<PAGE>
FORM 10-Q
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, 2000
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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:
Commission file number: 1-5513
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:
(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 ON OCTOBER 15, 2000
----- -------------------------------
COMMON STOCK, NO PAR VALUE 6,368,289
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TRIDEX CORPORATION AND SUBSIDIARY
INDEX
Page No.
--------
PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
September 30, 2000 and December 31, 1999
Consolidated Statements of Operations for the
Quarters and Nine Months Ended September 30, 2000 and
September 30, 1999
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and
September 30, 1999
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition
PART II. Other Information:
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
Exhibit 99.1 Press Release
2
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TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,734 $ 367
Receivables, net 1,975 5,352
Inventories 1,622 1,945
Investment in net assets of discontinued
operations (Note 3) 0 5,881
Other current assets 165 353
-------- -------
Total current assets 5,496 13,898
-------- -------
Plant and equipment (Note 2) 2,751 2,663
Less accumulated depreciation (1,752) (1,046)
-------- -------
999 1,617
-------- -------
Goodwill and intangible assets, net (Note 2) 0 10,822
Purchased and internally developed software
costs, net (Note 2) 6,004 9,856
Other assets 1,300 703
-------- -------
$ 13,799 $ 36,896
======== =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Bank loan payable $ 3,017 $ 5,740
Current portion of long term debt (Note 5) 13,945 20,691
Accounts payable 3,032 3,592
Accrued liabilities 4,904 2,411
Deferred revenue 238 199
-------- -------
Total current liabilities 25,136 32,633
-------- -------
Shareholders' equity (deficit):
Common stock, no par value 1,634 1,634
Additional paid-in capital 33,928 33,928
Accumulated deficit (45,584) (29,584)
Receivable from sale of stock (350) (750)
Common shares held in treasury, at cost (965) (965)
-------- -------
(11,337) 4,263
-------- -------
$ 13,799 $ 36,896
======== =======
</TABLE>
See notes to consolidated condensed financial statements.
3
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TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
-------------- -----------------
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 4,405 $ 7,920 $ 12,473 $ 24,106
Operating costs and expenses:
Cost of sales 2,389 5,377 7,413 16,790
Engineering, design and product development costs 1,011 1,359 3,288 2,815
Selling, administrative and general expenses 1,452 1,967 4,364 5,487
Depreciation and amortization 1,019 899 3,087 2,607
Impairment charge (Note 2) 12,300 0 12,300 0
------- ------ ------ ------
18,171 9,602 30,452 27,699
Operating loss (13,766) (1,682) (17,979) (3,593)
Other charges (credits):
Interest expense, net 651 889 2,247 2,454
Other, net 367 9 536 (51)
------- ------ ------ ------
1,018 898 2,783 2,403
Loss from continuing operations before income taxes (14,784) (2,580) (20,762) (5,996)
Benefit (provision) for income taxes (35) 838 (105) 2,223
Net loss from continuing operations (14,819) (1,742) (20,867) (3,773)
Discontinued operations (Note 3):
Net income (loss) from discontinued operations 0 343 (26) 1,324
Net gain on sale of discontinued operations 0 0 5,588 0
Net loss before extraordinary item (14,819) (1,399) (15,305) (2,449)
Extraordinary loss due to debt modification (Note 5) 0 0 (695) 0
Net loss $ (14,819) $ (1,399) $ (16,000) $ (2,449)
Loss per share -- basic and diluted:
Loss from continuing operations $ (2.33) $ (.27) $ (3.28) $ (.59)
Income from discontinued operations 0 .05 .87 .21
Extraordinary loss 0 0 (.10) 0
------- ------ ------ ------
Net loss (2.33) (.22) (2.51) (.38)
Weighted average shares outstanding
Basic and diluted 6,368,289 6,368,289 6,368,289 6,368,289
========= ========= ========= =========
</TABLE>
See notes to consolidated condensed financial statements.
4
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TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (16,000) $ (2,449)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 419 289
Amortization of goodwill, intangible assets and
purchased and internally developed software 2,668 2,552
Debt discount amortization 559 217
Gain on sale of assets (8) (178)
Gain on sale of discontinued operations (5,588) 0
Loss from discontinued operations 26 (1,324)
Extraordinary loss due to debt modification 695 0
Impairment charge on long-lived assets 12,300 0
Changes in operating assets and liabilities:
Receivables 3,377 (2,026)
Inventory 323 (836)
Other current assets 188 40
Other assets (597) (8)
Accounts payable, accrued liabilities, deferred
revenue and income taxes payable 1,972 793
------- --------
Net cash provided by (used in) operating activities
of continuing operations 344 (2,930)
Cash flows from investing activities:
Purchases of plant and equipment (95) (100)
Capitalized software development costs 0 (725)
Proceeds from sale of assets 8 295
Proceeds from sale of discontinued operations, net
of transaction expenses 11,443 0
------- --------
Net cash provided by (used in) investing activities of
continuing operations 11,356 (530)
Cash flows from financing activities:
Net change in borrowings under line of credit (2,723) 644
Net change in borrowings of long term debt (8,000) 0
Net cash flow of discontinued operations 0 3,173
Collection of stock sale receivable 400 0
Purchase of treasury shares 0 51
------- --------
Net cash (used in) provided by financing activities (10,323) 3,868
Increase in cash and cash equivalents 1,367 408
Cash and cash equivalents at beginning of period 367 18
------- --------
Cash and cash equivalents at end of period $ 1,734 $ 426
======== =========
</TABLE>
See notes to consolidated condensed financial statements.
5
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TRIDEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL:
Tridex Corporation (the "Company"), through its wholly-owned subsidiary,
Progressive Software, Inc. ("Progressive") is a leading designer, developer, and
marketer of high quality, specialized point of sale ("POS"), back office and
enterprise technology for the food service and specialty retail industry. As
described in Note 2, in February, 2000, the Company disposed of its Ultimate
Technology Corporation ("Ultimate") subsidiary, a leading developer,
manufacturer and marketer of high quality hardware systems and components for
the POS industry.
As more fully discussed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, the Company experienced net losses from continuing
operations in each of the years ended December 31, 1999 and 1998. During the
period ended September 30, 2000, the Company experienced a net loss from
continuing operations of $20,867,000 (including a non-cash impairment charge of
$12,300,000). Cash flows from continuing operations amounted to $344,000. As a
result of the operating losses, the Company is not in compliance with various
terms of its credit agreements, permitting its lenders to accelerate all debt
maturities. These matters, and their effect on the Company's liquidity, raise
substantial doubt about the Company's ability to continue as a going concern.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly its
financial position as of September 30, 2000, the results of its operations for
the quarters and nine month periods ended September 30, 2000 and September 30,
1999 and changes in its cash flows for the nine month periods ended September
30, 2000 and September 30, 1999. The December 31, 1999 consolidated condensed
balance sheet has been derived from the Company's audited financial statements
at that date. The 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, 1999.
2. IMPAIRMENT OF LONG-LIVED ASSETS:
As noted in the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2000, the operating results of Progressive during fiscal 2000 have been
below expectations. As a result, in August of this year, management instituted a
reduction-in-force at Progressive, revised its operating forecasts and initiated
an evaluation of the carrying value of long-lived assets. The evaluation
commenced with estimates of the future cash flows, on an undiscounted basis,
expected to result from the assets and their eventual disposition. Based on this
evaluation management has concluded that an impairment of the acquired assets
has occurred and has recorded a writedown of such assets to fair value. The fair
values of the long-lived assets were estimated using the present value of
expected future cash flows. Considerable management judgment is involved in
estimating fair value, and accordingly, operating results could vary
significantly from management's estimates. Therefore, in accordance with the
provisions of the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company has recorded a charge of $12,300,000, consisting of
$9,847,000 of goodwill, $2,159,000 of purchased and internally developed
software costs and $294,000 of plant and equipment.
3. DISCONTINUED OPERATIONS:
Effective February 18, 2000, the Company sold all of the issued and outstanding
capital stock of Ultimate to UTC Holding Company, Inc., an affiliate of CFG
Capital Management II, L.P. for approximately $12,544,000 in cash. Of the
purchase price, $8,000,000 was used to repay a portion of the Company's term
loan, an additional $3,053,204 was used to reduce the outstanding balance on the
Company's working capital facility, and $500,000 was placed in escrow for
defined
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contingencies. In July 2000, the Company received approximately $190,000,
representing one-half of the escrow less final net working capital adjustments
relating to the closing balance sheet of Ultimate. The remaining $250,000 is due
in February 2001. The Company recorded a gain on the sale of $5,588,000 during
the quarter ended March 31, 2000. The consolidated financial statements have
been reclassified to present the results of operations of Ultimate as a
discontinued operation for all periods.
4. EARNINGS (LOSS) PER COMMON SHARE:
Basic earnings (loss) per common share are based on the weighted average number
of common shares outstanding during the period. Diluted earnings per common
share assume the exercise of options and warrants and the conversion of dilutive
securities when the results of such exercises and conversions are dilutive.
5. BANK CREDIT AGREEMENT AND SUBORDINATED DEBT:
The components of debt are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Term loan payable $ 3,100 $ 11,100
Senior subordinated notes, net of discount 10,845 9,591
------- --------
13,945 20,691
Current portion 13,945 20,691
------- --------
Long-term portion $ 0 $ 0
======= ========
</TABLE>
On April 17, 1998 the Company entered into a Credit Agreement (the "Credit
Agreement") with Fleet National Bank ("Fleet"). The Credit Agreement is secured
by a first priority security interest in substantially all of the Company's
assets and restricts the amount available for payment of cash dividends and
capital stock distributions. The Credit Agreement, as originally executed,
provided for a working capital facility (the "Working Capital Facility") and a
term loan (the "Term Loan"), and imposed certain financial covenants, including
a minimum tangible capital base, a maximum ratio of senior funded debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA"), a
maximum ratio of total consolidated funded debt to EBITDA, a minimum interest
coverage ratio and a minimum fixed charge coverage ratio.
On February 18, 2000 the Company entered into an amendment to the Credit
Agreement which amended the covenants as of December 31, 1999, waived
non-compliance with the December 31, 1999 covenants, and extended the maturity
of the Term Loan and the Working Capital Facility to December 31, 2000. Pursuant
to the amendment, the Company made a principal payment of $8,000,000 on February
18, 2000 and agreed to make an additional principal payment of $1,000,000 on or
before June 30, 2000. The amended covenants require the Company to maintain a
minimum interest coverage ratio and a minimum net worth. The Credit Agreement,
as amended, permits the Company to borrow up to $6,000,000 under the Working
Capital Facility, subject to the eligible borrowing base limitations,
establishes interest rate margins of 2.5% on prime rate-based loans and 4.75% on
LIBOR-based loans and requires minimum monthly maintenance fees of $3,000. If
loans under the Working Capital Facility exceed borrowing base capacity, the
Company will incur an additional interest rate margin of 2.0%. As of September
30, 2000, the Company was not in compliance with the covenant related to the
interest coverage ratio, the amount drawn under the Working Capital Facility was
$1,166,250 in excess of the defined borrowing base, and the agreed upon
$1,000,000 principal payment due June 30, 2000 had not been made. As a result,
the Company is in default of the Credit Agreement and the outstanding principal
balance of the Term Loan has been classified as current.
On April 17, 1998 in conjunction with the acquisition of Progressive, the
Company sold to Massachusetts Mutual Life
7
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Insurance Company, MassMutual Corporate Investors, MassMutual Participation
Investors, and MassMutual Corporate Value Partners Limited (the "MassMutual
Investors") $11,000,000 of the Company's senior subordinated notes due April 17,
2005 (the "Notes"). The Notes bear interest at 12%. The Notes, as originally
issued, imposed certain financial covenants, including a minimum consolidated
net worth, a minimum fixed charge coverage ratio and maximum leverage ratio, and
required quarterly interest payments and prepayments of principal commencing in
2003. The Notes provide that a failure of any covenant relating to other
indebtedness is a default under the Notes.
On February 18, 2000, the MassMutual Investors agreed to waive the Company's
non-compliance with certain covenants in the Notes as of December 31, 1999, to
amend the financial covenants, to defer payment of interest to December 31, 2000
and, in exchange, accelerated the maturity of the Notes to December 31, 2000. As
of September 30, 2000, the Company was not in compliance with the covenants in
the Notes related to the minimum interest coverage ratio and minimum net worth.
As a result of the non-compliance with certain covenants in the Credit Agreement
and the Company's failure to comply with certain covenants in the Notes as of
September 30, 2000, the outstanding principal balance of the Notes has been
classified as current.
The acceleration of the maturity of the MassMutual Notes constituted a
substantial debt modification, which under EITF 96-19 "Debtor's Accounting for a
Modification or Exchange of Debt Instruments", requires the MassMutual Notes to
be adjusted to their fair value as of the date of the February 18, 2000
amendment. The Company calculated the present value of the principal and
interest due December 31, 2000 using the remaining maturity period of the
MassMutual Notes and an estimated fair value interest rate at the modification
date. As a result of this modification, the Company recognized a debt
extinguishment loss of $695,000 which was recorded as an extraordinary item in
the quarter ending March 31, 2000. At September 30, 2000, the remaining debt
discount of $155,000 is being amortized to interest expense through December 31,
2000 using the effective interest rate method.
6. COMMITMENTS AND CONTINGENCIES:
Allu Realty ("Allu"), a Massachusetts business trust with transferable shares,
all of which are owned by the Company, is the former owner of land located at
100 Foley Street, Somerville, Massachusetts (the "Site"). Allu sold the
property to 100 Foley Street Incorporated ("Foley"), an unrelated entity.
In 1984, Allu and the Company disclosed to the Massachusetts Department of the
Attorney General the existence of chromium, oil and grease at the Site. As a
result, the Environmental Protection Division of the Department of the
Attorney General and the Massachusetts Department if Environmental Protection
conducted an investigation of the Site. In 1993, the Company entered into an
agreement with Foley pursuant to which the Company and Foley agreed to pay
75% and 25%, respectively, of the costs incurred after January 1, 1992 in
connection with the investigation and remediation of the Site (the "Site
Participation Agreement"). The Site Participation Agreement also provided
that, to the extent there are available proceeds from the sale of the Site,
the Company would be reimbursed approximately $200,000 of the $250,000 it
expended in connection with the Site prior to January 1, 1992. As of December
31, 1999, the Company had spent approximately $766,000 in connection with the
Site. In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc.
("Stop & Shop"). As part of the sale transaction, Foley was required to place
approximately $875,000 in escrow (the "Stop & Shop Escrow") to cover the
costs of remediation, which was completed in 1999. In 1997, Foley brought
suit in the United States District Court, District of Massachusetts, against
the Company claiming that the Company failed to contribute its share of the
remediation costs pursuant to the Site Participation Agreement. Foley
asserted that Allu and Tridex remain liable for payment of certain costs
associated with the remediation of the Site after its sale to Stop & Shop,
and claimed that it is entitled to reimbursement from the Company of a
portion of the Stop & Shop Escrow. The Company filed a counterclaim, and
sought reimbursement of funds previously expended in accordance with the Site
Participation Agreement. Mediation between the parties was not successful; in
July 2000, after trial of the case, the jury made certain factual findings
upholding the parties' obligations under the Site Participation Agreement,
including the Company's obligation to pay 75% of the remediation costs and
the obligation of Foley to reimburse the Company out of sale proceeds. On
October 16, 2000, the United States District court for Massachusetts entered
judgement against the Company in the amount of $791,095. The Company has
filed various post-trial motions seeking to vacate the judgement or to have
it
8
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modified. If these motions are unsuccessful, the Company intends to appeal the
decision of the Court. As of June 30, 2000, the Company had accrued $465,000
with respect to its potential liability under the Site Participation Agreement.
Based upon the judgement described above, the Company has increased the accrual
to $791,000 at September 30, 2000. The Company is unable to forecast when this
litigation will finally be resolved or the amount of its ultimate exposure with
respect thereto.
7. LITIGATION
In April, 1998, the Company acquired all of the common stock of Progressive
Software, Inc. from Paul J. Smith, its sole shareholder ("Smith"), for a
total purchase price of $47,594,000 consisting of 714,000 shares of the
Company's common stock, valued at $4,998,000, and the balance in cash. As a
part of the transaction, the parties entered into an Escrow Agreement with
respect to possible future liabilities related to sales taxes in various
jurisdictions where Progressive had done business. Additionally, the Company
entered into a three year lease (the "Lease") with a family partnership in
which Smith is a principal to occupy the primary office facility used by
Progressive. Subsequent to the acquisition, the Company filed a complaint
against Smith based on additional information concerning Progressive seeking
a reduction in the purchase price paid by the Company. In January, 1999,
Smith filed a complaint seeking damages up to $5,000,000 for the refusal by
the Company to register the shares of common stock received by him as a part
of the purchase price.
On October 31, 2000, the Company and Smith entered into a Settlement Agreement
under which all of the claims pending between the parties were settled.
Pursuant to the Settlement Agreement Smith returned to the Company 714,000
shares of the Company's common stock issued to him, valued at that time at
$7.00 per share, as well as $1,226,000 in cash. It was also agreed that
effective October 1, 2000, no further rent would be due under the Lease, that
the Lease would terminate on December 31, 2000 and that the Company had no
further obligation pursuant to the Escrow Agreement. Effective upon Smith's
returning the 714,000 shares of the Company common stock, the Company's
issued and outstanding shares of common stock will decrease to 5,654,280. The
settlement will be reflected in the Company's financial statements in the
quarter ending December 31, 2000.
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 discussed more fully below, the Company has experienced recurring net
losses and negative cash flows, and is currently in default under its
agreements with lenders. These matters raise substantial doubt about the
Company's ability to continue as a going concern. As noted in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2000, the
operating results of Progressive during fiscal 2000 have been below
expectations. As a result, management reviewed the carrying value of
long-lived assets related to the software products and associated technology
in place at the time of the Company's 1998 acquisition of Progressive in view
of the performance of these assets subsequent to the acquisition. Based on
this review and the fact that substantial effort has been required to enhance
and stabilize Progressive's principal software products, management has
concluded that an impairment of the acquired assets has occurred. Therefore,
in accordance with the provisions of the Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of", the Company has recorded a charge
of $12,300,000, consisting of $9,847,000 of goodwill, $2,159,000 of purchased
and internally developed software costs and $294,000 of plant and equipment.
The fair values of the long-lived assets were estimated using the present
value of expected future cash flows. Considerable management judgment is
involved in estimating fair value and, therefore, operating results could
vary significantly from management's estimates.
9
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QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
Consolidated net sales for the quarter ended September 30, 2000 decreased
$3,515,000 (44%) to $4,405,000 from $7,920,000 in the comparable quarter of the
prior year. Management believes that the decrease results from several causes.
Beginning in the second quarter of this year, the Company outsourced the
hardware components for a major customer's expansion and, as a result, did not
recognize hardware revenue on these shipments. The value of these outsourced
hardware components was approximately $889,500 during the third quarter. Prior
to this arrangement the Company supplied these components directly. There were
no comparable transactions during the same period a year ago. Further,
management believes that many customers delayed buying decisions in anticipation
of the completion of work on a new release of the Company's IRIS software which
became available in early July. Finally, management believes that the decrease
is an industry-wide trend inasmuch as revenues of many of the Company's
competitors have been adversely affected, when compared to prior periods, during
the first nine months of 2000. Offsetting these factors was the sale of
non-current software code to one customer for $831,400.
Consolidated gross profit decreased $527,000 (21%) to $2,016,0000 from
$2,543,000 in the prior year. The reduction relates to the reduction in revenues
during the current period offset, to a degree, by revenues attributable to
software sales. In 1999, software sales accounted for approximately 9% of total
revenue; whereas, in the current period, such sales amounted to 30% of the
total. Profit margins associated with software sales are substantially higher
than those generated by the sale of hardware. Consolidated gross profit margin
was 46% (38% before giving effect to the outsourcing arrangement referred to
above), compared with 32% during the comparable period in 1999. As noted, the
increase in the contribution of software sales to total revenues accounts for
substantially all of the improvement in profit margin.
Consolidated engineering, design and product development costs for the current
quarter were $1,011,000, compared with $1,359,000 experienced in the same period
a year ago. The reduction results from a substantial decrease in the expenses
associated with contract personnel utilized in the development efforts related
to the new version of the Company's IRIS software which was substantially
completed in early July. Additional decreases resulted from the personnel
reductions put into effect in mid-August.
Consolidated selling, administrative and general expenses decreased $515,000
(26%) to $1,452,000 from $1,967,000 in the comparable period last year. The
overall decrease results from substantial reductions in staff and related
expenses at the Company's corporate offices which were not entirely offset
by increases at Progressive.
Consolidated depreciation and amortization for the quarter was $1,019,000
compared to $899,000 in the third quarter last year. The increase results
principally from increases in these expenses at Progressive.
Consolidated continuing operating losses for the quarter were $13,766,000,
compared to operating losses of $1,682,000 a year ago. The increase in the
current period was the result of a $12,300,000 impairment charge. Exclusive of
this charge, operating losses decreased as a result of a more favorable mix of
products sold, resulting in improved gross profit margins, and decreased
operating costs resulting principally from the elimination of contract
programming expense, the effect of the reduction in personnel at Progressive
which took effect in August, and substantially reduced administrative costs at
the Company's corporate offices.
Net interest expense for the quarter was $651,000 compared to $889,000 last
year. The decrease is primarily the result of a reduction in the amount of
outstanding bank debt. As described in Note 2 above, the Company used a portion
of the proceeds from the sale of Ultimate to repay a portion of the Term Loan
and Working Capital Facility. The decrease was offset to a certain extent by
increases in interest rates during the current period compared with rates in
effect a year ago. Interest expense is net of interest income of $26,340 in the
current quarter and $33,290 in the prior year's quarter.
Other expense consists principally of an additional provision of $360,000 for
liabilities related to the 100 Foley Street litigation as described in Note 6
above.
10
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Provision for income taxes in the current quarter reflects state equity-based
tax provisions. The benefit recorded in the prior year's quarter reflects the
recognition of a deferred tax benefit.
Net loss for the current quarter was $14,819,00, or ($2.33) per share, as
compared to a net loss of $1,399,000, or ($0.22) per share, in the comparable
period a year ago. The average number of common shares outstanding remained
constant at 6,368,289 shares.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1999
Consolidated net sales for the nine months ended September 30, 2000 decreased
$11,633,000 (48%) to $12,473,000 from $24,106,000 in the comparable period last
year. Management believes that the decrease results from several causes.
Beginning in the second quarter, the Company outsourced the hardware components
for a major customer's expansion and, as a result, did not recognize hardware
revenue on these shipments. The value of these outsourced hardware components
was approximately $2,874,000 during the period. Prior to this arrangement the
Company supplied these components directly. There were no comparable
transactions during the same period a year ago. Also, the Company experienced a
delay in shipments caused by protracted negotiations of a new credit arrangement
between the Company's lenders and a major vendor as more fully described in the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2000.
Further, management believes that many customers delayed buying decisions in
anticipation of the completion of work on a new release of the Company's IRIS
software which became available in early July. Finally, management believes that
the decrease is an industry-wide trend inasmuch as revenues of many of the
Company's competitors have been adversely affected, when compared to prior
periods, during the first nine months of 2000.
Consolidated gross profit decreased $2,256,000 (31%) to $5,060,000 from
$7,316,000 in the prior year. The reduction relates directly to the reduction in
revenues during the current period. Consolidated gross profit margin increased
to 41% of sales from 30% last year. Before giving effect to the outsourcing
arrangement referred to above, the gross profit for the nine month period this
year was 33%.
Consolidated engineering, design and product development costs increased
$473,000 to $3,288,000 from $2,815,000 last year. The increase was principally
the result of efforts directed toward final enhancements of the new version of
the Company's IRIS software product which was released in early July. Expenses
during this period were reduced by approximately $260,100, representing the fair
market value of equity received in Digital Restaurant Solutions for development
services provided. Expenses in 1999 are exclusive of $750,000 of development
costs which were capitalized.
Consolidated selling, administrative and general expenses decreased $1,123,000
(21 %) to $4,364,000 from $5,487,000 a year ago. As noted above, the overall
decrease results from substantial reductions in staff and related expenses at
the Company, which were not entirely offset by increases at Progressive.
Consolidated depreciation and amortization for the current period was $3,087,000
compared to $2,607,000 last year. As noted above, the increase results
principally from increases in these expenses at Progressive.
Consolidated continuing operating losses for the period were $17,979,000,
compared to losses of $3,593,000 in the comparable period last year. Increased
losses in the current period were primarily the result of a $12,300,000
impairment charge recorded in the quarter ended September 30, 2000, decreased
sales and gross profits and increased costs of depreciation, engineering, design
and product development, partially offset by reduced selling, administrative,
and general expenses.
Net interest expense for the current period was $2,247,000 compared to
$2,454,000 a year ago. The increase is the result of increases in prevailing
interest rates during the current period compared with rates in effect last
year. That increase was partially offset by a reduction in the amount of
outstanding bank debt through the use of a portion of the proceeds from the
Ultimate sale, as described in Note 2 above. Interest expense is net of interest
income of $87,240 in 2000 and $79,558 last year.
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Other expense consists principally of an additional provision of $475,000 for
liabilities, as well as expenses of $87,000, related to the 100 Foley Street
litigation as described in Note 6 above. In 1999, the Company reported Other
income of $51,000 representing a gain of $ 180,000 on the sale of the assets of
an operating division offset by provisions for costs also associated with the
100 Foley Street matter and non-operating properties held for sale.
Provision for income taxes in the current quarter reflects state equity-based
tax provisions. The benefit recorded in the prior year reflects the recognition
of a deferred tax benefit.
Net loss in the first nine months of 2000 was $16,000,000, or ($2.51) per share,
compared to a net loss of $3,773,000, or ($.38) per share, for the first nine
months of 1999.
Net income from discontinued operations, including gain on the sale of Ultimate
in February 2000, was $5,562,000, or $0.87 per share, for the first nine months
of 2000. There was no such income during the comparable period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
The Company's negative working capital at September 30, 2000 was $19,640,000,
compared with negative working capital of $18,735,000 at December 31, 1999. At
September 30, 2000 the Company had no material commitment for capital
expenditures. The Company's September 30, 2000 negative working capital results
primarily from net losses and current maturities on the Company's existing debt
which has been reclassified due to covenant non-compliance.
On February 18, 2000 the Company entered into an amendment to the Credit
Agreement which amended the covenants of that agreement, waived non-compliance
as of December 31, 1999 and extended the maturity of the Term Loan and Working
Capital Facility to December 31, 2000. Pursuant to the amendment, the Company
made a principal payment of $8,000,000 from the proceeds of the sale of Ultimate
on February 18, 2000. Also, in accordance with the terms of the amendment,
immediately after the sale, the Company made a payment to Fleet under the
Working Capital Facility in the amount of $3,053,204. Finally, the Company
agreed to make an additional principal payment of $1,000,000 under the Term Loan
on or before June 30, 2000. The amended covenants require the Company to
maintain a minimum interest coverage ratio and a minimum net worth. The Credit
Agreement, as amended, permits the Company to borrow $6,000,000 under the
Working Capital Facility, subject to the eligible borrowing base limitations,
establishes interest rate margins of 2.5% on prime rate-based loans and 4.75% on
LIBOR-based loans and requires minimum monthly maintenance fees of $3,000. If
loans under the Working Capital Facility exceed borrowing base capacity, the
Company will incur an additional margin of 2.0%. As of September 30, 2000, the
Company was not in compliance with the covenant related to the interest coverage
ratio, had borrowings of approximately $1,166,250 in excess of its borrowing
base under the Working Capital Facility, and had not made the principal payment
of $1,000,000. As a result, the Company is in default of the Credit Agreement
and the outstanding principal balance of the Term Loan is classified as current.
As of December 31, 1999, the Company was not in compliance with the minimum
interest coverage ratio and minimum net worth covenants of the Company's Notes
with the MassMutual Investors. On February 18, 2000, the MassMutual Investors
agreed to waive the Company's non-compliance with certain of the Notes covenants
as of December 31, 1999, to amend the financial covenants, and to defer payment
of interest to December 31, 2000 and, in exchange, accelerated the maturity of
the Notes to December 31, 2000. As of September 30, 2000, the Company was not in
compliance with the covenants in the Notes related to the minimum interest
coverage ratio and minimum net worth. The Notes provide that a failure of any
covenant relating to other indebtedness is a default under the Notes. As a
result of the non-compliance with certain covenants in the Credit Agreement and
the Company's failure to comply with certain covenants in the Notes as of
September 30, 2000, the outstanding principal balance of the Notes has been
classified as current.
As of September 30, 2000 the Company's non-compliance with various terms of the
Credit Agreement and the Notes permits its lenders to accelerate all debt
maturities. These matters, and their effect on the Company's liquidity, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company intends to enter into discussions with its lenders which may result
in amendments to the Credit Agreement and Notes to allow for over
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advances under the Working Capital Facility up to a certain amount, to provide
less restrictive covenant terms and to extend the maturities of the Working
Capital Facility and Term Loan. However, there can be no assurance that the
Company will be able to obtain such amendments on acceptable terms.
The Company has reduced overhead costs at its Westport headquarters facility
and, on August 16, 2000 effected a reduction in personnel at Progressive
representing annual salaries in excess of $1,100,000, excluding fringe benefits
and other expenses related to the individuals released.
The Company has retained a financial advisor which is assisting the Company in
reviewing strategic alternatives available to the Company, including, without
limitation, a possible sale of the Company or Progressive or an equity
investment.
NASDAQ LISTING
As of March 31, 2000, the Company's net tangible assets were negative
$5,108,000. Accordingly, as of such date, the Company did not meet the Nasdaq
National Market listing requirement that it maintain $4,000,000 of net tangible
assets. Effective May 3, 2000, the Company's stock was delisted from the Nasdaq
National Market due to the failure to comply with the required minimum net
tangible asset threshold. The Company's stock currently trades on the
Over-the-Counter Market under the symbol "TRDX.OB".
As a result of a delisting from the Nasdaq system, current information regarding
bid and asked prices for the common stock may become less readily available to
brokers, dealers, and/or their customers which may reduce the liquidity of the
market for the common stock which, in turn, could result in decreased demand for
the common stock, a decrease in the stock price, and an increase in the spread
between the bid and asked prices for the common stock.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
See Note 5 to the Company's Consolidated Condensed Financial Statements.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings
Exhibit 27. Schedule of Financial Data
Exhibit 99.1 Press Release
b. Reports on Form 8-K
The Company filed a Current report on Form 8-K on November 7, 2000
to report the settlement of litigation related to its 1998
acquisition of Progressive Software, Inc.
ITEMS 2, 3, 4 and 5 are not applicable and have been omitted.
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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)
November 20, 2000 /s/ Seth M. Lukash
------------------
Seth M. Lukash
Chairman of the Board, President, Chief Executive
Officer, and Chief Operating Officer
November 20, 2000 /s/ William A. Beebe
--------------------
William A. Beebe
Vice President and Chief Financial Officer
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