue~~property, ofplant ~~$12.4 million~~and inequipment Q3and ~~2004~~definite ~~from~~lived Q3intangible ~~2003~~assets, ~~was~~for ~~primarily~~impairment ~~due~~whenever toevents aor ~~$9.2 million~~changes ~~increase~~in bybusiness ~~our~~circumstances ~~Network Services~~indicate ~~division,~~that ~~which was created following~~ the ~~acquisition~~carrying amount of the ~~Gains~~assets USmay ~~and~~not ~~UK entities~~be infully ~~April 2003~~recoverable. ~~and~~An ~~expanded~~impairment byloss ~~the~~would ~~acquisition~~be recognized ofwhen ~~Gains~~estimated ~~Asia~~undiscounted infuture ~~January 2004,~~cash asflows ~~well~~expected asto anresult ~~increase~~from inthe ~~our~~use ~~Network~~of ~~Services customer base. In~~the ~~addition,~~assets ~~there~~and ~~was~~its aeventual ~~higher~~disposition ~~volume~~is ofless ~~contract~~than ~~maintenance~~its ~~revenue~~carrying ~~totaling $1~~amount.~~6 million~~ ~~and~~Impairment, ~~non-contract~~if ~~MAC~~any, ~~revenue~~is assessed ~~totaling~~using ~~$1.6 million~~discounted incash ~~our~~flows. ~~Trading systems~~No ~~division~~impairments ~~for~~have Q3occurred ~~2004 compared~~ to ~~Q3 2003~~date.

WeGoodwill expect our fiscal year 2004 consolidated service revenue to be approximately $140 million to $142 million which has been revised since Q2 2004. However, customer commitments could be delayed due to budgetary constraints, changes to real estate planning, merger and ~~acquisition~~Other ~~activity in~~Intangible ~~our customer base, a decrease in our customers’ headcount or technology~~Assets ~~needs. As a result, the actual service revenue in the 2004 fiscal year could be~~ ~~lower.~~

~~Trading~~ 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. We adopted SFAS No. 142 effective upon the acquisition of IPC Information Systems on December 20, 2001. In accordance with SFAS No. 142, there is no amortization of goodwill and intangible assets that have indefinite useful lives. However, such assets are tested for impairment annually using the two-step process specifically provided in SFAS No. 142. Other intangible assets are carried at cost. Technology assets are amortized over estimated useful lives of between 3 to 7 years, customer relationships are amortized over estimated useful lives of 8 to 20 years, and proprietary software is amortized over its estimated useful life of 7 years. Trade name has been deemed to have an indefinite life and will not be subject to amortization, but instead will be subject to annual impairment tests in accordance with the provisions of SFAS No. 142. In determining that the trade name has an indefinite life, we considered the following factors: the on going active use of our trade name, which is directly associated with our market leading position in the mission-critical voice communications business, the lack of any legal, regulatory or contractual provisions that may limit the useful life of the trade name, the lack of any substantial costs to maintain the asset, the positive impact on our trade name generated by our other ongoing business activities (including marketing and development of new technology and new products) and our commitment to products branded with our trade name over our 30 year history.

~~Product~~We ~~Sales~~completed ~~and~~the ~~Installations.~~required ~~The~~annual ~~increase~~fair invalue ~~product~~test ~~sales~~as ~~and installation~~of ~~revenue~~July 1, 2004 (the first day of ~~$3.4 million~~the fourth inquarter Q3of 2004), ~~from~~and Q3concluded ~~2003~~that there was ~~primarily~~no ~~due~~ impairment to aour ~~higher~~recorded ~~volume~~goodwill ofor trade ~~small~~name. ~~installation~~There ~~projects~~have ~~offset~~been byno aindicators ~~lower~~of ~~volume~~impairment during the first quarter of ~~medium~~ ~~installation~~the ~~projects~~2005 infiscal year. Q3We ~~2004~~believe ~~compared~~the torecorded Q3values ~~2003.~~of ~~There~~goodwill ~~were~~of ~~no large~~$92.3 million ~~installation~~and ~~projects~~trade inname ~~either~~of Q3$16.3 million at December 31, 2004 orare Q3fully ~~2003~~recoverable.

	Number of				Total amount
	installations				(in millions)
Product installation size:	Q3 2004		Q3 2003		Q3 2004		Q3 2003		$ Change
Large (greater than $2.0 million)		—		—	$	—	$	—	$	—
Medium (between $1.0 million and $2.0 million)		1		3	$	1.5	$	5.0	$	(3.5	)
Small (less than $1.0 million)		*		*	$	20.1	$	13.2	$	6.9

Stock-Based Compensation

* As permitted by SFAS 123, we elected to follow APB Opinion No. ~~due~~25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for our employee option plans. Under APB 25, no compensation expense is recognized at the ~~high~~time ~~volume~~of an option grant if the exercise price of the employee stock option is fixed and ~~wide~~equals ~~range~~or inexceeds ~~sales~~the ~~values~~fair market value of ~~small~~the underlying ~~installations,~~common ~~this~~stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant. Due to the fact that our common stock is not ~~meaningful~~publicly traded, determining the fair value of our common stock involves significant estimates and judgments. In considering the fair value of the underlying stock when we

Service. The increase in service revenue of $3.2 million in Q3 2004 from Q3 2003 was primarily due to a higher volume of contract maintenance revenue totaling $1.6 million and non-contract MAC revenue totaling $1.6 million in Q3 2004. The increase in contract maintenance revenue in Q3 2004 was primarily due to the expiration of warranties for installation contracts. The increase in non-contract MAC revenue was primarily due to increased demand for trading floor re-configurations and additional trading positions globally.

Network Services

Service. The increase in service revenue of $9.2 million in Q3 2004 from Q3 2003 was primarily due to our Network Services North America and Europe regions, which increased by $5.3 million in Q3 2004 compared to Q3 2003 reflecting an increase in our customer base and a full quarter of operations in Q3 2004 compared to Q3 2003, which had only 2 months of operations due to the acquisition of Gains US and UK on April 30, 2003. Also, revenue from the acquisition of Gains Asia in January 2004 contributed $3.9 million of service revenue in Q3 2004.

~~Comparison~~grant options, we consider several factors like third party valuations, the fair value of ~~YTD~~the common ~~2004~~stock of other companies comparable to ~~YTD~~ours, ~~2003~~and fair values established by market transactions.

~~Consolidated~~ On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We will adopt Statement 123(R) on July 1, 2005. Statement 123(R) permits public companies to adopt its requirements using one of two methods:

~~Product~~1) ~~Sales~~A ~~and~~“modified ~~Installations.~~prospective” ~~The~~method ~~increase~~ in ~~product~~which ~~sales~~compensation ~~and installation~~cost ~~revenue~~is ofrecognized ~~$12.2 million~~beginning inwith ~~YTD 2004 from YTD 2003 was primarily~~the ~~due~~effective todate (a) based ~~higher~~on ~~volume~~the requirements of ~~small~~Statement ~~installation~~123(R) ~~projects~~for ~~completed~~all inshare-based ~~YTD 2004~~payments ~~compared~~granted toafter ~~YTD~~the ~~2003.~~effective ~~Also,~~date ~~there~~and ~~was~~(b) based anon ~~increase~~the inrequirements ~~large~~of ~~installation projects~~Statement in123 ~~YTD~~for ~~2004~~all awards ~~compared~~granted to ~~YTD~~employees ~~2003~~prior ~~offset~~to bythe aeffective ~~decrease~~date inof ~~medium installation~~Statement ~~projects~~123(R) inthat ~~YTD~~remain ~~2004~~unvested on ~~compared~~the toeffective ~~YTD 2003~~date.

					Total amount
	Number of installations				(in millions)
Product installation size:	YTD 2004		YTD 2003		YTD 2004		YTD 2003		$ Change
Large (greater than $2.0 million)		4		3	$	18.1	$	9.1	$	9.0
Medium (between $1.0 million and $2.0 million)		3		7	$	4.3	$	9.7	$	(5.4	)
Small (less than $1.0 million)		*		*	$	52.9	$	44.3	$	8.6

2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

* due We towill ~~the~~adopt ~~high~~Statement ~~volume~~123(R) ~~and~~on ~~wide~~July 1, ~~range~~2005, inhowever, ~~sales~~we ~~values~~are ~~of small~~still ~~installations,~~evaluating ~~this~~which ~~number~~method isto ~~not meaningful~~adopt.

~~Service.~~As permitted ~~The~~by ~~increase~~Statement 123, inwe ~~service~~currently ~~revenue~~account offor ~~$38.5 million~~share-based inpayments ~~YTD~~to employees ~~2004~~using ~~from~~Opinion 25’s intrinsic value method and, as such, generally recognizes no ~~YTD~~compensation ~~2003~~cost ~~was~~for ~~primarily~~employee ~~due~~stock tooptions. Accordingly, the adoption of Statement 123(R)’s fair value method will have a ~~$28~~significant impact on our result of operations, although it will have no impact on our overall financial position.4 The impact of adoption of Statement ~~million~~123(R) ~~increase~~cannot ~~generated~~be predicted byat this time because it will depend on levels of share-based payments granted in the ~~addition~~future. ofHowever, ~~our~~had ~~Network~~we ~~Services~~adopted ~~division~~Statement 123(R) ~~created~~in ~~following~~prior periods, the ~~acquisition~~impact of that standard would have approximated the ~~Gains~~impact USof Statement 123 as described in the disclosure of pro forma net income and UKearnings ~~entities~~per share in ~~April~~Note ~~2003~~1 ~~and~~to ~~expanded~~our byconsolidated financial statements. Statement 123(R) also requires the ~~acquisition~~benefits of ~~Gains~~ ~~Asia~~tax deductions in ~~January 2004,~~excess asof ~~well~~recognized compensation cost to be reported as a financing cash flow, rather than as an ~~increase~~operating incash ~~the~~flow ~~customer~~as ~~base.~~required Inunder current ~~addition,~~literature. ~~there~~This ~~was~~requirement awill ~~higher~~reduce ~~volume~~net ofoperating ~~contract~~cash ~~maintenance~~flows ~~revenue~~and ~~totaling~~increase net financing cash $7flows in periods after adoption.~~1 million~~ ~~and~~We ~~non-contract~~cannot ~~MAC~~estimate ~~revenue~~what ~~totaling~~those ~~$3.0 million~~amounts inwill ~~our~~be ~~Trading~~in the ~~systems~~future ~~division~~because they depend on, among other things, when employees exercise stock options.

~~Trading~~ Income ~~Systems~~Taxes

~~Product~~In ~~Sales~~accordance ~~and~~with ~~Installations~~SFAS No. 109, ~~The~~“Accounting ~~increase~~for inIncome ~~product~~Taxes”, ~~sales~~or ~~and~~SFAS 109, we recognize ~~installation~~deferred ~~revenue~~income oftaxes ~~$12.2 million~~for the tax consequences in ~~YTD~~future ~~2004~~years ~~from~~of ~~YTD~~differences ~~2003~~between ~~was~~the ~~primarily~~tax basis ~~due~~of toassets aand ~~higher~~liabilities ~~volume~~and oftheir ~~small~~financial ~~installation~~reporting ~~projects~~amounts ~~completed~~at ineach ~~YTD~~year ~~2004~~end, based on enacted ~~compared~~tax laws and statutory tax rates applicable to ~~YTD~~the ~~2003~~periods in which the differences are expected to affect taxable income. ~~Also,~~Valuation ~~there~~allowances ~~was~~are anestablished ~~increase~~when innecessary ~~large~~to ~~installation~~reduce deferred tax ~~projects~~assets into ~~YTD~~the ~~2004~~amount ~~compared~~that is “more likely than not” to ~~YTD~~be ~~2003~~realized. ~~offset~~The byprovision afor ~~decrease~~income taxes is the tax payable for the period and the change during the period in ~~medium~~deferred tax assets and ~~installation~~liabilities. ~~projects~~Although inrealization ~~YTD~~is ~~2004~~not ~~compared~~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 ~~YTD~~confirm ~~2003~~that the amounts recorded are appropriately stated. All such evaluations require significant management judgments.

					Total amount
	Number of installations				(in millions)
Product installation size:	YTD 2004		YTD 2003		YTD 2004		YTD 2003		$ Change
Large (greater than $2.0 million)		4		3	$	18.1	$	9.1	$	9.0
Medium (between $1.0 million and $2.0 million)		3		7	$	4.3	$	9.7	$	(5.4	)
Small (less than $1.0 million)		*		*	$	52.9	$	44.3	$	8.6

In determining whether it is more likely than not that we will realize the benefits of the net deferred tax assets from US operations, we consider all available evidence, both positive and negative, including:

* due • US result of operations for subsequent fiscal years are expected to ~~the~~generate ~~high~~sufficient ~~volume~~taxable income to fully utilize tax loss carryforwards; and ~~wide~~• ~~range~~our inconclusion ~~sales~~that ~~values~~the net US deferred tax assets were generated by an event (our purchase of ~~small installations~~the Company), ~~this~~rather ~~number~~than isa ~~not~~continuing ~~meaningful~~condition.

~~Service.~~Business ~~The increase in service revenue of $10.2 million in YTD 2004 from~~Combinations ~~YTD 2003 was primarily due to a higher volume of contract maintenance revenue~~ ~~totaling $7.1 million and non-contract MAC revenue totaling $3.0 million in YTD~~ 2004. The increase in contract maintenance revenue in YTD 2004 was primarily due to the expiration of warranties for installation contracts. The increase in non-contract MAC revenue was primarily due to increased requests for trading floor re-configurations and additional trading positions globally.

~~Network~~ Estimates ~~Services~~and judgments related to the fair value of assets acquired and liabilities assumed are required in connection with our acquisitions. Some of the liabilities are subjective in nature. These liabilities are reflected in purchase accounting based upon

Service. The increase in service revenue of $28.4 million in YTD 2004 from YTD 2003 was primarily due to our Network Services North America and Europe regions, which increased by $20.7 million in YTD 2004 compared to YTD 2003, reflecting an increase in our customer base and a full nine months of operations in YTD 2004 compared to YTD 2003, which had only 2 months of operations due to the acquisition of Gains US and UK on April 30, 2003. Also, revenue from the acquisition of Gains Asia in January 2004 contributed $7.7 million of service revenue in YTD 2004.

Cost of Goods Sold

The following table sets forth our consolidated cost of goods sold and our cost of goods sold as reported for our two major operating divisions. Cost of goods sold for our Trading Systems division includes the costs of equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold, labor to provide service, warehouse and project management costs and the depreciation of the equipment in our manufacturing and assembly facility. Cost of goods sold for our Network Services division includes the costs to lease local and long distance circuits, the cost of our network provisioning and operations organizations and depreciation of equipment.

	Consolidated
	Q3		% of			Q3		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	10,423		48	%	$	10,123		56	%		(8	%)	$	35,595		47	%	$	30,937		49	%		(2	%)
Service		19,101		49	%		12,577		48	%		1	%		53,082		49	%		32,060		46	%		3	%
Depreciation and amortization		1,029		2	%		556		1	%		1	%		2,739		1	%		1,152		1	%		0	%
Total	$	30,553		50	%	$	23,256		52	%		(2	%)	$	91,416		50	%	$	64,149		49	%		1	%

the most recent information available, and principally related to federal, foreign, state and local taxes based on income and other measures as well as estimates of costs to restructure the operations of acquired companies. The ultimate settlement of such liabilities may be for amounts that are different from the amounts presently recorded.

	Trading Systems
	Q3		% of			Q3		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	10,423		48	%	$	10,123		56	%		(8	%)	$	35,595		47	%	$	30,937		49	%		(2	%)
Service		11,483		45	%		10,337		46	%		(1	%)		33,702		45	%		29,820		46	%		(1	%)
Depreciation and amortization		288		1	%		302		1	%		0	%		860		1	%		898		1	%		0	%
Total	$	22,194		47	%	$	20,762		51	%		(3	%)	$	70,157		47	%	$	61,655		48	%		(1	%)

Recent Accounting Pronouncements

	Network Services
	Q3		% of			Q3		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	—		—	%	$	—		—	%		—	%	$	—		—	%	$	—		—	%		—	%
Service		7,618		58	%		2,240		56	%		2	%		19,380		60	%		2,240		56	%		4	%
Depreciation and amortization		741		5	%		254		6	%		(1	%)		1,879		6	%		254		6	%		—	%
Total	$	8,359		63	%	$	2,494		62	%		1	%	$	21,259		66	%	$	2,494		62	%		4	%

In November 2004, the FASB issued FAS 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4” (“FAS 151”). FAS 151 amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). FAS 151 requires that these costs be recognized as current period charges regardless of whether they are abnormal. In addition, FAS 151 requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. The provisions of FAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect this new standard to have a material effect on our consolidated financial position or results of operations.

Comparison of Q3the Three Months Ended December 31, 2004 (“Q1 2005”) to Q3the Three Months Ended December 31, 2003 (“Q1 2004”).

~~Consolidated~~The following table sets forth, as a percentage of consolidated revenue, our consolidated statements of operations for the periods indicated. The following table also presents, as a percentage of segment revenue, our statements of operations for our two operating segments for the periods indicated.

We expect our fiscal year 2004 total consolidated cost of goods sold to be approximately $127 million to $130 million, which has been revised since Q2 2004 due to the sale of the I.T.S. division in Q3 2004; however, pricing changes and more competitive bidding for our customers could cause the actual total consolidated cost of goods sold to be higher.


	December 31, 2004									December 31, 2003
							Command									Command
				Financial			and						Financial			and
	Consolidated			Services			Control			Consolidated			Services			Control
Revenue:
Product sales and installations		34	%		34	%		30	%		41	%		41	%		18	%
Service		66	%		66	%		70	%		59	%		59	%		82	%

		100	%		100	%		100	%		100	%		100	%		100	%


Cost of goods sold (depreciation shown separately):
Product sales and installations		19	%		18	%		38	%		21	%		21	%		11	%
Service		32	%		32	%		30	%		30	%		30	%		28	%
Depreciation and amortization		2	%		2	%		0	%		1	%		1	%		0	%

		53	%		52	%		68	%		52	%		52	%		39	%


Gross profit		47	%		48	%		32	%		48	%		48	%		61	%

Research and development		6	%		6	%		33	%		6	%		6	%		0	%
Selling, general and administrative expense		26	%		25	%		121	%		25	%		25	%		0	%
Depreciation and amortization		2	%		2	%		1	%		3	%		3	%		0	%
Amortization of intangibles		6	%		6	%		0	%		7	%		7	%		0	%

Income (loss) from operations		7	%		9	%		(123	%)		7	%		7	%		61	%
Other income (expense):
Interest expense, net		(9	%)		(9	%)		0	%		(10	%)		(11	%)		0	%
Other income (expense), net		2	%		2	%		0	%		1	%		1	%		0	%

Income (loss) from continuing operations before income taxes		0	%		2	%		(123	%)		(2	%)		(3	%)		61	%
Income tax expense (benefit)		0	%		0	%		0	%		1	%		1	%		0	%

Income (loss) from continuing operations		0	%		2	%		(123	%)		(3	%)		(4	%)		61	%
Income (loss) from discontinued operations		0	%		0	%		0	%		0	%		0	%		0	%

Net income (loss)		0	%		2	%		(123	%)		(3	%)		(4	%)		61	%

~~Product~~ A ~~Sales~~discussion ~~and~~of ~~Installations.~~revenues ~~The decrease in product sales~~ and ~~installations~~ cost of goods sold ofon ~~8% as~~ a ~~percentage~~consolidated ~~of product sales and~~basis ~~installation~~would ~~revenue~~be insubstantially Q3the ~~2004~~same ~~from~~as Q3and ~~2003~~duplicative ~~was~~of ~~primarily~~the ~~due~~discussion ~~to a higher~~of ~~volume~~these ofitems ~~Trading~~for ~~Systems~~the ~~manufactured~~Financial ~~products~~Services ~~sold~~segment, intherefore Q3we ~~2004 when compared~~have toomitted ~~Q3 2003~~it. ~~Trading~~We ~~Systems~~believe ~~manufactured~~our ~~products~~customers ~~generally~~are ~~have~~beginning ato ~~lower~~plan ~~cost~~and ofimplement ~~goods~~changes, ~~sold~~expansions, ~~than~~and ~~products~~reconfigurations ~~manufactured~~to bytheir ~~third~~current ~~parties~~trading floors. InWe ~~addition,~~expect wethis ~~realized~~activity ~~higher~~to ~~profit~~continue ~~margins~~during on2005; ~~small~~however, ~~installation~~there ~~projects~~can ~~completed~~be inno ~~Q3 2004~~certainty as ~~compared~~ to Q3the ~~2003~~degree or duration that this will continue.

~~Service. The increase in service cost of goods sold of 1% as a percentage~~Revenue ~~of service revenue in Q3 2004 from Q3 2003 was primarily due to the expansion~~ ~~and allocation of indirect costs of revenue in our Network Services division~~ ~~offset by a consistent fixed cost of goods sold in our Trading Systems division~~ ~~in Q3 2004 when compared to Q3 2003.~~

~~Trading~~The ~~Systems~~following table sets forth our revenue as reported for our two operating segments.

Product Sales and Installations. The decrease in product sales and installations cost of goods sold of 8% as a percentage of product sales and installation revenue in Q3 2004 from Q3 2003 was primarily due to a higher volume of Trading Systems manufactured products sold in Q3 2004 when compared to Q3 2003. Trading Systems manufactured products generally have a lower cost of goods sold than products manufactured by third parties. In addition, we realized higher profit margins on small installation projects completed in Q3 2004 as compared to Q3 2003.


	Financial Services
	Q1		Q1		$		%
(dollars in thousands)	2005		2004		Change		Change
Product sales and installations	$	22,249	$	21,388	$	861		4	%
Service		42,944		30,926		12,018		39	%

Total	$	65,193	$	52,314	$	12,879		25	%

Service. The decrease in service cost of goods sold of 1% as a percentage of service revenue in Q3 2004 from Q3 2003 was primarily due to a higher percentage increase in contract maintenance services in Q3 2004, which generally have a lower cost of goods sold than non-contract MAC services.

Network Services

Service. The increase in service cost of goods sold of 2% as a percentage of service revenue in Q3 2004 from Q3 2003 was primarily due to the expansion and allocation of indirect costs (labor, network provisioning and engineering) of revenue in Q3 2004 when compared to Q3 2003.

Comparison of YTD 2004 to YTD 2003

Consolidated

Product Sales and Installations. The decrease in product sales and installations cost of goods sold of 2% as a percentage of product sales and installation revenue in YTD 2004 from YTD 2003 was primarily due to higher margin realization from component cost reductions in our manufactured product sales.


	Command and Control
	Q1		Q1		$		%
(dollars in thousands)	2005		2004		Change		Change
Product sales and installations	$	221	$	70	$	151		216	%
Service		511		310		201		65	%

Total	$	732	$	380	$	352		93	%

~~Service.~~Financial The increase in service cost of goods sold of 3% as a percentage of service revenue in YTD 2004 from YTD 2003 was primarily due to the expansion and allocation of indirect costs of revenue in our Network Services ~~division~~ ~~offset by a higher percentage increase in contract maintenance services in our~~ ~~Trading Systems Division in YTD 2004 when compared to YTD 2003.~~

~~Trading~~Product ~~Systems~~sales and installations. Comparing Q1 2005 to Q1 2004, our product sales and install revenue increased by $0.9 million, primarily due to higher revenue from medium installation projects offset by lower revenue from one large installation project in Q1 2005 compared to Q1 2004. The number of large installations remained constant period over period; however, the decrease in revenue was due to the smaller size of the installation completed in Q1 2005 compared to Q1 2004. For medium installations, revenue increased primarily due to an additional installation in Q1 2005 compared to Q1 2004. Large and medium projects are primarily configured based on the number of positions and telephone lines per position. Also, sales in part result from real estate planning, merger and acquisition activity in our customer base and changes in our customers’ headcount or their technology needs and can vary from period to period.


	Number of				Total amount
	installations				(in millions)
Product installation size:	Q1 2005		Q1 2004		Q1 2005		Q1 2004		$ Change
Large (greater than $2.0 million)		1		1	$	2.0	$	2.4	$	(0.4	)
Medium (between $1.0 million and $2.0 million)		3		2		4.0		2.8		1.2
Small (less than $1.0 million)		*		*		16.3		16.2		0.1

					$	22.3	$	21.4	$	0.9

~~Service.~~* ~~The~~Due ~~decrease~~to inthe ~~service~~variance ~~cost~~in ofdeal ~~goods~~size ~~sold~~ of 1%small asinstallations athis ~~percentage of~~number ~~service~~is ~~revenue~~not ~~in YTD 2004 from YTD 2003 was primarily due to~~ a ~~higher percentage~~useful ~~increase in contract maintenance services in YTD 2004, which have a lower cost of goods sold than non-contract MAC services~~statistic.

~~Network~~Service. ~~Services~~The increase in service revenue of $12.0 million in Q1 2005 from Q1 2004 was primarily due to an increase of $7.9 million in network services and $4.1 million in equipment services. The increase in network services is primarily due to a full quarter of revenue from the acquisition of Gains Asia in January 2004 generating $4.3 million in revenue and an increase in recurring circuit revenue and the expansion of our Advanced Fault Management and Total Circuit Management services from our customer base in North America and Europe totaling $3.6 million. Equipment services increased primarily due to a higher volume of contract maintenance revenue totaling $1.5 million from the expiration of warranties for product sales and installation contracts and additional on-site services at several customer sites. Also, non-contract MAC revenue increased $2.6 million due to increased demand for trading floor re-configurations and additional trading positions globally.

~~Service.~~Command ~~The increase in service cost of goods sold of 4% as a percentage of service revenue in YTD 2004 from YTD 2003 was primarily due to the expansion~~ and ~~allocation of indirect costs (labor, network provisioning and engineering)~~Control ~~in YTD 2004 when compared to YTD 2003.~~

Product sales and installations. The increase in product sales and installation revenue of $0.1 million in Q1 2005 from Q1 2004 was primarily due to the acquisition of Orbacom Systems on November 30, 2004.

Number of

Total amount

installations

(in millions)

Product installation size:

Q1 2005

Q1 2004

Q1 2005

Q1 2004

$ Change

Small (less than $1.0 million)

0.2

0.1

* Due to the variance in deal size of small installations this number is not a useful statistic.

Service. The increase in service revenue of $0.2 million in Q1 2005 from Q1 2004 was primarily due the acquisition of Orbacom Systems on November 30, 2004, which increased non-contract MAC revenue associated with upgrading existing customers systems.

Cost of Goods Sold

The following table sets forth our cost of goods sold as reported for our two operating segments. Cost of goods sold for our Financial Services segment includes the costs of equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold, labor to provide service, warehouse and project management costs, the costs to lease local and long distance circuits, the cost of our network provisioning and operations organizations and depreciation of our network equipment as well as equipment in our manufacturing and assembly facility. Cost of goods sold for our Command and Control segment includes the costs of equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold and labor to provide service. In addition, cost of goods sold for Q1 2005 includes a charge resulting from the sale of inventory

reflecting a step-up in carrying value of $1.7 million (relating to purchase accounting fair value adjustments from the acquisition of Orbacom), of which $0.2 million was recognized in Q1 2005 . This purchase accounting inventory fair value step-up is a GAAP adjustment that is recorded when a company is acquired.


	Financial Services
			% of					% of			%
(dollars in thousands)	Q1 2005		Rev.			Q1 2004		Rev.			Change
Product sales and installations	$	12,135		54	%	$	11,095		52	%		2	%
Service		21,024		49	%		15,434		50	%		(1	%)
Depreciation and amortization		1,082		2	%		742		1	%		1	%

Total	$	34,241		52	%	$	27,271		52	%		0	%


	Command and Control
			% of					% of			%
(dollars in thousands)	Q1 2005		Rev.			Q1 2004		Rev.			Change
Product sales and installations	$	279		126	%	$	43		61	%		65	%
Service		216		42	%		107		35	%		7	%
Depreciation and amortization		—		—	%		—		—	%		—

Total	$	495		68	%	$	150		39	%		29	%

Financial Services

Product sales and installations. The increase in product sales and installations cost of goods sold of 2% as a percentage of product sales and installation revenue in Q1 2005 from Q1 2004 was primarily due to a higher cost of sales realized on large and medium installation projects offset by a decrease in cost of sales on small installation projects. Small installation projects generally result in lower costs of sales.

Service. The decrease in service cost of goods sold of 1% as a percentage of service revenue in Q1 2005 from Q1 2004 was primarily due to a decrease in the cost of bandwidth expenses as a percentage of revenue from better management and utilization of bandwidth, an increase in contract maintenance service revenue, and higher material sales in MAC services.

Command and Control

Product sales and installations. The increase in product sales and installations cost of goods sold of 65% as a percentage of product sales and installation revenues in Q1 2005 from Q1 2004 was primarily due to the inclusion of $0.2 million of inventory fair value adjustment.

Service. The increase in service cost of goods sold of 7% as a percentage of service revenues in Q1 2005 from Q1 2004 was primarily due to the higher cost of sales associated with MAC services when compared to contract maintenance services.

Research and Development Expense

	Consolidated
	Q3		Q3		$		%			YTD		YTD		$		%
					$		%
(dollars in thousands)	~~2004~~Q1 2005		~~2003~~Q1 2004		Change		Change			~~2004~~		~~2003~~		~~Change~~		~~Change~~
Research and development	$	34,~~809~~031	$	23,~~784~~409	$	~~1,025~~622		3718	%	$	~~10,817~~	$	~~8,447~~	$	~~2,370~~		28	%

Research and development efforts ~~are~~for ~~principally~~Financial Services are focused on the next generation of ~~the~~Financial ~~Trading~~Services ~~Systems~~turret products, applications software, and enhancements ~~of our~~to our current product lines. WeCommand ~~expect~~and ~~our~~Control research and development ~~expenses~~efforts ~~in fiscal~~are ~~year~~focused ~~2004~~on tothe benext generation ~~approximately~~of ~~$14 million~~radio ~~to $15 million; however~~technology, ~~the actual~~radio ~~research~~telephony integration, and ~~development~~computer ~~expenses~~aided ~~could~~dispatch ~~be higher~~software.

~~Comparison~~ Research ofand Q3development ~~2004~~expenses toincreased Q3by ~~2003~~$0.6 million ~~and~~in ~~YTD~~Q1 2005 from Q1 2004 primarily due to ~~YTD~~costs ~~2003~~related to investment in the next generation of products.

Research and development expenses increased by $1.0 million in Q3 2004 from Q3 2003 and increased by $2.4 million in YTD 2004 from YTD 2003, reflecting additional resources added to our product development group and development and integration of the Purple Voice product line.

Selling, General and Administrative Expense

	Consolidated
	Q3		Q3		$		%			YTD		YTD		$		%
					$		%
(dollars in thousands)	~~2004~~Q1 2005		~~2003~~Q1 2004		Change		Change			~~2004~~		~~2003~~		~~Change~~		~~Change~~
Selling, general and administrative	$	1317,~~556~~133	$	1012,~~883~~924	$	24,~~673~~209		2533	%	$	~~41,229~~	$	~~29,225~~	$	~~12,004~~		41	%

~~We expect our selling, general and administrative expenses in fiscal year~~29 2004 to be approximately $50 million to $60 million, which has been revised since Q2 2004 due to the sale of the I.T.S. division in Q3 2004; however the actual selling, general and administrative expenses could be higher. We believe the anticipated increase in selling, general and administrative expenses for the 2004 fiscal year will primarily result from the inclusion of our Network Services division for the full fiscal year.

Comparison of Q3 2004 to Q3 2003 and YTD 2004 to YTD 2003

Selling, general and administrative expenses increased by $2.7 million for Q3 2004 from Q3 2003 and increased by $12.0 million for YTD 2004 from YTD 2003, primarily due to increased employee related costs (compensation, commissions, severance, bonuses and benefits), new business ventures and new foreign office locations as well as the inclusion of expenses for our Network Services division, which increased by $1.2 million in Q3 2004 and $6.1 million in YTD 2004.

Depreciation and Amortization

	Consolidated
	Q3		Q3		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Depreciation and amortization	$	5,535	$	4,678	$	857		18	%	$	15,970	$	14,087	$	1,883		13	%

~~Comparison~~ Selling, ofgeneral Q3and administrative expenses increased by $4.2 million in Q1 2005 from Q1 2004 due to Q3the ~~2003~~recognition of a full quarter of costs in Q1 2005 from the acquisition of Gains Asia in January 2004 and ~~YTD~~the expansion of the Command and Control segment through the acquisition of Orbacom Systems on November 30, 2004, toand ~~YTD~~the ~~2003~~increased headcount and related costs in Q1 2005 for sales and marketing programs and professionals.

Depreciation and ~~amortization expense increased by $0.9 million in Q3 2004~~Amortization ~~from Q3 2003 and increased by $1.9 million in YTD 2004 from YTD 2003, primarily~~ ~~due to increased capital expenditures in our Network Services division as well~~ ~~as the addition of depreciable fixed assets and amortizable assets from our Network Services division in Q3 2004 and YTD 2004 due to the acquisition of Gains Asia in January 2004.~~


	Consolidated
					$		%
(dollars in thousands)	Q1 2005		Q1 2004		Change		Change
Depreciation and amortization	$	1,479	$	1,331	$	148		11	%

The increase in depreciation and amortization of $0.1 million in Q1 2005 from Q1 2004 was primarily due to increased capital expenditures as well as the addition of depreciable fixed assets due to the acquisition of Gains Asia in January 2004.

Amortization of Intangibles


	Consolidated
					$		%
(dollars in thousands)	Q1 2005		Q1 2004		Change		Change
Amortization of intangibles	$	4,021	$	3,776	$	245		6	%

The increase in amortization of intangibles of $0.2 million in Q1 2005 from Q1 2004 was primarily due to the addition of intangible assets from the acquisition of Gains Asia.

Interest Expense, net

	Consolidated
	Q3		Q3		$			%			YTD		YTD		$			%
					$			%
(dollars in thousands)	~~2004~~Q1 2005		~~2003~~Q1 2004		Change			Change			~~2004~~		~~2003~~		~~Change~~			~~Change~~
Interest expense, net.	$	5,391	$	6,008	$	(617	)		(10	%)	$	16,727	$	18,690	$	(1,963	)		(11	%)
Interest expense, net	$	5,629	$	5,522	$	107			2	%

~~Comparison~~ Interest ofexpense, Q3net ~~2004~~increased toby Q3$0.1 million ~~2003~~in ~~and~~Q1 ~~YTD~~2005 from Q1 2004 due to ~~YTD~~an increase ~~2003~~in the LIBOR based interest rate on our senior secured credit facilities.

~~Interest~~Other ~~expense,~~Income net decreased by $0.6 million in Q3 2004 from Q3 2003 and decreased by $2.0 million in YTD 2004 from YTD 2003, primarily due to the reduction of principal and a reduction of the interest rate on our outstanding senior secured credit facilities. A voluntary prepayment of $14.0 million was made in March 2003 on our senior secured credit facilities and the interest rate was reduced by approximately 2.4% (~~from 7.5% to 5.1%~~Expense), ~~when the senior~~net ~~secured credit facilities were amended and restated in September 2003.~~


	Consolidated
					$		%
(dollars in thousands)	Q1 2005		Q1 2004		Change		Change
Other income (expense), net	$	1,405	$	447	$	958		214	%

Other income (expense), net increased by $1.0 million in Q1 2005 from Q1 2004 primarily due to foreign exchange gains attributable to the weakness of the US dollar.

Provision for Income Taxes

Our effective tax rate ~~for~~on ~~YTD~~income ~~2004~~from continuing operations was 5342.1% ~~compared~~for toQ1 ~~307~~2005 and 29.09% for ~~YTD 2003~~Q1 2004. Our effective tax ~~rates~~rate ~~reflect~~reflects our foreign, federal and state taxes, the non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain expenses and ~~taxable income at several of our foreign subsidiaries~~, ~~which, combined with lower absolute amounts of pre-tax earnings (or loss)~~ for the three ~~and nine~~ months ofended ~~each~~December 31, ~~fiscal year~~2003, ~~generates a~~taxable ~~more~~income ~~significant~~at ~~impact~~several onof our foreign ~~effective tax rates~~subsidiaries.

~~Income~~ We recognized deferred tax assets of $6.8 million at September 30, 2004 related to our US federal and state net operating loss carryforwards. In determining whether it is more likely than not that we will realize the benefits of the net deferred tax assets from US operations, we considered all available evidence, both positive and negative. The principal factors that led us to recognize these benefits were: (~~Loss~~1) US results of operations for the period ended September 30, 2002, reported a loss before income taxes of $22.1 million, after reflecting charges of $34.3 million resulting from ~~Continuing~~the ~~Operations~~fair-value inventory adjustments under the purchase price allocation (which, as a result of the Internal Revenue Code Section 338(h)(10) tax election, jointly made by us and Global Crossing, also generates deductions for income tax purposes); (2) US results of operations for 2005 and subsequent years are expected to generate sufficient taxable income to fully utilize these tax loss carryforwards; and (3) our conclusion that the net US deferred tax assets were generated by an event (our purchase of IPC Information Systems in December 2001), rather than a continuing condition. As of December 31, 2004, no circumstances have arisen that would require us to change such conclusion.

	Consolidated
	Q3		Q3			$		%			YTD		YTD			$		%
(dollars in thousands)	2004		2003			Change		Change			2004		2003			Change		Change
Income (loss) from continuing operations.	$	2,060	$	(1,394	)	$	3,454		248	%	$	3,381	$	(1,790	)	$	5,171		289	%

WeTable expect to have net income for the entire 2004 fiscal year of approximately $2.0 million to $4.0 million. However, the actual amount may be lower. Contents

~~Comparison~~Net ofIncome ~~Q3 2004 to Q3 2003~~(Loss)

For Q3 2004, we had income from continuing operations of $2.1 million compared to a loss from continuing operations in Q3 2003 of $1.4 million. This was due to the increase in gross profit of $8.5 million offset by the increase in research and development expense of $1.0 million, the increase in selling, general and administrative expense of $2.7 million, the increase in depreciation and amortization of $0.9 million, the increase in interest and other expense of $1.1 million and the decrease in income taxes of $0.7 million. Of the $3.5 million increase in income from continuing operations in Q3 2004 compared to Q3 2003, our Trading Systems division accounted for $1.3 million of the increase and our Network Services division accounted for $2.2 million of the increase.


	Consolidated
						$		%
(dollars in thousands)	Q1 2005		Q1 2004			Change		Change
Net income (loss)	$	231	$	(1,764	)	$	1,995		113	%

~~Comparison~~ We had net income of ~~YTD~~$0.2 million in Q1 2005 compared to a net loss of $1.8 million in Q1 2004. The $2.0 million increase was primarily due to ~~YTD~~a ~~2003~~$5.9 million increase in our gross profit, a $0.9 million increase in other income offset by increases in research and development expenses of $0.6 million and an increase in selling, general and administrative expenses of $4.2 million.

For YTD 2004, we had income from continuing operations of $3.4 million compared to a loss from continuing operations in YTD 2003 of $1.8 million. This was due to the increase in gross profit of $23.4 million offset by the increase in research and development expense of $2.4 million, the increase in selling, general and administrative expense of $12.0 million, the increase in depreciation and amortization of $1.9 million, the increase in interest and other expense of $0.7 million, and the increase in income taxes of $1.2 million. Of the $5.2 million increase in income from continuing operations in YTD 2004 compared to YTD 2003, our Trading Systems division accounted for $2.8 million of the increase and our Network Services division accounted for $2.4 million of the increase.

Liquidity and Capital Resources

Historically, we have satisfied our operating cash requirements through cash provided by operations, capital loans, financing and bank lines of credit. Our principal uses of cash were to fund working capital requirements, operating losses, capital expenditures and repayment of borrowings.

During Q1 ~~YTD 2004~~2005, we ~~made~~utilized ~~three~~our ~~large non-recurring~~ cash for payments: ~~(1)~~of $8.6 amillion interest payment due on our ~~settlement~~senior subordinated notes, the $8 million cash purchase price of Orbacom Systems, Inc., accrued expenses and the remaining payment ~~totaling~~due under our credit agreement relating to excess cash flow. These disbursements were offset by cash acquired in the Orbacom acquisition of $122.3 million inas ~~October 2003~~well ~~which~~as ~~was~~cash ~~comprised~~collections. The result of ~~the~~this ~~deferred~~activity ~~purchase~~was ~~price~~that ~~and~~our ~~earn-out~~cash ~~consideration~~balances ~~totaling~~decreased from $627.83 million at September 30, ~~related~~2004 to ~~the~~$8.8 million at December 31, 2004.

April 2003 acquisition of Gains International (US) and Gains International (Europe) and a $5.5 million advance payment for the acquisition of Gains Asia; (2) a dividend payment of $1.22 per share, or approximately $18.0 million in December 2003; and (3) payments totaling $11.9 million for the acquisition of Gains Asia. The acquisition of Gains Asia was partially funded by a $7.0 million draw on our revolving credit facility, which was fully repaid in February 2004.

The YTD 2004 cash uses for the non-recurring Gains related payments and the payment of the special cash dividend, combined with our mandatory interest payments due under our senior subordinated notes of $8.6 million paid on December 15, 2003 and June 15, 2004, which were partially funded by our cash provided by operating activities, reduced the amount of cash on our balance sheet from $25.8 million at September 30, 2003 to $17.4 million at June 30, 2004. With the exception of mergers and acquisitions activity, we do not currently anticipate any other non-recurring uses of cash in the near future.

The Senior Secured Credit Facilities

On December 20, 2001, we entered into the senior secured credit facilities comprised of a $105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003, we amended and restated our senior secured credit facilities. The amended and restated senior secured credit facilities consisted of a $25.0 million revolving credit facility and a $55.0 million term loan. The term loan was borrowed in full at closing. On April 20, 2004, we completed an agreement to increase the availability under our revolving credit facility by $10.0 million ~~under the provisions mentioned above~~. As of ~~June 30,~~December 31, 2004 the total amount available for borrowing and letters of credit under the revolving credit facility is $3035.70 million, (of which $3530.07 million ~~reduced~~was byavailable ~~outstanding~~as ~~letters~~ of December 31, 2004, after ~~credit~~taking ofinto account $4.3 million) ~~provided,~~of ~~however,~~outstanding ~~that~~letters weof credit. We can, however, increase the ~~committed~~ committed amount under these facilities by up to $15.0 million so long as one or more lenders ~~agrees~~ agree to provide this incremental commitment and other customary conditions are satisfied. ~~For~~Our ~~the~~senior secured ~~nine~~credit ~~months~~facilities ~~ended~~mature ~~June~~on September 302, ~~2004,~~2008. ~~the~~The weighted average interest rate for borrowings outstanding under the ~~amended~~senior secured credit facilities for Q1 2005 was 5.54% and ~~restated~~5.12% for Q1 2004. We are also required to pay a commitment fee equal to 0.50% per annum of the average daily unused amount of the committed amount of the revolving credit facility, a fronting fee in an amount not to exceed 0.50% per annum of the average aggregate daily amount available to be drawn under all letters of credit issued under our senior secured credit facilities ~~was~~and 4customary administrative agent and letter of credit charges.~~94%.~~

~~Mandatory~~Borrowings ~~prepayments~~under ofour ~~the amended and restated~~ senior secured credit facilities ~~are~~bear ~~required~~interest, ~~upon~~at ~~the~~our ~~occurrence of certain events~~election, ~~including~~either ~~certain~~based ~~asset~~on ~~sales,~~a ~~equity~~prime ~~issuances~~rate ~~and~~index ~~debt~~plus ~~issuances,~~the asapplicable ~~well~~margin asor ~~50%~~a ~~of excess~~LIBOR ~~cash~~rate ~~flow~~index inplus FYthe ~~2004 and thereafter~~applicable margin. ~~Excess~~The ~~cash~~applicable ~~flow~~margin is: ~~defined~~if in our ~~amended~~ ~~and~~senior ~~restated~~secured ~~credit~~leverage ~~agreement~~ratio, as: ~~(1) the~~defined ~~sum~~in ofthe ~~net income, interest~~senior ~~expense,~~secured ~~provisions~~credit ~~for taxes~~facilities, ~~depreciation~~is ~~expense,~~greater ~~amortization~~than ~~expense~~1.00:1.00, ~~other~~ ~~non-cash~~with ~~items~~respect ~~affecting net income and~~ to ~~the~~LIBOR ~~extent~~rate ~~included in calculating net income~~loans, ~~expenses~~4.00% ~~incurred~~per annum byand ~~us in connection~~ with anrespect ~~amendment of~~to ~~the~~prime ~~then~~rate ~~existing credit agreement~~loans, ~~certain~~3.00% ~~restructuring~~per ~~expenses~~annum, and ~~prepayment~~ ~~premiums~~if inour ~~connection~~senior ~~with~~secured ~~prepayment~~leverage ratio ofis ~~loans~~less ~~under~~than ~~the then existing credit agreement~~1.00:1.00, ~~plus~~with ~~(2) a~~respect ~~working~~to ~~capital~~LIBOR ~~adjustment~~rate ~~less~~loans, (3~~) scheduled~~.50% ~~repayments~~per ofannum ~~debt,~~and ~~capital~~with ~~expenditures,~~respect ~~cash interest expense and~~to ~~provisions~~prime ~~for~~rate ~~taxes~~loans, ~~based~~2.50% onper ~~income~~annum.

AsMandatory prepayments of the senior secured credit facilities are required ~~under~~upon the ~~terms~~occurrence of certain events, including certain asset sales, equity issuances and debt issuances, as well as 50% of excess cash flow, as defined in our senior secured credit facilities, ~~we made~~in ~~mandatory~~2004 ~~excess~~and thereafter. Excess cash flow ~~repayments~~is ofdefined ~~$30.0 million~~in ~~and~~our ~~$0.8 million~~credit ~~on September 30~~facilities agreement, ~~2002~~as: ~~and December~~(1) 29the sum of net income, interest ~~2002~~expense, ~~respectively~~provisions for taxes, ~~based~~depreciation ~~upon~~expense, ~~75%~~amortization ofexpense, ~~our excess~~other non-cash items ~~flow~~affecting ~~for~~net income and to the ~~period~~extent ~~ended~~included ~~September 30,~~in ~~2002.~~calculating Onnet ~~March 3~~income, ~~2003,~~expenses weincurred ~~also~~by ~~voluntarily~~us ~~prepaid~~in ~~$14.0 million~~connection inwith ~~debt~~an onamendment ~~our~~of the then existing ~~senior~~credit agreement, certain restructuring ~~secured~~expenses ~~credit~~and ~~facilities.~~prepayment ~~For~~premiums ~~the~~in ~~year~~connection ~~ended~~with ~~September 30,~~prepayment ~~2003,~~of weloans ~~were~~under ~~not~~the then existing ~~required~~credit toagreement, ~~make~~plus (2) a ~~mandatory~~working ~~excess~~capital adjustment less (3) scheduled repayments of debt, capital expenditures, cash ~~flow~~acquisitions ~~repayment~~and ~~under~~certain ~~the~~investments, ~~terms~~cash ofinterest ~~the amended~~expense and provisions ~~restated~~for ~~senior~~taxes ~~secured~~based ~~credit~~on ~~facilities~~income.

~~Obligations~~As required under the ~~amended~~terms ~~and~~of ~~restated~~our senior secured credit facilities, ~~are~~our ~~secured~~mandatory byexcess acash flow ~~first~~repayment ~~priority~~based ~~security~~upon ~~interest~~50% ~~in substantially all~~ of our ~~assets~~excess ~~and~~cash ~~the~~flow ~~assets~~for ofthe ~~our~~period ~~domestic~~ended ~~subsidiaries~~September 30, ~~and by a pledge~~2004, ofwhich ~~100%~~must ofbe ~~the~~paid ~~shares~~within 90 days of ~~domestic~~our ~~subsidiaries~~fiscal ~~and~~year ~~65%~~end, ofwas ~~the~~$6.6 million, ~~shares~~ of ~~direct foreign~~which ~~subsidiaries~~$5. ~~Our domestic subsidiaries have unconditionally guaranteed~~0 million ~~our~~was ~~obligations~~paid ~~under~~on ~~the~~September 30, ~~amended~~2004 and ~~restated~~$1.6 million ~~senior~~was ~~secured~~paid ~~credit facilities~~on December 29, 2004.

~~The amended and restated senior secured credit facilities contain~~31 customary affirmative covenants as well as negative covenants that, among other things, restrict our and our subsidiaries’ ability to: incur additional indebtedness (including guarantees of certain obligations); create liens; 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; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal year or lines of business; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

The amended and restated senior secured credit facilities also contain minimum interest coverage and fixed charge coverage ratios and maximum senior secured and total leverage ratios as well as a restriction on the amount of capital expenditures we can incur in a fiscal year.

The Senior Subordinated Notes

On December 20, 2001, we issued $150.0 million in aggregate principal amount of 11.50% senior subordinated notes to fund a portion of the consideration for the acquisition of IPC Information Systems. Under the terms of the indenture governing the notes, we may, subject to certain restrictions, issue additional notes up to a maximum aggregate principal amount of $250.0 million. The notes mature on December 15, 2009 and are callable, at our option, beginning in December 2005. The notes are general unsecured obligations, are subordinated in right of payment to all existing and future senior debt, including the amended

~~and~~ Obligations ~~restated~~under the senior secured credit facilities, are ~~pari passu~~secured inby ~~right~~a offirst ~~payment~~priority security ~~with~~interest ~~any~~in ~~future~~substantially ~~senior~~all ~~subordinated~~of ~~indebtedness,~~our assets and ~~are~~ ~~unconditionally~~the ~~guaranteed~~assets ~~by certain~~ of our domestic ~~restricted~~ subsidiaries. and ~~Interest~~by ona ~~the~~pledge ~~notes~~of ~~accrues~~100% atof the ~~rate~~shares of ~~11.50~~domestic subsidiaries and 65% ~~per~~of ~~annum~~the ~~and is~~shares ~~payable~~of ~~semi-annually~~direct foreign insubsidiaries. ~~arrears~~Our ondomestic ~~June 15~~subsidiaries ~~and~~have ~~December 15,~~unconditionally ~~the~~guaranteed ~~first~~our ofobligations ~~which~~under ~~occurred~~the onsenior ~~June 15,~~secured ~~2002~~credit facilities.

The senior secured credit facilities contain customary affirmative covenants as well as negative covenants that, among other things, restrict our and our subsidiaries’ ability to: incur additional indebtedness (including guarantees of certain obligations); create liens; 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; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal year or lines of business; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

The Senior Subordinated Notes

On December 20, 2001 we issued $150.0 million in aggregate principal amount of 11.50% senior subordinated notes to fund a portion of the consideration for the acquisition of IPC Information Systems. Under the terms of the indenture governing the notes, we may, subject to certain restrictions, issue additional notes up to a maximum aggregate principal amount of $250.0 million. The notes mature on December 15, 2009. The notes are general unsecured obligations, are subordinated in right of payment to all existing and future senior debt, including the amended and restated senior secured credit facilities, are pari passu in right of payment with any future senior subordinated indebtedness, and are unconditionally guaranteed by certain of our domestic restricted subsidiaries. Interest on the notes accrues at the rate of 11.50% per annum and is payable semi-annually in arrears on June 15 and December 15.

The indenture governing the notes contains covenants that impose significant restrictions on us. These restrictions include limitations on our ability to: incur indebtedness 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 our assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.

~~Settlement~~Comparison ~~and~~of ~~Rejection~~Q1 ~~Agreement~~2005 to Q1 2004

OnCash ~~March~~used in operating activities from continuing operations was $11.2 ~~13,~~million ~~2003,~~for weQ1 ~~entered~~2005 ~~into~~as compared ato ~~settlement~~cash ~~and~~provided ~~rejection~~by ~~agreement~~operating activities from continuing operations of $7.9 million for Q1 ~~with~~2004. ~~Global~~The ~~Crossing~~decrease of $19.1 million ~~Pursuant~~was primarily due to ~~the~~$18.4 million ~~settlement~~of cash used for payment of accounts payable and ~~rejection~~accrued ~~agreement,~~liabilities ~~all~~balances that had increased leading up to our September of30, 2004 fiscal year end. The fluctuation in the ~~remaining~~accounts ~~obligations~~payable ~~under~~and accrued liabilities reflects the cashflow requirements for the purchase ~~agreement~~price ~~relating~~of Orbacom due on closing. In addition, inventory balances increased by $5.8 million due to the increase in our backlog when compared to ~~acquisition~~the same period last year. Increased backlog results in a requirement of ~~IPC~~more ~~Information~~working ~~Systems~~capital ~~were~~as the ~~terminated~~costs of jobs that have not been completed are held in inventory until completion in accordance with our revenue recognition policy. InThese ~~addition,~~cash wedecreases ~~and~~were partially offset by $2.5 million of ~~Global~~cash ~~Crossing~~received ~~mutually~~from ~~released~~our ~~each~~former ~~other~~I.T.S. ~~for~~division ~~all~~as ~~prior~~well ~~claims~~as a $1.9 million shift from a net loss to a net income position during the comparative periods.

~~The~~Cash ~~bankruptcy~~used ~~court~~in ~~entered~~investing anactivities ~~order~~was ~~on March~~$7.8 ~~14,~~million ~~2003~~for ~~approving~~Q1 ~~the settlement~~2005 ~~and~~as ~~rejection~~compared ~~agreement~~to $14.0 million for ~~Under~~Q1 ~~the~~2004. ~~terms~~Cash ofused ~~the~~in ~~settlement~~investing ~~and rejection~~activities ~~agreement,~~for weQ1 ~~have~~2005 ~~deposited~~was ~~$5.2 million~~primarily incomprised anof ~~escrow account~~$1.9 million ~~Global~~of ~~Crossing~~capital ~~received~~expenditures and $35.29 million ~~from~~for the ~~escrow~~acquisition ~~account~~of ~~upon~~Orbacom ~~the~~net ~~filing~~ of ~~certain~~cash ~~tax~~acquired. ~~returns for periods prior to and including the date of the~~Cash ~~acquisition~~used ofin ~~IPC~~investing ~~Information~~activities ~~Systems.~~for ~~Global~~Q1 ~~Crossing~~2004 ~~will~~related ~~receive~~to ~~the remaining~~ $21.07 million ~~from~~for ~~the~~capital ~~escrow~~expenditures, ~~account after a~~ $26.0 8 million ~~irrevocable letter~~for ofthe ~~credit~~deferred ispurchase ~~issued~~price onand ~~behalf~~earnout ofcommitment ~~us.~~for ~~We will have~~ the ~~right~~acquisition toof ~~draw on~~Gains ~~that~~International ~~letter~~US ofand ~~credit~~Gains inInternational ~~the~~UK, ~~event~~Ltd. ~~Global~~and ~~Crossing’s~~a ~~affiliate~~$5.5 million ~~fails~~advance topayment ~~make any payments due to us pursuant to a sublease~~ for ~~office space at 67-73 Worship~~the ~~Street~~acquisition inof ~~London,~~Gains ~~England~~Asia.

WeCash ~~believe~~used ~~that~~in ~~all~~financing ~~tax~~activities ~~returns~~was ~~required~~$1.8 million tofor beQ1 ~~filed~~2005 inas ~~respect~~compared ofto ~~IPC~~$18.0 million ~~Information~~for ~~Systems,~~Q1 ~~Inc~~2004. ~~and~~Cash ~~its~~used ~~subsidiaries~~in ~~for~~financing ~~periods~~activities ~~prior~~in toQ1 ~~and including~~2005 ~~the~~was ~~date~~primarily offor ~~the~~repayment ~~acquisition~~ of ~~IPC~~bank ~~Information Systems have now been~~debt ~~filed~~of $1.7 million. ~~These~~Cash ~~returns~~used ~~consist~~in offinancing ~~consolidated~~activities ~~tax~~in ~~returns~~Q1 ~~with~~2004 ~~Global~~was ~~Crossing, and,~~almost ~~where~~entirely ~~required~~comprised byof ~~law,~~the special ~~separate~~cash ~~tax~~dividend ~~returns~~in ~~for~~the ~~IPC~~amount ~~Information~~of ~~Systems, Inc~~$17. ~~and/or its subsidiaries~~8 million.

AsThe aeffect ~~result~~ of ~~the~~exchange ~~termination~~rate ofchanges ~~the~~on ~~purchase~~cash ~~agreement,~~represents ~~Global~~increases Crossing has been relieved of all of its obligations under the purchase agreement, including, among other things, indemnifying us for tax liabilities that may be imposed upon IPC Information Systems, Inc. and ~~its~~decreases ~~subsidiaries~~in ~~for periods~~various ~~prior~~currencies towhen ~~and~~translated ~~including~~into ~~the~~US ~~date of the IPC Information Systems Acquisition~~dollars. ~~Therefore,~~ inAs ~~the event that any tax liabilities are imposed, as a result of~~ an ~~audit~~ orinternational ~~otherwise~~company, ~~on IPC Information Systems, Inc. and/or its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition,~~ we ~~may be required to pay those taxes and~~ are nosubjected ~~longer able~~ to ~~seek~~currency ~~indemnification~~fluctuation ~~from~~risk, ~~Global~~which ~~Crossing.~~resulted Asin ofa ~~the~~net ~~date~~decrease of ~~this~~cash ~~filing, the aggregate amount~~ of ~~taxes for which we have received notices of taxes due from various jurisdictions and recognized as tax liabilities under purchase accounting is~~ approximately $60.~~5 million and, as of June 30, 2004, we have made settlement payments aggregating $~~1.9 million~~, including a $1.1 million payment~~ ~~made to one jurisdiction~~ in ~~May 2004.~~Q1 We2005 ~~estimate~~as ~~that~~compared ~~the range of our exposure for additional tax liabilities is from $0.0~~ to ~~$18.0 million,~~an ~~which has~~increase ~~been reduced from $36.0 million as a result~~ of ~~our settlement negotiations. In computing our estimated range of potential tax liabilities~~$16,000 ~~we took into account tax returns~~ in ~~certain~~Q1 ~~jurisdictions where the statutes of limitations have not yet expired~~2004. ~~Under~~Currently those tax returns as filed, the remaining liability is zero. Although we believe that all those tax returns have been filed correctly, such returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by us of a significant amount of these potential tax liabilities could have a material adverse effect on our ~~financial condition~~largest ~~and results of operations, requiring us to seek additional financing.~~currency ~~In that event, we cannot make assurances that we will be able to obtain~~ ~~additional financing on commercially reasonable terms, or at all.~~

~~Pursuant to the settlement and rejection agreement, Global Crossing has~~32 also paid to us approximately $2.2 million for payroll and federal tax refunds received by it for periods prior to and including the date of the acquisition of IPC Information Systems. Global Crossing is also required to pay us any future tax refunds or credits it receives applicable to IPC Information Systems, Inc. and its subsidiaries for these periods.

Comparison of YTD 2004 to YTD 2003

Cash provided by operating activities from continuing operations was $23.8 million for YTD 2004 compared to $18.9 million for YTD 2003. The increase of $4.9 million is primarily comprised of (i) income from continuing operations of $3.4 million in YTD 2004 compared to a loss from continuing operations of $1.8 million in YTD 2003; (ii) additional net non-cash charges of $18.4 million in YTD 2004 as compared to $14.5 in YTD 2003 primarily due to higher depreciation and amortization charges; and (iii) changes in operating assets and liabilities providing net cash of $2.0 million in YTD 2004 compared to $6.2 million in YTD 2003. Cash flows provided by operating activities related to discontinued operations was $15.4 million for YTD 2004 as compared to a use of cash of $7.8 million for YTD 2003. This difference principally reflects the completion of a large project in progress at September 30, 2003 and collection of accounts receivable on such project in the YTD 2004 period as compared to the cash funding required as the same project was in progress during the YTD 2003 period.

~~Cash~~exposure ~~used~~is ~~in investing activities from continuing operations was $28.4 million for YTD 2004 compared~~ to ~~cash provided by investing activities from continuing operations of $4.5 million for YTD 2003. Cash usage in YTD 2004 related primarily to~~ the ~~acquisitions~~British ofPound, ~~Gains~~although ~~Asia~~we ~~for~~have ~~$15.2 million~~additional ~~and Purple Voice for $0.5 million~~exposure, ~~and the settlement of amounts owed relating~~ to ~~Gains~~a USlesser ~~and~~extent, ~~UK of $6.8 million. The cash provided by investing activities for YTD 2003 related primarily~~ to the Euro, ~~cash~~Canadian ~~acquired~~Dollar, inAustralian ~~the~~Dollar, ~~acquisition~~Japanese ofYen ~~Gains US~~ and ~~UK of $4.1 million combined with $4.2 million relating to~~ the ~~settlement~~Hong ~~with~~Kong ~~Global Crossing~~Dollar. ~~Capital expenditures for YTD 2004 and YTD 2003 were $6.0 million and~~ ~~$3.8 million, respectively.~~

Cash used in financing activities was $18.5 million for YTD 2004 compared to $19.0 million for YTD 2003. The primary use of cash in YTD 2004 was the payment of a special cash dividend of $18.0 million. The primary use of cash in YTD 2003 was the repayment of principal on our amended and restated senior secured credit facilities of $18.6 million.

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 decrease of $0.7 million in YTD 2004 compared to $0.9 million in YTD 2003. Currently our largest currency exposures are to the British Pound and the Canadian Dollar, although we have additional exposures, to a lesser extent, to the Euro, Australian Dollar, Japanese Yen, Hong Kong Dollar and Singapore Dollar.

Capital Resources and Expenditures

We ~~expect that our capital expenditures for fiscal year 2004 will be approximately $10.0 million; however, actual capital expenditures for the 2004 fiscal year may be greater. We~~ are limited in our capital expenditures in any fiscal year by the capital expenditure covenant in our ~~amended and restated senior secured~~ credit ~~facilities~~agreement. ~~This~~The limits usimposed toby ~~capital~~our ~~expenditures~~credit inagreement ~~any fiscal~~are ~~year to~~ $12.0 million per fiscal year plus 50% of the unused ~~amount~~portion ~~from~~of the ~~immediately preceding~~prior ~~fiscal~~ year.’s ~~For~~availability ~~fiscal~~under ~~year 2004,~~ the ~~amount of capital expenditures permitted by this~~ covenant ~~is approximately $12~~.~~2 million. We have no~~ ~~off-balance sheet financing arrangements or other relationships with~~ ~~unconsolidated affiliates.~~

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~~ principal repayments on our debt, capital expenditures, research and development efforts, working capital ~~and~~ as needed for potential strategic acquisitions and/or alliances. ~~Our~~and ~~primary~~payment ~~future sources~~ of ~~cash~~dividends ~~will~~to ~~be cash~~our ~~flows from operations~~shareholders, ~~primarily~~including the ~~design,~~special ~~manufacture,~~cash ~~installation~~dividend ~~and~~of ~~service~~approximately of$20 ~~turret~~million ~~systems~~that ~~for~~we ~~the~~expect ~~trading~~to pay ~~operations~~by ofFebruary ~~investment and commercial banks~~14, ~~foreign~~2005 ~~exchange~~to ~~and~~all ~~commodity~~stockholders ~~brokers~~of ~~and~~record ~~dealers,~~of ~~market exchanges,~~our ~~mutual~~outstanding ~~and~~common ~~hedge~~stock. ~~fund~~Our ~~companies, asset managers and insurance~~primary ~~companies,~~future assources ~~well~~of ascash ~~voice~~will ~~and~~be ~~data~~cash ~~services~~flows tofrom ~~the~~operations, ~~financial community~~ and, if necessary, borrowings under the revolving credit facility.

During the course of the year, our short-term liquidity is impacted by our mandatory payment obligations of principal and interest under both our amended and restated senior secured credit facilities and our senior subordinated notes. The mandatory interest and principal payments under the amended and restated senior secured credit facilities are due at the end of each quarter. The interest payments required by the senior subordinated notes of $8.6 million due in June and December of each year negatively impact our liquidity during those particular months. Additionally, in any such year that we generate excess cash flow, the mandatory prepayment required under our amended and restated senior secured credit facilities must be made within 90 days of our fiscal year end. For the year ended September 30, 2003, we were not required to make a mandatory excess cash flow repayment under the terms of the amended and restated senior secured credit facilities.

On April 20, 2004, we completed an agreement to increase our availability under the revolving credit facility by $10.0 million, from $25 million to $35 million under the increase provisions mentioned in Note 7. As of June 30, 2004, the amount available under the revolving credit facility was $30.7 million as availability of $35.0 million was reduced by outstanding letters of credit of $4.3 million.

Our ability to make payments on our indebtedness, including the senior subordinated notes, and to fund planned capital expenditures, research and development efforts and payment of dividends to our shareholders 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.

~~Since~~During the ~~acquisition~~course of ~~IPC~~the ~~Information Systems~~year, our ~~cash~~short-term ~~generated~~liquidity ~~from the~~is ~~operations~~impacted ofby ~~the~~our ~~business~~mandatory payment obligations of principal and ~~borrowings~~interest under our ~~revolving~~senior secured credit facilities and interest ~~facility~~payments ~~have~~on ~~been~~our ~~sufficient~~senior tosubordinated ~~meet~~notes. ~~substantially~~The ~~all~~mandatory ofinterest and principal payments under our senior ~~cash~~secured ~~needs~~credit facilities are due at the end of each quarter. ~~Based~~ onThe ~~our~~interest ~~forecasts,~~payments werequired by ~~believe~~the ~~that~~senior ~~this~~subordinated ~~trend~~notes ~~will~~of ~~continue~~$8.6 million due in June and ~~our~~December ~~cash~~of each year negatively ~~flow~~impact ~~from~~our ~~operations~~liquidity during those particular months. Additionally, ~~available~~in any year that we generate excess cash ~~and~~flow, ~~available~~the ~~borrowings~~mandatory prepayment required under our ~~revolving~~ ~~credit~~senior ~~facility~~secured ~~will~~credit facilities must be ~~adequate~~made towithin ~~meet~~90 days of our ~~current~~fiscal ~~and~~year ~~long-term~~end. For 2004, we were required to make a mandatory ~~liquidity~~excess ~~needs~~cash ~~for~~flow atpayment ~~least~~of ~~the~~$6.6 million ~~next~~of ~~few~~which ~~years~~$5.0 million Wewas ~~cannot~~paid ~~assure~~at ~~you~~September 30, ~~however,~~2004 and ~~that~~the ~~our~~remaining ~~business~~$1.6 million ~~will~~was ~~generate~~paid ~~sufficient~~at ~~cash~~December 29, ~~flow~~2004. ~~from~~We ~~operations~~did ornot ~~that~~make a mandatory excess cash ~~future~~flow ~~borrowings~~payment ~~will~~for be2003 due to our voluntary prepayment of $14.0 million in March 2003.

32 Since the acquisition of IPC Information Systems, our cash generated from the operations of the business has been sufficient to meet our cash needs. Based on our forecasts, we believe that this trend will continue and 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 for at least the next few years. 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 notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms, or at all.

available to us under the revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms, or at all. In addition, to the extent we make further acquisitions, we may require additional funds to finance such acquisitions.

Contractual Obligations and Other Commercial Commitments

The following summarizes our contractual obligations at ~~June~~December 3031, 2004, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in millions).

(dollars in thousands)


	Payments Due by Period
			Less than		1-3		3-5		After 5
Contractual Obligations:	Total		1 year		years		years		years
Deferred Compensation Agreements	$	4.8	$	0.9	$	1.0	$	0.9	$	2.0
Network Carrier Commitments		9.3		9.3		—		—		—
Long-Term Debt		197.7		0.5		12.4		184.8		—
Operating Leases		31.2		5.4		10.2		8.4		7.2

Total Contractual Cash Obligations	$	243.0	$	16.1	$	23.6	$	194.1	$	9.2

	Payments Due by Period
	Amount of Commitment Expiration Per Period
			Less than		1-3		4-5		After 5
	Total
Contractual Obligations:	Total		1 year		years		years		years
	Amounts		Less than		1-3		3-5		Over 5
Deferred Compensation Agreements	$	4,964	$	788	$	1,005	$	899	$	2,272
Other Commercial Commitments:	Committed		1 year		years		years		years
Network Carrier Commitments		9,825		7,125		2,700		—		—
Line of Credit	$	—	$	—	$	—	$	—	$	—
Long-Term Debt		204,725		550		1,100		53,075		150,000
Standby Letters of Credit		4.3		4.3		—		—		—
Operating Leases		34,049		6,365		11,428		9,100		7,156
Guarantees for Global Crossing Affiliates		0.3		—		0.3		—		—
Total Contractual Cash Obligations	$	253,563	$	14,828	$	16,233	$	63,074	$	159,428
Total Commercial Commitments	$	4.6	$	4.3	$	0.3	$	—	$	—

	Amount of Commitment Expiration per Period
	Total
	Amounts		Less than		1-3		4-5		Over 5
Other Commercial Commitments:	Committed		1 year		years		years		years
Line of Credit	$	—	$	—	$	—	$	—	$	—
Standby Letters of Credit		4,250		4,250		—		—		—
Guaranties for Global Crossing Affiliates		2,973		1,687		1,286		—		—
Total Commercial Commitments	$	7,223	$	5,937	$	1,286	$	—	$	—

Summary of Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our condensed 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 or, for contracts that are completed in stages and include contract specified milestones, upon achieving such contract milestones, and the delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers are generally progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as inventory awaiting installation. In addition, contracts for annual recurring turret 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. Revenue from our Network Services division, which provides voice and data services to the financial community, is generally billed at the beginning of the month and recognized in the same month.

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. Where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to us, we record a specific allowance against amounts due to us and thereby reduce the net receivable to the amount we reasonably believe is likely to be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required.

~~Inventories~~ Off Balance Sheet Arrangements

~~Inventories~~We ~~are~~do ~~stated at the lower of FIFO (first in, first out) cost or market but~~ not inhave ~~excess~~any ofoff ~~net~~balance ~~realizable~~sheet ~~value.~~financial ~~Inventory costs include all direct manufacturing costs and applied overhead~~arrangements. ~~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 definite lived 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 to date.

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. We adopted SFAS 142 in December 2001 and, in accordance with SFAS 142, there is no amortization of goodwill and intangible assets that have indefinite useful lives. However, goodwill is tested for impairment annually using the two-step process specifically provided in SFAS 142. Other intangible assets are carried at cost. Technology is amortized over its estimated useful life of between 3 to 7 years, customer relationships are amortized over their estimated useful lives of 8 to 20 years, and proprietary software is amortized over its estimated useful life of 7 years. Trade name has been deemed to have an indefinite life and is not subject to amortization expense, but instead is subject to an annual fair value test in accordance with the provisions of SFAS 142. In determining that the trade name has an indefinite life, we considered the following factors: the ongoing active use of our trade name, which is directly associated with a leading position in turret solutions, the lack of any legal, regulatory or contractual provisions that may limit the useful life of the trade name, the lack of any substantial costs to maintain the asset, the positive impact on our trade name generated by our other ongoing business activities (including marketing and development of new technology and new products) and our commitment to products branded with our trade name over its 30 year history. Our acquired trade name has significant market recognition and we expect to derive benefits from the use of such asset beyond the foreseeable future.

We most recently completed the required annual impairment and fair value tests as of July 1, 2003 (the first day of the fourth quarter of the 2003 fiscal year), and concluded that there was no impairment to our recorded goodwill or trade name. There have been no indicators of impairment during the nine months ended June 30, 2004 that would require us to perform an impairment test for this period. We believe the recorded values of goodwill and trade name in the amounts of $89.7 million and $16.3 million, respectively, at June 30, 2004 are fully recoverable.

Stock – Based Compensation

As permitted by SFAS 123, we have elected to follow APB Opinion 25 and related interpretations in accounting for our employee option plans. Under APB 25, no compensation expense is recognized at the time of an option grant if the exercise price of the employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant.

Income Taxes

In accordance with SFAS No. 109, “Accounting for Income Taxes”, or SFAS 109, 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.

Business Combinations

During the 2004 and 2003 fiscal years, the acquisition of Gains Asia, Gains US and UK and our investment and subsequent acquisition of Purple Voice required certain estimates and judgments related to the fair value of assets acquired and liabilities assumed. Certain of the liabilities are subjective in nature. These liabilities have been reflected in the purchase accounting based upon the most recent information available, and principally include Federal and state payroll taxes, state sales taxes, state income taxes, value added tax, or VAT, and income taxes in several foreign countries. The ultimate settlement of such liabilities may be for amounts which are different from the amounts presently recorded.

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 domonitor ~~not~~our interest rate and foreign exchange rate exposures on an ongoing basis. We have ~~any~~not ~~off~~entered ~~balance~~into ~~sheet~~any ~~financial~~interest ~~arrangements~~rate hedging contracts.

~~Market~~As ~~risks~~an ~~relating~~international company, we are exposed to ~~our~~foreign ~~operations~~currency ~~result~~risk ~~primarily~~because ~~from~~part ~~changes~~of inour ~~interest~~revenues ~~rates~~and operating expenses are earned and ~~changes~~paid primarily in ~~foreign~~British ~~exchange~~Pounds ~~rates.~~and Weto ~~monitor~~a ~~our interest~~lesser ~~rate~~extent ~~and~~Australian ~~foreign~~Dollars, ~~exchange~~Canadian ~~rate~~Dollars, ~~exposures~~Euros, onJapanese anYen, ~~ongoing~~Hong ~~basis.~~Kong WeDollars ~~have~~and ~~not~~Singapore Dollars. In the past, we entered into ~~any~~foreign ~~interest~~currency ~~rate~~hedging orcontracts, commonly known as collars. For Q1 2005 and Q1 2004, we did not enter into any foreign currency hedging ~~contracts~~instruments or other derivatives.

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 market value of our long-term debt at December 31, 2004 is shown in the table below.

			Future Principal Payments
	Fair Value on
(Dollars in millions)	June 30, 2004		2004		2005		2006		2007		2008		Thereafter		Total
	December 31,		Future Principal Payments
(dollars in millions)	2004		2005		2006		2007		2008		2009		Thereafter		Total
Long-Term Debt:
Fixed Rate
Fixed Rate Senior Subordinated Notes, interest payable at 11.5%, maturing 2009	$	166.5	$	—	$	—	$	—	$	—	$	—	$	150.0	$	150.0
Senior Subordinated Notes, interest payable at 11.5%, maturing 2009	$	162.0	$	—	$	—	$	—	$	—	$	—	$	150.0	$	150.0
Variable Rate Senior Secured Credit Facilities – Term Loan (interest payable at 5.54% at December 31, 2004)	$	48.1	$	0.5	$	0.5	$	11.9	$	34.8	$	—	$	—	$	47.7
Variable Rate
Senior Secured Credit Facilities - Term Loan (interest payable at 4.6% at June 30, 2004)	$	55.2	$	0.3	$	0.5	$	0.5	$	0.6	$	52.8	$	—	$	54.7

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.

As of the end of the period covered by 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-15(e) and 15d-15(e). 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.

During the Company’s most recent fiscal quarter, there have been no significant changes in the Company’s internal controls that have materially affected, or isare reasonably likely to materially affect, the Company’s internal controls over financial reporting.

3534

Part II —– Other Information:

Item 1. Legal Proceedings

Except for the ~~two~~ lawsuits described below, of which ~~involve~~ the ~~Company’s~~ first two involves our former I.T.S. ~~division~~ segment, ~~the~~we ~~Company~~are is not a party to any pending legal proceedings other than claims and lawsuits arising in the normal course of business. Under the terms of the sale agreement, ~~the~~we ~~Company~~remain ~~remains~~ liable for all pre-closing liabilities relating to the I.T.S. ~~division~~segment, including the two lawsuits described below. Management believes the proceedings will not have a material adverse effect on ~~the~~our ~~Company’s~~ consolidated financial condition or results of operations.

On June 27, 2000, an action was brought against several defendants, including ~~the~~our ~~Company’s~~ subsidiary, 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~~ 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~~We ~~Company~~believe ~~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 $75.0 million.

On September 8, 2003, an action was brought against several defendants, including ~~the Company’s~~ our subsidiary, IPC Information Systems, Inc. and its President, in the United States District Court for the Eastern District of New York by Advance Relocation & Storage Co., Inc., a moving company. The complaint alleges that IPC Information Systems, Inc. and 23 other defendants violated the Racketeer Influenced and Corrupt Organizations Act and engaged in tortious interference with prospective business advantage by preventing the plaintiff from obtaining work as a mover in jobs performed in large commercial buildings in New York City. ~~The~~We ~~Company~~believe ~~believes~~ the suit is without merit and intends to vigorously defend against all claims alleged against it in the complaint. Plaintiffs are seeking injunctive relief and damages from the defendants, jointly and severally, in an aggregate amount of approximately $7.0 million.

~~Item~~ On 2December 3, 2003, Hamilton County Emergency Communications District sued a former affiliate of Orbacom in the United States Court for the Eastern District of Tennessee at Chattanooga. ~~Changes~~The complaint asserts claims for breach of contract in ~~Securities,~~connection ~~Use~~with the installation of ~~Proceeds~~public safety communications systems and ~~Issuer~~the ~~Purchases~~provision of ~~Equity~~services ~~Securities~~to Hamilton County. The complaint seeks damages of approximately $600,000.

~~None~~We acquired Orbacom on November 30, 2004. On January 6, 2005, Hamilton amended its complaint to add IPC Information Systems, LLC as a defendant. The amended complaint alleges new claims against IPC Information Systems, LLC for violations of the Uniform Fraudulent Transfer Act by entering into a concerted plan to take actions to place the assets of an affiliate of Orbacom beyond the reach of the court.

We are fully indemnified by the selling Orbacom shareholders for all costs incurred by us in the action and have held back $3 million of the purchase price payable to the former Orbacom shareholders. On January 7, 2005, we served the Orbacom shareholder representative notice of our request for indemnification under the Stock Purchase Agreement, dated as of October 1, 2004, among us, IPC Information Systems Holdings, Inc. and Orbacom and each of the sellers listed therein.

On December 15, 2004, IPC Information Systems, LLC commenced two lawsuits arising out of the unauthorized copying of our proprietary software. The first action was filed in the Southern District of New York against The Odyssey Group, Inc. doing business as The O&R Group, Inc. The complaint alleges that the Odyssey Group infringed our copyrights by soliciting and obtaining an unauthorized copy of our proprietary software from Advanced Business Communications Ltd., a Canadian company which we refer to as ABC. Our complaint seeks recovery of the software, injunctive relief and unspecified damages from the defendants. The Odyssey Group has asserted counterclaims against us seeking aggregate damages of approximately $3 million for injurious falsehood, slander per se and interference with prospective economic advantage. We believe the counterclaims are without merit and intend to vigorously defend against them.

The second action was filed in the Alberta Court of Queen’s Bench against ABC and its two principals. The statement of claim against ABC alleges misappropriation of our software, breach of contract, breach of fiduciary and common law duties and conversion and seeks injunctive relief and monetary damages. ABC has asserted counterclaims against us seeking aggregate damages of approximately $450,000 for breach of contract. We believe the counterclaims are without merit and intend to vigorously defend against them.

Item 2. Unregistered Sales of Equity 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

10.18		Amendment to the Amended and Restated Labor Pooling Agreement, dated as of June 15, 2004, by and between Kleinknecht Electric Company, Inc. (NY) and IPC Information Systems, LLC.
	31.1	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.19		Amendment to the Amended and Restated Labor Pooling Agreement, dated as of June 15, 2004, by and between Kleinknecht Electric Company, Inc. (NJ) and IPC Information Systems, LLC.
	31.2	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.20		Employment agreement between IPC Information Systems, LLC and Timothy Whelan, dated as of July 15, 2004.
	32.1	Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.2	Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~(B) REPORTS ON FORM 8-K~~SIGNATURE

~~The~~ Pursuant ~~Company~~to ~~filed a report on Form 8-K on June 23, 2004. The Form 8-K was for~~ the ~~purpose~~requirements of ~~announcing~~the ~~that~~Securities onExchange ~~June~~Act ~~18,~~of ~~2004~~1934, ~~IPC~~the ~~Acquisition~~registrant ~~Corp., through its subsidiary IPC Information Systems, LLC, announced that it~~ has duly ~~entered~~caused ~~into~~this anreport ~~agreement~~ to ~~sell~~be ~~assets~~signed ~~related~~on to its ~~Information~~behalf ~~Transport~~by ~~Systems (“I.T.S.”) division to a group of private investors. On May 10, 2004,~~ the ~~Company~~undersigned ~~furnished~~thereunto aduly ~~report regarding our second quarter 2004 earnings release~~authorized. ~~On August 5, 2004, the Company furnished a report regarding our third quarter 2004 earnings release.~~


	IPC Acquisition Corp.

Dated: February 11, 2005	By:	/s/ TIMOTHY WHELAN

		Timothy Whelan
		Chief Financial Officer
		(Principal Financial and Accounting
		Officer and Duly Authorized Officer)

~~Table of Contents~~37

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: August 13, 2004	By:	/s/ TIMOTHY WHELAN
		Timothy Whelan
		Chief Financial Officer
		(Principal Financial and Accounting
		Officer and Duly Authorized Officer)

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