FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
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OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
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Commission file number:
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TRIDEX CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut 06-0682273
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
61 Wilton Road, Westport CT 06880
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(Address of principal executive offices)
(Zip Code)
(203) 226-1144
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(Registrant's telephone number, including area code)
Former address:
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(Former name, former address and former fiscal year, if
changed since last report.)
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| NO |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |_| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding July 31, 1998
- ---------------- -------------------------
Common stock, no par value 6,376,790
<PAGE>
AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 RESTATEMENT OF
FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION.
The accompanying condensed consolidated financial statements as of June 30, 1998
and for the three and six month periods ended June 30, 1998 have been restated
to reflect a change in the original accounting for the purchase price allocation
related to the April 1998 acquisition of Progressive Software, Inc. Subsequent
to the issuance of the Company's June 30, 1998 condensed consolidated financial
statements, the SEC issued new guidance on its views regarding the valuation
methodology used in determining purchased in-process technology expensed on the
date of acquisition. The Company has voluntarily recalculated the fair value of
the purchased in-process software technology in accordance with the new SEC
guidance. See Notes 1 and 2 to the Condensed Consolidated Financial Statements.
TRIDEX CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. Financial Information:
Item 1. Financial Statements (unaudited and restated)
Consolidated Condensed Balance Sheets June 30,
1998 and December 31, 1997 3
Consolidated Statements of Income for the Quarters
and Six Months Ended June 30, 1998 and June 28,
1997 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and June 28, 1997 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 10
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings 16
2
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
June 30, 1998 December 31, 1997
--------------- ---------------
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 190 $11,839
Short term investments 4,403
Receivables 8,531 3,043
Inventories 7,180 2,987
Deferred tax assets 679 659
Other current assets 2,498 343
--------------- ---------------
Total current assets 19,078 23,274
--------------- ---------------
Plant and equipment, net 3,677 2,436
Less accumulated depreciation (1,448) (1,195)
--------------- ---------------
2,229 1,241
--------------- ---------------
Excess of cost over fair value of net assets
acquired 15,264 2,517
Capitalized software 10,556
Deferred tax assets 6,600 206
Other assets 158 160
Investment in net assets of discontinued
operations 605
--------------- ---------------
$53,885 $28,003
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 3,450
Current portion of long term debt (Note 3) 1,350
Accounts payable 4,487 $ 1,820
Accrued liabilities 3,044 1,964
Deferred revenue 1,666
--------------- ---------------
Total current liabilities 13,997 3,784
--------------- ---------------
Long term debt, less current portion (Note 3) 20,139
Shareholders' equity:
Common stock, no par value 1,633 1,377
Additional paid-in capital 33,315 25,273
Retained deficit (13,456) (673)
Receivable from sale of stock (801) (816)
Common shares held in treasury, at cost (942) (942)
--------------- ---------------
19,749 24,219
--------------- ---------------
$53,885 $28,003
=============== ===============
See notes to consolidated condensed financial statements.
3
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 28, June 28, June 28,
1998 1997 1998 1997
---------------------------- ----------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $ 11,813 $ 6,174 $ 18,025 $ 11,720
---------------------------- ----------------------------
Operating costs and expenses:
Cost of sales 8,621 4,645 13,367 8,959
Engineering, design and product development costs 1,300 146 1,580 299
Selling, administrative and general expenses 2,262 1,321 3,353 2,743
Depreciation and amortization 899 199 1,128 415
Purchased in-process software technology 17,600 17,600
---------------------------- ----------------------------
30,682 6,311 37,028 12,416
---------------------------- ----------------------------
Operating loss (18,869) (137) (19,003) (696)
Other charges (income):
Interest expense (income), net 562 (156) 336 (165)
Other, net 9 6 8 8
---------------------------- ----------------------------
571 (150) 344 (157)
---------------------------- ----------------------------
Income (loss) from continuing operations before income taxes (19,440) 13 (19,347) (539)
Provision (benefit) for income taxes (6,610) 13 (6,564) (364)
---------------------------- ----------------------------
Loss from continuing operations (12,830) 0 (12,783) (175)
Income (loss) from discontinued operations (Note 4) (206) 607
---------------------------- ----------------------------
Net income (loss) $ (12,830) $ (206) $ (12,783) $ 432
============================ ============================
Earnings (loss) per share:
Basic and diluted:
Loss from continuing operations $ (2.07) $ (2.22) $ (0.04)
Income (loss) from discontinued operations $ (0.04) 0.13
---------------------------- ----------------------------
Net income (loss) $ (2.07) $ (0.04) $ (2.22) $ 0.09
============================ ============================
Weighted average common shares outstanding
Basic and diluted 6,187,000 5,369,000 5,771,000 4,956,000
============================ ============================
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 28,
1998 1997
------------ ------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(12,783) $ 432
Adjustments to reconcile net income to net cash provided in operating activities:
Depreciation and amortization 1,128 415
Debt discount amortization 17
Charge for purchased in-process software technology 17,600
Deferred income taxes (6,414)
Income from discontinued operations (607)
Stock incentive compensation expense 599
Changes in operating assets and liabilities, net of amounts acquired:
Receivables (1,559) (975)
Inventory 93 479
Other assets (31) 44
Accounts payable, accrued liabilities and income taxes payable 1,930 (431)
------------ ------------
Net cash provided by (used in) operating activities (19) (44)
------------ ------------
Cash flows from investing activities:
Capital expenditures (185) (207)
Capitalized software development costs (109)
Net cash paid for acquisition (44,831)
Proceeds from sale of assets 855 5,200
Receipt of principal of note receivable from TransAct 1,000
------------ ------------
Net cash provided by (used in) investing activities (44,270) 5,993
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long term debt 23,000
Net proceeds from line of credit 3,450
Proceeds from issuance of stock 2,000
Principal payments on long term debt (300)
Net decrease in short term investments 4,403
Proceeds from exercise of stock options and warrants 87 5,529
Net transactions with discontinued operations (96)
Purchase of treasury shares (69)
------------ ------------
Net cash provided by financing activities 32,640 5,364
------------ ------------
Increase (decrease) in cash and cash equivalents (11,649) 11,313
Cash and cash equivalents at beginning of period 11,839 2,787
------------ ------------
Cash and cash equivalents at end of period $ 190 $ 14,100
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 236 $ 72
Income taxes 99 88
Supplemental disclosures of non-cash investing and financing activities:
Stock issued for acquisition $ 4,998
Conversion of convertible notes and debentures to common stock $ 3,710
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General and Restatement:
In the opinion of Tridex Corporation ("Tridex" or the "Company"), the
accompanying unaudited consolidated condensed financial statements contain
all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly its financial position as of June 30, 1998,
the results of its operations for the quarters and six months ended June
30, 1998 and June 28, 1997 and changes in its cash flows for the six
months ended June 30, 1998 and June 28, 1997. The December 31, 1997
consolidated condensed balance sheet has been derived from the Company's
audited financial statements at that date. These interim financial
statements should be read in conjunction with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997. Certain prior year data has been reclassified to
conform to the 1998 classifications.
Revenue includes hardware sales, design, implementation and support of
software systems, and related consultation services. Revenue on hardware
sales is recognized upon shipment to the customer. Revenue on software
sales is recognized in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition". Software license revenues are recognized
when a software contract has been signed, delivery has occurred, fees are
fixed and determinable and collectibility is probable. Maintenance
revenues are deferred and recognized ratably over the maintenance period,
generally one year.
The results of operations for the quarters and six months ended June 30,
1998 and June 28, 1997 are not necessarily indicative of the results to be
expected for the full year.
The accompanying condensed consolidated financial statements as of June
30, 1998 and for the three and six month periods ended June 30, 1998 have
been restated to reflect a change in the original accounting for the
purchase price allocation related to the April 1998 acquisition of
Progressive Software, Inc. Subsequent to the issuance of the Company's
June 30, 1998 condensed consolidated financial statements, the SEC issued
new guidance on its views regarding the valuation methodology used in
determining purchased in-process technology expensed on the date of
acquisition. The Company has voluntarily recalculated the fair value of
the purchased in-process software technology in accordance with the new
SEC guidance. This restatement does not affect previously reported net
cash flows for the periods. The effect of this reallocation on previously
reported condensed consolidated financial statements as of and for the
three and six month periods ended June 30, 1998 is as follows (in
thousands except per share amounts, unaudited):
Three Months Ended Six Months Ended
-------------------- -------------------
June 30, 1998 June 30, 1998
-------------------- -------------------
As As
Reported Restated Reported Restated
------------------------------------------
Engineering, design and product
development costs $ 919 $ 1,300 $ 1,199 $ 1,580
Depreciation and amortization 906 899 1,135 1,128
Purchased in-process software
technology 26,300 17,600 26,300 17,600
Total operating costs and expenses 39,008 30,682 45,354 37,028
Operating loss (27,195) (18,869) (27,329) (19,003)
Loss from continuing operations
before income taxes (27,766) (19,440) (27,673) (19,347)
Benefit for income taxes (9,441) (6,610) (9,395) (6,564)
Net loss (18,325) (12,830) (18,278) (12,783)
Loss per share - basic and diluted $ (2.96) $ (2.06) $ (3.17) $ (2.22)
6
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
-------------------------
As Reported Restated
-------------------------
<S> <C> <C>
Excess of cost over fair value of net assets acquired $ 10,388 $ 15,264
Capitalized software 7,106 10,556
Deferred tax assets 9,495 6,600
Total assets 48,454 53,885
Accrued liabilities 3,108 3,044
Total current liabilities 14,061 13,997
Retained deficit (18,591) (13,456)
Shareholders' equity 14,254 19,749
Total liabilities and shareholders' equity 48,454 53,885
</TABLE>
2. Acquisition of Progressive Software, Inc.:
On April 17, 1998, the Company purchased all of the issued and outstanding
shares of privately-held Progressive Software, Inc. ("Progressive"), a
point-of-sale ("POS") software and systems provider for the restaurant and
specialty retail industries. The acquisition of Progressive was accounted
for by the purchase method. Accordingly the results of operations of
Progressive have been included in the accompanying consolidated financial
statements from the date of acquisition.
The purchase price of Progressive was approximately $48,111,000 including
estimated acquisition costs. The consideration paid for Progressive was
comprised of $4,998,000 in Tridex common stock and the balance of
approximately $43,113,000 payable in cash, including payment of
Progressive's line of credit of $9,632,000. The cash portion of the
purchase price was financed by: (a) $12,000,000 borrowed under the Senior
Term Loan from Fleet National Bank ("Fleet"), (b) $11,000,000 proceeds
from the sale of Senior Subordinated Notes to Massachusetts Mutual Life
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners Limited
(the "MassMutual Investors"), (c) $2,000,000 proceeds from the sale of
285,714 shares of Tridex common stock to the MassMutual Investors, (d)
$1,736,000 borrowed under the Revolving Credit Facility with Fleet, and
(e) the balance from the Company's cash.
At June 30, 1998, the Company estimated the allocation of the purchase
price, in thousands, to be as follows:
As Reported Restated
Tangible net assets $ 6,442 $ 6,442
Purchased in-process software technology 26,300 17,600
Estimated goodwill and other intangibles 15,369 24,069
-------------------------
$48,111 $48,111
=========================
The tangible net assets consist primarily of accounts receivable,
inventory, equipment and leasehold improvements and liabilities assumed.
The purchased in-process software technology, as determined by an
independent appraisal firm, was charged to expense in accordance with
applicable accounting rules during the quarter ended June 30, 1998 because
it has not yet reached technological feasibility and it has no alternative
future use. The estimated goodwill and other intangibles are being
amortized over five to ten years.
7
<PAGE>
The following pro forma data (unaudited and restated pursuant to the
changes discussed in note 1) reflect the 1998 acquisition of Progressive
as if the acquisition had occurred at the beginning of 1997, but excludes
the one-time write off of in-process software technology, discussed above;
such data does not purport to be indicative of what would have occurred
had this transaction been made on that date:
Quarters Ended Six Months Ended
-------------- ----------------
June 30, June 28, June 30, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
(Dollars in thousands, except per share amounts)
Sales $ 13,362 $ 15,737 $ 24,491 $ 30,105
Operating income (loss) (1,417) 112 (2,684) (113)
Net loss (1,402) (347) (2,674) (933)
Earnings per share - basic: $ (0.23) $ (0.06) $ (0.42) $ (0.16)
3. Bank credit agreement and long term debt:
On April 17, 1998, the Company entered into a Credit Agreement (the
"Credit Agreement") with Fleet National Bank ("Fleet") which provides for
an $8 million working capital facility (the "Working Capital Facility")
and a $12 million term loan facility (the "Term Loan"). The Working
Capital Facility expires on June 30, 1999 and bears a non-utilization fee
on the unused facility ranging from .25% to .625% depending upon certain
performance criteria. The Term Loan requires the Company to make quarterly
principal payments commencing June 30, 1998 in the amount of $300,000 per
quarter during the first year, $450,000 per quarter during the second year
and $750,000 per quarter thereafter. The Credit Agreement allows the
Company to borrow at interest rates based upon Fleet's Prime Rate, plus a
margin of up to one percentage point, depending upon certain performance
criteria. At the Company's option, it may borrow at interest rates based
upon LIBOR, plus a margin ranging from 1.25 to 2.75 percentage points,
depending upon certain performance criteria. Interest on Prime Rate-based
loans is payable monthly. Interest on LIBOR-based loans is payable at the
end of the contract period.
The Credit Agreement is secured by a first priority security interest in
certain assets, imposes certain covenants (including minimum tangible
capital base, maximum ratio of senior funded debt to EBITDA, maximum ratio
of total consolidated funded debt to EBITDA, minimum interest coverage
ratio and minimum fixed charge coverage ratio) and restricts the amount
available for payment of cash dividends and capital stock distributions.
At June 30, 1998, the Company was in compliance with these covenants and
expects to be in compliance with all covenants during the remainder of
1998.
On April 17, 1998, the Company sold to the MassMutual Investors at face
value $11 million of the Company's 19% Senior Subordinated Notes due April
17, 2005. On May 27, 1998, the Company issued to the MassMutual Investors
warrants to purchase 350,931 shares of the Company's common stock at $7.00
per share and the interest rate on the subordinated notes was reduced to
12% from 19%. The estimated fair market value of the warrants has been
recorded as a discount to the principal amount of the outstanding notes
and is being amortized over the term of the notes. The subordinated notes
require prepayments of $3,666,667 on each of April 17, 2003 and April 17,
2004. Interest is payable quarterly on the 17th day of January, April,
July and October commencing on July 17, 1998. The subordinated notes
impose certain covenants, including minimum consolidated net worth,
minimum fixed charge coverage ratio and maximum leverage ratio. At June
30, 1998, the Company was in compliance with these covenants and expects
to be in compliance with all covenants during the remainder of 1998.
4. Discontinued operations:
Discontinued operations consist of the Company's former subsidiaries
TransAct Technologies Incorporated ("TransAct") and Cash Bases GB Limited
("Cash Bases"). The stock of TransAct owned by the Company was distributed
to Tridex shareholders in March 1997. The Company's investment in Cash
Bases was sold in May 1997. The final proceeds of the sale of Cash Bases
were received in March 1998. The consolidated financial statements have
been restated to present the results of operations of TransAct and Cash
Bases as discontinued operations.
5. Earnings (loss) per common share:
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share assumes the exercise of options and warrants and the
conversion of dilutive securities, when the result is dilutive.
8
<PAGE>
6. Inventories:
Components of inventory are:
June 30, 1998 December 31, 1997
------------- -----------------
(Dollars in Thousands)
Raw materials and
component parts $2,837 $2,097
Work-in-process 67 75
Finished goods 4,276 815
------------- -------------
$7,180 $2,987
============= =============
7. Research and Development Expenditures:
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards Number 86 "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed"
(SFAS 86). As of June 30, 1998 and December 31, 1997, capitalized software
development costs were $109,000 and zero, respectively. The capitalization
of software development costs begins when the technological feasibility of
a product has been established by development of a working model and ends
when the product is available for general release to customers. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgement by management with respect to certain external
factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
Annual amortization charged to cost of sales will be computed on an
individual product basis and will be the greater of: (a) the ratio of
current gross revenues for a product to the total current and anticipated
future gross revenues for the product, or (b) the straight-line method
over the estimated economic life of the product, which is generally
estimated to be 3 years.
All other research and development expenditures are charged to research
and development expense in the period incurred.
8. Commitments and contingencies:
The Company is involved in an environmental matter discussed in Note 8 to
the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. As of June 30,
1998 and to the date of this report, there has been no material
development in the resolution of this matter.
9. Subsequent events:
In June 1998, the Company reached an agreement with the seller of
Progressive to reduce the purchase price of Progressive by approximately
$2,400,000, based upon the April 17, 1998 audited closing balance sheet
prepared in accordance with the terms of the stock purchase agreement. The
Company received these funds in July 1998 and used them to reduce the line
of credit and for general working capital purposes.
On July 29, 1998, Tridex and Sulcus Hospitality Technologies Corp.
("Sulcus") discontinued negotiations regarding their potential merger.
Tridex and Sulcus previously announced a letter of intent to merge on June
15, 1998. The June 30, 1998 quarter and six month results include a
non-recurring charge of approximately $160,000 related to due diligence
expenses.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Certain statements included in this report, including, but not limited to,
statements in this Management's Discussion and Analysis of the Results of
Operations and Financial Condition, which are not historical facts may be deemed
to contain forward looking statements with respect to events the occurrence of
which involves risks and uncertainties, including, but not limited to, the
Company's expectations regarding net sales, gross profit, operating income and
financial condition.
Results of Operations
As described in Note 4 of the Notes to Consolidated Financial Statements, the
Company completed the spin-off of TransAct in March 1997 and the sale of Cash
Bases in May 1997. The Consolidated Financial Statements may not necessarily
reflect what the results of operations or the financial position of the Company
would have been if TransAct and Cash Bases had been separate entities during the
periods presented. The discussion and analysis set forth below is based upon
continuing operations only.
Quarter Ended June 30, 1998 Compared to Quarter Ended June 28, 1997
Consolidated net sales for the quarter ended June 30, 1998 increased $5,639,000
(91%) to $11,813,000 from $6,174,000 in the comparable quarter of the prior
year. The increase reflects sales of Progressive from the date of acquisition,
April 17, 1998, and greater volume of shipments of Ultimate's point-of-sale
("POS") component products, particularly custom manufactured keyboards and pole
displays, as well as distributed products.
Consolidated gross profit increased $1,663,000 (109%) to $3,192,000 from
$1,529,000 in the prior year's quarter, primarily as a result of the
contribution of Progressive and greater volume of shipments of Ultimate's POS
products. Consolidated gross profit margin increased to 27.0% of sales from
25.8% of sales in the prior year's quarter as a result of the addition of
software sales from Progressive and a more favorable product mix and lower
manufacturing costs from Ultimate.
Consolidated engineering, design and product development costs increased
$1,154,000 to $1,300,000 from $146,000 in the prior year's quarter. The increase
is primarily the result of the inclusion of such costs for Progressive and is
net of $109,000 of software development costs capitalized during the quarter.
Consolidated selling, administrative and general expenses increased $941,000
(71%) to $2,262,000 from $1,321,000 in the prior year's quarter. The increase in
selling expenses is primarily the result of the inclusion of such costs for
Progressive. The increase in administrative and general expenses is primarily
the result of the inclusion of such costs for Progressive and the inclusion of a
non-recurring charge of approximately $160,000 associated with the due diligence
review for a transaction that was not completed. Operating expense in the
current quarter includes the $17,600,000 write off of in-process software
technology acquired with the purchase of Progressive. Prior year results include
a non-cash expense of $195,000 related to a stock incentive compensation
agreement with the principal executive officers of Ultimate.
Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated
financial statements, the SEC issued new guidance on its views regarding the
valuation methodology used in determining purchased in-process technology
expensed on the date of acquisition. The Company has voluntarily recalculated
the fair value of the purchased in-process software technology in accordance
with the new SEC guidance.
The revised valuation was based on estimates of the after tax net cash flows and
gives explicit consideration to the SEC's views on purchased in-process
technology as set forth in a September 9, 1998 letter from the SEC to the
American Institute of Certified Public Accountants. Specifically, the revised
valuation gives consideration to the following: (I) a fair market value premise
was employed; (II) the value of the core technology was explicitly addressed,
with a view toward ensuring the relative allocations to core technology and
in-process technology were consistent with the relative contributions of each to
the final product; and (III) the allocation to in-process technology was based
on a calculation that considered only the efforts completed as of the
transaction date, and only the cash flow associated with said completed efforts
for one generation of the products currently in-process.
10
<PAGE>
The Company recorded a one time charge in the second quarter of 1998 for
purchased in-process technology that had not reached technological feasibility,
had no alternative future use, and for which successful development was
uncertain. The conclusion that the in-process development effort, or any
material sub-component, had no alternative future use was reached in
consultation with development personnel at Progressive and an independent
technology consulting firm, acting on behalf of the Company.
The in-process development related to a project to develop a Windows(R) NT(R)
compliant POS software product. The primary tasks under development at the time
of acquisition included writing code to work in a Windows environment and
completing various POS and back office functions. The Company expects to begin
to benefit from the acquired research and development related to the IRIS
product in the third quarter 1998.
Significant assumptions used to determine the value of in-process technology
included several factors, including the following. First, a forecast of net cash
flows that were expected to result from the development effort. Second, a
percentage of completion estimated by considering a number of factors, including
the costs invested to date relative to the expected total cost of the
development effort and the amount of progress completed as of the transaction
date, on a technological basis, relative to the overall technological
achievements required to achieve the intended functionality of the eventual
product. The technological issues were addressed by engineering representatives
from both Progressive and an independent technology consulting firm engaged by
the Company. Third, a discount rate of approximately 23%, which represents the
Company's risk adjusted weighted average cost of capital, was applied to the
cash flows resulting from the revenues expected to be generated from the IRIS
project.
As a result of the revised valuation, the amount of purchase price allocated to
in-process technology decreased from $26.3 million to $17.6 million and the
amount ascribed to purchased existing and core technology and goodwill and other
intangibles increased from $14.8 million to $24.1 million.
Consolidated depreciaiton and amortization for the quarter was $899,000 compared
to $199,000 in the prior year's quarter. The increase in amortization is
primarily the result of amortizing goodwill, intangibles and existing and core
technology acquired with Progressive.
Consolidated operating income (loss) for the current quarter was a loss of
$1,269,000 (exclusive of the write-off of in-development software technology)
compared to a loss of $137,000 in the prior year's quarter. The loss in the
current period was primarily the result of the increase in selling,
administrative and general expenses. Consolidated operating income (loss) as a
percentage of sales was a 10.7% loss compared to a 2.2% loss in the prior year's
quarter.
Net interest expense for the quarter was $562,000 compared to net interest
income of $156,000 in the prior year's quarter. Interest expense for the quarter
primarily consists of interest on debt incurred to acquire Progressive.
Other non-operating expense of $9,000 represents costs associated with
non-operating properties held for sale. Other non-operating expenses in the
prior year's quarter represents the Company's 10% share of the losses of Cash
Bases.
Provision for income taxes in the current quarter reflects an estimated
effective tax rate of 34% for the quarter. The benefit recorded in the current
quarter reflects the recognition of deferred taxes of $5,814,000 related to the
write-off of in-process software technology.
Net loss for the current quarter was $12,830,000 (or $2.07 per share), as
compared to a net loss of $206,000 (or $0.04 per share) in the prior year's
quarter. The prior year's loss was entirely attributable to discontinued
operations. The average number of common shares outstanding increased to
6,187,000 shares from 5,369,000 shares in the prior year's quarter.
11
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 28, 1997
Consolidated net sales for the six months ended June 30, 1998 increased
$6,305,000 (54%) to $18,025,000 from $11,720,000 in the comparable period of the
prior year. The increase reflects sales of Progressive from the date of
acquisition, April 17, 1998, and greater volume of shipments of Ultimate's POS
component products, particularly custom manufactured keyboards and pole
displays, as well as distributed products.
Consolidated gross profit increased $1,897,000 (69%) to $4,658,000 from
$2,761,000 in the prior year's period, primarily as a result of the contribution
of Progressive and greater volume of shipments of POS products. Consolidated
gross profit margin increased to 25.8% of sales from 23.6% of sales in the prior
year's period as a result of the addition of software sales from Progressive and
a more favorable product mix and lower manufacturing costs from Ultimate.
Consolidated engineering, design and product development costs increased
$1,281,000 to $1,580,000 from $299,000 in the prior year's period. The increase
is primarily the result of the inclusion of such costs for Progressive and is
net of $109,000 of software development costs capitalized during the period.
Consolidated selling, administrative and general expenses increased $610,000
(22%) to $3,353,000 from $2,743,000 in the prior year's period. The increase in
selling expenses is primarily the result of the inclusion of such costs for
Progressive. The increase in administrative and general expenses is primarily
the result of the inclusion of such costs for Progressive and the inclusion of a
non-recurring charge of approximately $160,000 associated with the due diligence
review for a transaction that was not completed. Operating expenses in the
current year include the $17,600,000 write-off of in-process software technology
acquired with the purchase of Progressive. Prior year administrative and general
expenses include a non-cash expense of $599,000 related to a stock incentive
compensation agreement with the principal executive officers of Ultimate.
Consolidated depreciaiton and amortization for the current period was $1,128,000
compared to $415,000 in the prior year's period. The increase in amortization is
primarily the result of amortizing goodwill, intangibles and existing and core
technology acquired with Progressive.
Consolidated operating income (loss) for the current period was a loss of
$1,403,000 (exclusive of the write-off of in process software technology)
compared to a loss of $696,000 in the prior year's period. The loss in the
current period was primarily the result of the increase in selling,
administrative and general expenses. Consolidated operating income (loss) as a
percentage of sales was a 7.8% loss compared to a 5.9% loss in the prior year's
period.
Net interest expense for the current period was $336,000 compared to net
interest income of $165,000 in the prior year's period. Interest expense of the
period primarily consists of interest on debt incurred to acquire Progressive.
Interest income for the prior year period primarily consisted of interest earned
on temporary cash investments and interest earned on receivables from the sale
of stock.
Other non-operating expense of $8,000 for the current period represents costs
associated with non-operating properties held for sale. Other non-operating
expenses in the prior year's period represents the Company's 10% share of the
losses of Cash Bases.
Provision (benefit) for income taxes in the first six months reflects an
estimated effective tax rate. The benefit recorded in the current period
reflects the recognition of deferred taxes of approximately $5,814,000 related
to the write-off of in-process software technology.
Net loss for the current period was $12,783,000 (or $2.22 per share) as compared
to net income of $432,000 (or $0.09 per share) in the prior year's period. The
average number of common shares outstanding increased to 5,771,000 shares from
4,956,000 shares in the prior year's period.
12
<PAGE>
Liquidity and Capital Resources
At June 30, 1998, the Company had $190,000 in cash and availability of
$4,550,000 under the Company's $8,000,000 working capital revolving credit
facility. The Company's working capital at June 30, 1998 was $5,081,000 compared
with $19,490,000 at December 31, 1997. The current ratio was 1.4 : 1.0 at June
30, 1998 and 6.2 : 1.0 at December 31, 1997.
The decrease in working capital is primarily the result of the purchase of all
of the issued and outstanding shares of privately-held Progressive Software,
Inc. ("Progressive") on April 17, 1998. The purchase price of Progressive was
approximately $48,111,000 including estimated acquisition costs. The
consideration paid for Progressive was comprised of $4,998,000 in Tridex common
stock and the balance of approximately $43,113,000 payable in cash, including
payment of Progressive's line of credit of $9,632,000. The cash portion of the
purchase price was financed by: (a) $12,000,000 borrowed under the Senior Term
Loan from Fleet, (b) $1,736,000 borrowed under the Revolving Credit Facility
with Fleet, (c) $11,000,000 proceeds from the sale of Senior Subordinated Notes
due April 17, 2005, to the MassMutual Investors, (d) $2,000,000 proceeds from
the sale of 285,714 shares of Tridex common stock to the MassMutual Investors
and (e) the balance from the Company's cash. See note 3 to the Company's
financial statements of this Form 10-Q for a description of the Fleet Credit
Agreement and the Senior Subordinated Notes.
At June 30, 1998, the Company had no material commitment for capital
expenditures.
The Company believes that funds generated from operations of the combined
companies and borrowings under the working capital revolving credit facility of
the Credit Agreement, if necessary, will continue to satisfy its working capital
needs, support a certain level of growth and meet scheduled debt retirements.
The Year 2000
The Company has undertaken a survey of its products, information systems,
suppliers, customers and other third parties with significant relationships with
the Company, to identify risks related to the year 2000 issue and address the
potential impact on its operations and financial condition. Based upon its
survey and the advice of technical consultants, the Company believes that the
year 2000 issue will not have a material impact on its products and that the
cost of addressing the year 2000 issue is not likely to have a material impact
on the Company's operations or financial condition. The Company will continue to
review the year 2000 issue for potential impact on its products, operations and
financial condition.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 27, 1998.
Matters voted upon at the meeting and the number of votes cast for,
against or withheld, are as follows:
(1) To consider and act upon a proposal to elect the following
nominees to be Directors:
Votes Against or
Nominee Votes For Withheld
------- --------- --------
Seth M. Lukash 5,694,533 41,631
Paul J. Dunphy 5,695,276 40,888
Graham Y. Tanaka 5,695,276 40,888
Thomas R. Schwarz 5,695,276 40,888
Dennis J. Lewis 5,695,276 40,888
(2) To approve the amendment of the 1997 Long Term Incentive Plan
for employees, officers and directors of the Corporation.
Votes cast were: 3,768,117 for, 113,166 against and 15,026
withheld.
(3) To approve the establishment of the 1998 Non-Executive Long
Term Incentive Plan. Votes cast were: 3,727,455 for, 160,604
against and 8,250 withheld.
(4) To approve the issuance of warrants to purchase 350,931 shares
of common stock of the Corporation to Massachusetts Mutual
Life Insurance Company and related parties. Votes cast were:
3,843,308 for, 45,270 against and 7,731 withheld.
(5) To appoint Price Waterhouse LLP as the Company's independent
certified public accountants for the year ended December 31,
1998. Votes cast were: 5,721,106 for, 9,818 against and 5,240
withheld.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on May 1, 1998
to report that on April 17, 1998 it completed the acquisition
of Progressive Software, Inc.
The Company filed an Amended Current Report on Form 8-K/A on
June 30, 1998, supplementing the Form 8-K filed May 1, 1998.
The Company filed a Current Report on Form 8-K on June 25,
1998 to report that on June 15, 1998 it signed a Letter of
Intent with Sulcus Hospitality Technologies Corporation to
merge the operations and business of the two companies.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIDEX CORPORATION
(Registrant)
April 30, 1999 /s/Seth M. Lukash
-----------------
Seth M. Lukash
Chairman of the Board, President, Chief
Executive Officer, and Chief Operating
Officer
April 30, 1999 /s/Daniel A. Bergeron
---------------------
Daniel A. Bergeron
Vice President and Chief Financial Officer
April 30, 1999 /s/George T. Crandall
---------------------
George T. Crandall
Vice President and Treasurer
15
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Exhibit 11 Computation of Per Share Earnings
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
------------------------ ------------------------
June 30, June 28, June 30, June 28,
1998 1997 1998 1997
------------------------ ------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
EARNINGS:
Loss from continuing operations $ (12,830) -- $ (12,783) $ (175)
Income (loss) from discontinued operations $ (206) 607
------------------------ ------------------------
Net income (loss) available to common stockholders $ (12,830) $ (206) $ (12,783) $ 432
======================== ========================
SHARES:
Weighted average common shares outstanding 6,187,000 5,369,000 5,771,000 4,956,000
======================== ========================
EARNINGS PER SHARE - BASIC:
Loss from continuing operations $ (2.07) -- $ (2.22) $ (0.04)
Income (loss) from discontinued operations $ (0.04) 0.13
------------------------ ------------------------
Net income (loss) $ (2.07) $ (0.04) $ (2.22) $ 0.09
======================== ========================
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 8,562
<ALLOWANCES> 31
<INVENTORY> 7,180
<CURRENT-ASSETS> 19,078
<PP&E> 3,677
<DEPRECIATION> 1,448
<TOTAL-ASSETS> 53,885
<CURRENT-LIABILITIES> 13,997
<BONDS> 0
0
0
<COMMON> 1,633
<OTHER-SE> 18,116
<TOTAL-LIABILITY-AND-EQUITY> 53,885
<SALES> 18,025
<TOTAL-REVENUES> 18,025
<CGS> 13,367
<TOTAL-COSTS> 37,028
<OTHER-EXPENSES> 8
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> (19,347)
<INCOME-TAX> (6,564)
<INCOME-CONTINUING> (12,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,783)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> (2.22)
</TABLE>
