-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TRrjJmiQKt9urAESN/ZQCGy4gxLOfORtnsdhGTluTMxl9RFnRmd80gS9ecvboOPM +xKPmpE8hIxsChuRgbiPWA== 0000313867-96-000007.txt : 19960816 0000313867-96-000007.hdr.sgml : 19960816 ACCESSION NUMBER: 0000313867-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIAD SYSTEMS CORP CENTRAL INDEX KEY: 0000313867 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 942160013 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10504 FILM NUMBER: 96614866 BUSINESS ADDRESS: STREET 1: 3055 TRIAD DR CITY: LIVERMORE STATE: CA ZIP: 94550 BUSINESS PHONE: 5104490606 MAIL ADDRESS: STREET 1: 3055 TRIAD DRIVE CITY: LIVERMORE STATE: CA ZIP: 94550 10-Q 1 CIK: 0000313867 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1996. OR ___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number 0-9505 Triad Systems Corporation ------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2160013 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 3055 Triad Drive, Livermore, CA 94550 --------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (510) 449-0606 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___ As of June 30, 1996, the registrant had outstanding 17,683,000 shares of common stock with $.001 par value. Triad Systems Corporation QUARTERLY REPORT FORM 10-Q Index Page Part I. Financial Information Item I. Financial Statements Consolidated Balance Sheets at June 30, 1996 and September 30, 1995 1 Consolidated Statements of Operations for the Three and Nine Month Periods Ended June 30, 1996 and 1995 2 Consolidated Statements of Cash Flows for the Nine Month Periods Ended June 30, 1996 and 1995 3 Notes to Consolidated Financial Statements 4-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11-13 Signatures 14 Exhibit 11.1 Computation of Earnings Per Share 15 Exhibit 27 Financial Data Schedule 16 PART I FINANCIAL INFORMATION Triad Systems Corporation CONSOLIDATED BALANCE SHEETS June 30, September 30, (Amounts in thousands except share data) 1996 1995 ---------- ------------- (Unaudited) Assets Current assets Cash and equivalents $ 6,727 $ 7,263 Trade receivables 14,401 13,175 Investment in leases 1,492 2,001 Inventories 6,925 5,636 Prepaid expenses and other current assets 7,746 6,702 --------- --------- Current assets 37,291 34,777 Service parts 3,189 3,316 Property, plant and equipment, net 27,502 27,017 Long-term investment in leases 12,322 16,540 Land for resale 26,409 25,250 Capitalized software and intangible assets 18,929 16,222 Other assets 8,417 9,587 --------- --------- Assets $134,059 $132,709 ========= ========= Liabilities Current liabilities Notes payable and current portion of long-term debt $ 7,575 $ 3,032 Accounts payable 8,831 9,373 Accrued employee compensation 7,526 7,908 Deferred income taxes 3,345 3,338 Other current liabilities and accrued expenses 10,089 9,695 --------- --------- Current liabilities 37,366 33,346 Long-term debt 50,806 52,577 Deferred income taxes 24,898 26,176 Other liabilities 6,463 6,389 --------- --------- Liabilities 119,533 118,488 --------- --------- Stockholders' Equity Common stock $.001 par value; authorized 50,000,000 shares; issued 18,328,000 shares at June 30, 1996 and 17,969,000 shares at September 30, 1995 18 18 Treasury stock 645,000 shares at June 30, 1996 and 599,000 shares at September 30, 1995 (3,478) (3,204) Capital in excess of par 29,614 28,201 Accumulated deficit (11,628) (10,794) --------- --------- Stockholders' equity 14,526 14,221 --------- --------- Liabilities and stockholders' equity $134,059 $132,709 ========= ========= The accompanying notes are an integral part of these financial statements. Triad Systems Corporation CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, 1996 1995 1996 1995 -------- -------- -------- -------- (Amounts in thousands except per share data) Revenues Automotive $25,274 $25,975 $74,766 $82,750 Hardlines & lumber 15,991 13,458 47,047 39,561 Other 1,053 1,750 3,789 4,959 -------- -------- -------- -------- Total revenues 42,318 41,183 125,602 127,270 -------- -------- -------- -------- Cost of sales 22,601 21,048 66,813 64,479 -------- -------- -------- -------- Gross margin 19,717 20,135 58,789 62,791 -------- -------- -------- -------- Marketing 12,098 11,068 34,924 33,930 Product development 2,026 1,998 5,961 6,164 General & administrative and other expenses 2,398 2,660 7,362 8,622 Restructuring Charge 9,000 - 9,000 - -------- -------- -------- -------- Operating income (loss) (5,805) 4,409 1,542 14,075 -------- -------- -------- -------- Interest and other expenses (1,463) (1,838) (4,505) (5,256) Other income 153 - 1,777 - -------- -------- -------- -------- Income (loss) before income taxes and extraordinary charge (7,115) 2,571 (1,186) 8,819 Provision for (benefit from) income taxes (2,704) 977 (451) 3,351 Income (loss) before extraordinary charge (4,411) 1,594 (735) 5,468 Extraordinary charge on repurchase of debt, net of taxes - - - (153) -------- -------- -------- -------- Net income (loss) $(4,411) $ 1,594 $ (735) $ 5,315 Earnings (loss) per share Primary Income (loss) before extraordinary charge $ (0.25) $ 0.09 $ (0.04) $ 0.31 Net income (loss) $ (0.25) $ 0.09 $ (0.04) $ 0.30 Weighted average shares 17,676 17,842 17,517 17,943 Fully diluted Income (loss) before extraordinary charge $ (0.25) $ 0.09 $ (0.04) $ 0.31 Net income (loss) $ (0.25) $ 0.09 $ (0.04) $ 0.30 Weighted average shares 17,676 17,914 17,517 18,028 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. Triad Systems Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Month Periods Ended June 30, (Amounts in thousands) 1996 1995 -------- -------- Cash flows from operating activities Income before extraordinary charge $ (765) $ 5,468 Adjustments to reconcile income before extraordinary charge to net cash provided by operating activities Extraordinary charge on repurchase of debt, net of taxes - (153) Restructuring charge 9,000 - Depreciation and amortization 6,214 6,240 Receivable and inventory loss provisions 8,377 5,732 Gains from lease discounting (5,521) (5,761) Gain from marketable securities revaluation (1,779) - Other (2,499) (1,064) Changes in assets and liabilities Trade accounts receivable (3,198) (2,140) Investment in leases 8,204 16,729 Inventories (1,115) (1,704) Deferred income taxes (1,469) 2,341 Prepaid expenses and other current assets (1,177) (644) Accounts payable (1,074) 916 Accrued employee compensation (622) (914) Other current liabilities and accrued expenses (1,564) (1,065) -------- -------- Net cash provided by operating activities 11,012 23,981 Cash flows from investing activities Capitalized software and databases (6,449) (5,086) Acquisition of net assets and business (2,737) - Sale of marketable securities 2,321 - Investment in property, plant and equipment (2,069) (2,091) Investment in service parts (716) (1,688) Other 148 (1,161) -------- -------- Net cash used in investing activities (9,502) (10,026) Cash flows from financing activities Repayment of debt (40,277) (39,420) Issuance of debt 37,092 34,424 Redemption of preferred stock - (10,000) Proceeds from sale of common stock 1,413 3,439 Purchase of treasury stock (274) (1,469) Dividends paid - (400) Other - (322) -------- -------- Net cash used in financing activities (2,046) (13,748) Net decrease in cash and equivalents (536) 207 Beginning cash and equivalents 7,263 7,963 Ending cash and equivalents $ 6,727 $ 8,170 ======== ======== Supplemental disclosures of cash flow information Cash paid during the period for Interest $3,699 $4,407 Income taxes 1,193 461 Noncash investing and financing activities Redemption of preferred stock - 11,195 Debt used to finance acquisition 5,300 - Capital lease - 913 ======== ======== The accompanying notes are an integral part of these financial statements. Triad Systems Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 and 1995 (Unaudited) 1. In the opinion of the Registrant, the consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of June 30, 1996 and the results of operations and cash flows for the nine month periods ended June 30, 1996 and 1995. The results of operations for the three and nine month periods ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. The Balance Sheet does not include all disclosure requirements under GAAP and should be read in conjunction with the September 30, 1995 audited financial statements and notes thereto. 2. The consolidated financial statements include the accounts of Triad Systems Corporation and its wholly-owned subsidiaries, including Triad Systems Financial Corporation ("Triad Financial") and balance sheet of its new acquisition Computer System Dynamics, Inc. (CSD), after elimination of intercompany accounts and transactions. Financial information relating to the Company's combined leasing operations is presented in Note 6. 3. Trade accounts receivable at June 30,1996 and September 30,1995 include allowances for doubtful accounts of $2,278,000 and $1,420,000, respectively. 4. Inventories are stated at the lower of cost (first-in, first-out method) or market and include amounts which ultimately may be capitalized as equipment or service parts. (Amounts in thousands) June 30, 1996 September 30, 1995 ----------------- ------------------ Purchased Parts $2,491 $2,189 Work in process 296 391 Finished Goods 4,138 3,056 ------ ------ Inventories $6,925 $5,636 ------ ------ 5. Property, plant and equipment at June 30, 1996 and September 30, 1995 includes accumulated depreciation and amortization of $35,268,000 and $30,768,000, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Triad Financial is a wholly-owned subsidiary which purchases Triad systems and other products and leases those products to third parties under full-payout, direct financing leases. Summarized financial information of the Company's combined leasing operations, included in the Consolidated Financial Statements, is as follows: CONDENSED COMBINED BALANCE SHEETS June 30, September 30, 1996 1995 ---------- ------------- (Unaudited) (Amounts in thousands) Assets Cash $ - $ 5 Net investment in leases 13,814 18,541 Residual value retained on leases discounted 6,960 6,452 Receivable from parent company 57,447 50,262 Other assets 3,358 3,652 -------- -------- Assets $81,579 $78,912 ======== ======== Liabilities and Stockholders' Equity Other liabilities and accrued expenses $ 7,894 $ 8,367 Deferred income 2,547 2,337 Debt 11,558 13,033 Stockholders' equity 59,580 55,175 -------- -------- Liabilities and stockholders' equity $81,579 $78,912 ======== ======== CONDENSED COMBINED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, 1996 1995 1996 1995 -------- -------- -------- -------- (Amounts in thousands) Revenues $ 2,214 $ 2,993 $ 7,409 $ 8,772 Selling and administrative expenses 361 462 1,219 1,366 Provision for doubtful accounts 1,553 750 4,020 2,052 -------- -------- -------- -------- Operating income 300 1,781 2,170 5,354 Interest expense 214 30 714 107 Intercompany income 1,954 1,562 5,735 4,047 -------- -------- -------- -------- Income before income taxes 2,040 3,313 7,191 9,294 Provision for income taxes 797 1,229 2,721 3,598 -------- -------- -------- -------- Net Income $ 1,243 $ 2,084 $ 4,470 $ 5,696 ======== ======== ======== ======== Triad Systems Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter and Year to Date FY 1996 Compared to Third Quarter and Year to Date FY 1995 Results of Operations Summary Revenues of $42.3 million for the third quarter increased 3% from $41.2 million in the third quarter of FY 1995. For the first nine months of FY 1996, revenues declined 1% to $125.6 million from $127.3 million in FY 1995. Sales and services growth in the Hardlines and Lumber market was more than offset by the decline in the Automotive Aftermarket. A restructuring charge of $9.0 million, related to an Automotive product issue and realignment of the Automotive Aftermarket operations, resulted in an operating loss of $5.8 million compared to $4.4 million in operating income in the third quarter of FY 1995. Operating income of $1.5 million for the first nine months of FY 1996, also resulting largely from the restructuring charge, compares to operating income of $14.1 million for the same period a year ago. The Company had not recorded an operating loss since the third quarter of FY 1989. There was a net loss after income taxes of $4.4 million in the third quarter of FY 1996 compared to net income of $1.6 million for the third quarter of FY 1995. For the first nine months of FY 1996, there was a net loss of $.7 million compared to net income of $5.3 million for the same period a year ago. Third quarter earnings per share before the restructuring charge were 7 cents. A loss of 25 cents after the restructuring charge compared to a positive 9 cents in the third quarter of FY 1995. Automotive Aftermarket Revenues The Automotive Aftermarket consists of manufacturers, warehouse distributors, parts stores and independent and chain repair outlets. Revenues are primarily derived from the sale and financing of systems and information and support services related to those systems. Automotive Aftermarket revenues were $25.3 million for the third quarter and $74.8 million for the first nine months of FY 1996, 3% and 10%, respectively, below revenues for the same periods a year ago. Systems sales increased slightly from $7.9 million to $8.0 million in the third quarter of FY 1996 and decreased $6.2 million to $22.5 million from $28.7 million in the first nine months of FY 1996. The consolidation of smaller jobber businesses and Triad Prism(R) product issues continued to be reflected in the decline in revenues year to date. Recognizing slower than anticipated automotive aftermarket acceptance of the Triad Prism system and its product performance issues, management: Reduced and repositioned the automotive product line to more closely match the configuration of the automotive aftermarket while decreasing the complexity associated with a broader product line. Triad Prism remains a contributing member of the automotive product line, marketed to a specific segment of the aftermarket. Resized the automotive sales force and management structure to reflect these changes and current sales. Initiated a review of the research and development spending process to ensure that ongoing spending is a profitable investment for Triad stockholders. As a result, a restructuring charge of $9.0 million was recorded for the third quarter. (See Expenses and Other Income). Customer support revenues were down $.7 million from $9.2 million to $8.5 million for the quarter and $2.0 million from $27.8 million to $25.8 million for nine months. The decline in both periods relates to lower than planned new automotive systems sales and a reduction of the customer base due to continuing consolidation within the aftermarket. Information services revenues rose $.7 million in the third quarter of FY 1995 to $7.5 million in the third quarter of FY 1996. For the first nine months of FY 1996, revenues increased $1.9 million to $21.9 million compared to the first nine months in FY 1995. This is due mainly to a price increase in the beginning of the fiscal year and an increase in the number of customers utilizing Triad's information products. Triad Systems Financial Corporation ("Triad Financial", a wholly owned subsidiary) revenues decreased to $1.4 million for the third quarter due in part to lower discounting yields as external interest rates rose. During the first nine months of FY 1996, revenue declined to $4.6 million due mainly to a lower earning portfolio during the first half of FY 1996. Also contributing were lower yields in the third quarter of FY 1996 as a result of increased interest rates and reduced discounting in the second quarter compared to FY 1995 when the Company funded the exchange of the preferred stock. Hardlines & Lumber Market Revenues The Hardlines & Lumber Market consists of manufacturers, hardware stores, home centers, lumber and building supply outlets and paint and decorating retailers. Revenues grew 19%, respectively, to $16.0 million for the third quarter and $47.0 million for the first nine months of FY 1996. Due to its timing of the acquisition, there were no revenues from Computer System Dynamics, Inc. during this quarter. (See the Liquidity and Capital Resources). Systems revenues increased $1.2 million to a record $7.8 million for the quarter and $3.8 million to $23.4 million for the first nine months of FY 1996. Triad continues to become more closely affiliated with major co-ops and wholesale distributors and this activity is reflected in the revenue growth. Customer support revenues recorded significant increases in the third quarter, rising 18% to $6.7 million. Similarly, the first nine months of FY 1996 generated revenues of $19.1 million, an increase of 15%. This increase is a direct result of an increase in the customer base. Information services revenues were $.6 million and $1.7 million for the third quarter and first nine months, respectively. This reflected an increase of 93% and 103% for the third quarter and first nine months, respectively. Triad's new Vista point of sale (POS) services continue to contribute to this growth as the customer base expands. Cost of Systems and Services Gross margins for the Automotive Aftermarket of 47% for both the third quarter and first nine months of FY 1996 reflected a decline of 5% compared to both periods of FY 1995. This decline was due primarily to higher Prism returns and the cost of shifting customers to lower margin products in the first half of FY 1996. Also contributing was a change in the product mix, along with a higher percentage of fixed costs in the third quarter of FY 1996. Gross margins for the Hardlines and Lumber Market dropped slightly to 49% for the third quarter and remained consistent at 50% for the first nine months. Consolidated Expenses and Other Income Marketing expenses were $12.1 million or 29%, as a percentage of revenue, for the third quarter compared to $11.1 million or 27% for the third quarter of FY 1995. For the first nine months of FY 1996, marketing expense was $34.9 million or 28% compared to $33.9 million or 27% for the same period in FY 1995. This slight increase in both periods was mainly due to an increase in lease loss reserves in the automotive aftermarket. Product development expenses, after capitalization of software development, were $2.0 million for the quarter and $6.0 million for the first nine months of FY 1996. As a percentage of revenue, product development expense remained consistent at 5% with the prior year for both the quarter and first nine months. General, administrative and other operating expenses were $2.4 million for the quarter and $7.4M for the first nine months of FY 1996. Compared to the same periods a year ago, costs decreased by $.3 million for the quarter and $1.3 million for the first nine months of FY 1995. The decrease in both periods was due mainly to a reduction in compensation and litigation expenses, along with containment of operating costs. The restructuring charge of $9.0 million includes a $7.5 million write off relating to the Triad Prism system software the Company had previously capitalized, along with $1.0 million in reserves for related product issues. Also included is $.5 million in costs associated with the realignment of aftermarket sales and support personnel to address increasing consolidation of the automotive aftermarket. It is anticipated that the reserves will be consumed by the end of the second quarter of FY 1997. (See the Automotive Aftermarket Revenues - Systems Revenues section.) Interest expense was $1.5 million for the quarter compared to $1.8 million for the third quarter of FY 1995. The first nine months of FY 1996 also showed an $.8 million improvement at $4.5 million compared to $5.3 million for the first nine months of FY 1995. This reduction is due primarily to lower-cost debt. In March 1996, the Company recognized $1.6 million in income related to the revaluation of the Company's investment in AllData Corporation, an automotive database marketeer that was purchased by Autozone in March. Triad sold a majority of its Autozone Corporation stock in May 1996 and realized an additional gain of $153,000 in the third quarter. In October of FY 1995, $2.9 million of senior fixed-rate notes were retired early. This generated an extraordinary charge of $153,000 ($.01 per share) that included a premium of $198,000, unamortized debt costs of $49,000, less taxes of $94,000. Subsequent Event In July 1996, $10.1 million of senior fixed-rate notes were retired early. This will generate, in the fourth quarter of FY 1996, an extraordinary charge of $377,000 that will include a premium of $379,000, unamortized debt costs of $229,000, less taxes of $231,000. Future Operating Results Future operating results will depend upon conditions in its markets that may affect demand for its products, and upon the Company's ability to introduce products and enhancements on a timely basis. Results will also be affected by seasonal changes in product demand, market acceptance of new products and enhancements, the size and experience of the sales force and the mix of products sold. All could cause operating results to fluctuate, especially on a quarterly basis. Liquidity and Capital Resources Management believes available cash resources, primarily generated from operations, marketable securities, lease discounting and credit lines, will provide adequate funds to finance foreseeable operating needs. In June 1996, the Company increased the availability of the bank line of credit to $28.0 million in order to be able to bid on $10.1 million in senior notes. There were outstanding borrowings of $5.3 million at June 30, 1996. Triad Financial financed $29.6 million in Triad equipment during the nine months of FY 1996 in addition to $12.0 million in non-Triad equipment through client lease programs. Triad Financial received $56.2 million of proceeds from discounting leases during the first nine months of FY 1996 compared to $57.3 million during the same period in FY 1995. Limited and full-recourse discounting agreements are maintained with banks and lending institutions. Discounting agreements contain certain restrictive covenants that allow Triad Financial to discount only while in compliance with such covenants. In the event of non-compliance, the banks and lending institutions could assume administrative control of the Company's lease portfolio and prohibit further discounting under the available credit facilities. Management believes that it will maintain compliance with such covenants in the foreseeable future. Under the discounting agreements, Triad Financial is contingently liable for losses in the event of lessee nonpayment. The agreements provide for limited recourse of up to 15% or full recourse at 100% of discounting proceeds, depending on the credit risk associated with specific leases. At June 30, 1996, the portfolio available for discounting was $13.8 million and commitments for $48.5 million in discounting lines were available. Capital equipment expenditures, excluding capitalized leases, were $2.0 million during the first nine months of FY 1996. On June 27, 1996, the Company acquired Computer System Dynamics, Inc. (CSD), a Colorado supplier of systems and software products to the high end user in the Hardlines and Lumber market. The acquisition expanded the Hardlines and Lumber customer base to more than 4,900 customers with approximately 6,100 locations. The acquisition was accounted for using the purchase method. The cash purchase includes contingent deferred payment obligations and performance bonuses. During fiscal 1994, the Company established a Stock Ownership By Management policy to further align the executive officers' interests with those of the Corporation's shareholders. The stock ownership equivalent is based upon 1993 compensation, ranging from 100% of base compensation to 200% of total compensation, depending upon the position held within the Company. Each officer must meet their respective stock ownership level within a three to five year period. All six of the current executive officers required to meet the stock ownership target by October 1, 1996 had achieved this target as of June 30, 1996. During March 1995, The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of," (SFAS No.121), which requires the review for impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In certain situations, an impairment loss would be recognized. The Company does not believe that adoption of SFAS No. 121, which will become effective for the Company's fiscal year 1996, will have a material impact on its financial condition or operating results. During October 1995, The Financial Accounting Standards Board issued Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." This standard, which establishes a fair value-based method of accounting for stock-based compensation plans also permits an election to continue, following the requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees" with disclosures of pro forma net income and earnings per share under the new method. The Company is reviewing the alternatives under SFAS No. 123 but does not expect there will be any effect on the financial condition and results of operations of the Company. Disclosure requirements of SFAS No. 123 will be effective for the Company's fiscal year 1997. PART II OTHER INFORMATION Item 1-5 Not applicable Item 6 No reports on Form 8-K were filed during the quarter ended June 30, 1996. Sequentially Exhibit numbered Number pages - ------- ------------ * 10.1 Triad Systems Corporation Amended and Restated 1982 Stock Option Plan as amended on October 22, 1993, incorporated by reference from Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.2 Form of Indemnification Agreement, incorporated by reference from Exhibit 10.4 to the Company's Registration Statement on Form S-2 (File No. 33-2966) filed July 3, 1989 (the "1989 Form-2 Registration Statement"). * 10.3 Nonqualified Stock Option Agreement between the Company and James R. Porter dated January 13, 1987, incorporated by reference from Exhibit 10.5 to the 1987 Form S-2 Registration Statement, (File No. 33-13599) (the "1987 Company's Form S-2 Registration Statement"). 10.4 Mortgage between Variable Annuity Life Insurance Company and 3055 Triad Drive dated August 23, 1988, incorporated by reference from Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1988 (the "1988 Form 10-K"). * 10.5 Nonqualified Stock Option Agreement between the Company and James R. Porter dated as of February 17, 1987, incorporated by reference from Exhibit 10.7 of the 1988 Form 10-K. * 10.6 Nonqualified Stock Option Agreement between the Company and James R. Porter dated November 12, 1988, incorporated by reference from Exhibit 10.8 of the 1988 Form 10-K. * 10.7 Triad Systems Corporation 1990 Stock Option Plan as amended on October 22, 1993, incorporated by reference from Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. * 10.8 Triad Systems Corporation Amended and Restated Outside Directors Stock Option Plan, incorporated by reference from Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1991. 10.9 Revolving Credit Loan Agreement dated as of June 30, 1992, as amended, between the Company and Plaza Bank of Commerce, incorporated by reference from Exhibit 10.3 to the Company's Current Report on Form 8-K filed August 17, 1992. 10.10 Unit Purchase Agreement dated as of July 2, 1992, between the Company, Richard C. Blum & Associates, Inc. and certain purchasers, together with the First Amendment to Unit Purchase Agreement dated as of August 3, 1992, and the form of irrevocable Proxy, incorporated by reference from Exhibit 10.4 to the Company's Current Report on Form 8-K filed August 17, 1992. 10.11 Registration Rights Agreement between the Company and certain purchasers under the Unit Purchase Agreement dated as of August 3, 1992, incorporated by reference from Exhibit 10.5 to the Company's Current Report on Form 8-K filed August 17, 1992. 10.12 Grant Agreement between the Industrial Development Authority and Triad Systems Ireland Limited, Triad Systems Corporation and Tridex Systems Limited and related agreements, incorporated by reference from Exhibit 10.15 to the 1992 Form S-4 Registration Statement. 10.13 Cancellation of Development Agreement between the Company and the City of Livermore dated July 15, 1993, incorporated by reference from Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.14 Amended and Restated Subdivision Improvement Agreement between the Company and the City of Livermore dated May 12, 1993, incorporated by reference from Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. *10.15 Supplemental Deferred Compensation Plan between the Company and a select group of Triad Key Employees and their beneficiaries dated April 1, 1994, incorporated by reference from Exhibit 10.18 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1994. *10.16 Amendment to the Amended and Restated 1982 Stock Option Plan dated April 25, 1994, incorporated by reference from Exhibit 10.19 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1994. 10.17 Amendment No. Three to Revolving Credit Loan Agreement and Consent (to Exchange Agreement) between Triad Systems Corporation, Triad Systems Financial Corporation and Comerica Bank-California dated March 31, 1995, incorporated by reference from Exhibit 6 to the May 11, 1995 Form 8-K. 10.18 Exchange Agreement and Second Amendment to Unit Purchase Agreement by and among Triad Systems Corporation, Richard C. Blum & Associates, L.P. and certain holders dated March 31, 1995, incorporated by reference from Exhibit 1 to the Company's Current Report on Form 8-K filed May 11, 1995. 10.19 Warehousing Credit Agreement between Triad Systems Financial Corporation and the First National Bank of Boston dated August 29, 1995, incorporated by reference from Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended September 30, 1995. 10.20 Amendment No. Four to Revolving Credit Loan Agreement and Consent (to Exchange Agreement) between Triad Systems Corporation, Triad Systems Financial Corporation and Comerica Bank-California dated May 23, 1996. 17-19 10.21 Amendment No. Five to Revolving Credit Loan Agreement and Consent (to Exchange Agreement) between Triad Systems Corporation, Triad Systems Financial Corporation and Comerica Bank-California dated June 28, 1996. 20-23 *10.22 Triad Systems Corporation Amendment to the Amended and Restated 1982 Stock Option Plan dated February 8, 1996. 24 *10.23 Triad Systems Corporation Amended and Restated Outside Directors Stock Option Plan dated April 30, 1996. 25 11.1 Computation of Earnings per share. 27 Financial Data Schedules. * Compensation or employment agreement. 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, a duly authorized officer of the Registrant. Triad Systems Corporation ------------------------- (Registrant) Date: August 9, 1996 /s/ STANLEY F. MARQUIS -------------- ----------------------- Stanley F. Marquis Vice President, Finance (Principal Financial Officer) EX-11 2 Exhibit 11.1 Triad Systems Corporation COMPUTATION OF EARNINGS PER SHARE Three Months Ended Nine Months Ended June 30 June 30 1996 1995 1996 1995 -------- -------- -------- -------- (Amounts in thousands except per share data) Calculation of number of shares entering into computations Weighted average shares outstanding 17,676 17,079 17,517 17,123 Assumed conversion of preferred stock and exercise of warrants - - - - -------- -------- -------- -------- 17,676 17,079 17,517 17,123 Net effect of dilutive stock options and warrants based on the average stock price - 763 - 820 -------- -------- -------- -------- Average primary shares outstanding 17,676 17,842 17,517 17,943 Net effect of dilutive stock options and warrants based on the ending stock price - 72 - 85 -------- -------- -------- -------- Average fully diluted shares outstanding 17,676 17,914 17,517 18,028 ======== ======== ======== ======== Income (loss) before extraordinary charge $(4,411) $ 1,594 $ (735) $ 5,468 Extraordinary charge on repurchase of debt, net of taxes - - - 153 -------- -------- -------- -------- Adjusted net income (loss) $(4,411) $ 1,594 $ (735) $ 5,315 ======== ======== ======== ======== Earnings (loss) per share Primary Income (loss) before extraordinary charge $ (0.25) $ 0.09 $ (0.04) $ 0.31 Net income (loss) $ (0.25) $ 0.09 $ (0.04) $ 0.30 Fully diluted Income (loss) before extraordinary charge $ (0.25) $ 0.09 $ (0.04) $ 0.31 Net income (loss) $ (0.25) $ 0.09 $ (0.04) $ 0.30 ======== ======== ======== ======== EX-27 3
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets at June 30, 1996 and Consolidated Statement of Income and Statement of Cash Flows for the nine months ended June 30, 1996, and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-30-1996 JUN-30-1996 6727 0 16679 2278 6925 37291 62770 35268 134059 37366 50806 18 0 0 14508 134059 45942 125602 25467 66813 57247 8377 4505 (1186) (451) (735) 0 0 0 (735) (0.25) (0.25)
EX-10 4 Exhibit 10.20 AMENDMENT NUMBER FOUR TO REVOLVING CREDIT LOAN AGREEMENT THIS AMENDMENT NUMBER FOUR TO REVOLVING CREDIT LOAN AGREEMENT (this "Amendment") dated as of May 23, 1996 is entered into by and among TRIAD SYSTEMS CORPORATION, a Delaware corporation (the "Borrower"), TRIAD SYSTEMS FINANCIAL CORPORATION, a California corporation ("TSFC"), and COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce), a California banking corporation (the "Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank entered into that certain Revolving Credit Loan Agreement dated as of June 30, 1992, as amended by Amendment Number One dated as of December 31, 1993, Amendment Number Two dated as of September 30, 1994, and Amendment Number Three dated as of March 31, 1995 (as the same may be further amended or modified, the "Agreement"); WHEREAS, as a condition to entering into the Agreement, TSFC guarantied the payment and performance of all of the Borrower's obligations under the Agreement pursuant to that certain Guaranty dated as of June 30, 1992 (the "Guaranty"); and WHEREAS, the Borrower has requested that the Bank amend the Agreement as hereinafter provided, and the Bank is willing to so amend the Agreement subject to the terms, provisions and conditions of this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower, TSFC and the Bank agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the respective meanings set forth in the Agreement. 2. The definition of "Commitment Amount" set forth in Section 1.1 of the Agreement is hereby amended to read in its entirety as follows: "Commitment Amount" shall mean, as of any applicable date of determination, the amount as set forth below: Increase/ (Decrease) in Commitment Commitment Amount Amount Determination Date ----------- ------------- -------------------------------- $15,000,000 Effective Date through 10/31/92 $14,875,000 ($125,000) 11/01/92 through 01/31/93 $14,750,000 ($125,000) 02/01/93 through 04/30/93 $14,625,000 ($125,000) 05/01/93 through 07/31/93 $14,500,000 ($125,000) 08/01/93 through 10/31/93 $14,291,667 ($208,333) 11/01/93 through 01/31/94 $14,083,334 ($208,333) 02/01/94 through 04/30/94 $13,875,000 ($208,334) 05/01/94 through 07/31/94 $13,666,667 ($208,333) 08/01/94 through 10/31/94 $13,375,000 ($291,667) 11/01/94 through 01/31/95 $13,083,334 ($291,666) 02/01/95 through 03/30/95 $17,500,000 $4,416,666 03/31/95 through 04/30/95 $16,750,000 ($750,000) 05/01/95 through 07/31/95 $16,000,000 ($750,000) 08/01/95 through 10/31/95 $15,250,000 ($750,000) 11/01/95 through 01/31/96 $14,500,000 ($750,000) 02/01/96 through 04/30/96 $13,750,000 ($750,000) 05/01/96 through 05/29/96 $17,500,000 $3,750,000 05/30/96 through 07/31/96 $17,031,250 ($468,750) 08/01/96 through 10/31/96 $16,562,500 ($468,750) 11/01/96 through 01/31/97 $16,093,750 ($468,750) 02/01/97 through 04/30/97 $15,625,000 ($468,750) 05/01/97 through 07/31/97 $0 ($15,625,000) 08/01/97 3. The definition of "Excess Line" set forth in Section 1.1 of the Agreement is hereby amended to read in its entirety as follows: "Excess Line" shall mean, as of any applicable date of determination, the amount as set forth below: Excess Line Determination Date ------------- -------------------- $5,000,000 Effective Date through 10/31/92 $4,875,000 11/01/92 through 01/31/93 $4,750,000 02/01/93 through 04/30/93 $4,625,000 05/01/93 through 07/31/93 $4,500,000 08/01/93 through 10/31/93 $4,291,667 11/01/93 through 01/31/94 $4,083,334 02/01/94 through 04/30/94 $3,875,000 05/01/94 through 07/31/94 $3,666,667 08/01/94 through 10/31/94 $3,375,000 11/01/94 through 01/31/95 $3,083,334 02/01/95 through 03/30/95 $7,500,000 03/31/95 through 04/30/95 $6,750,000 05/01/95 through 07/31/95 $6,000,000 08/01/95 through 10/31/95 $5,250,000 11/01/95 through 01/31/96 $4,500,000 02/01/96 through 04/30/96 $3,750,000 05/01/96 through 05/29/96 $7,500,000 05/30/96 through 07/31/96 $7,031,250 08/01/96 through 10/31/96 $6,562,500 11/01/96 through 01/31/97 $6,093,750 02/01/97 through 04/30/97 $5,625,000 05/01/97 through 07/31/97 $0 08/01/97 4. TSFC joins in executing this Amendment for the purpose of consenting hereto and hereby ratifies, reaffirms and confirms the Guaranty. 5. The Borrower hereby represents and warrants to the Bank that (a) the representations and warranties contained in the Agreement are true in all material respects on and as of the date of this Amendment, and (b) no Default or Event of Default has occurred and is continuing. 6. Except as specifically amended pursuant to the foregoing paragraphs of this Amendment, all recitals, representations, warranties, covenants, undertakings, promises, indemnities, terms, conditions and provisions of the Agreement shall remain in full force and effect and shall be and remain unaffected by this Amendment. 7. The Borrower agrees to reimburse the Bank for all reasonable costs and expenses incurred by it in connection with this Amendment, including the reasonable fees and expenses of the Bank's counsel with respect thereto. 8. This Amendment shall become effective when the Bank shall have received all of the following: (a) Counterparts of this Amendment signed by the Borrower, TSFC and the Bank. (b) A copy of the resolutions duly adopted by the Boards of Directors of the Borrower and TSFC authorizing the execution, delivery and performance of this Amendment, certified by the Secretary or Assistant Secretary of the Borrower and TSFC, together with an incumbency certificate as to the incumbency and genuine signatures of the officers of the Borrower and TSFC signing this Amendment. 9. This Amendment may be executed in any number of counterparts and any party hereto may execute any counterpart, each of which when executed and delivered will be deemed to be but one and the same instrument. The execution of this Amendment will not become effective until counterparts hereof have been executed by all the parties hereto. 10. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first written above. TRIAD SYSTEMS CORPORATION By: /S/ STANLEY F. MARQUIS Its: Vice President Finance TRIAD SYSTEMS FINANCIAL CORPORATION By: /S/ STANLEY F. MARQUIS Its: President COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce) By: /S/ LORI EDWARDS Its: First Vice President EX-10 5 Exhibit 10.21 AMENDMENT NUMBER FIVE TO REVOLVING CREDIT LOAN AGREEMENT THIS AMENDMENT NUMBER FIVE TO REVOLVING CREDIT LOAN AGREEMENT (this "Amendment") dated as of June 28, 1996 is entered into by andamong TRIAD SYSTEMS CORPORATION, a Delaware corporation (the"Borrower"), TRIAD SYSTEMS FINANCIAL CORPORATION, a Californiacorporation ("TSFC"), and COMERICA BANK-CALIFORNIA (formerly knownas Plaza Bank of Commerce), a California banking corporation (the"Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank entered into that certainRevolving Credit Loan Agreement dated as of June 30, 1992, asamended by Amendment Number One dated as of December 31, 1993, Amendment Number Two dated as of September 30, 1994, Amendment Number Three dated as of March 31, 1995, and Amendment Number Four dated as of May 23, 1996 (as the same may be further amended or modified, the "Agreement"); WHEREAS, as a condition to entering into the Agreement, TSFC guarantied the payment and performance of all of the Borrower's obligations under the Agreement pursuant to that certain Guaranty dated as of June 30, 1992 (the "Guaranty"); and WHEREAS, the Borrower has requested that the Bank amend the Agreement as hereinafter provided, and the Bank is willing to so amend the Agreement subject to the terms, provisions and conditions of this Amendment; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower, TSFC and the Bank agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the respective meanings set forth in the Agreement. 2. The definition of "Commitment Amount" set forth in Section 1.1 of the Agreement is hereby amended to read in its entirety as follows: "Commitment Amount" shall mean, as of any applicable date of determination, the amount as set forth below: Increase/ (Decrease) in Commitment Commitment Amount Amount Determination Date ------------ ------------- ------------------ $15,000,000 Effective Date through 10/31/92 $14,875,000 ($125,000) 11/01/92 through 01/31/93 $14,750,000 ($125,000) 02/01/93 through 04/30/93 $14,625,000 ($125,000) 05/01/93 through 07/31/93 $14,500,000 ($125,000) 08/01/93 through 10/31/93 $14,291,667 ($208,333) 11/01/93 through 01/31/94 $14,083,334 ($208,333) 02/01/94 through 04/30/94 $13,875,000 ($208,334) 05/01/94 through 07/31/94 $13,666,667 ($208,333) 08/01/94 through 10/31/94 $13,375,000 ($291,667) 11/01/94 through 01/31/95 $13,083,334 ($291,666) 02/01/95 through 03/30/95 $17,500,000 $4,416,666 03/31/95 through 04/30/95 $16,750,000 ($750,000) 05/01/95 through 07/31/95 $16,000,000 ($750,000) 08/01/95 through 10/31/95 $15,250,000 ($750,000) 11/01/95 through 01/31/96 $14,500,000 ($750,000) 02/01/96 through 04/30/96 $13,750,000 ($750,000) 05/01/96 through 05/29/96 $17,500,000 $3,750,000 05/30/96 through 07/02/96 $28,000,000 $10,500,000 07/03/96 through 07/31/96 $26,875,000 ($1,125,000) 08/01/96 through 10/31/96 $25,750,000 ($1,125,000) 11/01/96 through 01/31/97 $24,625,000 ($1,125,000) 02/01/97 through 04/30/97 $23,500,000 ($1,125,000) 05/01/97 through 07/31/97 $0 ($23,500,000) 08/01/97 3. The definition of "Excess Line" set forth in Section 1.1 of the Agreement is hereby amended to read in its entirety as follows: "Excess Line" shall mean, as of any applicable date of determination, the amount as set forth below: Excess Line Determination Date ----------- ------------------ $5,000,000 Effective Date through 10/31/92 $4,875,000 11/01/92 through 01/31/93 $4,750,000 02/01/93 through 04/30/93 $4,625,000 05/01/93 through 07/31/93 $4,500,000 08/01/93 through 10/31/93 $4,291,667 11/01/93 through 01/31/94 $4,083,334 02/01/94 through 04/30/94 $3,875,000 05/01/94 through 07/31/94 $3,666,667 08/01/94 through 10/31/94 $3,375,000 11/01/94 through 01/31/95 $3,083,334 02/01/95 through 03/30/95 $7,500,000 03/31/95 through 04/30/95 $6,750,000 05/01/95 through 07/31/95 $6,000,000 08/01/95 through 10/31/95 $5,250,000 11/01/95 through 01/31/96 $4,500,000 02/01/96 through 04/30/96 $3,750,000 05/01/96 through 05/29/96 $7,500,000 05/30/96 through 07/02/96 $18,000,000 07/03/96 through 07/31/96 $16,875,000 08/01/96 through 10/31/96 $15,750,000 11/01/96 through 01/31/97 $14,625,000 02/01/97 through 04/30/97 $13,500,000 05/01/97 through 07/31/97 $0 08/01/97 4. TSFC joins in executing this Amendment for the purpose of consenting hereto and hereby ratifies, reaffirms and confirms the Guaranty. 5. The Borrower hereby represents and warrants to the Bank that (a) the representations and warranties contained in the Agreement are true in all material respects on and as of the date of this Amendment, and (b) no Default or Event of Default has occurred and is continuing. 6. Except as specifically amended pursuant to the foregoing paragraphs of this Amendment, all recitals, representations, warranties, covenants, undertakings, promises, indemnities, terms, conditions and provisions of the Agreement shall remain in full force and effect and shall be and remain unaffected by this Amendment. 7. The Borrower agrees to reimburse the Bank for all reasonable costs and expenses incurred by it in connection with this Amendment, including the reasonable fees and expenses of the Bank's counsel with respect thereto. 8. This Amendment shall become effective when the Bank shall have received all of the following: (a) Counterparts of this Amendment signed by the Borrower, TSFC and the Bank. (b) The Revolving Credit Note in the form attached hereto as Exhibit A duly signed by an Authorized Officer of the Borrower. Such promissory note shall constitute the Revolving Credit Note as defined in and for the purpose of the Agreement and shall be deemed to have amended and restated the Revolving Credit Note previously executed and delivered by the Borrower under the Agreement. (c) A copy of the resolutions duly adopted by the Board of Directors of the Borrower and TSFC authorizing the execution, delivery and performance of this Amendment and, in the case of the Borrower, of the new Revolving Credit Note, certified by the Secretary or Assistant Secretary of the Borrower and TSFC, together with an incumbency certificate as to the incumbency and genuine signatures of the officers of the Borrower and TSFC signing this Amendment. (d) Evidence satisfactory to the Bank that the Borrower has repurchased, or shall concurrently herewith repurchase, a principal amount of at least Ten Million One Hundred Thousand Dollars ($10,100,000) of the Fixed Rate Notes from U.S. Leasing International, Inc. (e) Payment by the Borrower of a non-refundable amendment fee of Thirty-Nine Thousand Three Hundred Seventy Five Dollars ($39,375). If this Amendment has not become effective by July 15, 1996, then it shall be null and void. 9. This Amendment may be executed in any number of counterparts and any party hereto may execute any counterpart, each of which when executed and delivered will be deemed to be but one and the same instrument. The execution of this Amendment will not become effective until counterparts hereof have been executed by all the parties hereto. 10. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the day and year first written above. TRIAD SYSTEMS CORPORATION By: /S/ STANLEY F. MARQUIS Its: Vice President Finance TRIAD SYSTEMS FINANCIAL CORPORATION By: /S/ STANLEY F. MARQUIS Its: President COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce) By: /S/ LORI EDWARDS Its: First Vice President EX-10 6 Exhibit 10.22 AMENDMENT TO TRIAD SYSTEMS CORPORATION AMENDED AND RESTATED 1982 STOCK OPTION PLAN 1. Paragraph 4 of the Plan is amended and restated in its entirety to read as follows: "4. Shares Subject to Option. Options shall be for the purchase of shares of the authorized but unissued common stock or treasury shares of common stock of the Company, subject to adjustment as provided in paragraph 6(f) below. The maximum number of shares of common stock which may be issued under the Plan shall be seven million seven hundred twenty-five thousand (7,725,000) shares (as previously adjusted for the recapitalization of the Company in August 1989). In the event that any outstanding Option or Merged Plan Option, as defined in paragraph 8 below, for any reason expires or is terminated, the shares of common stock allocable to the unexercised portion of such Option or Merged Plan Option may again be subject to an Option grant." 2. All other terms and conditions of the Plan shall remain in full force and effect. EX-10 7 Exhibit 10.23 Amendment No. 1 to Triad Systems Corporation Amended and Restated Outside Directors Stock Option Plan Effective on and as of April 30, 1996 the Triad Systems Corporation Amended and Restated Outside Directors Plan ("Plan") is hereby amended as follows: 1. Section 5 of the Plan is amended and restated in its entirety to read as follows: "5. Time for Granting Options. All Options shall be granted, if at all, by the end of the Company's business day at its principal place of business on the fifth anniversary of the Effective Date." 2. All other terms and conditions of the Plan shall remain in full force and effect. -----END PRIVACY-ENHANCED MESSAGE-----