ITEM 1. BUSINESS
General Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned subsidiary Ultimate Technology Corporation ("Ultimate") and its Tridex Ribbons Division, is primarily engaged in the design, development, manufacture, integration and sale of custom-designed terminal devices, customer displays, keyboards, and other peripheral devices used in a variety of transactions at the retail point-of-sale ("POS") and ribbon cartridges for specialty dot matrix printers. See Note 2 to the Company's 1997 Consolidated Financial Statements for a discussion of discontinued operations. All dollar amounts within this report, unless otherwise indicated, exclude results of discontinued operations.
(A) General Development of Business since December 31, 1996 On March 31, 1997 the Company effected the previously announced pro rata distribution of 5,400,000 shares of common stock of its former subsidiary, TransAct Technologies Incorporated ("TransAct") to Tridex stockholders on the basis of 1.005 shares of TransAct common stock for each share of Tridex common stock owned. Since the distribution, Tridex and TransAct have been separate publicly traded companies.
On May 29, 1997 Tridex completed the sale of its wholly-owned subsidiary Cash Bases GB Limited ("Cash Bases") to a group comprised of the executive directors of Cash Bases and Lloyds Development Capital Limited for up to $6,200,000, consisting of $5,200,000 in cash, a $250,000 unsecured promissory note bearing interest at the rate of 10% per annum payable in full on April 30, 2000, contingent payments of up to $750,000 depending upon Cash Bases' earnings before interest and taxes for the fiscal years ending December 31, 1998 and December 31, 1999, and a 10% equity stake in the newly organized buyer, Cash Bases Group Limited ("Cash Bases Group"). On February 25, 1998 the Company entered into an agreement with Cash Bases Group whereby the Company sold to Cash Bases Group its remaining equity interest in Cash Bases Group, the $250,000 note and the future contingency payments for an aggregate amount of $855,000 in cash. Proceeds of the transaction 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.
On February 25, 1998, the Company announced that it entered an agreement to purchase all of the issued and outstanding shares of privately-held Progressive Software, Inc. ("Progressive"), a leading POS software and systems provider for the restaurant and specialty retail industries. Progressive's 1997 sales were approximately $34 million. The acquisition is subject, among other things, to obtaining acquisition financing. The acquisition is scheduled to close in April 1998.
(B) Financial Information about Industry Segments As of the date hereof, Tridex operates in one industry segment, the design, development, manufacture, integration and sale of terminal devices, customer displays, keyboards and other peripheral devices, and ribbon cartridges for specialty dot matrix printers.
(C) Narrative Description of Business (i) Principal Products and Services Tridex designs, manufactures and sells customer displays, keyboards and terminal devices for POS applications. Tridex manufactures and markets POS customer displays, keyboards and terminal devices for use in Twinax, Unix/Aix and PC-based POS applications. Tridex's terminals and other peripheral products are sold to system integrators, original equipment manufacturers and directly to end users by a direct sales force located in New York, New Hampshire, Illinois, California and Texas.
(ii) Sources and Availability of Raw Materials The principal raw materials used in the manufacture of custom keyboards and customer displays are injection molded plastic parts, formed metal parts and electronic subassemblies, all of which are readily available from a number of sources. The assembly of POS terminals combines the keyboard and customer display manufactured by the Company with a printer, monitor, cash drawer and other peripheral devices purchased from various suppliers, all of which are readily available from a number of sources.
(iii) Intellectual Property The Company regards certain hardware designs and software incorporated into its products as proprietary and attempts to protect them with a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. It may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, information that the Company regards as proprietary. Moreover, the laws of some foreign countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop products that are substantially equivalent or superior to the Company's. In addition, some of the intellectual property used by Ultimate is not proprietary. No assurance can be given that such intellectual property will not be used by Ultimate's competitors.
(iv) Seasonality and Practices Relating to Working Capital Items Sales of the Company's products are not subject to material seasonal variations. The Company has not historically been required to maintain significant inventories of raw materials or finished goods in order to fill customer orders.
(v) Certain Customers Sales to Lowe's Companies, Inc. accounted for approximately 10% and 22% of net sales for the years ended December 31, 1997 and December 31, 1996, respectively. Sales to Advance Stores Company Inc. ("Advance Auto") accounted for approximately 19% of net sales for the nine months ended December 31, 1995.
(vi) Backlogs The Company's backlog of firm orders was approximately $2,750,000 as of March 13, 1998 and $2,600,000 as of March 14, 1997. Tridex expects to fill all of its' backlog within the current fiscal year.
(vii) Competition Competition is intense in all of the Company's markets. Many of the Company's current and potential competitors are large multi-national enterprises with greater financial resources, extensive experience and resources in designing, manufacturing and marketing a wide range of peripheral devices and systems. Ultimate competes with other POS manufacturers and system integrators, including NCR and IBM, as well as distributors of terminals, keyboards and customer pole displays.
In certain markets, the Company's competitors sometimes offer prices lower than the Company's because of lower overhead, attributable to higher volume production and off-shore manufacturing locations, which enjoy cheaper sources of labor and raw materials. Many of the Company's domestic competitors, particularly those that are divisions of substantially larger companies, have greater financial and other resources than Tridex.
(viii) Research and Development Activities The Company spent approximately $734,000 in 1997, $481,000 in 1996, and $352,000 during the nine months ended December 31, 1995, on engineering, design and product development efforts in connection with specialized engineering and design to introduce a number of new products and to customize products for the Company's customers.
(ix) Environment Allu Realty Trust ("Allu"), a Massachusetts business trust with transferable shares, all of which are owned by Tridex, is the former owner of land improved with a manufacturing warehouse building located at 100 Foley Street, Somerville, Massachusetts (the "Site"). Although Allu sold the property to 100 Foley Street Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain responsible for certain environmental problems associated with the Site.
In 1984, Allu and Tridex disclosed to the Massachusetts Department of the Attorney General the existence of chromium, oil and grease at the Site. As a result, the Environmental Protection Division of the Department of the Attorney General and the Massachusetts Department of Environmental Protection ("MDEP") conducted an investigation of the Site. At MDEP's request, the Company retained an environmental engineering firm, which completed a Phase II investigation study of the Site. The Company conducted further studies to more specifically characterize and assess the Site and to determine appropriate long term clean up.
In 1993, the Company entered into an agreement with Foley pursuant to which Tridex and Foley agreed to pay 75% and 25%, respectively, of the costs incurred after January 1, 1992 in connection with the investigation and remediation of the Site (the "Site Participation Agreement"). The Site Participation Agreement also provides that, to the extent there are available proceeds from the sale of the Site or, if not sold, from the operation of the Site after January 1, 1997, Tridex shall be reimbursed approximately $200,000 of the $250,000 it expended in connection with the Site prior to January 1, 1992. As of December 31, 1997, the Company had spent approximately $724,000 in connection with the Site.
In 1997, Foley sold the Site to Stop & Shop, Inc. ("Stop & Shop") and Stop & Shop has taken control of all remediation of the Site. However, Foley asserts that Allu and Tridex remain liable for payment of certain costs associated with the remediation of the Site. Also in 1997, Foley brought suit against the Company claiming that the Company failed to contribute its share of the remediation costs pursuant to the Site Participation Agreement. The Company has filed a counterclaim. This litigation has been stayed pending completion of the remediation. The implementation of clean-up measures has commenced, and may be completed in 1998, in which case the entire amount of remediation costs to be borne by the Company would be incurred and paid in 1998. As of December 31, 1997, the Company had accrued $262,000 for the Site, which represents the currently estimated minimum cost of remediation, after considering the Site Participation Agreement. The Company estimates that it will spend up to $275,000 in connection with the Site. Accordingly, although no assurances can be given regarding the total costs which may be incurred, the Company does not believe at this time that the remediation of the Site is reasonably likely to have a material effect on the Company's financial condition, results of operations or liquidity. The Company expects that, as in the past, cash from operations will be sufficient to pay the costs of remediation.
(x) Employees As of March 13, 1998, Tridex and its subsidiaries employed approximately 94 persons, of which 79 were full time and 15 were temporary employees.
(D) Financial Information About Foreign and Domestic Operations and Export Sales At the present time, the Company has no foreign operations. From June 1994 through May 1997, the Company owned Cash Bases GB Limited, a manufacturer of custom cash drawers located in the United Kingdom. The results of operations of Cash Bases are classified as discontinued operations. Export sales from the United States were approximately $879,000 in 1997, $130,000 in 1996 and $100,000 for the nine months ended December 31, 1995.
(E) Directors and Executive Officers of the Registrant (i) Directors of the Registrant
Principal Principal Business of Director Name Age Occupation Employer Name Employer ---------------- ----- ---------------- ----------------- ----------------
Seth M. Lukash 51 Chairman of Tridex Manufacturer the Board, Corporation of computer President, peripheral Chief equipment for Executive POS Officer and applications. Chief Operating Officer
Paul J. Dunphy 79 Management Self-employed Management Consultant consulting.
Dennis J. Lewis 43 President Ultimate Manufacturer Technology of computer Corporation (a peripheral wholly-owned equipment for subsidiary of POS the Company) applications.
Thomas R. Schwarz 61 Retired None Personal investments.
Graham Y. Tanaka 50 President Tanaka Capital Investment Management, advising. Inc.
(ii) Executive Officers of the Registrant
Name Age Position ---------------- --- ---------------------------------------------------
Seth M. Lukash 51 Chairman of the Board of Directors, President, Chief Executive Officer, Chief Operating Officer and Director
Daniel A. 38 Vice President Bergeron
George T. 51 Vice President, Treasurer, Controller and Crandall Secretary
Thomas F. 40 Vice President, Human Resources Curtin, Jr.
Dennis J. Lewis 43 President, Ultimate Technology Corporation, a wholly-owned subsidiary of the Company
Gary H. German 43 Vice President - Sales, Ultimate Technology Corporation, a wholly-owned subsidiary of the Company
Paul C. Wolf 36 Vice President - Engineering, Ultimate Technology Corporation, a wholly-owned subsidiary of the Company
Seth M. Lukash has been a senior executive officer of the Company since 1977 and has been a Director since 1979. He has served as Chairman of the Board of Directors of the Company since November 1988, Chief Executive Officer since August 1987, and President and Chief Operating Officer since June 1989. Mr. Lukash previously served as President of the Company from September 1983 to August 1988 and as Chief Operating Officer from September 1983 to August 1987. Mr. Lukash is the son of Alvin Lukash, a Director Emeritus of the Company.
Daniel A. Bergeron has been a Vice President of the Company since March 19, 1998. Effective April 1, 1998, Mr. Bergeron will be appointed Chief Financial Officer of the Company. Prior to joining Tridex, Mr. Bergeron served as Vice President and Chief Financial Officer of the international manufacturing and engineering company Dorr-Oliver Incorporated. Prior to 1987, Mr. Bergeron held various financial management positions with Akzo Chemical and United Brands Company.
George T. Crandall has been a Vice President of the Company since September 1992, Treasurer since November 1990 and Corporate Controller since March 1989. Prior to joining Tridex in November 1988, Mr. Crandall was a consultant to Northeast Manufacturing Companies, Inc. and was previously employed by Revere Copper and Brass Incorporated.
Thomas F. Curtin, Jr. has been a Vice President of Human Resources of the Company since April 1995. In May 1997 the Board of Directors appointed him an executive officer. Prior to joining Tridex as Director of Human Resources in 1994, Mr. Curtin held human resource management positions with Lone Star Industries, Berol Corporation, and Brockway Glass Company.
Dennis J. Lewis has been President of Ultimate since its acquisition by the Company in 1993. Prior to the acquisition, Mr. Lewis had served as Ultimate's President, Chief Executive Officer and a Director since founding Ultimate in 1988. Prior to 1988, Mr. Lewis held senior management positions related to the sales, engineering and service of computer peripherals with Digital Equipment Corporation, Naum Brothers, RG Engineering, Serv Tech and Add Electronics.
Gary H. German has been Vice President of Sales and Marketing with Ultimate Technology since 1992. Prior to joining the Company in 1991 as Director of Sales and Marketing, Mr. German held senior sales positions with Apollo Computer, Prime Computer and MIPS Computer Systems.
Paul C. Wolf has been Vice President of Engineering with Ultimate Technology since 1993. Prior to joining the Company in 1990 as Director of Engineering, Mr. Wolf completed quality designs for companies such as Hughes Network Systems, Federal Express and Tokheim Security Pacific.
ITEM 2.
ITEM 2. PROPERTIES
The Company's operations are currently conducted at the three facilities described below:
The Company believes that its facilities generally are in good condition, adequately maintained and suitable for their present and currently contemplated uses.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
See Item 1(C)(ix) "Environment" set forth above and Note 9(b) of the Notes to Consolidated Financial Statements included in this report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last quarter of the year covered by this report.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market ("NASDAQ") under the symbol "TRDX." As of March 13, 1998 there were 1,190 holders of record of the common stock. The following table lists the high and low sales prices of the common stock reported during the years ended December 31, 1997, and December 31, 1996.
The following table lists adjusted sales prices provided to the Company by NASDAQ to reflect a pro rata allocation of the market prices for the Company's common stock as if the distribution of TransAct had occurred prior to January 1, 1996.
No dividends or other distributions on the common stock (other than the distribution of TransAct stock to Tridex shareholders in 1997) has been declared in more than ten years. The Company does not anticipate declaring dividends in the foreseeable future. The Company's credit agreement with Fleet National Bank ("Fleet") prohibits the payment of cash dividends for the term of the agreement.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements included in this report, including, but not limited to, statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts may be deemed to contain forward looking statements with respect to events the occurrence which involves risks and uncertainties, including, but not limited to, the Company's expectations regarding net sales, gross profit, operating income and financial condition.
(A) Results of Operations As described in Note 2 of the Notes to Consolidated Financial Statements included in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants
To the Board of Directors and Shareholders of Tridex Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Tridex Corporation and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997 and December 31, 1996 and the nine months ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP Hartford, Connecticut
February 13, 1998
TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
See notes to consolidated financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
See notes to consolidated financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
See notes to consolidated financial statements.
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies: Business: Tridex Corporation (the "Company"), through its wholly-owned subsidiary Ultimate Technology Corporation ("Ultimate"), and its Tridex Ribbons Division, operates in one industry segment, computer peripheral equipment. Operations in this segment include the design, development, manufacture and sale of terminal devices, customer displays and keyboards for point-of-sale ("POS") applications and ribbon cartridges for specialty dot matrix printers.
Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company after elimination of all material intercompany accounts and transactions. See Note 2 for treatment of discontinued operations. Prior years have been restated for the effect of discontinued operations.
Change in fiscal year end: In December 1995, the Company changed its fiscal year to end on December 31, effective December 31, 1995. Previously, the Company's fiscal year ended on the Saturday closest to March 31.
Cash and cash equivalents: Cash equivalents consist primarily of certificates of deposit with maturities of less than ninety days and are carried at cost, which approximates market value.
Short-term investments: Short-term investments consist primarily of commercial paper with original maturities at date of purchase beyond three months and less than 12 months. Such short-term investments are carried at cost, which approximates fair value, due to the short period of time to maturity.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency: The financial position and results of operations of the Company's foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of such subsidiaries have been translated at current exchange rates, and related revenues and expenses have been translated at weighted average exchange rates.
Inventories: Inventories are stated at the lower of cost (principally first-in, first-out) or market.
Plant and equipment and depreciation: Plant and equipment and leasehold improvements are stated at cost. Depreciation is provided for primarily by the straight-line method over the estimated useful lives. The estimated useful life of machinery, furniture and equipment is five to ten years. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset.
Excess of cost over fair value of net assets acquired: The excess of cost over fair value of net assets acquired (goodwill) was $2,517,000 and $3,014,000 at December 31, 1997 and December 31, 1996, respectively. The amount is the result of the acquisition of Ultimate in 1993, and is being amortized on the straight-line method over ten years. Accumulated amortization of the excess of cost over fair value of net assets acquired was $2,469,000 and $1,963,000 at December 31, 1997 and December 31, 1996, respectively. The Company periodically reviews goodwill to assess recoverability based upon expectations of non-discounted cash flows from operations. The Company believes that no material impairment of goodwill exists at December 31, 1997 or December 31, 1996.
Other assets: Included in other assets at December 31, 1997 are deferred tax assets of $206,000 (see Note 10) and a note receivable from a corporate officer of $125,000, which bears interest at 8.5%. At December 31, 1996, such amounts were $427,000 and $135,000, respectively. Also included in other assets at December 31, 1996 was a note receivable from TransAct of $1,000,000 and real estate held for sale in the amount of $196,000.
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies: (continued) Receivable from sale of stock: In connection with the exercise of options, the Company offered loans to all employees whose total exercise price of options under the Tridex Corporation 1989 Long Term Incentive Plan (the "1989 Plan") exceeded $50,000. The loans, which totaled $893,000, are full recourse loans due in May 1998, bear interest at the rate of 6.08% and are secured by pledges of the shares acquired by the employees through the exercise of 1989 Plan options. At December 31, 1997, $816,000 was outstanding under such loans.
Revenue recognition: Sales are recognized when the product is shipped. Sales to Lowe's Companies, Inc. accounted for approximately 10% and 22% of net sales for the years ended December 31, 1997 and December 31, 1996, respectively. Sales to Advance Stores Company Inc. ("Advance Auto") accounted for approximately 19% of net sales for the nine months ended December 31, 1995.
Income taxes: Income tax expense is based on estimated taxes payable or refundable on a tax return basis for the current year and changes in the amount of deferred tax assets and liabilities during the year. Deferred income taxes are provided for revenue and expenses that are recognized in different periods for income tax and financial statement purposes. The Company accounts for income taxes in accordance with FAS 109 "Accounting for Income Taxes," which mandates the liability method for computing deferred income taxes. The objective of the liability method is to recognize the amount of current and deferred taxes payable or refundable at the financial statement date resulting from all events that have been recognized in the financial statement based upon the provisions of enacted tax laws. See Note 10 for a further discussion.
Earnings (loss) per common share: Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share assumes the exercise of options and warrants and the conversion of dilutive securities, when the result is dilutive.
For the twelve month period ending December 31, 1997 and for the nine month period ending December 31, 1995 the basic and diluted per share amounts were the same. The following is a reconciliation of the earnings per share for the twelve month period ending December 31, 1996:
2. Discontinued Operations: On March 31, 1997 the Company effected the previously announced distribution of it's remaining 5,400,000 shares of common stock of its former subsidiary, TransAct Technologies Incorporated ("TransAct"), to Tridex stockholders on the basis of 1.005 shares of TransAct common stock for each share of Tridex common stock owned.
On May 29, 1997 Tridex sold its wholly-owned subsidiary Cash Bases GB Limited ("Cash Bases") to a group comprised of the executive directors of Cash Bases and Lloyds Development Capital Limited for up to $6,200,000, consisting of $5,200,000 in cash, a $250,000 unsecured promissory note bearing interest at the rate of 10% per annum payable in full on April 30, 2000, contingent payments of up to $750,000 depending upon Cash Bases' earnings before interest and taxes for the fiscal years ending December 31, 1998 and December 31, 1999, and a 10% equity stake in the newly organized buyer Cash Bases Group Limited ("Cash Bases Group"). See Note 12 for further discussion of the Cash Bases settlement. The Consolidated Financial Statements have been restated to present the results of operations of TransAct and Cash Bases as discontinued operations. Such results are summarized below.
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Discontinued Operations: (continued)
3. Receivables: Receivables are net of the allowance for doubtful accounts. The reconciliation of the allowance for doubtful accounts is as follows:
4. Inventories: The components of inventories are:
5. Accrued liabilities: The components of accrued liabilities are:
6. Bank credit agreement and long term debt: Fleet National Bank ("Fleet") provides the Company with a $2,000,000 working capital revolving credit facility (the "Fleet Credit Agreement"). The working capital facility expires on June 30, 1998, bears interest payable monthly at a rate equal to Fleet's prime rate (8.50% at December 31, 1997), and bears an annual non-utilization fee of .25% of the unused facility. The Fleet Credit Agreement is secured by a first priority security interest in certain assets, imposes certain covenants (including a minimum tangible net worth, a maximum leverage ratio, a minimum interest coverage ratio and a minimum current ratio) and restricts the amount available for payment in cash dividends and capital stock distributions. At December 31, 1997, the Company was in compliance with these covenants, except for the covenant prohibiting an annual net loss. The Company and Fleet amended the Working Capital Facility to allow the annual net loss to be incurred in 1997. The Company expects to be in compliance with all covenants during 1998.
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Bank credit agreement and long term debt: (continued) During 1997, the holders of $2,460,000 principal amount of the Company's 10.5% Senior Subordinated Convertible Debentures due 1997 (the "10.5% Debentures") converted their holdings into 273,318 shares of the Company's common stock at a rate of $9.00 per share. Also during 1997, the holders of detachable warrants (the "Warrants") to purchase 39,750 shares of common stock of Tridex, (issued in 1993 to the original purchasers of the 10.5% Debentures at a rate of 10 shares per $1,000 principal amount of debentures), exercised their warrants at $9.25 per share. The amount of the unamortized discount at the time of conversion aggregating $52,000 was charged to additional paid in capital.
During 1997, the holders of $1,250,000 principal amount of the Company's 8% Subordinated Convertible Term Promissory Notes (the "8% Notes") converted their holdings into 104,127 shares of Tridex common stock at $12.00 per share.
Interest income in 1997 is stated net of interest expense of $95,000. Interest expense is stated net of interest income of $77,000 in 1996 and $10,000 in the nine months ended December 31, 1995.
7. Pension plan: Effective December 31, 1995, the Company established a non-qualified unfunded pension arrangement for Alvin Lukash, a shareholder and former corporate officer and director. The pension arrangement, as amended on December 31, 1996, requires the Company to pay an annual benefit of $100,000, payable monthly, through the death of Mr. Lukash. The unfunded accumulated benefit obligation at December 31, 1997 of $555,000 is included in Accrued Liabilities in the accompanying balance sheet. The Company recorded the actuarial present value of the benefits calculated at a 7.2% discount rate. The Company recorded pension expense of $78,000 in 1997.
8. Commitments and contingencies:
(a) Lease obligations: At December 31, 1997, the Company was lessee on long term operating leases for equipment and real property. The terms of certain leases provide for escalating rent payments in later years of the lease as well as payment of minimum rent and real estate taxes. Rent expense amounted to approximately $300,000 in 1997, $315,000 in 1996, and $182,000 in the nine months ended December 31, 1995. Minimum aggregate rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1997 are as follows: $323,000 in 1998, $322,000 in 1999; $323,000 in 2000; $270,000 in 2001; and $16,000 in 2002.
(b) Environmental matters: Allu Realty Trust ("Allu"), a Massachusetts business trust with transferable shares, all of which are owned by Tridex, is the former owner of land improved with a manufacturing warehouse building located at 100 Foley Street, Somerville, Massachusetts (the "Site"). Although Allu has sold the property to 100 Foley Street Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain responsible for certain environmental problems associated with the Site.
In 1984, Allu and Tridex disclosed to the Massachusetts Department of the Attorney General the existence of chromium, oil and grease at the Site. As a result, the Environmental Protection Division of the Department of the Attorney General and the Massachusetts Department of Environmental Protection ("MDEP") conducted an investigation of the Site. At MDEP's request, the Company retained an environmental engineering firm, which completed a Phase II investigation study of the Site. The Company has conducted further studies to more specifically characterize and assess the Site and to determine appropriate long term clean up.
In 1993, the Company entered into an agreement with Foley pursuant to which Tridex and Foley agreed to pay 75% and 25%, respectively, of the costs incurred after January 1, 1992 in connection with the investigation and remediation of the Site (the "Site Participation Agreement"). The Site
CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments and contingencies: (b) Environmental matters: (continued) Participation Agreement also provides that, to the extent there are available proceeds from the sale of the Site or, if not sold, from the operation of the Site after January 1, 1997, Tridex shall be reimbursed approximately $200,000 of the $250,000 it expended in connection with the Site prior to January 1, 1992. As of December 31, 1997, the Company had spent approximately $724,000 in connection with the Site.
In 1997, Foley sold the Site to Stop & Shop, Inc. ("Stop & Shop") and Stop & Shop has taken control of all remediation of the Site. However, Foley asserts that Allu and Tridex remain liable for payment of certain costs associated with the remediation of the Site. Also in 1997, Foley brought suit against the Company claiming that the Company failed to contribute its share of the remediation costs pursuant to the Site Participation Agreement. The Company has filed a counterclaim. This litigation has been stayed pending completion of the remediation. The implementation of clean-up measures has commenced, and may be completed in 1998, in which case the entire amount of remediation costs to be borne by the Company would be incurred and paid in 1998. As of December 31, 1997, the Company had accrued $262,000 for the Site, which represents the currently estimated minimum cost of remediation, after considering the Site Participation Agreement. The Company estimates that it will spend up to $275,000 in connection with the Site. Accordingly, although no assurances can be given regarding the materiality of the total costs which may be incurred, the Company does not believe at this time that the remediation of the Site is reasonably likely to have a material effect on the Company's financial condition, results of operations or liquidity. The Company expects that, as in the past, cash from operations will be sufficient to pay the costs of remediation.
9. Stock options and warrants: 1997 Long Term Incentive Plan The 1997 Long Term Incentive Plan (the "1997 Plan") was approved by the Shareholders of the Company at the Annual Meeting held on May 14, 1997. The 1997 Plan permits stock-based incentive compensation in the form of: (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) deferred stock, (e) stock purchase rights and (f) other stock-based compensation. Pursuant to the 1997 Plan, up to 600,000 shares of common stock may be distributed to officers and key employees of the Company. Options granted are at prices equal to 100% of the fair market value of the common stock at the date of grant. Under APB 25 when the exercise price of employee stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. Options granted are exercisable at the discretion of the Stock Option Committee, but in no event shall the period be for more than ten years. Ninety days after an employee's termination, the outstanding options are canceled. At December 31, 1997 the Company had reserved 600,000 shares of common stock for issuance upon the exercise of options granted under the 1997 Plan. At December 31, 1997, options for 420,000 shares were outstanding under the 1997 Plan at exercise prices ranging from $2.81 to $5.50 per share. These options, none of which were exercisable, had a weighted average exercise price of $2.98 per share and a weighted average remaining contractual life of 8.44 years.
Non-Employee Directors Plan The Non-Employee Directors' Stock Plan (the "Directors' Plan") was approved by the Shareholders of the Company at the Annual Meeting held on May 14, 1997. The Directors' Plan authorized the issuance of up to a total of 100,000 shares of the Company's common stock to be available for the granting of options only to non-employee directors of the Company. Options issued under the Directors' Plan do not qualify as incentive options under Section 422 of the Internal Revenue Code. Options to purchase 10,000 shares of the Company's common stock were granted to each non-employee director upon the effective date of the Directors' Plan. Persons subsequently elected as non-employee directors will be granted options to purchase 10,000 shares on the date of their election. Thereafter, on the date of the Company's Annual Meeting of Shareholders, each non-employee director will be granted an option to purchase 3,000 shares of common stock. Options become exercisable in three equal annual installments and may be exercised within 10 years of the date of the grant. At December 31, 1997 the Company had reserved 100,000 shares of common stock for issuance upon the exercise of options granted under the Directors' Plan.
CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock options and warrants: (continued) The following table summarizes the activity of the 1997 Plan and the Directors' Plan for the year ended December 31, 1997.
1989 Long Term Incentive Plan The 1989 Plan permits stock-based incentive compensation in the form of: (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) deferred stock, (e) stock purchase rights and (f) other stock-based compensation. Pursuant to the 1989 Plan, up to 1,250,000 shares of common stock may be distributed to officers, key employees and non-employee directors of the Company. Options granted are at prices equal to 100% of the fair market value of the common stock at the date of grant. No charge against income was required with respect to options. Options granted are exercisable at the discretion of the Stock Option Committee, but in no event shall the period be for more than ten years. Ninety days after an employee's termination, the outstanding options are canceled. During 1997, the Company accelerated the vesting of all outstanding options. The following table summarizes the activity of the 1989 Plan for the year ended December 31, 1997, December 31, 1996, and for the nine months ended December 31, 1995.
CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock options and warrants: (continued) Warrants: As of December 31, 1996, the Company had outstanding stock purchase warrants for an aggregate of 233,382 shares of common stock, consisting of warrants for 117,550 shares held by directors of the Company and 115,832 shares issued to the purchasers of the 10.5% Debentures and the placement agent for the 10.5% Debentures. The following table summarizes the activity of outstanding warrants for the year ended December 31, 1997, December 31, 1996, and for the nine months ended December 31, 1995.
Had compensation expense been recognized based on the fair value of the options at their grant dates, as prescribed in Financial Accounting Standard No. 123, the Company's net income (loss) and earnings per share would have been:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income taxes: The components of the income tax benefit are as follows:
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company's gross deferred tax assets and liabilities were comprised of the following:
At December 31, 1997 and December 31, 1996, valuation allowances of $917,000 and $1,127,000, respectively, have been recorded which relate primarily to state net operating loss carryforwards and federal foreign tax credit carryforwards and certain state deferred tax deductions for which a tax benefit will not likely be realized. The net change since December 31, 1996 in the valuation allowance for deferred tax assets was a decrease of $210,000 related primarily to a decrease in deferred state tax benefits.
CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income taxes: (continued) At December 31, 1997, the Company had $6,346,000 of state net operating loss carryforwards that expire principally in 1998 through 2001. The Company has a federal minimum tax credit carryforward of approximately $46,000 which will be available to reduce federal tax in future years.
Differences between the U.S. statutory federal income tax rate and the company's effective income tax rate are analyzed below:
11. Disclosure Regarding Fair Value of Financial Instruments: The carrying amount of cash, trade accounts receivable, other current assets, trade accounts payable, and accrued expenses approximate fair value because of the short maturity of those instruments.
12. Other Significant Transactions: See Note 2 for discussion regarding the spin-off of TransAct Technologies Incorporated and the sale of Cash Bases GB Limited. During the quarter ended December 31, 1997, the Company recorded additional compensation expense of $237,000 related to the acceleration of the distribution of shares under the Stock Incentive Compensation Agreement with certain officers of Ultimate and a provision of $196,000 to write-down the carrying value of real estate held for sale. During the quarter ended December 31, 1996, the Company recorded a $320,000 provision to amend the unfunded pension arrangement established in the prior year.
During the quarter ended December 31, 1995, the Company recorded provisions for the following non-recurring operating expenses: litigation settlement of $680,000, pension of $339,000 and other non-recurring items totaling $246,000. In addition, the Company recorded other charges of $42,000 for estimated loss on disposal of unused real estate and $75,000 for environmental investigation and remediation.
13. Subsequent Events: On February 25, 1998 the Company entered into an agreement with Cash Bases Group whereby the Company sold its remaining equity interest in Cash Bases Group, the $250,000 principal amount of the note receivable and the future contingency payments for an aggregate settlement amount of $855,000 in cash. Proceeds of the settlement were received in March 1998.
On February 25, 1998, the Company entered into an agreement to purchase all of the issued and outstanding shares of privately-held Progressive Software, Inc. ("Progressive"), a leading POS software and systems provider for the restaurant and specialty retail industries. Progressive's 1997 sales were approximately $34 million. The acquisition is subject, among other things, to obtaining acquisition financing. The acquisition is scheduled to close in April 1998.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Directors. The information contained in "Information Concerning Nominees for Election as Directors and Executive Officers" of the Company's Proxy Statement (the "Proxy Statement") for its Annual Meeting of Shareholders which is scheduled to be held on May 27, 1998 is hereby incorporated herein by reference. Also see Item 1(E)(i) above.
(B) Executive Officers. See Item 1(E)(ii) above.
(C) Compliance with Section 16(a) of the Exchange Act. The information contained in "Compliance with Section 16(a)" of the Proxy Statement is hereby incorporated by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in "Compensation of Directors and Executive Officers" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is hereby incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information contained in "Certain Relationships and Related Transactions" of the Proxy Statement is hereby incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following financial statements and exhibits are filed as part of this report:
(i) Financial statements See Item 8 on page 12. (ii) Financial statement schedules See Item 8 on page 12. (iii) List of Exhibits. See Exhibit Index on page 29.
(B) Reports on Form 8-K. The Company did not file any Current Reports on Form 8-K during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRIDEX CORPORATION
By: /s/ Seth M. Lukash ------------------------------------------------ Seth M. Lukash Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director Date: March 27, 1998
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Exhibit Index