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: September 30, 1998
-----------------------------------------------
OR
|_| 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:
---------------------------------------------------------
TRIDEX CORPORATION
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Former address:
- --------------------------------------------------------------------------------
(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 October 31, 1998
- -------------------------- ------------------------------
Common stock, no par value 6,379,123
<PAGE>
AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998 RESTATEMENT
OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION.
The accompanying condensed consolidated financial statements as of September 30,
1998 and for the three and nine month periods ended September 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.
In September 1998, 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
Consolidated Condensed Balance Sheets
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Quarters and Nine Months Ended September
30, 1998 and September 27, 1997 4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998
and September 27, 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 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 504 $ 11,839
Short term investments 4,403
Receivables 9,170 3,043
Inventories 7,444 2,987
Deferred tax assets 679 659
Other current assets 147 343
-------- --------
Total current assets 17,944 23,274
-------- --------
Plant and equipment 3,911 2,436
Less accumulated depreciation (1,611) (1,195)
-------- --------
2,300 1,241
-------- --------
Excess of cost over fair value of net assets acquired 14,360 2,517
Capitalized software 10,968
Deferred tax assets 6,600 206
Other assets 157 160
Investment in net assets of discontinued operations 605
-------- --------
$ 52,329 $ 28,003
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 3,200
Current portion of long term debt (Note 3) 1,500
Accounts payable 5,500 $ 1,820
Accrued liabilities 1,661 1,964
Deferred revenue 1,586
-------- --------
Total current liabilities 13,447 3,784
-------- --------
Long term debt, less current portion (Note 3) 19,740
Shareholders' equity:
Common stock, no par value 1,633 1,377
Additional paid-in capital 33,315 25,273
Retained deficit (14,063) (673)
Receivable from sale of stock (801) (816)
Common shares held in treasury, at cost (942) (942)
-------- --------
19,142 24,219
-------- --------
$ 52,329 $ 28,003
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
--------------------------- ---------------------------
September September September September
30, 1998 27, 1997 30, 1998 27, 1997
--------------------------- ---------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $ 12,815 $ 6,872 $ 30,840 $ 18,592
--------------------------- ---------------------------
Operating costs and expenses:
Cost of sales 9,423 5,075 22,790 14,034
Engineering, design and product
development costs 632 174 2,212 473
Selling, administrative and general
expenses 2,355 1,259 5,708 4,002
Depreciation and amortization 1,047 198 2,175 613
Purchased in-process software
technology 17,600
--------------------------- ---------------------------
13,457 6,706 50,485 19,122
--------------------------- ---------------------------
Operating income (loss) (642) 166 (19,645) (530)
Other charges (income):
Interest expense (income), net 688 (175) 1,024 (340)
Other, net 7 1 15 9
--------------------------- ---------------------------
695 (174) 1,039 (331)
--------------------------- ---------------------------
Income (loss) from continuing
operations before income taxes (1,337) 340 (20,684) (199)
Provision (benefit) for income taxes (730) 340 (7,294) (24)
--------------------------- ---------------------------
Loss from continuing operations (607) 0 (13,390) (175)
Income from discontinued operations
(Note 4) 607
--------------------------- ---------------------------
Net income (loss) $ (607) $ 0 $ (13,390) $ 432
--------------------------- ---------------------------
Earnings (loss) per share:
Basic and diluted:
Loss from continuing operations $ (0.10) $ (2.24) $ (0.03)
Income from discontinued operations $ 0.00 0.11
--------------------------- ---------------------------
Net income (loss) $ (0.10) $ 0.00 $ (2.24) $ 0.08
=========================== ===========================
Weighted average common shares
outstanding
Basic and diluted 6,377,000 5,351,000 5,975,000 5,089,000
=========================== ===========================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
----------------------
September September
30, 1998 27, 1997
--------- ---------
(Restated)
Cash flows from operating activities:
Net income (loss) $(13,390) $ 432
Adjustments to reconcile net income to
net cash provided in operating activities:
Depreciation and amortization 2,175 613
Debt discount amortization 68
Charge for purchased in-process
software technology 17,600
Deferred income taxes (6,414)
Income from discontinued operations (607)
Stock incentive compensation expense 794
Changes in operating assets and liabilities,
net of amounts acquired:
Receivables (1,998) (687)
Inventory (171) 803
Other assets (23) 122
Accounts payable, accrued liabilities and
income taxes payable 1,813 (666)
-------- --------
Net cash provided by (used in) operating
activities (340) 804
-------- --------
Cash flows from investing activities:
Capital expenditures (419) (273)
Capitalized software development costs (951)
Net cash paid for acquisition (42,570)
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 (43,085) 5,927
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long term debt 23,000
Net proceeds from line of credit 3,200
Proceeds from issuance of stock 2,000
Principal payments on long term debt (600)
Net decrease in short term investments 4,403
Proceeds from exercise of stock options and warrants 87 5,580
Net transactions with discontinued operations (96)
Purchase of treasury shares (69)
-------- --------
Net cash provided by financing activities 32,090 5,415
-------- --------
Increase (decrease) in cash and cash equivalents (11,335) 12,146
Cash and cash equivalents at beginning of period 11,839 2,787
-------- --------
Cash and cash equivalents at end of period $ 504 $ 14,933
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 718 $ 84
Income taxes 116 63
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
See notes to consolidated condensed financial statements.
<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 September 30,
1998, the results of its operations for the quarters and nine months ended
September 30, 1998 and September 27, 1997 and changes in its cash flows
for the nine months ended September 30, 1998 and September 27, 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 nine months ended September
30, 1998 and September 27, 1997 are not necessarily indicative of the
results to be expected for the full year.
The accompanying condensed consolidated financial statements as of
September 30, 1998 and for the three and nine month periods ended
September 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. In September 1998, 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 nine month periods ended September 30, 1998 is as follows (in
thousands except per share amounts, unaudited):
Three Months Ended Nine Months Ended
---------------------- ---------------------
September 30, 1998 September 30, 1998
---------------------- ---------------------
As Reported Restated As Reported Restated
----------- -------- ----------- --------
Engineering, design and
product development costs $ 786 $ 632 $ 1,985 $ 2,212
Depreciation and amortization 1,015 1,047 2,150 2,175
Purchased in-process software
technology 26,300 17,600
Total operating costs and
expenses 13,579 13,457 58,933 50,485
Operating loss (764) (642) (28,093) (19,645)
Loss from continuing
operations before income taxes (1,459) (1,337) (29,132) (20,684)
Benefit for income taxes (797) (730) (10,192) (7,294)
<PAGE>
Net loss (662) (607) (18,940) (13,390)
Loss per share - basic and
diluted $ (0.10) $ (0.10) $ (3.17) $ (2.24)
September 30, 1998
-------------------------
As Reported Restated
----------- --------
Excess of cost over fair value of net assets
acquired $ 9,431 $ 14,360
Capitalized software 7,449 10,968
Deferred tax assets 9,495 6,600
Total assets 46,776 52,329
Accrued liabilities 1,658 1,661
Total current liabilities 13,444 13,447
Retained deficit (19,613) (14,063)
Shareholders' equity 13,592 19,142
Total liabilities and shareholders' equity $ 46,776 $ 52,329
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 approximately
$43,113,000 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 a 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 a working capital
facility with Fleet, and (e) the balance from the Company's cash. 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 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.
<PAGE>
At September 30, 1998, the Company estimated the allocation of the
purchase price, in thousands, to be as follows:
As Reported Restated
Tangible net assets $6,892 $6,892
Purchased in-process software technology 26,300 17,600
Estimated goodwill and other intangibles 14,919 23,619
---------------------
$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.
The following pro forma data (unaudited) reflect the 1998 acquisition of
Progressive as if the acquisition had occurred at the beginning of 1997,
but excluded the one-time write off of in-process software technology,
discussed above. Such data do not purport to be indicative of what would
have occurred had this transaction been made on that date:
Quarter Ended Nine Months Ended
------------- -----------------
September 27, 1997 September 30, 1998 September 27, 1998
------------------ ------------------ ------------------
(Dollars in thousands, except per share amounts)
Sales $ 15,814 $ 37,306 $ 45,919
Operating loss (67) (3,326) (180)
Net loss (471) (3,557) (1,404)
Loss per share--
basic: $ (0.07) $ (0.56) $ (0.23)
3. Bank credit agreement and long term debt:
On April 17, 1998, the Company entered into a Credit Agreement (the
"Credit Agreement") with 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 LIBOR
measuring period.
The Credit Agreement is secured by a first priority security interest in
certain assets, imposes certain financial 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. As of September 30, 1998, the Company was not in
compliance with the covenants related to the ratio of senior funded debt
to EBITDA, the ratio of total consolidated funded debt to EBITDA, the
interest coverage ratio and the fixed charge coverage ratio. As of
November 1, 1998, Fleet agreed to waive the non-compliance as of September
30, 1998 and to amend the method of calculation of the financial
<PAGE>
covenants for December 31, 1998, March 30, 1999 and June 30, 1999. In
addition, Fleet imposed a temporary reduction of $2,000,000 in the
availability under the Working Capital Facility until the Company obtains
from the selling shareholder of Progressive a reduction in any amount of
the purchase price paid for Progressive. The Company paid a fee to the
Fleet of $70,000 for the amendment, which is being amortized over the
remaining term of the Credit Agreement.
On April 17, 1998, the Company sold to the MassMutual Investors at face
value $11 million of the Company's senior subordinated notes due April 17,
2005 (the "Notes"). 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 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 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 Notes impose certain financial
covenants, including minimum consolidated net worth, minimum fixed charge
coverage ratio and maximum leverage ratio. As of September 30, 1998, the
Company was not in compliance with the covenants related to the fixed
charge coverage ratio and the leverage ratio. As of November 12, 1998, the
MassMutual Investors agreed to waive the non-compliance as of September
30, 1998 and to amend the financial covenants for December 31, 1998 and
March 30, 1999. The Company paid a fee to the MassMutual Investors of
$39,600 for the amendment, which is being amortized over the remaining
term of the Notes.
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.
6. Inventories:
Components of inventory are:
September 30, 1998 December 31, 1997
------------------ -----------------
(Dollars in Thousands)
Raw materials and
component parts $ 2,674 $ 2,097
Work-in-process 68 75
Finished goods 4,702 815
----------------- -----------------
$ 7,444 $ 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 September 30, 1998 and December 31, 1997, capitalized
software development costs were $951,000 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
<PAGE>
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 September
30, 1998 and to the date of this report, there has been no material
development in the resolution of this matter.
<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 and the Company's evaluation of the Year 2000 issue.
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 September 30, 1998 Compared to Quarter Ended September 27, 1997
Consolidated net sales for the quarter ended September 30, 1998 increased
$5,943,000 (86%) to $12,815,000 from $6,872,000 in the comparable quarter of the
prior year. The increase reflects sales of Progressive, which was acquired on
April 17, 1998, offset by decreased volume of shipments of point-of-sale ("POS")
component products manufactured by Ultimate, particularly custom keyboards and
pole displays, as well as distributed products.
Consolidated gross profit increased $1,595,000 (89%) to $3,392,000 from
$1,797,000 in the prior year's quarter, primarily as a result of the
contribution of Progressive offset by the impact of decreased volume of
shipments of Ultimate's POS products. Consolidated gross profit margin increased
to 26.5% of sales from 26.1% of sales in the prior year's quarter as a result of
the addition of software sales offset by a decrease in margin on POS component
products.
Consolidated engineering, design and product development costs increased
$458,000 to $632,000 from $174,000 in the prior year's quarter. The increase is
primarily the result of the inclusion of such costs for Progressive and is net
of $842,000 of software development costs capitalized during the quarter.
Consolidated selling, administrative and general expenses increased $1,096,000
(87%) to $2,355,000 from $1,259,000 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 $150,000 associated with the due diligence
review for a transaction that was not completed. 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.
Consolidated depreciation and amortization for the quarter was $1,047,000
compared to $198,000 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
$642,000 compared to income of $166,000 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 5.0% loss compared to income of 2.4% of sales in the
prior year's quarter.
Net interest expense for the quarter was $688,000 compared to net interest
income of $175,000 in the prior year's quarter. Interest expense for the quarter
primarily consists of interest on debt incurred to acquire Progressive.
<PAGE>
Other non-operating expense of $7,000 represents costs associated with
non-operating properties held for sale.
Provision for income taxes in the current quarter reflects an estimated
effective tax rate of 55% for the quarter.
Net loss for the current quarter was $607,000 (or $0.10 per share), as compared
to zero in the prior year's quarter. The average number of common shares
outstanding increased to 6,377,000 shares from 5,351,000 shares in the prior
year's quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 27,
1997
Consolidated net sales for the nine months ended September 30, 1998 increased
$12,248,000 (66%) to $30,840,000 from $18,592,000 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 $3,492,000 (77%) to $8,050,000 from
$4,558,000 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 26.1% of sales from 24.5% 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
$1,739,000 to $2,212,000 from $473,000 in the prior year's period. The increase
is primarily the result of the inclusion of such costs for Progressive and is
net of $951,000 of software development costs capitalized during the period.
Consolidated selling, administrative and general expenses increased $1,706,000
(43%) to $5,708,000 from $4,002,000 in the prior year's period. The increase in
selling, 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 $310,000 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 as
part of the purchase of Progressive. Prior year administrative and general
expenses include a non-cash expense of $794,000 related to a stock incentive
compensation agreement with the principal executive officers of Ultimate.
In September 1998, 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.
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
<PAGE>
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 relates to a project to develop a Windows(R) NT(R)
compliant POS software product called IRIS. 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
began 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 is 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 $14.9 million to $23.6 million.
Consolidated depreciation and amortization for the current period was $2,175,000
compared to $613,000 in the 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
$2,045,000 (exclusive of the write-off of in process software technology)
compared to a loss of $530,000 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 6.6% loss compared to a 2.9% loss in the prior year's
period.
Net interest expense for the current period was $1,024,000 compared to net
interest income of $340,000 in the prior year's period. Interest expense for 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 $15,000 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 nine months reflects an
estimated effective tax rate. The benefit recorded in the current period
includes 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 $13,390,000 (or $2.24 per share) as compared
to net income of $432,000 (or $0.08 per share) in the prior year's period. The
average number of common shares outstanding increased to 5,975,000 shares from
5,089,000 shares in the prior year's period.
<PAGE>
Liquidity and Capital Resources
At September 30, 1998, the Company had $504,000 in cash and availability of
$2,800,000 under the Company's $8,000,000 working capital revolving credit
facility. The Company's working capital at September 30, 1998 was $4,497,000
compared with $19,490,000 at December 31, 1997. The current ratio was 1.3 : 1.0
at September 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 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 Working Capital Facility with Fleet, (c) $11,000,000 proceeds
from the sale of the Notes 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 Notes.
At September 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 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. All costs associated with
the Company's plan for Year 2000 compliance are being expenses as incurred. The
Company will continue to review the year 2000 issue for potential impact on its
products, operations and financial condition.
Nasdaq Listing
On August 17, 1998 the Nasdaq Stock Market notified the Company that based on
the Company's quarterly report for the quarter ended June 30, 1998 (prior to the
restatement discussed in Note 1), the Company did not meet the Nasdaq National
Market listing requirement of maintaining $4,000,000 of net tangible assets. The
Company's net tangible assets were $3,866,000 and $4,161,000 (both prior to
restatement) at June 30, 1998 and September 30, 1998, respectively. The net
tangible assets shortfall at June 30, 1998 resulted from the $26,300,000 (prior
to restatement) write-off of in-process software technology acquired as part of
the purchase of Progressive on April 17, 1998. The Company believes the June 30,
1998 shortfall is transitory and the Company is, and expects to be, in
compliance with all requirements for continued listing on the Nasdaq National
Market through 1999. The Company has reviewed its listing status with Nasdaq,
but has not received confirmation whether Nasdaq believes that the Company's
common stock should be listed on the Nasdaq National Market or the Nasdaq Small
Cap Market.
Based on the Company's restatement of its in-process software technology charge
and its restated balance sheet contained in this amended report, at June 30,
1998, the Company is in compliance with the Nasdaq requirement of $4,000,000 of
net tangible assets.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit 4.1 Form of Letter of Waiver and Limited Amendment dated
November 12, 1998 by and among Massachusetts Mutual
Life Insurance Company and certain of its affiliates
and Tridex Corporation.
Exhibit 10.1 Amendment No. 1 to Credit Agreement dated
as of November 1, 1998, to Credit Agreement
dated as of April 17, 1998, by and between
Fleet National Bank, Tridex Corporation,
Progressive Software, Inc. and Ultimate
Technology Corporation.
Exhibit 10.2 Employment Agreement dated April 9, 1998 between
Tridex Corporation and Daniel A. Bergeron
Exhibit 10.3 Employment Agreement dated May 11, 1998
between Tridex Corporation and John MacWillie
Exhibit 10.4 Employment Agreement dated April 21, 1998 between
Tridex Corporation and Raymond J. Mueller
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule.
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter covered by this report.
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
<PAGE>
EXHIBIT INDEX
Exhibit 4.1 Form of Letter of Waiver and Limited Amendment dated November
12, 1998 by and among Massachusetts Mutual Life Insurance
Company and certain of its affiliates and Tridex Corporation.
Exhibit 10.1 Amendment No. 1 to Credit Agreement dated as of November 1,
1998, to Credit Agreement dated as of April 17, 1998, by and
between Fleet National Bank, Tridex Corporation, Progressive
Software, Inc. and Ultimate Technology Corporation.
Exhibit 10.2 Employment Agreement dated April 9, 1998 between Tridex
Corporation and Daniel A. Bergeron
Exhibit 10.3 Employment Agreement dated May 11, 1998 between Tridex
Corporation and John MacWillie
Exhibit 10.4 Employment Agreement dated April 21, 1998 between Tridex
Corporation and Raymond J. Mueller
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
Exhibits 4.1, 10.1, 10.2, 10.3 and 10.4 are not included in this report. A copy
of these exhibits will be furnished upon request.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Exhibit 11 Computation of Per Share Earnings
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------- --------------------------
September September September September
30, 1998 27, 1997 30, 1998 27, 1997
-------------------------- --------------------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
EARNINGS:
Loss from continuing operations $ (607) $ 0 $ (13,390) $ (175)
Income from discontinued operations 607
-------------------------- --------------------------
Net income (loss) available to
common stockholders $ (607) $ 0 $ (13,390) $ 432
-------------------------- --------------------------
SHARES:
Weighted average common shares outstanding 6,377,000 5,351,000 5,975,000 5,089,000
========================== ==========================
EARNINGS PER SHARE - BASIC AND DILUTED:
Loss from continuing operations $ (0.10) $ 0.00 $ (2.24) $ (0.03)
Income from discontinued
operations 0.11
-------------------------- --------------------------
Net income (loss) $ (0.10) $ 0.00 $ (2.24) $ 0.08
========================== ==========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) TRIDEX
CORPORATION AMENDED QUARTERLY REPORT ON FORM 10-Q/A FOR THE QUARTER ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 504
<SECURITIES> 0
<RECEIVABLES> 9,201
<ALLOWANCES> 31
<INVENTORY> 7,444
<CURRENT-ASSETS> 826
<PP&E> 3,911
<DEPRECIATION> 1,611
<TOTAL-ASSETS> 52,329
<CURRENT-LIABILITIES> 13,447
<BONDS> 0
0
0
<COMMON> 1,633
<OTHER-SE> 17,509
<TOTAL-LIABILITY-AND-EQUITY> 52,329
<SALES> 30,840
<TOTAL-REVENUES> 30,840
<CGS> 22,790
<TOTAL-COSTS> 50,485
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,024
<INCOME-PRETAX> (20,684)
<INCOME-TAX> (7,294)
<INCOME-CONTINUING> (13,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,390)
<EPS-PRIMARY> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
