FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: ____________________ to: ______________________
Commission file number: 1-5513
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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 November 12, 1999
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Common stock, no par value 6,368,289
TRIDEX CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the Quarters and Nine
Months Ended September 30, 1999 and September 30, 1998 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and September 30, 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Condition 9
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBIT INDEX 16
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1999 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 426 $ 18
Receivables 9,296 7,806
Inventories 7,774 7,941
Deferred tax assets 954 1,092
Other current assets 380 278
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Total current assets 18,830 17,135
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Plant and equipment 4,898 4,251
Less accumulated depreciation (2,276) (1,806)
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2,622 2,445
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Goodwill and intangible assets, net 12,785 13,803
Purchased and internally developed software
costs, net 10,418 11,319
Deferred tax assets 8,138 8,000
Other assets 259 251
-------- --------
$ 53,052 $ 52,953
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 5,400 $ 4,756
Term loan payable (Note 5) 11,100 1,650
Accounts payable 6,333 5,875
Accrued liabilities 3,549 2,021
Deferred revenue 583 933
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Total current liabilities 26,965 15,235
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Long term debt, less current portion (Note 5) 9,508 19,341
Shareholders' equity:
Common stock, no par value 1,634 1,634
Additional paid-in capital 33,928 33,328
Retained deficit (17,268) (14,819)
Receivable from sale of stock (750) (801)
Common shares held in treasury, at cost (965) (965)
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16,579 18,377
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$ 53,052 $ 52,953
======== ========
See notes to consolidated condensed financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Quarters Ended Nine Months Ended
----------------------------- -----------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
Net sales $ 15,114 $ 12,815 $ 48,040 $ 30,840
----------------------------- -----------------------------
Operating costs and expenses:
Cost of sales 10,814 9,423 34,912 22,790
Engineering, design and product development costs 1,580 632 3,476 2,212
Selling, administrative and general expenses 2,625 2,355 7,428 5,708
Depreciation and amortization 1,116 1,047 3,270 2,175
Purchased in-process software technology 17,600
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16,135 13,457 49,086 50,485
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Operating Loss (1,021) (642) (1,046) (19,645)
Other charges (credits):
Interest expense, net 889 688 2,454 1,024
Other, net 9 7 (51) 15
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898 695 2,403 1,039
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Loss before income taxes (1,919) (1,337) (3,449) (20,684)
Benefit for income taxes (520) (730) (1,000) (7,294)
----------------------------- -----------------------------
Net loss $ (1,399) $ (607) $ (2,449) $ (13,390)
----------------------------- -----------------------------
Loss per share - basic and diluted:
Net loss $ (0.22) $ (0.10) $ (0.38) $ (2.24)
----------------------------- -----------------------------
Weighted average shares outstanding
Basic and diluted 6,368,000 6,377,000 6,368,000 5,975,000
----------------------------- -----------------------------
See notes to consolidated condensed financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
-------------------------
September September
30, 1999 30, 1998
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Cash flows from operating activities:
Net loss $ (2,449) $(13,390)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 574 416
Amortization of goodwill and intangible assets 1,304 976
Amortization of purchased and internally developed software costs 1,626 783
Amortization of debt discount 217 68
Charge for purchased in-process software technology 17,600
Deferred income taxes (6,414)
Gain on sale of assets (178)
Changes in operating assets and liabilities, net of amounts acquired:
Receivables (1,571) (1,998)
Inventory (300) (171)
Other assets (110) (23)
Accounts payable, accrued liabilities and income taxes payable 1,649 1,813
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Net cash provided by (used in) operating activities 762 (340)
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Cash flows from investing activities:
Purchases of plant and equipment (619) (419)
Capitalized software development costs (725) (951)
Net cash paid for acquisition (42,570)
Proceeds from sale of assets 295 855
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Net cash used in investing activities (1,049) (43,085)
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Cash flows from financing activities:
Proceeds from issuance of long term debt 23,000
Net proceeds from line of credit 644 3,200
Proceeds from issuance of stock 2,000
Principal payments on long term debt (600)
Net decrease in short term investments 4,403
Proceeds from exercise of stock options and warrants 51 87
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Net cash provided by financing activities 695 32,090
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Increase (decrease) in cash and cash equivalents 408 (11,335)
Cash and cash equivalents at beginning of period 18 11,839
-------- --------
Cash and cash equivalents at end of period $ 426 $ 504
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,577 $ 718
Income taxes 125 116
Supplemental disclosures of non-cash investing and financing activities:
Stock issued for acquisition $ 4,998
See notes to consolidated condensed financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General:
Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned
subsidiaries, Ultimate Technology Corporation ("Ultimate") and Progressive
Software, Inc. ("Progressive"), is a leading provider of Point-of-Sale
("POS") and Back Office enterprise resource management software, systems
integration and related services to the food service and specialty retail
markets.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly its financial
position as of September 30, 1999, the results of its operations for the
quarters and nine months ended September 30, 1999 and September 30, 1998
and changes in its cash flows for the nine months ended September 30, 1999
and September 30, 1998. The December 31, 1998 consolidated condensed
balance sheet has been derived from the Company's audited financial
statements at that date. These interim financial statements should be read
in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Revenue includes hardware sales, design, implementation and support of
software systems, and related consultation services. Revenue on hardware
sales is recognized upon shipment to the customer. Revenue on software
sales is recognized in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition". Software license revenues are recognized
when a software contract has been signed, delivery has occurred, fees are
fixed and determinable and collectibility is probable. Maintenance
revenues are deferred and recognized ratably over the maintenance period,
generally one year.
Although the Company has experienced significant growth in revenues during
the past nine months, the Company does not believe such growth is
necessarily indicative of future operating results and there can be no
assurance that the Company will be profitable on a quarterly or annual
basis. In addition, the Company expects increased competition and intends
to continue to invest in software development. Future operating results
will depend on many factors, including demand for the Company's products,
the level of product competition, competitor pricing, the size and timing
of significant orders, the ability of the Company to develop, introduce
and market new products on a timely basis and changes in levels of
operating expenses.
2. Acquisition of Progressive Software, Inc.:
The Company purchased Progressive on April 17, 1998 and accounted for the
acquisition 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. 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 and certain
affiliates (the "MassMutual Investors"), (c) $2,000,000 proceeds from the
sale of 285,714 shares of Tridex common stock to the MassMutual Investors,
(d) $1,736,000 borrowed under a working capital facility with Fleet, and
(e) the balance from the Company's cash 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. See note 5 for further discussion of the Company's obligations to
Fleet and the MassMutual Investors and the warrant issued to the
MassMutual Investors.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The tangible net assets
consisted primarily of accounts receivable, inventory, equipment and
leasehold improvements, other assets and liabilities. Intangible assets
consisted of goodwill, existing technology and core technology being
amortized over five to ten years. Based upon a valuation prepared by an
independent technology consulting firm, $17,600,000 of the purchase price
was allocated to in-process technology that had not reached technological
feasibility, had no alternative future use, and for which successful
development was uncertain. Accordingly, in the second quarter of 1998 the
Company recorded a one-time charge in the amount of $17,600,000.
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.
Nine Months Ended
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September 30, 1998
------------------
(Dollars in thousands, except per share amounts)
Sales $ 37,306
Operating loss (3,326)
Net loss (3,557)
Loss per share - basic: $ (0.56)
3. 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.
4. Inventories:
Components of inventory are:
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in Thousands)
Raw materials and component parts $2,603 $3,011
Work-in-process 29 37
Finished goods 5,142 4,893
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$7,774 $7,941
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5. Bank credit agreement and long term debt:
The components of long term debt are:
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in Thousands)
Term loan payable $11,100 $11,100
Senior subordinated notes, net of
discount 9,508 9,891
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20,608 20,991
Less: current portion 11,100 1,650
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$ 9,508 $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 an $8 million working capital facility (the "Working Capital
Facility") and a $12 million term loan facility (the "Term Loan"). The
Credit Agreement allowed the Company to borrow at interest rates based
upon Fleet's prime rate, plus a margin of up to one percentage
point, depending upon certain performance criteria. At the Company's
option, it could borrow at interest rates based upon LIBOR, plus a margin
ranging from 1.25 to 2.75 percentage points, depending upon certain
performance criteria. Interest on prime rate-based loans is payable
monthly. Interest on LIBOR-based loans is payable at the end of the LIBOR
measuring period. At September 30, 1999 the interest rate on outstanding
Credit Agreement debt was approximately 9.14%. The Working Capital
Facility bears a non-utilization fee on the unused facility ranging from
.25% to .625% depending upon certain performance criteria. The Term Loan
requires the Company to make quarterly principal payments commencing June
30, 1998 in the amount of $300,000 per quarter during the first year,
$450,000 per quarter during the second year and $750,000 per quarter
through termination on March 31, 2003. 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.
As of December 31, 1998, the Company was not in compliance with the
covenants related to the ratio of senior funded debt to EBITDA, the ratio
of total consolidated funded debt to EBITDA, the interest coverage ratio
and the fixed charge coverage ratio. On March 30, 1999, Fleet agreed to
waive the non-compliance as of December 31, 1998 and to amend the
covenants. The amended covenants require the Company to maintain a minimum
interest coverage ratio and a minimum net worth. In addition, the
amendment imposed a temporary reduction of $2,000,000 in the availability
under the Working Capital Facility and increased the interest rate by one
percentage point. The amendment allowed the Company to defer its March 31,
1999 term loan payment of $300,000 to June 30, 1999. The Company incurred
a fee of $50,000 payable to Fleet for this amendment. Fees to amend the
Credit Agreement are being amortized over the remaining term of the
agreement. On June 30, 1999, the Working Capital Facility was extended to
September 30, 1999 and the term loan payments scheduled for March 31, 1999
and June 30, 1999 were deferred to September 30, 1999. Fees of $80,000
related to this amendment were amortized during the third quarter. As of
September 30, 1999, the Company was in compliance with the covenants and
expects to be in compliance through the end of the year. As of September
30, 1999, the Working Capital Facility with Fleet was extended to March
31, 2000 and the interest rate was increased by one percentage point
(beginning September 30, borrowings are at the bank's prime rate plus a
margin of 2.5% or at the Company's option LIBOR plus 4.75%). In addition
the term loan was modified. The term loan payments scheduled for March 31,
1999, June 30, 1999 and September 30, 1999 were deferred to December 31,
1999, and the outstanding principal balance of the term note is due and
payable on December 31, 1999. Accordingly, the debt related to the Term
Loan has been classified as current in the balance sheet as of September
30, 1999. The Company incurred a fee of $30,000 for this amendment. Fees
to amend the Credit Agreement are being amortized over the remaining term
of the agreement. The Company is in discussions with Fleet to continue the
Working Capital Facility and with other financial institutions to replace
the credit facility.
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% payable quarterly on the 17th day of January, April, July
and October. The Notes require prepayments of $3,666,667 on each of April
17, 2003 and April 17, 2004. The Notes, as originally issued, imposed
certain financial covenants, including minimum consolidated net worth,
minimum fixed charge coverage ratio and maximum leverage ratio. 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.
As of December 31, 1998, the Company was not in compliance with the
covenants related to the fixed charge coverage ratio and the leverage
ratio. On March 26, 1999, the MassMutual Investors agreed to waive the
non-compliance as of December 31, 1998 and to amend the financial
covenants. The amended covenants require the Company to maintain a minimum
interest coverage ratio and a minimum net worth. The amendment allowed the
Company to defer its April 17, 1999 interest payment of $330,000 to July
17, 1999. In consideration for the amendment to the Notes and in exchange
for the warrant issued in 1998, on March 29, 1999 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 and is being
amortized to interest expense over the remaining term of the Notes using
the interest rate method. On June 30, 1999, the MassMutual Investors
agreed to defer the interest payments due on April 17, 1999, and July 17,
1999 to October 17, 1999. As of September 30, 1999, the MassMutual
Investors agreed to defer the interest payments due on April 17, 1999,
July 17, 1999, October 17, 1999, and January 17, 2000, each in the amount
of $330,000, to April 15, 2000. As of September 30, 1999, the Company was
in compliance with the covenants of the Notes and expects to be in
compliance through the end of the year.
6. Commitments and contingencies:
The Company is involved in an environmental matter and legal proceedings
discussed in Note 9 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998. During the quarter ended June 30, 1999, the Company increased its
accruals for these matters by $130,000. As of September 30, 1999 and to
the date of this report, there has been no material development in the
resolution of this matter.
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
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Consolidated net sales for the quarter ended September 30, 1999 increased
$2,299,000 (17.9%) to $15,114,000 from $12,815,000 in the comparable quarter of
the prior year. The increase reflects increased sales at Progressive and greater
volume of shipments of Ultimate's point-of-sale ("POS") component products,
particularly custom manufactured keyboards and pole displays, as well as
distributed products.
Consolidated gross profit (exclusive of depreciation and amortization) increased
$908,000 (26.8%) to $4,300,000 from $3,392,000 in the prior year's quarter, as a
result of the contribution of Progressive and greater volume of shipments of
Ultimate's POS products. Consolidated gross profit margin increased to 28.5% of
sales from 26.5% of sales in the prior year's quarter as a result of the mix of
the hardware component of Progressive's sales and a more favorable product mix
and lower manufacturing costs from Ultimate.
Consolidated engineering, design and product development costs, on a gross
basis, increased $106,000 (7.2%) to $1,580,000 from $1,474,000 in the prior
year's quarter. No product development costs were capitalized during the current
quarter. In the prior year's quarter, product development costs of $842,000 were
capitalized.
Consolidated selling, administrative and general expenses increased $270,000
(11.5%) to $2,625,000 from $2,355,000 in the prior year's quarter. The increase
in selling, administrative and general expenses reflects increased expenditures
for marketing of both POS terminal systems and software, professional services
and provision for uncollectable accounts, offset in part by the 1999 reversal of
$500,000 in excess pension accruals.
Consolidated depreciation and amortization for the quarter was $1,116,000
compared to $1,047,000 in the prior year's quarter. Depreciation increased
$51,000. Amortization expense consists primarily of the amortization of
goodwill, intangibles and existing and core technology acquired with
Progressive.
Consolidated operating income (loss) for the current quarter was a loss of
$1,021,000 compared to a loss of $642,000 in the prior year's quarter. The
increased operating loss was primarily the result of the increase in expensed
versus capitalized product development costs at Progressive and the increase in
selling and administrative expenses. Consolidated operating loss as a percentage
of sales was 6.8% compared to 5.0% in the prior year's quarter.
Net interest expense for the quarter was $889,000 compared to $688,000 in the
prior year's quarter. The increase in interest expense is primarily the result
of increased borrowings under the working capital facility and related banking
fees. Interest expense is net of interest income of $35,000 in the current
quarter and $23,000 in the prior year's quarter.
Other charges of $9,000 in the current quarter and $7,000 in the prior year's
quarter are the carrying costs of non-operating properties held for sale.
Benefit for income taxes in the current quarter reflects an estimated effective
tax rate of approximately 27.1% for the quarter and approximately 54.6% in the
prior year's quarter. The Company has not provided a full valuation allowance
for the amount of the net deferred tax assets, as management believes
realization of these future benefits are more likely than not. The Company will
continue to periodically evaluate the need for additional valuation allowances.
Net loss for the current quarter was $1,399,000 (or $0.22 per share), as
compared to a net loss of $607,000 (or $0.10 per share) in the prior year's
quarter. The average number of common shares outstanding decreased to 6,368,000
shares from 6,377,000 shares in the prior year's quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Consolidated net sales for the nine months ended September 30, 1999 increased
$17,200,000 (55.8%) to $48,040,000 from $30,840,000 in the comparable period of
the prior year. Prior year's sales include the sales of Progressive only from
the date of acquisition, April 17, 1998. The increase in sales reflects record
levels of shipments of Ultimate's products. Progressive's sales were 34% greater
than the full nine-month period of the prior year. Progressive's sales also
included an enterprise license fee of approximately $500,000 charged to a
distributor.
Consolidated gross profit (exclusive of depreciation and amortization) increased
$5,078,000 (63.1%) to $13,128,000 from $8,050,000 in the prior year's period,
primarily as a result of the contribution of Progressive and greater volume of
shipments of POS products. Consolidated gross profit margin increased to 27.3%
of sales from 26.1% of sales in the prior year's period as a result of the
contribution of software sales from Progressive.
Consolidated engineering, design and product development costs, on a gross
basis, increased $1,038,000 (32.8%) to $4,201,000 from $3,163,000 in the prior
year's period. Net of amounts capitalized, $725,000 during the current period
and $951,000 during the prior year's period, such expenses increased $1,264,000
(57.1%) to $3,476,000 from $2,212,000 in the prior year's period. Product
development projects at Ultimate include the recently introduced UltimaTouch
5000 POS workstation.
Consolidated selling, administrative and general expenses increased $1,720,000
(30.1%) to $7,428,000 from $5,708,000 in the prior year's period. The increase
in selling, administrative and general expenses is primarily the result of the
inclusion of such costs for Progressive. General expenses in the prior year's
period include a non-recurring charge of approximately $160,000 associated with
the due diligence review for a transaction that was not completed. Operating
expenses in the prior year include the $17,600,000 write-off of in-process
software technology acquired with the purchase of Progressive.
Consolidated depreciation and amortization for the current period was $3,270,000
compared to $2,175,000 in the prior year's period. Depreciation increased
$155,000. Amortization expense is primarily the amortization of goodwill,
intangibles and existing and core technology acquired with Progressive.
Consolidated operating loss for the current period was $1,046,000 compared to a
loss of $2,045,000 (exclusive of the write-off of in process software
technology) in the prior year's period. The loss in the current period was
primarily the result of the increase in selling, administrative and general
expenses. Consolidated operating loss as a percentage of sales was 2.2% compared
to 6.6% in the prior year's period.
Net interest expense for the current period was $2,454,000 compared to
$1,024,000 in the prior year's period. Interest expense of the period consists
of interest on debt incurred to acquire Progressive. The increase in interest
expense reflects such debt being outstanding for the entire period and, to a
lesser extent, to increased borrowings under the working capital facility and
related banking fees. Interest expense is net of interest income of $81,000 in
the current period and $330,000 in the prior year's period.
Other income of $51,000 reflects a gain of $180,000 on the sale of the assets of
the ribbon division offset by provisions for costs associated with the
remediation of environmental matters and non-operating properties held for sale.
Benefit for income taxes in the first nine months reflects an estimated
effective tax rate for the year of 29.0%. The benefit recorded in the prior
year's period reflects the recognition of deferred taxes of approximately
$5,814,000 related to the write-off of in-process software technology. The
Company has not provided a full valuation allowance for the amount of the net
deferred tax assets, as management believes realization of these future benefits
are more likely than not. The Company will continue to periodically evaluate the
need for additional valuation allowances.
Net loss for the current period was $2,499,000 (or $0.38 per share) as compared
to a net loss of $13,390,000 (or $2.24 per share) in the prior year's period.
The average number of common shares outstanding increased to 6,368,000 shares
from 5,975,000 shares in the prior year's period.
Liquidity and Capital Resources
The Company's working capital deficiency at September 30, 1999 was $8,135,000
compared with working capital of $1,900,000 at December 31, 1998. The current
ratio was 1.12 : 1.00 at December 31, 1998.
The Company has a credit agreement with Fleet under which Fleet has provided the
Company with a $12.0 million term loan facility (the "Term Loan") and an $8.0
million working capital revolving credit facility (the "Working Capital
Facility"). As of December 31, 1998, the Company was not in compliance with the
covenants related to the ratio of senior funded debt to EBITDA, the ratio of
total consolidated funded debt to EBITDA, the interest coverage ratio and the
fixed charge coverage ratio. On March 30, 1999, Fleet agreed to waive the
non-compliance as of December 31, 1998 and to amend the covenants. The amended
covenants require the Company to maintain a minimum interest coverage ratio and
a minimum net worth. In addition, the amendment imposed a temporary reduction of
$2,000,000 in the availability under the Working Capital Facility and increases
the interest rate by one percentage point. The amendment allowed the Company to
defer its March 31, 1999 term loan payment of $300,000 to June 30, 1999. The
Company incurred a fee of $50,000 payable to Fleet for this amendment. Fees to
amend the Credit Agreement are being amortized over the remaining term of the
agreement. On June 30, 1999, the Working Capital Facility was extended to
September 30, 1999 and the Term Loan payments scheduled for March 31, 1999 and
June 30, 1999 were deferred to September 30, 1999. Fees of $80,000 related to
this amendment were amortizing during the third quarter. As of September 30,
1999, the Company was in compliance with the covenants and expects to be in
compliance through the end of the year. As of September 30, 1999, the Working
Capital Facility with Fleet was extended to March 31, 2000 and the interest rate
was increased by one percentage point (beginning September 30, borrowings are at
the bank's prime rate plus a margin of 2.5% or at the Company's option LIBOR
plus 4.75%). In addition the term loan payments was modified. The term loan
payments scheduled for March 31, 1999, June 30, 1999 and September 30, 1999 were
deferred to December 31, 1999 and the outstanding principal balance of the Term
Loan is due and payable on December 31,1999. Accordingly, the debt related to
the Term Loan has been classified as current in the balance sheet as of
September 30, 1999. The Company incurred a fee of $30,000 for this amendment.
Fees to amend the Credit Agreement are being amortized over the remaining term
of the agreement. The Company is in discussions with Fleet to continue the
Working Capital Facility and with other financial institutions to replace the
facility. Based on these discussions the Company believes it can renew or obtain
similar working capital financing. However, there is no certainty such financing
can be obtained, or can be obtained at similar terms or costs. If similar
working capital financing is not obtained, it would have a material adverse
effect on the Company's financial position and cash flows.
The Notes payable to the MassMutual Investors, as originally issued, imposed
certain financial covenants, including minimum consolidated net worth, minimum
fixed charge coverage ratio and maximum leverage ratio. As of December 31, 1998,
the Company was not in compliance with the covenants related to the fixed charge
coverage ratio and the leverage ratio. On March 26, 1999, the MassMutual
Investors agreed to waive the non-compliance as of December 31, 1998 and to
amend the financial covenants. The amended covenants require the Company to
maintain a minimum interest coverage ratio and a minimum net worth. The
amendment allowed the Company to defer its April 17, 1999 interest payment of
$330,000 to July 17, 1999. In consideration for the amendment to the Notes and
in exchange for the warrant issued in 1998, on March 29, 1999 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 and is being amortized to
interest expense over the remaining term of the Notes using the interest rate
method. On June 30, 1999, the MassMutual Investors agreed to defer the interest
payments due on April 17, 1999, and July 17, 1999 to October 17, 1999. As of
September 30, 1999, the MassMutual Investors again agreed to defer the interest
payments due on April 17, 1999, July 17, 1999, October 17, 1999, and January 17,
2000 each in the amount of $330,000, to April 15, 2000. As of September 30,
1999, the Company was in compliance with the covenants of the Notes and expects
to be in compliance through the end of the year.
At September 30, 1999, the Company had availability of $600,000 under the
Working Capital Facility and no material commitment for capital expenditures.
The Company believes that cash flow from operations and the Working Capital
Facility will be sufficient to satisfy its working capital needs through the end
of its fiscal year ending December 31, 1999 but there can be no assurance that
the Company will be able to generate sufficient cash from those sources to meet
its operating requirements. In the event that the Company was unable to meet its
needs for cash from the sources described above, the Company will need to obtain
equity or debt financing or reduce its operating expenses and capital
expenditures. Furthermore, the Company must either negotiate an extension of the
maturity date of its Term Loan or repay the Term Loan on or before December 31,
1999. The Company is in the process of negotiating the sale of its Ultimate
subsidiary and believes that the proceeds of such sale will be sufficient to
repay the Term Loan in full. There can be no assurance that the sale will be
consummated by December 31, 1999 or that, in the absence of such sale the
Company will be able to negotiate a further extension of the maturity date of
the Term Loan. If the Company is unable to repay the Term Loan by December 31,
1999 or obtain an extension of the maturity date, Fleet would be entitled to
accelerate the maturity of the Working Capital Facility and foreclose on its
security for the credit facilities which would have a material adverse effect on
the Company's liquidity, capital resources and cash flows.
The Year 2000
Commencing in late 1998, the Company undertook a review and assessment of those
areas within its business and operations that could be adversely affected by the
failure of the products or computer systems of the Company (or its customers,
vendors or suppliers) to recognize and perform properly date-sensitive functions
involving or in connection with the Year 2000. The Company identified four areas
of its operations which could be impacted by the Year 2000 issue: products;
internal systems and software; vendor and supplier products and systems; and
customers' internal systems. The Company effected a survey during the first six
months of 1999 of its products, information systems, suppliers, customers and
other third parties with significant relationships with the Company to identify
risks related to the Year 2000 issue and address its potential impact on the
Company.
Products
The Company's survey of its products for Year 2000 compliance involved
performing extensive testing of all date-sensitive functions on software
products and third-party components used in products sold by the Company or
licensed by the Company to third parties. No significant non-compliance issues
have been identified through such testing. The Company will continue to perform
significant testing of its products throughout 1999 and 2000. The Company has
determined to make available members of its technical support staff to assist
customers of the Company's products and services if any Year 2000 issues arise.
Internal Systems
The Company's internal information systems have been updated with Year 2000
compliant releases from the system providers. Systems used internally by the
Company in the development of products and services have been tested for Year
2000 compliance, and the Company has received compliance certificates from the
providers of such systems. The Company will continue to test and monitor its
internal systems throughout 1999 and 2000.
Vendors and Suppliers
Management identified key vendors and suppliers of materials to the Company. The
Company sent questionnaires to all such key vendors and suppliers regarding
their Year 2000 compliance status, and to identify those open issues that could
have a material adverse effect on the Company's business and operations. Through
vendor and supplier responses to the questionnaire, the Company received
assurances that Year 2000 compliance problems encountered by such vendors and
suppliers, if any, will not have a material adverse effect on the Company. The
Company continues to monitor the compliance status of each key vendor and
supplier in order to minimize any risk associated with the failure of such
parties' systems and products to be Year 2000 compliant. Furthermore, the
Company utilizes multiple vendors and suppliers of all critical materials to
further reduce its risks associated with the Year 2000 issue.
Customers
The Company has distributed questionnaires to all of its current customers
requesting those customers to verify that their systems are Year 2000 compliant,
and to notify the Company of any unresolved non-compliance matters that may have
a material adverse effect on the Company. The majority of the customers
contacted by the Company have responded that their systems are Year 2000
compliant. The
Company continues to seek assurances regarding compliance from those customers
who have not responded. There can be no absolute assurance that customers will
bring their internal systems into compliance in a timely fashion to avoid a
material adverse effect on the Company. If customers do not resolve their
internal systems' Year 2000 compliance issues, their purchasing of Company
products and services could be negatively impacted in the fourth quarter of 1999
and the first quarter of 2000, which could have a material adverse effect on the
operations, liquidity and capital resources of the Company.
Based upon its survey and the advice of technical consultants, the Company
believes that the Year 2000 issue will not have a material impact on its
products and that the cost of addressing the Year 2000 issue is not likely to
have a material impact on the Company's operations or financial condition. The
Company will continue to review the Year 2000 issue for potential impact on its
products, operations and financial condition. The Company has designated a Year
2000 task team which, commencing January 1, 2000, will be dedicated exclusively
to addressing any Year 2000-related issues that arise.
The Company has expensed costs as incurred related to the Year 2000 analysis and
remediation process. All costs to finish the Year 2000 effort will be expensed
as incurred and are not expected to have a material adverse effect on the
Company. The Company believes that its efforts have identified and corrected the
crucial Year 2000 compliance issues and that its Year 2000 compliance
remediation process is complete, although the Company will continue to test
compliance through the remainder of 1999 and into 2000. If the Company, its
larger customers, its key vendors and significant suppliers encounter
unanticipated Year 2000 issues which they are unable to resolve in a timely
manner, the operations, liquidity, and capital resources of the Company could be
materially and adversely affected.
Nasdaq Listing
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 of maintaining $4,000,000 of net tangible assets. There can
be no assurance that the Company's common stock will continue to be listed on
the Nasdaq National 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 4.1 Fourth Amendment to Securities Purchase
Agreements dated September 30, 1999 by and
among Massachusetts Mutual Life Insurance
Company and certain of its affiliates and
Tridex Corporation.
Exhibit 10.1 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 National Bank, Tridex Corporation,
Progressive Software, Inc. and Ultimate
Technology Corporation.
Exhibit 11. Computation of Per Share Earnings
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 16,
1999 to report that it had amended the Credit Agreement with
Fleet and the Securities Purchase Agreements with the
MassMutual Investors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIDEX CORPORATION
(Registrant)
November 12, 1999 /s/Seth M. Lukash
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Seth M. Lukash
Chairman of the Board, President, Chief
Executive Officer, and Chief Operating Officer
November 12, 1999 /s/Daniel A. Bergeron
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Daniel A. Bergeron
Vice President and Chief Financial Officer
November 12, 1999 /s/George T. Crandall
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George T. Crandall
Vice President and Treasurer
EXHIBIT INDEX
Exhibit 4.1 Fourth Amendment to Securities Purchase Agreements dated
September 30, 1999 by and among Massachusetts Mutual Life
Insurance Company and certain of its affiliates and Tridex
Corporation. 17
Exhibit 10.1 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 National Bank, Tridex Corporation,
Progressive Software, Inc. and Ultimate Technology
Corporation. 22
Exhibit 11 Computation of Per Share Earnings 29
Exhibit 27 Financial Data Schedule