UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended: DECEMBER 31, 1999 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: 1-5513
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TRIDEX CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0682273
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
61 WILTON ROAD
WESTPORT, CT 06880
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 226-1144
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
- - ------------------------------- -----------------------------------------
COMMON STOCK, WITHOUT PAR VALUE NASDAQ
Securities registered pursuant to Section 12(g) of the Act: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. [X]
As of March 10, 2000 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$13,390,000.
As of March 10, 2000 the registrant had outstanding 6,368,289 shares of common
stock, without par value.
Exhibit Index appears on page 35
PART I
ITEM 1. BUSINESS
GENERAL
Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned
operating 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. See Note 3 to the Company's 1999 Consolidated
Financial Statements for a discussion of discontinued operations. All dollar
amounts within this report, unless otherwise indicated, exclude results of
discontinued operations.
(a) GENERAL DEVELOPMENT OF BUSINESS SINCE DECEMBER 31, 1998
On April 17, 1998, the Company acquired all of the outstanding common
stock of Progressive from Paul J. Smith for a total purchase price of
$47,594,000 consisting of 714,000 shares of Tridex common stock, valued
at $4,998,000, and the balance in cash. Subsequent to the acquisition,
Tridex filed a complaint against Paul Smith based on additional
information learned about Progressive seeking a reduction of the purchase
price paid by Tridex. On January 5, 1999, Mr. Smith filed a complaint
seeking damages of up to $5.0 million for Tridex's failure to register
the 714,000 shares of common stock received by Mr. Smith as part of the
purchase price for Progressive. Mr. Smith's claims, and counterclaims
brought by Tridex, are currently being litigated. Tridex has also
initiated arbitration proceedings against Mr. Smith. See "Item 3--Legal
Proceedings".
On May 28, 1999, Tridex sold its Tridex Ribbons division (the "Ribbons
Division") to Magnetec Corporation, a wholly-owned subsidiary of TransAct
Technologies, Inc. for a cash purchase price of $295,000. The Ribbons
Division, located in Wallingford, Connecticut, assembles specialty ribbon
cartridges for dot matrix printers manufactured by Magnetec. The Ribbons
Division employed three people at the time of sale, and recorded sales of
approximately $264,000 for the five months ended May 28, 1999.
Through the acquisition of Progressive, the Company had anticipated
synergies between Progressive and the Company's Ultimate Technology
Corporation ("Ultimate") subsidiary, a leading developer, manufacturer
and marketer of hardware systems and components for the retail POS
industry, that would enable the Company to provide customers with
customized total (hardware and software) solutions. Those synergies never
materialized. In the absence of such synergies, and in view of the
Company's substantial debt burden, the Company determined that it would
be difficult to adequately support the cost of fully developing and
sustaining both software and hardware operations. Management determined
that the Company could most effectively serve its customers and increase
revenue growth by concentrating on the software segment of the POS
business represented by Progressive. Accordingly, on February 18, 2000,
Tridex sold all of the issued and outstanding common stock of Ultimate to
UTC Holding Company, Inc., an affiliate of Capital Formation Group II,
L.P., a private investment partnership, for a purchase price of
approximately $13.0 million in cash, excluding transaction costs. Tridex
used the proceeds from the sale primarily to pay down debt, and intends
to devote its resources to development of the Company's business of
providing total software solutions to its targeted specialty, retail and
restaurant markets.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company manages its operating subsidiary Progressive as a separate
reportable business segment. Progressive is primarily focused on
providing software solutions to the food service and specialty retail
sectors of the market. Ultimate, which was until February 18, 2000
treated by the Company as a second reportable business segment, primarily
focuses on providing hardware solutions to the retail sector of the
market. As Ultimate is considered a significant segment of the Company,
its disposition was accounted for as a discontinued operation.
(c) NARRATIVE DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
Progressive offers high quality POS, back office, and enterprise
technology solutions for the restaurant industry: IRIS Quick Serve
and IRIS Full Serve, both Windows(R) NT(R)-based applications,
IRIS Connect, and SMART 2, a DOS-based application on a Windows(R)
NT(R) platform.
Progressive's integrated restaurant information system, IRIS, is a
32-bit Microsoft Windows(R) NT(R)-based system for quick service
and table service operators that combines advanced front of the
house POS capabilities and powerful Back Office resource planning
services to manage every aspect of store operations. This includes
2
an intuitive touchscreen POS for order entry, drive-thru and
kitchen display management, cost and general accounting, time and
attendance, purchasing and inventory control, and demand
forecasting. IRIS Connect is a centralized management system
designed to provide consolidated information on an enterprise-wide
basis.
IRIS Quick Serve, currently installed in the United States, Japan,
Taiwan and the United Kingdom, is year 2000 and Euro compliant and
Unicode-enabled. Building on its legacy DOS product, Progressive
also offers SMART 2 for customers who want to continue to use
Progressive's legacy DOS systems on a Windows(R) NT(R) platform.
SMART 2 employs object oriented component technology and helps
manage the transition from legacy DOS systems to current
technology. Progressive currently has more than 10,000
installations of its legacy DOS and Windows(R) NT(R) solutions in
North America, Asia and Europe.
Progressive sells its software systems through direct and indirect
sales forces and, when requested by customers, provides hardware
and system integration services in connection with software sales.
In addition, Progressive also offers help desk support, on-site
technical and consulting support, and project management services.
Ultimate, which was an operating subsidiary of Tridex throughout
fiscal year 1999, designs, manufactures and sells customer
displays, keyboards and terminal devices for POS applications. Its
products, based on "Open Systems" design, are used in Twinax,
Unix/Aix and PC-based POS applications. Ultimate recently
commenced marketing of its fully integrated Model 40 POS system,
which combines a monitor, receipt printer, cash drawer and a
hardware platform that can be selected by the customer. Platform
options include PC, net PC, thin client, ASCII terminal and
TWINAX. Ultimate's other terminal products are the Model 1, 2/2B
and 3. Ultimate also offers the Series 500, an advanced POS
keyboard for use with PC or ASCII terminals. Ultimate's terminals
and other peripheral products are sold to system integrators,
original equipment manufacturers and directly to end users by a
direct sales force along with selected strategic relationships
with distributors, dealers and VARS.
(ii) SOURCES AND AVAILABILITY OF LABOR AND RAW MATERIALS
As of December 31, 1999, Progressive employed 16 programmers on
its full-time roster. The ready availability of computer
programmers is crucial to Progressive's continued growth and
product development. To date, Progressive has not experienced any
shortage of qualified programmers. There can be no assurance,
however, that such shortage will not occur in the future.
(iii) INTELLECTUAL PROPERTY
Progressive owns proprietary rights in two principal software
programs it developed, and has common law rights in related trade
and service marks. It also has a pending trademark application
relating to one of its proprietary programs. The Company regards
its software designs and code incorporated into its products as
proprietary and protects them with a combination of copyright,
trademark and trade secret laws and employee and third party
nondisclosure agreements. It may be possible for unauthorized
third parties to copy certain portions of the Company's products
or to reverse engineer or otherwise obtain and use, to the
Company's detriment, information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not
afford the same protection to the Company's proprietary rights as
do United States laws. There can be no assurance that legal
protections relied upon by the Company to protect its proprietary
rights will be adequate or that the Company's competitors will not
independently develop products that are substantially equivalent
or technologically superior to the Company's.
(iv) SEASONALITY AND PRACTICES RELATING TO WORKING CAPITAL ITEMS
Sales of the Company's products are not subject to material
seasonal variations. The Company has not historically been
required to maintain significant inventories of raw materials or
finished goods in order to fill customer orders.
3
(v) CERTAIN CUSTOMERS
The Company has certain customers, the loss of which, if not
replaced by sales to other customers, could have an adverse effect
on the Company. In the year ended December 31, 1999, Starbucks
Coffee Company, Steak `n Shake, Inc., and Prandium, Inc. accounted
for approximately 35%, 13% and 13%, respectively, of the Company's
net sales. As customers complete the installation of new POS
software systems, sales to these customers decline, so that the
identity of Progressive's largest customers changes in the
ordinary course of business. There can be no assurance that
Progressive will not experience a loss of a customer which, in any
given year or sequential years, accounted for a significant
portion of Progressive's net sales, or that such loss will not
have an adverse effect on the Company.
(vi) BACKLOG
The Company's backlog of firm orders was approximately $4,394,000
as of March 10, 2000, and $6,379,000 as of March 12, 1999. A
substantial amount of the Company's backlog can be modified or
canceled prior to shipment without penalty. Accordingly, the
Company believes that backlog cannot be considered a meaningful
indicator of future financial performance. Tridex expects to fill
all of its backlog within the current fiscal year.
(vii) COMPETITION
The Company faces aggressive competition in its markets. Many of
the Company's current and potential competitors are large
multi-national enterprises with extensive experience and resources
in designing, manufacturing and marketing POS software.
Progressive competes with Radiant Systems, Inc., Micros Systems,
Inc., PAR Technology Corporation, Ibertech, Inc. and GEAC Computer
Corporation Limited.
In certain markets, the Company's competitors sometimes offer
prices lower than those offered by Tridex because of lower
overhead, attributable to higher volume production and use of less
expensive overseas labor. Many of the Company's domestic
competitors, particularly those that are divisions of
substantially larger companies, have greater financial and other
resources than Tridex.
(viii) RESEARCH AND DEVELOPMENT ACTIVITIES
The Company spent approximately $4,684,000 in 1999 and $3,618,000
in 1998 on engineering, design and product development efforts in
connection with software development. Expenditures in 1999 and
1998 included $725,000 and $1,731,000, respectively, of
capitalized software development costs. During 1999, the Company
received 2,500,000 shares of common stock of Digital Restaurant
Solutions, LLC, ("DRS"), a privately held company involved in the
development of specialty software products for the restaurant
industry, in return for having provided certain custom software to
DRS. The Company estimated the value of the shares received to be
$500,000 and recorded it as a reduction of product development
expense. See Note 1 to the Company's 1999 Consolidated Financial
Statements.
(ix) EMPLOYEES
As of March 10, 2000, Tridex and its subsidiaries employed
approximately 122 persons, of whom 112 were full time and 10 were
temporary employees.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
In December 1998, the Company formed a wholly owned subsidiary, Retail
Resource Solutions Limited, in the United Kingdom. Retail Resource
Solutions Limited's sales for the year ended December 31, 1999 was
$1,651,000.
4
(E) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(i) DIRECTORS OF THE REGISTRANT
Principal Business of
Director Name Age Principal Occupation Employer Name Employer
------------------ --- --------------------- ------------------ ----------------------
Seth M. Lukash 53 Chairman of the Tridex Corporation Developer and
Board, President, manufacturer of
Chief Executive computer software for
Officer, Chief POS applications.
Financial Officer
and Chief Operating
Officer
Paul J. Dunphy 80 Management Consultant Self-employed Management consulting.
Dennis J. Lewis 45 Management Consultant Self-employed Management consulting.
Thomas R. Schwarz 63 Retired None Personal investments.
Graham Y. Tanaka 52 President Tanaka Capital Investment advising.
Management, Inc.
(ii) EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
-------------------- ---- -----------------------------------------------------------------------
Seth M. Lukash 53 Chairman of the Board of Directors, President, Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer and Director
Thomas T. Mounts, II 44 President, Progressive Software, Inc., a wholly-owned subsidiary of the
Company
Seth M. Lukash has been a senior executive officer of the Company since
1977 and has been a Director since 1979. He has served as Chairman of
the Board of Directors of the Company since November 1988, Chief
Executive Officer since August 1987, and President and Chief Operating
Officer since June 1989. He assumed the responsibilities of Chief
Financial Officer in February 2000 following the departure of Tridex's
chief financial officer. Mr. Lukash previously served as President of
the Company from September 1983 to August 1988 and as Chief Operating
Officer from September 1983 to August 1987.
Thomas T. Mounts, II joined Progressive in August 1999 as President.
Prior to joining Progressive, he most recently served as Associate Vice
President of Software Engineering for NCR Worldwide Professional
Services, where he initiated the development and deployment of software
engineering programs worldwide. Throughout his five year career with
NCR, he also served as Senior Director of Manufacturing, Engineering and
Logistics for NCR Global Applications Development, and Senior
Partner/Director, Technology Consulting US for NCR Professional
Services, where he led client engagement and facilitated the design and
development of customer-specific solutions. Before joining NCR, Mr.
Mounts spent 10 years at IBM in a variety of roles, including Industry
Client Executive/Market Opportunity Manager in the IBM Consulting Group,
and Enterprise Software and Services Manger. Mr. Mounts and Tridex
entered into an Employment Agreement dated August 2, 1999, a copy of
which is attached as Exhibit 10.12.
5
ITEM 2. PROPERTIES
The Company's operations are currently conducted at the facilities described
below:
Size - Approx. Owned or
Location Operations Conducted Sq. Ft. Leased Lease Expiration Date
- - ---------------------------------------------------------------------------------------------------------
Westport, Connecticut Principal executive offices 5,000 Leased July 31, 2001
Charlotte, North Carolina Product Development 37,600 Leased December 31, 2000
Effective November 1, 1999, 50% of the Westport office is subleased through
July 31, 2001. In addition, during the fiscal year ended December 31, 1999,
the Company owned a non-operating facility of 23,000 square feet located in
Bloomfield, Connecticut. The Company sold this property on January 24, 2000
for a purchase price of $133,000. The Company believes that its existing
facilities generally are in good condition, adequately maintained and
suitable for their present and contemplated uses.
ITEM 3. LEGAL PROCEEDINGS
When Tridex acquired Progressive in April 1998, it granted Progressive's former
shareholder, Mr. Smith, registration rights for his 714,000 shares of Tridex
common stock issued as part of the purchase price. At the time of the closing,
Mr. Smith agreed to deliver a tax form needed by Tridex to obtain favorable tax
treatment of the purchase. Tridex made repeated requests for the tax form but it
was not delivered until January 1999. Mr. Smith requested registration of his
shares, and Tridex commenced preparation of a registration statement, but
postponed its completion while waiting for Mr. Smith to deliver the tax form.
During the last three months of 1998, counsel for Tridex met with and
corresponded with counsel for Mr. Smith, stating that Tridex was preparing to
pursue arbitration and other legal remedies against him. On January 5, 1999,
Tridex received the executed tax form. On January 4, 1999, Mr. Smith filed a
lawsuit against Tridex and Progressive in the Federal District Court in North
Carolina. The suit seeks damages of up to $5.0 million plus a court order
requiring Tridex to register the shares of its common stock issued to Mr. Smith
as part of the purchase price. The suit also seeks a declaratory judgment to
prevent Tridex from pursuing other claims which it has asserted against Mr.
Smith in post-closing negotiations. Tridex has denied the substantive
allegations in Mr. Smith's complaint, and has made counterclaims against Mr.
Smith for breach of federal and state securities laws, fraud and
misrepresentation. Tridex is seeking damages in an unspecified amount which is
estimated to exceed Mr. Smith's claims against Tridex. Discovery has commenced
in the litigation but has been stayed pending the court's decision on a motion
to dismiss certain of Tridex's claims. Tridex has also initiated an arbitration
proceeding against Mr. Smith under the terms of the contract governing Tridex's
purchase of Progressive, alleging breach of contract. Discovery on the
arbitration is proceeding, and the Company expects the arbitration hearing to be
conducted within the next several months. Although it is not yet possible to
predict the outcome of either the lawsuits or the arbitration, Tridex believes,
based on current knowledge of the applicable law and facts, that it has valid
defenses to Smith's claim and that the claims of Tridex and Progressive against
Smith are meritorious. The Company has not yet recorded an accrual for any
damages, because an unfavorable outcome in this litigation is, in management's
opinion, reasonably possible but not probable. If the outcome in the litigation
were unfavorable it could have a material adverse effect on the Company's
financial condition, results of operations and cash flows.
Allu Realty Trust ("Allu"), a Massachusetts business trust with transferable
shares, all of which are owned by Tridex, is the former owner of land located at
100 Foley Street, Somerville, Massachusetts (the "Site"). Although Allu sold the
property to 100 Foley Street Incorporated ("Foley"), an unrelated entity, Allu
and Tridex remain responsible for certain environmental problems associated with
the Site.
In 1984, Allu and Tridex 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 of Environmental Protection ("MDEP")
conducted an investigation of the Site. At MDEP's request, the Company retained
an environmental engineering firm, which completed a Phase II investigation
study of the Site. The Company conducted further studies to more specifically
characterize and assess the Site and to determine appropriate long term clean
up.
6
In 1993, the Company entered into an agreement with Foley pursuant to which
Tridex 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 provides that, to the extent there are available proceeds from the sale of
the Site or, if not sold, from the operation of the Site after January 1, 1997,
Tridex shall be reimbursed approximately $200,000 of the $250,000 it expended in
connection with the Site prior to January 1, 1992. Pursuant to the Site
Participation Agreement, Tridex and Foley established an escrow account (the
"Tridex / Foley Escrow") into which both entities placed funds designated for
the remediation. 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. Foley asserts that Allu and Tridex
remain liable for payment of certain costs associated with the remediation of
the Site after its sale to Stop & Shop. 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 claims that it is
entitled to reimbursement from Tridex of a portion of the $875,000 escrow. The
Company has filed a counterclaim, and seeks reimbursement of funds previously
expended in accordance with the Site Participation Agreement. Mediation of these
claims between the parties was not successful, and the parties are proceeding to
trial. Discovery has been completed. As of December 31, 1999, the Company had
accrued $350,000 for the Site, which represents the currently estimated minimum
cost of Tridex's share of remediation, after considering the Site Participation
Agreement, and associated legal costs. If the Company is found to be liable
under the Site Participation Agreement, it could be responsible for payment of
some or all of the $875,000 paid by Foley in connection with the Site.
Nevertheless, although no assurances can be given regarding the total costs
which may be incurred, the Company does not believe at this time that the costs
associated with the settlement, after taking into account established accruals,
are reasonably likely to have a material effect on the Company's financial
condition or results of operations. It is possible, however, that the final
resolution of this matter could have a material impact on cash flow and the
Company's liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last quarter
of the year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER
MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market ("Nasdaq") under the symbol "TRDX." As of March 10, 2000
there were 1,143 holders of record of the common stock. The following table
lists the high and low sales prices of the common stock reported during the
years ended December 31, 1999, and 1998.
Year Ended December 31,
------------------------------------------------------
1999 1998
------------------------- ---------------------------
High Low High Low
----------- ------------ ------------ -------------
January - March 3 1/2 1 7/8 8 1/8 4 11/16
April - June 3 2 7 7/8 6 1/8
July - September 3 7/8 1 5/8 7 1/2 3 1/2
October - December 2 1/4 1 1/4 4 1/2 2 1/4
No dividends or other distributions on the common stock (other than the
distribution the stock of TransAct Technologies, Inc. to Tridex shareholders in
1997) have been declared in more than ten years. The Company does not anticipate
declaring dividends in the foreseeable future. The Company's credit agreement
with Fleet National Bank ("Fleet") prohibits the payment of cash dividends for
the term of the agreement.
As of September 30, 1999, the Company's net tangible assets were $3,794,000.
Accordingly, as of such date the Company did not meet the Nasdaq National Market
listing requirement that members maintain $4,000,000 of net tangible assets. In
order to prevent a delisting of the Company's common stock from the Nasdaq
National Market, the Company was required to submit evidence of completion of
the sale of Ultimate to Nasdaq on or before February 21, 2000. As of December
31, 1999, the Company's net tangible assets were negative $6,559,000.
Consequently, although the sale of Ultimate was
7
completed and evidence thereof submitted to Nasdaq in a timely manner, in
light of the Company's continuing losses and working capital deficiency,
there can be no assurance that the Company's common stock will continue to
be listed on the Nasdaq National Market or Small Cap Market. If the Company's
common stock were delisted from the Nasdaq system, current information
regarding bid and asked prices for the common stock would become less readily
available to brokers, dealers and/or their customers. As a result of reduced
availability of current information, it is likely that there would be a
reduction in 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.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ----------- --------- --------- --------
(Dollars in thousands, except per share amounts)
Statement of Operations Data:
Net sales from
continuing operations $ 31,256 $ 17,896 $ 936 $ 859 $ 878
======== =========== ========= ========= ========
Income (loss) from
continuing operations $(16,271) $ (14,943) $ (902) $ 4,487 $ (1,703)
======== =========== ========= ========= ========
Income (loss) from
continuing operations
per common- basic $ (2.56) $ (2.46) $ (0.18) $ 1.15 $ (0.43)
======== =========== ========= ========= ========
Cash dividends per
common share None None None None None
======== =========== ========= ========= ========
As of December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- ----------- --------- --------- --------
(Dollars in thousands, except per share amounts)
Balance Sheet Data:
Total assets $ 36,896 $ 50,033 $ 25,655 $ 31,051 $ 26,855
======== =========== ========= ========= ========
Current portion of
long term debt $20,691 $ 1,650 None $ 740 $ 396
======== =========== ========= ========= ========
Long term debt None $ 19,341 None None $ 8,171
======== =========== ========= ========= ========
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN STATEMENTS INCLUDED IN THIS REPORT, INCLUDING, BUT NOT LIMITED TO,
STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, 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 ITS ABILITY TO MEET ITS OBLIGATIONS UNDER ITS EXISTING
CREDIT FACILITIES OR TO OBTAIN REPLACEMENT FACILITIES.
As discussed more fully below, the Company has experienced recurring net
losses and negative cash flow, and is currently in default under its credit
agreements with its lenders. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plan to
amend the credit agreement, increase liquidity and meet planned cash
requirements are discussed below under Liquidity and Capital Resources.
(A) RESULTS OF OPERATIONS
As described in Note 3 of the Notes to the Company's 1999 Consolidated
Financial Statements included in Item 8 of this report, on February 18,
2000 the Company completed the sale of its former Ultimate subsidiary. In
addition, during 1997, the Company completed the spin-off of TransAct and
the sale of Cash Bases. The Selected Financial Data are derived from the
Company's Consolidated Financial Statements, which have been reclassified
from historical financial statements to present the results of operations
of Ultimate, TransAct and Cash Bases as discontinued operations for all
periods presented. The Consolidated Financial Statements may not
necessarily reflect what the results of operations or the financial
position of the Company would have been if Ultimate, TransAct and Cash
Bases had been separate entities during the periods presented. The
discussion and analysis set forth below are based upon continuing
operations only.
(i) YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated net sales for the year ended December 31, 1999
increased $13,360,000 (75%) to $31,256,000 from $17,896,000 for
the prior year. The increase reflects a full year of sales by
Progressive, which Tridex acquired on April 17, 1998, as well as
an overall increase in volume at Progressive.
Consolidated gross profit increased $3,338,000 (57%) to $9,165,000
from $5,827,000 in the prior year, as a result of the full year
contribution of Progressive and an increase in overall volume
associated with Progressive. Consolidated gross profit margin
decreased to 29.3% of sales from 32.6% of sales in the prior year
as a result of the change in product mix at Progressive.
Consolidated engineering, design and product development costs
(net of capitalized software development costs) increased
$1,572,000 (83%) to $3,459,000 in 1999 from $1,887,000 in the
prior year. The increase is primarily due to the inclusion of the
full year of such costs for Progressive and to expenditures for
Progressive's software development initiatives, including IRIS
related costs. As a percentage of revenue, total engineering,
design and product development costs decreased to 15.0% in 1999
compared to 20.2% for 1998. Consolidated engineering, design and
product development costs are reported net of capitalized software
development costs of $725,000 in 1999 ($1,731,000 in 1998), and
$500,000 in 1999 representing equity in Digital Restaurant
Solutions, LLC ("DRS") received in return for having provided
certain custom software. The Company intends to continue to
invest in engineering, design and development of new releases and
products in the future, although restrictions on its available
resources may limit its ability to do so.
Consolidated selling, administrative and general expenses for the
current year increased $1,643,000 (27%) to $7,793,000 from
$6,150,000 in the prior year. The increase in selling,
administrative and general expenses is primarily the result of the
inclusion of a full year of such costs for Progressive partially
offset by $500,000 for the reversal of an accrual resulting from a
previously recorded pension obligation. The prior year's expenses
reflect 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 1998
include the $17,600,000 write-off of in-process software
technology acquired as part of the purchase of Progressive.
Depreciation and amortization for the current year increased
$1,179,000 to $3,581,000 from $2,402,000 in the prior year. The
increase in amortization is primarily the result of a full year of
amortizing goodwill, intangibles and existing and core
technologies acquired with Progressive.
Consolidated operating loss for the current year was a loss of
$5,668,000 compared to a loss of $4,635,000 in the prior year
(exclusive of the $17,600,000 write-off of in-process software
technology). The loss in the current year was primarily the result
of the increase in selling, administrative and general expenses
and engineering, design and development costs associated with new
products.
9
Net interest expense for the current year was $3,377,000 compared
to $1,735,000 in the prior year. Interest expense increased
primarily due to the debt incurred to acquire Progressive being
outstanding for a full year versus eight months in the prior
year and to additional net borrowings in 1999. Interest expense
is net of interest income of $104,000 in 1999 and $348,000 in
the prior year.
Other non-operating income of $50,000 includes a gain of $180,000
on the sale of the Company's Ribbons Division and a provision of
$105,000 for costs associated with additional remediation at the
100 Foley Street Site. See "Item 3--Legal Proceedings". Other
non-operating expenses in the prior year's period include a
provision for costs of real estate held for sale.
Provision for income taxes in the current year primarily reflects
the increase in valuation allowances on certain deferred tax
assets for which a tax benefit will not likely be realized.
Management has concluded that realization of the deferred tax
assets related to net operating loss carryforwards and deductible
in-process research and development through future taxable
earnings or alternative tax strategies is no longer more likely
than not, and accordingly has increased the valuation allowance.
The benefit recorded in the prior year primarily reflects the
recognition of deferred taxes of approximately $5,814,000 related
to the write-off of in-process software technology.
Income from discontinued operations, net of income taxes, in 1999
and 1998 represents the net income of Ultimate.
Net loss for the current year was $14,765,000 (or $2.32 per share)
as compared to net loss of $14,146,000 (or $2.33 per share) for
the prior year. The average number of common shares outstanding
increased to 6,368,000 shares from 6,077,000 shares in the prior
year.
(ii) YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31,
1997 Consolidated net sales for the year ended December 31, 1998
primarily include sales of $17,468,000 recorded by Progressive
from the date of acquisition, April 17, 1998. Prior year sales
reflect only the sales of the Company's Ribbons Division.
Consolidated gross profit of $5,827,000 was primarily a result of
the contribution of Progressive. Gross profit in the prior year
was generated only by the Ribbons Division. Consolidated gross
profit margin decreased to 32.7% of sales from 44.8% of sales in
the prior year as a result of the addition of software sales from
Progressive.
Consolidated engineering, design and product development costs
(net of capitalized software development costs), were $1,887,000.
The increase is the result of the inclusion of such costs for
Progressive. Actual engineering, design and product development
costs include capitalized software costs of $1,731,000. The
increase is primarily due to expenditures for Progressive's IRIS
Windows(R) NT(R) retail management software products for the quick
serve, full serve, and casual dining market segments and new
software products for the industry. Other software development
initiatives include: enhancement of Progressive's release and
version management capabilities, internationalization and
translation of software products for specific foreign markets, and
porting existing applications to new database systems. The Company
intends to continue to invest in engineering, design and
development of new releases and products in the future.
Consolidated selling, administrative and general expenses for 1998
increased $4,019,000 to $6,173,000 from $2,154,000 in the prior
year. 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
1998 include the $17,600,000 write-off of in-process software
technology acquired as part of the purchase of Progressive.
Depreciation and amortization for 1998 increased $2,279,000 to
$2,402,000 from $123,000 in the prior year. The increase in
amortization is primarily the result of amortizing goodwill,
intangibles and existing and core technologies acquired with
Progressive.
10
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. In response to the new SEC guidance, the Company
voluntarily recalculated the fair value of the purchased
in-process software technology in accordance with the SEC staff's
view.
The revised valuation was based on estimates of the after tax net
cash flows and gave 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 gave
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 of $26.3 million 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 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 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 $23.5 million.
Consolidated operating loss for 1998 was $4,635,000 (exclusive of
the $17,600,000 write-off of in-process software technology)
compared to a loss of $1,858,000 in the prior year. The loss in
1998 was primarily the result of the increase in selling,
administrative and general expenses. Net interest expense for 1998
was $1,735,000 compared to net interest income of $603,000 in the
prior year. Interest expense for 1998 primarily consists of
interest on debt incurred to acquire Progressive. Interest income
for the prior year primarily consisted of interest earned on
temporary cash investments and interest earned on receivables from
the sales of stock.
Other non-operating expense of $22,000 for 1998 represents costs
associated with non-operating properties held for sale. Other
non-operating expenses in the prior year's period include a
provision of $196,000 to write-down the value of real estate held
for sale.
The increase in the benefit recorded in 1998 reflects the
recognition of deferred taxes of approximately $5,814,000 related
to the write-off of in-process software technology.
11
Net loss for 1998 was $14,146,000 (or $2.33 per share) as compared
to net loss of $35,000 (or $.01 per share) for the prior year. The
average number of common shares outstanding increased to 6,077,000
shares from 5,157,000 shares in the prior year.
(iii) LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency at December 31, 1999 was
$12,990,000 compared with the working capital deficiency of
$3,455,000 at December 31, 1998. At March 31, 2000, the Company
had borrowings of approximately $600,000 in excess of its
borrowing base under its working capital line of credit with
Fleet National Bank ("Fleet") and no material commitment for
capital expenditures. The Company's December 31, 1999 deficiency
in working capital results primarily from net losses, current
debt maturities on the Company's term loan and reclassification
of debt due to covenant non-compliance.
On April 17, 1998, the Company entered into a Credit Agreement
(the "Credit Agreement") with 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
original terms of the Credit Agreement provided for an $8 million
working capital facility (the "Working Capital Facility") and a
$12 million term loan facility due in periodic payments through
March 2003 (the "Term Loan"). At December 31, 1999 the interest
rate on outstanding Credit Agreement debt was approximately
10.76%. The Working Capital Facility bears a non-utilization fee
on the unused facility ranging from .25% to .625% depending upon
certain performance criteria. The Credit Agreement, as originally
executed, imposed 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.
During 1999, the Credit Agreement was amended several times to
waive instances of non-compliance with certain financial
covenants, modify financial covenants, defer scheduled debt
service payments and reduce availability under the Working Capital
Facility. At December 31, 1999, the Working Capital Facility was
scheduled to expire on March 31, 2000 and the outstanding
principal balance of the Term Loan and accrued interest of
$110,000 were due and payable in full. At December 31, 1999, the
Company was not in compliance with the covenants related to the
interest coverage ratio and minimum net worth. 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 Working Capital
Facility to December 31, 2000. Pursuant to the amendment, the
Company made a principal payment of $8.0 million 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 of Ultimate, 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 $1.0 million 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
million under the Working Capital Facility, 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%.
12
During 1999, the Company paid fees of approximately $145,000 to
amend the Credit Agreement. Fees to amend the Credit Agreement
are expensed as paid.
As of March 31, 2000, the Company was not in compliance with
the covenant related to the interest coverage ratio and the
amount drawn under the Working Capital Facility was in excess
of the defined borrowing base. As a result, 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
Insurance Company, MassMutual Corporate Investors, MassMutual
Participation Investors and MassMutual Corporate Value Partners
Limited (the "MassMutual Investors"), $11 million 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 minimum
consolidated net worth, minimum fixed charge coverage ratio and
maximum leverage ratio and required quarterly interest payments
and prepayments of principal commencing in 2003. The Company
issued to the MassMutual Investors on May 27, 1998 warrants to
purchase 350,931 shares of the Company's common stock at $7.00 per
share. The estimated fair market value of the warrants of
$1,228,000 was recorded as a discount to the principal amount of
the outstanding Notes and is being amortized to interest expense
over the term of the Notes using the interest rate method. In
consideration for a March 26, 1999 amendment to the Notes and in
exchange for the warrant issued in 1998, the Company issued new
stock purchase warrants to the MassMutual Investors to purchase
800,000 shares of common stock at $2.03125 per share. The
incremental estimated fair value of the new warrants over the
estimated fair value of the old warrants, $600,000, was recorded
as additional debt discount.
During 1999, the MassMutual Investors agreed to amend the Notes
several times to waive instances of non-compliance with
financial covenants and to defer scheduled debt service
payments. As of December 31, 1999, the Company was not in
compliance with the covenants related to the minimum interest
coverage ratio and minimum net worth. On February 18, 2000, the
MassMutual Investors agreed to waive the non-compliance 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. 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
as of March 31, 2000, the Company also is not in compliance
with the Notes, and the outstanding principal balance of the
Notes has been classified as current.
The Company has experienced recurring net losses from
continuing operations of $16.3 million and $14.9 million in
each of the years ended December 31, 1999 and 1998,
respectively, and has experienced negative cash flow from
operations of $4.2 million and $0.7 million in each of the
years ended December 31, 1999 and 1998, respectively. As a
result, as of March 31, 2000 the Company is not in compliance
with various terms of the Credit Agreement, 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. The Company is negotiating with its lenders to amend
the Credit Agreement to allow for overadvances under the
Working Capital Facility up to a certain amount, to provide
less restrictive covenant terms and extend the maturities of
the Working Capital Facility and Term Loan, but there can be no
assurance that the Company will be able to obtain an amendment
on acceptable terms.
13
In response to these factors management has developed a plan
intended to increase liquidity and meet its planned cash
requirements. Management's plans include the following:
The Company sold its Ultimate subsidiary on February 18, 2000.
The sale generated approximately $11.8 million in cash proceeds
after transaction expenses. The Company used $8 million of the
proceeds to pay down the Term Loan and also reduced the Working
Capital Facility by approximately $3.0 million. The Company is
negotiating with its lenders to defer the $1.0 million payment
due June 30, 2000 under the amended Term Loan and to amend the
Working Capital Facility to allow for overadvances under the
Working Capital Facility up to a certain amount, to provide
less restrictive covenant terms and to extend debt maturities.
The Company has reduced overhead costs at its Westport
headquarters facility and expects to continue aggressively to
pursue cost reduction alternatives. The Company's chief executive
officer is expected to repay $500,000 of the receivable from the
sale of stock which arose in 1997.
The Company has retained a financial advisor who is assisting
the Company in reviewing strategic alternatives available to
the Company, including without limitation a possible sale of
the Company or its Progressive subsidiary, or an equity
investment.
(iv) THE YEAR 2000
Prior to January 1, 2000, many computer experts had predicted
wide-spread problems related to computer programs' inability to
process dates after December 31, 1999. In order to minimize or
eliminate potential problems related to Year 2000, the Company
tested and upgraded or replaced, on an as needed basis, its
critical information technology systems and infrastructures with
systems that were Year 2000 compliant. The Company also developed
fixes or identified alternatives for software products and third
party components used in the Company's products that its testing
indicated were not Year 2000 compliant. Through December 31, 1999,
the Company's cumulative Year 2000 expenditures, exclusive of
internal staff costs, totaled $10,000, ($10,000 in the year ended
December 31, 1999). The Company does not expect to incur any
significant further expenses specifically related to the Year 2000
issue. To date, the Company has not experienced any significant
operating problems or product failures as a result of Year 2000
issues with its vendors, service providers or customers.
(B) IMPACT OF INFLATION
Tridex believes that its business has not been affected to a significant
degree by inflationary trends because of the low rate of inflation during
the past three years and cost reduction programs at each of its
operations. Tridex believes that any increase in cost due to inflation
can be recovered by price increases or offset by cost reductions and
productivity improvements.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
NUMBER
-------
Report of Independent Accountants 16
Tridex Corporation and Subsidiaries consolidated financial
statements:
Consolidated balance sheets as of December 31, 1999 and 1998. 17
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997. 18
Consolidated statements of shareholders' equity for the years
ended December 31, 1999, 1998 and 1997. 19
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997. 20
Notes to consolidated financial statements. 21
Financial Statement Schedules - All schedules are omitted since the
required information is either (a) not present or not present in
amounts sufficient to require submission of the schedule or (b)
included in the financial statements or notes thereto.
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tridex Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and
cash flows present fairly, in all material respects, the financial
position of Tridex Corporation and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming
Tridex Corporation will continue as a going concern. The Company is
not in compliance with various terms of its debt agreements. As more
fully described in Note 1, these conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Hartford, Connecticut
April 13, 2000
16
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
---------------------
1999 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 367 $ 18
Receivables (Note 4) 5,352 3,846
Inventories 1,945 3,909
Deferred tax assets (Note 10) 0 883
Investment in net assets of discontinued operations (Note 3) 5,881 8,110
Other current assets 353 204
-------- --------
Total current assets 13,898 16,970
-------- --------
Plant and equipment:
Machinery, furniture and equipment 2,275 2,066
Leasehold improvements 388 388
-------- --------
2,663 2,454
Less accumulated depreciation (1,046) (665)
-------- --------
1,617 1,789
-------- --------
Goodwill and intangible assets, net of accumulated amortization
of $2,183 in 1999 and $932 in 1998 10,822 11,787
Purchased and internally developed software costs, net of
accumulated amortization of $3,400 in 1999 and $1,212 in 1998 9,856 11,319
Deferred tax assets (Note 10) 0 7,965
Other assets 703 251
-------- --------
$ 36,896 $ 50,081
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ 5,740 $ 4,756
Current portion of long term debt (Note 6) 20,691 1,650
Accounts payable 3,592 3,391
Accrued liabilities 2,411 1,638
Deferred revenue 199 790
Income taxes payable 0 138
-------- --------
Total current liabilities 32,633 12,363
-------- --------
Long term debt, less current portion (Note 6) 0 19,341
Commitments and contingencies (Note 8)
Shareholders' equity (Notes 1 and 9):
Preferred stock, $1 par value; authorized 2,000,000 shares;
Issued none
Common stock, no par value, stated value $.25; authorized
10,000,000 shares; issued 6,526,187 shares 1,634 1,634
Additional paid-in capital 33,928 33,328
Accumulated deficit (29,584) (14,819)
Receivable from sale of stock (750) (801)
Common stock held in treasury, at cost, 157,898 shares (965) (965)
-------- --------
4,263 18,377
-------- --------
$ 36,896 $ 50,081
======== ========
See notes to consolidated financial statements.
17
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Net sales $ 31,256 $ 17,896 $ 936
----------- ----------- -----------
Operating costs and expenses:
Cost of sales 22,091 12,069 517
Engineering, design and product development costs 3,459 1,887
Selling, administrative and general expenses 7,793 6,150 2,154
Depreciation and amortization 3,581 2,402 123
Purchased in-process software technology (Note 2) 17,600
----------- ----------- -----------
36,924 40,108 2,794
----------- ----------- -----------
Operating loss (5,668) (22,212) (1,858)
Other charges (income):
Interest (income) expense, net 3,377 1,735 (602)
Other, net (50) 22 201
----------- ----------- -----------
3,327 1,757 (401)
----------- ----------- -----------
Loss from continuing operations before income taxes (8,995) (23,969) (1,457)
Provision (benefit) for income taxes 7,276 (9,026) (555)
----------- ----------- -----------
Loss from continuing operations (16,271) (14,943) (902)
Discontinued operations (Note 3):
Income from discontinued operations, net of income
taxes of $1,232, $851, and $550, respectively 1,506 797 867
=========== =========== ===========
Net loss $ (14,765) $ (14,146) $ (35)
=========== =========== ===========
Earnings (loss) per share - basic and diluted:
Loss from continuing operations $ (2.56) $ (2.46) $ (0.18)
Income from discontinued operations 0.24 0.13 0.17
=========== =========== ===========
Net loss $ (2.32) $ (2.33) $ (0.01)
=========== =========== ===========
Weighted average shares outstanding:
Basic and diluted 6,368,000 6,077,000 5,157,000
=========== =========== ===========
See notes to consolidated financial statements.
18
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Held Additional Accumu- Receivable
Common Stock In Treasury Paid-In lated From Sale
Shares Amount Shares Amount Capital Deficit Of Stock
----------- ------ ------- ------ ---------- -------- ----------
Balance, December 31, 1996 4,160,431 $1,043 124,498 $ (873) $ 23,361 $ 2,239 $
Exercise of warrants and
stock options 859,932 215 6,181 (816)
Conversion of notes and
debentures 377,445 94 3,492
Distribution of TransAct
shares (9,584) (2,877)
Issuance of stock incentive
compensation shares 100,000 25 1,618
Purchase of treasury shares 21,900 (69)
Tax benefit related to
employee stock sales 205
Net loss (35)
-------------------------------------------------------------------------------
Balance, December 31, 1997 5,497,808 1,377 146,398 (942) 25,273 (673) (816)
Exercise of stock options 28,665 7 74 15
Issuance of acquisition
shares 714,000 179 4,819
Sale of shares 285,714 71 1,929
Forfeiture of stock incentive
compensation shares 11,500 (23)
Tax benefit related to
employee stock sales 5
Warrants issued 1,228
Net loss (14,146)
-------------------------------------------------------------------------------
Balance, December 31, 1998 6,526,187 1,634 157,898 (965) 33,328 (14,819) (801)
WARRANTS ISSUED 600
COLLECTION OF RECEIVABLE 51
NET LOSS (14,765)
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 6,526,187 $1,634 157,898 $(965) $ 33,928 $(29,584) $(750)
===============================================================================
See notes to consolidated financial statements.
19
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net loss $(14,765) $(14,146) $ (35)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 492 258 123
Amortization of goodwill and intangible assets, and
purchased and internally developed software 3,439 2,144
Debt discount amortization 300 119
Charge for purchased in-process software technology 17,600
Deferred income taxes 8,848 (8,384) (112)
Provision for doubtful accounts 685 290
(Gain)/loss on disposal of assets (155) 194
Income from discontinued operations (1,506) (797) (867)
Changes in operating assets and liabilities:
Receivables (2,272) 245 (7)
Inventory 1,411 502 (22)
Other current assets 232 (114) 56
Other assets (452) (91) 24
Accounts payable, accrued liabilities, deferred revenue
and income taxes payable 306 1,416 (371)
-------- -------- --------
Net cash used in operating activities of continuing
operations (3,437) (958) (1,017)
-------- -------- --------
Cash flows from investing activities:
Purchases of plant and equipment (132) (555) (58)
Capitalized software development costs (725) (1,731)
Net cash paid for acquisition (42,596)
Proceeds from sale of assets 302
Proceeds from sale of discontinued operations 855 5,200
Receipt of principal of note receivable from TransAct 1,000
-------- -------- --------
Net cash (used in) provided by investing activities of
continuing operations (555) (44,027) 6,142
-------- -------- --------
Cash flows from financing activities:
Net change in borrowings under line of credit 984 4,756
Net proceeds from issuance of long term debt 23,000
Principal payments on long term borrowings (900)
Net decrease (increase) in short term investments 4,403 (4,403)
Proceeds from issuance of shares and exercise of stock options and
warrants 51 2,101 5,580
Net cash flow of discontinued operations 3,306 (196) 2,819
Purchase of treasury shares (69)
-------- -------- --------
Net cash provided by financing activities 4,341 33,164 3,927
-------- -------- --------
Increase (decrease) in cash and cash equivalents 349 (11,821) 9,052
Cash and cash equivalents at beginning of period 18 11,839 2,787
-------- -------- --------
Cash and cash equivalents at end of period $ 367 $ 18 $ 11,839
======== ======== ========
Supplemental cash flow information:
Interest paid $ 1,974 $ 1,649 $ 96
Income taxes paid 221 116 151
Supplemental non-cash investing and financing activities:
Warrants issued concurrent with debt $ 600 $ 1,228
Stock issued for acquisition 4,998
Conversion of convertible debt to common stock $ 3,710
See notes to consolidated financial statements.
20
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS: 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 3, 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. The Ultimate
subsidiary was sold in February 2000. In addition, the Company sold
its Tridex Ribbons division (the "Ribbons Division") in May 1999.
Through its Ribbons Division, the Company manufactured ribbon
cartridges for specialty dot matrix printers.
The Company has experienced net losses from continuing operations of
$16.3 million and $14.9 million in each of the years ended December 31,
1999 and 1998, respectively, and has experienced negative cash flow from
continuing operations of $3.4 million and $1.0 million in each of the
years ended December 31, 1999 and 1998, respectively. As a result, as
of March 31, 2000, the Company is not in compliance with various terms
of its credit agreement, 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. The consolidated financial statements do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that might result from this uncertainty.
In response to those factors management has developed a plan intended
to increase liquidity and meet its planned cash requirements.
Management's plans include the following:
The Company sold its Ultimate subsidiary on February 18, 2000. The
sale generated approximately $11.8 million in cash proceeds after
transaction expenses. The Company used $8 million of the proceeds to
pay down the Term Loan and also reduced the Working Capital Facility by
approximately $3.0 million. The Company is negotiating with its
lenders to defer the $1.0 million payment due June 30, 2000 under the
amended Term Loan, to amend the Working Capital Facility to allow
for overadvances under the Working Capital Facility up to a certain
amount, to provide less restrictive covenant terms and to extend debt
maturities. The Company has reduced overhead costs at its Westport
headquarters facility and expects to continue aggressively to pursue
cost reduction alternatives. The Company's chief executive officer is
expected to repay $500,000 of the receivable from the sale of stock
which arose in 1997.
The Company has retained a financial advisor who is assisting the
Company in reviewing strategic alternatives available to the Company,
including without limitation a possible sale of the Company or its
Progressive subsidiary, or an equity investment.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of the Company after elimination of all
material intercompany accounts and transactions. See Note 3 for treatment
of discontinued operations.
CASH AND CASH EQUIVALENTS: Cash equivalents consist primarily of
certificates of deposit with maturities of less than ninety days and are
carried at cost, which approximates market value.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates have been
made in allowances for doubtful accounts,
21
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
inventory valuation, depreciable lives of long-lived assets, amortization
periods for intangible assets, accrued liabilities, and valuation
allowances for deferred tax assets. Actual results could differ from
those estimates.
FOREIGN CURRENCY: The financial position and results of operations of the
Company's foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of such subsidiaries have
been translated at current exchange rates, and related revenues and
expenses have been translated at weighted average exchange rates.
INVENTORIES: Inventories are stated at the lower of cost (principally
first-in, first-out) or market and consist principally of finished goods
inventory.
PLANT AND EQUIPMENT AND DEPRECIATION: Plant and equipment and leasehold
improvements are stated at cost. Depreciation is provided for primarily
by the straight-line method over the estimated useful lives. The
estimated useful life of machinery, furniture and equipment is five to
ten years. Leasehold improvements are amortized over the shorter of the
term of the lease or the useful life of the asset.
GOODWILL AND INTANGIBLE ASSETS: Net goodwill and intangible assets were
$10,822,000 and $11,787,000 at December 31, 1999 and 1998, respectively.
The amounts are the result of the acquisition of Progressive in 1998 and
are being amortized on the straight-line method over five to ten years.
The Company periodically reviews goodwill to assess recoverability based
upon expectations of non-discounted cash flows from operations. The
Company believes that no material impairment of goodwill or intangible
assets exists at December 31, 1999.
PURCHASED AND INTERNALLY DEVELOPED SOFTWARE COSTS: 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).
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 judgment 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 5 years. As of December 31,
1999 and 1998, capitalized software development costs were $2,106,000 and
$1,731,000, respectively. Amortization expense related to the capitalized
software development costs was $350,000 and zero for the years ended
December 31, 1999 and 1998, respectively. As of December 31, 1999 and
1998, purchased software costs associated with the acquisition of
Progressive were $7,750,000 and $9,588,000, respectively. Amortization
expense related to the purchase software costs was $1,838,000 and
$1,212,000 for the years ended December 31, 1999 and 1998, respectively.
All other research and development expenditures are charged to research
and development expense in the period incurred.
OTHER ASSETS: Included in other assets at December 31, 1999 and 1998 is a
note receivable from the chief executive officer in the amount of
$125,000, which bears interest at 8.5%. Also included in other assets
at December 31, 1999 is an investment in Digital Restaurant Solutions,
LLC ("DRS"), of $500,000. During 1999, the Company received 2,500,000
shares of common stock of DRS, a privately held company involved in
the development of specialty software products for the restaurant
industry, in return for having provided certain custom software to
DRS. The Company recorded the shares received based on their fair
value, which was determined by reference to sales of DRS shares to
other investors.
RECEIVABLE FROM SALE OF STOCK: In connection with the exercise of options
in 1997, the Company offered loans to all employees whose total exercise
price of options under the Tridex Corporation 1989 Long Term Incentive
Plan (the "1989 Plan") exceeded $50,000. At December 31, 1999, one such
loan was outstanding in the amount of $750,000 from the chief
executive officer. The loan is a full recourse loan due in June 2000,
bears interest at the rate of 7.577% and is secured by a pledge of
the shares acquired by the individual through the exercise of the
options.
REVENUE RECOGNITION: Revenue is generated from sales of hardware systems
and components and from licensing software systems under noncancelable
license agreements through direct and indirect channels. The Company also
22
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
generates revenues from customer support and maintenance, and from
implementation and training services provided to customers.
Revenue on software sales is recognized in accordance with Statement of
Position SOP 97-2, "Software Revenue Recognition" (SOP 97-2). Under SOP
97-2, software license revenues through the Company's direct sales
channels are recognized when a noncancelable license agreement has been
executed, fees are fixed and determinable, the software has been
delivered, accepted by the customer if acceptance is required by the
contract, and collection is considered probable. Software license
revenues through the Company's indirect sales channel are recognized as
such fees are reported to the Company. Maintenance revenues are
recognized ratably over the maintenance period, generally one year.
Revenues from implementation and training services are recognized as
services are performed. Deferred revenue is comprised of payments
received in advance of product delivery, maintenance and other
services which have been paid by customers prior to services being
performed.
During the year ended December 31, 1999, sales to Starbucks Coffee
Company, Steak `n Shake, Inc. and Prandium Corporation accounted for
approximately 35%, 13% and 13%, respectively, of the Company's net sales.
During the year ended December 31, 1998, sales to Starbucks Coffee
Company and Steak `n Shake, Inc. accounted for approximately 25% and 15%,
respectively, of the Company's net sales.
STOCK BASED COMPENSATION:
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Under APB 25, compensation expense
is recognized to the extent that the fair market value of the underlying
stock on the date of grant exceeds the exercise price of the employee
stock option. Additional disclosures required under Financial Accounting
Standards Board Statement No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123), are included in Note 9, Stock Options and
Warrants.
INCOME TAXES: Income tax expense is based on estimated taxes payable or
refundable on a tax return basis for the current year and changes in the
amount of deferred tax assets and liabilities during the year. Deferred
income taxes are provided for revenue and expenses that are recognized in
different periods for income tax and financial statement purposes. The
Company accounts for income taxes in accordance with FAS 109 "Accounting
for Income Taxes," which mandates the liability method for computing
deferred income taxes. The objective of the liability method is to
recognize the amount of current and deferred taxes payable or refundable
at the financial statement date resulting from all events that have been
recognized in the financial statement based upon the provisions of
enacted tax laws. See Note 10 for a further discussion.
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. For the years ending December 31, 1999, 1998 and
1997, the effects of potential dilutive common shares outstanding have
been excluded as they would be anti-dilutive in the loss per share
calculation and accordingly, the basic and diluted per share amounts were
the same.
2. ACQUISITION OF PROGRESSIVE SOFTWARE, INC.:
On April 17, 1998, the Company purchased all of the issued and
outstanding shares of privately held Progressive, a 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 $47,594,000 including acquisition
costs. The consideration paid for Progressive was comprised of 714,000
shares of Tridex common stock valued at $4,998,000 and the balance 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
23
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITION OF PROGRESSIVE SOFTWARE, INC. (CONTINUED):
Investors, (d) $1,736,000 borrowed under the Working Capital Facility
with Fleet, and (e) the balance from the Company's cash and short-term
investments. The Company also issued to the MassMutual Investors stock
purchase warrants for 350,931 shares of common stock at an exercise
price of $7.00 per share. The value of the warrants of $1,228,000 was
recorded as a discount to the principal amount of the outstanding
notes and is being amortized to interest expense over the term of the
notes using the interest rate method.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The tangible net assets
consist primarily of accounts receivable of $4,143,000, inventory of
$4,353,000, equipment and leasehold improvements of $1,056,000, other
assets of $28,000 and liabilities assumed of $3,105,000. On April 17,
1998 a valuation of all intangible assets of Progressive was performed by
an independent appraisal firm in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation. The
intangible assets included in-process software technology projects, among
other assets, which were related to research and development that had not
reached technological feasibility and for which there was no alternative
future use. The value of the purchased in-process software technology was
charged to expense in accordance with applicable accounting rules during
the quarter ended June 30, 1998.
On September 9, 1998, the SEC staff notified the American Institute of
Certified Public Accountants ("AICPA") that it had concerns with respect
to the common methodologies used to calculate the fair market value of
purchased in-process software technology. The Company has voluntarily
recalculated the fair market value of the purchased in-process software
technology in accordance with the SEC staff's new view. As a result, the
Company has increased the allocation of the purchase price to goodwill,
other intangibles and purchased existing and core technology and has
decreased the allocation to purchased in-process software technology. The
amount of the purchase price allocated to in-process research and
development was determined by estimating that the stage of completion at
the date of acquisition was 89%, estimating cash flows resulting from the
expected revenues generated from the project, and discounting the net
cash flows back to their present value using a discount rate of 23%,
which represents an appropriate risk premium to the Company's weighted
average cost of capital. In process technology under development at the
date of acquisition that had not established technological feasibility
and for which no alternative use was identified were written off in
accordance with generally accepted accounting principles. If this project
is not successfully developed, the Company may not realize the value
assigned to the in-process research and development projects. The
goodwill and other intangibles and purchased existing and core technology
are being amortized over five to seven years. The allocation of the
purchase price was as follows:
AS REPORTED AS RESTATED
----------- -----------
Tangible net assets $ 6,475 $ 6,475
Purchased in-process software technology 26,300 17,600
Purchased existing and core technology 6,900 10,800
Estimated goodwill and other intangibles 7,919 12,719
------- -------
$47,594 $47,594
======= =======
The following unaudited pro forma data reflect the acquisition of
Progressive as if the acquisition had occurred at the beginning of 1998,
but exclude the one-time charge for in-process software technology,
discussed above. The pro forma financial information is not necessarily
indicative of the combined results that would have occurred had the
acquisition taken place at the beginning of the period, nor is it
necessarily indicative of the results that may occur in the future.
Year Ended
December 31, 1998
-----------------
(Dollars in Thousands,
Except Per Share Amounts)
-------------------------
Net sales $ 24,362
Operating loss $ (6,139)
Loss from continuing operations $(13,939)
Loss from continuing operations, per share - basic $ (0.78)
24
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS:
In the fourth quarter of 1999, management committed to sell Ultimate
to UTC Holding Company, Inc., an affiliate of CFG Capital Management
II, L.P ("CFG"). Effective February 18, 2000, the Company completed a
purchase and sale agreement ("Stock Purchase Agreement") with CFG to
sell all of the issued and outstanding capital stock of Ultimate to
CFG for approximately $13,000,000 in cash (the "Purchase Price"). The
Stock Purchase Agreement allows for an adjustment to the Purchase
Price based on the difference between closing net working capital, as
defined, on February 18, 2000 and a predetermined amount. As
described in Note 6, the Company used $8,000,000 of the sale proceeds
to repay a portion of the Fleet Term Loan.
On March 31, 1997 the Company effected the distribution of its remaining
5,400,000 shares of common stock of its former subsidiary, TransAct
Technologies Incorporated ("TransAct"), to Tridex stockholders on the
basis of 1.005 shares of TransAct common stock for each share of Tridex
common stock owned.
On May 29, 1997 Tridex sold its wholly-owned subsidiary Cash Bases GB
Limited ("Cash Bases") to a group comprised of the executive directors of
Cash Bases and Lloyds Development Capital Limited for $6,055,000 in cash,
consisting of $5,200,000 paid at closing and $855,000 paid in March 1998.
The Consolidated Financial Statements have been reclassified to present
the results of operations of Ultimate, TransAct and Cash Bases as
discontinued operations. The results of these businesses are summarized
below.
Year Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
(Dollars in thousands,
except per share amounts)
Net sales $29,490 $25,608 $45,214
Operating income $ 2,738 $ 1,671 $ 2,873
Net income $ 2,084 $ 879 $ 1,018
Earnings per share (basic) $ 0.33 $ 0.14 $ 0.19
4. RECEIVABLES:
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Year Ended December 31,
-----------------------
1999 1998
----- ----
(Dollars in thousands)
Balance at beginning of year $ 290 $ 0
Provision for doubtful accounts 766 290
Accounts written off, net of
recoveries (81) 0
----- -----
Balance at end of year $ 975 $ 290
===== =====
5. ACCRUED LIABILITIES:
The components of accrued liabilities are:
December 31,
----------------
1999 1998
------ ------
(Dollars in thousands)
Interest $1,413 $ 298
Legal and environmental matters 479 274
Compensation 97 187
Unfunded pension obligation 530
Other 422 349
------ ------
$2,411 $1,638
====== ======
25
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK CREDIT AGREEMENT AND SUBORDINATED DEBT:
The components of debt are:
DECEMBER 31,
------------------
1999 1998
------- -------
(Dollars in thousands)
Term loan payable $11,100 $11,100
Senior subordinated notes, net of discount 9,591 9,891
------- -------
20,691 20,991
Current portion 20,691 1,650
------- -------
$ 0 $19,341
======= =======
On April 17, 1998, the Company entered into a Credit Agreement (the
"Credit Agreement") with 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 original terms of the Credit
Agreement provided for the $8 million Working Capital Facility and $12
million Term Loan facility due in periodic payments through March 2003.
At December 31, 1999 the interest rate on outstanding Credit Agreement
debt was approximately 10.76%. The Working Capital Facility bears a
non-utilization fee on the unused facility ranging from .25% to .625%
depending upon certain performance criteria. The Credit Agreement, as
originally executed, imposed 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.
During 1999, the Credit Agreement was amended several times to waive
instances of non-compliance with certain financial covenants, to
modify financial covenants, to defer scheduled debt service payments
and to reduce availability under the Working Capital Facility. At
December 31, 1999 the Working Capital Facility was scheduled to expire
on March 31, 2000 and the outstanding principal balance of the Term
Loan and accrued interest of $110,000 were due and payable in full. At
December 31, 1999, the Company was not in compliance with the
covenants related to the interest coverage ratio and minimum net
worth. 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 Working Capital Facility
to December 31, 2000. Pursuant to the amendment, the Company made a
principal payment of $8.0 million on February 18, 2000 and has agreed
to make an additional principal payment of $1.0 million 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 million under
the Working Capital Facility, subject to the eligible borrowing base,
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 March 31, 2000, the Company was not
in compliance with the covenant related to the interest coverage
ratio and the amount drawn under the Working Capital Facility was in
excess of the defined borrowing base. As a result, the outstanding
principal balance of the Term Loan has been classified as current.
During 1999, the Company paid fees of approximately $145,000 to amend
the Credit Agreement. Fees to amend the Credit Agreement are expensed
as paid.
On April 17, 1998, in conjunction with the acquisition of Progressive,
the Company sold to the MassMutual Investors $11 million 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 minimum consolidated net worth, minimum
fixed charge coverage ratio and maximum leverage ratio and required
quarterly interest payments and prepayments of principal commencing in
2003. The Company issued to the MassMutual Investors on May 27, 1998
warrants to purchase 350,931 shares of the Company's common stock at
$7.00 per share. The estimated fair market value of the warrants of
$1,228,000 was recorded as a discount to the principal amount of the
outstanding Notes and is being amortized to interest expense over the
term of the Notes using the interest rate method. In consideration for a
March 26, 1999 amendment to the Notes and in exchange for the warrant
issued in 1998, the Company issued new stock purchase warrants to the
MassMutual Investors to purchase 800,000 shares of common stock at
$2.03125 per share. The incremental estimated fair value of the new
warrants over the estimated fair value of the old warrants, $600,000,
was recorded as additional debt discount. The balance of the amortization
of debt discount at December 31, 1999 is $1,409,000, and will be
amortized through December 31, 2000.
26
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. BANK CREDIT AGREEMENT AND SUBORDINATED DEBT (CONTINUED):
During 1999, the MassMutual Investors agreed to amend the Notes
several times to waive instances of non-compliance with financial
covenants and to defer scheduled debt service payments. As of December
31, 1999, the Company was not in compliance with the covenants related
to the minimum interest coverage ratio and minimum net worth. On
February 18, 2000, the MassMutual Investors agreed to waive the
non-compliance 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.
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, as of
March 31, 2000, the Company also is not in compliance with the Notes,
and the outstanding principal balance of the Notes has been
classified as current.
During 1997, the holders of $2,460,000 principal amount of the Company's
10.5% senior subordinated convertible debentures due 1997 (the
"Debentures") converted their holdings into 273,318 shares of the
Company's common stock at a rate of $9.00 per share. Also during 1997,
the holders of warrants to purchase 39,750 shares of common stock of the
Tridex (issued in 1993 to the original purchasers of the 10.5%
Debentures) exercised their warrants at $9.25 per share. The amount of
unamortized discount at the time of the conversion aggregating $52,000
was charged to additional paid in capital. Also during 1997, the holders
of $1,250,000 principal amount of the Company's 8% subordinated
convertible term promissory notes converted their holdings into 104,127
shares of Tridex common stock at $12.00 per share.
Interest expense is stated net of interest income of $104,000 in 1999 and
$348,000 in 1998. Interest income in 1997 is stated net of interest
expense of $95,000.
7. PENSION PLAN:
In 1999, the Company's obligations under a non-qualified unfunded pension
arrangement for Alvin Lukash, a shareholder and former corporate officer
and Director Emeritus, ceased due to the death of Mr. Lukash. The
unfunded accumulated benefit obligation at the time of his death of
approximately $500,000, was eliminated and recorded as a reduction of
pension expense.
8. COMMITMENTS AND CONTINGENCIES:
(a) LEASE OBLIGATIONS:
At December 31, 1999, the Company was lessee on long term
operating leases for equipment and real property. The terms of
certain leases provide for escalating rent payments in later years
of the lease as well as payment of minimum rent and real estate
taxes. Rent expense amounted to approximately $441,000 in 1999,
$434,000 in 1998 and $112,000 in 1997. Minimum aggregate rental
payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of
December 31, 1999 are as follows: $386,000 in 2000 and $29,000 in
2001.
(b) LEGAL PROCEEDINGS:
When Tridex acquired Progressive in April 1998, it granted
Progressive's former shareholder, Mr. Smith, registration rights
for his 714,000 shares of Tridex common stock issued as part of
the purchase price. In January 1999, Mr. Smith filed a lawsuit
against Tridex and Progressive. The suit seeks damages of up to
$5.0 million plus a court order requiring Tridex to register the
shares of its common stock issued to Mr. Smith as part of the
purchase price. The suit also seeks a declaratory judgment to
prevent Tridex from pursuing other claims which it has asserted
against Mr. Smith in post-closing negotiations. Tridex has denied
the substantive allegations in Mr. Smith's complaint, and has made
counterclaims against Mr. Smith for breach of federal and state
securities laws, fraud and misrepresentation. Tridex is seeking
damages in an unspecified amount which is estimated to exceed Mr.
Smith's claims against Tridex. Discovery has commenced in the
litigation but has been stayed pending the court's decision on a
motion to dismiss certain of Tridex's claims. Tridex has also
initiated an arbitration proceeding against Mr. Smith under the
terms of the contract governing Tridex's purchase of Progressive,
alleging breach of contract. Discovery on the arbitration is
proceeding, and the Company expects the arbitration hearing to be
conducted within the next several months. Although it is not yet
possible to predict the outcome of either the lawsuits or the
arbitration, Tridex believes that it has valid defenses to Smith's
claim and that the claims of Tridex and Progressive against Smith
are meritorious. The Company has not yet recorded an accrual for
any damages, because an unfavorable outcome in this litigation is,
in management's opinion, reasonably possible but not probable. If
the outcome in the litigation were unfavorable it could have a
material adverse effect on the Company's financial condition,
results of operations and cash flows.
27
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Allu Realty Trust ("Allu"), a Massachusetts business trust with
transferable shares, all of which are owned by Tridex, is the former
owner of land located at 100 Foley Street, Somerville, Massachusetts (the
"Site"). Although Allu has sold the property to 100 Foley Street
Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain
responsible for certain environmental problems associated with the Site.
In 1984, Allu and Tridex 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 of Environmental
Protection ("MDEP") conducted an investigation of the Site. At MDEP's
request, the Company retained an environmental engineering firm, which
completed a Phase II investigation study of the Site. The Company has
conducted further studies to more specifically characterize and assess
the Site and to determine appropriate long term clean up.
In 1993, the Company entered into an agreement with Foley pursuant to
which Tridex 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 provides that, to the extent there are
available proceeds from the sale of the Site or, if not sold, from the
operation of the Site after January 1, 1997, Tridex shall be reimbursed
approximately $200,000 of the $250,000 it expended in connection with the
Site prior to January 1, 1992. Pursuant to the Site Participation
Agreement, Tridex and Foley established an escrow account (the
"Tridex/Foley Escrow") into which both entities placed funds designated
for the remediation. 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. Foley asserts that
Allu and Tridex remain liable for payment of certain costs associated
with the remediation of the Site after its sale to Stop & Shop. 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 claims that it is entitled to
reimbursement from Tridex of at least a portion of the $875,000 escrow.
The Company has filed a counterclaim, and seeks reimbursement of funds
previously expended in accordance with the Site Participation Agreement.
Mediation of these claims between the parties was not successful, and the
parties are proceeding to trial. Discovery has been completed. As of
December 31, 1999, the Company had accrued $350,000 for the Site, which
represents the currently estimated minimum cost of Tridex's share of
remediation, after considering the Site Participation Agreement, and
associated legal costs. If the Company is found to be liable under the
Site Participation Agreement, it could be responsible for payment of some
or all of the $875,000 paid by Foley in connection with the Site.
Nevertheless, although no assurances can be given regarding the total
costs which may be incurred, the Company does not believe at this time
that the costs associated with the settlement, after taking into account
established accruals, are reasonably likely to have a material effect on
the Company's financial condition or results of operations. It is
possible, however, the final resolution of this matter could have a
material impact on cash flow and the Company's liquidity.
9. STOCK OPTIONS AND WARRANTS:
The Company presently maintains three stock option plans for employees
and non-employee directors as follows:
1998 NON-EXECUTIVE LONG TERM INCENTIVE PLAN
The 1998 Long Term Incentive Plan (the "1998 Non-Executive Plan") was
approved by the shareholders of the Company at the Annual Meeting held on
May 27, 1998. The 1998 Non-Executive Plan permits stock-based incentive
compensation in the form of: (a) stock options, (b) stock appreciation
rights, (c) restricted stock, (d) deferred stock, (e) stock purchase
rights and (f) other stock-based compensation. Pursuant to the 1998
Non-Executive Plan, up to 600,000 shares of common stock may be
distributed to key non-executive employees of the Company. Options
granted are at prices equal to 100% of the fair market value of the
common stock at the date of grant. Under APB 25 when the exercise price
of employee stock options equals the fair market value of the underlying
stock on the date of grant, no compensation expense is recognized.
Options granted are exercisable at the discretion of the Stock Option
Committee, but in no event shall the period be for more than ten years.
Ninety days after an employee's termination, the outstanding options are
canceled. At December 31, 1999 the Company had reserved 600,000 shares of
common
28
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS AND WARRANTS (CONTINUED):
stock for issuance upon the exercise of options granted under the 1998
Non-Executive Plan. At December 31, 1999, options for 238,664 shares were
outstanding under the 1998 Non-Executive Plan at exercise prices ranging
from $1.5625 to $7.00 per share. These options, of which 51,457 were
exercisable, have a weighted average exercise price of $4.56 per share
and a weighted average remaining contractual life of 8.9 years.
1997 LONG TERM INCENTIVE PLAN
The 1997 Long Term Incentive Plan (the "1997 Plan") was approved by the
shareholders of the Company at the Annual Meeting held on May 14, 1997
and amended at the Annual Meeting on May 27, 1998 to increase the number
of authorized shares. The 1997 Plan permits stock-based incentive
compensation in the form of: (a) stock options, (b) stock appreciation
rights, (c) restricted stock, (d) deferred stock, (e) stock purchase
rights and (f) other stock-based compensation. Pursuant to the 1997 Plan,
as amended, up to 1,000,000 shares of common stock may be distributed to
officers and key employees of the Company. Options granted are at prices
equal to 100% of the fair market value of the common stock at the date of
grant. Under APB 25 when the exercise price of employee stock options
equals the fair market value of the underlying stock on the date of
grant, no compensation expense is recognized. Options granted are
exercisable at the discretion of the Stock Option Committee of the Board,
but in no event shall the period be for more than ten years. Ninety days
after an employee's termination, the outstanding options are canceled. At
December 31, 1999 the Company had reserved 971,335 shares of common stock
for issuance upon the exercise of options granted under the 1997 Plan. At
December 31, 1999, options for 486,330 shares were outstanding under the
1997 Plan at exercise prices ranging from $2.03 to $7.50 per share. These
options, of which 215,307 were exercisable, have a weighted average
exercise price of $3.49 per share and a weighted average remaining
contractual life of 7.3 years.
NON-EMPLOYEE DIRECTORS PLAN
The Non-Employee Directors' Stock Plan (the "Directors' Plan") was
approved by the Shareholders of the Company at the Annual Meeting held on
May 14, 1997. The Directors' Plan permits the issuance to non-employee
directors of the Company of options for up to 100,000 shares of the
Company's common stock. Options issued under the Directors' Plan do not
qualify as incentive options under Section 422 of the Internal Revenue
Code. Options to purchase 10,000 shares of the Company's common stock
were granted to each non-employee director upon the effective date of the
Directors' Plan. Persons subsequently elected as non-employee directors
will be granted options to purchase 10,000 shares on the date of their
election. Thereafter, on the date of the Company's Annual Meeting of
Shareholders, each non-employee director will be granted an option to
purchase 3,000 shares of common stock. Options become exercisable in
three equal annual installments and may be exercised within ten years of
the date of the grant. At December 31, 1999 the Company had reserved
100,000 shares of common stock for issuance upon the exercise of options
granted under the Directors' Plan. At December 31, 1999, options for
51,000 shares were outstanding under the Directors Plan at exercise
prices ranging from $2.81 to $6.75 per share. These options, of which
22,998 were exercisable, have a weighted average exercise price of $3.33
per share and a weighted average remaining contractual life of 8.0 years.
1989 LONG TERM INCENTIVE PLAN
The 1989 Long Term Incentive Plan ("the 1989 Plan"), which was terminated
upon the approval of the 1997 Plan, permitted various forms of
stock-based incentive compensation. During 1997, the Company accelerated
the vesting of all outstanding options in conjunction with the
distribution of the TransAct shares.
WARRANTS:
As of December 31, 1999, the Company had outstanding stock purchase
warrants for 800,000 shares of common stock issued to the MassMutual
Investors in conjunction with the issuance of the Notes discussed in Note
6. These warrants are exercisable at $2.03125 per share through April 17,
2008. During 1997, stock purchase warrants were exercised for an
aggregate of 230,632 shares of common stock, consisting of warrants for
117,550 shares held by directors of the Company and 113,082 shares issued
to the purchasers of previously outstanding debentures and the placement
agent for the debentures.
29
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS AND WARRANTS (CONTINUED):
The following summarizes the combined activity of all stock option plans
and outstanding warrants during the three-year period ended December 31,
1999:
Weighted- Weighted-
Stock Average Options and Average
Options and Exercise Warrants Exercise
Warrants Price Exercisable Price
--------- -------- --------- --------
Balance, December 31, 1996 862,742 $ 7.45 445,994 $ 7.50
Granted 471,000 2.96
Exercised (859,932) 7.44
Canceled (23,810) 9.16
---------
Balance, December 31, 1997 450,000 2.97 0
Granted 860,431 6.43
Exercised (28,665) 2.81
Canceled (143,836) 4.63
---------
Balance, December 31, 1998 1,137,930 4.65 117,981 3.00
Granted 1,009,000 2.08
Canceled (570,936) 6.33
---------
Balance, December 31, 1999 1,575,994 $ 2.92 1,089,762 $ 2.53
========= ======== ========= ========
The following summarizes additional information about stock options and
warrants outstanding at December 31, 1999:
Options and Warrants Outstanding Options and Warrants Exercisable
------------------------------------ --------------------------------
Number Weighted- Weighted- Number Weighted-
Range of Outstanding at Average Average Exercisable at Average
Exercise December 31, Exercise Remaining December 31, Exercise
Prices 1999 Price Life 1999 Price
- - -------------------- -------------- -------- --------- -------------- ---------
$ 1.5625 $ 2.0313 890,000 $ 2.01 8.42 800,000 $ 2.03
2.1250 2.8125 301,830 2.73 8.75 129,974 2.81
3.0938 3.8750 162,500 3.25 5.57 84,164 3.23
4.1250 6.7500 58,664 5.02 8.56 21,318 5.04
7.0000 7.5000 163,000 7.12 8.28 54,306 7.12
--------- -------- ---- ------- --------
1,575,994 $ 2.92 8.06 1,089,762 $ 2.53
========= ======== ==== ========= ========
30
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS AND WARRANTS (CONTINUED):
Had compensation expense been recognized based on the fair value of the
options at their grant dates, as prescribed in Financial Accounting
Standard No. 123, the Company's net loss and loss per share would have
been:
Year Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- ------
(Dollars in thousands except per share amounts)
Net loss:
As reported $(14,765) $(14,146) $ (35)
Pro forma under FAS 123 $(15,373) $(14,513) $ (301)
Pro forma loss per share,
basic and diluted:
As reported $ (2.32) $ (2.33) $(0.01)
Pro forma under FAS 123 $ (2.41) $ (2.41) $(0.06)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
1999 1998 1997
------------ ------------- -------------
Dividend yield 0% 0% 0%
Risk-free interest rates 4.91% - 5.80% 4.08% - 5.61% 5.72% - 6.22%
Expected volatility 42.1% - 44.0% 36.7% - 43.7% 37.6% - 38.6%
Expected option term 3 years 3 years 3 years
10. INCOME TAXES:
The components of the income tax provision (benefit) are as follows:
Year Ended December 31,
---------------------------------
1999 1998 1997
------- ------- -----
(Dollars in thousands)
Current:
Federal $ (329) $ 69 $ 88
State and foreign 301 (17) (18)
------- ------- -----
$ (28) $ 52 $ 70
------- ------- -----
Deferred:
Federal $ 7,856 $(7,498) $(107)
State 680 (729) (7)
------- ------- -----
$ 8,536 $(8,227) $(114)
------- ------- -----
Provision (benefit) for income
taxes $ 8,508 $(8,175) $ (44)
------- ------- -----
Income tax provision (benefit) is included in the statement of operations
as follows:
Year Ended December 31,
-------------------------------
1999 1998 1997
------ ------- -----
(Dollars in thousands)
Continuing operations $7,276 $(9,026) $(556)
Discontinued operations 1,232 851 512
------ ------- -----
Provision (benefit) for income
taxes $8,508 $(8,175) $(44)
------ ------- -----
31
10. INCOME TAXES (CONTINUED):
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the
financial statements. The Company's gross deferred tax assets and
liabilities were comprised of the following:
DECEMBER 31, 1999 December 31, 1998
----------------- -----------------
(Dollars in thousands)
Gross deferred tax assets:
In-process research and development $ 6,005 $6,188
Future deductible liabilities and reserves 1,211 728
Net operating loss carryforwards 3,866 2,487
Federal minimum tax credit carryforwards 210 169
Federal business and other tax credit carryforwards 375 149
------- ------
$11,667 $9,721
======= ======
Depreciation $ 207 $ 42
======= ======
At December 31, 1999 and 1998, the Company had recorded a valuation
allowance of $11,460,000 and $831,000, respectively. At December 31,
1998, the valuation allowance relates primarily to state net
operating loss carryforwards and certain deferred tax deductions for
which a tax benefit will not likely be realized. At December 31,
1999, management has concluded that realization of the deferred tax
assets related to net operating loss carryforwards and deductible
in-process research and development through future taxable earnings
or alternative tax strategies is no longer more likely than not, and
accordingly has increased the valuation allowance. Management's
conclusion is based on the Company's recent cumulative losses.
At December 31, 1999, the Company had federal net operating loss
carryforwards of $9,115,000 that expire beginning 2018 through 2019
and state net operating loss carryforwards of $15,783,000 that expire
beginning in 2000 through 2019. The Company also had federal minimum
tax credit carryforwards of $210,000 which may be carried forward
indefinitely as a credit against regular federal tax liability in
future years and other tax credit carryforwards of $375,000 consisting
primarily of research and development tax credits that expire
beginning 2010 through 2018.
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate on continuing operations are analyzed
below:
Year Ended December 31,
-----------------------------------
1999 1998 1997
----- ----- -----
Federal statutory tax rate (34.0%) (34.0%) (34.0%)
State income taxes, net
(3.2%) (3.4%) (4.7%)
Valuation allowance 118.2%
Other (0.1%) 0.2% 0.6%
------ ------ ------
Effective tax rate 80.9% (37.6%) (38.1%)
====== ===== =====
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) DIRECTORS.
The information contained in "Information Concerning Nominees for
Election as Directors and Executive Officers" of the Company's Proxy
Statement (the "Proxy Statement") for its Annual Meeting of Shareholders
which is scheduled to be held in May 2000 is hereby incorporated herein
by reference. Also see Item 1(E)(i) above.
(B) EXECUTIVE OFFICERS. See Item 1(E)(ii) above.
(C) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information contained in "Compliance with Section 16(a)" of the Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in "Compensation of Directors and Executive Officers"
of the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial Owners
and Management" of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in "Certain Relationships and Related Transactions" of
the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING FINANCIAL STATEMENTS AND EXHIBITS ARE FILED AS PART OF THIS
REPORT:
(i) FINANCIAL STATEMENTS
See Item 8 on page 15.
(ii) FINANCIAL STATEMENT SCHEDULES
See Item 8 on page 15.
(iii) LIST OF EXHIBITS.
See Exhibit Index on page 35.
(B) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this report.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRIDEX CORPORATION
By: /s/ SETH M. LUKASH
----------------------------------
Seth M. Lukash
Chairman of the Board, President,
Chief Executive Officer, Chief
Financial Officer, Chief Operating
Officer and Director
Date: April 14, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ SETH M. LUKASH Chairman of the Board, President, Chief April 14, 2000
- - ----------------------------------
Seth M. Lukash Executive Officer, Chief Operating Officer,
(Principal Executive Officer Chief Financial Officer and Director
and Principal Financial Officer)
/s/ GRAHAM Y. TANAKA Director April 14, 2000
- - ----------------------------------
Graham Y. Tanaka
/s/ PAUL J. DUNPHY Director April 14, 2000
- - ----------------------------------
Paul J. Dunphy
Director April 14, 2000
- - ----------------------------------
Thomas R. Schwarz
Director April 14, 2000
- - ----------------------------------
Dennis J. Lewis
34
Exhibit Index
Page
Number
------
2.1 Stock Purchase Agreement dated as of February 24, 1998, by and among
Paul J. Smith, Progressive Software, Inc., Tridex Corporation
("Tridex" or the "Company"), and Tridex NC, Inc., with index of
Schedules and Exhibits thereto filed as Exhibit 2.1 to the Company's
Current Report of Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
2.2 Stock Purchase Agreement dated as of February 8, 2000, between Tridex
Corporation, Ultimate Technology Corporation and CFG Capital
Management II, L.P. filed as Exhibit 10.1 to the company's Current
Report on Form 8-K filed March 6, 2000 is hereby incorporated herein
by reference.
3.1 Certificate of Incorporation of Tridex, as amended, filed on June 28,
1985 as Exhibit 3.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 30, 1985, is hereby incorporated herein
by reference.
3.2 Certificate of Amendment of Incorporation of Tridex, dated October 1,
1987, filed on July 18, 1988 as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 2, 1988 is hereby
incorporated herein by reference.
3.3 Certificate of Amendment of Incorporation of Tridex, dated August 15,
1988, filed on June 29, 1989 as Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby
incorporated herein by reference.
3.4 Certificate of Amendment of Incorporation of Tridex, dated March
31,1989 filed on June 29, 1989 as Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby
incorporated herein by reference.
3.5 Bylaws of Tridex, as amended and restated as of January 22, 1996,
filed on March 26, 1996 as Exhibit 3.5 to the Company's Transition
Report on Form 10-K for the transition year ended December 31, 1995
is hereby incorporated herein by reference.
4.1 Description of the Company's common stock set forth in the Company's
Registration Statement on Form 8-A filed July 14, 1986, is hereby
incorporated herein by reference.
4.2 Tridex Corporation 1997 Long Term Incentive Plan (as amended and
restated), filed as Exhibit A to the Company's Proxy Statement for
the Annual Meeting of Shareholders filed April 17, 1997 is hereby
incorporated herein by reference. *
4.3 Tridex Corporation Non-Employee Directors' Stock Plan filed as
Exhibit B to the Company's Proxy Statement for the Annual Meeting of
Shareholders filed April 17, 1997 is hereby incorporated herein by
reference. *
4.4 Tridex Corporation 1998 Non-Executive Long Term Incentive Plan filed
as Exhibit A to the Company's Proxy Statement for the Annual Meeting
of Shareholders filed May 8, 1998 is hereby incorporated herein by
reference. *
4.5 Registration Rights Agreement by and between Paul J. Smith and Tridex
dated as of April 17, 1998 filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
4.6 Securities Purchase Agreements dated as of April 17, 1998, by and
among Massachusetts Mutual Life Insurance Company and certain of its
affiliates and Tridex filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K filed April 30, 1998 is hereby incorporated herein
by reference.
4.7 Form of 19% senior subordinated notes due April 17, 2005 filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K filed April
30, 1998 is hereby incorporated herein by reference.
4.8 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 filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 is hereby incorporated herein by reference.
4.9 Second Amendment to Securities Purchase Agreements dated March 26,
1999 by and among Massachusetts Mutual Life Insurance Company and
certain of its affiliates and Tridex filed as Exhibit 4.9 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998 is hereby incorporated herein by reference.
35
Page
Number
------
4.10 Third Amendment to Securities Purchase Agreements dated as of June
30, 1999 by and among Massachusetts Mutual Life Insurance Company and
certain of its affiliates and Tridex filed as Exhibit 4.10 to the
Company's Current Report on Form 8-K filed on July 16, 1999 is hereby
incorporated herein by reference.
4.11 Fourth Amendment to Securities Purchase Agreements dated as of
September 30, 1999 by and among Massachusetts Mutual Life Insurance
Company and certain of its affiliates and Tridex filed as Exhibit 4.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 is hereby incorporated herein by reference.
4.12 Fifth Amendment to Securities Purchase Agreements dated as of
February 18, 2000 by and among Massachusetts Mutual Life Insurance
Company and certain of its affiliates and Tridex filed as Exhibit 4.1
to the Company's Current Report on Form 8-K filed March 6, 2000 is
hereby incorporated herein by reference.
10.1 Credit Agreement dated as of April 17, 1998, by and between Fleet
National Bank, Tridex, Progressive Software, Inc., Ultimate
Technology Corporation, and Tridex NC, Inc., with index of Schedules
and Exhibits thereto filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K filed April 30, 1998 is hereby incorporated herein
by reference.
10.2 Term Note in the amount of $12,000,000, due March 31, 2003, payable
by Tridex and its affiliates to Fleet National Bank ("Fleet") filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
April 30, 1998 is hereby incorporated herein by reference.
10.3 Working Capital Note in the amount of $8,000,000 due June 30, 1999,
payable by Tridex and its affiliates to Fleet National Bank filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K filed April
30, 1998 is hereby incorporated herein by reference.
10.4 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,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 is hereby
incorporated herein by reference.
10.5 Amendment No. 2 to Credit Agreement dated as of March 30, 1999, to
Credit Agreement dated as of April 17, 1998, by and between Fleet,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 is hereby incorporated
herein by reference.
10.6 Amendment No. 3 to Credit Agreement dated as of June 30, 1999, to
Credit Agreement dated as of April 17, 1998, by and between Fleet,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.21 to the Company's Current Report on
Form 8-K filed on July 16, 1999 is hereby incorporated herein by
reference.
10.7 Amendment No. 4 to Credit Agreement dated as of September 30, 1999 to
Credit Agreement dated as of April 17, 1998, by and between Fleet,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999 is hereby
incorporated herein by reference.
10.8 Amendment No. 5 to Credit Agreement dated as of February 18, 2000, to
Credit Agreement dated as of April 17, 1998, by and between Fleet,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.2 to the Company's Current Report on
Form 8-K filed March 6, 2000 is hereby incorporated herein by
reference.
10.9 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and
TransAct Technologies Incorporated filed as Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1996 is hereby incorporated herein by reference.
10.10 Employment Agreement dated December 2, 1996 between Tridex and Seth
M. Lukash filed on March 31, 1997 as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, is
hereby incorporated herein by reference. *
10.11 Employment Agreement dated August 2, 1999 between Tridex and Thomas
Mounts. * __
10.12 Employment Agreement dated August 7, 1996 between Tridex and George T.
Crandall filed on March 31, 1997 as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, is
hereby incorporated herein by reference. *
11.1 Statement re: computation of per share earnings. __
36
Page
Number
------
21.1 List of Subsidiaries of Tridex. __
23.1 Consent of Independent Accountants __
27.1 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
37