-----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, UiC0mGkgqf21zuXd8C5J696lqazIINhKSPDGA38a1mJiRYzNLoq4VrWshQHf5TO9 itQ4KmqBUSxM1L5/wAIZdA== 0001005477-99-002118.txt : 19990506 0001005477-99-002118.hdr.sgml : 19990506 ACCESSION NUMBER: 0001005477-99-002118 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIDEX CORP CENTRAL INDEX KEY: 0000047254 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 060682273 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-05513 FILM NUMBER: 99611368 BUSINESS ADDRESS: STREET 1: 61 WILTON RD CITY: WESTPORT STATE: CT ZIP: 06880-3121 BUSINESS PHONE: 2032261144 MAIL ADDRESS: STREET 1: 61 WILTON ROAD CITY: WESTPORT STATE: CT ZIP: 06880-3121 FORMER COMPANY: FORMER CONFORMED NAME: HI G INC DATE OF NAME CHANGE: 19840829 10-Q/A 1 FORM 10-Q/A FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1998 -------------------------------------------- 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: -------------------------------------------- TRIDEX CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Connecticut 06-0682273 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 61 Wilton Road, Westport CT 06880 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (203) 226-1144 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Former address: - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 Months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES |_| NO |_| APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding July 31, 1998 - ---------------- ------------------------- Common stock, no par value 6,376,790 AMENDED FILING OF FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION. The accompanying condensed consolidated financial statements as of June 30, 1998 and for the three and six month periods ended June 30, 1998 have been restated to reflect a change in the original accounting for the purchase price allocation related to the April 1998 acquisition of Progressive Software, Inc. Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements, the SEC issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. The Company has voluntarily recalculated the fair value of the purchased in-process software technology in accordance with the new SEC guidance. See Notes 1 and 2 to the Condensed Consolidated Financial Statements. TRIDEX CORPORATION AND SUBSIDIARIES INDEX Page No. -------- PART I. Financial Information: Item 1. Financial Statements (unaudited and restated) Consolidated Condensed Balance Sheets June 30, 1998 and December 31, 1997 3 Consolidated Statements of Income for the Quarters and Six Months Ended June 30, 1998 and June 28, 1997 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and June 28, 1997 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition 10 PART II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 EXHIBIT INDEX Exhibit 11 Computation of Per Share Earnings 16 2 TRIDEX CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Dollars in Thousands) (Unaudited) June 30, 1998 December 31, 1997 --------------- --------------- (Restated) ASSETS Current assets: Cash and cash equivalents $ 190 $11,839 Short term investments 4,403 Receivables 8,531 3,043 Inventories 7,180 2,987 Deferred tax assets 679 659 Other current assets 2,498 343 --------------- --------------- Total current assets 19,078 23,274 --------------- --------------- Plant and equipment, net 3,677 2,436 Less accumulated depreciation (1,448) (1,195) --------------- --------------- 2,229 1,241 --------------- --------------- Excess of cost over fair value of net assets acquired 15,264 2,517 Capitalized software 10,556 Deferred tax assets 6,600 206 Other assets 158 160 Investment in net assets of discontinued operations 605 --------------- --------------- $53,885 $28,003 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank lines of credit $ 3,450 Current portion of long term debt (Note 3) 1,350 Accounts payable 4,487 $ 1,820 Accrued liabilities 3,044 1,964 Deferred revenue 1,666 --------------- --------------- Total current liabilities 13,997 3,784 --------------- --------------- Long term debt, less current portion (Note 3) 20,139 Shareholders' equity: Common stock, no par value 1,633 1,377 Additional paid-in capital 33,315 25,273 Retained deficit (13,456) (673) Receivable from sale of stock (801) (816) Common shares held in treasury, at cost (942) (942) --------------- --------------- 19,749 24,219 --------------- --------------- $53,885 $28,003 =============== =============== See notes to consolidated condensed financial statements. 3 TRIDEX CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Quarters Ended Six Months Ended ---------------------------- ---------------------------- June 30, June 28, June 28, June 28, 1998 1997 1998 1997 ---------------------------- ---------------------------- (Restated) (Restated) Net sales $ 11,813 $ 6,174 $ 18,025 $ 11,720 ---------------------------- ---------------------------- Operating costs and expenses: Cost of sales 8,621 4,645 13,367 8,959 Engineering, design and product development costs 1,300 146 1,580 299 Selling, administrative and general expenses 2,262 1,321 3,353 2,743 Depreciation and amortization 899 199 1,128 415 Purchased in-process software technology 17,600 17,600 ---------------------------- ---------------------------- 30,682 6,311 37,028 12,416 ---------------------------- ---------------------------- Operating loss (18,869) (137) (19,003) (696) Other charges (income): Interest expense (income), net 562 (156) 336 (165) Other, net 9 6 8 8 ---------------------------- ---------------------------- 571 (150) 344 (157) ---------------------------- ---------------------------- Income (loss) from continuing operations before income taxes (19,440) 13 (19,347) (539) Provision (benefit) for income taxes (6,610) 13 (6,564) (364) ---------------------------- ---------------------------- Loss from continuing operations (12,830) 0 (12,783) (175) Income (loss) from discontinued operations (Note 4) (206) 607 ---------------------------- ---------------------------- Net income (loss) $ (12,830) $ (206) $ (12,783) $ 432 ============================ ============================ Earnings (loss) per share: Basic and diluted: Loss from continuing operations $ (2.07) $ (2.22) $ (0.04) Income (loss) from discontinued operations $ (0.04) 0.13 ---------------------------- ---------------------------- Net income (loss) $ (2.07) $ (0.04) $ (2.22) $ 0.09 ============================ ============================ Weighted average common shares outstanding Basic and diluted 6,187,000 5,369,000 5,771,000 4,956,000 ============================ ============================
See notes to consolidated condensed financial statements. 4 TRIDEX CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in Thousands) (Unaudited)
Six Months Ended ---------------------------- June 30, June 28, 1998 1997 ------------ ------------ (Restated) Cash flows from operating activities: Net income (loss) $(12,783) $ 432 Adjustments to reconcile net income to net cash provided in operating activities: Depreciation and amortization 1,128 415 Debt discount amortization 17 Charge for purchased in-process software technology 17,600 Deferred income taxes (6,414) Income from discontinued operations (607) Stock incentive compensation expense 599 Changes in operating assets and liabilities, net of amounts acquired: Receivables (1,559) (975) Inventory 93 479 Other assets (31) 44 Accounts payable, accrued liabilities and income taxes payable 1,930 (431) ------------ ------------ Net cash provided by (used in) operating activities (19) (44) ------------ ------------ Cash flows from investing activities: Capital expenditures (185) (207) Capitalized software development costs (109) Net cash paid for acquisition (44,831) Proceeds from sale of assets 855 5,200 Receipt of principal of note receivable from TransAct 1,000 ------------ ------------ Net cash provided by (used in) investing activities (44,270) 5,993 ------------ ------------ Cash flows from financing activities: Proceeds from issuance of long term debt 23,000 Net proceeds from line of credit 3,450 Proceeds from issuance of stock 2,000 Principal payments on long term debt (300) Net decrease in short term investments 4,403 Proceeds from exercise of stock options and warrants 87 5,529 Net transactions with discontinued operations (96) Purchase of treasury shares (69) ------------ ------------ Net cash provided by financing activities 32,640 5,364 ------------ ------------ Increase (decrease) in cash and cash equivalents (11,649) 11,313 Cash and cash equivalents at beginning of period 11,839 2,787 ------------ ------------ Cash and cash equivalents at end of period $ 190 $ 14,100 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 236 $ 72 Income taxes 99 88 Supplemental disclosures of non-cash investing and financing activities: Stock issued for acquisition $ 4,998 Conversion of convertible notes and debentures to common stock $ 3,710
See notes to consolidated condensed financial statements. 5 TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. General and Restatement: In the opinion of Tridex Corporation ("Tridex" or 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 June 30, 1998, the results of its operations for the quarters and six months ended June 30, 1998 and June 28, 1997 and changes in its cash flows for the six months ended June 30, 1998 and June 28, 1997. The December 31, 1997 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, 1997. Certain prior year data has been reclassified to conform to the 1998 classifications. 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. The results of operations for the quarters and six months ended June 30, 1998 and June 28, 1997 are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements as of June 30, 1998 and for the three and six month periods ended June 30, 1998 have been restated to reflect a change in the original accounting for the purchase price allocation related to the April 1998 acquisition of Progressive Software, Inc. Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements, the SEC issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. The Company has voluntarily recalculated the fair value of the purchased in-process software technology in accordance with the new SEC guidance. This restatement does not affect previously reported net cash flows for the periods. The effect of this reallocation on previously reported condensed consolidated financial statements as of and for the three and six month periods ended June 30, 1998 is as follows (in thousands except per share amounts, unaudited): Three Months Ended Six Months Ended -------------------- ------------------- June 30, 1998 June 30, 1998 -------------------- ------------------- As As Reported Restated Reported Restated ------------------------------------------ Engineering, design and product development costs $ 919 $ 1,300 $ 1,199 $ 1,580 Depreciation and amortization 906 899 1,135 1,128 Purchased in-process software technology 26,300 17,600 26,300 17,600 Total operating costs and expenses 39,008 30,682 45,354 37,028 Operating loss (27,195) (18,869) (27,329) (19,003) Loss from continuing operations before income taxes (27,766) (19,440) (27,673) (19,347) Benefit for income taxes (9,441) (6,610) (9,395) (6,564) Net loss (18,325) (12,830) (18,278) (12,783) Loss per share - basic and diluted $ (2.96) $ (2.06) $ (3.17) $ (2.22) 6
June 30, 1998 ------------------------- As Reported Restated ------------------------- Excess of cost over fair value of net assets acquired $ 10,388 $ 15,264 Capitalized software 7,106 10,556 Deferred tax assets 9,495 6,600 Total assets 48,454 53,885 Accrued liabilities 3,108 3,044 Total current liabilities 14,061 13,997 Retained deficit (18,591) (13,456) Shareholders' equity 14,254 19,749 Total liabilities and shareholders' equity 48,454 53,885
2. Acquisition of Progressive Software, Inc.: On April 17, 1998, the Company purchased all of the issued and outstanding shares of privately-held Progressive Software, Inc. ("Progressive"), a point-of-sale ("POS") software and systems provider for the restaurant and specialty retail industries. The acquisition of Progressive was accounted for by the purchase method. Accordingly the results of operations of Progressive have been included in the accompanying consolidated financial statements from the date of acquisition. The purchase price of Progressive was approximately $48,111,000 including estimated acquisition costs. The consideration paid for Progressive was comprised of $4,998,000 in Tridex common stock and the balance of approximately $43,113,000 payable in cash, including payment of Progressive's line of credit of $9,632,000. The cash portion of the purchase price was financed by: (a) $12,000,000 borrowed under the Senior Term Loan from Fleet National Bank ("Fleet"), (b) $11,000,000 proceeds from the sale of Senior Subordinated Notes to Massachusetts Mutual Life Insurance Company, MassMutual Corporate Investors, MassMutual Participation Investors and MassMutual Corporate Value Partners Limited (the "MassMutual Investors"), (c) $2,000,000 proceeds from the sale of 285,714 shares of Tridex common stock to the MassMutual Investors, (d) $1,736,000 borrowed under the Revolving Credit Facility with Fleet, and (e) the balance from the Company's cash. At June 30, 1998, the Company estimated the allocation of the purchase price, in thousands, to be as follows: As Reported Restated Tangible net assets $ 6,442 $ 6,442 Purchased in-process software technology 26,300 17,600 Estimated goodwill and other intangibles 15,369 24,069 ------------------------- $48,111 $48,111 ========================= The tangible net assets consist primarily of accounts receivable, inventory, equipment and leasehold improvements and liabilities assumed. The purchased in-process software technology, as determined by an independent appraisal firm, was charged to expense in accordance with applicable accounting rules during the quarter ended June 30, 1998 because it has not yet reached technological feasibility and it has no alternative future use. The estimated goodwill and other intangibles are being amortized over five to ten years. 7 The following pro forma data (unaudited and restated pursuant to the changes discussed in note 1) reflect the 1998 acquisition of Progressive as if the acquisition had occurred at the beginning of 1997, but excludes the one-time write off of in-process software technology, discussed above; such data does not purport to be indicative of what would have occurred had this transaction been made on that date: Quarters Ended Six Months Ended -------------- ---------------- June 30, June 28, June 30, June 28, 1998 1997 1998 1997 -------- -------- -------- -------- (Dollars in thousands, except per share amounts) Sales $ 13,362 $ 15,737 $ 24,491 $ 30,105 Operating income (loss) (1,417) 112 (2,684) (113) Net loss (1,402) (347) (2,674) (933) Earnings per share - basic: $ (0.23) $ (0.06) $ (0.42) $ (0.16) 3. Bank credit agreement and long term debt: On April 17, 1998, the Company entered into a Credit Agreement (the "Credit Agreement") with Fleet National Bank ("Fleet") which provides for an $8 million working capital facility (the "Working Capital Facility") and a $12 million term loan facility (the "Term Loan"). The Working Capital Facility expires on June 30, 1999 and 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 thereafter. The Credit Agreement allows 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 may 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 contract period. The Credit Agreement is secured by a first priority security interest in certain assets, imposes certain 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) and restricts the amount available for payment of cash dividends and capital stock distributions. At June 30, 1998, the Company was in compliance with these covenants and expects to be in compliance with all covenants during the remainder of 1998. On April 17, 1998, the Company sold to the MassMutual Investors at face value $11 million of the Company's 19% Senior Subordinated Notes due April 17, 2005. On May 27, 1998, the Company issued to the MassMutual Investors warrants to purchase 350,931 shares of the Company's common stock at $7.00 per share and the interest rate on the subordinated notes was reduced to 12% from 19%. The estimated fair market value of the warrants has been recorded as a discount to the principal amount of the outstanding notes and is being amortized over the term of the notes. The subordinated notes require prepayments of $3,666,667 on each of April 17, 2003 and April 17, 2004. Interest is payable quarterly on the 17th day of January, April, July and October commencing on July 17, 1998. The subordinated notes impose certain covenants, including minimum consolidated net worth, minimum fixed charge coverage ratio and maximum leverage ratio. At June 30, 1998, the Company was in compliance with these covenants and expects to be in compliance with all covenants during the remainder of 1998. 4. Discontinued operations: Discontinued operations consist of the Company's former subsidiaries TransAct Technologies Incorporated ("TransAct") and Cash Bases GB Limited ("Cash Bases"). The stock of TransAct owned by the Company was distributed to Tridex shareholders in March 1997. The Company's investment in Cash Bases was sold in May 1997. The final proceeds of the sale of Cash Bases were received in March 1998. The consolidated financial statements have been restated to present the results of operations of TransAct and Cash Bases as discontinued operations. 5. 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. 8 6. Inventories: Components of inventory are: June 30, 1998 December 31, 1997 ------------- ----------------- (Dollars in Thousands) Raw materials and component parts $2,837 $2,097 Work-in-process 67 75 Finished goods 4,276 815 ------------- ------------- $7,180 $2,987 ============= ============= 7. Research and Development Expenditures: The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards Number 86 "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" (SFAS 86). As of June 30, 1998 and December 31, 1997, capitalized software development costs were $109,000 and zero, respectively. The capitalization of software development costs begins when the technological feasibility of a product has been established by development of a working model and ends when the product is available for general release to customers. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgement by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. Annual amortization charged to cost of sales will be computed on an individual product basis and will be the greater of: (a) the ratio of current gross revenues for a product to the total current and anticipated future gross revenues for the product, or (b) the straight-line method over the estimated economic life of the product, which is generally estimated to be 3 years. All other research and development expenditures are charged to research and development expense in the period incurred. 8. Commitments and contingencies: The Company is involved in an environmental matter discussed in Note 8 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. As of June 30, 1998 and to the date of this report, there has been no material development in the resolution of this matter. 9. Subsequent events: In June 1998, the Company reached an agreement with the seller of Progressive to reduce the purchase price of Progressive by approximately $2,400,000, based upon the April 17, 1998 audited closing balance sheet prepared in accordance with the terms of the stock purchase agreement. The Company received these funds in July 1998 and used them to reduce the line of credit and for general working capital purposes. On July 29, 1998, Tridex and Sulcus Hospitality Technologies Corp. ("Sulcus") discontinued negotiations regarding their potential merger. Tridex and Sulcus previously announced a letter of intent to merge on June 15, 1998. The June 30, 1998 quarter and six month results include a non-recurring charge of approximately $160,000 related to due diligence expenses. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Certain statements included in this report, including, but not limited to, statements in this Management's Discussion and Analysis of the Results of Operations and Financial Condition, which are not historical facts may be deemed to contain forward looking statements with respect to events the occurrence of which involves risks and uncertainties, including, but not limited to, the Company's expectations regarding net sales, gross profit, operating income and financial condition. Results of Operations As described in Note 4 of the Notes to Consolidated Financial Statements, the Company completed the spin-off of TransAct in March 1997 and the sale of Cash Bases in May 1997. The Consolidated Financial Statements may not necessarily reflect what the results of operations or the financial position of the Company would have been if TransAct and Cash Bases had been separate entities during the periods presented. The discussion and analysis set forth below is based upon continuing operations only. Quarter Ended June 30, 1998 Compared to Quarter Ended June 28, 1997 Consolidated net sales for the quarter ended June 30, 1998 increased $5,639,000 (91%) to $11,813,000 from $6,174,000 in the comparable quarter of the prior year. The increase reflects sales of Progressive from the date of acquisition, April 17, 1998, 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 increased $1,663,000 (109%) to $3,192,000 from $1,529,000 in the prior year's quarter, primarily as a result of the contribution of Progressive and greater volume of shipments of Ultimate's POS products. Consolidated gross profit margin increased to 27.0% of sales from 25.8% of sales in the prior year's quarter as a result of the addition of software sales from Progressive and a more favorable product mix and lower manufacturing costs from Ultimate. Consolidated engineering, design and product development costs increased $1,154,000 to $1,300,000 from $146,000 in the prior year's quarter. The increase is primarily the result of the inclusion of such costs for Progressive and is net of $109,000 of software development costs capitalized during the quarter. Consolidated selling, administrative and general expenses increased $941,000 (71%) to $2,262,000 from $1,321,000 in the prior year's quarter. The increase in selling expenses is primarily the result of the inclusion of such costs for Progressive. The increase in administrative and general expenses is primarily the result of the inclusion of such costs for Progressive and the inclusion of a non-recurring charge of approximately $160,000 associated with the due diligence review for a transaction that was not completed. Operating expense in the current quarter includes the $17,600,000 write off of in-process software technology acquired with the purchase of Progressive. Prior year results include a non-cash expense of $195,000 related to a stock incentive compensation agreement with the principal executive officers of Ultimate. Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements, the SEC issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. The Company has voluntarily recalculated the fair value of the purchased in-process software technology in accordance with the new SEC guidance. The revised valuation was based on estimates of the after tax net cash flows and gives explicit consideration to the SEC's views on purchased in-process technology as set forth in a September 9, 1998 letter from the SEC to the American Institute of Certified Public Accountants. Specifically, the revised valuation gives consideration to the following: (I) a fair market value premise was employed; (II) the value of the core technology was explicitly addressed, with a view toward ensuring the relative allocations to core technology and in-process technology were consistent with the relative contributions of each to the final product; and (III) the allocation to in-process technology was based on a calculation that considered only the efforts completed as of the transaction date, and only the cash flow associated with said completed efforts for one generation of the products currently in-process. 10 The Company recorded a one time charge in the second quarter of 1998 for purchased in-process technology that had not reached technological feasibility, had no alternative future use, and for which successful development was uncertain. The conclusion that the in-process development effort, or any material sub-component, had no alternative future use was reached in consultation with development personnel at Progressive and an independent technology consulting firm, acting on behalf of the Company. The in-process development related to a project to develop a Windows(R) NT(R) compliant POS software product. The primary tasks under development at the time of acquisition included writing code to work in a Windows environment and completing various POS and back office functions. The Company expects to begin to benefit from the acquired research and development related to the IRIS product in the third quarter 1998. Significant assumptions used to determine the value of in-process technology included several factors, including the following. First, a forecast of net cash flows that were expected to result from the development effort. Second, a percentage of completion estimated by considering a number of factors, including the costs invested to date relative to the expected total cost of the development effort and the amount of progress completed as of the transaction date, on a technological basis, relative to the overall technological achievements required to achieve the intended functionality of the eventual product. The technological issues were addressed by engineering representatives from both Progressive and an independent technology consulting firm engaged by the Company. Third, a discount rate of approximately 23%, which represents the Company's risk adjusted weighted average cost of capital, was applied to the cash flows resulting from the revenues expected to be generated from the IRIS project. As a result of the revised valuation, the amount of purchase price allocated to in-process technology decreased from $26.3 million to $17.6 million and the amount ascribed to purchased existing and core technology and goodwill and other intangibles increased from $14.8 million to $24.1 million. Consolidated depreciaiton and amortization for the quarter was $899,000 compared to $199,000 in the prior year's quarter. The increase in amortization is primarily the result of amortizing goodwill, intangibles and existing and core technology acquired with Progressive. Consolidated operating income (loss) for the current quarter was a loss of $1,269,000 (exclusive of the write-off of in-development software technology) compared to a loss of $137,000 in the prior year's quarter. The loss in the current period was primarily the result of the increase in selling, administrative and general expenses. Consolidated operating income (loss) as a percentage of sales was a 10.7% loss compared to a 2.2% loss in the prior year's quarter. Net interest expense for the quarter was $562,000 compared to net interest income of $156,000 in the prior year's quarter. Interest expense for the quarter primarily consists of interest on debt incurred to acquire Progressive. Other non-operating expense of $9,000 represents costs associated with non-operating properties held for sale. Other non-operating expenses in the prior year's quarter represents the Company's 10% share of the losses of Cash Bases. Provision for income taxes in the current quarter reflects an estimated effective tax rate of 34% for the quarter. The benefit recorded in the current quarter reflects the recognition of deferred taxes of $5,814,000 related to the write-off of in-process software technology. Net loss for the current quarter was $12,830,000 (or $2.07 per share), as compared to a net loss of $206,000 (or $0.04 per share) in the prior year's quarter. The prior year's loss was entirely attributable to discontinued operations. The average number of common shares outstanding increased to 6,187,000 shares from 5,369,000 shares in the prior year's quarter. 11 Six Months Ended June 30, 1998 Compared to Six Months Ended June 28, 1997 Consolidated net sales for the six months ended June 30, 1998 increased $6,305,000 (54%) to $18,025,000 from $11,720,000 in the comparable period of the prior year. The increase reflects sales of Progressive from the date of acquisition, April 17, 1998, and greater volume of shipments of Ultimate's POS component products, particularly custom manufactured keyboards and pole displays, as well as distributed products. Consolidated gross profit increased $1,897,000 (69%) to $4,658,000 from $2,761,000 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 25.8% of sales from 23.6% of sales in the prior year's period as a result of the addition of software sales from Progressive and a more favorable product mix and lower manufacturing costs from Ultimate. Consolidated engineering, design and product development costs increased $1,281,000 to $1,580,000 from $299,000 in the prior year's period. The increase is primarily the result of the inclusion of such costs for Progressive and is net of $109,000 of software development costs capitalized during the period. Consolidated selling, administrative and general expenses increased $610,000 (22%) to $3,353,000 from $2,743,000 in the prior year's period. The increase in selling expenses is primarily the result of the inclusion of such costs for Progressive. The increase in administrative and general expenses is primarily the result of the inclusion of such costs for Progressive and the inclusion of a non-recurring charge of approximately $160,000 associated with the due diligence review for a transaction that was not completed. Operating expenses in the current year include the $17,600,000 write-off of in-process software technology acquired with the purchase of Progressive. Prior year administrative and general expenses include a non-cash expense of $599,000 related to a stock incentive compensation agreement with the principal executive officers of Ultimate. Consolidated depreciaiton and amortization for the current period was $1,128,000 compared to $415,000 in the prior year's period. The increase in amortization is primarily the result of amortizing goodwill, intangibles and existing and core technology acquired with Progressive. Consolidated operating income (loss) for the current period was a loss of $1,403,000 (exclusive of the write-off of in process software technology) compared to a loss of $696,000 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 income (loss) as a percentage of sales was a 7.8% loss compared to a 5.9% loss in the prior year's period. Net interest expense for the current period was $336,000 compared to net interest income of $165,000 in the prior year's period. Interest expense of the period primarily consists of interest on debt incurred to acquire Progressive. Interest income for the prior year period primarily consisted of interest earned on temporary cash investments and interest earned on receivables from the sale of stock. Other non-operating expense of $8,000 for the current period represents costs associated with non-operating properties held for sale. Other non-operating expenses in the prior year's period represents the Company's 10% share of the losses of Cash Bases. Provision (benefit) for income taxes in the first six months reflects an estimated effective tax rate. The benefit recorded in the current period reflects the recognition of deferred taxes of approximately $5,814,000 related to the write-off of in-process software technology. Net loss for the current period was $12,783,000 (or $2.22 per share) as compared to net income of $432,000 (or $0.09 per share) in the prior year's period. The average number of common shares outstanding increased to 5,771,000 shares from 4,956,000 shares in the prior year's period. 12 Liquidity and Capital Resources At June 30, 1998, the Company had $190,000 in cash and availability of $4,550,000 under the Company's $8,000,000 working capital revolving credit facility. The Company's working capital at June 30, 1998 was $5,081,000 compared with $19,490,000 at December 31, 1997. The current ratio was 1.4 : 1.0 at June 30, 1998 and 6.2 : 1.0 at December 31, 1997. The decrease in working capital is primarily the result of the purchase of all of the issued and outstanding shares of privately-held Progressive Software, Inc. ("Progressive") on April 17, 1998. The purchase price of Progressive was approximately $48,111,000 including estimated acquisition costs. The consideration paid for Progressive was comprised of $4,998,000 in Tridex common stock and the balance of approximately $43,113,000 payable in cash, including payment of Progressive's line of credit of $9,632,000. The cash portion of the purchase price was financed by: (a) $12,000,000 borrowed under the Senior Term Loan from Fleet, (b) $1,736,000 borrowed under the Revolving Credit Facility with Fleet, (c) $11,000,000 proceeds from the sale of Senior Subordinated Notes due April 17, 2005, to the MassMutual Investors, (d) $2,000,000 proceeds from the sale of 285,714 shares of Tridex common stock to the MassMutual Investors and (e) the balance from the Company's cash. See note 3 to the Company's financial statements of this Form 10-Q for a description of the Fleet Credit Agreement and the Senior Subordinated Notes. At June 30, 1998, the Company had no material commitment for capital expenditures. The Company believes that funds generated from operations of the combined companies and borrowings under the working capital revolving credit facility of the Credit Agreement, if necessary, will continue to satisfy its working capital needs, support a certain level of growth and meet scheduled debt retirements. The Year 2000 The Company has undertaken a survey 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 the potential impact on its operations and financial condition. 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. 13 PART II. OTHER INFORMATION Item 4. Submission of Matter to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on May 27, 1998. Matters voted upon at the meeting and the number of votes cast for, against or withheld, are as follows: (1) To consider and act upon a proposal to elect the following nominees to be Directors: Votes Against or Nominee Votes For Withheld ------- --------- -------- Seth M. Lukash 5,694,533 41,631 Paul J. Dunphy 5,695,276 40,888 Graham Y. Tanaka 5,695,276 40,888 Thomas R. Schwarz 5,695,276 40,888 Dennis J. Lewis 5,695,276 40,888 (2) To approve the amendment of the 1997 Long Term Incentive Plan for employees, officers and directors of the Corporation. Votes cast were: 3,768,117 for, 113,166 against and 15,026 withheld. (3) To approve the establishment of the 1998 Non-Executive Long Term Incentive Plan. Votes cast were: 3,727,455 for, 160,604 against and 8,250 withheld. (4) To approve the issuance of warrants to purchase 350,931 shares of common stock of the Corporation to Massachusetts Mutual Life Insurance Company and related parties. Votes cast were: 3,843,308 for, 45,270 against and 7,731 withheld. (5) To appoint Price Waterhouse LLP as the Company's independent certified public accountants for the year ended December 31, 1998. Votes cast were: 5,721,106 for, 9,818 against and 5,240 withheld. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit 11. Computation of Per Share Earnings b. Reports on Form 8-K The Company filed a Current Report on Form 8-K on May 1, 1998 to report that on April 17, 1998 it completed the acquisition of Progressive Software, Inc. The Company filed an Amended Current Report on Form 8-K/A on June 30, 1998, supplementing the Form 8-K filed May 1, 1998. The Company filed a Current Report on Form 8-K on June 25, 1998 to report that on June 15, 1998 it signed a Letter of Intent with Sulcus Hospitality Technologies Corporation to merge the operations and business of the two companies. 14 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) April 30, 1999 /s/Seth M. Lukash ----------------- Seth M. Lukash Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer April 30, 1999 /s/Daniel A. Bergeron --------------------- Daniel A. Bergeron Vice President and Chief Financial Officer April 30, 1999 /s/George T. Crandall --------------------- George T. Crandall Vice President and Treasurer 15 TRIDEX CORPORATION AND SUBSIDIARIES Exhibit 11 Computation of Per Share Earnings (Dollars in Thousands) (Unaudited)
Quarters Ended Six Months Ended ------------------------ ------------------------ June 30, June 28, June 30, June 28, 1998 1997 1998 1997 ------------------------ ------------------------ (Restated) (Restated) BASIC AND DILUTED: EARNINGS: Loss from continuing operations $ (12,830) -- $ (12,783) $ (175) Income (loss) from discontinued operations $ (206) 607 ------------------------ ------------------------ Net income (loss) available to common stockholders $ (12,830) $ (206) $ (12,783) $ 432 ======================== ======================== SHARES: Weighted average common shares outstanding 6,187,000 5,369,000 5,771,000 4,956,000 ======================== ======================== EARNINGS PER SHARE - BASIC: Loss from continuing operations $ (2.07) -- $ (2.22) $ (0.04) Income (loss) from discontinued operations $ (0.04) 0.13 ------------------------ ------------------------ Net income (loss) $ (2.07) $ (0.04) $ (2.22) $ 0.09 ======================== ========================
16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 YEAR DEC-31-1998 JAN-01-1998 JUN-30-1998 190 0 8,562 31 7,180 19,078 3,677 1,448 53,885 13,997 0 0 0 1,633 18,116 53,885 18,025 18,025 13,367 37,028 8 0 336 (19,347) (6,564) (12,783) 0 0 0 (12,783) (2.22) (2.22)
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