FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to:
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Commission file number: 1-5513
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TRIDEX CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut 06-0682273
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
61 Wilton Road, Westport CT 06880
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(Address of principal executive offices)
(Zip Code)
(203) 226-1144
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(Registrant's telephone number, including area code)
Former address:
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |_| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding on July 15, 2000
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Common stock, no par value 6,368,289
TRIDEX CORPORATION AND SUBSIDIARY
INDEX
Page No.
PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
Quarters and Six Months Ended June 30, 2000
and June 30, 1999 4
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and June
30, 1999 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of the Results
of Operations and Financial Condition 8
PART II. Other Information:
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBIT INDEX
Exhibit 11 Computation of Per Share Earnings 16
Exhibit 27 Financial Data Schedule 17
TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
June 30, 2000 December 31, 1999
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 789 $ 367
Receivables 3,473 5,352
Inventories 1,633 1,945
Investment in net assets of discontinued
operations (Note 2) 0 5,881
Other current assets 470 353
-------- --------
Total current assets 6,365 13,898
-------- --------
Plant and equipment 2,999 2,663
Less accumulated depreciation (1,622) (1,046)
-------- --------
1,377 1,617
-------- --------
Goodwill and intangible assets, net 10,172 10,822
Purchased and internally developed software
costs, net 8,727 9,856
Other assets 1,051 703
-------- --------
$ 27,692 $ 36,896
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ 3,017 $ 5,740
Current portion of long term debt (Note 4) 13,790 20,691
Accounts payable 2,741 3,592
Accrued liabilities 4,185 2,411
Deferred revenue 583 199
-------- --------
Total current liabilities 24,316 32,633
-------- --------
Shareholders' equity:
Common stock, no par value 1,634 1,634
Additional paid-in capital 33,928 33,928
Retained deficit (30,771) (29,584)
Receivable from sale of stock (450) (750)
Common shares held in treasury, at cost (965) (965)
-------- --------
3,376 4,263
-------- --------
$ 27,692 $ 36,896
======== ========
See notes to consolidated condensed financial statements.
3
TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Quarters Ended Six Months Ended
-------------------------- ---------------------------
June 30, June 30 June 30, June 30,
2000 1999 2000 1999
Net sales $ 4,116 $ 9,875 $ 8,068 $ 16,186
Operating costs and expenses:
Cost of sales 1,948 7,253 5,024 11,413
Engineering, design and product development costs 1,004 914 2,277 1,456
Selling, administrative and general expenses 1,558 1,729 2,912 3,520
Depreciation and amortization 1,015 847 2,068 1,708
----- ------ ------ ------
5,525 10,743 12,281 18,097
Operating loss (1,409) (868) (4,213) (1,911)
Other charges (credits):
Interest expense, net 650 850 1,595 1,565
Other, net 182 (67) 176 (60)
----------- ----------- ----------- -----------
832 783 1,771 1,505
Loss from continuing operations before income taxes (2,241) (1,651) (5,984) (3,416)
Benefit (Provision) for income taxes (70) 669 (70) 1,385
Net loss from continuing operations $ (2,311) $ (982) $ (6,054) $ (2,031)
Discontinued Operations (Note 2):
Net income (loss) from discontinued operations 0 658 (26) 981
Net gain on sale of discontinued operations 0 0 5,588 0
Net loss before extraordinary item (2,311) (324) (492) (1,050)
Extraordinary loss due to debt modification (Note 4) 0 0 (695) 0
Net loss (2,311) (324) (1,187) (1,050)
Loss per share - basic and diluted:
Loss from continuing operations $ (0.36) $ (0.15) $ (0.94) $ (0.32)
Income from discontinued operations 0.00 0.10 0.87 0.16
Extraordinary loss 0.00 0.00 (0.11) 0.00
----------- ----------- ----------- -----------
Net loss (0.36) (0.05) (0.18) (0.16)
Weighted average shares outstanding
Basic and diluted 6,368,289 6,368,289 6,368,289 6,368,289
=========== =========== =========== ===========
See notes to consolidated condensed financial statements.
4
TRIDEX CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
---------------------
June 30, June 30,
2000 1999
Cash flows from operating activities:
Net loss $ (1,187) $ (1,050)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 289 163
Amortization of goodwill and intangible assets and purchased and
internally developed software 1,779 1,666
Debt discount amortization 404 134
Gain on sale of assets (8) (180)
Gain on sale of discontinued operations (5,588) 0
Loss from discontinued operations 26 (981)
Extraordinary loss due to debt modification 695 0
Changes in operating assets and liabilities:
Receivables 1,879 (2,717)
Inventory 312 602
Other current assets (117) (41)
Other assets (348) (13)
Accounts payable, accrued liabilities, deferred revenue
and income taxes payable 1,307 1,140
-------- --------
Net cash used in operating activities of continuing operations (557) (1,277)
Cash flows from investing activities:
Purchases of plant and equipment (49) (69)
Capitalized software development costs 0 (725)
Proceeds from sale of assets 8 295
Proceeds from sale of discontinued operations, net of transaction expenses 11,443 0
-------- --------
Net cash provided by/(used in) investing activities of continuing operations 11,402 (499)
Cash flows from financing activities:
Net change in borrowings under line of credit (2,723) 644
Net change in borrowings of long term debt (8,000) 0
Net cash flow of discontinued operations 0 2,260
Collection of stock sale receivable 300 0
-------- --------
Net cash (used in)/provided by financing activities (10,423) 2,904
Increase in cash and cash equivalents 422 1,128
Cash and cash equivalents at beginning of period 367 18
-------- --------
Cash and cash equivalents at end of period $ 789 $ 1,146
======== =========
See notes to consolidated condensed financial statements.
5
TRIDEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General:
Tridex Corporation (the "Company"), through its wholly-owned subsidiary,
Progressive Software, Inc. ("Progressive") is a leading designer,
developer, and marketer of high quality, specialized point of sale
("POS"), back office and enterprise technology for the food service and
specialty retail industry. As described in Note 2, in February, 2000, the
Company disposed of its Ultimate Technology Corporation ("Ultimate")
subsidiary, a leading developer, manufacturer and marketer of high quality
hardware systems and components for the POS industry.
As more fully discussed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, the Company experienced net losses from
continuing operations in each of the years ended December 31, 1999 and
1998. In addition, the Company experienced a net loss from continuing
operations of $6,054,000 and negative cash flows from continuing
operations of $557,000 during the six months ended June 30, 2000. As a
result, as of June 30, 2000, the Company was not in compliance with
various terms of its credit agreements, permitting its lenders to
accelerate all debt maturities. These matters, and their effect on the
Company's liquidity, raise substantial doubt about the Company's ability
to continue as a going concern. 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 which might result from this uncertainty.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly its financial position as of June 30, 2000, the results of
its operations for the quarters and six month periods ended June 30, 2000
and June 30, 1999 and changes in its cash flows for the six month periods
ended June 30, 2000 and June 30, 1999. The December 31, 1999 consolidated
condensed balance sheet has been derived from the Company's audited
financial statements at that date. The interim financial statements should
be read in conjunction with the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
2. Discontinued Operations:
Effective February 18, 2000, the Company sold all of the issued and
outstanding capital stock of Ultimate to UTC Holding Company, Inc., an
affiliate of CFG Capital Management II, L.P. for approximately $12,544,000
in cash. Of the purchase price, $8,000,000 was used to repay a portion of
the Company's term loan, an additional $3,053,204 was used to reduce the
outstanding balance on the Company's working capital facility, and
$500,000 was placed in escrow for defined contingencies. In July 2000, the
Company received approximately $190,000, representing one-half of the
escrow less final net working capital adjustments relating to the closing
balance sheet of Ultimate. The remaining $250,000 is due in February 2001.
The Company recorded a gain on the sale of $5,588,000 during the quarter
ended March 31, 2000. The consolidated financial statements have been
reclassified to present the results of operations of Ultimate as a
discontinued operation for all periods.
3. Earnings (Loss) per Common Share:
Basic earnings (loss) per common share are based on the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share assume the exercise of options and warrants and the
conversion of dilutive securities when the results of such exercises and
conversions are dilutive.
6
4. Bank Credit Agreement and Subordinated Debt:
The components of debt are: (Dollars in thousands)
June 30, December 31,
2000 1999
------- -------
Term loan payable $ 3,100 $11,100
Senior subordinated notes, net of discount 10,690 9,591
------- -------
13,790 20,691
Current portion 13,790 20,691
------- -------
Long-Term Portion $ 0 $ 0
======= =======
On April 17, 1998 the Company entered into a Credit Agreement (the "Credit
Agreement") with Fleet National Bank ("Fleet"). The Credit Agreement is
secured by a first priority security interest in substantially all of the
Company's assets and restricts the amount available for payment of cash
dividends and capital stock distributions. The Credit Agreement, as
originally executed, provided for a working capital facility (the "Working
Capital Facility") and a term loan (the "Term Loan"), and imposed certain
financial covenants, including a minimum tangible capital base, a maximum
ratio of senior funded debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"), a maximum ratio of total
consolidated funded debt to EBITDA, a minimum interest coverage ratio and
a minimum fixed charge coverage ratio.
On February 18, 2000 the Company entered into an amendment to the Credit
Agreement which amended the covenants as of December 31, 1999, waived
non-compliance with the December 31, 1999 covenants, and extended the
maturity of the Term Loan and the Working Capital Facility to December 31,
2000. Pursuant to the amendment, the Company made a principal payment of
$8,000,000 on February 18, 2000 and agreed to make an additional principal
payment of $1,000,000 on or before June 30, 2000. The amended covenants
require the Company to maintain a minimum interest coverage ratio and a
minimum net worth. The Credit Agreement, as amended, permits the Company
to borrow $6,000,000 under the Working Capital Facility, subject to the
eligible borrowing base limitations, establishes interest rate margins of
2.5% on prime rate-based loans and 4.75% on LIBOR-based loans and requires
minimum monthly maintenance fees of $3,000. If loans under the Working
Capital Facility exceed borrowing base capacity, the Company will incur an
additional interest rate margin of 2.0%. As of June 30, 2000, the Company
was not in compliance with the covenant related to the interest coverage
ratio, the amount drawn under the Working Capital Facility was $179,772 in
excess of the defined borrowing base, and the agreed upon $1,000,000
principal payment due June 30, 2000 had not been made. As a result, the
Company is in default of the Credit Agreement and the outstanding
principal balance of the Term Loan has been classified as current.
On April 17, 1998 in conjunction with the acquisition of Progressive, the
Company sold to Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Investors, MassMutual Participation Investors, and MassMutual
Corporate Value Partners Limited (the "MassMutual Investors") $11,000,000
of the Company's senior subordinated notes due April 17, 2005 (the
"Notes"). The Notes bear interest at 12%. The Notes, as originally issued,
imposed certain financial covenants, including a minimum consolidated net
worth, a minimum fixed charge coverage ratio and maximum leverage ratio,
and required quarterly interest payments and prepayments of principal
commencing in 2003. The Notes provide that a failure of any covenant
relating to other indebtedness is a default under the Notes.
On February 18, 2000, the MassMutual Investors agreed to waive the
Company's non-compliance with certain covenants in the Notes as of
December 31, 1999, to amend the financial covenants, to defer payment of
interest to December 31, 2000 and, in exchange, accelerated the maturity
of the Notes to December 31, 2000. As of June 30, 2000, the Company was
not in compliance with the covenants in the Notes related to the minimum
interest coverage ratio and minimum net worth. As a result of the
non-compliance with certain covenants in the
7
Credit Agreement and the Company's failure to comply with certain
covenants in the Notes as of June 30, 2000, the outstanding principal
balance of the Notes has been classified as current.
5. Commitments and Contingencies:
The Company is involved in an environmental matter and legal proceedings
discussed in Note 8 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999. As of June 30, 2000, and to the date of this report, there have been
no material developments in the matter which is the subject of the legal
proceedings. The following summarizes recent developments relating to the
environmental matter.
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"). Allu sold the property to 100 Foley Street Incorporated
("Foley"), an unrelated entity. 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 conducted an
investigation of the Site.
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 provided that, to the extent there were
available proceeds from the sale of the Site, Tridex would be reimbursed
approximately $200,000 of the $250,000 it expended in connection with the
Site prior to January 1, 1992. As of December 31, 1999, the Company had
spent approximately $766,000 in connection with the Site.
In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc. ("Stop &
Shop"). As part of the sale transaction, Foley was required to place
approximately $875,000 in escrow (the "Stop & Shop Escrow") to cover the
costs of remediation, which was completed in 1999. In 1997, Foley brought
suit in the United States District Court, District of Massachusetts,
against the Company claiming that the Company failed to contribute its
share of the remediation costs pursuant to the Site Participation
Agreement. Foley asserted that Allu and Tridex remain liable for payment
of certain costs associated with the remediation of the Site after its
sale to Stop & Shop, and claimed that it is entitled to reimbursement from
Tridex of a portion of the Stop & Shop Escrow. The Company filed a
counterclaim, and sought reimbursement of funds previously expended in
accordance with the Site Participation Agreement. Mediation between the
parties was not successful; in July 2000, after trial of the case, the
jury made certain factual findings upholding the parties' obligations
under the Site Participation Agreement, including Tridex's obligation to
pay 75% of the remediation costs and the obligation of Foley to reimburse
Tridex out of sale proceeds. The final determination as to the allocation
of the financial obligations among the parties will be made by the judge,
based upon the jury's factual findings. As of December 31, 1999, the
Company had accrued $350,000 for the Site. As a result of the jury's
findings, the Company increased its provision for liability in the 100
Foley Street matter by $115,000, to $465,000, during the quarter ended
June 30, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Certain statements included in this report including, but not limited to,
statements in this Management's Discussion and Analysis of the Results of
Operations and Financial Condition, which are not historical facts may be deemed
to contain forward looking statements with respect to events the occurrence of
which involves risks and uncertainties including, but not limited to, the
Company's expectations regarding net sales, gross profit, operating income and
financial condition.
Results of Operations
As discussed more fully below, the Company has experienced recurring net losses
and negative cash flows, and is currently in default under its agreements with
lenders. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan to enter into discussions with
its lenders, increase liquidity and meet planned cash requirements are discussed
below under Liquidity and Capital Resources.
8
Quarter Ended June 30, 2000 Compared to Quarter Ended June 30, 1999
Consolidated net sales for the quarter ended June 30, 2000 decreased $5,759,000
(58%) to $4,116,000 from $9,875,000 in the comparable quarter of the prior year.
Management believes that the decrease results from several causes. Beginning in
the second quarter, the Company outsourced the hardware components for a major
customer's roll-out and, as a result, did not recognize gross hardware revenue
on these shipments. The value of these outsourced hardware components was
approximately $1,985,000 during the quarter. Prior to this arrangement the
Company supplied these components directly and recorded gross revenue. There
were no comparable transactions during the same period a year ago. Also, the
Company experienced a delay in shipments caused by protracted negotiations of a
new credit arrangement between the Company's lenders and a major vendor as more
fully described in the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 2000. Further, management believes that many customers delayed
buying decisions in anticipation of the completion of work on a new release of
the Company's IRIS software which became available in early July. Finally,
management believes that the decrease is an industry-wide trend, inasmuch as
revenues of many of the Company's competitors have been adversely affected, when
compared to prior periods, during the first six months of 2000.
Consolidated gross profit decreased $454,000 (17%) to $2,168,000 from $2,622,000
in the prior year. The reduction relates directly to the reduction in revenues
during the current period. Consolidated gross profit margin was 53% (36% before
giving effect to the outsourcing arrangement referred to above), compared with
27% during the comparable period in 1999.
Consolidated engineering, design and product development costs for the current
quarter were $1,004,000, compared with $914,000 experienced in the same period a
year ago. Expenses during the current period increased approximately 9%,
principally as a result of efforts directed toward enhancements of the Company's
IRIS software product. Expenses during this period were reduced by approximately
$260,100, representing the fair market value of equity received in Digital
Restaurant Solutions for development services provided. Expenses during the
prior period do not include $250,000 of development costs which were
capitalized.
Consolidated selling, administrative and general expenses decreased $171,000
(10%) to $1,558,000 from $1,729,000 in the comparable period last year. The
overall decrease results from substantial reductions in staff and related
expenses at Tridex's corporate offices which were not entirely offset by
increases at Progressive.
Consolidated depreciation and amortization for the quarter was $1,015,000
compared to $847,000 in the second quarter last year. The increase results
principally from increases in these expenses at Progressive.
Consolidated continuing operating losses for the quarter were $1,409,000,
compared to operating losses of $868,000 a year ago. The increase in the current
period was primarily the result of decreased sales and gross profits and
increased costs of depreciation, engineering, design and product development,
partially offset by reduced selling, administrative and general expenses.
Net interest expense for the quarter was $650,000 compared to $850,000 last
year. The decrease is primarily the result of a reduction in the amount of
outstanding bank debt. As described in Note 2 above, the Company used a portion
of the proceeds from the sale of Ultimate to repay a portion of the Term Loan
and Working Capital Facility. The decrease was offset to a certain extent by
increases in prevailing interest rates during the current period compared with
rates in effect a year ago. Interest expense is net of interest income of
$20,400 in the current quarter and $25,600 in the prior year's quarter.
Other expense consists principally of additional reserves of $115,000, as well
as expenses of $49,000, related to the 100 Foley Street litigation as described
in Note 5 above.
Provision for Income taxes in the current quarter reflects state equity-based
tax provisions. The benefit recorded in the prior year's quarter reflects the
recognition of deferred taxes all of which was reversed at December 31, 1999.
(See the Company's Annual Report on Form 10-K for the year ending December 31,
1999.)
9
Net loss for the current quarter was $2,311,000, or $0.36 per share, as compared
to a net loss of $324,000, or $0.05 per share, in the comparable period a year
ago. The average number of common shares outstanding remained constant at
6,368,289 shares.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Consolidated net sales for the six months ended June 30, 2000 decreased
$8,118,000 (50%) to $8,068,000 from $16,186,000 in the comparable period last
year. Management believes that the decrease results from several causes.
Beginning in the second quarter, the Company outsourced the hardware components
for a major customer's roll-out and, as a result, did not recognize gross
hardware revenue on these shipments. The value of these outsourced hardware
components was approximately $1,985,000 during the quarter. Prior to this
arrangement the Company supplied these components directly and recorded gross
revenue. There were no comparable transactions during the same period a year
ago. Also, the Company experienced a delay in shipments caused by protracted
negotiations of a new credit arrangement between the Company's lenders and a
major vendor as more fully described in the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2000. Further, management believes that many
customers delayed buying decisions in anticipation of the completion of work on
a new release of the Company's IRIS software which became available in early
July. Finally, management believes that the decrease is an industry-wide trend,
inasmuch as revenues of many of the Company's competitors have been adversely
affected, when compared to prior periods, during the first six months of 2000.
Consolidated gross profit decreased $1,729,000 (36%) to $3,044,000 from
$4,773,000 in the prior year. The reduction relates directly to the reduction in
revenues during the current period. Consolidated gross profit margin increased
to 38% of sales from 30% of sales last year. However, before giving effect to
the outsourcing arrangement referred to above, gross margins for the both
periods were essentially the same.
Consolidated engineering, design and product development costs increased
$821,000 to $2,277,000 from $1,456,000 last year. Expenses during the current
period increased by approximately $331,000, principally as a result of efforts
directed toward final enhancements of the Company's IRIS software product.
Expenses during this period were reduced by approximately $260,100, representing
the fair market value of equity received in Digital Restaurant Solutions for
development services provided. The 1999 amount did not include $750,000 of
expenses which were capitalized.
Consolidated selling, administrative and general expenses decreased $608,000
(17%) to $2,912,000 from $3,520,000 a year ago. As noted above, the overall
decrease results from substantial reductions in staff and related expenses at
Tridex, which were not entirely offset by increases at Progressive.
Consolidated depreciation and amortization for the current period was $2,068,000
compared to $1,708,000 last year. As noted above, the increase results
principally from increases in these expenses at Progressive. (See the Company's
Quarterly Report on From 10-Q for the period ended March 31, 2000.)
Consolidated continuing operating losses for the period were $4,213,000 compared
to losses of $1,911,000 last year. Increased losses in the current period were
primarily the result of decreased sales and gross profits and increased costs of
depreciation, engineering, design and product development, partially offset by
reduced selling, administrative, and general expenses.
Net interest expense for the current period was $1,595,000 compared to
$1,565,000 a year ago. The increase is the result of increases in prevailing
interest rates during the current period compared with rates in effect last
year. That increase was partially offset by a reduction in the amount of
outstanding bank debt through the use of a portion of the proceeds from the
Ultimate sale, as described in Note 2 above. Interest expense is net of interest
income of $61,185 in 2000 and $46,000 last year.
Other expense consists principally of an additional provision of $115,000 for
liabilities, as well as expenses of $49,000, related to the 100 Foley Street
litigation as described in Note 5 above. In 1999, the Company reported Other
Income of $60,000 representing a gain of $180,000 on the sale of the assets of
an operating division offset by provisions for costs also associated with the
100 Foley Street matter and non-operating properties held for sale.
10
Provision for income taxes in the current quarter reflects state equity-based
tax provisions. The benefit recorded in the prior year reflects the recognition
of deferred taxes which was reversed at December 31, 1999. (See the Company's
Annual Report on Form 10-K for the year ending December 31, 1999.)
Net loss from continuing operations in the first six months of 2000 was
$6,054,000, or $0.94 per share, compared to $2,031,000, or a loss of $0.32 per
share, for the first six months of 1999.
Net income from discontinued operations, including gain on the sale of Ultimate
in February 2000, was $5,588,000, or $0.87 per share, for the first six months
of 2000. There was no such income during the comparable period a year ago.
11
Liquidity and Capital Resources
The Company's negative working capital at June 30, 2000 was $17,951,000 compared
with negative working capital of $18,735,000 at December 31, 1999. At June 30,
2000 the Company had no material commitment for capital expenditures. The
Company's June 30, 2000 negative working capital results primarily from net
losses and current maturities on the Company's existing debt, resulting
principally from the reclassification of debt due to covenant non-compliance.
On February 18, 2000 the Company entered into an amendment to the Credit
Agreement which amended the covenants of that agreement, waived non-compliance
as of December 31, 1999 and extended the maturity of the Term Loan and Working
Capital Facility to December 31, 2000. Pursuant to the amendment, the Company
made a principal payment of $8,000,000 from the proceeds of the sale of Ultimate
on February 18, 2000. Also, in accordance with the terms of the amendment,
immediately after the sale, the Company made a payment to Fleet under the
Working Capital Facility in the amount of $3,053,204. Finally, the Company
agreed to make an additional principal payment of $1,000,000 under the Term Loan
on or before June 30, 2000. The amended covenants require the Company to
maintain a minimum interest coverage ratio and a minimum net worth. The Credit
Agreement, as amended, permits the Company to borrow $6,000,000 under the
Working Capital Facility, subject to the eligible borrowing base limitations,
establishes interest rate margins of 2.5% on prime rate-based loans and 4.75% on
LIBOR-based loans and requires minimum monthly maintenance fees of $3,000. If
loans under the Working Capital Facility exceed borrowing base capacity, the
Company will incur an additional margin of 2.0%. As of June 30, 2000, the
Company was not in compliance with the covenant related to the interest coverage
ratio, had borrowings of approximately $179,772 in excess of its borrowing base
under the Working Capital Facility, and had not made the principal payment of
$1,000,000. As a result, the Company is in default of the Credit Agreement and
the outstanding principal balance of the Term Loan is classified as current.
As of December 31, 1999, the Company was not in compliance with the minimum
interest coverage ratio and minimum net worth covenants of the Company's Notes
with the MassMutual Investors. On February 18, 2000, the MassMutual Investors
agreed to waive the Company's non-compliance with certain of the Notes covenants
as of December 31, 1999, to amend the financial covenants, and to defer payment
of interest to December 31, 2000 and, in exchange, accelerated the maturity of
the Notes to December 31, 2000. As of June 30, 2000, the Company was not in
compliance with the covenants in the Notes related to the minimum interest
coverage ratio and minimum net worth. The Notes provide that a failure of any
covenant relating to other indebtedness is a default under the Notes. As a
result of the non-compliance with certain covenants in the Credit Agreement and
the Company's failure to comply with certain covenants in the Notes as of June
30, 2000, the outstanding principal balance of the Notes has been classified as
current.
As of June 30, 2000 the Company's non-compliance with various terms of the
Credit Agreement and the Notes permits its lenders to accelerate all debt
maturities. These matters, and their effect on the Company's liquidity, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company intends to enter into discussions with its lenders which may result
in amendments to the Credit Agreement and Notes to allow for over advances under
the Working Capital Facility up to a certain amount, to provide less restrictive
covenant terms and to extend the maturities of the Working Capital Facility and
Term Loan. However, there can be no assurance that the Company will be able to
obtain such amendments on acceptable terms.
Since the Company's operating results for the first six months of fiscal 2000
are below budget for the period, management is in the process of assessing
expected financial performance for the balance of this and subsequent fiscal
years. Based on the outcome of this process it may be necessary for the Company
to record impairment losses with respect to its intangible assets and to
reevaluate its depreciation and amortization policies.
Based on this assessment, management will develop, if necessary, plans intended
to reduce operating losses, increase liquidity and meet planned cash
requirements. The Company has reduced overhead costs at its Westport
headquarters facility and, on August 16, 2000 effected a reduction in personnel
at Progressive representing annual salaries in excess of $1,100,000, excluding
fringe benefits and other expenses related to the individuals released.
The Company has retained a financial advisor which is assisting the Company in
reviewing strategic alternatives available to the Company, including, without
limitation, a possible sale of the Company or Progressive or an equity
investment.
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Nasdaq Listing
As of March 31, 2000, the Company's net tangible assets were negative
$5,108,000. Accordingly, as of such date, the Company did not meet the Nasdaq
National Market listing requirement that it maintain $4,000,000 of net tangible
assets. Effective May 3, 2000, the Company's stock was delisted from the Nasdaq
National Market due to the failure to comply with the required minimum net
tangible asset threshold. The Company's stock currently trades on the
Over-the-Counter Market under the symbol "TRDX.OB".
As a result of a delisting from the Nasdaq system, current information regarding
bid and asked prices for the common stock may become less readily available to
brokers, dealers, and/or their customers which may reduce the liquidity of the
market for the common stock which, in turn, could result in decreased demand for
the common stock, a decrease in the stock price, and an increase in the spread
between the bid and asked prices for the common stock.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 5 to the Company's Consolidated Condensed Financial
Statements.
Item 4. Submission of Matter to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 12,
2000. Matters voted upon at the meeting and the number of votes cast
for, against or withheld, are as follows:
(1) To consider and act upon a proposal to elect the following
nominees to be Directors:
Votes Against or
Nominee Votes For Withheld
------- --------- ----------
Seth M. Lukash 4,628,426 190,819
Paul J. Dunphy 4,721,937 97,308
Graham Y. Tanaka 4,721,945 97,300
Thomas R. Schwarz 4,721,945 97,300
(2) To appoint PricewaterhouseCoopers LLP as the Company's
independent certified public accountants for the year ended
December 31, 2000. Votes cast were: 4,782,606 for, 32,720
against and 3,919 withheld.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11. Computation of Per Share Earnings
Exhibit 27. Schedule of Financial Data
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on June 6, 2000
to report that it had entered into an employment agreement
with William A. Beebe, effective June 1, 2000, for Mr. Beebe
to serve as the Company's Vice President and Chief Financial
Officer.
Items 2, 3 and 5 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIDEX CORPORATION
(Registrant)
August 21, 2000 /s/Seth M. Lukash
-----------------
Seth M. Lukash
Chairman of the Board, President, Chief Executive
Officer, and Chief Operating Officer
August 21, 2000 /s/William A. Beebe
-------------------
William A. Beebe
Vice President and Chief Financial Officer
15